Murriel–don Coal Co. Inc. v. Aspen Ins. Uk Ltd., Civil No. 11–23–ART.

Citation790 F.Supp.2d 590
Decision Date20 May 2011
Docket NumberCivil No. 11–23–ART.
PartiesMURRIEL–DON COAL COMPANY, INC., Plaintiff,v.ASPEN INSURANCE UK LIMITED, et al., Defendants.
CourtUnited States District Courts. 6th Circuit. United States District Court of Eastern District of Kentucky

OPINION TEXT STARTS HERE

Gary C. Johnson, Rhonda Jennings Blackburn, Gary C. Johnson, P.S.C., Pikeville, KY, Henry G. Jones, Kenneth R. Friedman, Friedman Rubin, Bremerton, WA, Jerry W. Wicker, Jerry Wicker Law Office, Hindman, KY, for Plaintiff.Linsey W. West, Kara MacCartie Stewart, Mindy G. Barfield, Dinsmore & Shohl, David Phillip Kaiser, George B. Hocker, Ward, Hocker & Thornton, Lexington, KY, Michael J. Schmitt, Porter, Schmitt, Banks & Baldwin, Paintsville, KY, for Defendants.

MEMORANDUM OPINION AND ORDER

AMUL R. THAPAR, District Judge.

When a fisherman wants his boat to stay put in a harbor, he ties it to a dock. When a plaintiff wants his case to stay put in state court, he ties it to a non-diverse defendant. But that might not always be enough to keep the case moored where the plaintiff wants it. Under the doctrine of “fraudulent joinder,” federal courts may sever the non-diverse defendant from the case if the claim against him is so frivolous that its only conceivable purpose is to destroy diversity and prevent removal. The two diverse defendants in this case, Aspen Insurance UK Limited and Aspen Specialty Insurance Company (collectively Aspen), ask the Court to use its fraudulent-joinder scissors to cut loose the two non-diverse defendants, Bridget Dunaway and her law firm, Tooms & Dunaway, PLLC (collectively “Dunaway”), thereby allowing the case to sail smoothly to federal court. Because Aspen has not met the stringent requirements for establishing fraudulent joinder, the plaintiff's motion to remand is granted.

BACKGROUND

October 30, 2008, had been a long day for Tony Amburgey, who worked as a roof bolter at a mine operated by Murriel–Don Coal. Amburgey was especially tired when he left work that evening. While driving home, he fell asleep at the wheel and collided with another car, seriously injuring its occupants, Albert Hudson and Roberta Jent. Hudson and Jent sued Amburgey in Kentucky state court. A few months later, they both amended their complaints to include a claim against Murriel–Don. Their amended complaints alleged that Murriel–Don had been directly negligent because it failed to “take proactive measures to reduce fatigue in its employees” and “allowed Amburgey to leave its premises in a state that it knew or should have known to be a danger to the other motorists on the highway.” R. 14–3 at 4.

After receiving a copy of the complaint, Murriel–Don notified Aspen, its insurance carrier, of the claim. Murriel–Don had a commercial general liability policy with Aspen when the accident occurred. The policy obligated Aspen to defend lawsuits filed against Murriel–Don seeking damages for bodily injury or property damage. R. 1–2 at 3. But the policy contained an express exclusion providing that it did not cover any liability arising out of the operation of automobiles. The exclusion read: “This policy is not in any way to be construed to provide any type of automobile liability or other motorized vehicle liability coverage. If this type of coverage is desired it should be specifically purchased from a carrier that provides such coverage.” R. 14–1 at 32.

Initially, Aspen arranged for Bridget Dunaway, of the law firm Tooms & Dunaway, PLLC, to defend Murriel–Don in the Jent/Hudson action. After reviewing the case file, Dunaway advised Murriel–Don that she believed service of process on the company had been defective under state law, but that Murriel–Don should waive the defect and file a motion to dismiss. Dunaway entered an appearance in the state court on behalf of Murriel–Don on August 21, 2009. She waived the objection to defective service of process and filed a motion to dismiss the claims against Murriel–Don on August 26, 2009.

In the meantime, Aspen determined that its insurance policy did not in fact cover the Jent/Hudson action because the plaintiffs' claims fell within the policy's automobile exclusion. Aspen sent Murriel–Don a letter on September 9, 2009, informing it that, if the court denied the motion to dismiss that Dunaway had already filed, Aspen would no longer pay for Murriel–Don's defense. Sure enough, the state trial court denied the motion to dismiss in a brief order on October 29, 2009. Aspen then sent Murriel–Don a supplemental letter denying coverage. Aspen formally terminated Dunaway's legal services on November 24, 2009, and Dunaway filed a motion to withdraw the next day.

Even though Murriel–Don no longer had an attorney, the state-court litigation pressed forward. Murriel–Don failed to respond to requests for admission from the plaintiffs, and as a result, the state court deemed Murriel–Don to have admitted both liability and damages. On March 20, 2010, the state court entered default judgment against Murriel–Don and awarded Roberta Jent $27,000,000 in damages (plus 12% interest) and Albert Hudson $15,000,000 in damages (plus 12% interest).

Some months later, on November 5, 2010, Murriel–Don filed suit against Aspen, Dunaway, and Tooms & Dunaway in the Knott Circuit Court. R. 1–2. Murriel–Don asserted several claims against Aspen—for breach of contract, breach of the duty to defend, and violation of Kentucky's Unfair Claims Settlement Practices and Consumer Protection Acts, R. 1–2 at 11–17—and two claims against Dunaway and her law firm—for legal malpractice and breach of fiduciary duty, id. at 17–19. Aspen filed a notice of removal on February 16, 2011, R. 1, to which Dunaway and her law firm consented, R. 2. Murriel–Don filed a motion to remand on February 25, 2011. R. 7.

ANALYSIS

Glancing at the complaint in this case raises a bright red jurisdictional flag. There are no federal questions involved, so the only possible basis for federal jurisdiction is diversity. For this Court to have diversity jurisdiction under 28 U.S.C. § 1332, there must be complete diversity—no defendant may have the same citizenship as the plaintiff. See Lincoln Property Co. v. Roche, 546 U.S. 81, 89, 126 S.Ct. 606, 163 L.Ed.2d 415 (2005). The plaintiff, Murriel–Don, is a citizen of Kentucky. And so are defendants Bridget Dunaway and Tooms & Dunaway, PLLC. Complete diversity is lacking. Nevertheless, Aspen asks the Court to invoke one of two doctrines—“fraudulent joinder” or “fraudulent misjoinder”—to sever Dunaway from the case, thereby creating complete diversity and allowing removal. For the reasons that follow, the Court declines to do so.

1. Fraudulent Joinder

Fraudulent joinder is “a judicially created doctrine that provides an exception to the requirement of complete diversity.” Coyne v. Am. Tobacco Co., 183 F.3d 488, 493 (6th Cir.1999) (quoting Triggs v. John Crump Toyota, Inc., 154 F.3d 1284, 1287 (11th Cir.1998)). It allows defendants to remove cases lacking complete diversity if they demonstrate that the plaintiff included claims against non-diverse defendants “for the sole purpose of preventing removal.” McLeod v. Cities Serv. Gas Co., 233 F.2d 242, 246 (10th Cir.1956). In this circuit, the removing party makes this showing by establishing that the plaintiff has “no colorable cause of action” against the non-diverse defendant. Saginaw Hous. Comm'n v. Bannum, Inc., 576 F.3d 620, 624 (6th Cir.2009). If the claim is so frivolous that it has no hope of success, the court presumes that the plaintiff made the claim for the sole purpose of preventing removal and retains jurisdiction. Id.

A. Problems with the Fraudulent–Joinder Doctrine

Fraudulent joinder is a well-established doctrine. Like other well-established doctrines, though, fraudulent joinder suffers from a common problem—courts rarely stop and think about whether the doctrine makes sense. But just as a wise homeowner regularly inspects his house's foundation for signs of termite damage, so too is it worthwhile for judges from time to time to examine the foundations of even well accepted legal doctrines. A closer look at fraudulent joinder reveals a doctrine resting on a rickety foundation.

Fraudulent joinder dates back to the turn of the last century. That era saw a spate of tort actions against large industrial companies, often railroads, brought by employees injured on the job. To prevent removal of these cases to federal court, the plaintiffs would often join other in-state employees. See E. Farish Percy, Making a Federal Case of It: Removing Civil Cases to Federal Court Based on Fraudulent Joinder, 91 Iowa L.Rev. 189, 191 (2005). To preserve the companies' ability to remove these cases to federal court, the Supreme Court “rather abruptly announced that sham parties could be ignored when determining whether complete diversity of citizenship was present in a case.” James M. Underwood, From Proxy to Principle: Fraudulent Joinder Reconsidered, 69 Alb. L.Rev. 1013, 1031 (2006). In Wecker v. National Enameling & Stamping Co., 204 U.S. 176, 27 S.Ct. 184, 51 L.Ed. 430 (1907), the first case in which the Court found that a plaintiff had been fraudulently joined, the Court announced that “the Federal courts should not sanction devices intended to prevent a removal to a Federal court where one has that right.” Id. at 186, 27 S.Ct. 184. The Court elaborated further in Chesapeake & Ohio Ry. Co. v. Cockrell, 232 U.S. 146, 34 S.Ct. 278, 58 L.Ed. 544 (1914): The “right of removal cannot be defeated by a fraudulent joinder of a resident defendant having no real connection with the controversy. So, when in such a case a resident defendant is joined with the non-resident, the joinder ... may be shown by a petition for removal to be only a fraudulent device to prevent a removal.” Id. at 152, 34 S.Ct. 278 (citations omitted). Then, just as quickly as it had materialized, the doctrine of fraudulent joinder disappeared from the United States Reports. Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 97–98, 42 S.Ct. 35, 66 L.Ed. 144 ...

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