National Ass'n of State Farm v. State Farm Mut., Civ. CCB-01-CV-3980.

• Decision Date: 22 May 2002
• Docket Number: No. Civ. CCB-01-CV-3980.,Civ. CCB-01-CV-3980.
• Citation: 201 F.Supp.2d 525
• Parties: NATIONAL ASSOCIATION OF STATE FARM AGENTS, INC. v. STATE FARM MUTUAL AUTOMOBILE INSURANCE CO., et al.
• Court: U.S. District Court — District of Maryland

201 F.Supp.2d 525

NATIONAL ASSOCIATION OF STATE FARM AGENTS, INC. v. STATE FARM MUTUAL AUTOMOBILE INSURANCE CO., et al.

No. Civ. CCB-01-CV-3980.

United States District Court, D. Maryland.

May 22, 2002.

Allan P. Hillman, Neuberger Quinn Gielen Rubin, Baltimore, MD, for Plaintiff.

John L. Burke, Jr., Pau S. Reicher, Lawrence H. Martin, Foley Hoag and Eliot LLP, Washington, DC, for Defendants.

MEMORANDUM

BLAKE, District Judge.

Now pending before this court is a motion by plaintiff, the National Association of State Farm Agents, Inc. ("NASFA"), to remand this action to state court after its removal by the defendants, State Farm Mutual Automobile Insurance Co., State Farm General Insurance Co., State Farm Fire and Casualty Co., and State Farm Life Insurance Co. (collectively, "State Farm"). Plaintiff asserts that some of its members are citizens of the same state as defendants. Therefore, plaintiff argues that this court is without subject matter jurisdiction due to a lack of complete diversity. This matter has been fully briefed and no hearing is necessary. See Local Rule 105.6. For the reasons that follow, the court will grant plaintiff's motion.

STANDARD OF REVIEW

NASFA has challenged State Farm's removal of this case by filing a motion to remand. Because a federal court's exercise of jurisdiction over a removed case "raises significant federalism concerns," removal jurisdiction is "strictly construe[d]." Mulcahey v. Columbia Organic Chems. Co., Inc., 29 F.3d 148, 151 (4th Cir.1994). See also 28 U.S.C. § 1447(c) (2002) (providing that when a case has been removed, "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded"). The party that has removed the case bears the burden of establishing the court's jurisdiction. See Mulcahey, 29 F.3d at 151.

BACKGROUND

NASFA is a not-for-profit corporation¹ that represents State Farm insurance agents throughout the country in their dealings with the State Farm insurance companies. (Compl. ¶ 3; Hillman Aff. ¶ 2.) In November 2001, NASFA sued State Farm in the Circuit Court for Baltimore County, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, tortious interference with contractual relations, de facto termination, and violations of the franchise statutes of 15 states, including Maryland. (Compl.¶¶ 14-84.) Defendants removed the action in December 2001 pursuant to 28 U.S.C. §§ 1441 and 1446.

NASFA alleges that beginning approximately three years ago, State Farm initiated a series of actions that harmed the agents involved in NASFA, each of which has a contract with State Farm that expires "only upon the death of the individual Agent...." (Id. ¶¶ 7, 9.) Among other things, NASFA claims that State Farm attempted to force the agents to affiliate themselves with other agents, required agents to develop a business plan and complete an ethics program, appointed some agents "select agents" and conferred upon them special privileges, imposed fees upon the agents for their customers' use of a State Farm customer service center, and required agents to use this center in order to advertise in the telephone book and use the State Farm logo. (Id. ¶ 10(a), (b), (c), (d), (f).) The complaint also alleges that State Farm started selling insurance itself over the Internet, discontinued selling health insurance through the agents, imposed new requirements on agents, and reduced their commissions. (Id. ¶ 10(e), (g).) NASFA seeks declaratory and injunctive relief on behalf of the agents. (Id. ¶¶ 1-2.)

After removing the case, State Farm moved to dismiss it under Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. As their basis for dismissal, defendants alleged that plaintiff does not have standing to assert its agents' claims.² NASFA responded by filing two motions: a motion to stay briefing and decision upon State Farm's motion to dismiss complaint and a motion to remand. Only the motion to remand is addressed here.³

ANALYSIS

28 U.S.C. § 1441 permits a defendant to remove an action "brought in a State court of which the district courts of the United States have original jurisdiction...." 28 U.S.C. § 1441(a). The defendants assert that this court has jurisdiction because the controversy is one between citizens of different states. See 28 U.S.C. § 1332(a)(1).⁴

The issue on this motion to remand is how plaintiff's citizenship should be determined for jurisdictional purposes. Defendants contend that because NASFA is a corporation, 28 U.S.C. § 1332(c)(1) makes it is a citizen only of its place of incorporation, which is the District of Columbia,⁵ and the state of its principal place of business, which is Maryland. (See Compl. ¶ 3.) Because all the defendants are citizens of Illinois (see id. ¶ 4), State Farm argues that the requirement of complete diversity of citizenship is satisfied. Plaintiff counters that the citizenship of its members not its corporate citizenship, should control for jurisdictional purposes because it is suing purely as a representative of its members. (See id. ¶ 3; Pl.'s Mem. at 3; Hillman Aff. ¶ 3.) As a result, plaintiff claims that the court may not exercise diversity jurisdiction because some of NASFA's members are citizens of Illinois, as are defendants. (See Hillman Aff. ¶ 2.)

The question is one of first impression in the Fourth Circuit. Three other circuits and at least one district court, however, have concluded that when a corporation is suing solely as a representative of a real party in interest and not to assert its own rights, diversity jurisdiction must be based on the citizenship of the real parties in interest, not on the citizenship of the corporation. See Associated Ins. Mgmt. Corp. v. Arkansas Gen. Agency, Inc., 149 F.3d 794, 797-98 (8th Cir.1998); Airlines Reporting Corp. v. S & N Travel, Inc., 58 F.3d 857, 862 (2d Cir.1995); Nat'l Ass'n of Realtors v. Nat'l Real Estate Ass'n, 894 F.2d 937, 940 (7th Cir.1990); Zee Med. Distrib. Ass'n. Inc., v. Zee Med., Inc., 23 F.Supp.2d 1151, 1156 (N.D.Cal.1998).

In National Ass'n of Realtors, a not-for-profit corporation that represented real estate agents sued a rival association and several insurance companies, purportedly on behalf of both the agents and the association itself. 894 F.2d at 938. The Seventh Circuit found as an initial matter that the relevant citizenship of a non-share corporation is the same as that of a corporation that issues stock.⁶ See id. at 939. The court explained, however, that this rule "presupposes that the wrong is to the corporation rather than to the shareholders or members directly." Id. By contrast, when the harm is to the members of the corporate association, the members are the real parties in interest and their citizenship controls for diversity purposes. See id. at 939-40. Were the rule otherwise, the court explained, an aggrieved person could circumvent the limits of diversity jurisdiction by retaining an incorporated association of which he was a member to sue on his behalf, using it as a "mere conduit" for his grievance. Id. "If the [association members] are the ones hurt by the defendants' conduct," the court explained, "they cannot by enlisting their association as their champion break out of the limits of the diversity jurisdiction." Id. at 942.

The parties to this case do not dispute that NASFA is suing to assert the contractual and statutory rights of its members, not itself. NASFA's complaint alleges that the contracts defendants have are with "each of NASFA's member Agents" (Compl.¶ 7), not with NASFA as an entity. The contracts assign the agents protected territories, provide the agents with the right to advertise and use State Farm trademarks, discuss payments to the agents, give the agents credit for policies sold, and set forth a review mechanism for agents who have been terminated. (See id.; see also id. ¶ 8 (listing additional characteristics of "[t]he agreements between State Farm and the Agents").) Further, NASFA contends that the harm that underlies its suit was defendants' alleged efforts "to marginalize its Agents, to reduce their incomes and to unilaterally drive them out of business...." (Id. ¶ 1.) (emphasis added). NASFA does not assert that State Farm attempted to directly harm or actually did harm NASFA itself. Finally, NASFA has not claimed that any state statute empowers it to sue purely as a representative of its members — in other words, to act as a "private attorney general." See National Ass'n of Realtors, 894 F.2d at 940-41. Therefore, because NASFA is suing only on behalf of its members, and not to adjudicate any of its own rights, NASFA's members are the real parties in interest to this controversy, and it is their citizenship that should control for diversity jurisdiction purposes.

This conclusion accords with the "well settled" general principle, in this circuit and elsewhere, that diversity jurisdiction must be based only on the citizenship of the real parties in interest, ignoring the citizenship of merely nominal or formal parties. Martin Sales & Processing, Inc. v. West Virginia Dep't of Energy, 815 F.Supp. 940, 942 (S.D.W.Va.1993); see also Koehler v. Dodwell, 152 F.3d 304, 308 n. 4 (4th Cir.1998) (dictum) (noting rule in context of a corporation).⁷ Parties that are considered nominal are those that have "no personal stake in the outcome of the litigation" and which are "not necessary to an ultimate resolution." Dempsey v. Transouth Mortgage Corp., 88 F.Supp.2d 482, 484 (W.D.N.C.1999).

This principle of considering only the citizenship of real parties to a controversy was set forth by the Supreme Court in Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 461, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980), which traced the principle to "[e]arly in [Court] history...." Id. at 460, 100 S.Ct. 1779. Courts within this circuit have often applied this principle in diversity cases. See....