Osborn v. Metropolitan Life Ins. Co.

• Decision Date: 20 October 2004
• Docket Number: No. CIV.S-04-1693 LKK/KJM.,CIV.S-04-1693 LKK/KJM.
• Citation: 341 F.Supp.2d 1123
• Parties: Wyman OSBORN and Andrea Osborn, Plaintiffs, v. METROPOLITAN LIFE INSURANCE COMPANY, a New York corporation; and First American Specialty Insurance Company, a California corporation, Defendants.
• Court: U.S. District Court — Eastern District of California

341 F.Supp.2d 1123

Wyman OSBORN and Andrea Osborn, Plaintiffs, v. METROPOLITAN LIFE INSURANCE COMPANY, a New York corporation; and First American Specialty Insurance Company, a California corporation, Defendants.

No. CIV.S-04-1693 LKK/KJM.

United States District Court, E.D. California.

October 20, 2004.

William J. Gorham, Mayhall, Hurley, Knutsen, Smith and Green, Stockton, CA, for plaintiffs.

Lawrence Butler, Seyfarth Shaw LLP, San Francisco, CA, for defendants.

ORDER

KARLTON, Senior District Judge.

Plaintiffs, Wyman Osborn and Andrea Osborn, brought suit in the Superior Court of the State of California against two insurance companies, Metropolitan Life Insurance Company ("Met Life") and First American Special Insurance Company ("First American"). Wyman Osborn asserts against Met Life a breach of duty of good faith and fair dealing claim and a breach of contract claim.¹ Against First American the Osborns assert identical claims.²

Defendant Met Life answered and asserted twenty four affirmative defenses, among them, improper joinder of both plaintiffs and defendants. Defendant Met Life then removed the action,³ arguing that plaintiffs fraudulently joined First American and Met Life. The matter is before the court on plaintiffs' motion to remand.

I. FACTS⁴

Plaintiff Wyman Osborn alleges that he paid premiums and performed all acts necessary to ensure coverage under the disability policy issued to him by Met Life. Pl.'s Compl. at ¶ 5. On January 31, 2003, Mr. Osborn notified Met Life that in September 2002, he had an accident. He claimed that he ran into a tree limb and that his primary diagnosis was cervical lumbar problems. Kaarela Decl. at ¶ 2; Def.'s Exh. 1. A claim form was sent to Mr. Osborn and received back by Met Life on February 18, 2003. In the returned form, Mr. Osborn claimed that he was injured when "on or about 9-25-02, I was chassing(sic) my dog in backyard when I ran under a tree I did not duck & knocked myself out running into a limb." Mr. Osborn further claimed that he experienced a "pinch in neck" when he reached or pulled to pick something up and that his right arm would go numb. Kaarela Decl. at ¶ 3. Finally, he maintained that he could not continue working as a concrete contractor. Id.

On March 21, 2003, Met Life sent Mr. Osborn a letter denying benefits. Def.'s Exh. 3.⁵ On May 19, 2003, plaintiffs' counsel sent a letter to Met Life noting plaintiff's disagreement with Met Life's determination. Def.'s Exh. 4.

On March 13, 2002, the Osborns purchased a home located in Stockton, and in May, escrow closed on the residence. Plaintiffs aver that shortly after they moved into the home, they began to suffer a variety of serious symptoms,⁶ id. at ¶ 8, which at that time were undiagnosed.

In July 2003, plaintiffs were seen by Dr. Vincent Marinkovich, an allergist, who ordered blood tests for both plaintiffs and concluded that their symptoms were the result of exposure to mold. Dr. Marinkovich suggested that plaintiffs move out of the residence and leave all of their belongings behind, which they did on or about August 9, 2003. Pl.'s Compl. at ¶ 10; Pl.'s Exh. B.

The plaintiffs allege that they paid premiums and performed all acts necessary to ensure coverage under their homeowner's insurance issued by First American. Id. at ¶ 6. Before moving out of their residence, plaintiffs submitted an insurance claim to First American. First American first confirmed that the Osborns' claim was covered, but then subsequently denied coverage. On August 25, 2003, plaintiffs complained to First American that its sudden change of position was unjustified because the company performed no analysis or testing to reach its conclusion. Pl.'s Compl. at ¶ 12.

On or about August 13, 2003, plaintiffs' counsel sent Met Life another letter enclosing a copy of a report by Dr. Marinkovich stating that Mr. Osborn had seen the doctor on July 23, 2003. Met Life obtained treatment records from Dr. Marinkovich which demonstrated that the first time Mr. Osborn had seen Dr. Marinkovich was on July 23, 2003. Kaarela Decl. at ¶ 6. Met Life continued to deny benefits.

II. STANDARDS

28 U.S.C. § 1447(c) provides that a case removed from state court should be remanded if it appears that it was removed improvidently. The burden is on the party seeking to preserve removal to establish the existence of federal subject matter jurisdiction. Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 97, 42 S.Ct. 35, 66 L.Ed. 144 (1921); Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir.1992). "Because the `removal statutes are strictly construed against removal,' Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1064 (9th Cir.1979), generally speaking, doubts about removal must be resolved in favor of remand." Dodd v. John Hancock Mut. Life Ins. Co., 688 F.Supp. 564, 566 (E.D.Cal.1988).

III. ANALYSIS

Met Life argues that they are entitled to remove the suit because plaintiffs' claim against it was not properly joined with the claims against First American. Met Life argues that the court should ignore First American's citizenship⁷ because of the asserted misjoiner. That is, Met Life contends that the complaint really pleads two separate actions — one against First American that is not removable, and one against it that is removable. Accordingly, they maintain, plaintiffs' motion to remand should be denied. Plaintiffs respond that they properly joined Met Life and First American under the California rule of permissive joinder.

Met Life relies on Tapscott v. MS Dealer Service Corp., 77 F.3d 1353 (11th Cir.1996), abrogated on other grounds, Cohen v. Office Depot, Inc., 204 F.3d 1069 (11th Cir.2000), which held that misjoinder of claims may be as fraudulent as joining defendant parties who have no real connection with the controversy. I am, of course, not bound by the Eleventh Circuit and, as discussed below, entertain substantial doubts as to propriety of the Tapscott doctrine. Moreover, assuming arguendo that a "fraudulent misjoinder" doctrine is viable, defendant has not met its burden of showing that plaintiffs fraudulently joined the two defendants.

A. "FRAUDULENT MISJOINDER"

Diversity jurisdiction under 28 U.S.C. § 1332 requires complete diversity, i.e. every plaintiff must be diverse from every defendant. An action may nonetheless be removable if joinder of the non-diverse parties is fraudulent. Stated differently, fraudulently joined defendants will not defeat removal on diversity grounds. McCabe v. Gen. Foods Corp., 811 F.2d 1336, 1339 (9th Cir.1987).

The Ninth Circuit has explained that "fraudulent joinder is a term of art. If the plaintiff fails to state a cause of action against a resident defendant, and the failure is obvious according to the settled rules of the state, the joinder of the resident defendant is fraudulent." Ritchey, 139 F.3d at 1318 (quoting McCabe, 811 F.2d at 1339). Here, however, defendants ask this court to adopt a new doctrine, procedural misjoinder. Below, I explain why I doubt the appropriateness of the doctrine, and why, in any event, given the pleading, remand is proper.

The Ninth Circuit has not found occasion to address, much less adopt the Tapscott holding, and thus, I must engage in an independent evaluation of its propriety. In Tapscott, a putative class action was removed. Numerous classes of defendants were joined under Federal Rule 20.⁸ The Eleventh Circuit held that the factual commonality among the plaintiffs' claims against the different classes of defendants was not sufficient to satisfy Federal Rule of Civil Procedure 20. The court then held that egregious misjoinder of parties, as measured by Rule 20 standards, amounted to fraudulent joinder, permitting the court to disregard the citizenship of the non-diverse defendants in a removed action.

Citing Tapscott, the Fifth Circuit adopted the misjoinder of parties theory. See In re: Benjamin Moore & Co., 309 F.3d 296, 298 (5th Cir.2002); and see In re: Benjamin Moore & Co., 318 F.3d 626, 630-31 (5th Cir.2002).⁹ Since the Tapscott and Benjamin Moore decisions, district courts in the Fifth, and Eleventh Circuits, being bound, have followed the fraudulent misjoinder doctrine, as has a district court in the Seventh Circuit.

Professors Wright, Miller, and Cooper have characterized the Tapscott "fraudulent misjoinder" theory as a "new concept" that "appears to be part of the doctrine of fraudulent joinder." WRIGHT, MILLER & COOPER, FEDERAL PRACTICE AND PROCEDURE: Jurisdiction 3d § 3723 at 656. They observe that the doctrine adds to the complexity of a federal court's decision as to removal, and note that even in the Eleventh Circuit not all procedural misjoinder rises to the level of fraudulent joinder. They posit that "numerous additional decisions will be needed to clarify" the distinction between which misjoinder claims rise to the level of "egregiousness" justifying a refusal to remand. Id. They further suggest that an aggrieved defendant could avoid the confusion and complexity created by this standard by seeking relief from the misjoinder in state court and then removing to federal court. Id.

My own judgment is that the last thing the federal courts need is more procedural complexity. I thus conclude that the better rule would require Met Life to resolve the claimed misjoinder in state court, and then, if that court severed the case and diversity then existed, it could seek removal of the cause to federal court.¹⁰

Moreover, application of Tapscott raises other unnecessary difficulties. Since the decision, those following it have questioned how to apply the doctrine and whether, when considering the joinder of parties, a court should rely on Rule 20 of the Federal Rules of Civil Procedure or its state law counterpart. In some cases, where the federal rule of procedure on joinder tracks the corresponding state rule, the question would not have a practical import. In states such as California, however, the state's rule permitting joinder...