Russaw v. Voyager Life Ins. Co.

• Decision Date: 19 April 1996
• Docket Number: Civil A. No. 96-T-540-N.
• Citation: 921 F. Supp. 723
• Parties: James RUSSAW, Plaintiff, v. VOYAGER LIFE INSURANCE COMPANY, et al., Defendants.
• Court: U.S. District Court — Middle District of Alabama

921 F. Supp. 723

James RUSSAW, Plaintiff, v. VOYAGER LIFE INSURANCE COMPANY, et al., Defendants.

Civil A. No. 96-T-540-N.

United States District Court, M.D. Alabama, Northern Division.

April 19, 1996.

Jere L. Beasley and Thomas James Methvin, Beasley, Wilson, Allen, Main & Crow, P.C., Montgomery, AL, for plaintiff.

John R. Chiles, Sirote & Permutt, Birmingham, AL, H.E. Nix, Jr., Nix, Holtsford & Vercelli, P.C., Montgomery, AL, Horace G. Williams, Law Offices of Horace Williams, Eufaula, AL, William B. Hairston, III, and Nathan R. Norris, Engel, Hairston & Johanson, P.C., Birmingham, AL, for defendants.

ORDER

MYRON H. THOMPSON, Chief Judge.

The issue presented to this court is whether there is an exception to the one-year limitation period for removal from state to federal court where a plaintiff has fraudulently kept or retained a defendant in a lawsuit in order to defeat diversity-of-citizenship jurisdiction.

I.

Plaintiff James Russaw filed this lawsuit in the Circuit Court of Barbour County, Alabama, on February 8, 1995, asserting a number of state-law claims against defendant Voyager Life Insurance Company and others arising out of a loan transaction. The state-law claims included various allegations of fraud. On March 15, 1995, Voyager Life removed this lawsuit from state to federal court, basing removal jurisdiction on federal-question jurisdiction pursuant to 28 U.S.C.A. §§ 1331, 1441.¹ By order entered on April 11, 1995, this court remanded the lawsuit finding that, although the complaint could turn on a construction of federal law, it did not present a substantial federal question.

On January 9, 1996, Voyager Life removed this lawsuit again to federal court, this time basing removal on diversity-of-citizenship jurisdiction pursuant to 28 U.S.C.A. §§ 1332, 1441.² By order entered on March 5, 1996, this court remanded this lawsuit again, holding that, although Russaw had entered into a settlement with two non-diversity defendants, the settlement was not "final enough to support removal." Chohlis v. Cessna Aircraft Co., 760 F.2d 901, 903 n.2 (8th Cir.1985).

On March 28, 1996, Voyager Life initiated the current phase of this litigation in federal court when it removed this lawsuit for a third time, alleging that the settlement had become sufficiently final to support removal based on diversity-of-citizenship jurisdiction. Russaw has responded with another motion to remand, this time contending that the removal is not timely.

II.

This lawsuit must be remanded again because Voyager Life's notice of removal was not filed within one year of commencement of the action. Under 28 U.S.C.A. § 1446(b), "a case may not be removed on the basis of jurisdiction conferred by section 1332 of this title more than 1 year after commencement of the action." Voyager Life claims, however, that the one-year limitation should not apply where a plaintiff has fraudulently kept or retained a defendant in a lawsuit in order to defeat diversity of citizenship because such a limitation would allow a plaintiff to subvert diversity jurisdiction by fraud. Voyager Life maintains that it only had grounds to prove the fraud after Russaw had dismissed the diversity-destroying resident defendants, after the one-year limitation period on removal had run.

The court finds that Congress did not intend to except fraudulent joinder, including fraudulent retention, cases from the one-year limitation on removal. First, the language of § 1446(b) contains no exceptions to the one-year limitation. Second, although the legislative history did not specifically address fraudulent joinder, Congress intended that administrative expediency in allowing a case to proceed to trial in state court should outweigh the necessity of access to diversity jurisdiction. The need for hearing the case in federal court is less compelling in a diversity case because state law forms the basis for the claims.

The House Report on § 1016(b)(2) of the Judicial Improvements and Access to Justice Act, P.L. 100-702, which contained the amendment to § 1446, explained the purpose of the one-year limit:

"Subsection (b)(2) amends 28 U.S.C. § 1446(b) to establish a one-year limit on removal based on diversity jurisdiction as a means of reducing the opportunity for removal after substantial progress has been made in state court. The result is a modest curtailment in access to diversity jurisdiction. The amendment addresses problems that arise from a change of parties as an action progresses toward trial in state court. The elimination of parties may create for the first time a party alignment that supports diversity jurisdiction. Under section 1446(b), removal is possible whenever this event occurs, so long as the change of parties was voluntary as to the plaintiff. Settlement with a diversity-destroying defendant on the eve of trial, for example, may permit the remaining defendants to remove. Removal late in the proceedings may result in substantial delay and disruption."

H.R.Rep. No. 889, 100th Cong., 2d Sess. (1988), reprinted in 1988 U.S.C.C.A.N. 5982, 6032-33.

Thus, Congress accepted a "modest curtailment in access to diversity jurisdiction" in exchange for avoiding "substantial delay and disruption" after "substantial progress has been made in state court." Id. Congress chose a one-year time period as indicating that substantial progress had been made. Congress explicitly noted that settlement with a diversity-destroying defendant on the eve of trial would create diversity but should nevertheless not allow removal if the case had been...