Strong v. First Family Financial Services, Inc.

• Decision Date: 29 March 2002
• Docket Number: No. CIV.A. 4:01CV163LN.,CIV.A. 4:01CV163LN.
• Citation: 202 F.Supp.2d 536
• Parties: Evon STRONG, Olivia Atkinson, Jeanette Bowens, Bobby Bowens and Derek Boyd Plaintiffs v. FIRST FAMILY FINANCIAL SERVICES, INC., Associates Corporation of North America, Associates First Capital Corporation, Citigroup, Inc., Citifinancial Credit Company, American Security Insurance Company, Dee Davis, Gail Hood, Brenda Higginbotham and Jimmy Bryan Ricks Defendants
• Court: U.S. District Court — Southern District of Mississippi

202 F.Supp.2d 536

Evon STRONG, Olivia Atkinson, Jeanette Bowens, Bobby Bowens and Derek Boyd Plaintiffs v. FIRST FAMILY FINANCIAL SERVICES, INC., Associates Corporation of North America, Associates First Capital Corporation, Citigroup, Inc., Citifinancial Credit Company, American Security Insurance Company, Dee Davis, Gail Hood, Brenda Higginbotham and Jimmy Bryan Ricks Defendants

No. CIV.A. 4:01CV163LN.

United States District Court, S.D. Mississippi, Eastern Division.

March 29, 2002.

COPYRIGHT MATERIAL OMITTED

Rance N. Ulmer, Rance N. Ulmer, Attorney, Bay Springs, Robert Gordon Methvin, Jr., Robert G. Methvin, Jr., P.C., Birmingham, AL, for Evon Strong, Olivia Atkinson, Julia Bobo, Jeanette Bowens, Bobby Bowens, Derek Boyd, plaintiffs.

Fred Krutz, III, Roland M. Slover, Forman, Perry, Watkins, Krutz & Tardy, Jackson, John R. Chiles, Richard C. Keller, Elizabeth E. Bosquet, Burr & Forman, Birmingham, AL, Robert D. Gholson, Law Offices of Robert D. Gholson, Laurel, Charles E. Griffin, Griffin & Associates, Randy L. Dean, Walter D. Willson, Wells, Marble & Hurst, Jackson, for First Family Financial Services, Inc., Associates Corporation of North America, Associates First Capital Corporation, Citigroup, Inc., Citifinancial Credit Company, American Security Insurance Company, Union Security Life Insurance Company, Dee Davis, Gail Hood, Brenda Higginbotham, Jimmy Bryan Ricks, defendants.

MEMORANDUM OPINION AND ORDER

TOM S. LEE, District Judge.

This cause is before the court on the motion of plaintiffs Evon Strong, Olivia Atkinson, Jeannette and Bobby Bowens and Derek Boyd to remand this case to the Circuit Court of Jasper County, Mississippi. Defendants American Security Insurance Company and Union Security Life Insurance Company have responded in opposition to the motion and the court, having considered the memoranda of authorities, together with attachments, submitted by the parties, concludes that the motion to remand should be denied.

According to their complaint, plaintiffs, all Mississippi residents, obtained loans at various times from defendant First Family Financial Services. In June 2001, they filed suit in the Circuit Court of Jasper County asserting a number of putative state law claims, including breach of fiduciary duties, breach of implied covenants of good faith and fair dealing, fraudulent misrepresentation and/or omission, negligent misrepresentation and/or omission, civil conspiracy, negligence and unconscionability under the Mississippi Uniform Commercial Code, all grounded on allegations that they were wrongfully sold and/or induced to purchase credit life and/or credit disability insurance and/or property insurance in connection with their loans.¹ In addition to suing First Family and its parent corporation, the plaintiffs sued the two nonresident insurance companies that issued the subject insurance policies, American Security Insurance Company and Union Security Life Insurance Company, and they also sued four resident employees of First Family who were alleged to have participated in the respective plaintiffs' loan transactions, as follows:

Plaintiff Atkinson alleged that in November 1999, she obtained a loan from First Family in connection with which Gail Hood sold her credit life, credit disability and credit property insurance;

Plaintiffs Bowen allege that on March 30, 1992, July 24, 1999 and August 13, 1999, defendant Bryan Ricks sold them credit life insurance; and Plaintiff Boyd alleges that on August 26, 1999, defendant Dee Davis sold him credit life and credit disability insurance in connection with a loan from First Family.²

The nonresident defendants removed the case on the basis of diversity jurisdiction, contending that plaintiffs fraudulently joined the resident, nondiverse defendants. Following removal, plaintiffs moved to remand, taking the position that they have alleged viable claims against these persons whose joinder is therefore not fraudulent and whose citizenship thus precludes any finding that diversity jurisdiction exists over this cause.

The removing party bears the burden of showing that federal jurisdiction exists and that removal was proper. Manguno v. Prudential Property and Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir.2002). Thus, where the defendants charge that a party has been fraudulently joined to defeat removal, "the burden of persuasion is on the one who cries fraudulent joinder," Delgado v. Shell Oil Co., 231 F.3d 165, 178 (5th Cir.2000) (citing B, Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (5th Cir. 1981)); and to sustain that burden, the defendants "must show that there is no reasonable probability of recovery against the joined party or that there has been outright fraud in the pleadings of jurisdictional facts," id. "If there is no arguably reasonable basis for believing that liability may be established against the joined party, then remand is appropriate." Id.See also Burden v. General Dynamics Corp., 60 F.3d 213, 217 (5th Cir.1995).

In evaluating defendants' assertion of fraudulent joinder, the court must consider all of the factual allegations in the light most favorable to the plaintiff and resolve all of the contested issues of fact in favor of the plaintiff. See Burden, 60 F.3d at 217. Normally, in determining fraudulent joinder, the court should refrain from conducting an evidentiary hearing but may pierce the pleadings, utilizing a summary judgment-like procedure, so that even though the complaint may state a claim against the disputed defendants, the case may be removed if the defendants show by evidence outside the pleadings that there is no reasonable basis to predict that plaintiff could establish a claim against the nondiverse defendants. Badon v. R J R Nabisco, Inc., 224 F.3d 382, 389, 394 (5th Cir.2000); see also Delgado, 231 F.3d at 179. That is to say, "although a state court complaint on its face may allege a state law claim against an in-state defendant that does not preclude it from being removable (by the non-resident defendant), when filed, if the plaintiff's pleading is pierced and it is shown that as a matter of law there is no reasonable basis for predicting that the plaintiff might establish liability on that claim against the in-state defendant." Badon, 224 F.3d at 390.

In their state court complaint in the case at bar, plaintiffs charge that "[c]ontrary to law, the Defendants required ... credit life insurance, [credit disability] insurance ... and property insurance ... in connection with their loans to Plaintiffs,"³ which defendants allegedly represented were a necessary part of the loan package. Plaintiffs allege that the premiums for these insurance products were "excessive and/or inflated in comparison to other similar insurance products available in the marketplace, but not sold or offered by Defendants," and were "inflated falsely due to undisclosed commissions that Defendants received for selling the insurance." They complain further that defendants sold insurance based upon "total of payments" rather than the amount of the debt; that defendants engaged in insurance packing by packing the amount financed through the sale of insurance products; that defendants then charged exorbitant interest rates on the amount financed; and that defendants charged "[e]xcessively high and/or false points, closing costs, origination fees, and service charges to bloat the loans."

In their count for breach of fiduciary duties,⁴ plaintiffs charge that defendants, including the individual defendants, breached their fiduciary duty by failing to obtain adequate insurance at a fair and reasonable price, and by failing to disclose to plaintiffs that defendants received remuneration directly or indirectly for selling the subject insurance products. Similarly, in their counts for fraudulent and negligent misrepresentation and/or omission, they assert that defendants failed to disclose that defendants would financially benefit from the sale of the subject insurance policies, failed to disclose that the insurance products at issue were "grossly overpriced" and in excess of the market rate and that alternative insurance could be obtained at a lower cost, failed to disclose that the premiums would be financed at an excessive interest rate, failed to disclose that the insurance coverage was wholly inadequate, failed to disclose that plaintiffs were not required to purchase this insurance and misrepresented that plaintiffs were required to purchase the insurance, all of which led plaintiffs to believe that defendants were obtaining and furnishing adequate insurance for them at a fair price without the need for plaintiffs to take further action.

Plaintiffs can succeed on their claims for breach of fiduciary duty only if such a duty exists. See Lowery v. Guaranty Bank and Trust Co., 592 So.2d 79, 83 (Miss.1991) (stating that "[t]he existence of a fiduciary duty must be established before a breach of that duty can arise"). Moreover, since silence, in the absence of a duty to speak, is not actionable, plaintiffs' claims for misrepresentation by omission are dependent on the existence of a duty of disclosure, which would arise if a fiduciary relationship existed. See Chiarella v. U.S., 445 U.S. 222, 228, 100 S.Ct. 1108, 1114, 63 L.Ed.2d 348 (1980) (stating that "one who fails to disclose material information prior to the consummation of a transaction commits fraud only when he is under a duty to do so. And the duty to disclose arises when one party has information `that the other [party] is entitled to know because of a fiduciary or other similar relation of trust and confidence between them.'"); cf. Turnley v. Turnley, 726 So.2d 1258, 1262 (Miss.Ct.App.1998) ("`[A]s between persons sustaining a fiduciary or trust or other confidential relationship toward each other, the person occupying the relation of fiduciary or of confidence is under a duty to reveal the facts to the plaintiff (the other party), and ... his silence when he...