Tenn. Ins. Guaranty Ass'n v. Penguin Random House, LLC, 3:17–cv–01070

• Decision Date: 25 September 2017
• Docket Number: No. 3:17–cv–01070,3:17–cv–01070
• Citation: 271 F.Supp.3d 959
• Parties: TENNESSEE INSURANCE GUARANTY ASSOCIATION, Plaintiff, v. PENGUIN RANDOM HOUSE, LLC, and Pearson Education, Inc., Defendants.
• Court: U.S. District Court — Middle District of Tennessee

271 F.Supp.3d 959

TENNESSEE INSURANCE GUARANTY ASSOCIATION, Plaintiff,

v.PENGUIN RANDOM HOUSE, LLC, and Pearson Education, Inc., Defendants.

No. 3:17–cv–01070

United States District Court, M.D. Tennessee, Nashville Division.

Signed September 25, 2017

Paul J. Krog, Steven A. Nieters, William Daniel Leader, Jr., Leader, Bulso & Nolan, PLC, Nashville, TN, for Plaintiff.

Alex B. Morrison, Brent R. Laman, Moore, Ingram, Johnson & Steele, LLP, Knoxville, TN, for Defendants.

MEMORANDUM

WAVERLY D. CRENSHAW, JR., CHIEF UNITED STATES DISTRICT JUDGE

Tennessee Insurance Guaranty Association ("TIGA") sued Penguin Random House, LLC and Pearson Education, Inc. in the Davidson County Chancery Court seeking to recover payments made to, and on behalf of, Carol Rediker, an employee of Dorling Kindersley Publishing. TIGA's cause of action arose after Reliance Insurance Company became insolvent, and TIGA assumed certain of its obligations, including payments with respect Ms. Rediker's workers' compensation claims.

After Defendants removed the action to this Court, TIGA filed a Motion to Remand (Doc. No. 6) pursuant to 28 U.S.C. § 1447, arguing that this Court lacks subject matter jurisdiction. TIGA also requests attorney's fees and costs for having to defend against the allegedly improvident removal.

For the reasons set forth below, the Motion will be granted, but the fee request will be denied.

I. Motion to Remand

In Carden v. Arkoma Associates, 494 U.S. 185, 189, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990), the Supreme Court observed that "the rule regarding the treatment of corporations as ‘citizens’ has become firmly established," and that it has "just as firmly resisted extending that treatment to other entities." A corporation is considered a legal person whose citizenship does not depend on shareholders; it is "deemed to be a citizen of every State and foreign state by which it has been incorporated and of the State or foreign state where it has its principal place of business[.]" 28 U.S.C. § 1332(c)(1). In contrast, unincorporated associations do not themselves have any citizenship; hence "the oft-repeated rule that diversity jurisdiction in a suit by or against the entity depends on the citizenship of all the members." Carden, 494 U.S. at 195–96, 110 S.Ct. 1015.

Despite this seemingly rigid dichotomy, and notwithstanding that TIGA is identified in the Complaint as "an independent unincorporated association," (Doc. No. 1–1 at 3), Defendants (both of which are registered in Delaware with their principal places of business in New York) removed the case on diversity jurisdiction grounds. This was improper, TIGA asserts, because its members include ten insurance companies incorporated in Delaware, and a like number incorporated in New York.¹ Thus, in TIGA's view, there are citizens of New York and Delaware on both side of the controversy, thereby destroying diversity.

In response, Defendants raise a number of arguments. All of those arguments, however, have been answered by Carden and its progeny.

A.

Defendants first argue that "TIGA is not, and should not be considered, an ‘independent unincorporated association’ as commonly understood by our national jurisprudence or by TIGA's own definition." (Doc No. 10 at 3). According to Defendants, TIGA "is not a voluntary assembly of like-minded individuals in pursuit of a common goal, nor should it receive the procedural advantages of one." (Id. at 4). Rather, TIGA is a creature of statute, Tenn. Code Ann. §§ 56–12–101, et seq. , and its "entire existence, operation and ability rests on the decision of the Tennessee State Legislature." (Id. ). Defendants also note that "a member's ability to transact business is predicated on mandatory membership in TIGA," yet the power to act is vested in a five-member board who are residents of Tennessee, meaning that, as a practical matter, "[t]he majority, if not all, of the insurers of ‘high net-worth insureds’ ... have no influence on the way in which TIGA business is conducted." (Id. ). Defendants further point out that decisions of the board are subject to approval by the Commissioner of the Tennessee Department of Commerce and Insurance, whose final actions and orders are subject to judicial review only in the Davidson County Chancery Court.

It may be that TIGA is not a typical unincorporated association, but Carden has been read as providing "a general rule: every association of a common-law jurisdiction, other than a corporation is to be treated like a partnership." Indiana Gas Co. v. Home Ins. Co., 141 F.3d 314, 317 (7th Cir. 1998) (emphasis in original). "That rule applies without regard to the corporation-like features or other business realities of the artificial entity." Underwriters at Lloyd's, London v. Osting–Schwinn, 613 F.3d 1079, 1088 (11th Cir. 2010). This includes state-created insurance guaranty associations generally, and TIGA specifically.

Rhulen Agency v. Alabama Insurance Guaranty Association, 896 F.2d 674 (2nd Cir. 1990), involved suit against two dozen state insurance guaranty associations, among them TIGA. Although recognizing that such associations are created by state statutes and "are comprised of all insurance companies who are authorized to write casualty and property insurance policies in the particular state," id. at 676, the Second Circuit found Carden to be controlling. Thus, because "at least one insurance company member of each [defendant] Guaranty Association [wa]s a citizen of [plaintiff's state]," id. at 677, diversity jurisdiction was found to be lacking.

Diversity jurisdiction was also found to be lacking in Temple Drilling Co. v. Louisiana Ins. Guar. Ass'n, 946 F.2d 390 (5th Cir. 1991), a case involving the Louisiana Insurance Guarantee Association ("LIGA"). There, the Fifth Circuit found "the reasoning of Rhulen persuasive, and h[e]ld that, in light of Carden, LIGA has the citizenship for diversity purposes of each of its constituent member insurers." Id. at 394.

In Temple Drilling, like here, it was argued that a state insurance guaranty association is not a typical unincorporated association because it is not a voluntarily formed artificial entity. Rather, it is a creature of statute imposing mandatory conditions for doing business in a particular state. Also like here, it was argued that, "unlike a ‘voluntary association’ or ‘partnership,’ ... members have virtually no interest in the outcome of [particular] litigation." Id. at 393. The Fifth Circuit summarily rejected those arguments based upon the following language from Carden:

The 50 States have created, and will continue to create, a wide assortment of artificial entities possessing different powers and characteristics, and composed of various classes of members with varying degrees of interest and control. Which of them is entitled to be considered a "citizen" for diversity purposes, and which of their members' citizenship is to be consulted, are questions more readily resolved by legislative prescription than by legal reasoning, and questions whose complexity is particularly unwelcome at the threshold stage of determining whether a court has jurisdiction. We have long since decided that, having established special treatment for corporations, we will leave the rest to Congress; we adhere to that decision.

494 U.S. at 197, 110 S.Ct. 1015.

Even though Rhulen and Temple Drilling were cited by TIGA in its Memorandum, and even though other courts have reached the same result,² Defendants do not address that line of authority in their response. Instead, they rely on Ruetgers–Nease Chem. Co. v. Firemen's Ins., 236 N.J.Super. 473, 566 A.2d 227, 229 n.2 (1989) for the proposition that a state guaranty insurance fund (in that case Pennsylvania's) "is not a voluntary association but a creature of [state] law given the title of ‘association.’ " However, as Defendants concede, that language is dicta because the court did not decide the question of citizenship. Instead, the issue in Ruetgers–Nease was one of minimum contacts, and whether defendant could reasonably anticipate being haled into a New Jersey court. Not only was subject matter jurisdiction not discussed, the intermediate state court in Ruetgers–Nease was not constrained by the diversity statute, 28 U.S.C. § 1332, as is this Court.

Defendants next rely on Justice O'Connor's statement in Carden that "the nature of the named party does not settle the question of who are the real parties to the controversy," and that "the parties to the controversy test" is not met where a particular person or entity "can neither control the disposition of th[e] action nor intervene in the affairs of the [organization] except in the most extraordinary situations." 494 U.S. at 204, 110 S.Ct. 1015 (O'Connor, J. dissenting) (quoting Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980) ). But, as Defendants concede, "Justice O'Connor dissent in Carden is not binding law." (Doc. No. 10 at 6). More than that, Justice Scalia, writing for the majority, took issue with Justice O'Connor's contentions, writing that "[n]ot a single case the dissent discusses, either old or new, supports th[e] assertion" that "the ability to initiate or control the course of litigation" factors into whether there is diversity jurisdiction involving business associations. 494 U.S. at 193, 110 S.Ct. 1015. "A federal court, therefore, may not avoid the Carden rule simply by characterizing one member of an unincorporated association as the only ‘real party’ to the controversy, [which was the] approach advocated by the dissent in Carden." Osting–Schwinn, 613 F.3d at 1088.

For much the same reason, Defendant's reliance on Navarro is misplaced. That case, which served as an underpinning to Justice O'Connor's dissent, "had nothing to do with the citizenship of the ‘trust,’ since it was a suit by the trustees in their own names." Carden, 494 U.S. at 193, 110 S.Ct. 1015. Regardless, in the context of an unincorporated...