Velsicol Chem. LLC v. Magnetek, Inc.
| Decision Date | 26 May 2017 |
| Docket Number | 17 C 2092 |
| Parties | VELSICOL CHEMICAL LLC and TRANSPORTATION INSURANCE COMPANY, INC., Plaintiffs, v. MAGNETEK, INC., Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
MEMORANDUM OPINION AND ORDER
Plaintiffs Velsicol Chemical LLC ("Velsicol") and Transportation Insurance Company, Inc. ("TIC") filed a declaratory judgment action against Defendant Magnetek, Inc. ("Magnetek") in Illinois state court, seeking a declaration that Magnetek is not entitled to coverage under TIC's insurance policies. Soon after Plaintiffs filed suit, Magnetek removed the case to federal court on the basis of diversity jurisdiction. Plaintiffs have now moved to remand the case to state court on the ground that diversity jurisdiction is lacking. For the reasons stated herein, Plaintiffs' motion to remand is granted.
This case is several decades in the making. The relevant facts begin in the early 1970s and involve the business operations of Universal Manufacturing Corporation ("UMC"). UMC manufactured fluorescent light fixtures and ballasts. Compl. ¶ 6, ECF No. 1-2. Among the ingredients in UMC's products were polychlorinated biphenyls. Id. ¶ 7. Throughout the 1970s, UMC purchased polychlorinated biphenyls from Monsanto Company ("Monsanto"). Id. In 1972, UMC and Monsanto entered into an agreement in which UMC promised to indemnify Monsanto for liabilities and expenses arising from UMC's use of the polychlorinated biphenyls it purchased. Id. ¶¶ 8-9.
UMC was originally a subsidiary of Northwest Industries, Inc. ("Northwest"). Id. ¶ 6. In January 1986, however, Northwest sold UMC to Magnetek. Id. ¶ 14. As part of the sale agreement, Northwest promised to indemnify Magnetek for any environmental pollution and toxic tort claims arising from UMC's pre-sale activities. Id. ¶ 15. In exchange, Northwest purportedly retained all insurance rights with respect to such claims under a set of four insurance policies that Northwest had purchased between 1978 and 1986. Id. ¶¶ 15-17. The insurance policies had been issued by TIC. Id. ¶ 13.
Over the next several years, Northwest tendered numerous insurance claims to TIC arising from UMC's pre-sale activities. Id. ¶ 18. Many of the claims were disputed and resulted in lengthy insurance coverage litigation. Id. ¶ 19. In November 1999, to resolve some of these disputed claims, TIC entered into a settlement agreement with Velsicol. Id.1 Under this settlement agreement, Velsicol agreed to indemnify TIC for certain claims against it. Id. ¶ 1.
Meanwhile, various individuals filed lawsuits against Monsanto's successors and affiliates, alleging personal injuries caused by pollution from the polychlorinated biphenyls that Monsanto had manufactured. Id. ¶ 11. On August31, 2016, Monsanto's successors and affiliates tendered an indemnity demand ("the 2016 Demand") on Magnetek, seeking indemnification for these individuals' personal-injury claims. Id. ¶ 12. According to Monsanto's successors and affiliates, the 1972 indemnification agreement between Monsanto and UMC obligated Magnetek, as the purchaser of UMC, to indemnify them for the 2016 Demand. Id.
On September 7, 2016, Magnetek tendered notice of the 2016 Demand to TIC. Id. ¶ 13. According to Magnetek, TIC is obligated to provide insurance coverage for the 2016 Demand pursuant to the four insurance policies that TIC issued to Northwest between 1978 and 1986. Id. In turn, TIC then tendered the 2016 Demand to Velsicol pursuant to the 1999 settlement agreement in which Velsicol agreed to indemnify TIC. Id. ¶ 1.
On February 14, 2017, Velsicol and TIC filed suit against Magnetek in the Circuit Court of Cook County, Illinois. Velsicol and TIC seek a declaration that Magnetek is not entitled to insurance coverage for the 2016 Demand under the insurance policies that TIC issued to Northwest. Id. On March 16, 2017, Magnetek removed the case to federal court on the basis of diversity jurisdiction. Velsicol and TIC have moved to remand the case to state court on the ground that diversity jurisdiction is lacking. Velsicol is a citizen of Delaware, and TIC is a citizen of Illinois. Notice of Removal ¶¶ 9, 11, ECF No. 1. Magnetek is a citizen of Delaware and Wisconsin. Id. ¶ 8.
" " United States v. Wahi, 850 F.3d 296, 299 (7th Cir. 2017) (quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994)). One basis of federal jurisdiction is diversity jurisdiction, which gives federal courts authority to adjudicate civil actions 28 U.S.C. § 1332(a)(1). For a civil action to fall within federal courts' diversity jurisdiction, there must be complete diversity, meaning that no plaintiff in the action is a citizen of the same state as any defendant. Krueger v. Cartwright, 996 F.2d 928, 931 (7th Cir. 1993) (citing Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806)).
When a plaintiff files a civil action in state court, the defendant may remove the action to federal court as long as the federal court would have had jurisdiction to hear the case at the time the plaintiff originally filed it. 28 U.S.C. § 1441(a); Schur v. L.A. Weight Loss Ctrs., Inc., 577 F.3d 752, 758 (7th Cir. 2009). A defendant seeking to remove a case to federal court bears the burden of establishing federal jurisdiction. Tri-State Water Treatment, Inc. v. Bauer, 845 F.3d 350, 352 (7th Cir. 2017); Schur, 577 F.3d at 758 (citing Doe v. Allied-Signal, Inc., 985 F.2d 908, 911 (7th Cir. 1993)). If a federal court lacks jurisdiction over a case removed from state court, the case must be remanded. 28 U.S.C. § 1447(c); Walton v. Bayer Corp., 643 F.3d 994, 998 (7th Cir. 2011). Courts "interpret the removal statute narrowly andpresume that the plaintiff may choose his or her forum." Doe, 985 F.2d at 911. Accordingly, "any doubts about the propriety of removing a particular action should be resolved against allowing removal." Wirtz Corp. v. United Distillers & Vintners N. Am., Inc., 224 F.3d 708, 715 (7th Cir. 2000); accord Schur, 577 F.3d at 758.
In seeking to maintain this action in federal court, Magnetek does not dispute that diversity jurisdiction is lacking, given that Velsicol (a plaintiff) and Magnetek (the defendant) are both citizens of Delaware. It argues, however, that the Court should disregard Velsicol's citizenship for purposes of ascertaining diversity jurisdiction because Velsicol was fraudulently joined to this action and is merely a nominal party. In the alternative, Magnetek argues that the Court should realign Velsicol as a defendant, even though Velsicol filed this action as a plaintiff. For the reasons that follow, the Court rejects these arguments.
"'Diversity jurisdiction cannot be destroyed by joinder of nondiverse parties if such joinder is fraudulent.'" Hoosier Energy Rural Elec. Coop., Inc. v. Amoco Tax Leasing IV Corp., 34 F.3d 1310, 1315 (7th Cir. 1994) (quoting Gottlieb v. Westin Hotel Co., 990 F.2d 323, 327 (7th Cir. 1993)). To establish fraudulent joinder, "proof of fraud, though sufficient, is not necessary." Walton, 643 F.3d at 999. Rather, a removing defendant can establish fraudulent joinder by showing that, after resolving all issues of fact and law in the plaintiff's favor, there is no possibility that the plaintiff could state a cause of action against the defendant in state court. Id.; Morris v. Nuzzo, 718 F.3d 660, 666 (7th Cir. 2013) (citing Poulos v. Naas Foods, Inc.,959 F.2d 69, 73 (7th Cir. 1992)). To determine whether the plaintiff would have any such possibility of success in state court, the district court must look to state law. Schur, 577 F.3d at 764; Schwartz v. State Farm Mut. Auto. Ins. Co., 174 F.3d 875, 878 (7th Cir. 1999).
A removing defendant bears a "heavy burden" to establish fraudulent joinder. Schur, 577 F.3d at 764; Poulos, 959 F.2d at 73. The Seventh Circuit has suggested that this burden is "even more favorable to the plaintiff than the standard that applies to a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6)." Schur, 577 F.3d at 764. "If the removing defendant can meet this heavy burden, the federal district court considering removal may disregard, for jurisdictional purposes, the citizenship of certain nondiverse [parties], assume jurisdiction over a case, dismiss the nondiverse [parties], and thereby retain jurisdiction." Morris, 718 F.3d at 666 (internal quotation marks and citations omitted); see also Hoosier Energy, 34 F.3d at 1316.
To determine whether Velsicol has been fraudulently joined as a nondiverse plaintiff,2 the Court must decide whether Velsicol would have any reasonable possibility of pursuing a declaratory judgment action against Magnetek in state court under Illinois law. See Schur, 577 F.3d at 764; Schwartz, 174 F.3d at 878.According to Magnetek, Velsicol has no reasonable possibility of such success because it "lacks standing to pursue [this] declaratory judgment cause of action." Def.'s Mem. Opp. at 5, ECF No. 14. In particular, Magnetek contends that Velsicol lacks standing because "Velsicol is not in privity of contract with Magnetek, [Velsicol] owes no duties to Magnetek, and there is no justiciable controversy between Velsicol and Magnetek." Id. Magnetek, however, has not met its burden of showing that these arguments are supported by Illinois law.
In Illinois, a party has standing to bring a declaratory judgment action where there is an actual controversy and the party is "interested" in the controversy. Morr-Fitz, Inc. v. Blagojevich, 901 N.E.2d 373, 384 (Ill. 2008) (citing Underground Contractors Ass'n v. City of Chi., 362 N.E.2d 298, 300-01 (Ill. 1977)). To be "interested" in a controversy, "a party...
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