Williams v. Conseco, Inc., CIV. A. 99-0118BHC.

• Decision Date: 07 June 1999
• Docket Number: No. CIV. A. 99-0118BHC.,CIV. A. 99-0118BHC.
• Citation: 57 F.Supp.2d 1311
• Parties: Warren WILLIAMS, et al., Plaintiffs, v. CONSECO, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of Alabama

57 F.Supp.2d 1311

Warren WILLIAMS, et al., Plaintiffs, v. CONSECO, INC., et al., Defendants.

No. CIV. A. 99-0118BHC.

United States District Court, S.D. Alabama, Southern Division.

June 7, 1999.

Robert C. King, Weaver & King, PC, Monroeville, AL, Christian E. Roberson, Birmingham, AL, George K. Elbrecht, Monroeville, AL, for Plaintiffs.

David Brian O'Dell, Burr & Forman, Paul P. Bolus, Gary L. Howard, J. Hunter Phillips, Alycia K. Jastrebski, Burr & Forman LLP, Birmingham, AL, J. Fairley McDonald, III, Maynard, Cooper & Gale, Montgomery, AL, for Defendants.

MEMORANDUM OPINION AND ORDER

HAND, Senior District Judge.

Currently pending in this action are plaintiffs' motion for remand (Doc. 8), and the Report and Recommendation recommending that the motion for remand be granted (Doc. 23). In this Memorandum Opinion, the court sets forth its reasons for rejecting the Report and Recommendation of the Magistrate Judge, and for denying the plaintiffs' motion.

I. BACKGROUND

This case arises out of a "multi-level marketing" program apparently gone awry. The complaint alleges that defendants Life Partners and Massachusetts General and several individuals planned to form a multi-level marketing program for the sale of insurance and annuity products offered by Life Partners and Massachusetts General. See Complaint at ¶ 26. As a result of these discussions, defendant National Marketing Alliance was formed. Complaint at ¶¶ 26, 27. Plaintiffs allege that they were recruited to and did become agents of National Marketing Alliance through contracts known as "multi-level marketing agency contracts." Complaint at ¶ 30.

In general terms, the plaintiffs assert contract and tort claims against the defendants for three alleged defalcations in their management of the multi-level marketing system. First, the plaintiffs claim that according to their contracts they were to be paid commissions based on a six-level downline, while in fact the defendants only paid them for two levels. Complaint at ¶¶ 32 et seq. Secondly, the plaintiffs claim that the defendants wrongfully transferred their downlines to other agents. That is, the defendants allegedly credited other agents with commissions generated in the plaintiffs' downlines — commissions the plaintiffs claim rightfully belong to them. Complaint at ¶¶ 59 et seq. Finally, the plaintiffs claim that the defendants wrongfully terminated their agency contracts. Complaint at ¶¶ 68 et seq.

The complaint is pled in seven counts. Count I, claiming breach of contract in connection with the alleged failure to pay six levels of commissions, is the only claim pled as a class claim, and it is the only count in which California plaintiff Warren Williams joins. Count I specifically names defendants Conseco, Incorporated, Conseco Life Insurance Company, Massachusetts General Life Insurance Company, and Life Partners Group, Incorporated. Count I does not name as defendants Ron Petrinovich and Curtis Cobb, Jr., who, like plaintiff Williams, are domiciled in California. Plaintiffs seek to represent a nation-wide class in their pursuit of Count I.

In Counts II through VII of the complaint, plaintiffs Dan Haygood, Jr., and Robert Needham, state individual (i.e., non-class) claims of fraud, suppression, breach of contract, interference with contractual relationships, bad faith, and civil conspiracy against various defendants alleged to be involved in the wrongdoing alleged in the complaint. The complaint and notice of removal disclose that Counts II through VII are completely diverse. In these counts, Haygood, from Georgia, and Needham, from Alabama, sue various defendants domiciled in Indiana, Texas, Colorado, and California.

In no count of the complaint do the plaintiffs demand judgment in a specific dollar amount; however, plaintiffs Haygood and Needham do state claims for punitive damages in Counts II, III, V, VI, and VII of their complaint.

II. DISCUSSION

The first principles of diversity jurisdiction are well known. This court, as a creature of Congress, U.S. Const., Art. III, § 1, possesses only that portion of the constitutionally permissible field of Article III jurisdiction specifically granted to it by Congress. The contours of its jurisdiction must not, and may not, be expanded by judicial usurpation. Snyder v. Harris, 394 U.S. 332, 341, 89 S.Ct. 1053, 1059, 22 L.Ed.2d 319 (1969); Gardner v. Empire Inc., 754 F.2d 478, 482 (2d Cir.1985) ("[W]e perceive no role for judicial inventiveness in expanding diversity jurisdiction where Congress has sought to limit it.").

Congress has granted subject matter jurisdiction to the district courts over "all civil actions where the matter in controversy exceeds the sum or value of $75,000" provided that complete diversity exists between the parties. 28 U.S.C. § 1332(a); Strawbridge v. Curtiss, 3 Cranch (7 U.S.) 267, 2 L.Ed. 435 (1806). The rule of complete diversity holds that generally diversity jurisdiction may be sustained only where "there is no plaintiff and no defendant who are citizens of the same State." Wisconsin Dept. of Corrections v. Schacht, 524 U.S. 381, ___, 118 S.Ct. 2047, 2052, 141 L.Ed.2d 364 (1998). However, the doctrine of fraudulent joinder is a recognized qualification to this requirement. See, e.g., Cabalceta v. Standard Fruit Co., 883 F.2d 1553 (11th Cir.1989).

In addition to these rudiments, the court's reading of the law discloses two imperatives placed on district courts in removed cases. First, the court must decide the issue of jurisdiction; second, the court must exercise jurisdiction where it exists.

First, the court observes that the Judicial Code, 28 U.S.C., contains no provision for "discretionary remand" in cases of original jurisdiction.¹ Although the court must construe the diversity statute "narrowly," Burns v. Windsor Ins. Co., 31 F.3d 1092, 1095 (11th Cir.1994), the court must determine whether subject-matter jurisdiction exists or not.² "A federal court not only has the power but also the obligation at any time to inquire into jurisdiction whenever the possibility that jurisdiction does not exist arises." Fitzgerald v. Seaboard System R.R., 760 F.2d 1249, 1251 (11th Cir.1985), citing Philbrook v. Glodgett, 421 U.S. 707, 95 S.Ct. 1893, 44 L.Ed.2d 525 (1975); City of Kenosha, Wisconsin v. Bruno, 412 U.S. 507, 511, 93 S.Ct. 2222, 2225, 37 L.Ed.2d 109 (1973).

Two recent cases from this Circuit and the Fifth Circuit further underscore the district court's duty in this connection. See, University of South Alabama v. American Tobacco Co., 168 F.3d 405 (11th Cir.1999); Marathon Oil Co. v. A.G. Ruhrgas, 145 F.3d 211 (5th Cir.1998), rev'd sub nom. Ruhrgas AG v. Marathon Oil Co., ___ U.S. ___, 119 S.Ct. 1563, 143 L.Ed.2d 760 (1999).³

Of course, if the court lacks subject-matter jurisdiction over a case, it must be remanded. 28 U.S.C. § 1447(c). However, where jurisdiction does exist, the court must use it. Indeed, the Supreme Court has indicated on several occasions that the district courts are under a "virtually unflagging obligation ... to exercise" such jurisdiction as Congress has authorized. Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236, 1246, 47 L.Ed.2d 483 (1976), citing England v. Louisiana State Bd. of Medical Examiners, 375 U.S. 411, 415, 84 S.Ct. 461, 464, 11 L.Ed.2d 440, 444 (1964).

Both of the foregoing precepts were set forth many years ago by our Supreme Court:

It is most true that this Court will not take jurisdiction if it should not: but it is equally true, that it must take jurisdiction if it should. The judiciary cannot, as the legislature may, avoid a measure because it approaches the confines of the constitution. We cannot pass it by because it is doubtful. With whatever doubts, with whatever difficulties, a case may be attended, we must decide it, if it be brought before us.

Cohens v. Virginia, 19 U.S. (6 Wheat.) 264, 404, 5 L.Ed. 257 (1821).

Having set forth the foregoing legal context, the court turns to the specific jurisdictional questions presented in this case.

A. The Presence of Complete Diversity

One likely could find literally hundreds of reported decisions which repeat the mantra, "Diversity jurisdiction requires complete diversity between all plaintiffs and all defendants." See, e.g., Halleran v. Hoffman, 966 F.2d 45 (1st Cir.1992). Setting aside the question of fraudulent joinder, mechanistic application of this rule to the case at bar, as the plaintiffs propose, would result in the summary remand of this case. The court would simply observe that Warren Williams is a plaintiff from California, and Ron Petrinovich, Curtis Cobb, and David Gin are also from California and are named as defendants in the complaint. But this overly simplistic approach would ignore the legal realities of this case.

That reality is that the California plaintiff does not sue the California defendants. The court finds no reported decision in which a court has considered the presence vel non of complete diversity in this specific, unusual circumstance. Upon careful consideration of this issue, the court concludes that the presence or absence of such a controversy, or "clash of interests," between diverse or nondiverse parties, is the factor that makes or breaks diversity jurisdiction, respectively. Because there is no concrete controversy between nondiverse parties in this case, the court finds that complete diversity exists in this case.

As the Court of Appeals for the Third Circuit has stated,

In order to sustain jurisdiction based on diversity of the parties, there must exist an actual, substantial controversy between citizens of different states, all of whom on one side of the controversy are citizens of different states from all parties on the other side.

Employers Insurance of Wausau v. Crown Cork & Seal Co., 905 F.2d 42, 45-46 (3d Cir.1990) (emphasis supplied); also see Walls v. Ahmed, 832 F.Supp. 940, 941 (E.D.Pa.1993).

Other courts have also...