Opinion
Case No. 2:05-cv-1124.
February 21, 2006
REPORT AND RECOMMENDATION
On October 28, 2005, plaintiffs C R, Inc., C R Process, Inc., Ron Murphy and Chris Murphy filed a complaint in the Franklin County Court of Common Pleas against defendants Liberty Mutual Fire Insurance Company, Liberty Mutual Insurance Group, and Rex J. Ballinger alleging failure to procure insurance, negligence, breach of fiduciary duty, and violation of obligation of good faith. The defendants removed the case to this Court pursuant to 28 U.S.C. §§ 1332, 1441 and 1446 arguing, inter alia, that
Ballinger is not a proper defendant in this suit, and his citizenship therefore does not matter for removal purposes. Plaintiffs state no claim against Ballinger personally and he at all times acted as an agent of Liberty Mutual. Fore [sic] removal purposes, the Court can consider Ballinger to be fraudulently joined. . . .
Defendants' Notice of Removal at p. 2. This Court notes that Mr. Ballinger and all plaintiffs are Ohio residents. On January 9, 2006, the plaintiffs filed a motion to remand. For the following reasons, this Court recommends that the motion to remand be granted.
A claim of "fraudulent joinder," while not necessarily implying actual fraudulent conduct on the plaintiff's part, does involve an assertion that the resident defendant was joined solely, and without any legal basis, for the purpose of defeating the other defendants' right to remove the case on diversity grounds. As one might suspect, the law relating to this aspect of removal jurisdiction is stringent and requires removing defendants to do more than simply articulate a basis for dismissal of the plaintiff's claims against the non-diverse defendant who has allegedly been fraudulently joined. As the Fifth Circuit has acknowledged, in cases which are uniformly followed by cases from this and other circuits, see, e.g., Alexander v. Electronic Data Systems Corp., 13 F.3d 940 (6th Cir. 1994), when a removing party alleges that a defendant has been fraudulently joined as a party to a case in order to defeat removal jurisdiction, that party faces an uphill struggle in persuading the Court that not only does the complaint fail to state a claim against the non-diverse defendant, but that there is not even a colorable argument that it does. See B., Inc. v. Miller Brewing Co., 663 F.2d 545 (5th Cir. 1981). When a colorable argument in support of the claim against the non-diverse defendant exists, although the defendant may ultimately succeed in having the claim dismissed by the state court, removal of the case is improper. InMiller Brewing, the court held as follows:
"The burden of persuasion placed on those who cry `fraudulent joinder' is indeed a heavy one. In order to establish that an in-state defendant has been fraudulently joined, the removing party must show either that there is no possibility that the plaintiff would be able to establish a cause of action against the in-state defendant in state court, or that there has been outright fraud in the plaintiff's pleading of jurisdictional facts."Id. at 549. Under the Miller Brewing standard, the Court's inquiry is not whether the complaint states a claim, but whether "there remained a possibility of a valid claim being stated against the in-state defendants. . . ." If there is, "the case would be properly cognizable only in the state courts." Id. at 550.
In reaching that conclusion, the Miller Brewing court relied on two prior Fifth Circuit decisions, Bobby Jones Garden Apartments v. Suleski, 391 F.2d 172 (5th Cir. 1968) and Tedder v. F.M.C. Corp., 590 F.2d 115 (5th Cir. 1979). The Sixth Circuit Court of Appeals has cited both of these cases with approval as articulating the appropriate standard for evaluating a removing defendant's assertion that in-state defendants have been joined without a reasonable basis for asserting liability and that the joinder should be disregarded for purposes of determining diversity jurisdiction. See Alexander, 13 F.3d 940 (6th Cir. 1994).
District court cases within this circuit have also followed theMiller Brewing rule, either exactly as stated or in a modified form which focuses not on the existence or non-existence of a claim against the non-diverse defendants, but on whether there is an articulable or reasonable basis for that claim. See Brusseau v. Electronic Data Systems Corp., 694 F.Supp. 331, 333-334 (E.D. Mich. 1988); Bucksnort Oil Co. v. Nat'l Convenience Stores, Inc., 585 F.Supp. 883, 886 (M.D. Tenn. 1984). Thus, in deciding whether diversity jurisdiction exists here, the Court's task is limited to determining whether the complaint states any claim against the resident defendant that is even arguably permitted under state law.
According to the complaint, plaintiffs purchased Liberty Mutual Insurance from its agent, Mr. Ballinger. In August 2002, Liberty recommended that plaintiffs limit their uninsured and underinsured motorist ("UIM") coverage in Ohio to $100,000 because, according to Liberty, "UIM insurance in excess of this amount was simply not available in Ohio because of some Ohio Supreme Court opinions." Complaint at ¶ 5. Prior to this recommendation, plaintiffs purchased UIM coverage of at least $1,000,000. Liberty made the same recommendation to plaintiffs in 2003.
The complaint identifies Liberty Mutual Fire Insurance, Liberty Mutual Insurance Group, and Mr. Ballinger collectively as "Liberty." Unless otherwise noted, this opinion will do the same.
In November 2003, Ron Murphy was seriously injured in a car accident. Id. at ¶ 7. As a result, Mr. Murphy incurred expenses in excess of $750,000, but the negligent party that injured Mr. Murphy only had automobile liability insurance in the amount of $100,000. Id. at ¶ 11. Shortly after the accident, plaintiffs learned that Liberty and other Ohio insurance carriers were selling UIM coverage in the amount of $1,000,000.
In the instant case, Liberty alleges that Ohio law prohibits Mr. Ballinger, an agent of Liberty Mutual, from being liable for any of the claims asserted against him. Specifically, Liberty claims that under Ohio law, an insurance agent cannot be held personally liable for claims such as failure to procure insurance, negligence, breach of fiduciary duty, and violation of obligation of good faith. Accordingly, Liberty contends that Mr. Ballinger was fraudulently joined to this lawsuit to defeat diversity jurisdiction.
For guidance, this Court turns to Magistrate Judge King's Report and Recommendation in Wiseman v. Universal Underwriters Insurance Co., No. 2:04-cv-1110, 2005 WL 1396942 (S.D. Ohio June 13, 2005), adopted 2005 WL 2313968 (S.D. Ohio Sept. 21, 2005). In Wiseman, plaintiff brought suit against a defendant insurance company and its agent in state court. In the complaint, plaintiff alleged, inter alia, negligence, bad faith, and breach of fiduciary duties against the insurance company and its agent. Id. at *1. The insurance company and its agent removed the case to federal court claiming fraudulent joinder of the insurance agent. The insurance company and agent argued that the claims asserted by the plaintiff against the agent are not recognizable claims under Ohio law. Id. at *3. The court disagreed and remanded the case, stating:
[The insurance company] contend[s] that [the agent] is not a proper defendant in this action because [the agent] owed no duty to Plaintiff or his decedent. According to Defendants, "the duty established for the handling of insurance claims falls upon the insurance carrier, not the individual employees of the carrier." Motion in Opposition, p. 3, Doc. No. 17. While it is unclear whether an insurance agent can be liable to an insured for bad faith or breach of fiduciary duty, Ohio law clearly establishes that an insurance agent can be held liable for negligence. See, e.g. Clements v. Ohio State Life Insurance Co., 33 Ohio App.3d 80, 84, 514 N.E.2d 876 (1st Dist. 1986) (an insurance agent may be held personally liable for misrepresentation); Heights Driving School, Inc. v. Motorists Insurance Co., 2003 WL 1759477, *5 (Ohio App. 8th Dist. 2003) (Ohio law recognizes a claim for negligent misrepresentation against an insurance agent); Gerace-Flick v. Westfield National Insurance Co., 2002 WL 31168883, *4-5 (Ohio App. 7th Dist. 2002) (an action for negligence may be based upon an insurance agent's failure to procure insurance); Lawson v. Ohio Casualty Insurance Co., 1994 WL 245846, *3 (Ohio App. 8th Dist. 1994) (an agent has a duty to exercise reasonable care in advising customers about the terms of requested insurance coverage).Id. (internal footnotes omitted).
After reviewing the cases cited by the court in Wiseman, this Court concludes that there is an articulable and reasonable basis for plaintiffs to bring, at a minimum, a negligence claim against Mr. Ballinger for allegedly advising C R "that they should accept Liberty's recommendation to reduce their UIM coverage from $1,000,000 to $100,000" because UIM in excess of $100,000 is not permitted by Ohio law. Complaint at ¶ 17. Based on this conclusion, it appears that Mr. Ballinger was not joined solely, and without any legal basis, for the purpose of defeating the Liberty's right to remove the case on diversity grounds. Because a colorable argument in support of the negligence claim against Mr. Ballinger exists, removal of the case is improper. Accordingly, this Court RECOMMENDS that the motion to remand (doc. #10) be GRANTED.
If any party objects to this Report and Recommendation, that party may, within ten (10) days, file and serve on all parties a motion for reconsideration by the Court, specifically designating this Report and Recommendation, and the part thereof in question, as well as the basis for objection thereto. See, 28 U.S.C. § 636(b)(1)(B); Fed.R.Civ.P. 72(b).
The parties are specifically advised that failure to object to the Report and Recommendation will result in a waiver of the right to de novo review by the District Judge and waiver of the right to appeal the judgment of the District Court. See Thomas v. Arn., 474 U.S. 140, 150-152 (1985); United States v. Walters, 638 F.2d 947 (6th Cir. 1981); see also Small v. Sec'y of Health and Human Services, 892 F.2d 15, 16 (2d Cir. 1989).