Opinion
NO. 4:00-CV-1746-A
February 5, 2001
MEMORANDUM OPINION and ORDER
Came on for consideration the motion of plaintiffs, Darrell Dean Eilander and Janice Ruth Eilander, individually and as assignees of Tina Marie Walker ("Walker"), to remand. After having considered the motion, the response of defendants, Federated Mutual Insurance Company ("Federated"), Federated Mutual Agency of Texas, Inc. ("Agency"), and Beck Wells ("Wells"), and the reply thereto, the court determines that the motion should be denied.
I. Background
This action was removed to this court from a state district court of Tarrant County, Texas, by notice of removal filed by Federated on October 30, 2000. The removal was based on diversity of citizenship and amount in controversy. The parties seem to be in agreement that plaintiffs are citizens of Iowa, that Federated (unless deemed to be a citizen of Texas by virtue of 28 U.S.C. § 1332 (c) (1)) is a citizen of Minnesota, and that Agency and Wells are citizens of Texas. Federated is the only defendant who had been served with process at the time it effected removal of this action on October 30, 2000. The action grows out of an earlier state court action.
Plaintiffs allege that: Plaintiffs' son, David Eilander, ("David") was killed on August 27, 1999, in a one-vehicle accident while a passenger in a car being driven by Walker, owned by David's employer, Managerial Consultants of North Texas, Inc., ("Managerial"), and insured for liability under a policy issued by Federated. On October 4, 1999, plaintiffs filed suit against Walker in a state district court of Tarrant County, Texas, to recover damages resulting from the death of their son. Although Federated received timely notice of the damage suit against Walker, and Walker was an insured under the policy, Federated refused to provide her a defense. On August 31, 2000, the damage suit proceeded to trial, and the court entered a six million dollar judgment in favor of each of the plaintiffs, for a total of twelve million dollars, plus costs of court and post-judgment interest at ten percent per annum.
In the instant action, plaintiffs seek a declaratory ruling that Federated has wrongfully denied coverage and is indebted to plaintiffs for such other amounts as the court determines to be proper pursuant to the insurance policy. In addition, plaintiffs are suing Federated for breach of the insurance contract based on its failure to conduct a reasonable investigation of the claims against Walker, to make an appropriate coverage determination, to defend Walker in the damage suit from claims covered under the insurance policy, to attempt in good faith to settle the claims against Walker, and to pay the amount of any adverse judgment rendered against Walker in the damage suit. Other claims plaintiffs are asserting against Federated through the assignment from Walker are claims based on violations of the Texas Insurance Code, the Texas Deceptive Trade Practices-Consumer Protection Act, and a duty of good faith and fair dealing owed by Federated to Walker, and on Federated's negligent handling of the claims against Walker.
While providing, in at least a general way, the factual basis for their claims against Federated, plaintiffs do not allege any facts that would form the basis of a cause of action against the remaining defendants, Agency and Wells.
On December 1, 2000, more than thirty days after the action had been removed to this court, plaintiffs filed a motion to remand. Earlier, on November 28, 2000, plaintiffs had lodged for filing with the Clerk a motion to remand, a supporting appendix, and a supporting brief, as required by the local rules of this court. However, neither the brief nor the appendix was accompanied by a completed certificate of service as required by Federal Rule of Civil Procedure 5(d), with the consequence that on November 29, 2000, all the documents were ordered stricken from the record of this case, and the Clerk was directed to unfile and return the documents to counsel for plaintiffs.
II. Grounds of the Motion
Plaintiffs assert that this action should be remanded on the grounds that:
(a) This court lacks subject matter jurisdiction because diversity jurisdiction does not exist as required by 28 U.S.C. § 1332;
(b) Removal was improper because of the "local defendant rule" expressed in 28 U.S.C. § 1441(b); and,
(c) Agency and Wells did not join or consent to Federated's removal of this action as required by 28 U.S.C. § 1446.
Plaintiffs did not raise this ground in their motion to remand, but urge it in their brief in support of their motion.
III. Untimeliness of the Motion to Remand
Title 28 U.S.C. § 1447 (c) provides that a plaintiff has thirty days from the date the removal notice is filed in federal court to file a motion for remand urging procedural defects. In their response to the motion to remand, defendants urge that all grounds for removal alleged by plaintiffs are procedural in nature, and that they have been waived by reason of the untimeliness of the filing of the motion to remand. Plaintiffs reply by relying on Federal Rule of Civil Procedure 83(a) (2), which provides that "[a] local rule imposing a requirement of form shall not be enforced in a manner that causes a party to lose rights because of a nonwillful failure to comply with the requirement."The court is of the belief that plaintiffs' reliance on Rule 83(a)(2) is misplaced. The non-compliance that caused the documents that were timely lodged for filing to be ordered stricken and unfiled was non-compliance with a Federal Rule of Civil Procedure, Rule 5(d), not just a local rule. If plaintiffs had provided completed certificates of service with their brief and appendix in support of their motion to remand on November 28, 2000, none of those items would have been stricken or unfiled. Thus, the waiver, as contemplated by § 1447(c), of the right to have a remand based on procedural defects seems to be present in this case. Nevertheless, the court is discussing the reasons why none of the grounds for remand has merit.
IV. None of the Grounds of the Motion to Remand Has Merit
A. Complete Diversity of Citizenship Is Present:
All plaintiffs must be diverse in citizenship from all defendants in an action brought pursuant to 28 U.S.C. § 1332 (a). Farrell Construction Co. v. Jefferson Parish, 896 F.2d 136, 139-40 (5th Cir. 1990). There clearly is a complete diversity of citizenship between plaintiffs, on the one hand, and defendants, on the other.
While the arguments made by plaintiffs are somewhat vague and uncertain, they apparently are contending that diversity of citizenship did not exist at the time the action was removed because they should have caused Walker, David's surviving wife, and David's estate to be named as additional plaintiffs, that the unnamed parties are citizens of Texas, and that, if plaintiffs had named one or more of those parties as plaintiffs before the action was removed, there would not be complete diversity of citizenship. Plaintiffs fail to give recognition to the basic rule that subject matter jurisdiction is determined as of the time of removal, not based on the prospect that there could be a change in the identities of the parties after removal has been accomplished. Miranti v. Lee, 3 F.3d 925, 928 (5th Cir. 1993); Nolan v. Boeing Co., 919 F.2d 1058, 1063 n. 5 (5th Cir. 1990); In re Carter, 618 F.2d 1093, 1101 (5th Cir. 1980).
Moreover, plaintiffs' contention that Walker, David's wife, and David's estate should be deemed to be plaintiffs for removal purposes borders on being, if it is not, frivolous. If plaintiffs thought the law required any of them to be named or treated as plaintiffs in this action, plaintiffs presumably would have caused them to be named as plaintiffs when they filed the suit.
"The real party in interest is the person holding the substantive right sought to be enforced, and not necessarily the person who will ultimately benefit from the recovery." Farrell, 896 F.2d at 140 (citations omitted). "Conversely, a party not possessing a right under substantive law is not the real party in interest with respect to that right and may not assert it." Id. "A federal court sitting in diversity must look to state law to determine which party holds the substantive right." Id.
Under Texas law, a party who assigns his or her claims is no longer a real party in interest. See Southern County Mut. Ins. Co. v. Ochoa, 19 S.W.3d 452, 465 (Tex.App.-Corpus Christi, 2000, no pet.) (holding that once "a cause of action is assigned or transferred, the assignee becomes the real party in interest with the authority to prosecute the suit to judgment."). Therefore, Walker, as assignor of her claims, is not a real party in interest.
Concerning David's surviving spouse and estate, Texas law further provides that a real party in interest is a party who has a justiciable interest in the subject matter in litigation, either in his own right or in a representative capacity. English v. Gregory, 714 S.W.2d 443, 446 (Tex.App.-Houston [14th Dist.], 1986, no writ) (citation omitted). David's surviving spouse and estate do not have a justiciable interest in the subject matter of this action. They are not parties to this action, nor are they judgment creditors or assignees of Walker. Plaintiffs argue that David's surviving spouse and estate may request to intervene in this matter because they are pursuing a state court action against Walker that is similar to the one plaintiffs successfully prosecuted against Walker. If that is correct, the court will address such a request only after it has been presented before the court in a properly filed pleading. Accordingly, David's surviving spouse and estate are not real parties in interest.
Plaintiffs further allege that Federated named Walker a counter-defendant in paragraph eighteen of its answer and counterclaim, which makes Walker a real party in interest. Paragraph eighteen of Federated's answer and counterclaim states: "Federated, counter-plaintiff, brings this counterclaim for a declaratory judgment against plaintiffs. Federated asks this court to interpret insurance policies and to declare that Federated has, and had, no duty to defend or indemnify Tina Marie Walker and to indemnify the Eilanders." The court does not find that Federated asserted a counterclaim against Walker in this paragraph. Rather, Federated specifically stated that it is bringing a counterclaim against plaintiffs-not Walker.
For the reasons given above, neither Walker, David's surviving spouse, nor David's estate is a necessary or indispensable party to this action. Plaintiffs can receive all the relief they are seeking in this action without the joinder of the others as parties. None of the absent potential litigants will be bound by any adjudication made in this action in any other or future litigation between them and the defendants here. Nor does their absence subject any of the present parties to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations.
The court does not mean to imply by the foregoing discussions that the court is of the belief that complete diversity would be destroyed if any of the absent entities was determined to be a real party in interest or an indispensable party. However, for the reasons given above, the court need not discuss that matter further. In any event, there was complete diversity of citizenship within the meaning of 28 U.S.C. § 1332 when the action was removed.
B. 28 U.S.C. § 1441(b) Does Not Prevent Removal:
Plaintiffs allege that removal was improper under 28 U.S.C. § 1441(b) because Agency and Wells are Texas citizens. Notwithstanding the court's conclusion that there is complete diversity between the parties, removal is not proper unless "none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought." 28 U.S.C. § 1441(b). This is commonly referred to as the "local defendant rule." Once a local defendant has been properly joined and served, the action cannot be removed by that defendant, or any other defendant. Id. Conversely, the plain meaning of § 1441(b) provides that the citizenship of a local defendant who has not been properly served at the time of removal can be ignored in determining the issue of removability. Republic Western Ins. Co. v. International Ins. Co., 765 F. Supp. 628 (N.D. Cal. 1991).
Agency and Wells were not served until November 2000, after Federated filed its notice of removal on October 30, 2000. Therefore, the court determines that the Texas citizenship of those defendants was no impediment to removal. Plaintiffs further allege this is a "direct action" under 28 U.S.C. § 1332 (c)(1), and that, therefore, Federated is a Texas citizen for purposes of removal and remand. If that were so, removal would be improper under 28 U.S.C. § 1441(b) because Federated would then be considered a Texas citizen, and thus a local defendant, who had been served at the time of removal. The relevant portion of § 1332(c)(1) provides as follows:
Having found that removal was proper because Agency and Wells were not served at the time Federated removed this action, the court does not find it necessary to discuss whether Agency and Wells were fraudulently joined.
[I]n any direct action against the insurer of a policy or contract of liability insurance, whether incorporated or unincorporated, to which action the insured is not joined as a party-defendant, such insurer shall be deemed a citizen of the State of which the insured is a citizen, as well as of any State by which the insurer has been incorporated and of the State where it has its principal place of business. . . .
The purpose of § 1332(c)(1) is to eliminate federal diversity jurisdiction in "certain tort claims in which both parties are local residents, but which, under a State 'direct action' statute, may be brought directly against a foreign insurance carrier without joining the local tortfeasor as a defendant." Northbrook Nat'l Ins. Co. v. Brewer, 493 U.S. 6, 10 (1989) (citations omitted). Section 1332(c) (1) does not apply to every action against an insurer. Evanston Ins. Co. v. Jimco, Inc., 844 F.2d 1185, 1188 (5th Cir. 1988) (holding "the fact that an insurer is a 'direct' party does not make the litigation a 'direct action'"); Blankenship v. Surety Ins. Co., No. CIV.A. H-95-936, 1995 WL 861099, at *1 (S.D. Tex. June 1, 1995) (holding "when an insured brings an action against his own insurer, this does not constitute 'direct action') (citation omitted); Barton V. Allstate Ins. Co., 729 F. Supp. 56, 57 (W.D. Tex. 1990) (holding "an action by an insured against his own insurer is not a "direct action") (citation omitted); Cooper v. State Farm Mut. Auto. Ins. Co., No. CIV. A. 3:98-CV-0216-G, 1998 WL 241247, at *1 (N.D. Tex. May 6, 1998) (holding that a direct action is not present where the plaintiff first successfully sues the tortfeasor and then institutes a subsequent action against the tortfeasor's insurer).
Here, plaintiffs are suing Federated as assignees of Walker's claims and as judgment creditors of Walker. Plaintiffs are standing in the shoes of Walker, whom plaintiffs allege is an insured under the policy Federated issued to Managerial. Plaintiffs' action as assignees of Walker's claims and as judgment creditors is analogous to an action brought by an insured against his insurer, which does not constitute a "direct action."
C. The Joinder or Consent of Agency and Wells Was Not Required:
Plaintiffs say that removal was improper because defendants Agency and Wells did not join Federated in the notice of removal. Section 1446(a) provides as follows:
A defendant or defendants desiring to remove any civil action or criminal prosecution from a State court shall file in the district court of the United States for the district and division within which such action is pending a notice of removal signed pursuant to Rule 11 of the Federal Rules of Civil Procedure and containing a short and plain statement of the grounds for removal, together with a copy of all process, pleadings, and orders served upon such defendant or defendants in such action.
The Fifth Circuit has interpreted this statute "to require that all then served properly joined defendants join in the removal petition." Getty Oil Corp v. Insurance Co. of North America, 841 F.2d 1254, 1261 n. 9 (5th Cir. 1988) (citations omitted). Because Agency and Wells were not served at the time of removal, the court concludes that Agency's and WelIs's joinder or consent in Federated's notice of removal was not required.
V. ORDER
For the reasons discussed herein,
The court ORDERS that plaintiffs' motion to remand be, and is hereby, denied.