Opinion
CV 23-00106 TUC RM (MAA)
06-16-2023
Susan Friedman and Kennard Friedman, wife and husband, Plaintiffs, v. Pekin Insurance Company, an Illinois corporation, d/b/a Pekin Insurance; the Farmers Automobile Insurance Association, an Illinois corporation; et al., Defendants.
REPORT AND RECOMMENDATION
Honorable Michael A. Ambri United States Magistrate Judge
Pending before the court is a motion to remand, filed by the plaintiffs on March 31, 2023. (Doc. 10) The defendants did not file a response.
This action arises out of an automobile collision that occurred on October 13, 2021. (Doc. 1-3, p. 8) The plaintiffs, who reside in Wisconsin, were injured and made a claim for underinsured motorist benefits on their auto insurance policy. (Doc. 1-3, p. 10) The policy was underwritten by the defendants Pekin Insurance and F armers Automobile Insurance Association (FAIA). Id. The defendants made an offer in settlement, but the plaintiffs found the offer inadequate. (Doc. 1-3, p. 11) On January 27, 2023, the plaintiffs filed a complaint in Pima County Superior court against the defendants for breach of contract, bad faith, and declaratory judgment. (Doc. 1, p. 1); (Doc. 1-3, p. 6) On March 2, 2023 the defendants removed the action to this court alleging diversity jurisdiction. (Doc. 1) In the pending motion to remand, the plaintiffs argue that removal is improper pursuant to the “forum defendant rule,” 28 U.S.C. § 1441(b)(2), which precludes removal where one of the defendants is a citizen of the forum state. Id. The plaintiffs assert that the defendant FAIA is an association that takes the citizenship of its members and one of its members is a citizen of Arizona. (Doc. 10)
The case has been referred to Magistrate Judge Ambri for report and recommendation pursuant to the Local Rules of Practice. LRCiv 72.1.
The motion for remand should be granted. The defendant FAIA is an association that takes the citizenship of its members, and one of its members is a citizen of Arizona. Removal is improper pursuant to the “forum defendant rule.” 28 U.S.C. § 1441(b)(2).
Discussion
A civil action filed in state court ordinarily may be removed if that action could have been filed in federal court originally. 28 U.S.C. § 1441. Removal proceeds pursuant to statute, which is strictly construed. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). “The strong presumption against removal jurisdiction means that the defendant always has the burden of establishing that removal is proper.” Id. (punctuation modified).
“When an action is removed based on diversity, complete diversity must exist at removal.” Gould v. Mutual Life Ins. Co. of New York, 790 F.2d 769, 773 (9th Cir. 1986); cert. denied, 479 U.S. 987 (1986). “Diversity is generally determined from the face of the complaint.” Id. If the complaint fails to establish diversity, the notice of removal must supply the missing allegations. Schroeder v. Trans World Airlines, Inc., 702 F.2d 189, 191 (9thCir.1983), overruled on other grounds by Beneficial Nat. Bank v. Anderson, 539 U.S. 1, 9-11, 123 S.Ct. 2058 (2003). “Absent unusual circumstances, a party seeking to invoke diversity jurisdiction should be able to allege affirmatively the actual citizenship of the relevant parties.” Kanter v. Warner-Lambert Co., 265 F.3d 853, 857 (9th Cir. 2001) (superseded by statute on other grounds).
The “forum defendant rule” is an exception to the ordinary removal process. Under that rule, “[a] civil action otherwise removable solely on the basis of [diversity] may not be removed if any 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.A. § 1441(b)(2).
In the pending motion, the plaintiffs assert that the defendant Farmers Automobile Insurance Association (FAIA) is a citizen of Arizona. (Doc. 10) And this action should be remanded pursuant to the “forum defendant rule,” 28 U.S.C.A. § 1441(b)(2). Id.
In the state court complaint, the defendant FAIA is identified as “an Illinois corporation.” (Doc. 1-3, p. 6) In their notice of removal, however, the defendants candidly admitted that FAIA is “a reciprocal or inter-insurance exchange.” (Doc. 1, p. 2) They maintain, however, that FAIA was “organized under the laws of the State of Illinois with its principal place of business [and its ‘nerve center'] in Illinois.” Id. The defendants conclude that “[f]or the purposes of diversity jurisdiction, Defendant [FAIC] is a resident of the State of Illinois.” Id. The court is not convinced.
The court will assume that the defendants intended to say that FAIC is a citizen of the State of Illinois. See 28 U.S.C.A. § 1332 (a)(1).
“A reciprocal insurance exchange, in its pure form is a web of contractual relationships between subscribers who agree to insure one another, consummated through a common agent with power of attorney.” Cady v. Am. Fam. Ins. Co., 771 F.Supp.2d 1129, 1131 (D. Ariz. 2011) (punctuation modified). A “reciprocal insurance exchange” is an “unincorporated association” and as such “is deemed a citizen of every state where it has members.” Id. (following the Second, Fifth, and Tenth Circuits and holding that the United Services Automobile Association (USAA) is a citizen of all states where it has subscribers); see also California Auto. Ins. Co. v. Basscraft Mfg. Co., 2020 WL 730851, at *4 (C.D. Cal. Feb. 13, 2020). If the association is an insurance exchange, the members are the subscribers or policy holders. James River Ins. Co. v. Farmers Ins. Exch., 2012 WL 1190886, at *4 (D. Ariz. Apr. 10, 2012) (“Even though the law is not well-settled, Arizona district courts have consistently found that for diversity purposes, an insurance exchange shares citizenship with each of its members. These same courts also consistently found that an insurance exchange's ‘members' are its policyholders. This Court agrees.”); but see Garcia v. Farmers Ins. Exch., 121 F.Supp.2d 667, 669 (N.D. Ill. 2000) (“The subscribers or policyholders are its customers, not its members.”).
The plaintiffs further assert that they have identified individuals who are insured by the Farmers Automobile Insurance Association (FAIA) and who are citizens of Arizona. For example, in FAIA v. Kristin Joel Snyder, Ronald Snyder, et al., C20153177, filed in Pima County Superior Court, FAIA sued the defendant tortfeasors to recover benefits paid to its insured, Mary Lou Grennier. (Doc. 10, p. 11) “According to public records, Ms. Grennier has lived at five different residences in Scottsdale and Tucson, Arizona dating back to 2003 and has owned property in Maricopa and Pima counties.” (Doc. 10, pp. 4-5)
In FAIA v. Kaylee Tevis et al., filed in Maricopa County Superior Court, FAIA sued the defendant tortfeasors to recover benefits paid to its insured, Andrea Albanese. (Doc. 10, pp. 1415) “According to public records, Ms. Albanese has lived at thirteen different residences in Arizona, dating back to 1991, and has owned property in Maricopa County.” (Doc. 10, p. 5)
The plaintiffs assert that these persons are insured by FAIA and are citizens of Arizona. (Doc. 10, p. 5) Accordingly, FAIA is also a citizen of Arizona and removal of this action is precluded by the “forum defendant rule.” 28 U.S.C. s 1441(b)(2).
The court presumes that the plaintiffs are arguing that these persons must be domiciled in Arizona because they have lived here for a long time and own property in the state. See Kanter v. Warner-Lambert Co., 265 F.3d 853, 857 (9th Cir. 2001) (“The natural person's state citizenship is . . . determined by her state of domicile. . . .”).
The court finds the plaintiffs' arguments to be persuasive. Moreover, the defendants have the burden of showing that removal is proper, and they have not filed a response to the motion to remand. See also LRCiv 7.2(i) (“[I]f ... counsel does not serve and file the required answering memoranda . . . such non-compliance may be deemed a consent to the . . . granting of the motion . . . .”).
Recommendation
The Magistrate Judge recommends the District Court, after its independent review of the record, enter an order GRANTING the motion to remand, filed by the plaintiffs on March 31, 2023. (Doc. 10)
Pursuant to 28 U.S.C. §636 (b), any party may serve and file written objections within 14 days of being served with a copy of this report and recommendation. If objections are not timely filed, the party's right to de novo review may be waived. The Local Rules permit the filing of a response to an objection. They do not permit the filing of a reply to a response.