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Howard v. Allstate Insurance Co.

United States District Court, E.D. Kentucky, Central Division, Lexington

November 5, 2014

HENDRIX VANCE HOWARD, et ux., Plaintiffs,


DANNY C. REEVES, District Judge.

This matter is pending for consideration of Plaintiffs Hendrix Vance Howard and Priscilla Kay Howard's motion to remand. [Record No. 7] The plaintiffs argue that the Court lacks subject matter jurisdiction to hear their claims under the home insurance policy because the parties are not completely diverse. Conversely, the defendants maintain that Defendant George Salyer was fraudulently joined because no colorable claims can be asserted against him. For the reasons outlined below, the motion to remand will be granted.


This matter was originally filed on April 11, 2014, in the Montgomery Circuit Court. [Record No. 1-1, p. 3] The Howards are citizens of Kentucky. [Record No. 1, p. 2] Allstate is a corporation organized under the laws of Illinois, with its principal place of business in Illinois. Thus, for diversity purposes, it is a citizen of Illinois. George Salyer, the insurance adjuster employed by Allstate and assigned to the Howards' case, is a citizen of Kentucky. [ Id. ]

The plaintiffs seek damages under a Homeowners Insurance Policy purchased through Allstate. [Record No. 7-1, p. 1] The damages claimed are the result of a March 16, 2013 fire, which destroyed their home. The policy was in effect from August 20, 2012 through August 20, 2013. As of the time of the fire, the Howards had fully performed their obligations under the policy. [Record No. 1-1, pp. 6-7] As a result of the handling of their claim under the policy, the plaintiffs allege breach of contract, misrepresentation, bad faith (under common law, the Unfair Claims Settlement Practices Act in KRS § 304.12-230, and KRS § 304.12-235 governing the prompt payment of claims) and a violation of Kentucky's Consumer Protection Act under KRS § 367.170. [Record No. 1-1, pp. 11-18]

Before the fire, the plaintiffs obtained two mortgages on the house from Whitaker Bank. [Record No. 10, p. 1] The policy provided $280, 034.00 for dwelling protection plus an additional twenty percent (20%) extended protection of $56, 006.80, for a total policy limit of $336, 040.80. [ Id., p. 2] It also included a one-year contractual limitations provision prohibiting an insured from bringing an action against Allstate "in any way related to the existence or amount of coverage, or the amount of the loss for which coverage is sought, " unless "the action [was] commenced within one year after the inception of the loss or damage." [Record No. 1-2, p. 39]

The Howards reported the fire loss to Allstate. [Record No. 1-1, p. 7] Due to the Howards' poor credit rating, Allstate pursued an investigation into the cause of the fire for approximately five months. While the investigation was pending, Allstate conducted an appraisal of the property and assessed the actual cash value to be $159, 500.00. [ Id. ] In a letter sent on May 1, 2013, Allstate, through George Salyer, advised the Howards of the appraisal and stated that the full replacement cost available to them was $194, 200.00. [ Id. ]

In August of 2013, Allstate determined that the fire had not been set intentionally and offered the Howards the actual cost value of their home. [ Id. ] On August 23, 2013, the Howards accepted the actual cash value settlement of $159, 500.00 from Allstate. [Record No. 10, p. 5] Pursuant to the terms of the policy, $116, 602.27 of the settlement was paid to Whitaker Bank to satisfy the existing mortgages on the property, and the remaining balance of $42, 897.73 was provided directly to the Howards. [ Id. ] Later, on August 26, 2013, the Howards received a letter from Salyer stating that the full replacement cost was actually $222, 327.00. [Record No. 1-5, p. 1] Finally, on September 3, 2013, Salyer sent the plaintiffs another letter indicating that although the policy limit was $336, 040.80, the accepted actual cash value settlement of $159, 500.00 would need to be exhausted before any addition funds would be released by Allstate. [Record No. 1-6] The plaintiffs allege that this was the first time they were advised of this consequence. [Record No. 7-1, p. 4] Because the Howards: (i) received only $42, 897.73 after payment of their mortgages to Whitaker Bank; and (ii) were unable to come up with other funds, their house has not been rebuilt. [ Id. ]

The defendants removed the action to this Court on May 1, 2014. [Record No. 1] Although they acknowledge that the Howards' and Salyer's status as Kentucky citizens would normally destroy diversity, the defendants argue that Salyer's citizenship may be disregarded because he has been fraudulently joined in an effort to defeat diversity. [ Id., 2-3] The plaintiffs filed a motion to remand on May 31, 2014. [Record No. 7]


A case filed in state court is removable only if it could have originally been brought in federal court. See 28 U.S.C. § 1441(a) ("[A]ny civil action brought in a State court of which the district courts of the United States have original jurisdiction[] may be removed... to the district court of the United States for the district and division embracing the place where such action is pending."); Lincoln Prop. Co. v. Roche, 546 U.S. 81, 83 (2005) ("[Section] 1441... authorizes removal of civil actions from state court to federal court when the action initiated in state court is one that could have been brought, originally, in federal district court."). Pursuant to 28 U.S.C. § 1332, federal district courts have original jurisdiction over civil actions between citizens of different states where the amount-in-controversy exceeds $75, 000.00, exclusive of interest and costs.[1] 28 U.S.C. § 1332(a). The "statute has been interpreted to demand complete diversity, that is, that no party share citizenship with any opposing party." Caudill v. N. Am. Media Corp., 200 F.3d 914, 916 (6th Cir. 2000). The burden of establishing diversity jurisdiction is on the removing party. Coyne ex rel. Ohio v. Am. Tobacco Co., 183 F.3d 488, 493 (6th Cir. 1999).

An exception to the complete-diversity requirement arises where a non-diverse defendant has been fraudulently joined. See id. ("[The Sixth Circuit] has recognized that fraudulent joinder of non-diverse defendants will not defeat removal on diversity grounds."). A case need not be remanded as the result of fraudulent joinder if there is no "reasonable basis" to expect that the plaintiff's claims against the non-diverse defendant could succeed under state law. Id. (citing Alexander v. Elec. Data Sys. Corp., 13 F.3d 940, 943 (6th Cir. 1994)). Although the actual motive of the plaintiff is irrelevant to the fraudulent joinder inquiry, Jerome-Duncan, Inc. v. Auto-By-Tel Mktg. Corp., 176 F.3d 904, 907 (6th Cir. 1999), this test serves as "a proxy for establishing the plaintiff's fraudulent intent. If the plaintiff has no hope of recovering against the non-diverse defendant, the court infers that the only possible reason for the plaintiff's claim against [that defendant] was to defeat diversity and prevent removal." Smith v. SmithKline Beecham Corp., No. 11-56-ART, 2011 WL 2731262, at *5 (E.D. Ky. July 13, 2011) (citation and internal quotation marks omitted).

In cases of fraudulent joinder, the Court "must resolve all disputed questions of fact and ambiguities in the controlling... state law in favor of the nonremoving party, " and "[a]ll doubts as to the propriety of removal are resolved in favor of remand." Coyne, 183 F.3d at 493 (internal quotation marks omitted). If a determination cannot be made from the face of the complaint, the Court may "pierce[] the pleadings to consider summary-judgment-type evidence." Walker v. Phillip Morris USA, Inc., 443 F.Appx. 946, 953 (6th. Cir. 2011) (internal quotation marks omitted). However, the Court must be careful not to "step[] from the threshold jurisdictional issue [of fraudulent joinder] into a decision on the merits." Boyer v. Snal-On Tools Corp., 913 F.2d 108, 112 (3d Cir. 2011). The removing party bears the "heavy" burden of establishing fraudulent joinder. Walker, 443 F.Appx. at 953; Alexander, 13 F.3d at 949.

The defendants assert two grounds in support of a finding of fraudulent joinder in this case: (i) the claims against Salyer are barred by the one-year limitation provision in the policy and (ii) the claims against Salyer ...

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