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Stacy v. Liberty Insurance Corp.

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

January 19, 2018



          Danny C. Reeves United States District Judge

         This matter is pending for consideration of Plaintiffs Donald and Greta Stacy's motion to remand. [Record No. 8] They argue that the Court lacks subject matter jurisdiction to decide their claims regarding a home insurance policy because the parties are not completely diverse. The defendants maintain that complete diversity exists because defendant insurance adjusters Stuart Woosley and Edward Mitchell were fraudulently joined. Mitchell and Woosley have moved to dismiss the claims against them. [Record No. 7] For the reasons that follow, the plaintiffs' motion to remand will be granted and the defendants' motion to dismiss will be denied, as moot.


         Plaintiffs Donald and Greta Stacy filed this action on October 1');">1');">1');">19, 201');">1');">1');">17, in Breathitt Circuit Court. [Record No. 1');">1');">1');">1-1');">1');">1');">1, pp. 2-3] The Stacys are citizens of Kentucky. Id. at p. 4. Defendant Liberty Insurance Company (“Liberty”) is incorporated under the laws of Illinois, with its principal place of business in Massachusetts, so it is a citizen of both Illinois and Massachusetts for diversity purposes. [Record No. 1');">1');">1');">1, p. 4] See 28 U.S.C. § 1');">1');">1');">1332; Hertz Corp. v. Friend, 559 U.S. 77, 80 (201');">1');">1');">10). Defendant Mitchell is a citizen of North Carolina and Defendant Woosley is a citizen of Kentucky. [Record No. 1');">1');">1');">1, p. 4]

         The plaintiffs allege that Liberty issued an insurance policy to them in July 201');">1');">1');">15 to insure their dwelling and other property located at 200 Hoover Drive, Campton, Kentucky. [Record No. 1');">1');">1');">1-1');">1');">1');">1, p. 6] They further allege that, during a period covered by the policy, their residence and other insured structures were lost due to a fire. Id. According to the plaintiffs, after receiving timely notice of the claim, Mitchell advised them that Liberty would pay their “additional living expenses” until the claim was paid. Id. Mitchell wrote a letter to the plaintiffs, dated December 8, 201');">1');">1');">16, which advised that he had released a payment in the amount of $700.00 for monthly living expenses, pursuant to their Liberty policy. Id. at pp. 6-7.

         The plaintiffs received a second letter from Mitchell, dated December 26, 201');">1');">1');">16, advising the plaintiffs for the first time that Liberty was investigating their claim. Id. at p. 7. Mitchell and Woosley subsequently visited 200 Hoover Drive. Id. The plaintiffs allege that Mitchell and Woosley purported to calculate the value of the plaintiffs' claim but, in reality, they conspired to gather evidence to wrongfully deny the claim and rescind the plaintiffs' insurance policy. Id. at pp. 7-8.

         The plaintiffs received a letter from Liberty dated February 1');">1');">1');">15, 201');">1');">1');">17, informing them that their policy was being rescinded due to an alleged material misrepresentation in their initial application. Id. at p. 8. Specifically, the plaintiffs were told that they indicated that no pets or animals were present at the insured location when, in fact, Liberty's investigation revealed that the Stacys had owned at least one dog and a horse prior to the inception of the policy. Id. One week later, the plaintiffs received a letter from Liberty adjuster Adam Bonin advising them that their claim was being denied. Id. The plaintiffs later received a check for $3, 1');">1');">1');">149.40, which purported to be “a return of all premiums paid to the company for [the] policy.”

         The plaintiffs contend that they did not own a dog or a horse or keep either at 200 Hoover Drive at the inception of the Liberty insurance policy. Id. They filed this action in state court alleging, inter alia, breach of contract against Liberty and violations of Kentucky's Unfair Claims Settlement Practice Act against all defendants. The defendants removed the action to federal court based on diversity jurisdiction under 28 U.S.C. §§ 1');">1');">1');">1332, 1');">1');">1');">1441');">1');">1');">1, and 1');">1');">1');">1446. They concede that Defendant Woosley is not diverse from the plaintiffs but contend that his citizenship must be ignored because he was fraudulently joined. [Record No. 1');">1');">1');">1, pp. 4-5]


         The “party seeking to bring a case into federal court carries the burden of establishing diversity jurisdiction.” Coyne v. Am. Tobacco Co., 1');">1');">1');">183 F.3d 488, 493 (6th Cir. 1');">1');">1');">1999) (internal citation and quotation marks omitted). There must be complete diversity such that no plaintiff is a citizen of the same state as any defendant. V&M Star, LP v. Centimark Corp., 596 F.3d 354, 355 (6th Cir. 201');">1');">1');">10) (citing Lincoln Prop. Co. v. Roche, 1');">1');">1');">1');">546 U.S. 81');">1');">1');">1, 89 (2005)). However, fraudulent joinder of a non-diverse party does not defeat removal on diversity grounds. Alexander v. Elec. Data Sys. Corp., 1');">1');">1');">13 F.3d 940');">1');">1');">1');">13 F.3d 940, 948-49 (6th Cir. 1');">1');">1');">1994).

         The relevant inquiry is whether the plaintiff had at least a colorable cause of action against the defendant in state court. Jerome-Duncan, Inc. v. Auto-By-Tel, LLC, 1');">1');">1');">176 F.3d 904, 907 (6th Cir. 1');">1');">1');">1999). A colorable cause of action exists if there is “arguably a reasonable basis for predicting that the state law might impose liability on the facts involved.” Alexander, 1');">1');">1');">13 F.3d at 949. This is a less searching inquiry than that triggered by a motion to dismiss under Rule 1');">1');">1');">12(b)(6) of the Federal Rules of Civil Procedure. See Gibson v. Am. Min. Ins. Co., No. 08-1');">1');">1');">11');">1');">1');">18-ART, 2008 WL 4602747, *5 (E.D. Ky. Oct. 1');">1');">1');">16, 2008) (citing Batoff v. State Farm Ins. Co., 977 F.2d 848, 852 (3d Cit. 1');">1');">1');">1992)). “If there is a colorable basis for predicting that a plaintiff could recover against the non-diverse defendant, the Court must remand the action to state court.” Appel v. PACCAR, Inc., 2006 WL 2873434 (W.D. Ky. Oct. 4, 2006) (citing Boladian v. UMG Recordings, Inc., 1');">1');">1');">123 F. App'x 1');">1');">1');">165, 1');">1');">1');">168 (6th Cir. 2005)). “All doubts as to the propriety of removal are resolved in favor of remand.” Coyne, 1');">1');">1');">183 F.3d at 493.


         Woosley is the only defendant who is a citizen of Kentucky and, therefore, not diverse from the plaintiffs. Accordingly, the Court must determine whether the plaintiffs have asserted any claim against Woosley that is at least colorable.

         As previously indicated, the plaintiffs allege that Woosley visited 200 Hoover Drive under the guise of evaluating their claim. Instead, they contend, he “attempted to gather evidence and invent a reason to wrongfully deny” the claim and rescind the insurance policy. [Record No. 1');">1');">1');">1-1');">1');">1');">1, p. 8] The plaintiffs also allege that Woosley conspired with Mitchell and Liberty to wrongfully deny their claim. Id. at p. 7. The plaintiffs' claims against Woosley ...

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