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Fulton County v. Underwriters Safety And Claims Inc

United States District Court, W.D. Kentucky, Paducah

January 3, 2019



          Thomas B. Russell, Senior Judge United States District Court

         This matter is before the Court on Plaintiff’s Motion to Remand. (R. 6). Fully briefed, these matters are ripe for decision. For the reasons stated herein, the Plaintiff’s Motion to Remand is HEREBY GRANTED. BACKGROUND

         Tornados damaged Fulton County Detention Center on March 9, 2017. Fulton County’s Judge/Executive, Jim Martin, filed a claim with the jail’s insurance carrier, Kentucky Association of Counties All-Lines Trust Fund (“KALF”). Underwriters Safety & Claims, Inc. (“USC”), a Kentucky corporation, handles claims adjustment and management services on KALF’s behalf. USC assigned claims adjustment and management of the jail’s claim to the Kentucky Corporation McIntyre, Gilligan, and Mundt, Inc. (MGM). Michael P. Gilligan, from MGM handled the claim.

         According to the Complaint, at their first meeting, Gilligan “assumed full responsibility for making all arrangements for the repair and restoration of the Fulton County Jail,” and told Judge Martin that “he and MGM would take care of everything to the get the jail repaired and restored, and that Judge Martin would not have to worry about anything.” (Pl.s’ Compl., ¶ 19) He also told Judge Martin at this first meeting that the repairs might be performed by Belfor, a contractor from Tennessee. (Id. at ¶ 20) Jeff Johnson, a Fulton County Fiscal Court employee also at the meeting, asked if the contractor, being from Tennessee, was familiar with all applicable Kentucky Administrative regulations surrounding jails and their construction. (Id. at ¶ 21) Gilligan said Belfor was, having worked previously on another Kentucky jail. (Id. at ¶ 23)

         After the first meeting between Gilligan and Judge Martin, KALF hired Belfor-allegedly on Gilligan’s recommendation-to repair the jail. (Id. at ¶ 25) Belfor, in turn, hired subcontractor S. M. Lawrence Company Inc. (“SM Lawrence”) to complete the HVAC work.

         Once the project was underway, Plaintiffs claim that Judge Martin, nor any other Fulton County Fiscal Court employee, had anything to do with the construction process in any way. (Affidavit of Judge Martin ¶ 8) Nothing was ever submitted for their approval or consideration. Instead, “Gilligan, MGM, and USC took full charge of all arrangements and oversight of the project.” (Id. at ¶¶ 6-7)

         Towards the project’s end, Gilligan notified the Fulton County Fiscal Court that the project was nearing completion. Upon hearing the news, Johnson inspected the repairs and discovered that the smoke evacuation system had not been restored. Kentucky Administrative Regulation 500 KAR 13:010 § 7(4) requires that “in each area in which a prisoner may be confined, there shall be an emergency smoke control system activated by smoke detectors and operated by emergency power.” Thus, inmates could not be housed in the areas in which the smoke evacuation system had failed to be restored. Johnson brought the problem to Gilligan’s attention. (Pl.s’ Compl., ¶ 29)

         Two weeks Later, Gilligan allegedly met with Judge Martin and told him that the jail had no smoke evacuation systems prior to the damage. (Id. at ¶ 30) In response, Judge Martin found the jail’s blueprints, which Plaintiffs’ claim indicated that the prison indeed had smoke evacuation systems prior to the damage. (Id.) In October of 2017, Judge Martin presented the Blue prints to all those involved in the project, including Gilligan. (Id. at ¶ 32) At this point Gilligan allegedly admitted that the jail, in fact, had smoke evacuation systems prior to the damage and that they should have been restored by SM Lawrence. (Id. at ¶¶ 35 & 36) At some point thereafter, the blue prints were lost, and Gilligan again insisted that the jail never had smoke evacuation systems. (Id. at ¶¶ 42 & 43) Judge Martin then found a second set of blue prints, at which point Gilligan again allegedly admitted that the smoke evacuation systems should have been restored. (Id. at ¶ 47) The smoke evacuation systems were finally restored in mid to late June of 2018. (Id. at ¶ 49)

         In June of 2018, Plaintiffs brought negligence, breach of contract, unfair claims settlement practices, and fraud claims against Gilligan, MGM, USC, Belfor, and SM Lawrence in Fulton Circuit Court for lost profits during the 11 ½ month delay caused by the failure to restore the smoke evacuation systems. USC timely removed to this Court in September, alleging that the insurance adjusters, Gilligan, MGM, and USC, had been fraudulently joined. Plaintiffs now move to have the case remanded back to Fulton Circuit Court, arguing that they have colorable negligence claims against the insurance adjusters because they “assumed duties beyond the scope of their role as adjusters.” (Pl.s’ Mot. to Remand, p. 11) Plaintiff’s argue further that remand is required because they have alleged colorable breach of contract, fraud, and negligent misrepresentation claims against the adjusters under Kentucky law. USC responds that the Plaintiffs have no colorable negligence claims against the non-diverse Defendants because insurance adjusters owe no duty to insureds under Kentucky law, and, in any event, the adjusters here never assumed a duty beyond the scope of those already covered by the contract with KALF. (USC’s Resp., p. 80) Making a specific argument addressed to each one, USC goes on to contend that the Complaint fails to state a colorable claim against the adjusters under any of its remaining causes of action.


         In this case, the parties concede that complete diversity is not evident from the Complaint. However, the removing defendants allege that the non-diverse defendants were fraudulently joined by the Plaintiffs and should not ruin complete diversity in this matter. Consent for removal is not required of fraudulently joined defendants. See United Computer Sys., Inc. v. AT&T Corp., 298 F.3d 756, 762 (9th Cir. 2002); Jernigan v. Ashland Oil Inc., 989 F.2d 812, 815 (5th Cir. 1993); Steel Valley Auth. v. Union Switch & Signal Div., 809 F.2d 1006, 1009 n.2 (3rd Cir. 1987); Anderson v. Merck & Co., 417 F.Supp.2d 842, 845 n.3 (E.D.Ky. 2006). A defendant is fraudulently joined if there is “no reasonable basis for predicting that state law might impose liability on the facts involved.” Alexander v. Elec. Data Sys. Corp., 13 F.3d 940, 949 (6th Cir. 1994) (quoting Bobby Jones Garden Apartments Inc. v. Suleski, 391 F.2d 172, 176 (5th Cir. 1968)). See also Coyne v. Am. Tobacco Co., 183 F.3d 488, 493 (6th Cir. 1999); Sprowls v. Oakwood Mobile Homes, Inc., 119 F.Supp. 2d 694, 695-96 (W.D.Ky. 2000). In the Sixth Circuit, the test for fraudulent joinder is applicable in three situations: (1) where there is no colorable basis for a claim against the nondiverse defendant; (2) when a plaintiff engages in outright fraud in pleading jurisdiction allegations; and (3) when a plaintiff joins a defendant who does not share joint, several, or alternative liability with a diverse defendant, nor a nexus of connectivity between the claims. Jerome-Duncan, Inc. v. Auto-by-Tel, LLC, 176 F.3d 904 (6th Cir. 1999). Here, the removing defendant alleges that there is no colorable basis for a claim against the non-diverse defendants- the insurance adjusters. In evaluating claims of fraudulent joinder, the Court must initially evaluate all the factual allegations in the Plaintiffs’ state court pleadings in the light most favorable to the Plaintiffs. Crowe v. Coleman, 113 F.3d 1536, 1538 (11th Cir. 1997); Poulos v. Naas Foods, Inc., 959 F.2d 69, 73 (7th Cir. 1992); Green v. Amerada Hess Corp., 707 F.2d 201, 205 (5th Cir. 1983). If the claims against non-diverse defendants are properly arguable under state law with some possibility of success, remand is proper regardless of the likelihood of plaintiff's success on those claims. See Crowe, 113 F.3d at 1538. DISCUSSION

         The standard to establish fraudulent joinder is a high one. It is even higher than the standard required by a motion to dismiss. See Cordle v. Merck & Co., Inc., 405 F. Supp. 2d 800, 803 (E.D. Ky. 2005) (citing Little v. Purdue Pharma, L.P., 227 F. Supp. 2d 838, 845-46 (S.D. Ohio 2002)). It is so high, that the removing party must demonstrate that “there is no ‘glimmer of hope’ that [the plaintiff] could prevail against the non-diverse defendants in state court.” Fugate v. Babcock & Wilcox Conversion Servs., LLC, No. 5:14-CV-00172-TBR, 2015 U.S. Dist. LEXIS 50600, at *5 (W.D. Ky. Apr. 17, 2015) (quoting Hartley v. CSX Transp., Inc., 187 F.3d 422, 426 (4th Cir. 1999)). With this in mind, the Court turns first to Plaintiffs’ negligence claims.

         Plaintiffs’ negligence claims against the non-diverse Defendants raise two issues: First, whether, under Kentucky law, insurance adjusters owe any duty of care to insureds. Second, whether the adjusters here assumed a duty beyond those covered by contract.

         A. Kentucky Law does not Entirely Immunize Insurance Adjusters from Suit by the Insured. Relying on Ring’s Crossroads Mkt., Inc. v. Cincinnati Indem, Co. Case No. 1:14-CV-00105-DJH, 2015 U.S. Dist. LEXIS 100962 (W.D. Ky. Aug. 3, 2015), USC argues that “insurance adjusters owe no contractual or other duty to the insured.” (USC’s Resp., p. 8) ...

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