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Howard v. Allstate Vehicle and Property Insurance Co.

United States District Court, E.D. Kentucky, Southern Division, Pikeville

May 1, 2019

GENA HOWARD, Plaintiff,

          OPINION & ORDER

          Gregory F. Van Tatenhove United States District Judge

         Defendants in this removal action attempt to invoke diversity jurisdiction based on fraudulent joinder. In doing so, they ask the Eastern District of Kentucky a question that other defendants have asked of this Court at least a dozen times: can a plaintiff in Kentucky seek relief for alleged bad faith determinations of an insurance adjuster? Kentucky courts have yet to answer this question, and until such is resolved, this Court cannot find that Plaintiff Gene Howard fraudulently joined Defendant George Salyer. Therefore, Plaintiff's Motion to Remand must be GRANTED and the case returned to Magoffin Circuit Court.


         In 2016, Plaintiff Gena Howard bought a house in Hazel Green, Kentucky, for $70, 000. [R. 1-1 at 5.] To insure her new house, Ms. Howard purchased insurance through Allstate Vehicle and Property Insurance Company. Id. Ms. Howard lived in the home for a while and then her son moved into the home. Id. at 6.

         Sadly, on September 23, 2018, a fire devastated the property, destroying the home and all its contents. Id. Ms. Howard submitted a claim through Allstate, who selected Defendant George Salyer as the adjuster for her claim. Id. at 6-7. Thereafter, Allstate determined the home and its contents to be a total loss. Id. However, through Mr. Salyer, Allstate denied Ms. Howard's claim, stating that she had violated the policy contract by moving out of the home. Id. at 7. The parties dispute whether the contract was violated, but such is not the issue for today.

         Ms. Howard sued Allstate and Mr. Salyer in Magoffin Circuit Court on February 5, 2019, asserting various theories of relief, including bad faith under both common law and the Unfair Claims Settlement Practices Act (UCSPA), as set forth in Kentucky Revised Statute § 304.12-230. Id. at 8-12. Allstate removed the action to this Court on February 8, 2019, arguing that the claims against Mr. Salyer had no colorable basis, and therefore, he was fraudulently joined. [R. 1 at 3-4.] According to Allstate, Mr. Salyer, as an individual insurance adjuster, cannot be liable for bad faith under Kentucky law as set forth in Davidson v. Am. Freightways, Inc., 25 S.W.3d 94 (Ky. 2000). Id.[1]



         Ms. Howard challenges the Court's power to decide this case with a motion to remand. [R. 6.] A defendant may remove a civil action brought in state court to federal court only if the action is one over which the federal court could have exercised original jurisdiction. See 28 U.S.C. §§ 1441, 1446. This court has original federal question jurisdiction over civil actions which arise under the “Constitution, laws, or treaties” of the United States, 28 U.S.C. § 1331. This Court also has original “diversity” jurisdiction over all civil actions when “the matter in controversy exceeds the sum or value of $75, 000, exclusive of interest and costs, and the dispute is between” parties who are “citizens of different states.” See 28 U.S.C. § 1332(a).

         Because federal courts are courts of limited jurisdiction, any doubts regarding federal jurisdiction should be construed in favor of remanding the case to state court. Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-109 (1941); Cole v. Great Atlantic & Pacific Tea Co., 728 F.Supp. 1305, 1307 (E.D. Ky. 1990) (citations omitted). In determining the appropriateness of remand, a court must consider whether federal jurisdiction existed at the time the removing party filed the notice of removal. Ahearn v. Charter Twp. of Bloomfield, 100 F.3d 451, 453 (6th Cir. 1996). Furthermore, the removing defendant bears the burden of showing that removal was proper. Gafford v. Gen. Elec. Co., 997 F.2d 150, 158 (6th Cir. 1993), rev'd on other grounds by Hertz Corp. v. Friend, 559 U.S. 77 (2010); Fenger v. Idexx Laboratories, 194 F.Supp.2d 601, 602 (E.D. Ky. 2002) (citations omitted).

         The general rule regarding removal based on diversity of citizenship is that there must be complete diversity “both at the time that the case is commenced and at the time that the notice of removal is filed” in order to properly remove the case to federal court. Jerome-Duncan Inc. v. Auto-By-Tel, LLC, 176 F.3d 904, 907 (6th Cir. 1999) (emphasis added). Here, the matter in controversy purportedly exceeds $75, 000, [2] but the complaint does not satisfy the complete diversity requirement of 28 U.S.C. § 1332. Plaintiff Gena Howard is a citizen and resident of Kentucky. [R. 1-1 at 4.] Defendant Allstate is considered a resident of Illinois. Id. However, Defendant George Salyer is also a citizen and resident of Kentucky, defeating diversity in this matter. Id. at 5. Regardless of whether the case is remanded or remains before this Court on the basis of diversity jurisdiction, Kentucky is the forum state and its substantive law will be followed. Rawe v. Liberty Mut. Fire Ins. Co., 462 F.3d 521, 526 (6th Cir. 2006). So long as the case remains in federal court, federal procedural law will govern as applicable, including in establishing the appropriate standards for fraudulent joinder and dismissal. Weaver v. Caldwell Tanks, Inc., 190 Fed.Appx. 404, 408 (6th Cir. 2006).

         Allstate asserts that Mr. Salyer was fraudulently joined, and his citizenship should be ignored for purposes of determining diversity jurisdiction. [R. 1 at 3.] Fraudulent joinder is a “judicially created doctrine that provides an exception to the requirement of complete diversity.” Coyne v. Am. Tobacco Co., 183 F.3d 488, 493 (6th Cir. 1999) (quoting Triggs v. John Crump Toyota, Inc., 154 F.3d 1284, 1287 (11th Cir. 1998)). This doctrine is used by courts “when the non-removing party joins a party against whom there is no colorable cause of action.” Saginaw Housing Comm'n v. Bannum, Inc., 576 F.3d 620, 624 (6th Cir. 2009) (citing Jerome-Duncan Inc. v. Auto-By-Tel, LLC, 176 F.3d 904, 907 (6th Cir. 1999)). This doctrine was created to prevent plaintiffs from asserting claims against nondiverse defendants “for the sole purpose of preventing removal.” McLeod v. Cities Serv. Gas Co., 233 F.2d 242, 246 (10th Cir. 1956). If the Plaintiff's claim has no hope of success, then the “fraudulent joinder of non-diverse defendants will not defeat removal on diversity grounds.” Saginaw Housing Comm'n, 579 F.3d at 624 (quoting Coyne, 183 F.3d at 493).

         Allstate, the removing party, has the burden of proving fraudulent joinder and must present “sufficient evidence that a plaintiff could not have established a cause of action against [the] non-diverse defendants under state law.” Coyne, 183 F.3d at 493. To resolve a claim of fraudulent joinder, the district court may “pierce the pleadings” to consider summary judgmentlike evidence, but it should evaluate that evidence like it would a Rule 12(b)(6) motion to dismiss. Walker v. Philip Morris USA, Inc., 43 Fed.Appx. 946, 954 (6th Cir. 2011). Any contested issues of fact should be construed in the non-removing party's ...

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