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S & W Mobile Home & RV Park, LLC v. B&D Excavating and Underground, LLC

United States District Court, D. North Dakota

July 21, 2017

S & W Mobile Home & RV Park, LLC, Plaintiff,
B&D Excavating and Underground, LLC, Bill Avery, LLC, Defendants, Assurance Company of America, Garnishee


          Charles S. Miller, Jr., Magistrate Judge.

         Before the court is S & W Mobile Home & RV Park, LLC's (“S & W”) Motion to Remand (Doc. No. 10), wherein S & W argues this case should be remanded to North Dakota state court for want of the complete diversity of citizenship required by 28 U.S.C. § 1332 and improper removal under 28 U.S.C. § 1441. Garnishee Zurich American Insurance Company (“Zurich”), as successor in interest to Assurance Company of America, opposes the motion. (Doc. No. 14).

         Also, before the court is an earlier filed Motion to Dismiss (Doc. No. 6) by Zurich, wherein it argues that this case must be dismissed for failure to state a claim upon which relief can be granted. S & W opposes that motion. (Doc. No. 9).

         I. BACKGROUND

         A. The underlying state action

         The factual and procedural backgrounds giving rise to this action are straight-forward. In October 2015, S & W sued B&D Excavating and Underground, LLC (“B&D”) and Bill Avery, LLC (“Avery”) in North Dakota state court in Dunn County, alleging B&D and Avery provided faulty workmanship at a site owned by S & W. Neither B&D nor Avery appeared, and the state district court entered judgment in favor of S & W in the amount of $1, 002, 676.00.

         B. The state garnishment proceeding

         On September 9, 2016, S & W served a garnishment summons on Zurich, B&D's insurer. (Doc. No. 1-2). On September 27, 2016, Zurich returned a garnishee disclosure form asserting it was not liable to B&D. (Doc. No. 1-1). On December 28, 2016, S & W filed an objection to this disclosure. (Doc. No. 1-2).

         C. Removal of the state garnishment proceeding and post-removal motions

         Zurich then removed this action under 28 U.S.C. § 1332 by filing a notice of removal, dated January 5, 2017, on January 9, 2017.

         Zurich filed its motion to dismiss on January 13, 2017. Notably, one or more of the arguments that Zurich makes for dismissal revolve around its claim that S & W's garnishment action is an impermissible direct action against an insurer. S & W filed a substantive response to the motion on February 3, 2017, contending, among other things, that the garnishment proceeding is not an impermissible direct action against an insurer.

         S & W filed its motion for remand three days later alleging two deficiencies in the removal. First, notwithstanding having claimed that this action is not an impermissible direct action against an insurer in response to Zurich's motion to dismiss as discussed later, S & W now claims it is a direct action - at least for purposes of 28 U.S.C. § 1332(c)(1) - and that, because of this, diversity jurisdiction is lacking after a realignment of the parties. S & W also contends that Zurich's removal of the action was untimely because it was too late.

         Zurich filed a response to the motion for remand, contending that the garnishment is not an impermissible direct action for purposes of 28 U.S.C. § 1332(c)(1), although still contending it is for purposes of state law. It also presents an argument for why its removal was timely.

         On February 23, 2017, S & W filed a reply to Zurich's response opposing remand. In its reply, S & W included a new ground for why Zurich's removal was improvident, contending now that the removal was premature instead of being too late as originally claimed. Notably, not only was this new ground not alleged in the original motion for remand, the reply brief in which it was asserted was not filed until after the 30-day deadline for a filing a “motion to remand the case on the basis of any defect other than lack of subject matter jurisdiction . . .” as required by 28 U.S.C. § 1447(c).

         D. The putative citizenship of the parties

         As represented to the court, Zurich is a citizen of both Illinois and New York. According to well-established precedent, S & W, B&D, and Avery assume the citizenship of their “members.” OnePoint Solutions, LLC v. Borchert, 486 F.3d 342, 346 (8th Cir. 2007) (stating an “LLC's citizenship, for purposes of diversity jurisdiction, is the citizenship of each of its members.”). According to Zurich: (1) Douglas Jelly, a Montana citizen, is the member of B&D, meaning B&D is to be considered a Montana citizen; Bill Avery, a Florida citizen, is the member of Avery, making Avery a Florida citizen; and (3) S & W is owned by two trusts whose trustee, Lois Selle, is a citizen of Minnesota, suggesting the trusts, and by extension S & W, are citizens of Minnesota. (Doc. No. 1, pp. 5-6). Because S & W does not contest these citizenships, the court will assume them to be accurate for purposes of this motion. Of course, if the assumed facts relevant to the existence of diversity of citizenship for some reason change, the court may again have to confront the issue since the parties cannot confer jurisdiction upon the court by agreement or acquiescence. E.g., Smith v. Ashland, Inc., 250 F.3d 1167, 1172 (8th Cir.2001).

         II. S & W's MOTION TO REMAND

         A. S & W's argument that the court lacks jurisdiction

         1. Governing law

         In relevant part, 28 U.S.C. § 1441(a) provides that “any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant . . . .” When removal was improper for want of subject matter jurisdiction, 28 U.S.C. § 1447(c) requires remand to state court.

         Original jurisdiction exists under 28 U.S.C. § 1332(a)(1) when the amount in controversy exceeds $75, 000 and the parties are citizens of different states. The latter has been interpreted as requiring that all plaintiffs must be diverse from all defendants. Universal Underwriters Ins. Co. v. Wagner, 367 F.2d 866, 870 (8th Cir. 1966) (“Universal Underwriters”). Further, it is not enough that the parties have captioned the case such that diversity nominally exists. Rather, there must be an “actual” and “substantial” controversy between the parties. See id.; see also Zavanna, LLC v. RoDa Drilling Co., No. 4:09-cv-022, 2009 WL 3720117, at *8 (D.N.D. Nov. 3, 2009) (concluding that the 8th Circuit has adopted the “actual and substantial” test despite having also referenced in Universal Underwriters, supra, the primary purpose of the suit); Hartford Accident and Indemnity Company. v. Doe Run Resources Corporation, No. 4:08-cv-1687, 2009 WL 1067209, at *2 (E.D. Mo. April 21, 2009) (same and citing other cases). And, the court is required to “look beyond the pleading and to arrange the parties according to their sides in the dispute.” City of Indianapolis v. Chase Nat'l Bank of City of New York, 314 U.S. 63, 69 (1941) (quoted case omitted).

         2. Realignment of the parties

         In this case, S & W contends, and Zurich does not appear to disagree, that B&D and Avery should be realigned with S & W because the three have a joint interest in having Zurich pay on the insurance policy, which would either eliminate or reduce the amount owed under the default judgment. This realignment is in keeping with a number of other federal courts that have considered proper party alignment within the context of a garnishment action against an insurer. Randolph v. Employers Mut. Liab. Ins. Co., 260 F.2d 461, 464 (8th Cir.1958) (stating the defendant in a garnishment action “should be aligned for jurisdictional purposes with the plaintiff, as it would be to [the defendant's] interest to have the judgment against him satisfied by his insurer.”); Davis v. Carey, 149 F.Supp.2d 593, 596 (D. Ind. 2001) (collecting a number of cases with similar holdings).

         While this realignment does not nominally destroy diversity, it would if 28 U.S.C. § 1332(c)(1) applies. That part of § 1332 reads as follows:

[I]n any direct action against the insurer of a policy or contract of liability insurance, whether, incorporated or unincorporated, to which action the insured is not joined as a party-defendant, such insurer shall be deemed a citizen of--
(A) every State and foreign state of which the insured is a citizen;
(B) every State and foreign state by which the insurer has been incorporated; and
(C) the State or foreign state where the insurer has its principal place of business . . . .

         (italics added).

         3. S & W's argument for why this a “direct” action” under § 1332(c)(1) lacks merit

         S & W argues that this garnishment proceeding is a “direct action” for purposes of § 1332(c)(1) so that, in addition to Zurich's New York and Illinois citizenship, § 1332(c)(1) imputes B&D's Montana citizenship onto Zurich. Then, if B&D is realigned as a plaintiff for purposes of this action, diversity is destroyed since the result is at least one party on each side having the same citizenship. That is, on the plaintiff's side, B&D is a Montana citizen and, on the defendant's side, so is Zurich by virtue of the citizenship imputed by § 1332(c)(1).

         Zurich argues S & W misapplies § 1332(c)(1) because this action does not constitute a direct action under § 1332(c)(1). And, if that is the case, there would be no imputation of citizenship and complete diversity would still exist based Zurich's original citizenship.

         The court agrees with Zurich's argument and is persuaded by the opinions of other federal courts which have held that garnishment actions under state law do not constitute “direct actions” under § 1332(c)(1). One such opinion from a sister court in the Eighth Circuit stated:

The court finds the present action is not a “direct action” within the meaning of section 1332(c)(1). The proviso was enacted to keep ordinary state-court tort claims out of federal court. See Northbrook Nat. Ins. Co. v. Brewer, 493 U.S. 6, 10, 110 S.Ct. 297, 107 L.Ed.2d 223 (1989) (noting that “Congress added the proviso to § 1332(c) in 1964 in response to a sharp increase in the caseload of Federal District Courts in Louisiana resulting largely from that State's adoption of a direct action statute” whose effect was to “create diversity jurisdiction in cases in which both the tortfeasor and the injured party were residents of Louisiana, but the tortfeasor's insurer was considered a resident of another State”). “Congress' plain objective in amending § 1332(c) was to ensure that ‘tort cases involving only local residents, which in the other States would come within the exclusive jurisdiction of the State courts' would not appear in federal court.” Rosa v. Allstate Ins. Co., 981 F.2d 669, 678 n. 22 ...

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