United States District Court, M.D. North Carolina
MEMORANDUM OPINION AND ORDER
LORETTA C. BIGGS, District Judge.
This case arises out of an automobile insurance dispute. Plaintiff Woodrow Rouse ("Mr. Rouse") brought a state court action against State Farm Mutual Automobile Insurance Co. ("State Farm") and insurance claims adjuster Janet Williams ("Ms. Williams"). Defendants removed the case to federal court on the basis of diversity jurisdiction. Four motions are now before the Court: (1) Defendant Janet Williams' Rule 12(b)(6) Motion to Dismiss (ECF No. 10), (2) Defendant State Farm's Rule 12(b)(6) Motion to Dismiss (ECF No. 12), (3) Defendants' [Joint] Rule 21 Motion to Dismiss Williams as a Nominal Party (ECF No. 14), and (4) Plaintiff's Motion to Remand and for Costs and Attorneys' Fees (ECF No. 17). For the reasons below, the Court grants Plaintiff's Motion to Remand but denies his request for attorneys' fees and costs, denies Defendants' [Joint] Rule 21 Motion to Dismiss Williams as a Nominal Party, and denies as moot both Ms. Williams' and State Farm's Rule 12(b)(6) Motions to Dismiss.
Mr. Rouse, a citizen of North Carolina, was severely injured in a car accident caused by the driver of another vehicle. (Compl. ¶¶ 1, 10, 15, ECF No. 4.) Although the other driver was at fault, the full value of Mr. Rouse's damages exceeded that driver's insurance coverage. (Defs.' Rule 21 Mem. 2, ECF No. 15; Compl. ¶ 18, ECF No. 4.) Mr. Rouse therefore filed a claim with his own insurance company, State Farm, under his underinsured motorist ("UIM") coverage. (Compl. ¶¶ 6, 22, ECF No. 4.) State Farm assigned Ms. Williams to adjust the claim. (Defs.' Rule 21 Mem. 2, ECF No. 15.) Under Mr. Rouse's UIM coverage, State Farm was obligated to pay Mr. Rouse compensatory damages to which he was entitled from the other driver, subject to applicable credits and policy limits. (Id.) Mr. Rouse requested $69, 000. (See Compl. ¶¶ 24-25, ECF No. 4.) State Farm responded with an offer of $2, 000. (Id. ¶ 42.) Unable to reach an agreement over the amount due to Mr. Rouse under his policy with State Farm, Mr. Rouse requested arbitration of his claim. (Defs.' Rule 21 Mem. 3, ECF No. 15.) The arbitration panel determined Mr. Rouse was entitled to the full amount he sought, and State Farm paid this sum. (Id.)
Two days after the arbitration proceeding, Mr. Rouse brought this action in Forsyth County Superior Court against State Farm and Ms. Williams, claiming breach of contract, unfair and deceptive trade practices, and bad faith refusal to pay an insurance claim. Defendants removed the case to federal court on the basis of diversity jurisdiction. (Notice of Removal 1, ECF No. 1.) Although Ms. Williams and Mr. Rouse are both citizens of North Carolina (Compl. ¶¶ 1, 3, ECF No. 4) and therefore not diverse from each other, Defendants request that this Court disregard Ms. Williams' citizenship, alleging she was fraudulently joined in this action (Notice of Removal ¶ 7, ECF No. 1). Defendants then each filed a motion to dismiss under Rule 12(b)(6) and jointly filed a motion to drop Ms. Williams as a party to ensure complete diversity of citizenship pursuant to Rule 21 of the Federal Rules of Civil Procedure. Mr. Rouse filed a motion to remand the case to state court, which includes a request for attorneys' fees and costs.
The threshold issue in this case is whether the Court has subject matter jurisdiction. As courts of limited jurisdiction, federal courts "possess only that power authorized by Constitution and statute." Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). "Accordingly, a party seeking to adjudicate a matter in federal court must allege and, when challenged, must demonstrate the federal court's jurisdiction over the matter." Strawn v. AT & T Mobility LLC, 530 F.3d 293, 296 (4th Cir. 2008). In cases removed from state court to federal court, the party seeking removal bears the burden of demonstrating jurisdiction. Id . A lack of subject matter jurisdiction obligates the court to remand the case. 28 U.S.C. § 1447(c) (2012); see Ellenburg v. Spartan Motors Chassis, Inc., 519 F.3d 192, 200 (4th Cir. 2008).
Defendants may remove to federal court "any civil action brought in a State court of which the district courts of the United States have original jurisdiction." 28 U.S.C. § 1441(a) (2012). Original jurisdiction includes jurisdiction based on diversity. Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552 (2005). Diversity jurisdiction arises in cases where the amount in controversy exceeds $75, 000 and the parties are completely diverse, 28 U.S.C. § 1332(a), meaning no plaintiff is a citizen of the same state as any defendant, Johnson v. Am. Towers, LLC, 781 F.3d 693, 704 (4th Cir. 2015). Here, it is undisputed that the parties are not completely diverse, as Mr. Rouse and Ms. Williams are both citizens of North Carolina. Defendants therefore bear the burden of demonstrating that the Court has subject matter jurisdiction despite the lack of complete diversity. Defendants advance two arguments: (1) that Ms. Williams was fraudulently joined and the Court should disregard her citizenship and (2) that even if Ms. Williams was not fraudulently joined, the Court should exercise its discretion under Rule 21 to drop Ms. Williams as a party, thereby creating complete diversity. Both arguments fail.
A. Fraudulent Joinder
The judicially-created doctrine of fraudulent joinder creates an exception to the complete diversity requirement, allowing defendants to remove cases lacking complete diversity if the non-diverse defendants were fraudulently joined. See Mayes v. Rapoport, 198 F.3d 457, 461 (4th Cir. 1999) (citing Triggs v. John Crump Toyota, Inc., 154 F.3d 1284, 1287 (11th Cir. 1998)). "This doctrine effectively permits a district court to disregard, for jurisdictional purposes, the citizenship of certain nondiverse defendants, assume jurisdiction over a case, dismiss the nondiverse defendants, and thereby retain jurisdiction." Id.
To demonstrate fraudulent joinder, the removing party must show either that there is "outright fraud in the plaintiff's pleading of jurisdictional facts' or that there is no possibility that the plaintiff would be able to establish a cause of action against the in-state defendant in state court.'" Hartley v. CSX Transp., Inc., 187 F.3d 422, 424 (4th Cir. 1999) (quoting Marshall v. Manville Sales Corp., 6 F.3d 229, 232 (4th Cir. 1993)). Defendants do not allege outright fraud. Therefore, they must show "there is no possibility " that Mr. Rouse can succeed against Ms. Williams in state court. See id. In demonstrating fraudulent joinder, the burden is on the defendant to negate any possibility of the plaintiff succeeding in state court-not on the plaintiff to demonstrate he may succeed. See Hartley, 187 F.3d at 425. This is a "heavy burden, " as the defendant "must show that the plaintiff cannot establish a claim even after resolving all issues of law and fact in the plaintiff's favor." Id. at 424. This standard heavily favors the plaintiff, id., as there is no fraudulent joinder if the plaintiff has a "glimmer of hope" or a "slight possibility of a right to relief, " id. at 426. The plaintiff need not ultimately succeed to defeat removal. Johnson, 781 F.3d at 704. Further, if the court has any doubts about the propriety of removal, it should resolve its doubts in favor of remanding the case to state court. Hartley, 187 F.3d at 425. When determining whether joinder is fraudulent, courts may look beyond the pleadings and consider the entire record. Mayes, 198 F.3d at 464. The court should not, however, "delv[e] too far into the merits" of the case to determine jurisdiction. See Hartley, 187 F.3d at 425.
Defendants have not shown "there is no possibility " that Mr. Rouse can state a claim against Ms. Williams in state court. Mr. Rouse asserts one claim against Ms. Williams: that she violated North Carolina's Unfair and Deceptive Trade Practices Act ("UDTPA") while handling Mr. Rouse's insurance claim. (Pl.'s Remand Mem. 5, 9 n.1, ECF No. 18.) To establish a prima facie claim under the UDTPA, Mr. Rouse must show that "(1) [Ms. Williams] committed an unfair or deceptive act or practice, (2) the action in question was in or affecting commerce, and (3) the act proximately caused injury to [Mr. Rouse]." See Dalton v. Camp, 548 S.E.2d 704, 711 (N.C. 2001). Therefore, to establish fraudulent joinder, Defendants must show that Mr. Rouse's UDTPA claim against Ms. Williams fails with respect to at least one of these elements.
Defendants challenge only the second element of the UDTPA claim-whether Ms. Williams' actions were "in or affecting commerce"-by attempting to show that the actions of an insurance adjuster, as an employee of the insurance company, are not in or affecting commerce. (See Williams Rule 12(b)(6) Mem. 8, ECF No. 11.) The UDTPA regulates two types of business interactions in or affecting commerce: "(1) interactions between businesses, and (2) interactions between businesses and consumers." (Id. at 7 (quoting White v. Thompson, 691 S.E.2d 676, 679 (N.C. 2010)).) Defendants argue that Ms. Williams does not fit into this scheme of liability because an insurance adjuster is neither a "business" nor a "consumer." See id. at 8. Defendants have not cited any cases to support this argument, and the Court finds none. Moreover, such an argument would be inconsistent with Defendants' assertion that "[i]nsurance companies like State Farm can only act through their adjusters." (Defs.' Rule 21 Mem. 8, ECF No. 15.) Defendants have therefore failed to show that Mr. Rouse has no possibility of establishing that Ms. Williams' actions were in or affecting commerce.
Defendants next argue that subjecting Ms. Williams, as an insurance adjuster, to liability under the UDTPA would impose on her a duty of care to the insured individual that would conflict with her duty to State Farm. (Williams Rule 12(b)(6) Mem. 10, ECF No. 11.) Defendants contend, therefore, that Ms. Williams cannot be subject to the UDTPA. (Id. at 12.) Neither case cited by Defendants supports this contention. The first case, Wilson v. Wilson, 468 S.E.2d 495 (N.C. Ct. App. 1996), discusses the duty of an insurance company to its insured, rather than the duty of an insurance adjuster to the insured. See id. at 498. In fact, the case makes no mention of insurance adjusters or their duties. The second case that Defendants cite, Koch v. Bell, Lewis, & Associates, Inc., 627 S.E.2d 636 (N.C. Ct. App. 2006), holds that an independent insurance adjuster, rather than an adjuster employed by the insurance company, owes no duty to an uninsured claimant. See id. at 639. Moreover, the plaintiffs in each of the cited cases were third parties bringing actions against the insurance company of another. See id. at 638; Wilson, 468 S.E.2d at 496-97. Because the plaintiffs were not themselves insured with the defendant insurance companies, neither had a cause of action under the UDTPA. Koch, 627 S.E.2d at 639; Wilson, 468 S.E.2d at ...