Armentrout v. Atl. Cas. Ins. Co.

731 F.Supp.2d 1249

W. Neil ARMENTROUT and Frances Armentrout, Plaintiffs,

v.ATLANTIC CASUALTY INS. CO., Defendant.

Civil Action No. 10-0149-KD-C.

United States District Court,

S.D. Alabama,

Southern Division.

Aug. 10, 2010.

Andrew Wayne Martin, Jr., Edward A. Dean, Armbrecht Jackson LLP, Mobile, AL, for Plaintiffs.

Forrest S. Latta, Michael David Strasavich, Burr & Forman LLP, Mobile, AL, for Defendant.

ORDER

KRISTI K. DuBOSE, District Judge.

After due and proper consideration of all portions of this file deemed relevant to the issues raised, and a de novo determination of those portions of the Recommendation to which objection is made, the Recommendation of the Magistrate Judge made under 28 U.S.C. § 636(b)(1)(A) and dated July 22, 2010, is hereby ADOPTED as the opinion of this Court.

REPORT AND RECOMMENDATION

WILLIAM E. CASSADY, United States Magistrate Judge.

This matter is before the undersigned, pursuant to 28 U.S.C. § 636(b)(1)(B), on Plaintiffs' Motion to Remand, (Doc. 6) along with a supporting brief (Doc. 7), both filed April 15, 2010, Defendant's response (Doc. 12) to the motion, filed May 4, 2010, and Plaintiffs' reply (Doc. 15) thereto, filed May 18, 2010. After consideration of the motion, it is the undersigned's recommendation that it be DENIED.

I. Factual Background/Procedural History.

On February 3, 2009, the Armentrout plaintiffs filed a complaint in the Circuit Court of Mobile County, Alabama, against Troy Clemens and Clemens Custom Pools ("The Clemens defendants"), seeking redress for the negligent and oft-delayed construction of a swimming pool at their Fairhope, Alabama residence. (Doc. 2-1, Complaint, p. 3.) On January 8, 2010, that Court granted a summary judgment in favor of the Armentrouts in the amount of $250,000. (Doc. 2-2, Order and Final Judgment of January 8, 2010, p. 1.)

Then, on February 22, 2010, a writ of garnishment was issued against Atlantic Casualty Insurance Company ("ACIC"), the Clemens defendants' liability insurance provider, reflecting the quarter-million dollar judgment. (Doc. 2-3, Process of Garnishment, p. 1.) The garnishment action was given the same case number as the action which culminated in the summary judgment. ( Id.)

ACIC removed the garnishment proceeding to this Court on March 31, 2010, averring that the garnishment proceeding is a "separate and independent action from the underlying action" against the Clemens defendants and noting that the time for the Clemens defendants to appeal from the summary judgment or file a post-judgment motion had expired. (Doc. 1, Notice of Removal, ¶¶ 14, 11.) The notice of removal asserts that complete diversity between the parties exists by virtue of the fact that the Armentrouts are residents of Alabama and ACIC is organized under the laws of and is headquartered in North Carolina. ( Id. at ¶ 15.)

The Armentrouts filed a Motion to Remand (Doc. 6) On April 15, 2010, claiming that the removal of the action to this Court was improper for four reasons: (1) that only a "defendant" is entitled to remove an action, following 28 U.S.C. § 1441(a), and not a garnishee such as ACIC; (2) that complete diversity between the parties does not exist, because the garnishment proceeding is not a separate action, but rather an extension of the "ongoing" action between the parties; (3) that the action (to which the garnishment is but an extension) has been pending for more than one year, and therefore 28 U.S.C. § 1446(b) disallows such removal; and (4) that if the garnishment action is colorable as a "separate and independent action against a liability insurer," then 28 U.S.C. § 1332(c)(1) mandates that ACIC is deemed a resident of its insured, meaning of Alabama, another factor destroying the requisite diversity of citizenship for federal jurisdiction. (Doc. 6, pp. 1-2.) In their Memorandum in Support of [their] Motion to Remand (Doc. 7), also filed April 15, 2010, the Armentrouts re-characterized this last objection to removal as an assertion that the current garnishment proceeding is a direct action against ACIC, and therefore the citizenship of ACIC's insured, the Clemens defendants, is imputed to it, destroying the diversity of the parties. (Doc. 7, pp. 8-9.)

ACIC responded (Doc. 12) to the motion to remand on May 4, 2010, claiming (1) that the garnishment proceeding is indeed a separate and independent, not ancillary, proceeding; (2) that ACIC is a defendant entitled to move for removal; and (3) that the garnishment proceeding is not a direct action under 28 U.S.C. § 1332(c). In their reply (Doc. 15) to ACIC's response to their motion to remand, however, the Armentrouts again aver that ACIC is not a defendant entitled to removal by using Alabama law to cast doubt on whether a case or controversy existed at the time of removal, as under Alabama law, a dispute between a plaintiff and a garnishee is not ripe until the garnishee answers the process of garnishment and the plaintiff contests the garnishee's answer. (Doc. 15, p. 17.) In the same document, the Armentrouts alsoargue that this Court should refrain from exercising jurisdiction "in the interest[s] of comity, federalism, and judicial economy." ( Id. at 8.)

II. Discussion.

A. Legal Standards for Remand

"Any civil case filed in state court may be removed by the defendant to federal court if the case could have been brought originally in federal court." Tapscott v. MS Dealer Serv. Corp., 77 F.3d 1353, 1356 (11th Cir.1996) (citing 28 U.S.C. § 1441(a)), abrogated on other grounds by Cohen v. Office Depot, Inc., 204 F.3d 1069 (11th Cir.2000). Federal courts may exercise diversity jurisdiction over all civil actions where the amount in controversy exceeds $75,000, exclusive of interest and costs, and the action is between citizens of different states. 28 U.S.C. § 1332(a)(1). However, "[b]ecause removal jurisdiction raises significant federalism concerns, federal courts are directed to construe removal statutes strictly.... Indeed, all doubts about jurisdiction should be resolved in favor of remand to state court." University of South Alabama v. American Tobacco Co., 168 F.3d 405, 411 (11th Cir.1999).

"[T]he party invoking the court's jurisdiction bears the burden of proving, by a preponderance of the evidence, facts supporting the existence of federal jurisdiction." McCormick v. Aderholt, 293 F.3d 1254, 1257 (11th Cir.2002); see also Triggs v. John Crump Toyota, Inc., 154 F.3d 1284, 1287 n. 4 (11th Cir.1998) (citation omitted) ("[T]he removing party bears the burden of demonstrating federal jurisdiction."); Tapscott, 77 F.3d at 1356 ("A removing defendant has the burden of proving the existence of federal jurisdiction."). Therefore, the burden in this case is on ACIC to establish complete diversity, or that each defendant is diverse from the plaintiff, Triggs, 154 F.3d at 1287 (citation omitted).¹

B. The (In)Application of 28 U.S.C. § 1332(c)'s "Direct Action" Limitation

The first of the crucial jurisdictional questions raised by Plaintiffs' motion to remand concerns the operation of 28 U.S.C. § 1332(c)'s "direct action" limitation. That statute provides, in pertinent part:

[A] corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business, except that in 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 the State of which the insured is a citizen, as well as of any State by which the insurer has been incorporated and of the State where it has its principal place of business ...

28 U.S.C. § 1332(c)(1) (emphasis added). If the current garnishment proceeding is characterized as a direct action, then, complete diversity of citizenship will not be present, and this Court will lack the jurisdiction necessary to entertain this suit, as ACIC's insured (the Clemens defendants) are residents of Alabama, just like the Armentrouts. Although the question of whether a garnishment proceeding in Alabama, such as the one before the undersigned, is a "direct action" under the above statute is largely unsettled, it is the undersigned's opinion that the majority interpretationof Eleventh Circuit and old Fifth Circuit cases leads to the conclusion that it is not.

In Fortson v. St. Paul Fire and Marine Ins. Co., 751 F.2d 1157 (11th Cir.1985), the Court looked at the legislative intent behind the enactment of 28 U.S.C. § 1332(c):

That section was enacted by Congress in order to eliminate the basis for diversity jurisdiction in states that allow an injured third-party claimant to sue an insurance company for payment of a claim without joining the company's insured as a party, where the insured would be a non[-]diverse party, even though the party insurance company would otherwise be diverse.

Id. at 1159 (citing Hernandez v. Travelers Ins. Co., 489 F.2d 721, 723 (5th Cir.) cert. denied, 419 U.S. 844, 95 S.Ct. 78, 42 L.Ed.2d 73 (1974)). The Hernandez opinion from which Fortson derived the above statement, however, states in relevant part:

Congress intended that wherever a party claiming to have suffered injuries or damage for which another is legally responsible is entitled to sue the other's liability insuror [sic] without joining the insured and without having first obtained a judgment against the insured, the insurer shall be deemed a citizen of the State of which the insured is a citizen as well as of any State by which the insurer has been incorporated and of the State where it has its principal place of business, for the purposes of determining whether diversity jurisdiction exists.

Hernandez, 489 F.2d at 722 (emphasis added) (citing Vines v. United States Fidelity & Guaranty Co., 267 F.Supp. 436 (E.D.Tenn.1967)).²

The Fortson opinion, which ACIC partly relies upon in their argument that the current garnishment proceeding is not classifiable as a...