Carolee Morrow & the Grow Ins. Agency Corp. v. Nationwide Mut. Fire Ins. Co.

CAROLEE MORROW AND THE GROW INSURANCE AGENCY CORP., Plaintiffs, v. NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, ET AL., Defendants.

No 14-CV-2664 (JFB)(AKT)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

September 16, 2014

MEMORANDUM AND ORDER

JOSEPH F. BIANCO, District Judge:

Plaintiffs Carolee Morrow ("Morrow") and The Grow Insurance Agency Corp. ("Grow Insurance") (collectively, "plaintiffs") commenced this action in the Supreme Court of the State of New York, Nassau County, seeking a declaratory judgment and damages stemming from Morrow's attempt to acquire her former employer's Nationwide Insurance business from defendants Nationwide Mutual Fire Insurance Company, Nationwide Mutual Insurance Company, and Nationwide Financial General Agency, Inc. (collectively, "Nationwide"). This lawsuit concerns the events surrounding that failed purchase, including the enforceability of a Nationwide Advantage Program Independent Contract Exclusive Agent Master Agreement (the "Agent Agreement") executed between Morrow and Nationwide.

Defendants removed on the basis of diversity jurisdiction on April 28, 2014, arguing that defendants Kimberly Carmichael ("Carmichael") and James Funaro ("Funaro") (collectively with Nationwide, "defendants")—both New York citizens—were fraudulently joined. Pending before the Court are (1) plaintiffs' motion to remand for lack of diversity jurisdiction; and (2) defendants' motion to transfer venue and/or dismiss or stay pending arbitration. With respect to the jurisdictional issue, it is undisputed that, if either individual defendant is properly named in this action, the Court has no jurisdiction and remand is required because both plaintiffs and the individual defendants are New York citizens for jurisdictional purposes. Thus, the question is whether removal is proper because plaintiffs fraudulently joined Carmichael, Funaro, or both to the lawsuit. For the reasons that follow, the Court concludes that defendants have failed to meet their burden of demonstrating fraudulent joinder with respect to Funaro, and, thus, this Court lacks subject matterjurisdiction.¹ Accordingly, the Court must remand the action to state court pursuant to 28 U.S.C. § 1447(c).

I. BACKGROUND

A. Factual Background

On March 25, 2014, plaintiffs filed this lawsuit in the Supreme Court of the State of New York, County of Nassau against Carmichael and Funaro, who are New York citizens, and Nationwide.

According to the complaint, Morrow is a licensed insurance agent who was employed by the Bernich Agency (the "Agency") prior to March 31, 2013. (Complaint ¶¶ 15-16.) The Agency had a substantial book of business with Nationwide (the "Nationwide Sales"). (Id. ¶ 18.) At one point, the Agency sold products requiring Series 6 and 63 licensing and registration with FINRA, but, at some time before April 2013, Nationwide stopped the Agency from selling such products. (Id. ¶¶ 19-20.) Plaintiffs allege that Nationwide's agents told Morrow she would be able to acquire the Agency's Nationwide Sales effective April 1, 2013. (Id. ¶ 22.) Relying on those representations, Morrow arranged for a new lease to the premises where the Agency was located and began servicing the broker business. (Id. ¶¶ 23-24.) Because plaintiffs did not have a written agreement with Nationwide at that time, they serviced the entire broker business from April 1 through June 30, 2013, through a different Nationwide agent, which received the payments for the commission from Nationwide and forwarded them to plaintiffs. (Id. ¶ 24.)

According to plaintiffs, between April 1 and June 14, 2013, they received reassurances that they would get a new contract from Nationwide confirming their acquisition of the Nationwide Sales. (Id. ¶ 25.) Apparently, a proposed contract was sent to Morrow via email on June 14, 2013, but she mistakenly deleted it and only saw it during a telephone call with Nationwide on June 17, 2013. (Id. ¶¶ 26-27, 35.) Morrow allegedly was told she had to sign the contract by June 18, 2013, or else she would lose the opportunity to take over the business. (Id. ¶ 36.) Morrow "signed the Agreement because she did not want to lose the Bernich Agency Nationwide Sales that she was promised," even though she claims she did not have the time to read it through or have an attorney review it. (Id. ¶¶ 37-38.)

According to Morrow, pursuant to the contract's terms, she had to acquire Series 6 and 63 licenses within six months of the execution of the contract. (Id. ¶ 40.) When she failed to do so, she was told her contract would be terminated and that she would be given thirty days' notice of the termination. (Id. ¶ 41.) Morrow further claims her contract was summarily and immediately terminated without the requisite notice on February 18, 2014. (Id. ¶ 42.) According to a letter from Nationwide, it canceled the Agent Agreement because Morrow failed to pass the Series 6 and 63 examinations within 180 days of the Agent Agreement's effective date. (Id. ¶ 43.) Nationwide also noted that it or Morrow could terminate the contract at any time, with or without cause. (Id.) Morrow alleges that the cancellation was a subterfuge in an attempt to confiscate her Nationwide insurance business and turn it over to Funaro. (Id. ¶ 43.) She also claims that Nationwide's district sales manager told her that her sales would be given to Funaro, with no compensation. (Id. ¶ 44.)

In the complaint, plaintiffs contend that "[d]efendants' scheme was to sell the franchise to unwitting insurance [salesmen] on onerous terms that enabled Defendants totake back the franchise at any time and without reason." (Id. ¶ 4.) "At the same time, Defendants would reap the benefits of purchaser's agency to generate profits solely for them while the purchasers undertook all the obligations and incurred all the expenses and were falsely led to believe they had acquired a valuable asset." (Id.)

B. Procedural Background

Plaintiffs filed the complaint in the Supreme Court of the State of New York on March 25, 2014. Defendants removed to this Court on April 28, 2014. Defendants filed their motion on May 5, 2014. Plaintiffs filed their motion to remand and their opposition to defendants' motion on June 16, 2014. Defendants filed their opposition to plaintiffs' motion, and their reply in support of their motion, on July 16, 2014. Plaintiffs filed their reply in support of their motion to remand on August 1, 2014. The Court heard oral argument on September 10, 2014. The matter is fully submitted.

II. STANDARD OF REVIEW

A. Motion to Remand

Generally, a case may be removed from state court to federal court "only if it could have originally been commenced in federal court on either the basis of federal question jurisdiction or diversity jurisdiction." Citibank, N.A. v. Swiatkoski, 395 F. Supp. 2d 5, 8 (E.D.N.Y. 2005) (citing 28 U.S.C. § 1441(a)); see also 28 U.S.C. § 1441. If a federal district court determines that it lacks subject matter jurisdiction over a case removed from state court, the case must be remanded. 28 U.S.C. § 1447(c). "When a party challenges the removal of an action from state court, the burden falls on the removing party to establish its right to a federal forum by competent proof." In re Methyl Tertiary Butyl Ether ("MTBE") Prods. Liab. Litig, No. 1:00-1898, MDL 1358 (SAS), M 21-88, 2006 WL 1004725, at *2 (S.D.N.Y. Apr. 17, 2006) (internal quotation marks and citations omitted). Further, "[i]n light of the congressional intent to restrict federal court jurisdiction, as well as the importance of preserving the independence of state governments, federal courts construe the removal statute narrowly, resolving any doubts against removability." Lupo v. Human Affairs Int'l, Inc., 28 F.3d 269, 274 (2d Cir. 1994) (quoting Somlyo v. J. Lu-Rob Enters., Inc., 932 F.2d 1043, 1045-46 (2d Cir. 1991)); accord Fed. Ins. Co. v. Tyco Int'l Ltd., 422 F. Supp. 2d 357, 367-68 (S.D.N.Y. 2006).

B. Diversity Jurisdiction

It is axiomatic that federal courts only have diversity jurisdiction when there is complete diversity between the parties—that is, when all plaintiffs are citizens of different states from all defendants. See 28 U.S.C. § 1332; Lincoln Prop. Co. v. Roche, 546 U.S. 81, 89 (2005); Advani Enters., Inc. v. Underwriters at Lloyds, 140 F.3d 157, 160 (2d Cir. 1998). In other words, if any plaintiff shares citizenship of the same state as any defendant, complete diversity does not exist, and diversity jurisdiction is lacking. However, as the Second Circuit has made clear, "a plaintiff may not defeat a federal court's diversity jurisdiction and a defendant's right of removal by merely joining as defendants parties with no real connection with the controversy." Pampillonia v. RJR Nabisco, Inc., 138 F.3d 459, 460-61 (2d Cir. 1998). Furthermore, in order for there to be diversity jurisdiction, the amount in controversy must exceed $75,000. See 28 U.S.C. § 1332(a).

In analyzing whether subject matter jurisdiction exists, the Court is permitted to look to materials outside of the pleadings. See Bldg. & Constr. Trades Council of Buffalo, N.Y. & Vicinity v. Downtown Dev.,Inc., 448 F.3d 138, 150 (2d Cir. 2006) ("Although [the district court's] ruling required [it] to look outside the pleadings, a court has discretion to do so when determining whether it has subject matter jurisdiction." (citing Luckett v. Bure, 290 F.3d 493, 496-97 (2d Cir. 2002))); see also Pampillonia, 138 F.3d at 461-62 (looking to affidavits on removal petition to determine whether party had been fraudulently joined). "Such materials can include documents appended to a notice of removal or a motion to remand that convey information essential to the court's jurisdictional analysis." Romano v. Kazacos, 609 F.3d 512, 520 (2d Cir. 2010) (citing Davenport v. Procter & Gamble Mfg. Co., 241 F.2d 511, 514 (2d Cir. 1957) (looking to information contained in affidavits submitted in support of a motion to remand to determine removability); Oglesby v. RCA Corp....