Gardner Grp., LLC v. Commonwealth Land Title Ins. Co., Case No. 15-9934

GARDNER GROUP, LLC, Plaintiff, v. COMMONWEALTH LAND TITLE INSURANCE COMPANY, et al., Defendants.

Case No. 15-9934

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

January 18, 2017

MEMORANDUM AND ORDER

Plaintiff originally filed this action in the District Court of Johnson County, Kansas seeking redress for breach of contract, negligent misrepresentation and negligent nondisclosure against defendant Commonwealth Land Title Insurance Company ("Commonwealth.") Commonwealth subsequently removed the action to this court based upon diversity of citizenship pursuant to 28 U.S.C. §§ 1332(a) and 1441(b). However, plaintiff filed a Second Amended Petition adding claims against two additional defendants, SMS Ventures, Inc. ("SMS") and Randall Sparks, both residents of Gardner, Kansas. (Doc. 19.) Plaintiff also filed a Motion for Remand to State District Court and For Stay of Scheduling Order (Doc. 20). SMS and Sparks filed an opposition to the motion to remand (Doc. 26) and a motion to dismiss (Doc. 25) alleging that plaintiff's amended petition fails to state a claim under Federal Rule of Civil Procedure 12(b)(6).

I. Factual Background

On May 29, 2007, SMS sold a tract of land to plaintiff that was located near the end of the runway of the Gardner Municipal Airport. The real estate contract, dated September 8, 2006, was originally between SMS and David M. Johnson and/or his assigns. Mr. Johnson assigned the contract to plaintiff. SMS executed a warranty deed purportedly conveying title to plaintiff.

Commonwealth issued a title insurance policy dated May 31, 2007, insuring the land purchased by plaintiff. Plaintiff intended to develop the land for commercial use.

In 2014, plaintiff obtained a contract to sell a portion of the land. However, the contract was canceled after plaintiff was notified about an encumbrance on the title to the land. The City of Gardner, Kansas created this encumbrance when it enacted Ordinance No. 2149 in May 2005, after defendant Sparks submitted an application for rezoning of the land. Ordinance No. 2149 is an avigation easement which limited the height of buildings at the end of the runway—specifically providing "[t]he 20 to 1 approach slope to the Gardner Municipal Airport runway shall remain clear." The City of Gardner recorded the ordinance in the office of the Register of Deeds of Johnson County, Kansas and published it in The Gardner News in May 2005.

In Schedule B of its title insurance policy, Commonwealth listed 12 exceptions from coverage, including other easements to the City of Gardner. But Ordinance No. 2149 was not listed nor was it noted anywhere in the title insurance policy issued to plaintiff.

Around February 19, 2015, plaintiff made a demand upon Commonwealth for its loss and damage under the policy. Commonwealth denied coverage on April 24, 2015. Plaintiff claims that Commonwealth failed to disclose the existence of the encumbrance, which was in existence at the time the title insurance contract was executed. Plaintiff also claims that the encumbrance rendered the land unmarketable and Commonwealth breached its contract when it refused to pay for plaintiff's loss.

In its amended complaint, plaintiff alleges that SMS and Sparks, as its officer, failed to disclose the easement on the land at the time of purchase. Plaintiff claims that SMS issued a Seller's Affidavitand swore that there were no encroachments upon the land nor did SMS have any knowledge of any rights of possession by another party. Plaintiff seeks damages that exceed $75,000.

II. Legal Standards

A defendant 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). "Only state-court actions that originally could have been filed in federal court may be removed to federal court by the defendant." Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 (1987). Federal courts have original jurisdiction over civil actions where the amount in controversy exceeds $75,000 and each defendant is a resident of a different state than each plaintiff. 28 U.S.C. § 1332(a); Caterpillar, Inc. v. Lewis, 519 U.S. 61, 68 (1996). However, "[r]emoval jurisdiction over diversity cases is more limited than jurisdiction over diversity cases originally brought in federal court because removal based on diversity is available only if none of the defendants is a citizen of the state in which the action is brought." Wolf Creek Nuclear Operating Corp. v. Framatome ANP, Inc., 416 F. Supp. 2d 1081, 1085 (D. Kan. 2006); see also 28 U.S.C. § 1441(b) (providing that an action based on anything other than original jurisdiction is only removable "if none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.").

Because this is a court of limited jurisdiction, the court must refrain from exercising jurisdiction unless it is certain that such jurisdiction has been granted by Congress. See Adams v. Reliance Standard Life Ins. Co., 225 F.3d 1179, 1182 (10th Cir. 2000) ("In light of the limited subject matter jurisdiction granted to the federal courts by Congress, we have a duty to satisfy ourselves that jurisdiction is appropriate."). The removing defendant carries the burden of demonstrating that removal was proper and that the federal court has original jurisdiction. See McNutt v. Gen. Motors Acceptance Corp., 298 U.S. 178, 189 (1936). Federal removal jurisdiction is statutory in nature, andthe governing statutes are to be strictly construed. Shamrock Oil & Gas v. Sheets, 313 U.S. 100, 108-09 (1941); Merrell Dow Pharm., Inc. v. Thompson, 478 U.S. 804, 814 (1986). It is well-settled that the presumption is against removal jurisdiction. Coca-Cola Bottling of Emporia, Inc. v. S. Beach Beverage Co., 198 F. Supp. 2d 1280, 1285 (D. Kan. 2002). Doubtful cases must be resolved in favor of remand. Fajen v. Found. Reserve Ins. Co., 683 F.2d 331, 333 (10th Cir. 1982).

III. Analysis

Plaintiff is a Kansas limited liability company, with its principal place of business in Kansas. Plaintiff's three members are individuals whose principal residence is in Lenexa, Kansas. Commonwealth is a Nebraska corporation, with its principal place of business in Nebraska and Florida.

At the time of removal, Commonwealth was the sole defendant. However, Commonwealth later filed a designation of comparative fault and identified SMS and its officers, directors, and stockholders as a party whose fault was to be compared in plaintiff's case.

Plaintiff filed an amended petition and claimed breach of contract, fraudulent concealment, and negligent nondisclosure against SMS and Sparks. SMS is a Kansas corporation with its principal office in Gardner, Kansas. Sparks is an officer and resident agent for SMS whose address is also in Gardner, Kansas.

The citizenships and residencies of each party are not in dispute. As plaintiff and SMS and Sparks are residents of Kansas, complete diversity is lacking. However, SMS and Sparks claim that they are fraudulently joined and oppose plaintiff's motion for remand.

A. Fraudulent joinder

Fraudulently joined parties should be ignored for the purposes of assessing whether removal is permitted. See Dutcher v. Matheson, 733 F.3d 980, 987-88 (10th Cir. 2013). To establish fraudulent joinder, the removing party must demonstrate either: "(1) actual fraud in the pleading of jurisdictionalfacts, or (2) inability of the plaintiff to establish a cause of action against the non-diverse party in state court." Id. at 988. Defendants oppose remand and bear a heavy burden of proving fraudulent joinder, and all factual and legal issues must be resolved in plaintiff's favor. Id. To prove their allegation of fraudulent joinder, SMS and Sparks must demonstrate that there is no possibility that plaintiff would be able to establish a cause of action against them in state court. See Montano v. Allstate Indem., No. 99-2225, 211 F.3d 1278, 2000 WL 525592, at *1 (10th Cir. Apr. 14, 2000). The court must decide if plaintiff's amended complaint states a cause of action against SMS and Sparks.

B. Rule 12(b)(6)

To the extent this court has subject matter jurisdiction, the court must determine whether plaintiff's action is subject to dismissal because it fails to state a claim upon which relief could be granted. The court grants a motion to dismiss under Fed. R. Civ. Pro. 12(b)(6) only when the factual allegations fail to "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). However, the Tenth Circuit has applied a stricter standard in a removal case than that for dismissing a claim under Fed.R.Civ.P. 12(b)(6). See Montano, 2000 WL 525592 at *2. Absent fraudulent joinder, determination on the merits should be left to the state court where the action was commenced. Id.

Although the factual allegations need not be detailed, the claims must set forth entitlement to relief "through more than labels, conclusions and a formulaic recitation of the elements of a cause of action." In re Motor Fuel Temperature Sales Practices Litig., 534 F. Supp. 2d 1214, 1216 (D. Kan. 2008). The allegations must contain facts sufficient to state a claim that is plausible—not merely conceivable. Id. "All well-pleaded facts, as distinguished from conclusory allegations, must be taken as true." Swanson v. Bixler, 750 F.2d 810, 813 (10th Cir. 1984); see also Ashcroft v. Iqbal, 556 U.S.662, 681 (2009). The court construes any reasonable inferences from these facts in favor of the plaintiff. Tal v. Hogan, 453 F.3d 1244, 1252 (10th Cir. 2006).

Generally, a court does not look beyond the face of a complaint when analyzing a Rule 12(b)(6) motion. MacArthur v. San Juan County, 309 F.3d 1216, 1221 (10th Cir. 2001). There are two exceptions to this rule. Larson v. Safeguard Properties, Inc., 379 F. Supp. 2d 1149, 1152 (D. Kan. 2005). First, the court may consider the parties'...