Protopapas v. Zurich Am. Ins. Co.

Peter D. Protopapas, as the Receiver for Payne & Keller Company, Plaintiff, v. Zurich American Insurance Company; Travelers Casualty & Surety Company, formerly known as Aetna Casualty & Surety Company; Continental Insurance Company; National Union Fire Insurance Company of Pittsburgh, PA; Medmarc Casualty Insurance Company; Berkshire Hathaway Specialty Insurance Company, formerly known as Stonewall Insurance Company; Lexington Insurance Company; Certain Underwriters at Lloyd's of London and Various London Market Companies; South Carolina Property and Casualty Insurance Guaranty Association; R.L. Jarrett Underwriting Agency, Inc.; U.S. Risk, LLC; First State Insurance Company; and Birmingham Fire Insurance Company, Defendants.

C. A. No. 3:21-4086-DCC

United States District Court, D. South Carolina, Columbia Division

October 20, 2022

REPORT AND RECOMMENDATION ON PLAINTIFF'S MOTION TO REMAND

PAIGE J. GOSSETT, UNITED STATES MAGISTRATE JUDGE

Plaintiff Peter D. Protopapas is the Receiver for Payne & Keller Company, a defunct corporation facing personal injury suits by non-party claimants who allegedly were exposed to asbestos. The Receiver filed this insurance case in the Richland County Court of Common Pleas- the same court that appointed him as Receiver for Payne & Keller-seeking a declaration of rights and damages against numerous insurance companies he believes may be contractually liable to defend Payne & Keller and cover the asbestos plaintiffs' claims. Defendant Travelers Casualty & Surety Company (“Travelers”) removed the action to this court on December 20, 2021. Upon referral from the Honorable Donald C Coggins, United States District Judge, this matter is now before the court for a Report and Recommendation on Plaintiff's motion to remand.^[1] (ECF No. 24.) The motion has been extensively briefed.^[2] (See ECF Nos. 47, 48 49, 50, 52, 118, 141, 142, 144, 145, 150.) The court also heard oral argument on Plaintiff's motion on October 4 2022. Having carefully considered the twelve filings and over two hours of oral argument, the court concludes that Plaintiff's motion should be granted because, although the court has subject matter jurisdiction, the statutory conditions for removal are not met.

BACKGROUND

In removing this case, Travelers relies on the court's diversity jurisdiction under 28 U.S.C. § 1332. The notice of removal indicates that Travelers obtained the consent of all of the diverse defendants who had been served.^[3] Travelers expressly asserted that the citizenship of Defendant South Carolina Property and Casualty Insurance Guaranty Association (“Guaranty Association”) should be disregarded because the Guaranty Association was fraudulently joined. (ECF No. 1.)

Following removal, Plaintiff filed an Amended Complaint seeking a declaratory judgment: (1) directing the defendants to provide relevant insurance policies and documents; and (2) containing numerous specific findings as to the existence and interpretations of the coverage of these various policies. Plaintiff's Amended Complaint further alleges breach of contract, seeks an accounting of past claims, and prays for damages, fees, and costs.^[4]

DISCUSSION

A. Removal Generally

A defendant may remove any civil action brought in a state court of which the federal district court has original jurisdiction, 28 U.S.C. § 1441(a); but the court must remand the case at any time before the final judgment if it appears that the federal court lacks subject matter jurisdiction, 28 U.S.C. § 1447(c); Eilenburg v. Spartan Motors Chassis, Inc., 519 F.3d 192, 196 (4th Cir. 2008). “Removal statutes, in particular, must be strictly construed, inasmuch as the removal of cases from state to federal court raises significant federalism concerns.” Barbour v. Int'l Union, 640 F.3d 599, 605 (4th Cir. 2011) (en banc) (abrogated in part on other grounds by statute) (citing Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09 (1941)). “Doubts about the propriety of removal should be resolved in favor of remanding the case to state court.” Id. (citing Dixon v. Coburg Dairy, Inc., 369 F.3d 811, 816 (4th Cir. 2004)).

Where removal is challenged, the defendant bears the burden of establishing jurisdiction by a preponderance of the evidence. See Mulcahey v. Columbia Organic Chems. Co., Inc., 29 F.3d 148, 151 (4th Cir. 1994); Chau v. Air Cargo Carriers, LLC, 425 F.Supp.3d 658, 661 (S.D. W.Va. 2019). “[T]he jurisdiction of the court depends upon the state of things at the time of the action brought.... [The time-of-filing rule] measures all challenges to subject-matter jurisdiction premised upon diversity of citizenship against the state of facts that existed at the time of filing-whether the challenge be brought shortly after filing, after the trial, or even for the first time on appeal.” Grupo Dataflux v. Atlas Glob. Grp., L.P., 541 U.S. 567, 570-71 (2004) (internal quotation marks and citations omitted). At issue here is diversity jurisdiction, 28 U.S.C. § 1332(a), which requires complete diversity of parties and an amount in controversy in excess of $75,000. Complete diversity of parties in a case means that no party on one side may be a citizen of the same state as any party on the other side. See Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 372-74 nn.13-16 (1978).

B. Plaintiff's Motion

Plaintiff seeks remand to state court for three independent reasons: (1) Defendant Guaranty Association is properly joined and is a citizen of South Carolina, so diversity jurisdiction is lacking; (2) the Barton doctrine demands that this action be litigated in the court that appointed the receiver; and (3) several of the defendants contracted away their right to consent to removal, so the statutory rule of unanimity is not met. The parties appear to agree that the first two arguments implicate the court's subject matter jurisdiction. The third presents a question of whether statutory prerequisites are met for removal such that the case can continue to be litigated in a federal forum.

1. Fraudulent Joinder

“[T]he fraudulent joinder 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.' ” Johnson v. Am. Towers, LLC, 781 F.3d 693, 704 (4th Cir. 2015) (quoting Mayes v. Rapoport, 198 F.3d 457, 461 (4th Cir. 1999)). “The party alleging fraudulent joinder bears a heavy burden-it must show that the plaintiff cannot establish a claim even after resolving all issues of law and fact in the plaintiff's favor.” Johnson, 781 F.3d at 704 (quoting Hartley v. CSX Transp., Inc., 187 F.3d 422, 424 (4th Cir. 1999)). “This standard is even more favorable to the plaintiff than the standard for ruling on a motion to dismiss under Fed.R.Civ.P. 12(b)(6).” Hartley, 187 F.3d at 424. The party seeking to establish fraudulent joinder must demonstrate “either that the plaintiff committed outright fraud in pleading jurisdictional facts,^[5] 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.” Weidman v. Exxon Mobile Corp., 776 F.3d 214, 218 (4th Cir. 2015) (internal quotation marks and citation omitted). Stated differently, a plaintiff need establish “only a slight possibility of a right to relief” or a “glimmer of hope” for relief to defend a claim of fraudulent joinder. Mayes, 198 F.3d at 464 (internal quotation marks and citations omitted).

The Defendants Opposing Remand advance two separate reasons why the court should find that the Receiver has no possibility of relief from the non-diverse Defendant Guaranty Association. First, these defendants argue that there are no “covered claims” being asserted against the Guaranty Association. Second, the defendants argue that no claim against the Guaranty Association can possibly lie because all claims are time barred by the applicable statute of repose.

The second argument is dispositive of the fraudulent joinder issue. The Guaranty Association is a creature of state statute created in 1971 “to provide a safety net for insurance consumers if their insurance company becomes insolvent and is no longer able to meet its obligations.” https://www.scguaranty.com/about.html (last accessed on Oct. 19, 2022); see also S.C. Code Ann. § 38-31-40 (explaining that “[t]here is created a nonprofit unincorporated legal entity to be known as the South Carolina Property and Casualty Insurance Guaranty Association” and providing for “member insurers” who “are members of the association as a condition of their authority to transact insurance in this State”). Pertinent here, based on the state statutory scheme, the Guaranty Association would step into the shoes of two insolvent insurers, Reliance Insurance Company (“Reliance”) and Highlands Underwriters Insurance Company (“Highlands”). See Buchanan v. S.C. Prop. & Cas. Ins. Guar. Assn, 819 S.E.2d 124, 126 (S.C. 2018) (“When an insurer becomes insolvent, the Guaranty steps into the shoes of the insurer ‘to the extent of its obligation on the covered claims.' ”) (quoting S.C. Code Ann. § 38-31-60(b)).

But the South Carolina General Assembly imposed a deadline to bring covered claims to the Guaranty Association. That deadline is the earlier of (1) “the final date set by a court for the filing of claims against the liquidator or receiver of an insolvent insurer,” or (2) within “eighteen months after the declaration of insolvency.” S.C. Code Ann. § 38-31-60(a)(iv)(2). As Plaintiff acknowledges Reliance was liquidated as insolvent on October 3, 2001. The statutory deadline to present claims against Reliance to the Guaranty Association therefore ran on April 3, 2003. ...