United States District Court, D. Colorado
PARKSIDE AT MOUNTAIN SHADOWS OWNERS ASSOCIATION, INC., a Colorado nonprofit corporation, Plaintiff,
TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, a Connecticut corporation Defendant.
ORDER GRANTING PLAINTIFF’S MOTION TO REMAND
William J. Martínez United States District Judge
On January 16, 2015, Defendant Travelers Casualty and Surety Company of America removed the instant action from the Colorado District Court, El Paso County, to this Court. (ECF No. 1.) On January 23, 2015, Plaintiff Parkside at Mountain Shadows Owners Association, Inc. filed an Entry of Appearance and Motion to Remand (“Motion”), which is now before the Court. (ECF No. 9.) The Motion was fully briefed on February 27, 2015. (ECF No. 15.) Defendant thereafter sought, and was granted, leave to filed a surreply. (ECF No. 19-1.) Plaintiff subsequently filed a sur-surreply, to which Defendant responded. (ECF Nos. 23 & 27-1.) For the reasons set forth below, the Motion is granted.
Plaintiff is a homeowners association. (ECF No. 15 at 2.) In 2012, a severe wildfire destroyed many of the homes in the community managed by Plaintiff. (ECF No 4 at 4.) Several homeowners later sued Plaintiff’s board of directors, claiming they failed to procure adequate property insurance coverage for the destroyed homes (“the Underlying Action”). (ECF No. 9-1 at 57.) Plaintiff sought coverage for the residents’ claims under its directors and officers liability insurance policy that it purchased from Defendant through an insurance agent, CB Insurance, LLC (“CBI”). (ECF No. 15 at 2.) Defendant denied coverage for the claims against Plaintiff. (ECF No. 4 at 6.) Plaintiff alleges that Defendant breached the directors and officers policy when it refused to cover those claims. (ECF No. 4.)
Defendant removed this matter on the basis of diversity jurisdiction on January 16, 2015. (ECF No. 1.) However, after Plaintiff held its annual meeting on January 21, 2015, it allegedly became aware that it might have claims against CBI, and filed the Motion two days later along with an Amended Complaint naming CBI as a defendant to this action. (ECF No. 9-1.) The Amended Complaint states that CBI misrepresented the scope of insurance coverage that CBI advised Plaintiff to procure. (Id. at 10.)
Plaintiff argues that complete diversity no longer exists because CBI’s principal place of business is in Colorado. (ECF No. 9 at 3.) Defendant responds that adding CBI as a defendant is a sham to defeat diversity. (See generally ECF No. 13.) Defendant further argues that CBI is not a necessary party, and the doctrine of fraudulent joinder applies. (Id.) The Court addresses Defendant’s arguments below.
II. LEGAL STANDARD
Federal district courts have jurisdiction over all civil actions in which the amount in controversy exceeds $75, 000 and complete diversity exists between the parties. 28 U.S.C. § 1332(a). The party invoking diversity jurisdiction must prove its existence by a preponderance of the evidence. Middleton v. Stephenson, 749 F.3d 1197, 1200 (10th Cir. 2014). “If a non-diverse party is added to the complaint at any time prior to final judgment, the case must be remanded to state court.” McPhail v. Deere & Co., 529 F.3d 947, 951 (10th Cir. 2008); see also 28 U.S.C. § 1447.
Plaintiff filed its Amended Complaint naming CBI as a defendant on January 23, 2015, before Defendant filed an answer to the original complaint. (ECF Nos. 9 & 12.) Plaintiff’s Amended Complaint would usually be accepted without the need for Defendant’s written consent or leave from the Court. Fed.R.Civ.P. 15(a). However, Rule 15(a) conflicts with 28 U.S.C. § 1447(e), which provides: “If after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the State court.” The Tenth Circuit has not directly addressed the conflict between these two provisions. See Baumeister v. Home Depot U.S.A., Inc., 2011 WL 650338, at *2 (D. Colo. Feb. 11, 2011).
The Court holds that amendments joining non-diverse parties are subject to 28 U.S.C. § 1447(e) even where the amendment would otherwise be freely allowed by Rule 15(a). See id.; Broadnax v. GGNSC Edwardsville III LLC, 2014 WL 1308908, at *2 (D. Kan. Mar. 28, 2014); Reigel v. Canyon Sudar Partners, L.L.C., 2007 WL 3274430, at *2 (D. Colo. Nov. 5, 2007) (“Like the Fourth Circuit, this Court concludes that, in a removed case, a plaintiff cannot file an amended complaint without leave of the Court if doing so would destroy diversity jurisdiction. This is because . . . a plaintiff cannot force a remand simply by amending its complaint without leave of the court.”). Plaintiff, therefore, may not add CBI as a matter of right, and the Court’s joinder analysis is guided by several considerations.
If the non-diverse party’s joinder is required by Federal Rule of Civil Procedure 19, the Court must either remand under § 1447(e), or deny joinder and dismiss the action. McPhail, 529 F.3d at 951. If joinder is instead permissive under Rule 20(a)(2), the Court’s decision is discretionary. Id. In exercising their discretion, courts consider several factors: (1) whether the amendment was “unduly and inexplicably delayed”; (2) whether the amendment was offered in good faith; (3) whether the amendment was designed to defeat diversity; (4) whether the plaintiff will be significantly injured if the amendment is denied; and (5) whether parallel state and federal litigation will result if the amendment is denied. McPhail, 529 F.3d at 952; Baumeister, 2011 WL 650338, at *2; Robar v. Wells Fargo Bank, 2006 WL 2374784, at *1 (D. Colo. Aug. 16, 2006).
Defendant argues that the complaint in the Underlying Action belies Plaintiff’s assertion that it discovered its claims against CBI after the annual meeting on January 21, 2015. (ECF No. 13 at 8.) That complaint states that one of Plaintiff’s directors distributed a letter to the homeowners that admitted Plaintiff chose not to carry insurance for the fire-damaged property. (ECF No. 9-1 at 58.) In August 2012, one of the homeowners, Terry Rector, forwarded this letter to CBI and advised it that Plaintiff had relied on CBI’s advice not to carry insurance, and that CBI could be liable as a result. (Id.) Therefore, Defendant argues that Plaintiff and its board knew of the potential claims against CBI well over two years ago, and it was not until Defendant filed its Notice of Removal that Plaintiff chose to name CBI as a defendant. (ECF No. 13 at 8.) According to Defendant, this chronology and Plaintiff’s prior knowledge of CBI’s potential liability prove the amendment is offered solely to defeat jurisdiction. (Id.)
Before the Court proceeds with its analysis it is worth mentioning that several questions loom regarding Plaintiff’s course of action after the fire. Shouldn’t Plaintiff have known that CBI could be liable for its alleged misrepresentations and negligence once Defendant denied coverage under the directors and officers policy? What specific information did Plaintiff obtain at its annual meeting that it didn’t have when it filed this suit against Defendant in state court? “[W]here, as here, a plaintiff seeks to add a nondiverse defendant immediately after removal but before any additional discovery has taken place, district courts should be wary that the amendment sought is for the specific purpose of avoiding federal jurisdiction.” Mayes v. Rapoport, 198 F.3d 457, 463 (4th Cir. 1999). This is a very close case. However, and as will be discussed below, the Court will trust that Plaintiff’s counsel, as officers of this Court, would not have misrepresented any facts material to the Motion’s adjudication, and that at the ...