Griffin v. American General Finance, Inc.

Full title: WILLIE F. GRIFFIN PLAINTIFF v. AMERICAN GENERAL FINANCE, INC., AMERICAN…

Court: United States District Court, N.D. Mississippi, Greenville Division

Date published: Mar 15, 2004

Civil Action No. 1:03CV155-P-D (N.D. Miss. Mar. 15, 2004)

Opinion

Civil Action No. 1:03CV155-P-D.

March 15, 2004

MEMORANDUM OPINION

W. ALLEN PEPPER, JR., District Judge

This cause is before the Court on the plaintiff's Motion to Remand [6-1]. The Court, having reviewed the motion, the response, the briefs of the parties, the authorities cited and being otherwise fully advised in the premises, finds as follows, to-wit:

FACTUAL BACKGROUND

The present action arose as a result of several consumer loans from American General Financial Services, Inc. to Willie Griffin between October 1999 and December 2002. Very briefly, the onus of plaintiff's claims stems from his allegation that defendants sold him various types of insurance coverage in conjunction with his loans. The complaint further alleges that Karen Shaffer and Gina Beatty, employees of AGFS, represented to Griffin that the life insurance and/or property coverage in question was necessary to the extension of credit.¹ In point of fact, the loan documents explicitly stated that insurance was not required in order to obtain a loan. Willie Griffin has been legally blind since 1996; accordingly, he alleges that he acted in reliance on the defendants' representations.² Griffin apparently sought the advice of counsel after learning of suits involving similar practices and on March 10, 2003, he filed suit in the Circuit Court of Clay County, Mississippi. Defendants filed a timely Notice of Removal on April 8, 2003, alleging diversity jurisdiction, predicated on fraudulent joinder of the nondiverse defendants, as grounds for removal.³ The plaintiff, in turn, filed a Motion to Remand founded on a lack of subject matter jurisdiction. The matter has been fully briefed and the Court is ready to rule.

1 Or, as paraphrased from the plaintiff's deposition, Griffin inquired about whether the insurance was a part of American General's policy and the individual defendants responded affirmatively. Plaintiff's testimony also makes clear that neither Beatty nor Shaffer ever explained that he did not have to accept the insurance coverage in order to obtain the loans.

2 Remand-related discovery revealed that Mr. Griffin's elderly mother accompanied him to the loan closings. His mother did not examine the documents for him, except perhaps to convey the term of the loan and the payment amounts.

3 The Notice of Removal also asserted federal question jurisdiction as a basis for the removal. The Court assumes defendants abandoned that argument inasmuch as they failed to address the issue in their brief opposing remand. To the extent that it is still in issue, the Court whole-heartedly rejects the assertion. Plaintiff's well-pled complaint specifically disavowed reliance on federal law as a basis for his claim. Furthermore, in the absence of complete preemption, the artful pleading doctrine is inapplicable. Waste Control Specialists, LLC v. Envirocare of Texas, Inc., 199 F.3d 781, 783 (5^th Cir. 2000).

STANDARD OF REVIEW

It is axiomatic that the party seeking removal bears the burden of proving the jurisdictional prerequisites. Where the basis for removal is diversity jurisdiction based on the allegation of fraudulent joinder, a defendant bears a heavy burden of establishing the right to a federal forum. The removing defendant must present clear and convincing evidence of fraudulent joinder in order to avoid remand. Rogers v. Modern Woodmen of America, 1997 WL 206757, *2 (N.D. Miss. 1997). Fraudulent joinder may be proven in two ways: "(1) actual fraud in the pleading of jurisdictional facts, or (2) inability of the plaintiff to establish a cause of action against the non-diverse party in state court. Travis v. Irby, 326 F.3d 644 (5^th Cir. 2003). Only where a plaintiff cannot posit a reasonable basis for predicting that state law would allow recovery may a defendant prevail on an allegation of fraudulent joinder.

The existence of a cognizable claim is to be determined by reference to the allegations contained in the plaintiff's state court pleadings. Ironworks Unlimited v. Purvis, 798 F. Supp. 1261, 1263 (S.D. Miss. 1992). The Court is also free to pierce the pleadings by considering summary judgment-type evidence such as affidavits and deposition testimony. Carriere v. Sears, Roebuck and Co., 893 F.2d 98, 100 (5^th Cir. 1990). But in doing so, however, the Court must remain mindful not to overstep its province by transforming the jurisdictional inquiry into one that is merits-based. B, Inc. v. Miller Brewing Co., 663 F.2d 545 (5^th Cir. 1981). In determining whether the joinder of a party was fraudulent, the district court "must evaluate all of the factual allegations in the light most favorable to the plaintiff, resolving all contested issues of fact in favor of the plaintiff." B., Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (5^th Cir. 1981). Similarly, any uncertainties in the substantive law must also be resolved in favor of the plaintiff.Head v. United Ins. Co. of America, 966 F.Supp. 455, 457 (N.D. Miss. 1997).

LEGAL ANALYSIS

A. Fraudulent Joinder Analysis

The Complaint names numerous corporate defendants, including American General Finance, Inc. and several insurers. Also named as defendants are Karen Shaffer and Gina Beatty, employees of American General Finance's branch office in Columbus, Mississippi. The Complaint enumerates various theories of recovery under state law; chief among them are breach of fiduciary duty, breach of implied covenants of good faith and fair dealing, fraudulent misrepresentation and/or omission, negligent misrepresentation and/or omission, civil conspiracy and negligence.

The corporate defendants are foreign corporations⁴ having their principal places of business in Texas, Indiana and Illinois. Mr. Griffin is a citizen of Mississippi, as are the individual defendants, Shaffer and Beatty. It is their joinder as defendants which renders the removal problematic. On its face, there is a lack of complete diversity between Griffin and defendants Shaffer and Beatty. In removing the case, however, defendants averred that Shaffer and Beatty had been fraudulently joined in an effort to defeat this Court's diversity jurisdiction. Their brief in opposition to the Motion to Remand painstakingly addresses each cause of action and attempts to demonstrate that there is no reasonable possibility of recovery against defendants Shaffer and Beatty. In the past, the Court has undertaken the same laborious process to determine whether a plaintiff engaged in fraudulent conduct designed to evade diversity jurisdiction. The Court eschews such an approach in the instant case as inconsistent with the Supreme Court's decision inChesapeake Ohio Railway Company v. Cockrell, 232 U.S. 146, 58 L.Ed. 544, 34 S. Ct. 278 (1914), and recent Fifth Circuit precedent.

4 The Complaint actually purports to name a Mississippi corporation, American General Finance, Inc. (AGFI-MS), as a defendant. However, as the Notice of Removal makes clear, AGFI-MS merged out of existence on or about February 16, 2001. The surviving company, American General Financial Services, Inc. (AGFS) is a Delaware Corporation having its principal place of business in Indiana. Plaintiff has not refuted the assertions contained in the Notice of Removal; accordingly, the Court concludes that the proper defendant is AGFS and that it is of diverse citizenship from the plaintiff.

In Cockrell, the Supreme Court considered whether the state court erred in refusing to surrender jurisdiction after the defendants filed a petition for removal. The suit alleged negligence on the part of a railway company and its employees, an engineer and a fireman, which resulted in the death of the plaintiff when she was struck by a train near a public railway crossing. In seeking to remove, the railway company neither denied that the individual defendants worked for the company nor that they were responsible for the train's operation on the day of the injury. Instead, the railway merely denied the allegations of negligence as falsely made for the purpose of fraudulently joining the engineer and fireman so as to defeat removal.

In deciding the case, the Supreme Court looked to whether the pleadings alleged a factual relationship between the nondiverse defendants and the claims pled. From there, the Court considered whether the petition for removal disavowed the involvement of the individual defendants in the accident. Finding that it did not, the Court concluded that the railway had failed to prove fraudulent joinder:

A civil case, at law or in equity, presenting a controversy between citizens of difference states, and involving the requisite jurisdictional amount, is one which may be removed by the defendant, if not a resident of the state in which the case is brought; and this right of removal cannot be defeated by a fraudulent joinder of a resident defendant having no real connection with the controversy. So, when in such a case a resident defendant is joined with the nonresident, the joinder, even although fair upon its face, may be shown by a petition for removal to be only a fraudulent device to prevent a removal; but the showing must consist of a statement of facts rightly engendering that conclusion. Merely to traverse the allegations upon which the liability of the resident defendant is rested, or to apply the epithet "fraudulent" to the joinder, will not suffice: the showing must be such as compels the conclusion that the joinder is without right and made in bad faith . . .

. . .

. . . [T]he petition for removal . . . may have disclosed an absence of good faith on the part of the plaintiff in bringing the action at all, but it did not show a fraudulent joinder of the engineer and fireman. With the allegation that they were operating the train which did the injury standing unchallenged, the showing amounted to nothing more than a traverse of the charges of negligence, with an added statement that they were falsely or recklessly made and could not be proved as to the engineer or fireman. As no negligent act or omission personal to the railway company was charged, and its liability, like that of the two employees, was, in effect, predicated upon the alleged negligence of the latter, the showing manifestly went to the merits of the action as an entirety, and not to the joinder; that is to say, it indicated that the plaintiff's case was ill founded as to all the defendants. Plainly, this was not such a showing as to engender or compel the conclusion that the two employees were wrongfully brought into a controversy which did not concern them.

Cockrell, 232 U.S. at 152-53 (internal citations omitted) (emphasis added).

The Third Circuit considered the import of Cockrell on fraudulent joinder when it decided Boyer v. Snap-On Tools Corporation, 913 F.2d 108 (3^rd Cir. 1990). The case arose out of Boyer's position as a dealer for Snap-On Tools When he ended his relationship with Snap-On in 1988, the plaintiff signed a Termination Agreement which purported to release any claims he might have arising out of the dealership. Nonetheless, the plaintiff filed suit, naming Snap-On and two of its local employees, Baldwin and Kaiser, as defendants. In a Complaint sounding in fraud, Boyer alleged that the two men, branch and field managers for the corporate defendant, made material misrepresentations designed to induce him to enter into and continue a dealership arrangement with Snap-On. The defendants removed the case, alleging in the notice of removal that the local defendants had been fraudulently joined because the employee defendants were insulated from liability since the actions with which they were charged occurred during the course and scope of their employment relationship. The defendants also relied on the release agreement as a bar to the suit and argued that it, too, negated any possibility of recovery against the individual defendants. The district court upheld the removal on grounds of the release agreement and later dismissed the suit on summary judgment for the same reason. Upon appeal, the Third Circuit found that the individual defendants' status as employees did not insulate them from individual liability for fraud under state law. The Court then turned to the release:

In this case, we need not decide the extent of permissible inquiry into the validity of the release of Boyer's claims against Baldwin and Kaiser, the non-diverse defendants, because that issue, which the district court stated "is likely to be dispositive of plaintiffs' claims against Baldwin and Kaiser," is equally applicable to Snap-On. In fact, ultimately, that is what the district court decided when it granted summary judgment. Thus, the district court, in the guise of deciding whether the joinder was fraudulent, stepped from the threshold jurisdictional issue into a decision on the merits. As the Supreme Court held in Chesapeake Ohio Ry. v. Cockrell, this it may not do.

. . .

. . .

. . . Informed by Cockrell, we hold that where there are colorable claims or defenses asserted against or by diverse and non-diverse defendants alike, the court may not find that the non-diverse parties were fraudulently joined based on its view of the merits of those claims or defenses. Instead, that is a merits determination which must be made by the state court.

Id. at 112-113 (internal citations omitted).

In recent months, various Fifth Circuit panels have released a trilogy of opinions endorsing Boyer as a correct application of the Supreme Court's decision in Cockrell. McKee v. Kansas City Southern Ry. Co., ___ F.3d ___, 2004 WL 103439 (5^th Cir. 2004); Collins v. American Home Products Corporation, 343 F.3d 765 (5^th Cir. 2003); Smallwood v. Illinois Central Railroad Co., 342 F.3d 400, denying panel reh'g, 352 F.3d 220,granting reh'g en banc, 355 F.3d 357 (5^th Cir. 2003). In the face of such authority, this Court, likewise, finds that the teachings of Cockrell are apposite here as well. Nowhere do defendants aver that Shaffer and Beatty were not in the employ of AGFS during the period of time in question. Nor do they seriously contend that Shaffer and Beatty were not personally involved in loan transactions of which Griffin complains. They do sputter and posture that plaintiff does not know Shaffer and Beatty-a position which Griffin's deposition testimony more nearly supports in the case of Beatty than of Shaffer. But Griffin clearly testified that he dealt with a woman named Karen on a regular basis; the signatures of Shaffer and Beatty appear on several of the loan documents in question. The same is true with respect to defendants' assertion that Griffin could identify no alleged wrongdoing on the part of harm suffered at the hands. Defendants cherry-picked tidbits of Griffin's deposition testimony to support this assertion; a full reading of the deposition transcript reveals Griffin's insistence that Ms. Shaffer made misleading statements regarding the necessity of insurance coverage in conjunction with the loans in question. Based on the facts before the Court, Shaffer's inclusion as a defendant in the instant case is more than an unfortunate circumstance of mistaken identity. "Plainly, this was not such a showing as to engender or compel the conclusion that the two employees were wrongfully brought into a controversy which did not concern [her]." Cockrell, 232 U.S. at 153. The defendants fall far short of the clear and convincing evidence necessary to prove fraudulent joinder. As defendants' other arguments⁵ necessarily rely on a merits-based approach to defeat plaintiff's fraud claim against Shaffer,⁶ the Court finds no recourse but to grant the plaintiff's Motion to Remand.

5 The Notice of Removal set out the following averments explaining why the plaintiffs could establish no reasonable possibility or recovery against the non-diverse individual defendants:

(1) Due to the plain language of the documents presented to and executed by Plaintiff, Plaintiff's claims fail to state a claim as a matter of law;

(2) The putative claims against the Natural Person Defendants are time-barred;

(3) To the extent the Natural Person Defendants ever interacted with Plaintiff, those Defendants would have been acting as agents for a disclosed principal;

(4) The putative claims against the Natural Person Defendants are preempted or barred by applicable state and/or federal law;

(5) There is no reasonable basis for predicting that state law would allow recovery by Plaintiff against the Natural Person Defendants;

(6) The putative claims against the Natural Person defendants fail to state a claim under controlling state and federal law; and

(7) Plaintiff has waived any possible claims related to any loan that he refinanced.

Joint Notice of Removal at p. 6-7.

6 The defendants' failure to prove fraudulent joinder as to any one of the nondiverse defendants is all that is necessary to require remand.

B. Arguments Raised in the Defendants' Surreply

Defendants apparently anticipated the outcome on the plaintiff's Motion to Remand after the Fifth Circuit released theSmallwood decision. They sought, and received, permission to submit a supplemental brief addressing the decision's impact on the instant case. The Court has considered each of the arguments raised by defendants and finds them meritless. The only point raised by defendants which this Court finds it necessary to address is the contention that Smallwood conflicts with earlier panel decisions released by the Fifth Circuit. Defendants recite the well-known principle that when confronted with conflicting Fifth Circuit panel opinions, the earlier one controls, as one panel of the Fifth Circuit may not overrule another. In re Dyke, 943 F.2d 1435, 1442 (5^th Cir. 1991), abrogated on other grounds Patterson v. Shumate, 504 U.S. 753 (1992). Specifically, a subsequent panel "may not ignore the decision of a prior panel absent an intervening Supreme Court ruling, legislation, or a decision by this court sitting en banc."United States v. Gonzalez-Balderas, 11 F.3d 1218, 1222 (5^th Cir. 1994). Likewise, "[i]t has long been established that a legally indistinguishable decision of [the Fifth Circuit] must be followed by . . . district courts unless overruled en banc or by the United States Supreme Court." Campbell v. Sonat Offshore Drilling, Inc., 979 F.2d 1115, 1121 n. 8 (5^th Cir. 1992),r'hg denied, 986 F.2d 1420 (5^th Cir. 1993).

The Court has examined the two panel opinions cited by the defendants as authority for the proposition that a common defense may serve as a basis for fraudulent joinder. Great Plains Trust Co. v. Morgan Stanley Dean Witter Co., 313 F.3d 305 (5^th Cir. 2002); Green v. R.J. Reynolds Tobacco Co., 274 F.3d 263, 269 (5^th Cir. 2001). While the cases in question do in fact address particular common defenses in considering whether there was fraudulent joinder, it does not appear from the context of the cases that any of the parties questioned the propriety of doing so-only what the outcome of the merits-based inquiry should be. Upon review, the Court finds that these cases do not directly address the broader question posed by Smallwood, Collins andMcKee, e.g., whether such a common defense affords an appropriate foundation for removal jurisdiction predicated on fraudulent joinder.⁷ In short, the Court concludes thatSmallwood, Collins and McKee are not "legally indistinguishable" from Great Plains and Green. Instead, the more recent cases simply answer a question which went unasked in those earlier decisions. And, in doing so, they plainly rest on the as yet unassailed pronouncement of the United States Supreme Court in Cockrell-a bedrock which this Court neither can, nor will, scorn.

7 The same is true of the decision in Ross v. Citifinancial, Inc., 344 F.3d 458 (5^th Cir. 2003), in which a still different panel found fraudulent joinder because the statute of limitations barred the plaintiffs' claims against the individual nondiverse defendants and the record belied any possibility of plaintiffs' proving justifiable reliance. Nowhere in the opinion is it evident that the parties litigated the common claims/defenses issue in the district court, or that the issue was one raised by the plaintiff in the appeal.

CONCLUSION

Based on the foregoing facts and analysis, the Court finds that the plaintiffs' Motion to Remand [6-1] is well-taken and should be granted. An Order will issue accordingly.