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LANCE v. EMPLOYERS FIRE INS. CO.

September 30, 1999

RONALD D. LANCE AND JOYCE G. LANCE, PLAINTIFFS,
v.
EMPLOYERS FIRE INSURANCE COMPANY, COMMERCIAL UNION INSURANCE COMPANIES, AND STIVERS & POWERS, INC., DEFENDANTS.



The opinion of the court was delivered by: Richard Mills, District Judge.

OPINION

Plaintiffs allege that this Court lacks subject matter jurisdiction in this case because complete diversity between the parties does not exist.

Defendants respond that complete diversity does not exist only because Plaintiffs fraudulently joined an in-state Defendant.

Because the Court cannot say that there is no "reasonable possibility" that Plaintiffs can maintain their claim against the in-state Defendant, the Court lacks subject matter jurisdiction because complete diversity between the parties is lacking.

Case remanded.

I. BACKGROUND

On June 28, 1999, Plaintiffs filed suit against Defendants in Illinois state court alleging breach of an insurance contract. On July 28, 1999, Defendants removed this action to this Court based upon diversity of jurisdiction. 28 U.S.C. § 1441(a) & § 1446(b). In response, Plaintiffs filed a motion to remand, pursuant to 28 U.S.C. § 1447(c), arguing that complete diversity between the parties does not exist. Specifically, Plaintiffs assert that both they and Defendant Stivers & Powers, Inc., are citizens of the State of Illinois for diversity purposes. Because there is not complete diversity between the parties, Plaintiffs claim that this Court lacks subject matter jurisdiction and, therefore, must remand this case to state court.

Defendants admit that for diversity purposes, Defendant Stivers & Powers is a citizen of the State of Illinois. However, Defendants argue that Plaintiffs fraudulently joined Stivers & Powers in order to defeat the diversity necessary for the removal of this case to federal court. Defendants assert that Plaintiffs have not stated a cognizable cause of action under Illinois law against Defendant Stivers & Powers. Because Plaintiffs have not stated a cognizable cause of action against Stivers & Powers, Defendants assert that diversity of jurisdiction exists because Stivers & Powers should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6).*fn1

In short, Defendants argue that once Stivers & Powers is dismissed pursuant to Rule 12(b)(6) or the Court rules that it was fraudulently joined, diversity of jurisdiction exists because Plaintiffs are citizens of the State of Illinois, Defendants Employers Fire Insurance Company ("Employers Fire") and Commercial Union Insurance Companies ("Commercial Union") are citizens of the State of Massachusetts, and the amount in controversy exceeds $75,000.00. 28 U.S.C. § 1332. Accordingly, Defendants ask the Court to deny Plaintiffs' motion to remand and to allow its motion to dismiss.

II. ANALYSIS

In order for a defendant to remove a case to federal court pursuant to 28 U.S.C. § 1441(a), complete diversity is required; the citizenship of each plaintiff must be different from the citizenship of each defendant. Caterpillar, Inc. v. Lewis, 519 U.S. 61, 68-69, 117 S.Ct. 467, 136 L.Ed.2d 437 (1996). Any defect in the removal procedure or lack of subject matter jurisdiction requires a remand. In re Amoco Petroleum Additives Co., 964 F.2d 706, 708 (7th Cir. 1992). If there is a dispute as to whether a court has diversity jurisdiction on removal, the burden is on the party seeking removal to establish the right. Jones v. General Tire & Rubber Co., 541 F.2d 660, 664 (7th Cir. 1976).

"Diversity jurisdiction cannot be destroyed by joinder of nondiverse parties if such joinder is fraudulent." Hoosier Energy Rural Elec. Co-op., Inc. v. Amoco Tax Leasing IV Corp., 34 F.3d 1310, 1315 (7th Cir. 1994), quoting Gottlieb v. Westin Hotel Co., 990 F.2d 323, 327 (7th Cir. 1993). Fraudulent joinder is a term of art and, in most cases, "involves a claim against an in-state defendant that simply has no chance of success, whatever the plaintiff's motives." Poulos v. Naas Foods, Inc., 959 West Page 923 F.2d 69, 73 (7th Cir. 1992). "Fraudulent joinder occurs either when there is no possibility that a plaintiff can state a cause of action against nondiverse defendants in state court, or where there has been outright fraud in plaintiff's pleading of jurisdictional facts." Hoosier, 34 F.3d at 1315, quoting Gottlieb, 990 F.3d at 327. The United States Court of Appeals for the Seventh Circuit has explained that a defendant who is claiming fraudulent joinder bears a heavy burden:

  The defendant must show that, after resolving all
  issues of fact and law in favor of the plaintiff,
  the plaintiff cannot establish a cause of action
  against the in-state defendant. B., Inc., 663 F.2d
  at 549. At the point of decision, the federal court
  must engage in an act of prediction: is there any
  reasonable possibility that a state court would rule
  against the nondiverse defendant? If a state court
  ...

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