United States District Court, Central District of Illinois, Springfield Division
September 30, 1999
RONALD D. LANCE AND JOYCE G. LANCE, PLAINTIFFS,
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.
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.
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.
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
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
has come to judgment, is there any reasonable
possibility that the judgment will be reversed on
Poulos, 959 F.2d at 73 (emphasis in original) (footnote
In the instant case, Plaintiffs have alleged, and Defendants
Employers Fire and Commercial Union have admitted, that Stivers &
Powers was Defendants' agent. Under Illinois law, an agent cannot
be held liable for the acts of a disclosed principal.*fn2
Triangle Sign Co. v. Weber, Cohn & Riley, 149 Ill. App.3d 839,
843-44, 501 N.E.2d 315, 317-18, 103 Ill.Dec. 294, 296-97 (1986).
However, there are exceptions to this general rule.
Plaintiffs rely upon one of these exceptions. Specifically,
Plaintiffs assert that an agent can be held liable for the
actions of a disclosed principal if the agent takes some active
part in violating some duty which the principal owes to a third
person. Plaintiffs rely upon Grover v. Commonwealth Plaza
Condominium Ass'n, 76 Ill. App.3d 500, 507, 394 N.E.2d 1273,
1279, 31 Ill.Dec. 896, 902 (1979) and Merrill Tenant Council v.
United States Dep't of Housing and Urban Dev., 638 F.2d 1086,
1095 (7th Cir. 1981), in support of their argument that they may
maintain a cause of action against Stivers & Powers under
Illinois law for actively participating in violating Defendants'
duty of good faith and fair dealing. See generally National Sur.
Corp. v. Fast Motor Serv., Inc., 213 Ill. App.3d 500, 505,
572 N.E.2d 1083, 1086, 157 Ill.Dec. 619, 623 (1991) (stating that it
"has long been established in Illinois that an insurer owes his
insured an implied-in-law duty of good faith and fair dealing. .
. ."). Count V alleges that "Stivers & Powers, Inc., took an
active part in violating the duty of good faith and fair dealing
Defendants . . . owed to Plaintiffs. . . ." As such, Plaintiffs
claim that they have stated a cognizable cause of action against
Stivers & Powers, and thus, there is no complete diversity of
jurisdiction between the parties, divesting this Court of subject
On the other hand, Defendants argue that Grover and its
progeny have been "effectively overruled." Defendants rely upon
cases which disagree with Grover's holding and which find
Grover to be inconsistent with Illinois supreme court
precedent. E.g., Gateway Erectors Div. of Imoco-Gateway Corp. v.
Lutheran Gen. Hosp., 102 Ill. App.3d 300, 302-03, 430 N.E.2d 20,
22-23, 58 Ill.Dec. 78, 80-81 (1981); Joe & Dan Int'l Corp. v.
United States Fidelity & Guar. Co., 178 Ill. App.3d 741, 747,
533 N.E.2d 912, 915-16, 127 Ill.Dec. 830, 833-34 (1988); Strzelecki
v. Schwarz Paper Co., 824 F. Supp. 821, 829 (N.D.Ill. 1993). In
short, Defendants argue that Grover espouses bad law, implore
the Court not to follow it, and ask the Court to follow the
general rule regarding an agent's liability to a third party when
the agent's principal is disclosed.
Although Grover has been criticized, it is, nevertheless,
still good law. In fact,
two cases issued subsequent to Gateway Erectors (i.e., the case
upon which Defendants primarily rely) have re-stated Grover's
principle that if an agent takes an affirmative role in violating
a duty owed by a disclosed principal, that agent may be held
personally liable. See McCormick v. McCormick, 180 Ill. App.3d 184,
207-08, 536 N.E.2d 419, 434, 129 Ill.Dec. 579, 594 (1988)
(narrowing Grover's "active part" exception to cases where "the
agent is liable if he takes an active part in violating a duty
owed to a third person by the principle without the principle's
knowledge."); see also Bellmer v. Charter Sec. Life Ins. Co.,
105 Ill. App.3d 234, 240, 433 N.E.2d 1362, 1367, 61 Ill.Dec. 34,
39 (1982) (re-stating the "active part" exception). In addition,
Merrill, the Seventh Circuit case which followed Grover, has
not been reversed or revisited by the Seventh Circuit, and this
Court is, of course, bound by Seventh Circuit precedent.
Given the uncertainty regarding whether Plaintiffs may maintain
a cause of action under Illinois law against Stivers & Powers,
the Court must remand this case. In order to find that Plaintiffs
fraudulently joined Stivers & Powers, there must be no
"reasonable possibility" that Count V can survive. Poulos, 959
F.2d at 73; see Gottlieb, 990 F.2d at 327 ("no possibility");
see also Faucett v. Ingersoll-Rand Mining & Mach. Co.,
960 F.2d 653, 654-55 (7th Cir. 1992) (same). As the Third Circuit has
explained, a district court should retain jurisdiction based upon
fraudulent joinder only if the plaintiff's claims are legally
It is evident from our inquiry that we cannot say
that [the plaintiff's] complaint is wholly
insubstantial and frivolous. Thus, the motion to
remand should have been granted. We, of course, do
not suggest that our inquiry into Pennsylvania law
has been penetrating, but it should not be, for if we
made such an inquiry we would have decided this
diversity case on the merits, even though the parties
are not diverse. A claim which can be dismissed only
after an intricate analysis of state law is not so
wholly insubstantial and frivolous that it may be
disregarded for purposes of diversity jurisdiction.
Batoff v. State Farm Ins. Co., 977 F.2d 848
, 853 (3rd Cir.
Because the Court cannot say that there is no reasonable
possibility that Plaintiffs can maintain Count V against Stivers
& Powers, the Court must remand this case to the state court for
lack of subject matter jurisdiction based upon the lack of
complete diversity between Plaintiffs and Defendant Stivers &
Powers. Caterpillar, 519 U.S. at 68-69, 117 S.Ct. 467; In re
Amoco Petroleum Additives Co., 964 F.2d at 708.
Ergo, Plaintiffs' Motion to Remand is ALLOWED. Accordingly,
the above-captioned case is hereby REMANDED to the state court
from which it was removed, and Defendant's Motion to Dismiss is
DENIED as moot.