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ROBERTS v. STANDARD INSURANCE COMPANY

October 14, 2004.

JOHN ROBERTS, Plaintiff,
v.
STANDARD INSURANCE COMPANY, Defendant.



The opinion of the court was delivered by: MARTIN ASHMAN, Magistrate Judge

MEMORANDUM OPINION AND ORDER

Plaintiff John Roberts moves this Court to amend his one-count complaint against Defendant Standard Insurance Company by (1) adding Chicago Public Schools ("CPS") as a named defendant to his Count I breach of contract claim and (2) adding a Count II claim for attorney fees against Defendant Standard Insurance Company. Defendant objects to the addition of CPS as a named defendant but not to the addition of Plaintiff's Count II. This case was removed to federal court pursuant to 28 U.S.C. § 1332, as the parties are completely diverse and the controversy exceeds $75,000.00. This matter comes before this Court pursuant to 28 U.S.C. § 636(b)(1)(A) and Local Rule 72.1.*fn1 I. Background

  Plaintiff alleges that at all relevant times he was employed as a teacher by the Chicago Board of Education/Chicago Public Schools. As an employee of Chicago Public Schools, Plaintiff was insured under Defendant Standard Insurance Company and Chicago Board of Education/Chicago Public School's group policy number 625285 owned by CPS ("Group Insurance Policy"). Defendant Standard is an insurance company based in Portland, Oregon, which issues policies and provides insurance coverage, including owned disability coverage policies, to insured in Cook County, Illinois. Plaintiff alleges that at all relevant times he was insured under the Group Insurance Policy.

  On or about February 1997, Plaintiff suffered heart failure and heart complications affecting his ability to continue working as a teacher. As a result of this illness, Plaintiff ceased to be employed by CPS as a teacher and made a claim with Defendant for disability benefits under the Group Insurance Policy. Plaintiff filed all necessary papers and submitted all medical examinations required for the claim. On or about March 23, 1997, Plaintiff was determined by Defendant to be disabled under the terms of the Group Insurance Policy and on or about June 8, 1997, Plaintiff began to receive benefits from Defendant in the amount of $1,819.84 per month.

  In May 2000, Defendant informed Plaintiff that he was no longer qualified as disabled under the terms of the Group Insurance Policy because he had returned to work as a teacher. On May 12, 2000, Defendant suspended payments of benefits to Plaintiff. Plaintiff denied having returned to work as a teacher and demanded that Defendant resume payment of his monthly disability benefits. Defendant refused to resume the payments and Plaintiff has not received a benefit payment since May 12, 2000. On February 20, 2004, Plaintiff filed a complaint against Defendant in the Circuit Court of Cook County, claiming $81,892.80 in damages due to Defendant's failure to make benefits payments since May 2000. Plaintiff also sought interest on the $81,892.80 and reinstatement of his monthly disability payments pursuant to the terms of the Group Insurance Policy. On March 18, 2004, Defendant removed this case from state court to federal court pursuant to 28 U.S.C. § 1332, as the Plaintiff and Defendant were completely diverse in citizenship and more than $75,000.00 was in controversy. On April 19, 2004, Defendant filed an answer, affirmative defense and counterclaim against Plaintiff claiming that Plaintiff improperly collected $15,732.88 in benefits. And on May 6, 2004, Plaintiff filed his Motion for Leave to Amend Plaintiff's Complaint and Objection to Removal ("Plaintiff's Motion"), to add CPS as a defendant, to adjust damages sought to "a sum in excess of $50,000.00 plus interest from the date of the demand for payment," and to add a Count II for attorney fees pursuant to Section 155 of the Illinois Insurance Code, 215 ILCS 5/155.

  Plaintiff filed a Memorandum in Support of His Motion for Leave to Amend and Objection to Removal on July 15, 2004 ("Plaintiff's Memorandum"). In both Plaintiff's Motion and Memorandum, Plaintiff alleges, on information and belief, that CPS acted as agent for Defendant in the sale and/or marketing of the Group Insurance Policy and that CPS had sole possession of the Group Insurance Policy as agent, co-venturer*fn2 or partner with Defendant. Plaintiff admits in his memorandum that CPS is the owner of the Group Insurance Policy and that CPS is listed as the "policyowner" in the insurance contract, but Plaintiff claims the insurance contract lacks a true explanation of the relationship between Defendant and CPS. Plaintiff also alleges in his memorandum that 28 U.S.C. § 1332's "amount in controversy" requirement is not met in this case as there is less than $75,000.00 in controversy. In Plaintiff's Memorandum and at oral argument, Plaintiff explains that his amended claim for damages reflects a "set-off" that will occur if Plaintiff wins his case. Plaintiff explains that, if he were awarded $81,892.80 (plus interest) in damages then Defendant would probably be entitled to its counterclaim for $15,732.88, but Plaintiff refuses to concede that Defendant's counterclaim is meritorious and denies owing Defendant $15,732.88. (Oral Argument, Sept. 1, 2004.)

  Defendant opposes Plaintiff's motion to amend his complaint to add CPS as a defendant. Defendant claims that Plaintiff is improperly trying to add CPS as defendant in order to deprive this Court of federal diversity jurisdiction.

  II. Discussion

  A. Count I: Motion to Amend

  Plaintiff seeks leave to amend his complaint pursuant to Rule 15 of the Federal Rules of Civil Procedure. Leave to amend a complaint is ordinarily freely granted. Fed.R. Civ. P. 15(a); Dubicz v. Commonwealth Edison Co., 377 F.3d 787, 792 (7th Cir. 2004). However, when an amendment will result in the remand of a case that has been removed to federal court 28 U.S.C. § 1447(e) applies. Under 28 U.S.C. § 1447(e), "[i]f 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." Because permitting joinder will result in remand, federal courts must examine whether an amendment joining a nondiverse party is proper. See Perez v. Arcobaleno Pasta Machs., Inc., 261 F. Supp. 2d, 997, 1001 (N.D. Ill. 2003); Goutanis v. Mut. Group (U.S.), No. 92 C 1689, 1995 WL 86588, at *6 (N.D. Ill. Feb. 24, 1995). In the Northern District of Illinois, courts consider the following equitable factors in determining whether joinder is proper: (1) extent to which the joinder of the nondiverse party is sought merely to defeat federal jurisdiction, (2) timeliness of the request, (3) prejudice to the parties, and (4) any other equitable considerations, including defendant's interest in maintaining a federal forum. Perez, 261 F. Supp. 2d at 1001; Vasilakos v. Corometrics Med. Sys., Inc., No. 93 C 5343, 1993 WL 390283, at *3 (N.D. Ill. Sept. 30, 1993). In addition to these factors, the Seventh Circuit suggests another ground for refusing to amend a complaint — the futility of the amendment. Poulos v. Naas Foods, Inc., 959 F.2d 69, 74 (7th Cir. 1992); County of Cook v. Philip Morris, Inc., No. 97 C 3295, 1997 WL 667777, at *2 (N.D. Ill. Oct. 17, 1997). An amendment is considered futile when "it fails to state a valid theory of liability, or could not withstand a motion to dismiss." Bower v. Jones, 978 F.2d 1004, 1008 (7th Cir. 1992) (citations omitted). In such an instance, adding a nondiverse party is improper and constitutes "fraudulent joinder." Poulos, 959 F.2d at 74.

  1. 1447(e) Equitable Factors

  a. Attempting to defeat federal jurisdiction

  The first element this Court considers is the extent to which the joinder of CPS is sought merely to defeat federal jurisdiction. In his May 2004 Motion, Plaintiff states, "Not until the receipt of the [Group Insurance Policy] was the Plaintiff fully aware that the [CPS] was the actual policy owner." (Pl.'s Mot. Am. at 1.) The Court is immediately suspicious that Plaintiff's sole motive in seeking to join CPS is to defeat federal diversity jurisdiction. In his complaint, Plaintiff acknowledges that CPS is listed as policyowner in the Group Insurance Policy. (Pl.'s Am. Compl. at 1; Pl.'s Mem. Supp. Mot. Am. at 2.) Plaintiff has been insured under the Group Insurance Policy since February 1997. (Pl.'s Am. Compl. at 2.) Plaintiff received insurance benefits under the terms of the Group Insurance Policy from June 8, 1997, until May 12, 2000. (Id.) Plaintiff has been disputing his insurance benefits since May 12, 2000. (Id. at 2-3.) Plaintiff originally filed his complaint in Illinois state court in February 2004 but did not seek to add CPS as a defendant until this case was removed to federal court. The Court is not convinced that CPS's involvement recently came to light. Furthermore, no explanation is given as to how a view of the Group Insurance Policy listing CPS as an insured somehow informed Plaintiff that CPS is a joint-venturer or partner with the insurance company. "Without explanation, it is certainly suspect that plaintiff seeks leave to amend [his] complaint to add new parties for the sole purpose of defeating the court's diversity jurisdiction. This factor militates heavily in defendant['s] favor against granting the amendment." County of Cook, 1997 WL 667777, at *4. See also Zuccaro v. Ford Motor Co., No. 03 C 2152, 2003 WL 22668834, at *3 (N.D. Ill. Nov., 10, 2003) ("When a plaintiff was aware at the time of the filing of her original complaint of the identity of the defendant she now seeks to add, there arises some suspicion of the plaintiff's motives to amend.")

  Suspicion of Plaintiff's motive grows stronger as he spends the first page of Plaintiff's Memorandum contesting diversity jurisdiction on "amount in controversy" grounds. Plaintiff argues that, per 28 U.S.C. § 1332(a), federal jurisdiction does not exist in this case because the amount in controversy is less than $75,000.00. (Pl.'s Mem. Supp. Mot. Am. at 1-2.) On the date this suit began, Plaintiff demanded $81,892.80 plus interest for unpaid monthly benefits from May 12, 2000, (the date Defendant suspended insurance payments) until February 20, 2004 (the date of filing). Plaintiff, however, changes the language of his demand in his proposed amended complaint and now seeks, "a sum in excess of $50,000.00 plus interest from the date of the demand for payment." (Pl.'s Am. Compl. at 3.) Plaintiff explains that the new demand reflects the fact that Defendant's $15,732.88 counterclaim (which was filed for the first time in ...


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