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Miller v. Hypoguard USA

May 4, 2006


The opinion of the court was delivered by: Herndon, District Judge


I. Introduction and Background

On December 20, 2005, the Court ordered the parties to brief the issue of jurisdiction as the Court dismissed the only federal claim contained in the Amended Complaint (Docs. 80 & 81). The parties have briefed the issue (Docs. 88, 93 & 109). Based on the applicable law, the pleadings and the following, the Court finds that it lacks subject matter jurisdiction over Plaintiffs' state law claims contained in the Second Amended Complaint, declines to retain supplemental jurisdiction over these claims and pursuant to 28 U.S.C. § 1367(c)(3) remands Plaintiffs' Second Amended Complaint to the Madison County, Illinois Circuit Court.

On January 31, 2005, Plaintiffs Michael Miller and W.C. Cole filed a seven-count Class Action Complaint for damages in the Circuit Court of Madison County, Illinois against Hypoguard USA, Inc. ("Hypoguard"), Medisys USA, Inc. ("Medisys"), Liberty Medical Supply, Inc. ("Liberty"), Fox Medical Equipment of Arizona, Inc. ("Fox Medical") and Francis M. Martin, d/b/a Fox Medical ("Martin") seeking actual and compensatory damages arising out of the manufacturing, marketing and sale of the Hypoguard "Advance Blood Glucose Monitor, and the "Assure" I, II or III or Quick Tek blood glucose monitors. Plaintiffs assert mostly state law causes of action against Defendants: Count I - breach of implied warranty; Count II - breach of express warranty; Count III - breach of covenant of good faith and fair dealing; Count IV - unjust enrichment; Count V - breach of implied warranty under the Magnuson-Moss Act*fn1 ; Count VI - Illinois Consumer Fraud and Deceptive Practices Act Claim/Minnesota Deceptive Trade Practices Act; and Count VI -common law fraud (Doc. 2). Plaintiffs contend that the blood glucose monitors and/or strips were defectively designed and/or manufactured resulting in inaccurately high or low readings. Plaintiffs also allege that Defendants made material misrepresentations and concealed material facts in connection with the marketing, sale and warranty of the Hypoguard blood glucose monitors. In particular, Plaintiffs seek compensation for "the financial and other costs incurred by them as a result of the blood glucose monitors." (Doc. 2, ¶ 10). On March 14, 2005, Defendants Hypoguard and Medisys removed the case to this Court pursuant to diversity jurisdiction, 28 U.S.C. § § 1332, 1441, and 1446 (Doc. 1).*fn2

On April 13, 2005, Plaintiffs filed a motion to remand (Doc. 11). The next day, Defendants Martin and Fox Medical filed motions to dismiss (Docs. 13 & 15). On April 18, 2005, Defendants Hypoguard and Medisys filed a joint motion to dismiss (Doc. 17). Thereafter, Hypoguard and Medisys responded to the motion to remand (Doc. 23).

On May 27, 2005, Plaintiffs filed a First Amended Complaint (Doc. 39). The First Amended Complaint added a new Defendant Fox Med-Equip Services, Inc. ("Fox Med-Equip") and deleted Fox Medical and Martin as Defendants. The First Amended Complaint, as their original complaint, alleges mainly state law causes of action: Count I - breach of implied warranty; Count 2 - breach of express warranty; Count III - breach of contract; Count IV - breach of implied warranty under the Magnuson-Moss Act; Count V - Illinois Consumer Fraud and Deceptive Practices Act/Minnesota Deceptive Trade Practices Act; Count VI - common law fraud. On May 27, 2005, the Court entered an order denying as moot the pending motions to dismiss (Doc. 40).

After Plaintiffs filed their First Amended Complaint, Defendants Hypoguard and Medisys filed a motion opposing joinder of a non-diverse defendant, to strike plaintiffs' first amended complaint and to reconsider the Court's May 25, 2005 Order (Doc. 45). On May 31, 2005, Liberty Mutual filed its consent to removal (Doc. 46). Shortly thereafter, Liberty Mutual joined in the other Defendants' responses to the remand motion and the motion opposing joinder (Docs. 47 & 48). Plaintiffs filed their opposition to the motion opposing joinder on June 14, 2005 (Doc. 50) and Defendants filed their reply to the same on June 24, 2005 (Doc. 54). On June 16, 2005, Hypoguard moved to dismiss the First Amended Complaint (Doc. 51) to which Liberty Mutual joined on July 8, 2005 (Doc. 59). Plaintiffs filed their opposition (Doc. 61) and Defendants filed their replies (Docs. 62 & 63).

On August 25, 2005, the Court denied Plaintiffs' motion to remand finding that removal was proper and that the Court had jurisdiction over Count IV of the First Amended Complaint, the Magnuson-Moss Act, 15 U.S.C. § § 2301-12 (Doc. 66). On November 2, 2005, the Court denied Plaintiffs' motion to reconsider this Court's Order denying Plaintiffs' motion to remand, or in the alternative, motion for an order of certification for appeal pursuant to 28 U.S.C. § 1292 (Doc. 72). Thereafter, the Court granted in part and denied in part Defendants' motion to dismiss on December 20, 2005 (Doc. 80). Specifically, the Court dismissed with prejudice Counts I, II and IV of the Amended Complaint, dismissed without prejudice Counts V and VII of the Amended Complaint and Defendant Medisys and allowed Plaintiffs up to including January 16, 2006 to file an amended complaint. That same day, the Court entered another order directing the parties to address subject matter jurisdiction over Plaintiffs' remaining state law claims in light of the Court's decision to dismiss with prejudice the Federal question claim, Count IV, the Magnusom-Moss Act claim (Doc. 81). The parties briefed the issue (Docs. 88, 93 & 109). In the meantime, Plaintiffs filed their Second Amended Complaint containing only state law claims, Count I- breach of contract, Count II- Illinois Consumer Fraud and Deceptive Practices Act Claim/Minnesota Deceptive Trade Practices Act and Count III- Common Law Fraud (Doc. 90).

II. Analysis

First, Defendants argue that the Court has jurisdiction over Plaintiffs' claims as there is diversity jurisdiction as Defendant Fox Med-Equip has been fraudulently joined, that Plaintiffs do not intend to proceed against Fox Med-Equip as it has not been served and that CAFA applies in this matter. Further, Defendants, maintain that the Court should continue to exercise supplemental jurisdiction even though the federal question claims are no longer present in the case. Plaintiffs argue that the Court lacks subject matter jurisdiction, that Plaintiffs' counsel has been in contact with Fox Med-Equip's counsel, has propounded discovery and is in the process of obtaining an alias summons to effect service and that the Court should decline supplemental jurisdiction over their state law claims.*fn3 The Court first addresses Defendants' arguments regarding diversity jurisdiction and CAFA.

Under 28 U.S.C. § 1441, removal is proper over any action that could have been filed originally in federal court. However, if the district court lacks subject matter jurisdiction, the matter must be remanded to state court pursuant to 28 U.S.C. § 1447(c), Courts presume a plaintiff's choice of forum is proper and valid and resolve all doubts regarding jurisdiction in favor of remand. See Doe v. Allied-Signal, Inc., 985 F.2d 908, 911 (7th Cir. 1993). The diversity statute requires complete diversity between the parties plus an amount in controversy which exceeds $75,000, exclusive of interest and cost. Complete diversity of citizenship means that "none of the parties on either side of the litigation may be a citizen of a state of which a party on the other side is a citizen." Howell v. Tribune Entertainment Co., 106 F.3d 215, 217 (7th Cir. 1997)(citations omitted). Here, as stated in the Court's previous Orders the Court finds that the $75,000.00 amount in controversy is met (See Docs. 66 & 72).*fn4 The problem is that both the Plaintiffs and Fox Med-Equip are citizens of Illinois.*fn5 Therefore, unless Fox Med-Equip's citizenship is disregarded, there is no subject matter jurisdiction over the Plaintiffs' claims.

The question of whether the Court has jurisdiction over the Plaintiffs' claims turns on whether Fox Med-Equip was fraudulently joined as a defendant. In evaluating diversity of citizenship, a court must disregard a defendant that has been fraudulently joined. See Schwartz v. State Farm Mut. Auto. Ins. Co., 174 F.3d 875, 878 (7th Cir. 1999). In the context of fraudulent joinder, "fraudulent" is a term of art. See Poulos v. Naas Foods, Inc., 959 F.2d 69, 73 (7th Cir. 1992). "Although false allegations of jurisdictional fact may make joinder fraudulent, . . . in most cases fraudulent joinder involves a claim against an in-state defendant that simply has no chance of success, whatever the plaintiff's motives. Id. (collecting cases). It is true that, as a general rule, the right of removal cannot be defeated "by a fraudulent joinder of a resident defendant having no real connection with the controversy." Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 97 (1921). To prove fraudulent joinder the defendant must "show there exists no 'reasonable possibility that a state court would rule against the [in-state] defendant,'" Schwartz 174 F.3d at 878 (7th Cir. 1999)(citing Poulos, 959 F.2d at 73), or "if a state court has come to judgment, there [is not] any reasonable possibility that the judgment will be reversed on appeal." Poulos, 959 F.2d at 73. The defendant bears of heavy burden in this regard. Id. Thus, even if a state court might ultimately find that Plaintiffs failed to state a claim against Fox Med-Equip, joinder of Fox Med-Equip was not "'fraudulent' for purposes of this court's jurisdiction so long as the issue of state law is subject to reasonable argument on both sides." See Batoff v. State Farm Insurance Co., 977 F.2d 848, 853 (3rd Cir.1992) (if "intricate analysis of state law" is needed to dismiss claim, the claim may not be disregarded for purposes of diversity jurisdiction).

As to the fraudulent joinder of Fox Med-Equip, the Court finds that Defendants have not sustained this heavy burden. Based on the allegations in the Amended Complaint and the Second Amended Complaint, Plaintiffs have alleged causes of action against Fox Med-Equip for breach of contract, Illinois Consumer Fraud and common law fraud. The record before the Court establishes that there exists a reasonably probability that a state court would rule against Fox Med-Equip. The Court does not find that Fox Med-Equip was added as a defendant to destroy diversity. Accordingly, there is no fraudulent joinder.

Next, Defendants contend that since Plaintiffs added Fox Med-Equip as a new Defendant in the Amended Complaint on May 27, 2005, CAFA applies. CAFA was enacted by Congress on February 18, 2005, and applies to cases commencing thereafter. Class Action Fairness Act of 2005, Pub. L. No. 109-2, § 9, 119 Stat. 14 (amending 28 U.S.C. § 1332(d)(2)). It alters the traditional requirements for federal diversity jurisdiction in class actions. However, CAFA is not retroactive and therefore only applies to class actions which "are commenced on or after the date of the enactment ..." of February 18, 10025. Id. For applicable cases, CAFA gives district courts original jurisdiction over a civil "class action..." with an amount in controversy in ...

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