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Midland Management Co. v. American Alternative Insurance Corp.

United States District Court, N.D. Illinois, Eastern Division

December 31, 2015

MIDLAND MANAGEMENT COMPANY, Plaintiff,
v.
AMERICAN ALTERNATIVE INSURANCE CORPORATION, LORI LOGAN, and JIM LOGAN, Defendants

Page 1015

          For Midland Management Company, Plaintiff: Richard Lee Stavins, LEAD ATTORNEY, Robbins, Salomon & Patt, Ltd., Chicago, IL.

         For American Alternative Insurance Corporation, Defendant, Counter Claimant, Counter Defendant: Stanley V. Figura, LEAD ATTORNEY, Bates Carey LLP, Chicago, IL; Robert J. Bates, Jr., Bates Carey Nicolaides LLP, Chicago, IL.

Page 1016

         MEMORANDUM OPINION AND ORDER

         Honorable Edmond E. Chang, United States District Judge.

         Plaintiff Midland Management Company (Midland) brought this declaratory judgment action in June 2015 in the Circuit Court of Cook County, Illinois, against American Alternative Insurance Corporation (American) and Lori and Jim Logan (the Logans). R. 1, Exh. 1 at 3, Decl. J. Compl. Midland is seeking a declaration that its insurer, American, must defend and indemnify it in a lawsuit brought by the Logans against Midland that is currently pending in state court. Id. ¶ 1. American filed a notice of removal to federal court on July 15, 2015, alleging that this Court has diversity jurisdiction over the case under 28 U.S.C. § 1332. R. 1, Notice of Removal. Midland asks to remand the case to the Circuit Court of Cook County. R. 15, Mot. to Remand. Midland contends that this Court lacks diversity jurisdiction over this case, and that American has failed to satisfy the requirements for removal. Id. For the reasons discussed below, the Court denies Midland's motion for remand.

         I. Background

         In January 2015, the Logans filed a lawsuit against Midland in the Circuit Court of Kendall County, Illinois, alleging that they began experiencing medical problems as early as June 2013 due to the presence of " mold, mildew, fungi and other microorganisms and/or toxic airborne pathogens" in an apartment they had rented from Midland. Decl. J. Compl. ¶ 10; R. 1, Exh. 1 at 15, Logan Compl. ¶ ¶ 4-7 (Count I). The Logans brought both a negligence and nuisance claim against Midland, alleging that their medical problems were the direct result of Midland's negligence in maintaining the property and that the presence of these pathogens caused them to lose the use and enjoyment of their home. Id. ¶ 12 (Count I), ¶ 6 (Count II). The Logans seek damages " in excess of" $50,000. Id. Their lawsuit remains pending in Kendall County. R. 1, Exh. 1 at 13.

         After the Logans sued Midland, Midland notified American of the Logans' claims and requested that American tender a defense and indemnify Midland against any potential damages award. Decl. J. Compl. ¶ 7. At the time of the Logans' alleged injuries, Midland was covered by a liability insurance policy issued by American. Id. ¶ 9; R. 1, Exh. 1 at 22 (Insurance Policy). That policy was effective from March 31, 2013 through March 31, 2014, and provided liability coverage for bodily injury claims so long as the injury occurred during the policy period. Decl. J. Compl. ¶ ¶ 9-10. The policy also included a " Fungi or Bacteria Exclusion." Id. ¶ 7; R. 1, Exh. 1 at 128. Believing that this Fungi or Bacteria Exclusion precluded coverage of the Logans' alleged losses, American denied Midland's requests for a defense and indemnity. Decl. J. Compl. ¶ ¶ 7-8.

         Midland then filed this suit in the Circuit Court of Cook County, Illinois, seeking a declaration that American is obligated to defend and indemnify Midland in the Logans' lawsuit. Id. ¶ 1. In addition to naming American as a defendant, Midland also named the Logans. With regard to the Logans, Midland alleges that it is

Page 1017

" seek[ing] no separate relief or judgment against defendant Lori Logan or against defendant Jim Logan," but that it is instead " seek[ing] only to bind those two defendants to the outcome of this coverage dispute." Id. ¶ 5.

         American removed the case to federal court on July 15, 2015, asserting that this Court has diversity jurisdiction under 28 U.S.C. § 1332(a)(1). Notice of Removal; 28 U.S.C. § 1441(a) (allowing a defendant to remove a civil action from state court to federal court when the federal court has original jurisdiction). Midland is an Illinois corporation with its principal place of business in Illinois. Notice of Removal ¶ 4. American is a Delaware corporation with its principal place of business in New Jersey. Id. Based on those different states of citizenship, if this case pitted only Midland against American, then there would be diversity jurisdiction. But like Midland, the Logans are citizens of Illinois. Id. ¶ 5; Decl. J. Compl. ¶ 4. Thus, on the face of the complaint, complete diversity is lacking. In its notice of removal, American acknowledges this potential problem. Notice of Removal ¶ ¶ 3, 5. American contends, however, that the Logans were fraudulently joined and should be disregarded for jurisdictional purposes because Midland is neither " asserting a cause of action against ... [the Logans]," nor seeking any relief from them. Id. ¶ ¶ 3, 6. With the Logans disregarded, American argues, removal is proper and diversity jurisdiction applies, because the amount in controversy exceeds $75,000 and the proper parties to this suit--American (a Delaware corporation with its principal place of business in New Jersey) and Midland (an Illinois corporation with its principal place of business in Illinois)--are completely diverse. Id. In the alternative, American argues that, even if the Logans are deemed to have an interest in this declaratory judgment action, that interest is more closely aligned with Midland's interests, and therefore, the Logans should be realigned as plaintiffs, putting the Illinois citizens on one side and American on the other. Id. ¶ 7.

         Midland now asks to remand this case to state court on three alternative grounds. Mot. to Remand. First, Midland argues that the $75,000 jurisdictional amount required by 28 U.S.C. § 1332(a) is not satisfied. R. 16, Pl.'s Br. at 1. Second, Midland argues that because the Logans are properly named defendants, the parties are not completely diverse. Id. Finally, Midland argues that two of the removal statute's requirements have not been satisfied: 28 U.S.C. § 1441(b)(2), requiring that no defendant be a citizen of the state in which the action is brought (a requirement that the Logans, who are Illinois citizens, cannot meet), and 28 U.S.C. § 1446(b)(2)(A), requiring that all defendants join in or consent to removal (something the Logans did not do). Id.

         II. Legal Standard

         Removal is governed by 28 U.S.C. § 1441. A defendant may remove a case to federal court if there is federal subject matter jurisdiction. 28 U.S.C. § 1441(a). Removal based on diversity requires that the parties be of diverse state citizenship and that the amount in controversy exceed $75,000, exclusive of interests and costs. 28 U.S.C. § 1332; Rubel v. Pfizer Inc., 361 F.3d 1016, 1017 (7th Cir. 2014). It also requires that no defendant " properly joined and served" be " a citizen of the State in which [the] action is brought." 28 U.S.C. § 1441(b)(2) (forum defendant rule); Hurley v. Motor Coach Industries, Inc., 222 F.3d 377, 378 (7th Cir. 2000).

         " The party seeking removal has the burden of establishing federal jurisdiction." Schur v. L.A. Weight Loss Ctrs., 577 F.3d 752, 758 (7th Cir. 2009). Failure to meet this burden results in ...


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