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Technicolor USA, Inc. v. National Union Fire Insurance Company of Pittsburgh, Pa

United States District Court, S.D. Indiana, Indianapolis Division

May 14, 2019

Technicolor USA, Inc. and Technicolor Creative Services USA, Inc., Plaintiffs,
v.
National Union Fire Insurance Company of Pittsburgh, Pa. and AIG Claims, Inc., Defendants.

          ORDER

          Hon. Jane Magnus-Stinson, Chief Judge United States District Court

         This action relates to an insurance policy issued by Defendant National Union Fire Insurance Company of Pittsburgh, Pa. (“National Union”) to Plaintiffs Technicolor USA, Inc. (“Technicolor”) and Technicolor Creative Services USA, Inc. (“TCS”). Technicolor and TCS initiated this litigation in Marion Superior Court, and National Union and Defendant AIG Claims, Inc. (“AIG”) removed it to this Court on January 16, 2019. [Filing No. 1.] Presently pending is a Motion to Remand filed by Technicolor and TCS. [Filing No. 24.]

         I.

         Background

         National Union issued an employment practices liability policy to Technicolor (the “Policy”). [Filing No. 10-1 at 12-57.] When TCS was sued for an employment-related matter (the “Underlying Action”), Technicolor and TCS sought coverage under the Policy. [Filing No. 10-1 at 5-6.] After disputes regarding coverage surfaced, Technicolor and TCS sued National Union and AIG, as National Union's claims administrator. [Filing No. 10-1 at 4-11]. Technicolor and TCS asserted claims against National Union for declaratory relief and breach of contract, and against AIG for negligent misrepresentation. [Filing No. 10-1 at 7-9.]

         National Union and AIG removed the case to this Court shortly thereafter. [Filing No. 1.] After the Court noted some deficiencies with Defendants' Notice of Removal, Defendants filed an Amended Notice of Removal on January 22, 2019. [Filing No. 10.] In the Amended Notice of Removal, Defendants allege that the Court has diversity jurisdiction over this matter despite the fact that Plaintiffs and AIG are all citizens of Delaware because AIG was not properly joined as a Defendant. [Filing No. 10 at 2-3.] Specifically, Defendants argue that “Plaintiffs cannot establish a cause of action against AIG” because: (1) AIG is an agent of National Union and cannot be independently liable when acting on behalf of National Union; (2) AIG is National Union's adjuster and cannot be liable for torts arising out of National Union's declination of coverage; (3) TCS's defense in the Underlying Action has been provided by other insurers, so it has no cause of action against AIG; (4) even if National Union has advanced defense costs, it would be entitled to recoup those costs in the event there was no coverage under the Policy and so Technicolor has no cause of action against AIG; and (5) TCS has sued its defense counsel in the Underlying Action for legal malpractice, and cannot recover from both its counsel and AIG for the same loss. [Filing No. 10 at 3.]

         Plaintiffs then moved to remand the case to Marion Superior Court, and that motion is now ripe for the Court's decision.[1]

         II.

         Discussion

         In support of their Motion to Remand, Plaintiffs argue that they have stated a prima facie case for negligent misrepresentation against AIG because Indiana law recognizes liability for negligent misrepresentation where there is a direct relationship between the plaintiff and the defendant, as there is here. [Filing No. 24 at 6-8.] Plaintiffs assert that the five contentions upon which the Amended Notice of Removal is based are not supported by citation to any legal authority. [Filing No. 24 at 8-13.] In response to the contentions, they argue that an agent may be personally liable for misrepresentations if the misrepresentations were made without the authority of the principal, that their claim against AIG is based on AIG's negligent misrepresentations and not on National Union's wrongful failure to defend, that Technicolor has not been reimbursed for its defense of the Underlying Action, that National Union has not advanced defense costs, and in any event the claimed misrepresentations caused Technicolor to incur additional defense costs, and that any potential recovery from TCS's counsel does not impact the legal validity of the claim asserted against AIG. [Filing No. 24 at 8-13.]

         In its response, National Union argues that its Amended Notice of Removal complies with 28 U.S.C. § 1446 and did not need to include citations to legal authority or attach evidence. [Filing No. 34 at 4-5.] It then contends that Plaintiffs have not alleged that AIG was acting outside the scope of its business in adjusting insurance claims, and it cannot be held liable for acts undertaken within the scope of its authority. [Filing No. 34 at 5-6.] National Union argues that AIG does not have a direct relationship with Plaintiffs that could give rise to a negligent misrepresentation claim, that Plaintiffs have not cited cases indicating that Indiana law would recognize the type of negligent misrepresentation claim they are trying to assert against AIG, and that Plaintiffs' negligent misrepresentation claim against AIG is “nothing more than a disguised claim for bad faith, which the Supreme Court of Indiana has refused to recognize outside of the insurer-insured relationship.” [Filing No. 34 at 6-11.]

         In its reply, Plaintiffs argue that the cases cited by National Union do not foreclose their claim against AIG. [Filing No. 36 at 3-8.] Additionally, they assert that National Union confuses negligent misrepresentation with bad faith, and that whether there is a direct relationship between Technicolor and AIG is irrelevant. [Filing No. 36 at 8-12.]

         The federal district courts are courts of limited jurisdiction. Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552 (2005). “[The] district courts may not exercise jurisdiction absent a statutory basis, ” id., and the removing party “bears the burden of establishing federal jurisdiction, ” Tri-State Water Treatment, Inc. v. Bauer, 845 F.3d 350, 352 (7th Cir. 2017). Here, Defendants allege that jurisdiction is appropriate pursuant to 28 U.S.C. § 1332 which, in relevant part, provides that “district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75, 000, exclusive of interest and costs, and is between…citizens of different States….” 28 U.S.C. § 1332(a); see also 28 U.S.C. § 1441(a) (“[A]ny civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants….”). Since 1806, the Supreme Court has “read th[is] statutory formulation…to require complete diversity between all plaintiffs and all defendants.” Lincoln Prop. Co. v. Roche, 546 U.S. 81, 89 (2005) (citing Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806)).

         Defendants nonetheless removed this matter, despite the fact that Plaintiffs and AIG are all citizens of Delaware. Defendants ask the Court to ignore the citizenship of AIG and exercise jurisdiction over this case pursuant to the fraudulent joinder doctrine. The fraudulent joinder doctrine imposes a burden far more stringent than that ordinarily imposed on a removing defendant. See Schur v. L.A. Weight Loss Ctrs., Inc., 577 F.3d 752, 764 (7th Cir. 2009). A defendant invoking the doctrine must demonstrate 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.” Id. (emphasis and internal quotation omitted). As this statement suggests, the Court must look at both the facts alleged and the law governing the plaintiffs' complaint to determine whether they have “some chance of success” on their claims under state law. Thornton v. M7 Aerospace LP, 796 F.3d 757, 765 (7th Cir. 2015); Morris v. Nuzzo, 718 F.3d 660, 666 (7th Cir. 2013) ...


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