Goostree v. Liberty National Life Insurance Co.

          MEMORANDUM OPINION

          KARON OWEN BOWDRE CHIEF UNITED STATES DISTRICT JUDGE

         Plaintiffs filed a putative class action consisting of people located in Alabama who purchased or owned life insurance policies through Defendants for which their premiums paid exceed their death benefits payable. They sued Liberty National Life Insurance Company and Liberty National insurance agent Robert D. Bice for various claims relating to Defendants allegedly recommending and selling insurance policies to Plaintiffs that were inappropriate for Plaintiffs' needs. On January 11, 2019, Defendants removed this insurance dispute action to federal court. (Doc. 1). In their notice of removal, Defendants alleged that the court has diversity of citizenship jurisdiction over the case and that the court should disregard the citizenship of Mr. Bice, the insurance agent, because they asserted that Plaintiffs fraudulently joined Mr. Bice as a defendant. Plaintiffs did not seek remand.

         Subsequently, Liberty National and Mr. Bice each filed a motion to dismiss. (Docs. 3-4). Mr. Bice's motion to dismiss argues essentially what Defendants noted in their notice of removal regarding fraudulent joinder: Plaintiffs' claims against Mr. Bice are barred by Alabama Code § 6-5-462 and Plaintiffs failed to state a claim as a matter of law against Mr. Bice, the non-diverse Defendant.

         Before this case can proceed, the court must ensure that it has subject matter jurisdiction. See Ex parte McCardle, 74 U.S. (7 Wall.) 506, 514 (1868) (“[W]ithout jurisdiction the court cannot proceed at all in any cause. . . . [W]hen [jurisdiction] ceases to exist, the only function remaining to the court is that of announcing the fact and dismissing the case.”). Although Plaintiffs did not move for remand, the court must sua sponte determine whether it has subject matter jurisdiction. See Univ. of S. Ala. v. Am. Tobacco Co., 168 F.3d 405, 409 (11th Cir. 1999) (“Indeed, [the law] is well settled that a federal court is obligated to inquire into subject matter jurisdiction sua sponte whenever it may be lacking.”).

         To travel in federal court on diversity of citizenship jurisdiction, the removing party must prove two elements: (1) all plaintiffs are completely diverse from all defendants, and (2) the amount in controversy exceeds $75, 000. 28 U.S.C. § 1332. Plaintiffs do not dispute that Liberty National is diverse from all Plaintiffs or that the amount in controversy exceeds $75, 000. But Mr. Bice and Plaintiffs are all citizens of Alabama. Unless Plaintiffs fraudulently joined Mr. Bice, his citizenship and presence in this case will defeat diversity jurisdiction.^[1]

         Defendants argue that Plaintiffs fraudulently joined Mr. Bice to defeat jurisdiction. “When a plaintiff names a non-diverse defendant solely . . . to defeat federal diversity jurisdiction, the district court must ignore the presence of the non-diverse defendant . . . .” Henderson v. Wash. Nat'l Ins., 454 F.3d 1278, 1281 (11th Cir. 2006). And one way in which a defendant can prove fraudulent joinder is by demonstrating that under “no possibility [can] plaintiff establish a cause of action against the resident defendant.” Id. (quoting Crowne v. Coleman, 113 F.3d 1536, 1538 (11th Cir. 1997)). So, whether Plaintiffs have failed to state a claim upon which relief can be granted against Mr. Bice and whether Plaintiffs fraudulently joined Mr. Bice to defeat subject matter jurisdiction are related inquiries.

         The court ordered Plaintiffs to show cause why Plaintiffs stated a claim against Mr. Bice. (Doc. 9). The court did not order briefing on whether jurisdiction exists under CAFA because the court first wanted to explore diversity of citizenship jurisdiction. Plaintiffs filed their response on February 11, 2019. (Doc. 12). Liberty Mutual then sought permission from the court to file a reply brief, (doc. 14), which the court allowed as to both Defendants. (Doc. 15). On February 28, 2019, Mr. Bice and Liberty Mutual each filed a reply brief. (Docs. 17-18). The parties have fully briefed the issue of diversity of citizenship jurisdiction, which is now ripe for review.

         I. Background

         Plaintiffs allege in this putative class action that Liberty National operates an unlawful scheme to sell low face value life insurance policies to low income consumers. Specifically, they allege that “Liberty National targeted consumers who are under-educated and/or unsophisticated with respect to insurance and related financial dealings, the language of the policies, and methods of determining premium payments whereby the premiums paid on such policies far exceeded the policy's face value.” (Doc. 1-1 at 8). The policies supposedly require Plaintiffs to pay premiums that exceed the death benefit payable pursuant to the policy. According to Plaintiffs, the policies generated profits at no risk to Liberty National and its agents, but provided no economic benefit to Plaintiffs.

         Mr. Alton Padgett and Mrs. Jean Padgett are the named Plaintiffs in this lawsuit. Mr. Padgett died in May 2018 at the age of 88, and Mrs. Padgett is now 82 years old. Mr. Bice has been their insurance agent since 1985. According to the complaint, Mr. Bice “knew and understood the Plaintiffs' age, employment, financial status, lack of dependents, and station in life.” (Doc. 1-1 at 11). For example, Mr. Bice knew that Mrs. Padgett was retired and receiving social security since 1998, and Mr. Padgett was earning less than $16, 000 annually through his job at Piggly Wiggly. Mr. Bice recommended and induced the Padgetts into purchasing multiple insurance policies, for which the premiums collectively exceeded $14, 000 per year. Mr. Bice continuously represented to the Padgetts that “such additional insurance was financially appropriate and beneficial to Plaintiffs, consistent with Plaintiffs' profile, needs and financial situation” despite his knowledge that “each successive policy would cost more in premiums than the death benefit payable under the policy.” (Id. at 11-12).

         The Padgetts allege that their “agreement [with Mr. Bice and Liberty National] contemplated an implied covenant of good faith and fair dealing.” (Doc. 1-1 at 12). As of 2015, the Padgetts purchased 14 life insurance policies for which they paid more than $14, 000 per year in premiums for a collective death benefit of $134, 000 in reliance on Mr. Bice's recommendations. The initial policy Mr. Padgett bought from Mr. Bice in 1988 had a death benefit of $6, 701. (Doc. 1-3 at 1; Doc. 1-5 at 1). The initial policy for Mrs. Padgett from Mr. Bice in 1989 had a death benefit of $7, 816. (Doc. 1-3 at 1).^[2] In 2017, Mr. Padgett requested to cash out his insurance policies, which he could no longer afford. Mr. Bice explained that a “cash out” was not permitted, but recommended that the Padgetts convert their policies into a “Reduced, Paid Up” policy. Under this “Reduced, Paid Up” policy, the Padgetts were no longer obligated to pay premiums, but the total death benefit payable under the policies was reduced to $45, 000. By this time, the Padgetts had paid more than $188, 000 in premiums on the policies.

         On October 19, 2018, the Padgetts filed this suit individually and on behalf of all others similarly situated against Liberty National and Mr. Bice in the Circuit Court of Talladega County, Alabama. The complaint alleges eight claims: breach of contract; breach of implied covenant of good faith and fair dealing; conversion; rescission; unjust enrichment; declaratory and injunctive relief; negligence, willfulness, and/or wantonness in the recommendation and sale of life insurance policies; and negligent and/or wanton training and supervision. Four of these claims appear to be against Mr. Bice: breach of contract; breach of implied covenant of good faith and fair dealing; declaratory and injunctive relief; and negligence, willfulness, and/or wantonness in the recommendation and sale of life insurance policies.

         On January 11, 2019, Liberty National removed this case to federal court. Mr. Bice joined in the removal. Liberty National asserts that this court has diversity of citizenship jurisdiction over this case. Liberty National is a citizen of Texas and Nebraska, Mr. Bice is a citizen of Alabama, and Plaintiffs are citizens of Alabama. Liberty National alleges that Plaintiffs fraudulently joined Mr. Bice, and so the court should disregard his citizenship when evaluating jurisdiction.

         On January 15, 2019, Mr. Bice filed his motion to dismiss, contending that Plaintiffs had ...