Goostree v. Liberty National Life Insurance Co.

          MEMORANDUM OPINION

          KARON OWEN BOWDRE CHIEF UNITED STATES DISTRICT JUDGE.

         This matter comes before the court on Defendant Liberty National Life Insurance Company's “Joint Motion to Alter or Amend, ” (doc. 22), and Liberty National and Defendant Robert D. Bice's “Corrected Joint Motion to Alter or Amend, ” (doc. 23). Both motions address the court's recent Memorandum Opinion and Order finding that Plaintiffs did not fraudulently join Mr. Bice.

         On June 17, 2019, this court entered a Memorandum Opinion and Order in which it held that Plaintiffs did not fraudulently join Mr. Bice because the court found a possibility existed that Plaintiffs stated a claim against Mr. Bice for breach of the duty of good faith and fair dealing. (Docs. 19-20). Specifically, the court found that Plaintiffs may have stated a claim against Mr. Bice for breach of duty of good faith and fair dealing because the Plaintiffs alleged they had a special relationship with Mr. Bice, which created a duty toward Plaintiffs. (Doc. 19 at 11-12).

         Defendants now move to amend the court's order under Federal Rule of Civil Procedure 59(e) because they allege the court committed a clear error in its ruling. Defendants raise multiple arguments why the court erred, including that the allegations of a special relationship came from Plaintiffs' jurisdictional response brief, not Plaintiffs' complaint. The court will now consider Defendants' motions to amend its June 17 Order. (Docs. 22-23).

         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.

         The Estate of 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).^[1] 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 failed to state a claim against him. Because the court was unsure if it had subject matter jurisdiction, it ordered Plaintiffs to show cause why Mr. Bice should not be dismissed. (Doc. 9). On June 17, 2019, this court entered a Memorandum Opinion and Order finding that Plaintiffs did not fraudulently join Mr. Bice because a possibility existed that Plaintiffs stated a claim for breach of the duty of good faith and fair dealing against Mr. Bice. (Docs. 19-20). Defendants now move for reconsideration of the June 17 Order.

         II. Standard of Review

         Whether to grant a motion to reconsider under Federal Rule of Civil Procedure 59(e) or 60(b) is within the discretion of the trial court. See Smith v. Casey, 741 F.3d 1236, 1241 (11th Cir. 2014). A motion to reconsider “must demonstrate why the court should reconsider its prior decision and ‘set forth facts or law of a strongly convincing nature to induce the court to reverse its prior decision.'” Fid. & Deposit of Md. v. Am. Consertech, Inc., No. 06-0338-CG-M, 2008 WL 4080270, at *1 (S.D. Ala. Aug. 28, 2008) (quoting Cover v. Wal-Mart Stores, Inc., 148 F.R.D. 294 (M.D. Fla. 1993)).

         Three grounds justify reconsideration of an order: when a party submits evidence of (1) “an intervening change in controlling law, ” (2) “the availability of new evidence, ” or (3) “the need to correct clear error or manifest injustice.” Wallace v. Holder, 846 F.Supp.2d 1245, 1248 (N.D. Ala. 2012) (quoting Summit Med. Ctr. of Ala., Inc. v. Riley, 284 F.Supp.2d 1350, 1355 (M.D. Ala. 2003)). “[R]econsideration of an order is an extraordinary remedy and is employed sparingly.” Rueter v. Merrill Lynce, Pierce, Fenner & Smith, Inc., 440 F.Supp.2d 1256, 1267- 68 (N.D. Ala. 2006). Motions for reconsideration should not be a “knee-jerk reaction to an adverse ruling.” Id. (quoting Summit Med. Ctr. of Ala., Inc., 284 F.Supp.2d at 1355).

         III. Discussion

         Defendants filed two separate motions to amend the order. Only Liberty National filed the first motion, despite the title as a “joint” motion. (Doc. 22). Liberty National and Mr. Bice subsequently filed the corrected joint motion. (Doc. 23). Because the motions are otherwise identical in substance, the court will FIND AS MOOT the original motion to amend, (doc. 22), and will only consider the merits of the corrected motion to amend, (doc. 23).

         In their corrected motion, Defendants contend that the court committed clear error in its order finding that a possibility existed that Plaintiffs alleged a claim against Mr. Bice for breach of duty of fair dealing because of an alleged special relationship. As one of their arguments for reconsideration, Defendants maintain that the court relied upon allegations in Plaintiffs' jurisdictional response brief to find a special relationship, when the court should have been limited to Plaintiffs' pleadings in its complaint.

         When considering subject matter jurisdiction in a removal action, “the status of the case as disclosed by the plaintiff's complaint is controlling in the case of a removal, since the defendant must file his petition before the time for answer or forever lose his right to remove.” St. Paul Mercury Indem. v. Red Cab Co., 303 U.S. 283, 291 (1938); see also Pacheco de Perez v. AT&T Co., 139 F.3d 1368, 1380 (11th Cir. 1998) (“The determination of whether a resident defendant has been fraudulently joined must be based upon the plaintiff's pleadings at the time of removal . . . .”).

         In the June 17 Order, this court found that Plaintiffs alleged a special relationship existed because Plaintiffs contended that “‘by and through this long-term relationship' with Mr. Bice over the 33 years he was their insurance agent, the Padgetts ‘reposed trust in him regarding their insurance needs.'” (Doc. 19 at 11 (quoting Doc. 12 at 16)). In that statement, the court quoted Plaintiffs' argument in their jurisdictional response brief, (doc. 12), erroneously expecting the factual statements to accurately reflect those in their complaint. But the complaint does not allege either a long-term relationship or that the Padgetts reposed trust in Mr. Bice. So, the court committed clear error when it relied on allegations outside of Plaintiffs' pleadings at the time of the removal, despite the Supreme Court and Eleventh Circuit precedent to the contrary. See St. Paul Mercury Indem., 303 U.S. at 291; Pacheco de Perez, 139 F.3d at 1380. Therefore, the court must GRANT Defendants' motion to amend. (Doc. 23).

         The court will now reconsider whether Plaintiffs fraudulently joined Mr. Bice. To prove that a co-defendant was fraudulently joined, a defendant must demonstrate that “(1) there is no possibility that plaintiff can establish a cause of action against the resident defendant; or (2) the plaintiff has fraudulently pled jurisdictional facts to bring the resident defendant into state court.” Crowe v. Coleman, 113 F.3d 1536, ...