Myrick v. Evanston Insurance Co.

          ORDER

          WILLIAM H. STEELE UNITED STATES DISTRICT JUDGE

         This action is before the Court on the plaintiff’s motion to remand. (Doc. 10). The defendant has filed a response, (Doc. 14), the plaintiff declined to file a reply, (Doc. 13), and the motion is ripe for resolution. After careful consideration, the Court concludes the motion is due to be denied.

         BACKGROUND

         The plaintiff brought suit in Alabama state court against Mega Construction (“Mega”) for the wrongful death of the plaintiff’s decedent. The plaintiff there obtained a $1.5 million consent judgment. The plaintiff then procured process of garnishment and served same on the defendant herein as Mega’s liability insurer. The defendant timely removed on the basis of diversity.

         There is no question that the decedent was a citizen of Alabama and that the plaintiff, as his personal representative, shares that citizenship for purposes of assessing diversity jurisdiction. 28 U.S.C. § 1332(c)(2). There is also no question that the defendant is an Illinois corporation with its principal place of business in that state, such that it is a citizen of Illinois for diversity purposes. Id. § 1332(c)(1). The plaintiff, however, argues that this is a “direct action” within the meaning of Section 1332(c)(1); that Mega is a citizen of Alabama; and that the defendant is thus also deemed a citizen of Alabama pursuant to Section 1332(c)(1)(A), destroying complete diversity and depriving the Court of subject matter jurisdiction. The defendant concedes Mega’s citizenship but denies that Mega’s citizenship is properly attributed to it.

         DISCUSSION

         I. Direct Action.

         For purposes of diversity jurisdiction (including removal), “in any direct action against the insurer of a policy or contract of liability insurance, … to which action the insured is not joined as a party-defendant, such insurer shall be deemed a citizen of … every State and foreign state of which the insured is a citizen ….” 28 U.S.C. § 1332(c)(1)(A).

         “Courts have uniformly defined the term ‘direct action’ as used in this section as those cases in which a party suffering injuries or damages for which another is legally responsible is entitled to bring suit against the other’s liability insurer without joining the insured or first obtaining a judgment against him.” Fortson v. St. Paul Fire and Marine Insurance Co., 751 F.2d 1157, 1159 (11^th Cir. 1985) (emphasis added, internal quotes omitted). The highlighted portion of this statement is dicta, because Fortson did not involve such a fact situation.^[1]

         The Eleventh Circuit expressed Fortson’s formulation as holding in Kong v. Allied Professional Insurance Co., 750 F.3d 1295 (11^th Cir. 2014). The plaintiff in Kong obtained a consent judgment against her alleged tortfeasor and then sued the tortfeasor’s insurer in state court. When the insurer removed, the plaintiff unsuccessfully moved to remand on the grounds that hers was a direct action. Id. at 1298-99. The Kong panel noted that Fortson, other courts, and leading treatises all agree that a suit against an insurer brought only after obtaining judgment against the insured as required by state law is not a direct action. Id. at 1300. It then reviewed the legislative history of Section 1332(c)(1)(A) and concluded that its purpose – “to prevent plaintiffs from manipulating federal jurisdiction in order to seek the shelter of a more favorable forum” – “does not occur … if a state requires its tort plaintiffs to first join or obtain judgment against the insured as a prerequisite to suing an insurer.” Id. Because Florida law required a tort plaintiff to obtain a settlement or verdict against the insured before suing the insurer, the plaintiff’s claim “does not fall within § 1332(c)’s direct-action exemption.” Id. at 1301. In short, “an action is … not a direct action if a plaintiff must first join or obtain judgment against the insured as a prerequisite for suing an insurer.” Id. at 1301 n.2.^[2]

         “We hold that unless the cause of action against the insurance company is of such a nature that the liability sought to be imposed could be imposed against the insured, the action is not a direct action.” Fortson, 751 F.2d at 1159. This portion of Fortson is, as it declares, a holding.^[3] A claim brought to recover insurance proceeds to satisfy a judgment already entered against the insured seeks to impose a liability (payment of insurance proceeds) that could not be imposed against the insured. City of Vestavia Hills v. General Fidelity Insurance Co., 676 F.3d 1310, 1315 (11^th Cir. 2012) (“Similar to the plaintiff in Fortson, [the plaintiff] could not have brought this action against [the insured], as the single count relates to insurance and [the plaintiff] has already obtained judgment against [the insured], ” and “we are bound by the holding in Fortson …”).

         There are thus at least two circumstances under which a plaintiff may sue a tortfeasor’s liability insurer, but not the tortfeasor/insured, without creating a “direct action” within the contemplation of Section 1332(c)(1): (1) when the claim against the insurer could not have been brought against the insured; and (2) when, pursuant to a state law requirement, the plaintiff has already obtained judgment against the insured. Kong, 750 F.3d at 1301 n.2. When the suit is against the insurer to recover insurance proceeds to satisfy an existing judgment against the insured, both circumstances exist. City of Vestavia Hills, 676 F.3d at 1315.

         Application of the governing rules requires identification of the authority by which the plaintiff obtained process of garnishment; if state law required the plaintiff to obtain judgment against Mega before obtaining process of garnishment against the defendant (as the plaintiff did), Kong and City of Vestavia Hills are satisfied and this is not a direct action.^[4]

         The plaintiff says he obtained process of garnishment pursuant to Alabama Code §§ 27-23-1 and -2. (Doc. 10 at 2). “This Court has interpreted § 27-23-1 and § 27-23-2 to preclude an injured party from bringing an action against an insurer before the injured party has recovered a final judgment against the insured.” Knox v. Western World Insurance Co., 893 So.2d 321, 324 (Ala. 2004) (describing Maness v. Alabama Farm Bureau Mutual Casualty Insurance Co., 416 So.2d 979 (Ala. 1982)). “[T]he clear wording of § 27-23-1 and § 27-23-2 … precludes the [plaintiffs] from asserting a direct action against [the insurer] before a final judgment is rendered against [the insured].” Id. at 325. Thus, “[a]n action brought under Alabama Code § ...