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Fay v. The Hartford Insurance Co.

United States District Court, D. New Mexico

March 4, 2019

LESEY FAY, et al., Plaintiffs,



         THIS MATTER comes before the Court on Plaintiffs' Motion For Leave To File Amended Complaint, filed May 8, 2018. Doc. 20. Defendant Sentinel Insurance Company (Sentinel) filed a response in opposition on June 1, 2018. Doc. 22. Plaintiffs filed a reply on June 15, 2018. Doc. 24. The Court orders that Plaintiffs' Motion be GRANTED for the reasons explained below.

         I. Background

         On June 23, 2017, Plaintiffs filed the present lawsuit in state court bringing claims for breach of fiduciary duty, breach of contract, and bad faith. Doc. 1-1 at 2-3.[1] According to Plaintiffs, they operated a business in Taos, New Mexico called Graham's Grille. Doc. 1-1 at 5. Due to “difficulties with the municipal sewer system that served the restaurant, the business was forced to close in September 2013.” Doc. 1-1 at 7. Plaintiffs had purchased “Business Interruption insurance” from Defendants for the restaurant in 2006, so they made a claim for damages due to being forced to shut down. Doc. 1-1 at 6-7. As of the date of the filing of the lawsuit, Defendants had neither paid nor denied the claim. Doc. 1-1 at 7.

         On July 30, 2017, also in state court, Plaintiffs filed a First Amended Complaint, asserting claims for Breach of Contract, Insurance Bad Faith, Violation of Insurance Code, Violation of Unfair Practices Act, and Punitive Damages. Doc. 1-1 at 5-10. Defendant Sentinel represents that it was served on September 27, 2017. Doc. 1 at 9. On October 20, 2017, Sentinel removed this case to federal court, alleging the existence of subject matter jurisdiction based on diversity of citizenship due to the fraudulent joinder of the sole defendant who is a citizen of New Mexico—Craig Beaudry, who allegedly sold the insurance policy in question. Doc. 1 at 3-5. Plaintiffs did not file a motion to remand.

         Sentinel filed a motion to dismiss on November 10, 2017. Doc. 6. In that motion, Sentinel argued that Plaintiffs' claim for lost business income is excluded by the applicable insurance policy and, furthermore, is untimely. Id. Also on November 10, Defendant Hartford Financial Services Group (HFSG) moved to dismiss all claims against it for lack of personal jurisdiction. Doc. 7. Plaintiffs did not oppose that motion. Doc. 13.

         On May 8, 2018, Plaintiffs moved for leave to file a Second Amended Complaint. Doc. 20. Plaintiffs wish to add more detail to their factual allegations regarding the defects with the Taos municipal sewer system, and regarding Plaintiffs' claim against Defendant Beaudry. Doc. 20 at 2.[2] Defendant Sentinel filed an opposition, arguing that the proposed amendment about the sewer system would be futile because the Second Amended Complaint would still fail to state a claim against Sentinel. Doc. 22. No other defendant filed a response.

         II. Jurisdiction

         Because the Court always has a sua sponte duty to ensure it has subject-matter jurisdiction, the Court carefully examined the Notice of Removal filed Defendants filed. See Image Software, Inc. v. Reynolds & Reynolds Co., 459 F.3d 1044, 1048 (10th Cir. 2006) (“Federal courts have an independent obligation to determine whether subject-matter jurisdiction exists, even in the absence of a challenge from any party . . . .”).

         As set forth above, the Notice of Removal contends that Defendant Beaudry was fraudulently joined. The Court does not necessarily agree. “‘The defendant seeking removal bears a heavy burden of proving fraudulent joinder, and all factual and legal issues must be resolved in favor of the plaintiff.'” Dutcher v. Matheson, 733 F.3d 980, 988 (10th Cir. 2013) (quoting Pampillonia v. RJR Nabisco, Inc., 138 F.3d 459, 461 (2d Cir. 1998)). To succeed on fraudulent joinder, removing defendants must clear a “high hurdle.” Id. at 989. The question of fraudulent joinder is not to be confused with whether “plaintiffs have stated a valid claim” against the allegedly fraudulently joined parties. Id. In sum, the argument that “conclusory allegations” against Defendant Beaudry should be disregarded simply will not satisfy this standard. Cf. Doc. 1 at 5. Statute-of-limitations arguments, if they are factually complicated, will likewise fail to satisfy this standard. See, e.g., Riverdale Baptist Church v. Certainteed Corp., 349 F.Supp.2d 943, 950 (D. Md. 2004).

         Nonetheless, even if Defendant Beaudry is not fraudulently joined, the Notice of Removal does adequately allege facts supporting the Court's original jurisdiction, pursuant to the alienage provision of 28 U.S.C. § 1332(a)(2) and a sufficient amount in controversy. See Doc. 1 at 2-3 (Plaintiffs are citizens of Mexico; Defendants are citizens of Connecticut, Arizona, New Mexico, and Delaware). To be sure, the First Amended Complaint alleges that Plaintiffs are residents of Mexico. First Am. Compl. ¶ 1. But “[a]n individual's residence is not equivalent to his domicile and it is domicile that is relevant for determining citizenship.” Siloam Springs Hotel, L.L.C. v. Century Sur. Co., 781 F.3d 1233, 1238 (10th Cir. 2015). Plaintiffs should promptly inform the Court if the Notice of Removal's allegations are incorrect.

         Since original jurisdiction is established by the allegations in the Notice of Removal, the Court may not sua sponte remand to state court. Feichko v. Denver & Rio Grande W. R. Co., 213 F.3d 586, 591 (10th Cir. 2000) (“[R]emoval in violation of a statutory provision does not deprive a federal district court of subject matter jurisdiction so long as the court would have had original jurisdiction over the case had it been filed there in the first instance.”). To the extent there are any procedural or statutory defects in removal due to Defendants' potentially incorrect fraudulent joinder assertions, Plaintiffs have waived them by failing to move to remand the case to state court within 30 days. 28 U.S.C. § 1447(c). Sua sponte remand to state court would therefore be inappropriate. City of Albuquerque v. Soto Enters., Inc., 864 F.3d 1089, 1093 (10th Cir. 2017). The Court will proceed to the merits of Plaintiffs' Motion.

         III. Discussion

         Federal Rule of Civil Procedure 15 permits a plaintiff to amend a complaint as of right within 21 days after serving it or 21 days after service of a Rule 12(b) motion. Fed.R.Civ.P. 15(a)(1). “In all other cases, a party may amend its pleading only with the opposing party's written consent or the court's leave.” Fed.R.Civ.P. 15(a)(2). Plaintiffs here have already amended their complaint once as a matter of right and so must now seek leave of court. Id.[3]

         Sentinel argues that Plaintiffs should not get a third bite at the apple, having failed to state viable claims in their first two complaints. Doc. 20 at 1. The Court does not necessarily agree that Plaintiffs are precluded from amending simply because they have amended previously. “The court should freely give leave [to amend] when justice so requires.” Fed.R.Civ.P. 15(a)(2). “[T]his mandate is to be heeded.” Foman v. Davis, 371 U.S. 178, 182 (1962). “In the absence of any apparent or declared reason—such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by ...

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