DeGhetto v. Everlake Life Insurance Company

• Court: District Court, D. Arizona
• Decided: October 18, 2023
• Docket: 2:23-cv-01649
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Francis DeGhetto, et al., No. CV-23-01649-PHX-DLR

10 Plaintiffs, ORDER

11 v.

12 Everlake Life Insurance Company, et al.,

13 Defendants. 14 15 16 Plaintiffs Francis and Rosemarie DeGhetto brought this action against Defendants 17 Everlake Life Insurance Company (“Everlake”) and LifeCare Assurance Company 18 (“LifeCare”) in Maricopa County Superior Court on July 10, 2023, alleging that 19 Defendants wrongfully denied their claims for long-term care benefits under a long-term 20 care policy issued by Everlake and administered by LifeCare. Plaintiffs bring claims for 21 breach of contract, bad faith, and intentional infliction of emotional distress.1 (Doc. 1-4 at 22 17-51.) On August 14, 2023, Everlake removed the case to this Court, invoking diversity 23 jurisdiction. (Doc. 1.) According to the complaint, Plaintiffs are Arizona residents, 24 Everlake is an Illinois resident, and LifeCare is an Arizona resident. (Doc. 1-4 at 17, 19.) 25 Ordinarily, the presence of a non-diverse defendant would preclude removal, but Everlake 26 contends the Court should disregard LifeCare’s residence for purposes of ascertaining 27

28 1 They also seek relief in the form of a declaratory judgment regarding their rights under the policy and an injunction. 1 jurisdiction because LifeCare has been fraudulently joined. (Doc. 1 at 5.) Plaintiffs’ have 2 moved to remand. (Doc. 7.) That motion is fully briefed (Docs. 19, 22) and will be granted.2 3 There is a strong presumption against removal jurisdiction. Gaus v. Miles, Inc., 980 4 F.2d 564, 566 (9th Cir. 1992). The defendant has the burden of proving that jurisdiction is 5 proper, and “[f]ederal jurisdiction must be rejected if there is any doubt as to the right of 6 removal in the first instance.” Id. 7 “A district court may disregard a non-diverse party named in the state court 8 complaint and retain federal jurisdiction if the non-diverse party is joined as a sham or if 9 the joinder is fraudulent.” Plute v. Roadway Package System, Inc., 141 F.Supp.2d 1005, 10 1008 (N.D. Cal. 2001). “If the plaintiff fails to state a cause of action against a resident 11 defendant, and the failure is obvious according to the settled rules of the state, the joinder 12 of the resident defendant is fraudulent.” McCabe v. General Foods Corp., 811 F.2d 1336, 13 1339 (9th Cir. 1987). But, like removal jurisdiction generally, “[t]here is a presumption 14 against finding fraudulent joinder, and defendants who assert that plaintiff has fraudulently 15 joined a party carry a heavy burden of persuasion.” Plute, 141 F.Supp.2d at 1008. When 16 determining whether a defendant has been fraudulently joined, the court must draw all 17 inferences and resolve all ambiguities in state law in favor of the plaintiff. See Ballesteros 18 v. Am. Standard Ins. Co. of Wisc., 436 F.Supp.2d 1070, 1072 (D. Ariz. 2006). Further, “a 19 defendant seeking removal based on an alleged fraudulent joinder must do more than show 20 that the complaint at the time of removal fails to state a claim against the non-diverse 21 defendant. Remand must be granted unless the defendant shows that the plaintiff would 22 not be afforded leave to amend his complaint to cure [the] purported deficiency.” Nasrawi 23 v. Buck Consultants, LLC, 776 F.Supp.2d 1166, 1170 (E.D. Cal. 2011) (internal quotations 24 and citations omitted). Thus, “[i]n borderline situations, where it is doubtful whether the 25 complaint states a cause of action against the resident defendant, the doubt is ordinarily 26 resolved in favor of the retention of the cause in the state court.” Albi v. Street & Smith 27 Publications, 140 F.2d 310, 312 (9th Cir. 1944). 28 2 Oral argument is denied because it is unnecessary. 1 Everlake argues that LifeCare has been fraudulently joined as a defendant because 2 LifeCare merely is Everlake’s third-party administrator and is a stranger to Plaintiffs’ 3 insurance contract. (Doc. 19.) The Court finds Everlake has failed to meet its heavy burden 4 of persuasion for two reasons. First, Arizona law regarding whether and under what 5 circumstances contractual privity is required for an insurance bad faith claim is ambiguous, 6 and this ambiguity must be resolved in favor of Plaintiffs. See Allo v. Am. Family Mut. Ins. 7 Co., No. CV-08-0961-PHX-FJM, 2008 WL 4217675, at *2-3 (D. Ariz. Sep. 12, 2008). 8 Second, Everlake has not persuaded the Court that there is no possibility that the perceived 9 defects in Plaintiffs’ claims against LifeCare can be cured via an amended pleading. 10 Indeed, Plaintiffs highlight in their motion to remand the possibility of amending their 11 pleading to allege LifeCare is a joint venturer with Everlake. (Doc. 7 at 8.) And joint 12 venture liability is among the “several distinct theories” under which “Arizona courts have 13 . . . permitted actions in contract and tort for breach of the covenant of good faith to proceed 14 in the absence of contractual privity.” Midtown Hotel Grp. LLC v. Selective Ins. Co. of Am., 15 2023 WL 3603677, at *4 (D. Ariz. May 23, 2023). The Court cannot confidently conclude 16 that there is no possibility Plaintiffs could plead a claim against LifeCare. Accordingly, 17 this matter must be remanded. 18 Plaintiffs request that they be awarded their reasonably attorney fees and costs 19 associated with their remand motion pursuant to 28 U.S.C. § 1447(c). (Doc. 7 at 14.) Given 20 the strong presumption against removal jurisdiction and a finding of fraudulent joinder, the 21 well-recognized ambiguities in Arizona law regarding whether lack of contractual privity 22 defeats insurance contract and bad faith liability, and the possibility that Plaintiffs could 23 cure any perceived deficiencies in their claims against LifeCare via an amended pleading, 24 the Court “conclude[s] that removal was improper as a matter of law and that an award of 25 fees and costs is appropriate.” Allo, 2008 WL 4217675, at *3. 26 / / / 27 / / / 28 / / / 1 IT IS ORDERED that Plaintiffs’ motion to remand (Doc. 7) is GRANTED. This || matter is remanded to the Maricopa County Superior Court, and Plaintiffs are awarded their || associated attorney fees and costs. 4 Dated this 18th day of October, 2023. 5 6 ‘boy tha 9 Upied States District Judge 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

-4-