HARRY S. MATTICE, Jr., District Judge.
Before the Court is the "Motion for Realignment of Parties" (Doc. 3) ("Mot. Realign") filed by Defendant Northland Insurance Company, Inc. ("Northland") on April 29, 2011 and Plaintiffs' Motion to Remand (Doc. 10) ("Mot. Remand"), filed June 8, 2011. United States Magistrate Judge William Carter filed his Report and Recommendation on the Motion for Realignment (Doc. 16) ("R&R") on November 1, 2011. Plaintiffs filed their Objections (Doc. 17) on November 15, 2011, and supplemented those objections (Doc. 20) pursuant to Eastern District of Tennessee Local Rule 7.1 on December 9, 2011. Northland filed its Response to Plaintiffs' Objections to the R&R (Doc. 21) on December 13, 2011. Plaintiffs filed a second supplemental brief (Doc. 23) on January 5, 2012, to which Northland filed its Response (Doc. 24) on January 17, 2012. Finally, Plaintiffs filed a Motion for Leave to File an Amended Complaint (Doc. 22) on January 5, 2012, to which Northland filed its Response in Opposition (Doc. 25) on January 17, 2012.
For the reasons explained below, Plaintiffs' Response and Objection to Report and Recommendation (Doc. 17) will be
The Court must conduct a de novo review of those portions of the Report and Recommendation to which objection is made and may accept, reject, or modify, in whole or in part, the Magistrate Judge's findings or recommendations. 28 U.S.C. § 636(b)(1)(B). The Court may also receive further evidence or recommit the matter to the magistrate judge with instructions. Id.
This case is somewhat unique, though, in that the motion under consideration is one affecting the subject-matter jurisdiction of the Court. Because "subject-matter jurisdiction... involves a court's power to hear a case, [it] can never be forfeited or waived," and this Court has "an independent obligation to determine whether subject-matter jurisdiction exists, even in the absence of a challenge from any party." Arbaugh v. Y&H Corp., 546 U.S. 500, 514 (2006) (internal citations and quotation marks omitted).
Finally, on a motion for realignment of the parties, "it is the court's responsibility to ensure that the parties are properly aligned according to their interests in the litigation ... [and] in accordance with the primary dispute in the controversy, even where a different, legitimate dispute between the parties supports the original alignment." Cleveland Hous. Renewal Project v. Deutsche Bank Trust Co., 621 F.3d 554, 559 (6th Cir. 2010) (internal citations and quotation marks omitted) (citing U.S. Fidelity & Guar. Co. v. Thomas Solvent Co., 955 F.2d 1085, 1089 (6th Cir. 1992).
As perhaps is appropriate in an action seeking a declaratory judgment, the facts of the underlying dispute do not need to be recounted at length.
On February 8, 2007, Northland issued a commercial auto liability insurance to Refa Watley — policy no. TN547120 — with limits of $1,000,000 subject to the terms, conditions, and exclusions incorporated into the policy and effective February 1, 2007 to February 1, 2008. (Compl. ¶ 7; Ans. ¶ 7; Ex. A to Compl., Policy # TN547120.) On or about December 4, 2007, Lewis L. Watley was driving a commercial motor vehicle — a 2000 Kenworth tractor, listed in the "Schedule of Automobiles" as VIN IXKAD69X3YR835968 — in Montgomery County, New York when a single vehicle auto accident occurred. (Compl. ¶ 11; Ans. ¶ 11.) Plaintiffs allege that Plaintiff April Miller was riding as a passenger in the vehicle when the accident occurred and was injured in the accident. Defendant further admits that she made a claim related to those injuries, which Northland denied on March 6, 2008. Plaintiffs seek a declaration that, among other things, adopts their view that April Miller was an independent contractor, not an employee.
On November 30, 2010, Plaintiffs Roger and April Miller filed the instant "Complaint for Declaratory Judgment to Determine Rights and Liabilities Under Commercial Motor Carrier Liability Insurance Policy" (Doc. 1-1) in the Circuit Court of Warren County, Tennessee.
On April 29, 2011, Defendant Northland Insurance Company, Inc. ("Northland") filed the Notice of Removal (Doc. 1) in this Court, contemporaneously with a "Motion for Realignment of Parties" (Doc. 3) ("Mot. Realign"). In that Motion, Northland argues that "[d]iversity jurisdiction cannot be determined by the parties' own determination of who should be a plaintiff and who should be a defendant" and that "it is the duty of the Court to look beyond the pleadings and arrange the parties according to their interests in the primary issue in this action." (Mot. Realign 1.) Northland asserts that "[t]he Sixth Circuit follows the `principal purpose test' in determining the proper alignment of parties," and that "[i]n the context of a declaratory judgment action regarding insurance coverage, purported insureds and insurers should be aligned as adverse parties." (Id.)
Northland then filed its Answer and Counterclaim (Doc. 5) on May 2, 2011. Refa Watley d/b/a Refa Watley Trucking and Lewis Leo Watley have not filed a response and have yet to appear in this action.
Plaintiffs filed their "Response Opposing Motion for Realignment" (Doc. 9) ("Realign Respon.") on June 8, 2011, on which day they also filed their own Motion to Remand (Doc. 10) ("Mot. Remand"). In their Response on the Motion to Realign, Plaintiffs put forth four arguments. First, that Northland should be deemed to be a citizen of Tennessee, a state in which the insured, Refa Watley, is a citizen — because, pursuant to 28 U.S.C. § 1332(c)(1), this case was a "direct action against the insurer of a policy or contract of liability insurance," and thus Northland "shall be deemed a citizen of every [State] of which the insured is a citizen, every [State] by which the insurer has been incorporated; and "the [State] where the insurer has its principal place of business."
Second, Plaintiffs argue that even if the insured, Refa Watley, is realigned, that would not affect the party defendant status of Lewis Leo Watley; as the latter is a citizen of Tennessee, the action would still be nondiverse. (Realign Respon. 2.)
Third, Plaintiffs argue, the "Tennessee Declaratory Judgment Act is Remedial and Procedural." (Realign Respon. 3.) While the substance of this argument is not clear, it seems as though they are arguing that, because declaratory judgment is a remedy, not a source of an independent claim, one cannot remove an action brought pursuant to the Tennessee Declaratory Judgment statute — Tenn. Code Ann. § 29-14-102 et seq. — to federal court.
Fourth, Plaintiffs argued that the "Principal Purpose Test" is not met in this case because they "have a pending case in New York against the very Watley Defendants which are named in the instant case as Defendants," and that "[t]here can be little logical doubt that the Plaintiffs in both cases cannot be properly aligned as co-Plaintiffs in the instant case while also pursuing an action against the Watley parties in the New York case." (Realign Respon. 3.) They also argue that they have "lodged a direct action in paragraph numbered `14' of the Complaint against the movant, claiming to constitute `intended third party beneficiaries' under the terms of an insurance policy." (Id.) They conclude by arguing that "the primary purpose of this action is to determine whether the movant is directly liable to the Plaintiffs pursuant to the terms of the subject policy" and that "[t]he only reason that the Watley Defendants were named as parties in the instant Tennessee action is because the Tennessee Declaratory Judgment Act [at Tenn. Code Ann. § 29-14-107] requires that they be named given their status as potential stakeholders in the outcome." (Id. at 3-4.)
Defendant Northland filed its "Reply to Plaintiffs' Response to Motion for Realignment of Parties" (Doc. 11) ("Realign Reply") on June 10, 2011, along with its Response to Plaintiffs' Motion to Remand (Doc. 12). In its Reply Brief, Northland argues first that "this is not a `direct action' against an insurer as contemplated by section 1332(c)(1)." (Realign Reply 1.) Second, it argued, "Defendant Lewis Watley is a purported insured under the Northland policy, and should be realigned as a party Plaintiff along with the named insured, Refa Watley Trucking." (Id. at 3.) Northland provides no support for its proposition that Lewis Watley "is a purported insured." Third, it responds to Plaintiffs' arguments about the subject matter jurisdiction over declaratory judgments brought pursuant to Tennessee's declaratory judgment statute by stating "[i]t is well settled law that a federal court sitting in diversity applies the substantive law of the forum state and federal procedural law to adjudicate the dispute." (Id. at 3-4.) Fourth, it replies that "[c]ontrary to the Plaintiffs [sic] assertion, the principal purpose in this action is not to determine whether Northland is directly liable to the Plaintiffs pursuant to the terms of the Northland policy."(Id. at 4.) Finally, it replies that — in response to Plaintiffs' argument that Tenn. Code Ann. § 29-14-107 requires the Watley Defendants to be named as parties "given their status as potential stakeholders in the outcome" — "[t]here is nothing in the referenced statute that requires Refa Watley Trucking and Lewis Watley to be named only as defendants." (Id. at 5.) Northland's Response to Plaintiffs' Motion to Remand does not contain any arguments of substance.
United States Magistrate Judge William Carter filed his Report and Recommendation on the Motion for Realignment (Doc. 16) ("R&R") on November 1, 2011. After briefly recounting (accurately) the facts applicable to this situation, Magistrate Judge Carter found that (1) "this declaratory judgment action is not a `direct action' within the meaning of Section 1332(c)(1)"; (2)"realignment of the parties as requested by Northland would not destroy diversity jurisdiction"; and (3) "the primary dispute is whether Refa Watley's insurance policy with Northland covers April Miller's injuries in the event Lewis and Refa Watley are found liable in the New York state action." (R&R at 8, 10.)
On the second point, Magistrate Judge Carter makes two consequential observations. First, he bases this decision in part on his analysis of the orientation of this action — that is, his belief that "the Millers bring this action on the sole issue as to whether, if a judgment is rendered against the Watleys in the New York state action, April Miller will be covered under the Northland policy." (R&R at 8.)
Second, he drops a footnote after his conclusion that "realignment of the parties as requested by Northland would not destroy diversity jurisdiction" that states as follows:
(R&R at 8, n.3.)
Plaintiffs filed their Objections (Doc. 17) ("Pl.'s Objs.") on November 15, 2011 and twice supplemented those objections pursuant to Eastern District of Tennessee Local Rule 7.1, first on December 9, 2011 (Doc. 20) ("Pl.'s 1st Suppl. Br.") and second on January 5, 2012 (Doc. 23) ("Pl.'s 2nd Suppl. Br."). On December 13, 2011, Northland filed its Response to Plaintiffs' Objections to the R&R (Doc. 21) ("Respon. to Objs."), and, on January 17, 2012, its response to Plaintiffs' Second Supplemental Objections (Doc. 24) ("Respon. to 2nd. Objs.").
Without going into lengthy and unnecessary — given the resolution of the pending motions herein — detail, Plaintiffs seized upon Magistrate Judge Carter's comment in footnote 3 that "the outcome of this motion would be different" if the policy at issue here "were [ ]a `no fault' policy" to "raise an objection to the Report and Recommendation (Docket Entry No. 16) on the basis that the insurance policy at issue is to be properly deemed and construed as a `no-fault' policy by federal, New York and Tennessee law." (Pl.'s Objs. 1.) Briefly, the basis of this objection is that, they assert, New York state, where the accident occurred, is a "no-fault" state, insofar as it relates to non-resident motorists and passengers; requires such coverage of trucking companies operating in New York; and that the MCS-90 endorsement and the BMC-90 (BMC-91X) endorsements — which help effect the Federal Motor Carrier Saftey Regulations (FMCSR) as they relate to this interstate no-fault requirement — "requires reimbursement of insurer by insured for monies paid," which is part of the reason that the Watley Defendants' interests are not aligned with those of Plaintiffs.
Northland's essential response to Plaintiffs' objections is that this argument over "no-fault" is not a true objection, but rather an attempt to seize on unimportant language in the R&R to reargue the merits of the motion or to introduce into the proceedings a new argument.
Plaintiffs filed a Motion for Leave to File an Amended Complaint (Doc. 22) on January 5, 2012, to which Northland filed its Response in Opposition (Doc. 25) on January 17, 2012.
These matters are now ripe for review.
The Court
As an initial matter, the Court would note that, while the R&R reached the correct conclusion that Northland does not share Refa Watley's citizenship because this is not a "direct action" within the meaning of 28 U.S.C. §1332(c)(1), the R&R also seems to have ignored that the full (relevant) text of the statute reads as follows: "except that in any direct action against the insurer of a policy or contract of liability insurance, whether incorporated or unincorporated,
The R&R addresses only Northland's arguments about the applicability of Section 1332(c)(1) and the "Primary Purpose" test and does not address at all Plaintiffs' second and third arguments, about the separate interests of Defendant Lewis Watley and the potential subject matter jurisdiction issues with the Tennessee Declaratory Judgment Act.
Part of the problem with Northland's Motion for Realignment and the R&R on the same is that Northland makes several unsubstantiated statements that are challenged by Plaintiffs but unaddressed in the R&R. For instance, in its Motion for Realignment of Parties, Northland asserts that "Plaintiff Miller further asserts that the Northland Policy provides coverage for the alleged negligence of Refa Watley and Lewis Watley as `insureds'.
This is a crucial error. The entire premise of Northland's motion is that Refa Watley d/b/a Refa Watley Trucking — due to the behavior of her/its employee, Lewis Watley — could be liable for Plaintiffs' costs if the exclusion cited by Northland is found to be valid and applicable to Plaintiff April Miller. Lewis Watley's name does not appear in the Policy or any of the addenda, such as the endorsements, exclusions, etc.
The Complaint alleges that negligence on his part caused Plaintiffs' injuries, and the documents attached to the Complaint indicate that he suffered injuries as well. More importantly — and contrary to the finding in the R&R that "the primary dispute is whether Refa Watley's insurance policy with Northland covers April Miller's injuries in the event Lewis and Refa Watley are found liable in the New York state action" — the bulk of the declaratory judgment request involves the construction of the term "employee." Because Plaintiffs allege Ms. Miller's work status — allegedly as an independent contractor — renders her an employee (whose injuries are thereby not excluded) and Mr. Watley an employee (whose injuries are thereby excluded), it seems as though, as to much of the substance of the Complaint for Declaratory Judgment, Plaintiffs' interests in the construction of that term appear to be almost in complete opposition to the interests of Lewis Watley.
Because Lewis Watley's status as an "insured" is unclear, because the main thrust of the request for declaratory judgment puts Plaintiffs in direct opposition with Mr. Watley, and because the complaint appears to put Mr. Watley in at least some conflict financially with the Plaintiffs, the Court does not find it appropriate to realign him as a plaintiff.
Finally, due to the Court's ruling herein, it is unnecessary for the Court to reach the question of the applicability of the "no fault" provisions or the motion to amend. The latter is unrelated to the subject-matter-jurisdiction-determinative motions before this Court and can be resolved upon remand. As to the "no fault" arguments, while the Court will not reach their substance, it will note that Northland is entirely incorrect in accusing Plaintiffs of attempting to reargue their motion or raising a new issue. The footnote at issue clearly stated that the finding that the insurance at issue was no fault was outcome-determinative, but neither of the parties had raised the issue to date. Therefore Plaintiffs were not rearguing previous points, nor did they raise a new argument they should have made in their response; the "no fault" issue was brought into the discussion by the R&R, and they kept their briefs strictly limited to addressing those issues newly-raised in the R&R.
Accordingly, the Court
As a final matter, the Court is aware that there is a pending "Counterclaim for Declaratory Judgment" (Doc. 5) filed by Northland on May 20, 2011. While none of the parties have addressed this issue, Northland pled the jurisdiction of the counterclaim by asserting that "[o]nce Refa Watley and Lewis Watley are properly realigned as party plaintiffs per the contemporaneous Motion for Realignment filed by Northland, complete diversity of citizenship will exist between Northland and the adverse parties." (Counterclaim ¶ 6.) It thereby seems to have been relying on the Court's granting its Motion for Realignment to establish jurisdiction for its counterclaim; because the Court will deny that motion, the counterclaim's remand does not impede the remand of the entire action.
Accordingly, and for the reasons stated above, Plaintiffs' Response and Objection to Report and Recommendation (Doc. 17) are hereby
So
