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Morris v. Cary's Lake Homeowners Association

United States District Court, D. South Carolina, Columbia Division

June 22, 2016

Stephen F. Morris and Martha Morris, Plaintiffs,
Cary's Lake Homeowners Association; Upper Rockyford Lake Owners Association, Inc., f/k/a North Lake Company, Inc.; Lake Elizabeth Estates, Inc.; and Owners Insurance Company[1], Defendants.


         This matter is before the court on the Motion to Sever of Defendant Auto-Owners Insurance Company ("Defendant") to sever the claims of Stephen F. Morris and Martha Morris ("Plaintiffs") against it from their claims against its Co-Defendants.[2] (ECF No. 9.) Defendant moreover requests that this court retain Plaintiffs' claims against it and remand to state court Plaintiffs' separate claims against its Co-Defendants. (Id.) For the reasons set forth herein, the court GRANTS Defendant's Motion to Sever (ECF No. 9).


         Plaintiffs filed their action in state court on February 24, 2016 seeking damages stemming from the October 2015 flooding of their home. (ECF No. 1-1 at 6-23.) Plaintiffs asserted claims of bad faith, breach of contract, and breach of contract with fraudulent intent against Defendant for not paying insurance policy benefits for the flood damage. (Id.) Plaintiffs sued the other Co-Defendants in this matter for negligence, strict liability, and nuisance for their alleged failure to maintain, build, and/or operate the dams, the breaking of which allegedly contributed to the flood damage of Plaintiffs' property. (Id.)

         Defendant is incorporated under the laws of Michigan and has its principal place of business there. (ECF No. 1-1 at 6-7.) Plaintiffs and all the other Co-Defendants are South Carolina citizens and residents. (Id.) Defendant filed a Notice of Removal to federal court on March 18, 2016. (ECF No. 1.)


         A. Removal and Diversity Jurisdiction

         A party seeking to remove a case from state to federal court bears the burden of demonstrating that jurisdiction is proper at the time it files its petition for removal. Caterpillar Inc. v. Lewis, 519 U.S. 61, 73 (1996). If federal jurisdiction is doubtful, remand is necessary. Mulchaey v. Columbia Organic Chems. Co., 29 F.3d 148, 151 (4th Cir. 1994); see Marshall v. Manville Sales Corp., 6 F.3d 229, 232 (4th Cir. 1993) (noting Congress's "clear intention to restrict removal and to resolve all doubts about the propriety of removal in favor of retained state court jurisdiction"); see also Auto Ins. Agency, Inc. v. Interstate Agency, Inc., 525 F.Supp. 1104, 1106 (D.S.C. 1981) (citations omitted).

         The right to remove a case from state to federal court derives solely from 28 U.S.C. § 1441 (2012), which provides that "any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending." Absent jurisdiction based on the presentation of a federal question, see 28 U.S.C. § 1331 (2012), a federal district court only has "original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75, 000, exclusive of interest and costs, and is between . . . citizens of different States . . . ." 28 U.S.C. § 1332(a) (2012). "[28 U.S.C. § 1332(a)] and its predecessors have consistently been held to require complete diversity of citizenship. That is, diversity jurisdiction does not exist unless each defendant is a citizen of a different State from each plaintiff." Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 373 (1978) (emphasis in original) (footnote omitted); Crawford v. C. Richard Dobson Builders, Inc., 597 F.Supp.2d 605, 608 (D.S.C. 2009) ("The complete diversity rule of § 1332 requires that the citizenship of each plaintiff be different from the citizenship of each defendant."). Moreover, a corporation is a "citizen" of the state in which it is incorporated. 28 U.S.C. § 1332(c)(1).

         Removal requires the consent of all defendants, unless the defendant is a nominal party. See 28 U.S.C. § 1446(b)(2) (2012); Hartford Fire Ins. Co. v. Harleysville Mut. Ins. Co., 736 F.3d 255, 259 (4th Cir. 2013). Moreover, in evaluating citizenship for purposes of determining whether complete diversity exists, the court considers only the citizenship of real and substantial parties to the litigation and does not take into account nominal or formal parties that have no real interest in the litigation. Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 460-61 (1980). Whether a party is nominal for removal purposes depends on whether the party has an "immediately apparent stake in the litigation either prior or subsequent to the act of removal." Hartford Fire Ins. Co., 736 F.3d at 260. "In other words, the key inquiry is whether the suit can be resolved without affecting the non-consenting nominal defendant in any reasonably foreseeable way." Id.

         B. Joinder and Severance of Parties

         Rule 20(a)(2) of the Federal Rules of Civil Procedure describes the requirements for permissive joinder: "Persons . . . may be joined in one action as defendants if: (A) any right to relief is asserted against them jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence or series of transactions or occurrences; and (B) any question of law or fact common to all defendants will arise in the action." Fed.R.Civ.P. 20(a)(2). The United States Supreme Court has articulated that "the impulse is toward the broadest possible scope of action consistent with fairness to the parties; joinder of claims, parties and remedies is strongly encouraged." See United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 724 (1966). Additionally, the Court of Appeals for the Fourth Circuit has explained that "Rule 20 grants courts wide discretion concerning the permissive joinder of parties." Aleman v. Chugach Support Servs. Inc., 485 F.3d 206, 218 n.5 (4th Cir. 2007).

         A district court also possesses broad discretion in ruling on a requested severance under Fed.R.Civ.P. 21. See Saval v. BL, Ltd., 710 F.2d 1027, 1031-32 (4th Cir. 1983). Specifically, whether to drop parties from a case to establish diversity between the remaining parties is a decision within the trial court's discretion. Caperton v. Beatrice Pocahontas Coal Co., 585 F.2d 683, 691 (4th Cir. 1978) ("There is, of course, sound authority for the view that non-diverse parties whose presence is not essential under Rule 19 may be dropped to achieve diversity between the plaintiffs and the defendants . . . ."). However, a court cannot ignore Rule 20's requirements. See Neitzke v. Williams, 490 U.S. 319, 328 (1989); see also, e.g., McCoy v. Willis, No. 4:07-cv-3563-PMD-TER, 2008 WL 4221745, at *5 (D.S.C. Sept. 15, 2008). If Rule 20's requirements are not met, and defendants are deemed improperly joined, the court "on motion or on its own . . . may at any time, on just terms . . . drop a party." Fed.R.Civ.P. 21 (emphasis added). Rule 21 provides the court with the power to sua sponte sever improperly joined defendants. Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 832, L.Ed.2d 893 (1989) ("[I]t is well settled that Rule 21 invests district courts with authority to allow a dispensable non-diverse party to be dropped at any time . . . ."). A court can sever misjoined parties if the severance will not prejudice substantial rights. See, e.g., Coughlin v. Rogers, 130 F.3d 1348, 1350 (9th Cir. 1997).

         III. ANALYSIS

         A. ...

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