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Stoney Marine International Ltd. v. Arthur J. Gallagher & Co.

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

December 19, 2016

STONEY MARINE INTERNATIONAL LIMITED d/b/a Coleman Supply Company and Laurence O. Stoney, Plaintiffs,
ARTHUR J. GALLAGHER & CO., ARTHUR J. GALLAGHER RISK MANAGEMENT SERVICES INC. d/b/a Gallagher Riley, and RILEY & ASSOCIATES INC. and/or its Officers, Directors and Shareholders, Defendants.



         This matter is before the court on a motion to remand filed by plaintiffs Laurence O. Stoney and Stoney Marine International Limited (“plaintiffs”). For the reasons set forth below, the court grants plaintiffs' motion.

         I. BACKGROUND

         Plaintiffs operate a ship chandlery business, supplying the needs of vessels in the Port of Charleston, South Carolina. Compl. ¶ 1. From 2007 to 2009 plaintiffs purchased liability insurance through defendant Riley & Associates, Inc. (“Riley”). Id. ¶ 17. In 2009 or early 2010, plaintiffs selected a competing agency, Anderson Insurance Associates (“Anderson”) to place its insurance. Id. ¶¶ 18, 19. Riley eventually approached plaintiffs about regaining their business, and plaintiffs informed Riley that if it could provide the same coverage as the policy obtained through Anderson (the “Anderson Policy”) at a better price, then plaintiffs would again purchase their insurance through Riley. Id. ¶¶ 20, 21. Notably, the Anderson Policy included coverage for claims made pursuant to the Longshore and Harbor Workers' Compensation Act (“LHWCA coverage”).[1] Id. ¶ 19. Plaintiffs provided Riley with a copy of the Anderson Policy for this purpose. Id. ¶ 21. Based on Riley's representation that it could provide the same coverage at a lower premium, plaintiffs resumed purchasing their insurance from Riley and obtained a policy for the period of August 1, 2011 to August 1, 2012 (the “2011 Policy”). Id. ¶ 23; see also Notice of Removal Ex. B, 2011 Policy.

         In early 2012, defendants Arthur J. Gallagher & Co. and Arthur J. Gallagher Risk Management Services Inc. (the “Gallagher defendants”) purchased Riley's assets and liabilities. Id. ¶ 4. Plaintiffs then purchased a renewal of the 2011 Policy through the Gallagher defendants for the period of August 1, 2012 to August 1, 2013 (the “2012 Policy”). Notice of Removal Ex. C, 2012 Policy.

         On or about December 24, 2012, plaintiffs were making a water delivery to a customer vessel when one of plaintiffs' crew members suffered a fall which caused him significant injury (the “accident”). Compl. ¶¶ 9, 10. Plaintiffs immediately notified defendants of the accident and their potential claim. Id. ¶ 11. In March of 2013, the insurance carrier of the 2012 Policy denied plaintiffs' claim because there was no coverage in place to protect plaintiffs from potential liability imposed under Workers' Compensation, the Longshore and Harbor Workers' Compensation Act, or the Jones Act. Id. ¶ 12. On February 26, 2016, plaintiffs filed the instant action in Court of Common Pleas for Charleston County, bringing claims for negligence and gross negligence, fraud, fraud in the inducement, violation of the South Carolina Unfair Trade Practices Act, and negligent misrepresentation in connection with the defendants' failure to obtain the proper coverage on plaintiffs' behalf.

         On April 13, 2016, the Gallagher defendants filed a notice of removal pursuant to 28 U.S.C. §§ 1332, 1441 and 1446, on the grounds that Riley, the only non-diverse party, should be disregarded for jurisdictional purposes because Riley was fraudulently joined. On May 13, 2016, plaintiffs filed the instant motion to remand, and on May 31, 2016, the Gallagher defendants filed a response. This matter has been fully briefed and is ripe for the court's review.

         II. STANDARD

         A defendant has a statutory right to remove a civil action brought in state court over which “the district courts of the United States have original jurisdiction.” 28 U.S.C. § 1441(a); Davis v. N.C. Dep't of Corr., 48 F.3d 134, 138 (4th Cir. 1995). If it appears that removal was improper, a party can move to remand the case to state court “within 30 days after the filing of the notice of removal.” 28 U.S.C. § 1447(c). When removal is challenged, the defendant has the burden of establishing federal jurisdiction. Mulcahey v. Columbia Organic Chem. Co., Inc., 29 F.3d 148, 151 (4th Cir. 1994). Because federal courts are courts of limited jurisdiction, removal raises federalism concerns and must be strictly construed in favor of state court jurisdiction. Id. “If federal jurisdiction is doubtful, a remand is necessary.” Id.


         The Gallagher defendants contend that this court has diversity jurisdiction over this action pursuant to 28 U.S.C. § 1332. Diversity jurisdiction requires “complete diversity, ” meaning that “each defendant [must be] a citizen of a different State from each plaintiff.” Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 373 (1978) (emphasis in original). Plaintiffs and Riley are undisputedly citizens of South Carolina. To avoid this apparent lack of diversity, the Gallagher defendants look to the doctrine of fraudulent joinder.[2]

         The doctrine of fraudulent joinder allows a federal court to “disregard, for jurisdiction purposes, the citizenship of certain [in-state] defendants, assume jurisdiction over a case, dismiss [those] defendants, and thereby retain jurisdiction.” Mayes v. Rapoport, 198 F.3d 457, 461 (4th Cir. 1999). The party asserting fraudulent joinder has the “heavy burden” to “demonstrate either outright fraud in the plaintiff's pleading or that there is no possibility that the plaintiff would be able to establish a cause of action against the in-state defendant in state court, . . . even after resolving all issues of law and fact in the plaintiff's favor.” Hartley v. CSX Transp., Inc., 187 F.3d 422, 424 (4th Cir. 1999) (internal quotation marks and citation omitted) (emphasis in original). “This standard is even more favorable to the plaintiff than the motion to dismiss standard under Rule 12(b)(6).” Id. A plaintiff's claim need only possess a “glimmer of hope” to defeat a fraudulent joinder challenge. Id. at 426. As always, the court must “resolve all doubts about the propriety of removal in favor of retained state court jurisdiction.” Id. at 425 (internal quotation marks omitted).

         In their Notice of Removal, the Gallagher defendants argue there is “no possibility” that plaintiffs can establish a cause of action against Riley for two reasons. First, the Gallagher defendants contend that Riley did not procure the 2012 Policy in effect at the time of the accident, and therefore, there is no casual chain linking Riley's acts or omissions to plaintiffs' injuries. Notice of Removal at 4-5; Defs.' Resp. 2-3. The Gallagher defendants next contend that, even if this causation problem could be ignored, any claims against Riley are time barred. Notice of Removal at 5; Defs.' Resp. 4-6. The court addresses each argument in turn.

         A. ...

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