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Beaufort Rentals LLC v. Westchester Fire Insurance Co.

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

November 29, 2018




         The following matter is before the court on defendant Westchester Fire Insurance Company's (“Westchester”) motion to dismiss, ECF No. 4. For the reasons set forth below, the court grants the motion.

         I. BACKGROUND

         This case arises out of an insurance coverage dispute. Westchester issued an insurance policy (“the Policy”) to plaintiff Beaufort Rentals LLC (“Beaufort Rentals”). Plaintiff Everett Ballenger (“Ballenger”) is the broker in charge of Beaufort Rentals, and plaintiff Mathew Flewelling (“Flewelling”) is the manager of Beaufort Rentals. Defendant Patricia Miller (“Miller”) worked for Beaufort Rentals in 2016. Beaufort Rentals, Ballenger, Flewelling, and plaintiff BOCVE LLC (“BOCVE”) (collectively, “plaintiffs”) are seeking coverage from Westchester pursuant to the Policy in an underlying lawsuit by Tansi Village Property Owners Association (“Tansi”).

         Tansi entered into a contract with Beaufort Rentals to conduct various business for Tansi, including procuring and maintaining insurance for Tansi's boat dock, pool, and clubhouse. In October 2016, Hurricane Matthew caused damage to the pool and clubhouse and almost completely destroyed the boat dock. Tansi alleges that after the damage occurred, Miller, as an agent of Beaufort Rentals, informed Tansi that there was no insurance on the boat dock, despite alleged repeated assurance that there was insurance on the dock. In addition, Tansi discovered that the insurance on the pool and clubhouse had lapsed, the insurance could have been reinstated while Hurricane Matthew was approaching, and plaintiffs and Miller allegedly never submitted payment to reinstate the insurance. As a result, on October 25, 2017, Tansi sued plaintiffs, Miller, and another party uninvolved in the instant case seeking damages in the Court of Common Pleas for the Fourteenth Judicial Circuit in Beaufort County, South Carolina (“the underlying suit”). Tansi asserted causes of action for breach of contract, breach of contract accompanied by a fraudulent act, negligence, breach of fiduciary duty, negligent misrepresentation, aiding and abetting a breach of fiduciary duty, and fraud/constructive fraud. All of the causes of action relate to plaintiffs' and Miller's alleged failure to procure insurance on the boat dock and to make insurance premium payments on the pool and clubhouse.

         Plaintiffs allege that Westchester has a duty to defend them in the underlying suit. However, when Beaufort Rentals notified Westchester of the underlying suit, Westchester refused to defend plaintiffs. As a result, plaintiffs now seek a declaratory judgment in the instant case declaring that Westchester has a duty to defend plaintiffs. Plaintiffs originally filed their suit on August 22, 2018 in the Court of Common Pleas for the Fourteenth Judicial Circuit in Beaufort County, South Carolina. Westchester removed the case to federal court based on diversity jurisdiction on September 28, 2018. In its notice of removal, Westchester asserts that plaintiffs improperly named Miller as a defendant to destroy diversity jurisdiction, to which plaintiffs never responded. Then on October 5, 2018, Westchester filed a motion to dismiss. ECF No. 4. Plaintiffs responded, ECF No. 5, and Westchester replied, ECF No. 7. The motion is ripe for review.

         II. STANDARD

         A Rule 12(b)(6) motion for failure to state a claim upon which relief can be granted “challenges the legal sufficiency of a complaint.” Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009) (citations omitted); see also Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992) (“A motion to dismiss under Rule 12(b)(6) . . . does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.”). To be legally sufficient, a pleading must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). A Rule 12(b)(6) motion should not be granted unless it appears certain that the plaintiff can prove no set of facts that would support his claim and would entitle him to relief. Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). When considering a Rule 12(b)(6) motion, the court should accept all well-pleaded allegations as true and should view the complaint in a light most favorable to the plaintiff. Ostrzenski v. Seigel, 177 F.3d 245, 251 (4th Cir.1999); Mylan Labs., Inc., 7 F.3d at 1134. “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.


         A. Miller as a Defendant

         In its notice of removal, Westchester contends that Miller is a nominal party, that plaintiffs fraudulently joined Miller as a defendant to destroy diversity jurisdiction, and that the court should realign Miller as a plaintiff. As support for its argument, Westchester indicates that plaintiffs asserted no cause of action against Miller and seek no relief from her in their complaint. Moreover, Westchester points out that Miller, like plaintiffs, is a defendant in the underlying suit, and in her answer in the underlying suit, she “advocate[s] a finding of coverage, ” aligning her with plaintiffs' position. ECF No. 1 at 7. Plaintiffs did not respond to Westchester's argument.

         Westchester removed this case based on diversity jurisdiction pursuant to 28 U.S.C. §§ 1332, 1441, and 1446. Federal district courts have jurisdiction over “all civil actions where the matter in controversy exceeds the sum or value of $75, 000 . . . and is between . . . citizens of a State and citizens or subjects of a foreign state.” 28 U.S.C. § 1332(a)(2). Here, plaintiffs are all South Carolina citizens, and Westchester is a Pennsylvania citizen. However, Miller is a citizen of South Carolina, so if her status as a defendant is proper, she would destroy diversity, and the court would not have jurisdiction.

         Westchester asks the court to realign Miller as a plaintiff. When determining if diversity jurisdiction exists, it is the duty of the court to “look beyond the pleadings, and arrange the parties according to their sides in the dispute.” City of Indianapolis v. Chase Nat. Bank of City of New York, 314 U.S. 63, 69 (1941). When it is appropriate, a court may realign parties after removal to create diversity jurisdiction. Lott v. Scottsdale Ins. Co., 811 F.Supp.2d 1220, 1223 & n.4 (E.D. Va. 2011) (collecting cases).

         The Fourth Circuit applies the two-step principal purpose test to determine whether parties are properly aligned in a lawsuit. The first step requires the court to “determine the primary issue in the controversy.” U.S. Fid. & Guar. Co. v. A & S Mfg. Co., 48 F.3d 131, 133 (4th Cir. 1995). “Next, the court should align the parties according to their positions with respect to the primary issue.” Id. In a declaratory judgment action involving an insurance company's duty to defend, the parties' interests are aligned based on whether they believe the insurance company has a duty to defend. See Lott, 811 F.Supp.2d at 1224 (realigning the defendant as a plaintiff in an insurance duty-to-defend declaratory judgment action when the defendant had an interest in establishing that the defendant insurance company had a duty to defend it); cf. Bi-Lo, LLC v. Nat'l Union Fire Ins. Co. of Pittsburgh, 2014 WL ...

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