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Fenwick Commons Homeowners Association, Inc. v. Pennsylvania National Mutual Casualty Insurance Co.

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

April 22, 2019

FENWICK COMMONS HOMEOWNERS ASSOCIATION, INC., Plaintiff,
v.
PENNSYLVANIA NATIONAL MUTUAL CASUALTY INSURANCE COMPANY, PORTRAIT HOMES-SOUTH CAROLINA, LLC, PORTRAIT HOMES-FENWICK COMMONS, LLC, JJA CONSTRUCTION, INC. D/B/A JJA FRAMING, JJA CONSTRUCTION, INC. D/B/A JJA FRAMING COMPANY, JOSE CASTILLO D/B/A JJA FRAMING, and JOSE CASTILLO D/B/A JJA FRAMING COMPANY, Defendants.

          ORDER

          DAVID C. NORTON, UNITED STATES DISTRICT JUDGE.

         The following matter is before the court on defendant Pennsylvania National Mutual Casualty Insurance Company's (“Penn National”) motion to realign parties, ECF No. 8, and plaintiff Fenwick Commons Homeowners Association, Inc.'s (“Fenwick HOA”) motion to remand, ECF No. 9. For the reasons set forth below, the court GRANTS Penn National's motion to realign and DENIES Fenwick HOA's motion to remand without prejudice.

         I. BACKGROUND

         This case is an insurance coverage dispute that arises out of an underlying tort action. On September 18, 2018, Fenwick HOA brought a construction defect action in state court against several defendants, including Portrait Homes-South Carolina, LLC and Portrait Homes-Fenwick Commons, LLC (collectively, “Portrait entities”), as well as JJA Construction, Inc. d/b/a JJA Framing, JJA Construction, Inc. d/b/a JJA Framing Company, Jose Castillo d/b/a JJA Framing, and Jose Castillo d/b/a JJA Framing Company (collectively, “JJA entities”). Fenwick Commons Homeowners Association, Inc. v. Portrait Homes - South Carolina, LLC et al., Civil Action No. 2018-CP-10-330, pending in the Court of Common Pleas, Charleston County, South Carolina (the “Underlying Action”). ECF No. 1-2. Penn National was not named as a defendant in the Underlying Action. On November 27, 2018, Fenwick HOA brought the current declaratory judgment action in state court against Penn National, the JJA entities, and the Portrait entities (the “Declaratory Judgment Action”). ECF No. 1-1. On January 7, 2019, Penn National removed the Declaratory Judgment Action to federal court on diversity jurisdiction grounds and moved to realign the parties. ECF Nos. 1, 8. Fenwick HOA moved to remand this action. ECF No. 9.

         In the Underlying Action, Fenwick HOA alleges that the JJA entities and the Portrait entities were involved in the construction of a townhome community known as Fenwick Commons located in Charleston, South Carolina. ECF No. 1-2. Fenwick HOA has asserted several claims against these defendants that arise out of alleged construction defects of the townhome community. Id. In the current Declaratory Judgment Action, Fenwick HOA alleges that Penn National issued certain commercial general liability policies to the JJA entities and named the Portrait entities as additional insureds. ECF No. 1-1 ¶¶ 11-12. Fenwick HOA asserts that these policies were intended to cover the type of damage alleged in the Underlying Action. Id. ¶ 14. While the Underlying Action remains pending in state court, Fenwick HOA seeks a declaration that Penn National is obligated to insure and indemnify the JJA entities and the Portrait entities against the claims in the Underlying Action. Id. ¶¶ 15-18, 23. In the alternative, Fenwick HOA asks the court to reform the policies to cover those claims. Id. ¶ 22.

         II. DISCUSSION

         The court first addresses Penn National's motion to realign the JJA entities and Portrait entities as plaintiffs to avoid the requirement that these defendants consent to removal. The court next considers whether to abstain from exercising its jurisdiction over this case, per Fenwick HOA's motion to remand.

         A. Realignment of Parties

         Penn National has removed this case based on diversity jurisdiction. Because Penn National has not received consent from the other defendants to remove the case as required, Penn National asks the court to realign JJA entities and Portrait entities as plaintiffs to avoid the consent requirement. The court grants the request to realign.

         “The burden of demonstrating jurisdiction and therefore the propriety of removal rests with the removing party.” Hartford Fire Ins. Co. v. Harleysville Mut. Ins. Co., 736 F.3d 255, 259 (4th Cir. 2013). Removal pursuant to 28 U.S.C. § 1441(a) provides that a “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.” “[A]ll defendants who have been properly joined and served must join in or consent to the removal of the action.” 28 U.S.C. § 1446(2)(A). “The Supreme Court has construed these statutes to require all defendants in the case to join in or consent to removal.” Hartford Fire Ins. Co., 736 F.3d at 259. However, federal courts have recognized exceptions to this requirement, such as through a realignment of defendants as plaintiffs. Wayne J. Griffin Elec., Inc. v. Travelers Prop. Cas. Co. of Am., 2014 WL 842983, at *2 (M.D. N.C. Mar. 4, 2014). When a court decides to realign defendants as plaintiffs, a defendant's lack of consent for removal can be deemed immaterial. Id. at *6; see also Scottsdale Ins. Co., 811 F.Supp.2d 1220, 1222 n. 2 (E.D. Va. 2011) (“[D]efendants are not required to consent to removal given the realignment . . . as plaintiffs for jurisdictional purposes.”); Gurney's Inn Resort & Spa Ltd. v. Benjamin, 743 F.Supp.2d 117, 126 (E.D.N.Y. 2010) (“[R]ealignment … excus[es] [removing defendant's] failure to comply with the rule of unanimity.”); Universal Concrete Prod. Corp. v. Peerless Ins. Co., 2008 WL 4104171, at *3 n.5 (D. Md. Aug. 21, 2008) (“parties aligned in interest with the plaintiff are not required to join or consent to the removal” (quoting Smilgin v. New York Life Ins. Co., 854 F.Supp. 464 (S.D. Tex. 1994))).

         Although the JJA entities and the Portrait entities have not appeared in this action or consented to the removal of this action, Penn National contends that consent is not required because the interests of the JJA entities and the Portrait entities are aligned with Fenwick HOA.[1] Therefore, Penn National asks the court to realign the JJA entities and the Portrait entities to be plaintiffs with Fenwick HOA to remove this case without the required consent.[2] 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). The primary issue in the Declaratory Judgment Action is whether Penn National has a duty to provide coverage under its policies to the JJA entities and the Portrait entities for the claims asserted against them in the Underlying Action.

         “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 policy coverage, the parties' interests are generally aligned based on whether they believe there is coverage of the damages that might underlie the claims for insurance. See Crout v. United Fin. Cas. Co., No. CIV.A. 1:10-649, 2010 WL 2998500, at *2 (D.S.C. July 28, 2010) (realigning insured defendant with the plaintiff in a declaratory judgment seeking reformation of insurance company's policy when defendant had an interest in the insurance company reforming the policy to cover a greater amount of damages); Marsh v. Cincinnati Ins. Co., 2008 WL 4614289, at *2 (D.S.C. Oct. 15, 2008) (realigning defendants with the insured plaintiff in a declaratory judgment action seeking insurance coverage when the defendants had an interest in establishing that the plaintiff was covered by the insurance policy). Thus, the court must consider whether defendants JJA entities and Portrait entities have an interest similar to Fenwick HOA's interest in having the court delcare that Penn National's insurance policies provide coverage for the claims in the Underlying Action.

         Applying the principal purpose test to the facts at hand, the court first finds that the JJA entities and the Portrait entities have been named by Fenwick HOA as defendants in the Underlying action, as well as in the current Declaratory Judgment Action. Despite the JJA entities and Portrait entities being in an adverse position to Fenwick HOA in the Underlying Action, those three parties have the same interest in the current action- namely in establishing that the policies issued to the JJA entities and Portrait Entities by Penn National provide coverage for the claims brought against them by Fenwick HOA in the Underlying Action. Further, Fenwick HOA does not bring any claims against the JJA entities and the Portrait entities in the current action and does not seek any relief from them. Rather, Fenwick HOA asks the court to “issue a Declaratory Judgment that Penn National is obligated to insure [the Portrait entities] and [the JJA entities] for the claims made by Plaintiff . . .” in the Underlying Action. ECF No. 1-1 ¶ 23. There is simply nothing to indicate why the JJA entities and the Portrait entities would be named as defendants in this action. Thus, the court realigns them as plaintiffs along with Fenwick HOA and finds that Penn National need not obtain their approval to remove the matter. The court grants Penn National's motion to realign and finds that removal was proper.

         B. ...


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