The opinion
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
SIKA INVESTMENTS, LLC CIVIL ACTION
v. NO. 21-404
RLI CORPORATION, ET AL. SECTION "F"
ORDER AND REASONS
This case concerns a commercial property owner’s claim for
business interruption and extra expense insurance benefits that
were allegedly triggered by government stay-at-home orders enacted
in response to the COVID-19 pandemic. Now for a second time, the
case has been removed to this Court from Louisiana state court.
Before the Court is the plaintiff’s second motion to remand.
For the reasons that follow, the motion is GRANTED.
Background
In this insurance coverage dispute, the plaintiff Sika
Investments, LLC alleges that defendant RLI Corporation, doing
business as Mt. Hawley Insurance Company, insured its Slidell strip
mall (Camellia Square) and Pearl River hotel (the Microtel Inn &
Suites by Wyndham Pearl River/Slidell) under commercial property
insurance policy number MCP0168316. Sika claims that the
coronavirus pandemic caused it to suffer business interruption
losses that are covered by that policy. In particular, Sika
asserts that COVID lockdowns enacted in response to the pandemic
caused “its buildings [to be] damaged and access, ingress, and/or
egress to them [to be] prohibited and/or impaired by civil
authority.”
In hopes of recovering insurance proceeds and related
damages, Sika sued RLI/Mt. Hawley,1 EI Investments, Inc. (d/b/a
Eustis Insurance, Inc., hereinafter “Eustis”), Marsh & McLennan
Agency, LLC, and ARI Underwriters, Inc. in Louisiana state court
on June 8, 2020. In its state-court petition, Sika brought claims
for breach of contract, bad faith, and negligence. As against Mt.
Hawley, Sika alleges that the Mt. Hawley insurance policy at issue
has “Business Income/Rental Value (with Extra Expense)” limits of
$376,184 for the Camellia Square property and $500,000 for the
Microtel property that have been wrongfully withheld in spite of
Sika’s timely reporting of a sufficiently supported claim.2 In
the event that its business losses are not covered by the policy
at issue, Sika alleges a variety of failures to effectively procure
1 On September 14, 2020, a federal magistrate granted as
unopposed Mt. Hawley’s motion to intervene. In its complaint in
intervention, Mt. Hawley contends that it is a separate and
distinct corporate entity from RLI and that that fact is clear
from the face of the policy Mt. Hawley issued to Sika. This
opinion refers to “RLI” and “Mt. Hawley” interchangeably.
2 As a result, in addition to insurance proceeds that have
allegedly been wrongfully withheld, Sika also seeks statutory
penalties from RLI.
sufficient insurance by its insurance agents and brokers, Eustis,
Marsh, and ARI.
Invoking this Court’s diversity jurisdiction, Mt. Hawley
removed Sika’s state-court case on February 24, 2021. In its
notice of removal, Mt. Hawley contends that Eustis and ARI were
improperly joined and that the nondiverse citizenship3 of those
defendants should accordingly be disregarded. Sika argues just
the opposite in the present motion to remand, which it filed on
March 26, 2021.
I.
Although the plaintiff challenges removal in this case, the
removing defendants bear the burden of showing the propriety of
this Court’s removal jurisdiction. See Manguno v. Prudential Prop.
& Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002); see also
3 Sika is an LLC whose sole member is Brian Reine, who resides
in Pearl River, Louisiana. As a result, Sika is a Louisiana
citizen for purposes of diversity jurisdiction. RLI is a Delaware
corporation which maintains its principal place of business in
Illinois and is therefore a citizen of Delaware and Illinois for
jurisdictional purposes. And Marsh is an LLC whose sole member is
Marsh USA, Inc., a Delaware corporation which maintains its
principal place of business in New York. Thus, Marsh is a citizen
of Delaware and New York for jurisdictional purposes, and is
likewise diverse from Sika.
The rub in Mt. Hawley’s assertion of diversity jurisdiction lies
in the undisputed non-diversity of co-defendants Eustis and ARI.
Like Sika, those entities are indisputably Louisiana citizens.
Admitting as much, Mt. Hawley nevertheless asserts that the
citizenship of Eustis and ARI should be disregarded because such
entities were improperly joined by Sika to defeat federal
jurisdiction. Thus emerges the central issue before the Court.
Jernigan v. Ashland Oil Inc., 989 F.2d 812, 815 (5th Cir. 1993)
(per curiam). Because federal courts possess only the limited
jurisdiction assigned to them by the Constitution and Congress,
remand to state court is required where a federal court lacks a
clear basis for original subject matter jurisdiction. See, e.g.,
Acuna v. Brown & Root Inc., 200 F.3d 335, 339 (5th Cir. 2000). In
light of this structural imperative, any “doubts regarding whether
removal jurisdiction is proper should be resolved against federal
jurisdiction.” Id.
II.
A.
The federal removal statute, 28 U.S.C. § 1441, declares that
“[e]xcept as otherwise expressly provided by Act of Congress, any
civil action brought in a State court of which the district courts
of the United States have original jurisdiction, may be
removed . . . to the district court . . . embracing the place
where such action is pending.” Mt. Hawley’s asserted basis for
original federal jurisdiction in this case is diversity
jurisdiction.
The essential elements of federal diversity jurisdiction are
straightforward and well known. In simple terms, the diversity
statute furnishes the federal district courts with original
jurisdiction over civil actions between completely diverse parties
with more than $75,000 at stake. See 28 U.S.C. § 1332(a). In
certain scenarios, the forum-defendant rule of § 1441(b)(2) may
also be implicated. That rule provides that “A civil action
otherwise removable solely on the basis of [diversity
jurisdiction] may not be removed if any of the parties in interest
properly joined and served as defendants is a citizen of the State
in which such action is brought.” See 28 U.S.C. § 1441(b)(2).
In the present motion to remand, Sika challenges Mt. Hawley’s
assertion of federal diversity jurisdiction on a pair of separate,
but related, grounds. First, Sika asserts that a lack of complete
diversity among the parties precludes any basis for diversity
jurisdiction in the first place. See, e.g., Wis. Dep’t of Corr.
v. Schacht, 524 U.S. 381, 388 (1998) (restating the “complete
diversity rule,” under which “[a] case falls within the federal
district court’s ‘original’ diversity ‘jurisdiction’ only if
diversity of citizenship among the parties is complete, i.e., only
if there is no plaintiff and no defendant who are citizens of the
same State”). Relatedly, Sika contends that even if its action
were otherwise removable on a sound basis for diversity
jurisdiction, removal is nonetheless inappropriate here because
two defendants – Eustis and ARI – are citizens of the forum state
of Louisiana.4
4 This argument is misplaced and analytically distracting. The
forum-defendant rule deals with situations in which a plaintiff
sues a diverse defendant in a state court within the defendant’s
home state (and, thus, where the “home-team” defendant presumably
Both challenges present the Court with a single, narrow issue:
whether Eustis and ARI were “improperly joined” as a matter of
law. The motion before the Court turns squarely on the answer to
that question. Indeed, if Eustis and ARI were improperly joined
as the defendants contend, then their exclusion from the Court’s
jurisdictional analysis means that Mt. Hawley’s removal flouts
neither the complete-diversity rule nor the forum-defendant rule.
On the other hand, if Eustis and ARI were not improperly joined as
Sika contends, then their presence in this case clearly deprives
the Court of any ground for diversity-based removal jurisdiction.
The Court thus proceeds to analyze the improper-joinder issue
briefed extensively by the parties.
B.
“The [improper] joinder doctrine ensures that the presence of
an improperly joined, non-diverse defendant does not defeat
federal removal jurisdiction premised on diversity.” Borden v.
Allstate Ins. Co., 589 F.3d 168, 171 (5th Cir. 2009).
To establish that a non-diverse defendant has been
[improperly] joined to defeat diversity jurisdiction,
the removing party must prove that there has been
outright fraud in the plaintiff’s pleading of the
jurisdictional facts, or that there is absolutely no
possibility that the plaintiff will be able to establish
a cause of action against the non-diverse defendant in
state court.
faces none of the negative local bias that motivated the Framers’
provision of diversity jurisdiction). It is not intended to
address situations where nondiversity of citizenship already
precludes federal jurisdiction in the first place.
Griggs v. State Farm Lloyds, 181 F.3d 694, 699 (5th Cir. 1999).
In effecting removal here, Mt. Hawley makes no allegation of
“outright fraud” against Sika. Consequently, as Mt. Hawley
concisely summarizes, “[a]t issue here is the second of the two
means for establishing improper joinder, i.e., Plaintiff’s
[asserted] inability to establish a cause of action against
[Eustis] or ARI in state court.” See Notice of Removal at 5.
Mt. Hawley’s burden in showing “that there is absolutely no
possibility” of Sika’s prevailing against Eustis and/or ARI in
state court is a “heavy” one. See Smallwood v. Ill. Cent. R.R.
Co., 385 F.3d 568, 574 (5th Cir. 2004) (en banc); Griggs, 181 F.3d
at 699 (emphasis added). Determining whether Mt. Hawley has met
that burden here requires the Court to “conduct a Rule 12(b)(6)-
type analysis . . . to determine whether [Sika’s] complaint states
a claim under state law against [Eustis and ARI].” Smallwood, 385
F.3d at 573. Mt. Hawley argues that Sika’s state-court petition
does not state a viable state-law claim against either Eustis or
ARI; Sika, of course, begs to differ.
In the state-court petition that launched this litigation,
Sika brought claims for “breach of contract and/or negligence”
against Eustis and ARI, who allegedly served as insurance
brokers/agents to Sika in the course of events that gave rise to
Sika’s purchase of the heretofore-unfruitful insurance policy at
issue. Specifically, Sika alleged that:
To the extent Sika is found to be uninsured and/or
underinsured for its Covid-19-related losses under the
Policy, Sika submits it was due to the breach of contract
and/or negligence of Eustis and ARI in the following
non-exclusive particulars:
(a) Failing to advise Sika about the need for
broader virus-related coverage for its retail
shopping center and hotel businesses in which there
are numerous people entering and exiting daily;
(b) Failing to perform due diligence regarding
Sika’s business as affirmatively was represented
would be done; and/or
(c) Failing to recommend appropriate insurance
coverages to Sika.
See State Court Pet., ¶ 34.
The parties dispute whether Sika has a viable shot at
recovering on this claim against either Eustis or ARI, but
critically, this is not the first occasion on which they have done
so. To the contrary, just last month another Section of this Court
concluded in a thorough analysis of a virtually identical issue in
a virtually identical case that a similarly situated Slidell-hotel
owner had indeed stated a plausible negligence claim against ARI
such that ARI’s joinder was not improper and remand was required.
See VCS, LLC v. Mt. Hawley Ins. Co., 2021 WL 1399879, at *7–10
(E.D. La. Apr. 14, 2021) (Brown, C.J.). Here, as did the plaintiff
there, Sika extensively alleges ways in which ARI and Eustis held
themselves out as experts in marketing appropriate insurance to
shopping centers and hotels. And here, as there - particularly
when “construing all ‘doubts regarding whether removal
jurisdiction is proper’ in favor of remand” - Sika has likewise
“stated a claim that [the nondiverse agent/broker defendants] owed
[it] a heightened duty and breached such duty by failing to
recommend virus-related coverage.” Cf. id. at *9 (quoting Acuna,
200 F.3d at 339).
As an alternative basis for its assertion of improper joinder,
Mt. Hawley argues that Sika’s claims against Eustis and ARI are
perempted under Louisiana Revised Statute § 9:5606(A), which
requires that damages actions against “any insurance agent,
broker, solicitor, or other similar licensee in [Louisiana]” be
filed “within one year from the date of the alleged act, omission,
or neglect, or within one year from the date that the alleged act,
omission, or neglect is discovered or should have been discovered,”
so long as such date is within an absolute maximum of “three years
from the date of the alleged act, omission, or neglect.” As with
most peremption evaluations, the key in assessing whether Sika’s
claims are perempted here depends on fixing the date on which the
one-year clock began to run (i.e., the date of the alleged tort,
or the date when the alleged tort was discovered). On this issue,
Mt. Hawley argues that Sika’s one-year window for filing suit runs
from 2014, which Sika acknowledges is the year “when the first Mt.
Hawley policy was procured for Sika.” See Mot. at 18. Sika
counters that the period should run from the Policy’s latest “2019-
2020” renewal, since Sika allegedly relied on the allegedly
negligent omissions of Eustis and ARI in deciding then to renew a
policy that may be deemed not to have covered it for pandemic-
related losses that Eustis and/or ARI may have negligently
overlooked.
Sika’s argument is clearly plausible and any basis for finding
improper joinder is therefore lacking. In essence, Sika makes the
understandable assertion that it renewed an insurance policy on an
annual basis under the guidance of insurance brokers and agents
that might well have breached a duty to warn it of a need for
additional (or better) coverage. Because any such actions or
omissions by Eustis and ARI could potentially “be construed to
constitute an act separate from the initial policy procurement,”
a Louisiana state court could well find – in its superior expertise
on Louisiana peremption law – that Sika’s peremptive period
restarted with each year’s renewal. See Fid. Homestead Ass’n v.
Hanover Ins. Co., 458 F. Supp. 2d 276, 280 (E.D. La. 2006); see
also VCS, 2021 WL 1399879, at *10–11 (rejecting similar peremption
argument and noting that, “at oral argument, [similarly situated
plaintiff] represented that each year at the time of renewal, ARI
and Marsh, as agents and brokers for numerous insurers, had an
obligation to correspond with Plaintiff regarding Plaintiff’s best
coverage options for the upcoming year”).
* * *
Louisiana state courts enjoy a comparative advantage in
interpreting Louisiana state law. Given this obvious reality, the
foregoing analysis, and the important structural constraints under
which this Court is bound, it is imperative that the Court defer
to the Louisiana judiciary in interpreting the emerging questions
of Louisiana state law implicated by this case.
Accordingly, IT IS ORDERED: that the plaintiff’s second
motion to remand is GRANTED. This action is REMANDED to the
appropriate Louisiana state court. All remaining motions are
DENIED AS MOOT.
New Orleans, Louisiana, May 26, 2021
Ms ie ua
WM . C. ELDMAN
UNITED STATES DISTRICT JUDGE
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