The opinion
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
____________________________________
:
WILLOW SPRINGS OPERATOR, LLC :
:
Plaintiff, :
: Case No.: 3:19-cv-35-BRM-DEA
v. :
: OPINION
USI INSURANCE SERVICES, LLC, et al. :
:
Defendants. :
:
MARTINOTTI, DISTRICT JUDGE
Before this Court is (1) Plaintiff Willow Springs Operator, LLC (“Willow Springs”)
Motion to Remand. (ECF No. 3.) All Defendants1 oppose the motion. (ECF No. 4.) Having
reviewed the parties’ submissions filed in connection with the motions and having heard oral
argument pursuant to Federal Rule of Civil Procedure 78(a), for the reasons set forth below and
for good cause having been shown, the Motion to Remand is DENIED. Additionally, because
the record does not reflect the citizenship of the parties formed as limited liability companies,
Defendants must SHOW CAUSE why this case should not be remanded for lack of subject
matter jurisdiction under 28 U.S.C. § 1332.
I. FACTUAL AND PROCEDURAL BACKGROUND
Willow Springs2 operates a residential skilled nursing facility in New Jersey. (Compl.
1 There are two sets of Defendants to this action. The first set includes USI Insurance
Services, Inc. (“USI”) and its licensed insurance producers Sean Hood and Lisa Olson
(collectively, the “Broker Defendants”). The second set includes HealthCap RRG
(“HealthCap”), Health Care Industries Liability Reciprocal Insurance Company, a Risk
Retention Group (“HCILRIC”), and Chelsea-Rhone, LLC (“Chelsea-Rhone”) (collectively,
the “Insurance Defendants”).
(ECF No. 1-2) ¶ 1; Answer (ECF No. 6) ¶ 1.) In May 2015, Willow Springs’ patient Paul
Lattarulo3 suffered an injury at Willow Springs’ facility. (ECF No. 1-2 ¶¶ 22-23.) In January
2016, Lattarulo’s attorneys requested that Willow Springs provide them with Lattarulo’s medical
records but did file any claim or initiate any lawsuit. (Id. ¶ 24.) Willow Springs reported
Lattarulo’s injury and his attorneys’ request for medical to the insurance agent it had at the time.
(Id. ¶ 27.)
Willow Springs also began a search for new liability insurance. In the fall of 2016, the
Broker Defendants assisted Willow Springs with purchasing new insurance from the Insurance
Defendants.4 (Id. ¶¶ 2, 4-6; ECF No. 6 ¶¶ 2, 4-6.) The resulting insurance policies were
effective December 1, 2016 to December 1, 2017, with coverage retroactive to December 1,
2014. (ECF No. 1-2 ¶ 8.)
Lattarulo sued Willow Springs on March 15, 2017, and served Willow Springs on April 7,
2017. (Id. ¶ 31-32.) Willow Springs filed an insurance claim in relation to Lattarulo’s lawsuit.
(Id. ¶ 38.) The Insurance Defendants denied the claim on the ground that the policy barred
claims for prior or pending litigation, or known incidents or occurrences, and that the Lattarulo’s
attorneys’ request for Lattarulo’s medical records should have been sufficient for Willow Springs
2 Willow Springs is a New Jersey limited liability company with a principal place of business
in New Jersey. (Cert. of Anthony L. Velasquez (ECF No. 3-1) ¶¶ 3-4.)
3 Lattarulo is not a party to this action.
4 USI is a limited liability company organized under Delaware law with a principal place of
business in New York. (Notice of Removal (ECF No. 1) ¶ 5(a).) Sean Hood resides in New
Hampshire. (Id. ¶ 5(b).) Lisa Olson resides in Massachusetts. (Id. ¶ 5(c).) HealthCap is a
corporation organized under District of Columbia law with a principal place of business in
Michigan. (Id. ¶ 5(d).) HCILRIC is a corporation organized under District of Columbia law
with a principal place of business in Michigan. (Id. ¶ 5(e).) Chelsea-Rhone is a limited
liability company organized under Michigan law with a principal place of business in
Michigan. (Id. ¶ 5(f).)
to disclose Lattarulo’s injury as a claim. (Id. ¶¶ 38-39.)
Willow Springs filed this suit in the Superior Court of New Jersey, Ocean County, Law
Division, against both the Broker Defendants and the Insurance Defendants, asserting
Negligence, Breach of Duty of Good Faith and Fair Dealing, Fraud, Wrongful Claim Denial, and
Professional Malpractice. (Id. ¶¶ 42-117.) The Broker Defendants, later joined by the Insurance
Defendants, removed this case to this Court, alleging diversity of citizenship. (ECF No. 1 ¶¶ 5,
7; Letter from Gerard H. Hanson, Counsel for Insurance Defendants (ECF No. 12), at 1 (Feb. 15,
2019).) Willow Springs moved to remand this case to State Court. (ECF No. 3.)
II. LEGAL STANDARD
When a Defendant removes a case to federal court, the Court must remand the case back
to state court “[i]f at any time before final judgment it appears that the district court lacks subject
matter jurisdiction.” 28 U.S.C. § 1447(c). “[R]emoval statutes ‘are to be strictly construed
against removal and all doubts should be resolved in favor of remand.’” A.S. ex rel. Miller v.
SmithKline Beecham Corp., 769 F.3d 204, 208 (3d Cir. 2014) (quoting Batoff v. State Farm Ins.
Co., 977 F. 2d 848, 851 (3d Cir. 1992)). The removing defendants bear the burden of
establishing diversity jurisdiction. Johnson v. SmithKline Beecham Corp., 724 F.3d 337, 346 (3d
Cir. 2013). Although this matter arises in the context of a motion to remand, “federal courts
‘have an independent obligation to determine whether subject-matter jurisdiction exists, even in
the absence of a challenge from any party.’” Hartig Drug Co. v. Senju Pharm. Co., 836 F.3d
261, 267 (3d Cir. 2016) (quoting Arbaugh v. Y&H Corp., 546 U.S. 500, 514 (2006)).
III. DECISION
A. Direct Actions
Willow Springs argues that this Court lacks diversity jurisdiction because complete
diversity does not exist between the parties.5 Specifically, Willow Springs contends this is a
direct action against an insurance company, in which the insurance company (HealthCap) is
deemed to be a citizen of the same state as its insured (Willow Springs). See 28 U.S.C.
§ 1332(c). Because this is an action by an insured against its own insurer, rather than an action
in which the liability imposed against the insurance company could also be imposed against the
insured, this case is not a “direct action” as that term is used in § 1332(c).
This Court has jurisdiction over cases between “citizens of different states.” Id.
§ 1332(a)(1). To qualify for so-called “diversity” jurisdiction, “the parties must be completely
diverse, meaning that ‘no plaintiff can be a citizen of the same state as any of the defendants.’”
Auto-Owners Ins. Co. v. Stevens & Ricci, Inc., 835 F.3d 388, 394 (3d Cir. 2016) (quoting Grand
Union Supermarkets of the V.I., Inc. v. H.E. Lockhart Mgmt., Inc., 316 F.3d 408, 410 (3d Cir.
2003)).
Generally, a corporation takes on the citizenship of “both its state of incorporation and
the state of its principal place of business.” GBForefront, L.P. v. Forefront Mgmt. Grp., LLC,
888 F.3d 29, 34 (3d Cir. 2018). “[T]he citizenship of an LLC is determined by the citizenship of
its members.” Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412, 420 (3d Cir. 2010).
However, “in any direct action” removed from state court “against the insurer of a policy or
contract of liability insurance, whether incorporated or unincorporated, to which action the
insured is not joined as a party-defendant,” the insurer-defendant also takes on the citizenship of
the “State . . . of which the insured is a citizen.” 28 U.S.C. § 1332(c)(1)(A).
Congress added the “direct action” language in 1964. See Pub. L. 88-439, 78 Stat. 445,
445 (1964). “The purpose” of the legislation was “to eliminate under the diversity jurisdiction of
5 Willow Springs also argued (Pl.’s Legal Br. (ECF No. 3-3), at 3-4) that the amount in
controversy did not exceed the $75,000 jurisdictional threshold, see 28 U.S.C. § 1332(a), but
conceded at oral argument that the amount in controversy now clearly exceeds the threshold.
the district courts suits on certain tort claims in which both parties are local residents, but which,
under a State ‘direct action’ statute, may be brought directly against a foreign insurance carrier
without joining the local tort-feasor as a defendant.” H.R. Rep. No. 88-1229, at 1 (1964)6; see
also 110 Cong. Rec. 9313 (statement of Rep. Celler).
When Congress enacted this legislation, Louisiana and Wisconsin both permitted tort
plaintiffs to sue directly a tort-feasor’s insurance company without requiring that the plaintiff
join the actual tortfeasor as a defendant. H.R. Rep. No. 88-1229, at 2; 110 Cong. Rec. 9312
(1964) (statement of Rep. Smith of Virginia). These “direct action” statutes frequently enabled
plaintiffs to invoke federal diversity jurisdiction against out-of-state insurance companies,
because without such a statute, plaintiffs would have had to join the in-state tortfeasors, thereby
destroying complete diversity. H.R. Rep. No. 88-1129, at 2; 110 Cong. Rec. 9313 (1964)
(statement of Rep. Celler).
Consequently, “a stupendous amount of” state law tort litigation “clogg[ed] the
calendars” of the U.S. District Court for the Eastern District of Louisiana. 110 Cong. Rec. 9313
(statement of Rep. Celler). Immediately preceding the enactment of this legislation, “[m]ore
civil cases [were] filed per judgeship in this district than in any other district in the country.”
H.R. Rep. No. 88-1129, at 3. That court’s weighted caseloads per judgeship were 150% greater
than the national average, and other than a capital-area Virginia district (approximately 90%
greater than the national average), “[n]o other district [came] anywhere near to approaching the
eastern district of Louisiana’s civil caseload.” Id. at 3. Of the civil cases filed in that district,
only 9% involved the United States; the remaining 91% involved only private litigants
6 The Judiciary Committee’s report in the Senate is nearly identical to the report of its
counterpart in the House of Representatives. Compare S. Rep. No. 88-1308 (1964), as
reprinted in 1964 U.S.C.C.A.N. 2778, with H.R. Rep. No. 88-1229 (1964). To avoid
cluttering this opinion with citations, the Court will cite only the House report.
(compared to 67% nationally). Id. at 5. Of all the civil cases in the Fifth Circuit more than three
years old, the Eastern District of Louisiana held 60%—even though the judges of that district
frequently terminated cases at a rate exceeding the national average per judgeship. Id. at 6.
Congress blamed Louisiana’s direct action statute. Id. at 2; 110 Cong. Rec. 9314 (1964)
(statement of Rep. Celler). Lawmakers heard evidence that Louisiana attorneys preferred federal
court litigation to state court litigation, in part because “the State appellate court is not bound as
the Federal appellate courts are by the findings of a jury in a lower court.” H.R. Rep. No. 88-
1229, at 4-5; see also 110 Cong. Rec. 9316 (statement of Rep. Mathias) (noting that the
Louisiana Constitution requires that “all appeals shall be both upon the law and the facts”).
Members also took note that while Wisconsin had a direct action statute, Wisconsin’s law
limited its application to automobile negligence actions, and its state court procedures prohibited
appellate review of a jury’s findings of fact. 110 Cong. Rec. 9316 (statement of Rep.
Kastenmeier). As a result, “the filing of suits under the direct action statute of that State ha[d]
not imposed any undue burden upon the Federal district courts therein.” H.R. Rep. No. 88-1229,
at 2; see also 110 Cong. Rec. 9316 (1964) (statement of Rep. Kastenmeier) (observing that the
legislation was unlikely to “seriously affect Wisconsin practice”).
While chiefly concerned about conserving scarce judicial resources, lawmakers also
doubted that these direct actions belonged in federal court at all. The House committee report
wrote “that the existence of this [direct action] statute in Louisiana and in Wisconsin does not
come within the spirit or the intent of the basic purpose of the diversity jurisdiction of the
Federal judicial system.” H.R. Rep. No. 88-1229, at 7. Members of Congress debating the bill
opined, “there is no reason why these actions should not be brought in the State courts and
jurisdiction foreclosed as far as the Federal courts are concerned.” 110 Cong. Rec. 9314
(statement of Rep. Celler); see also id. at 9316 (statement of Rep. Boggs) (arguing that these
direct actions “ought to be in the State courts”).
Courts have kept this history in mind when deciding the scope of the statutory language.
See, e.g., Chiaravalle v. Imperium Ins. Co., No. 13-1818, 2013 WL 4012552, at *2 (D.N.J. Aug.
2, 2013) (discussing the legislative history of the “direct action” statutory language). Courts
regularly conclude “that a ‘direct action,’ as that term is used in § 1332(c), does not exist ‘unless
the cause of action against the insurance company is of such a nature that the liability sought to
be imposed could be imposed against the insured.’” McGlinchey v. Hartford Accident & Cas.
Co., 866 F.2d 651, 653 (3d Cir. 1989) (quoting Myers v. State Farm Ins. Co., 842 F.2d 705, 707
(3d Cir.1988)). The statute “does not include suits by an insured against his or her own insurer.”
Brooks-McCollum v. State Farm Ins. Co., 321 F. App’x 205, 208 (3d Cir. 2009); accord Cruz v.
GEICO, No. 17-CV-12765, 2018 WL 1610956, at *2 (D.N.J. Apr. 3, 2018).
Willow Springs’ action is not a “direct action” because Willow Springs, an insured,
brings suit against its own insurer. Brooks-McCollum, 321 F. App’x at 208. Additionally,
Willow Springs’ action is not a direct action because the liability it seeks to impose on insurer
HealthCap could not be imposed on insured Willow Springs. McGlinchey, 866 F.2d at 653.
This conclusion accords with Congress’ purpose in enacting the “direct action” proviso to
§ 1332(c). This is not an action “in which both parties are local residents, but which, under a
State ‘direct action’ statute, may be brought directly against a foreign insurance carrier without
joining the local tort-feasor as a defendant.” H.R. Rep. No. 88-1229, at 1. While New Jersey has
a direct action statute, no party contends that the statute applies here. See N.J. Stat. Ann.
§ 17:28-2 (authorizing direct actions by plaintiffs against insurance companies in the event the
insured is insolvent or bankrupt). Nor has that statute threatened to overwhelm this Court with
litigation that would otherwise be within the exclusive jurisdiction of the New Jersey courts. Cf.
H.R. Rep. No. 88-1229, at 2-7.
Willow Springs contends this Court should apply the statute’s “plain language,” which
“does not appear to be limiting so as to exclude a direct action between the insured and the
insurer.” (Pl.’s Reply Br. (ECF No. 11), at 1.) Whatever the merits of this argument, this Court
must follow the mandate of the Third Circuit. Brooks-McCollum, 321 F. App’x at 208;
McGlinchey, 866 F.2d at 653; see also Evan H. Caminker, Why Must Inferior Courts Obey
Superior Court Precedent?, 46 Stan. L. Rev. 817, 824 (1994) (“District courts must follow both
Supreme Court decisions and those issued by whichever court of appeals has revisory
jurisdiction over its decisions . . . .”).
Because this is not a direct action as that term is used in the statute, HealthCap takes on
the citizenship only of its state of incorporation (the District of Columbia) and the state of its
principal place of business (Michigan). See 28 U.S.C. § 1332(c)(1).
B. Citizenship of Limited Liability Companies for Diversity Purposes
However, the inapplicability of the diversity jurisdiction statute’s “direct action”
provision does not end this Court’s inquiry. “[F]ederal courts ‘have an independent obligation to
determine whether subject-matter jurisdiction exists, even in the absence of a challenge from any
party.’” Hartig Drug Co., 836 F.3d at 267 (quoting Arbaugh, 546 U.S. at 514). In a case like
this resting on diversity jurisdiction, this Court must determine for itself whether or not every
defendant is completely diverse from the plaintiff. See Auto-Owners Ins. Co., 835 F.3d at 394.
As explained above, a corporation takes on the citizenship of its state of incorporation
and the state where it maintains its principal place of business. 28 U.S.C. § 1332(c)(1).
Corporate defendant HealthCap therefore is a citizen of the District of Columbia (where it is
incorporated) and Michigan (where it maintains its principal place of business). Likewise for the
other corporate defendant: HCILRIC is a citizen of the District of Columbia (where it is
incorporated) and Michigan (where it maintains its principal place of business).
However, plaintiff Willow Springs and defendants USI and Chelsea-Rhone are limited
liability companies, not corporations. “[T]he citizenship of an LLC is determined by the
citizenship of its members.” Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412, 420 (3d Cir.
2010). If the members are themselves limited liability companies (or partnerships, or trusts, or
unincorporated associations, etc.), this Court may need to trace the parties’ citizenship through
multiple layers of entities. See Lincoln Benefit Life Co. v. AEI Life, LLC, 800 F.3d 99, 105 n.16
(3d Cir. 2015).
The Court cannot determine whether or not diversity jurisdiction exists over this case
because there is insufficient evidence of the citizenship of plaintiff Willow Springs and
defendants Chelsea-Rhone and USI. The record in this case contains no information about the
citizenship of Willow Springs’ or Chelsea-Rhone’s members. USI has filed a corporate
disclosure statement, explaining that USI’s sole member is USI Holdings Corp. (USI’s Corp.
Discl. Stmt. (ECF No. 1-4), at 1.) USI Holdings Corp. is presumably a corporation; if so, then
USI is a citizen of both the state of incorporation of USI Holdings Corp. and the state where USI
Holdings Corp. maintains its principal place of business—both matters about which the record
contains no information.
Given the limited record, the Court cannot determine whether or not it possesses diversity
jurisdiction. Ambiguity concerning the existence of subject matter jurisdiction generally bars an
action from proceeding in federal court, given that the removing defendants bear the burden of
establishing diversity jurisdiction and all doubts about jurisdiction must be resolved in favor of
remand. A.S., 769 F.3d at 208; Johnson, 724 F.3d at 346. However, where the party invoking the
Court’s jurisdiction “may be able to allege facts sufficient to demonstrate that this Court has
subject matter jurisdiction to entertain [its] state law claims under diversity of citizenship
jurisdiction,” the Court may allow that party to bolster the record with additional evidence
sufficient to remove any ambiguity concerning the Court’s jurisdiction. Phillip v. Atlantic City
Med. Ctr., 861 F. Supp. 2d 459, 470 (D.N.J. 2012). This Court will exercise that discretion,
allowing Defendants to supplement the record with evidence of the citizenship of all of the
members of each party formed as a limited liability company.
IV. CONCLUSION
For the reasons set forth above, Willow Springs’ Motion to Remand (ECF No. 3) is
DENIED. Additionally, Defendants must SHOW CAUSE why this case should not be
remanded for lack of subject matter jurisdiction under 28 U.S.C. § 1332 because the record does
not reflect the citizenship of the parties formed as limited liability companies. An appropriate
order will follow.
/s/ Brian R. Martinotti
HON. BRIAN R. MARTINOTTI
UNITED STATES DISTRICT JUDGE
Dated: June 27, 2019