Chaborek v. Allstate Financial Services, LLC

Citations: 254 F. Supp. 3d 748; 2017 WL 2423802; 2017 U.S. Dist. LEXIS 85522Docket: CIVIL ACTION No. 17-940

Court: District Court, E.D. Pennsylvania; June 5, 2017; Federal District Court

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A fraudulent Ponzi scheme perpetrated by deceased Allstate broker Paul Godlewski has led victim Brian Chaborek to sue both Allstate and two of its supervisors, Megan Gaardsmoe and Kevin Powell. Allstate argues that the supervisors were fraudulently joined to defeat diversity jurisdiction. However, the court finds that Allstate cannot meet the high burden required to prove fraudulent joinder, resulting in the case being remanded to state court.

Background details reveal that Godlewski operated a Ponzi scheme disguised as a venture capital fund named GEIVC, using Allstate's branding to mislead investors. He defrauded Chaborek of over $500,000 through two investments in 2010 and April 2015. After being fired by Allstate in early 2015 during an investigation, Godlewski misleadingly continued to represent himself as an Allstate employee while negotiating the sale of his agency to Chaborek, who was unaware of the fraud.

The supervisors, Gaardsmoe and Powell, allegedly allowed Godlewski to use Allstate's resources during this time and failed to inform Chaborek about the fraudulent nature of GEIVC, despite being aware of it. Chaborek does not seek damages related to the purchase of the Allstate office but claims Allstate and the supervisors are liable for misstatements that led to his financial losses in the Ponzi scheme.

The standard for fraudulent joinder requires that if a state court might find a cause of action in the complaint, the case must be remanded, reinforcing that defendants bear a heavy burden in such claims.

To establish a case against a joint defendant, the defendant must demonstrate either a lack of factual basis or a lack of good faith intention to pursue the claim. The removal statute is to be interpreted narrowly, favoring remand in case of doubt. The burden on a defendant alleging fraudulent joinder is heavier than that in a motion to dismiss, as fraudulent joinder applies only when recovery from the non-diverse defendant is clearly impossible. The court's jurisdiction is limited to determining its own jurisdiction without delving into the merits of the case.

The plaintiff has presented at least two viable claims against individual defendants Gaardsmoe and Powell under Pennsylvania law, specifically alleging negligent misrepresentation. The plaintiff contends that the defendants misrepresented Godlewski's employment status, which influenced the plaintiff's financial decisions regarding investments. To establish negligent misrepresentation in Pennsylvania, the plaintiff must show that the defendants misrepresented a material fact they knew to be false, intended to induce action, and caused injury due to justifiable reliance.

Although the defendants argue that they owed no duty of care to the plaintiff, Pennsylvania law states that a duty arises when someone undertakes to make representations. The defendants' reliance on a case from Ohio, which determined no individual liability existed for corporate wrongdoing, is not applicable in this context. The plaintiff's claims, while potentially relating to a smaller loss amount, remain legally valid regardless of the claim's size.

Coomes distinguishes between the duties of individual defendants Powell and Gaardsmoe and their responsibilities as Allstate representatives. Their alleged misconduct, involving false statements to the plaintiff regarding Godlewski to facilitate the sale of Godlewski’s insurance practice, is characterized as personal rather than corporate. The plaintiff claims both negligent misrepresentation and fraud, with the latter requiring proof of intent—specifically, that the defendants knew their statements were false. Clear and convincing evidence is necessary to establish fraud, and the plaintiff's allegations of actual knowledge by Powell and Gaardsmoe potentially support a fraud claim alongside negligent misrepresentation.

The document also addresses alleged motives behind the plaintiff's legal strategy, particularly the naming of individual defendants to avoid federal jurisdiction. The defense speculates on the plaintiff's rationale for not including Godlewski’s estate, citing ongoing claims in state court, and criticizes the plaintiff for filing in Philadelphia County instead of Chester County. However, the court maintains that the motives of the plaintiff's counsel are legally irrelevant to the issue of fraudulent joinder. According to Supreme Court precedent, a plaintiff's intent to defeat diversity jurisdiction does not imply fraudulent joinder, and the critical question is whether a viable claim exists against the non-diverse defendants. The document emphasizes the importance of zealous advocacy within legal bounds, noting that personal involvement may influence witness testimony.

When an individual is named as a defendant alongside their employer, they may seek independent legal counsel, leading to potentially conflicting legal advice. In cases involving personal misconduct, such as fraud, a plaintiff may aim to hold multiple parties liable for damages. As affirmed by the Supreme Court in Caterpillar Inc. v. Williams, plaintiffs retain control over their complaints and can make strategic decisions regarding defendants. In this context, the defendants failed to prove allegations of fraudulent joinder, as a reasonable Pennsylvania court could determine that the plaintiff has a valid claim against the individual defendants, Kevin Powell and Megan Gaardsmoe. Consequently, diversity jurisdiction does not apply, necessitating a remand to the Pennsylvania Court of Common Pleas. The court refrains from commenting on other claims against these defendants, noting that the related claims are sufficient to rule out fraudulent joinder and federal jurisdiction. The complaint suggests that a portion of the plaintiff's losses might be attributable to the individual defendants, indicating the potential for broader liability. In a similar case, Abels, the non-diverse defendants were referred to generically as "John Does."