McGee v. State Farm Mutual Automobile Insurance

Citations: 684 F. Supp. 2d 258; 2009 U.S. Dist. LEXIS 107808; 2009 WL 3842025Docket: No. 09-CV-3579 (ILG)

Court: District Court, E.D. New York; November 17, 2009; Federal District Court

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On July 28, 2009, John McGee initiated a lawsuit against State Farm Mutual Automobile Insurance Company in New York's Supreme Court, alleging improper denial of payments to physicians treating State Farm's insureds. State Farm removed the case to federal court on diversity grounds. Following this, McGee amended his complaint to include additional New York defendants, which would destroy diversity jurisdiction. He subsequently filed a motion to remand the case back to state court, which State Farm opposes, while also filing a motion to dismiss McGee’s complaint.

McGee argues against the court's jurisdiction on two bases: first, he claims State Farm should be classified as a New York citizen under 28 U.S.C. § 1332 due to the direct action exception, as his claims arise from insurance policies held by New York citizens. However, the court finds this assertion unmeritorious, clarifying that a "direct action" involves cases where a plaintiff can sue an insurer directly without the insured being a party, typically to establish the insured's liability. In this instance, McGee's claims are based on State Farm's independent misconduct rather than the actions of its insureds, thus not qualifying as a "direct action." Consequently, State Farm will not be deemed a New York citizen in this case.

McGee's motion for remand is based on the issue of joining non-diverse defendants in an amended complaint, raising the question of whether the Court can disallow this joinder to maintain diversity jurisdiction. Under 28 U.S.C. 1447(e), if a plaintiff seeks to join additional defendants that would eliminate subject matter jurisdiction after removal, the Court may either deny the joinder or permit it and remand the case to state court. This decision is at the Court's discretion. Although Rule 15(a)(1)(A) permits a party to amend pleadings without court leave before a responsive pleading is served, a conflict arises with 1447(e), which allows the Court to deny amendments that would destroy diversity.

Federal case law indicates that 1447(e) remains applicable even when amendments are typically allowed under Rule 15. The Court has the authority to reject post-removal joinders that trigger 28 U.S.C. 1447(e), even if those amendments occurred without seeking leave. Prior rulings, including those in Abraham Natural Foods Corp. and similar cases, have established that courts can vacate previous orders permitting joinder and dismiss non-diverse parties to retain jurisdiction.

The process involves a two-step analysis: first, evaluating if the joinder is permissible under Rule 20(a)(2) of the Federal Rules of Civil Procedure, and second, assessing whether the relevant considerations favor the joinder and the subsequent remand.

Joinder of defendants in this case is addressed under Rule 20(a)(2), which permits such joinder when: (A) relief is sought against defendants in relation to the same transaction or occurrence, and (B) there are common legal or factual questions. McGee's original complaint alleges that State Farm denied valid claims by conspiring with medical referral services, including IPER, to produce fraudulent peer review reports. In his amended complaint, McGee identifies IPER and two physicians, Inslicht and Simon, as defendants for their involvement in creating these fraudulent reports. This collective liability stems from the same series of events, thus meeting the criteria for permissible joinder.

The court then evaluates the fairness of this joinder based on four factors from Gursky v. Northwestern Mut. Life Ins. Co.: (1) delay in amending the complaint, (2) potential prejudice to the defendants, (3) likelihood of multiple litigations, and (4) the plaintiff's motivations for amending. McGee's amendment occurred shortly after State Farm's removal of the case to federal court, constituting a minimal delay that favors McGee. Regarding potential prejudice to State Farm, the case is in its early stages with no discovery completed; thus, while remanding to state court may introduce delays, it is unlikely to cause significant prejudice. Overall, both examined factors favor McGee's position.

Dismissal of the non-diverse parties—Independent Physical Exam Referrals, Inc. (IPER), David Inslicht, and Robert M. Simon—does not pose a significant risk of multiple litigation. Although McGee could potentially bring separate claims against these parties in state court, there is insufficient evidence suggesting he would do so, especially since he previously alleged similar misconduct by other parties, such as Metro Medical Services, Inc. (MMS), without including them in the amended complaint. McGee's failure to explain the selective addition of the three defendants raises doubts about his intent to pursue claims against them separately. 

The timing of the amended complaint, filed alongside McGee's motion to remand, suggests a strategic move to eliminate federal jurisdiction, indicating forum shopping. McGee has not presented new evidence or circumstances to justify the inclusion of the non-diverse defendants, and it appears he was aware of their relevance prior to filing his original complaint. Consequently, the Court concludes that the motivation for adding these defendants was to destroy diversity jurisdiction, leading to the denial of the motion to remand and the decision to drop the non-diverse parties from the case.

John McGee filed a lawsuit against State Farm Mutual Automobile Insurance Company in New York State Supreme Court, alleging illegal practices that led to the denial of payments for medical services to insured patients. State Farm removed the case to federal court, citing diversity jurisdiction. McGee's subsequent motion to remand the case back to state court was denied by the court. He then sought reconsideration of this denial, which the court found to be meritless and denied entirely.

The procedural history indicates that McGee, who is a physician in New York, filed his initial complaint on July 28, 2009, and State Farm removed the case to federal jurisdiction on August 18, 2009. After the denial of his remand motion on November 18, 2009, McGee filed for reconsideration and also appealed to the Second Circuit on December 1, 2009.

The court addressed jurisdiction, stating that the filing of an appeal typically divests a district court of jurisdiction over the appealed issues unless explicitly allowed by statute or rule. However, the court noted exceptions to this rule, emphasizing that allowing an appeal of a non-final order, such as the remand denial, would be inefficient and counterproductive. Consequently, the court retained jurisdiction over McGee's motion for reconsideration.

In examining the motion for reconsideration, the court explained that such motions are usually granted only to correct clear legal errors or prevent manifest injustice. McGee raised two main points: first, that the court improperly did not consider his amended complaint as an amendment as a matter of course under Rule 15(a)(1) of the Federal Rules of Civil Procedure; and second, that the court failed to acknowledge his late characterization of the amendment as correcting a clerical error, which he argued should have been considered a valid motive for the amendment. These issues were set to be addressed individually by the court.

McGee's motion for reconsideration asserts that he filed only one amended complaint on August 31, 2009, and argues that the record supports this claim. However, while State Farm contended that two amended complaints were filed, the Court sided with McGee, confirming that the operative document is from September 4, 2009, which the Court treated as an amendment as a matter of course under Rule 15(a)(1). McGee's first amended complaint was incomplete, missing significant claims, prompting a corrected version to be filed shortly thereafter.

McGee now contends that the amendment was merely to address a "clerical error," but the addition of three new defendants and new claims contradicts this argument. The Court notes that labeling such omissions as clerical errors undermines the term's meaning. Additionally, McGee references Independent Physical Exam Referrals, Inc. (IPER) to support his claim of a mistake in excluding it as a defendant; however, the omission of another named entity further weakens this argument. 

McGee also raises a new justification, claiming the original complaint lacked verification under New York law, but this argument is waived due to its late introduction. The Court emphasizes that the focus is on McGee's motives for adding non-diverse defendants, a critical point under 28 U.S.C. § 1447(e). He has not provided adequate reasoning for the inclusion of these parties. Consequently, as McGee has not shown clear legal error or manifest injustice, his motion for reconsideration is denied.

McGee seeks clarification regarding the Court's Order Denying Remand, specifically whether the Amended Complaint has been entirely stricken or if only the non-diverse defendants, aside from State Farm Mutual Automobile Insurance Company, have been removed. The Court's order indicates it can deny joinder under 28 U.S.C. 1447(e) by dropping non-diverse parties pursuant to Rule 21 of the Federal Rules of Civil Procedure. Consequently, the Court dropped defendants Independent Physical Exam Referrals, Inc., David Inslicht, and Robert M. Simon from the Amended Complaint and denied McGee's motion to remand. 

McGee, a New York resident, is suing State Farm, an Illinois corporation, for over $4 million. He filed a flawed Amended Complaint on August 31, 2009, which was missing significant portions. A corrected version was submitted shortly after, and the Court treated this as the first Amendment as a Matter of Course under Rule 15(a)(1). McGee's attempt to join certain defendants appears aimed at evading federal jurisdiction, as he has previously included all these parties in earlier litigation. At a hearing, McGee described the amendments as correcting "clerical errors," but the Court found it implausible that the omission of several defendants was merely a clerical mistake. McGee acknowledged the importance of motives in removal cases to avoid defeating diversity jurisdiction but provided no rationale for his amendment. The Court ultimately denied McGee's motion for reconsideration or clarification.

On September 8, 2009, State Farm moved to dismiss McGee's claims, with briefing deferred until the motion to remand was resolved. McGee's request for reconsideration and/or clarification was deemed inappropriate under Rule 59(e), which is limited to reconsideration of final judgments. Since no judgment had been entered due to the denial of the Bank's earlier summary judgment motion, the Court reclassified McGee's motion under Local Civil Rule 6.3, which addresses non-final orders. During oral arguments, McGee first claimed the amended complaint aimed to correct "clerical errors," but the Court found it implausible that the omission of several defendants could be considered a mere clerical error. Additionally, if a plaintiff seeks to join new defendants post-removal that would affect subject matter jurisdiction, the court has the discretion to deny the joinder or allow it while remanding the case back to State court, which State Farm contests.