Baltimore County MD v. Cigna Healthcare , 238 F. App'x 914 ( 2007 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 06-1877
BALTIMORE COUNTY, MARYLAND, a body Corporate
and Politic,
Plaintiff - Appellant,
versus
CIGNA HEALTHCARE; CIGNA CORPORATION; ART
JOHNSON; CIGNA HEALTHCARE MID-ATLANTIC,
INCORPORATED,
Defendants,
and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
Defendant - Appellee.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. Catherine C. Blake, District Judge.
(1:05-cv-00511-CCB)
Argued: March 12, 2007 Decided: June 5, 2007
Before WILKINSON, MICHAEL, and KING, Circuit Judges.
Vacated in part, reversed in part, and remanded by unpublished
opinion. Judge King wrote the majority opinion, in which Judge
Michael joined. Judge Wilkinson wrote a dissenting opinion.
ARGUED: Jeffrey Grant Cook, Assistant County Attorney, BALTIMORE
COUNTY OFFICE OF LAW, Towson, Maryland, for Appellant. Michael
Patrick Cunningham, FUNK & BOLTON, P.A., Baltimore, Maryland, for
Appellee. ON BRIEF: John E. Beverungen, County Attorney,
BALTIMORE COUNTY OFFICE OF LAW, Towson, Maryland, for Appellant.
Bryan D. Bolton, Hisham M. Amin, FUNK & BOLTON, P.A., Baltimore,
Maryland, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
KING, Circuit Judge:
Plaintiff Baltimore County, Maryland, (“Baltimore County” or
the “County”) appeals from the district court’s Memorandum and
Order denying its motion to remand this lawsuit to state court and
denying its motion to file a Second Amended Complaint. See
Baltimore County v. Cigna Corp., CCB-O5-511 (D. Md. Aug. 3, 2005)
(the “Opinion”). Baltimore County initially filed suit in Maryland
state court, but Connecticut General Life Insurance Company
(“Connecticut General”), one of the defendants, removed the
proceeding to the District of Maryland. The district court then
dismissed the non-diverse defendants, Art Johnson and Cigna
Healthcare Mid-Atlantic, Inc. (“Cigna HMA”), from the action,
relying on the doctrine of fraudulent joinder, and concluded that
it possessed diversity jurisdiction. After discovery, the court
awarded summary judgment to Connecticut General, the only remaining
defendant. See Baltimore County v. Conn. Gen. Life Ins. Co., CCB-
05-511 (D. Md. July 14, 2006).
Baltimore County contends that the court erred in its
conclusion that it possessed jurisdiction, in its denial of the
County’s motion to file a Second Amended Complaint, and in its
award of summary judgment to Connecticut General. As explained
below, we agree with the County that Connecticut General failed to
establish that Johnson was fraudulently joined in this lawsuit. We
therefore vacate the court’s summary judgment award, reverse its
3
holding that it possessed jurisdiction, and remand to permit a
further remand to the appropriate state court.
I.
A.
This civil action stems from a group life insurance policy
(the “Policy”) issued by Connecticut General, a subsidiary of Cigna
Corporation, covering Baltimore County’s employees.1 The Policy
had been in effect since 1966 and was written by a predecessor of
Connecticut General. Connecticut General acquired the Policy in
1991 and reissued it under its own name in 1993. The Policy
requires Baltimore County to make monthly premium payments to
Connecticut General in return for life insurance coverage for
Baltimore County’s employees. A portion of these monthly payments
was allocated by Connecticut General into two reserve funds: the
Incurred But Not Reported Reserve (the “IBNR”), and the Premium
Stabilization Reserve (the “PSR”). The IBNR was originally
established by Connecticut General to pay claims incurred during a
policy year but not reported until after the policy year ended. It
was not subject to or created under the Policy, and there was no
1
The facts underlying this appeal are drawn from the record
created in the district court and are presented in the light most
favorable to Baltimore County. See Mayes v. Rapoport, 198 F.3d
457, 464 (4th Cir. 1999) (concluding that, when evaluating a motion
for remand, all legal and factual disputes must be resolved in
favor of the plaintiff).
4
written agreement between the County and Connecticut General
concerning how the balance in the IBNR would be distributed if the
Policy was terminated.
The PSR was created pursuant to an amendment to the Policy in
1970. The PSR permitted the County to be credited with dividends
if the premiums paid by the County during the Policy year exceeded
the charges for benefit claims and other expenses. Although the
PSR was held by Connecticut General, the County could use the PSR
to make up for any shortfalls that occurred between premium
payments and benefit claims. Pursuant to the Policy, any funds
remaining in the PSR after termination of the Policy and a final
settlement of the County’s account would be returned to the County.
The Policy also provided that “[c]hanges may be made in the policy
only by amendment signed by the Policyholder and by the Insurance
Company acting through its President, Vice President, Secretary or
Assistant Secretary. No agent may change or waive any terms of the
policy.” J.A. 118.2
In July 1995, Robert Behler, a Baltimore County employee,
became the administrator for several of the County’s insurance
plans, including its group life insurance plan with Connecticut
General. Behler testified that, sometime between 1995 and 1997, he
agreed that Connecticut General could move a substantial sum of
2
Citations to “J.A. ” refer to the Joint Appendix filed by
the parties in this appeal.
5
money from the PSR into the IBNR. Behler explained that Joe Mock,
an employee of Connecticut General who served as Baltimore County’s
account manager, asked him to approve the movement of these funds
for tax purposes. Behler testified that Mock advised him that the
transferred money would be treated as if it were still in the PSR.
Thus, Behler believed that the money moved from the PSR to the
IBNR, like any funds remaining in the PSR, would be returned to
Baltimore County at the termination of the Policy. Unfortunately,
this agreement on Connecticut General’s movement of money from the
PSR into the IBNR was never reduced to writing.
Mock testified in his deposition that he does not remember
making any such representations to Behler. Mock later explained
that, for the Policy year ending August 31, 1995, Connecticut
General began applying its own underwriting standards to calculate
the amount of premiums paid that would go into the IBNR, instead of
using those standards previously applied by Connecticut General’s
predecessor. The financial statements indicate that during the
1993-1994 and the 1994-1995 Policy years, the IBNR increased from
$150,000 to $409,000. After this increase in the IBNR, the funds
in the IBNR continued to accumulate interest. Mock explained by
deposition that the interest was used by Connecticut General to
help offset the administrative expenses of managing Baltimore
County’s account.
6
After Mock was transferred to another position within Cigna
Corporation, Art Johnson, another employee of Connecticut General,
became Baltimore County’s account manager. Behler testified that
he explained and reiterated to Johnson his understanding with Mock
concerning the money transferred by Connecticut General from the
PSR to the IBNR. He stated that Johnson did not object to or
correct this understanding in any way and thus acknowledged the
arrangement. Johnson testified, however, that he did not recall
any such conversation with Behler. While working with the County
on the Policy, Johnson would also send financial reports to the
County, indicating the sum of money in the IBNR and showing that
those funds were accumulating interest. Behler explained that
these documents reaffirmed his understanding that the funds in the
IBNR would be returned to the County upon termination of the Policy
because the IBNR was earning interest.
Baltimore County decided to terminate the Policy at the end of
the 2001-2002 Policy year, with the Policy’s final date being
August 31, 2002. As part of its final account settlement,
Connecticut General concluded that the total benefit claims were
$2,999,539 for the final Policy year, with administrative costs and
profits of $171,635. Thus, Baltimore County owed $3,171,174 to
Connecticut General. The County had paid premiums of only
$2,065,987 for the final Policy year, leaving a deficit of
$1,105,187.
7
Connecticut General applied this deficit against the sum of
$723,385 then in the PSR, which resulted in a final deficit of
$381,802. Baltimore County never paid Connecticut General this
deficit balance. Connecticut General’s records also show that it
paid $328,844 in unreported claims for the final Policy year,
reducing the balance in the IBNR from $540,087 to $211,243. This
$211,243 balance in the IBNR serves as the basis for Baltimore
County’s Complaint in this case, as the County contends that it is
entitled to reimbursement of the IBNR funds from Connecticut
General. To the contrary, Connecticut General asserts that it is
entitled to keep the IBNR funds because it remains liable for any
future unreported claims from the final Policy year.3 Although
this contingency exists, no claims have been reported since the
filing of the Complaint in this case in January of 2005.
B.
On January 11, 2005, Baltimore County filed its Complaint in
state court against defendants Cigna Corporation, Connecticut
General, Art Johnson, and “Cigna Healthcare.” Pursuant to the
allegations of the Complaint, Baltimore County is a citizen of
Maryland, Connecticut General is a citizen of Connecticut, Art
3
Although Behler testified that his agreement with Mock and
Johnson required the balance of the IBNR to be returned to
Baltimore County after the final account settlement, the County
offered to assume liability for any remaining unreported claims, if
Connecticut General tendered to the County the balance of the IBNR.
8
Johnson is a citizen of Maryland, and Cigna Corporation is a
citizen of Delaware and Pennsylvania. As Baltimore County later
learned, Cigna Healthcare is a nonexistent entity. The Complaint,
alleging that the County was entitled to the balance of the IBNR,
contained three counts: fraud in the inducement, negligent
misrepresentation, and breach of contract. It did not make
specific allegations against any particular defendant, but instead
made its allegations against the four Defendants collectively.
As relevant to this appeal, Baltimore County alleged, in the
negligent misrepresentation count, that the “Defendants had a duty
to Baltimore County that required the transmittal of accurate
information to it. Defendants . . . consistently represented that
the IBNR was Baltimore County’s money.” J.A. 26. The County also
alleged that the Defendants were negligent in making such false
statements and that the statements “were made with the intention of
having Baltimore County act and rely” on them. Id. The County
then alleged that the Defendants knew Baltimore County would rely
on these false statements and that the County was justified in such
reliance. Id. at 26-27.
On February 22, 2005, Connecticut General removed this matter
to the District of Maryland, asserting the Complaint had
fraudulently joined Johnson as a defendant and alleging that
diversity jurisdiction was appropriate. Baltimore County filed its
First Amended Complaint on February 28, 2005, before any responsive
9
pleading was filed. The First Amended Complaint contained the same
allegations as the original Complaint but added Cigna HMA as a
defendant and removed Cigna Healthcare. Cigna HMA is a registered
health maintenance organization and a citizen of Maryland. On
March 7, 2005, Baltimore County moved to remand to state court,
maintaining that complete diversity did not exist because
defendants Johnson and Cigna HMA are both citizens of Maryland.
On August 3, 2005, the district court issued its Memorandum
and Order on the jurisdictional issue, denying Baltimore County’s
motion to remand and dismissing Johnson and Cigna HMA on the basis
of fraudulent joinder. Opinion 5.4 In evaluating whether
fraudulent joinder had occurred, the court determined that the
allegations against Johnson for fraud in the inducement and
negligent misrepresentation “arguably do not satisfy Fed. R. Civ.
P. 8(a), and clearly do not satisfy Fed. R. Civ. P. 9(b).” Id. at
3.5 The court then concluded that Cigna HMA had also been
fraudulently joined because Baltimore County had not presented
4
The district court’s Opinion of August 3, 2005, is found in
the Joint Appendix at J.A. 222-26. In its Opinion, the court also
denied the County’s motion to file a Second Amended Complaint,
which had been submitted to the court on May 3, 2005. The Second
Amended Complaint contained more specific factual allegations
against Johnson.
5
With regard to the breach of contract claim of the First
Amended Complaint, the court determined that “Johnson is not a
party to the policy and therefore is not a proper defendant to the
breach of contract claim.” Opinion 3. Baltimore County does not
address on appeal whether it had the possibility of maintaining a
breach of contract claim against Johnson.
10
sufficient evidence to establish that Johnson was an employee of
Cigna HMA. Id. at 3-4. Thus, the court determined that “[t]he
County has shown no possibility of a claim against Johnson or Cigna
Healthcare Mid-Atlantic, Inc.” Id. at 4.
On July 14, 2006, the court made its award of summary judgment
to Connecticut General, the sole remaining defendant.6 The court
concluded that Connecticut General’s counterclaim, alleging that
Baltimore County had failed to pay $381,802 in premiums for the
final Policy year, constituted a valid recoupment defense. J.A.
1068. Because Connecticut General’s damages claim exceeded the
damages claimed by Baltimore County, the recoupment defense
extinguished any monetary claim by Baltimore County. Id. at 1080-
81. Connecticut General was thus awarded summary judgment. Id. at
1081.
II.
We review “de novo questions of subject matter jurisdiction,
including those relating to the propriety of removal and fraudulent
joinder.” Mayes v. Rapoport, 198 F.3d 457, 460 (4th Cir. 1999)
(internal quotation marks omitted).
6
After the district court denied Baltimore County’s motion to
remand and dismissed Johnson and Cigna HMA, the remaining
defendants were Cigna Corporation and Connecticut General. The
court dismissed Cigna Corporation on October 18, 2005.
11
III.
On appeal, Baltimore County contends that the district court
erred in its conclusion that it possessed diversity jurisdiction in
this proceeding. In so concluding, the court determined that the
non-diverse defendants — Johnson and Cigna HMA — had been
fraudulently joined and dismissed both from the civil action. The
County also contends that the court erred in denying its motion to
file a Second Amended Complaint and in awarding summary judgment to
the sole remaining defendant, Connecticut General. As explained
below, the court erred in concluding that Johnson had been
fraudulently joined. Thus, because there was no complete diversity
among the parties, the district court did not possess jurisdiction
in the matter. As a result, we need not reach the merits of the
County’s other contentions, but vacate those rulings for lack of
jurisdiction. See Mayes v. Rapoport, 198 F.3d 457, 466 (4th Cir.
1999) (vacating, without addressing merits, district court’s order
dismissing complaint against diverse parties after concluding that
court erred in its determination that non-diverse party was
fraudulently joined).
A.
Before a case can be properly removed to federal court, a
defendant must comply with the statutory requirements governing a
defendant’s ability to consummate removal. Mayes, 198 F.3d at 461.
One such statutory mandate is that the party seeking removal must
12
show that there is “complete diversity” among all parties in order
to establish diversity jurisdiction. See 28 U.S.C. § 1332(a).
Complete diversity occurs “when no party shares common citizenship
with any party on the other side.” Mayes, 198 F.3d at 461.
Because there must be complete diversity, it is “difficult for a
defendant to remove a case if a non-diverse defendant has been
party to the suit.” Id. The doctrine of fraudulent joinder,
however, “permits removal when a non-diverse party is (or has been)
a defendant in the case.” Id. In essence, the fraudulent joinder
doctrine allows a court “to disregard, for jurisdictional purposes,
the citizenship of certain non-diverse defendants, assume
jurisdiction over a case, dismiss the non-diverse defendants, and
thereby retain jurisdiction.” Id.A defendant seeking removal of a state court action to federal
court bears the heavy burden of establishing that a non-diverse
defendant has been fraudulently joined. See Mayes, 198 F.3d at
464. In order to establish the existence of fraudulent joinder,
the removing party must establish either: that there is
no possibility that the plaintiff would be able to
establish a cause of action against the in-state
defendant in state court; or that there has been outright
fraud in the plaintiff’s pleading of jurisdictional
facts.
Id. (internal quotation marks and alterations omitted). In
applying this strict standard, we have recognized that “[a] claim
need not ultimately succeed to defeat removal; only a possibility
of a right to relief need be asserted.” Marshall v. Manville Sales
13
Corp., 6 F.3d 229, 233 (4th Cir. 1993). In evaluating a claim of
fraudulent joinder, all legal and factual issues must be resolved
in favor of the plaintiff. Mayes, 198 F.3d at 464. A court making
such an assessment “is not bound by the allegations of the
pleadings, but may instead consider the entire record, and
determine the basis of joinder by any means available.” Id.(internal quotation marks omitted). Furthermore, we have
emphasized that the standard for evaluating a fraudulent joinder
issue “is even more favorable to the plaintiff than the standard
for ruling on a motion to dismiss under Fed. R. Civ. P. 12(b)(6).”
Hartley v. CSX Transp., Inc., 187 F.3d 422, 424 (4th Cir. 1999).
In this appeal, Baltimore County contends that the court erred
in dismissing the two non-diverse defendants — Johnson and Cigna
HMA. The County asserts that Connecticut General did not satisfy
its burden of establishing that the County had no possibility of
maintaining either a negligent misrepresentation claim or a fraud
in the inducement claim against the non-diverse defendants. We
need only address, however, whether the County’s claim of negligent
misrepresentation has a chance of being maintained against Johnson.
In order to survive an assertion of fraudulent joinder and show
that complete diversity does not exist, the County needs only to
show the possibility of maintaining one cause of action against one
non-diverse defendant. See Mayes, 198 F.3d at 464. Because the
County had the possibility of maintaining a negligent
14
misrepresentation claim against Johnson, we need not address
whether it could have possibly established its other causes of
action against Johnson or Cigna HMA.
B.
Baltimore County maintains on appeal that the district court
erred in its conclusion that Johnson was fraudulently joined. The
County asserts that Connecticut General did not meet its burden of
establishing that the County had no possibility of maintaining a
negligent misrepresentation claim against Johnson. Connecticut
General contends, on the other hand, that a negligent
misrepresentation claim could not be maintained because (1) the
County did not meet the pleading requirements of Federal Rule of
Civil Procedure 9(b), and (2) there is no factual basis on which to
conclude that Johnson is liable for any negligent
misrepresentation. We assess these contentions in turn.
1.
Connecticut General first contends that the district court
correctly applied Fed R. Civ. P. 9(b) to Baltimore County’s
negligent misrepresentation claim against Johnson. Specifically,
the court concluded in its Opinion that the allegations against
Johnson, including the negligent misrepresentation claim, “arguably
do not satisfy Fed. R. Civ. P. 8(a), and clearly do not satisfy
Fed. R. Civ. P. 9(b).” Opinion 3. Rule 9(b) provides that “[i]n
all averments of fraud or mistake, the circumstances constituting
15
fraud or mistake shall be stated with particularity.” Connecticut
General maintains that the First Amended Complaint was not pled
with particularity because it does not contain any factual or legal
allegations specifically directed at Johnson. Instead, the First
Amended Complaint makes all allegations against the named
defendants collectively. It also fails to allege when these
statements were made, to whom they were made, and what was
specifically represented.
The County, however, contends that the pleading requirements
of Rule 9(b) do not apply to a negligent misrepresentation claim.
To maintain such a claim under Maryland law, a plaintiff must show:
(1) the defendant, owing a duty of care to the
plaintiff, negligently asserts a false statement;
(2) the defendant intends that his statement will be
acted upon by the plaintiff;
(3) the defendant has knowledge that the plaintiff will
probably rely on the statement, which, if
erroneous, will cause loss or injury;
(4) the plaintiff, justifiably, takes action in
reliance on the statement; and
(5) the plaintiff suffers damage proximately caused by
the defendant’s negligence.
Griesi v. Atl. Gen. Hosp. Corp., 756 A.2d 548, 553 (Md. 2000). In
evaluating whether a cause of action must be pled with
particularity, a court should examine whether the claim requires an
essential showing of fraud. See Vess v. Ciba-Geigy Corp. USA, 317
F.3d 1097, 1104-05 (9th Cir. 2003) (“Allegations of non-fraudulent
16
conduct need satisfy only the ordinary notice pleading standards of
Rule 8(a).”); In re NationsSmart Corp. Sec. Litig., 130 F.3d 309,
315 (8th Cir. 1997) (“[A] pleading standard which requires a party
to plead particular facts to support a cause of action that does
not include fraud or mistake as an element comports neither with
Supreme Court precedent nor with the liberal system of ‘notice
pleading’ embodied in the Federal Rules of Civil Procedure.”).
Importantly, a claim of negligent misrepresentation under Maryland
law does not contain an essential showing of fraud and thus the
heightened pleading requirements of Rule 9(b) do not apply. See
Tricontinental Indus., Ltd. v. PricewaterhouseCoopers, LLP, 475
F.3d 824, 833 (7th Cir. 2007) (recognizing that heightened pleading
standards of Rule 9(b) do not apply to negligent misrepresentation
claim); Gen. Elec. Capital Corp. v. Posey, 415 F.3d 391, 395-96
(5th Cir. 2005) (concluding that negligent representation claim
needs only to satisfy notice pleading standard of Rule 8(a)).
Connecticut General next contends that, even if the negligent
misrepresentation claim does not require an essential showing of
fraud, Rule 9(b) standards should nevertheless apply because the
County made allegations of both fraudulent and non-fraudulent
conduct in its First Amended Complaint. We also reject this
contention and conclude, as have our sister circuits, that in such
circumstances only the fraud allegations of a complaint must
satisfy the heightened pleading standards of Rule 9(b). See Vess,
17
317 F.3d at 1104-05; In re NationsSmart Corp., 130 F.3d at 315. As
explained by the Ninth Circuit,
[t]o require that non-fraud allegations be stated with
particularity merely because they appear in a complaint
alongside fraud averments, however, serves no similar
reputation-preserving function, and would impose a burden
on plaintiffs not contemplated by the notice pleading
requirements of Rule 8(a).
Vess, 317 F.3d at 1104. Thus, because the heightened pleading
standards of Rule 9(b) do not apply to the County’s negligent
misrepresentation claim against Johnson, the district court erred
in determining that there was a fraudulent joinder of Johnson on
this ground.
2.
Connecticut General contends, in the alternative, that even if
Baltimore County’s First Amended Complaint was properly pled, the
County still has no possibility, as a matter of law, of maintaining
a negligent misrepresentation claim against Johnson. It asserts
that, under Maryland law, it would be impossible for the County to
establish at least two of the essential elements needed to prove a
negligent misrepresentation claim. First, Connecticut General
asserts that the County has no possibility of demonstrating that
Johnson owes the County a duty of care in communicating
information. Second, Connecticut General asserts that the County
has no possibility of showing that it was reasonable for it to rely
on Johnson’s silent acknowledgment of, or acquiescence in, Behler’s
earlier arrangement with Mock concerning the IBNR.
18
Connecticut General first asserts, in its alternative
contention, that it would be impossible for Baltimore County to
establish that Johnson owed it a tort duty because the County
cannot, as a matter of law, show that any special relationship
existed between the County and Johnson. In order to initiate and
pursue a negligent misrepresentation claim, a plaintiff must
establish that the defendant owes it a duty of care to communicate
correct information. See Griesi, 756 A.2d at 553. Although there
is no precise formula for determining whether a duty of care exists
between two parties, the Maryland courts have, at minimum,
evaluated “the nature of the legal relationship between the parties
and the likely harm that results from a party’s failure to exercise
reasonable care within that relationship.” Id. at 554. When
dealing with claims of economic loss due to negligent
misrepresentation, a plaintiff is entitled to demonstrate that a
duty of care exists by establishing an intimate nexus or special
relationship between the parties. Id.; see also Giant Food, Inc.
v. Ice King, Inc., 536 A.2d 1182, 1185 (Md. Ct. Spec. App. 1988)
(“[T]he most common example of the duty to speak with reasonable
care is based on a business or professional relationship, or one in
which there is a pecuniary interest.”). The Maryland courts have
found special relationships to exist between parties in a variety
of business relationships. See, e.g., Griesi, 756 A.2d at 556
(concluding that special relationship existed in pre-contractual
19
employment negotiations); Weisman v. Connors, 540 A.2d 783, 793-94
(Md. 1998) (concluding that there was sufficient evidence for jury
to find special relationship between two executives engaged in pre-
contractual employment negotiations); Giant Food, 536 A.2d at 1185(concluding that special relationship existed between buyer and
seller because of extensive communications that occurred over
period of time).
Viewed in the proper light, it is clear that the County has
the possibility of establishing that it had a special relationship
with Johnson. First, the Maryland courts have not ruled out, or
even addressed, whether a special relationship could exist under
the circumstances of this case. See Hartley, 187 F.3d at 424-25(reasoning that fraudulent joinder did not exist when state court
had not squarely foreclosed plaintiff’s claim). Second, going
beyond the allegations of the pleadings, Baltimore County has
presented evidence that Johnson had a close business relationship
with the County, during which he engaged in detailed and extensive
communications with the County concerning the Policy and the two
reserve funds. This evidence, given Maryland’s legal precedent,
provides the County with the possibility of establishing that a
special relationship existed between it and Johnson.
Second, Connecticut General contends that Baltimore County
cannot establish that it was reasonable for it to rely on any
representations that may have been made or acknowledged by Johnson.
20
See Griesi, 756 A.2d at 553 (recognizing that, in order to
establish negligent misrepresentation claim, plaintiff must
demonstrate that it was justified in relying on defendant’s
representations). Connecticut General first asserts that it was
unreasonable, as a matter of law, for the County to rely on any
representations made by Johnson when the Policy specifically
provides that its terms cannot be modified by an agent. Because
the Policy does not apply to the IBNR, however, this contention
must fail. That the Policy could not have been modified by a
Connecticut General agent does not necessarily mean that the IBNR,
which was neither created by nor subject to any written agreement,
could not have been so modified.
Connecticut General also asserts that it was unreasonable for
the County to rely on Johnson’s silent acknowledgment of, or
acquiescence in, Behler’s arrangement with Mock. It contends that
Johnson was required under law to have made a more definitive
statement in order for the County to have reasonably relied on any
information Johnson provided. The Maryland courts, however, have
recognized that a successful negligent misrepresentation claim may
be based upon a defendant failing “to make statements needed to
clarify the plaintiff’s understanding.” Griesi, 756 A.2d at 555.
This legal principle is controlling here, and the County has
presented evidence that Johnson should have corrected Behler after
Behler explained his understanding of the IBNR. Thus, because
21
Baltimore County has a possibility of maintaining a cause of action
for negligent misrepresentation against Johnson, the County’s
motion to remand this proceeding to state court should have been
granted.
IV.
Pursuant to the foregoing, we vacate the district court’s
judgment order, reverse its holding that it possessed jurisdiction,
and remand to permit a further remand of this case to the
appropriate state court.
VACATED IN PART, REVERSED
IN PART, AND REMANDED
22
WILKINSON, Circuit Judge, dissenting:
The only fault the majority finds with the district court is
its holding that Art Johnson was fraudulently joined in this
action. In the majority’s view, the district court should have
remanded the case to state court because Baltimore County’s
negligent misrepresentation claim “has a chance of being maintained
against Johnson.” See ante at 14. Because I believe the district
court correct in finding Johnson improperly joined, I respectfully
dissent.
I.
The gravamen of the County’s complaint is its allegation that
Joe Mock, a Connecticut General Sales Agent and citizen of Texas,
promised that the County would be entitled to the IBNR funds upon
policy termination. But Baltimore County did not sue Joe Mock.
Instead, it chose to hale a citizen of Maryland, Art Johnson, into
state court alleging negligent misrepresentation. The problem is
that nowhere in its complaint or subsequent submissions does
Baltimore County identify a single false statement made by Art
Johnson. Indeed, Johnson did not even take over the Baltimore
County account until 1999 -- well after the alleged
misrepresentations were made by Joe Mock. Nor does the County
explain why Johnson owed it -- an equally sophisticated business
entity -- a duty to explain contract terms, or why the County’s
23
purported reliance upon an agent’s representation was reasonable in
light of Policy terms expressly foreclosing agent-modifications.
For all of these reasons, the district court was correct to
conclude that nondiverse defendant Johnson had been fraudulently
joined. The district court’s decision is also correct in that the
County’s Second Amended Complaint plainly fails to allege negligent
misrepresentation as to Johnson with the requisite Rule 9(b)
particularity.
II.
To arrive at the conclusion that Johnson was not fraudulently
joined, the majority first holds that negligent misrepresentation
claims need not comport with the particularity requirements of
Federal Rule of Civil Procedure 9(b). Rule 9(b) is an exception to
the general requirements of notice pleading, which provides that
“[i]n all averments of fraud or mistake, the circumstances
constituting fraud or mistake shall be stated with particularity.”
Fed. R. Civ. P. 9(b). Thus, in a case governed by Rule 9(b), the
plaintiff must allege the speaker, time, place, and contents of the
allegedly false statement. United States v. ex rel. Harrison v.
Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999).
Where, as here, there are multiple defendants, a plaintiff must
state “all claims with particularity as to each of the defendants”
and “identif[y] each individual defendant’s participation.” Adams
24
v. NVR Homes, Inc., 193 F.R.D. 243, 250, 251 (D. Md. 2000)
(emphasis added).
Neither the majority nor Baltimore County argues that the
County’s claim of negligent misrepresentation against Art Johnson
in its First Amended Complaint meets Rule 9(b)’s requirements. And
for good reason. The complaint attributes no misrepresentation to
Johnson at all, much less specify when these statements were made,
to whom they were made, or what was misrepresented. Indeed,
Johnson’s name appears only twice in the First Amended Complaint:
once in the caption and once in paragraph five where it is alleged
that he is a Maryland citizen. In light of these deficiencies, I
would affirm the district court’s ruling that the County’s
negligent misrepresentation allegations against Johnson “clearly do
not satisfy Fed. R. Civ. P. 9(b).”
The majority, however, sidesteps this analysis: It summarily
concludes that the County’s claim against Johnson is not governed
by Rule 9(b) and is thus properly pled. The majority reasons that
“a claim of negligent misrepresentation under Maryland law does not
contain an essential showing of fraud.” See ante at 17. But a
cause of action need not prohibit “fraud” in so many words for the
requirements of Rule 9(b) to apply. Rather, Rule 9(b) is
applicable to “all cases where the gravamen of the claim is fraud
even though the theory supporting the claim is not technically
25
termed fraud.” Toner v. Allstate Ins. Co., 821 F. Supp. 276, 283
(D. Del. 1993).
Here, fraud and negligent misrepresentation share two
essential elements: both require that defendant supply false
information to plaintiff and that plaintiff detrimentally rely on
the false statement. See Breeden v. Richmond Cmty. Coll., 171
F.R.D. 189, 202 (M.D.N.C. 1997). The fact that negligent
misrepresentation may be premised on a “negligent” false statement
is not dispositive: Rule 9(b) is not delimited by an intentionality
requirement. Rather, the plain text extends beyond intentional
misrepresentations: Rule 9(b) covers “fraud and mistake.” Fed. R.
Civ. P. 9(b). As such, “the rule was designed to govern claims
premised upon a party’s misrepresentation, misapprehension, or
misunderstanding . . . whether intentionally or carelessly
generated.” Breeden, 171 F.R.D. at 199.
Indeed, the rationale behind Rule 9(b)’s particularity
requirements applies with equal force to claims of negligent
misrepresentation. Madison River Mgmt. Co. v. Bus. Mgmt. Software
Corp., 351 F. Supp. 2d 436, 447 (M.D.N.C. 2005). As this court has
explained, Rule 9(b) protects defendants “from harm to their
goodwill and reputation,” and from “frivolous suits.” Harrison,
352 F.3d at 921 (quotation omitted). Like fraud, negligent
misrepresentation claims bear on the morality of defendant’s
conduct and his reputation going forward. A defendant is therefore
26
“entitled to know fully the grounds on which the allegations are
made, so that he may have every opportunity to prepare his case to
clear himself at the trial.” Breeden, 171 F.R.D. at 200 (quotation
omitted).
In light of the similarities between fraud and its close
cousin negligent misrepresentation, it is hardly surprising that a
number of our sister circuits espouse the view that Rule 9(b) does
indeed apply to claims of negligent misrepresentation. For
example, in Aetna Cas. & Sur. Co. v. Aniero Concrete Co., the
Second Circuit held that negligent misrepresentation “must be pled
in accordance with the specificity criteria of Rule 9(b).” 404
F.3d 566, 583 (2d Cir. 2005) (per curiam). In that case,
plaintiff’s complaint was dismissed because it “failed to allege
with specificity any representation made to [plaintiff] by
[defendant].” Id. at 583-84; see also Atlantic Richfield Co. v.
Ramirez, 176 F.3d 481, 1999 WL 273241 (9th Cir. 1999) (unpublished)
(“The district court . . . properly dismissed [plaintiff’s] first
and second counterclaims, for fraud and negligent
misrepresentation, because they did not comply with Federal Rule of
Civil Procedure 9(b)’s particularity requirement.”); see also
Benchmark Elecs., Inc. v. J.M. Huber Corp., 343 F.3d 719, 723 (5th
Cir. 2003) (holding that Rule 9(b) applies to claims of negligent
misrepresentations where, as here, “fraud and negligent
27
misrepresentation claims are based on the same set of alleged
facts”).
A number of district courts -- some applying the very Maryland
tort at issue in this case -- have also concluded that Rule 9(b)
applies to negligent misrepresentation claims. See, e.g., Madison
River, 351 F. Supp. 2d at 447 (requiring negligent
misrepresentation claim to meet heightened pleading requirements of
Rule 9(b)); Dealers Supply Co. v. Chiel Indus., 348 F. Supp. 2d
579, 590 (M.D.N.C. 2004); Giannaris v. Cheng, 219 F. Supp. 2d 687,
694-95 (D. Md. 2002)(requiring negligent misrepresentation claim
under Maryland law to meet heightened pleading requirements of Rule
9(b)); Swedish Civil Aviation Admin. v. Project Mgmt. Enter., Inc.,
190 F. Supp. 2d 785, 798-99 (D. Md. 2002) (same); Adams, 193 F.R.D.
at 252 (same); Breeden, 171 F.R.D. at 199-202 (requiring negligent
misrepresentation claim to meet heightened pleading requirements of
Rule 9(b)); In re Leslie Fay Cos., Inc. Securities Litig., 918 F.
Supp. 749, 767 (S.D.N.Y. 1996) (same); Pitten v. Jacobs, 903 F.
Supp. 937, 951 (D.S.C. 1995) (same); Lubin v. Sybedon Corp., 688 F.
Supp. 1425, 1453-54 (S.D. Cal. 1988) (same).
In view of all this, the two references to Mr. Johnson in the
First Amended Complaint -- and the absence of anything remotely
resembling particularized pleading -- establish that Mr. Johnson
has no business being in this case.
28
III.
Even if Baltimore County’s First Amended Complaint was
properly pled, the district court correctly held that Johnson was
fraudulently joined, because the County cannot maintain a claim for
negligent misrepresentation against nondiverse defendant Johnson.
A.
To begin with, Baltimore County failed to identify any
qualifying misrepresentation made by Johnson. Under Maryland law,
negligent misrepresentation is concerned primarily with false
statements. Indeed, the word “statement” occurs no less than four
times in the definition of the operative tort employed by my
friends in the majority. See ante at 16. To recover, the County
must prove that Art Johnson (1) negligently “assert[ed] a false
statement”; (2) intended “that his statement” would be acted upon;
(3) knew that the County would “probably rely on the statement”;
and (4) that the County did in fact “rel[y] on the statement.” Id.(emphasis added).
It is undisputed that Art Johnson never made a “false
statement” to Baltimore County: nowhere within its Amended
Complaint or its subsequent submissions does the County identify
any statement made by Johnson. Indeed, the only statements that
Baltimore County has ever identified are ones it attributes to Joe
Mock, a citizen of Texas. And even these statements were allegedly
29
made in the mid-1990s -- years before Johnson began working for
Connecticut General.
The majority contends that the County’s failure to identify a
statement made by Johnson is not dispositive: Silence is enough.
See ante at 21 (concluding that Johnson may be held liable for his
“fail[ure] to make statements needed to clarify [Baltimore
County’s] understanding”).* But to impose in tort an obligation to
refrain from negligent silence goes further than anything the
Maryland courts have sanctioned. Such an approach expands tort law
beyond even deliberate silence -- it punishes those who remain
carelessly mute.
B.
The district court’s conclusion that Johnson was fraudulently
joined is correct for the additional reason that Johnson owed no
duty to Baltimore County. To be actionable, a plaintiff alleging
negligent misrepresentation must “establish that the defendant owes
it a duty of care to communicate correct information.” See ante at
19 (quoting Griesi v. Atl. Gen. Hosp. Corp., 756 A.2d 548, 553 (Md.
*
I realize that a claim for fraudulent (as opposed to
negligent) disclosure may be perpetrated by omission when a
“special duty to disclose exists.” Hogan v. Md. State Dental
Ass’n, 843 A.2d 902, 908 (Ct. Spec. App. Md. 2004). But Johnson
owed no duty to Baltimore County. See infra Part III.B. Further,
the case law quoted by the majority for its assertion that
liability can be predicated on negligent silence is extracted from
a discussion of duty, not a discussion of what constitutes a
“statement.” See Griesi v. Atl. Gen. Hosp. Corp., 756 A.2d 548,
555 (Md. 2000).
30
2000). Under Maryland law, the relationship between “an insurance
carrier and its insured . . . does not warrant the imposition of
tort duties.” Stephens v. Liberty Mut. Fire Ins. Co., 821 F. Supp.
1119, 1121 (D. Md. 1993). “The purpose of this rule is to confine
actions between an insured and his or her insurer to the realm of
contract law, rather than letting such actions expand to tort
proportions.” McCauley v. Suls, 716 A.2d 1129, 1134 (Md. Ct. Spec.
App. 1998) (quotation omitted); see also Johnson v. Fed. Kemper
Ins. Co., 536 A.2d 1211, 1213 (Md. Ct. Spec. App. 1988).
The majority nonetheless maintains that a tort duty may exist
here because Baltimore County and Johnson “had a close business
relationship with the County.” See ante at 20. But the existence
of a “close business relationship” has never been enough: “the
ordinary commercial adversary bargainer ordinarily has no duty to
use care in supplying information to those with whom he bargains.”
Dan B. Dobbs, The Law of Torts § 472, at 1350 (2001). It is
instead the “nature of [the] legal relationship” which determines
whether the requisite special relationship exists. Griesi, 756
A.2d at 554 (emphasis added).
The cases the majority relies upon to support a duty here are
not on point: each involves employment or consumer negotiations
where “vital and material information” was within the “exclusive
control” of the defendant. Id. at 556 (pre-contractual employment
negotiations); Weisman v. Connors, 540 A.2d 783, 793-94 (Md. 1988)
31
(same); Giant Food, Inc. v. Ice King, Inc., 536 A.2d 1182, 1185-86
(Md. Ct. Spec. App. 1988) (extensive and detailed consumer
negotiations). Baltimore County is not a vulnerable consumer or
prospective employee. It has a wealth of prior experience with
insurance matters; has been a party to this Policy or its
predecessor for more than 35 years; and is itself an insurer.
Unlike the prospective employees or would-be purchasers in the
cases cited by the majority, all the County had to do to understand
its rights was read the contract. Holzman v. Fiola Blum, Inc., 726
A.2d 818, 831 (Md. Ct. Spec. App. 1999) (A party “is under a duty
to learn the contents of a contract before signing it” and
“presumed to know the contents”).
C.
The district court’s conclusion that Johnson was fraudulently
joined should also be upheld because Baltimore County cannot
establish reasonable reliance. See ante at 16 (quoting Griesi, 756
A.2d at 553). Where, as here, a policy provides that no agent has
the authority to amend the agreement or bind the company by a
promise or representation, reliance upon an agent representation
which purports to modify the policy is unreasonable as a matter of
law. See, e.g., Cannon v. Southland Life Ins. Co., 283 A.2d 404,
407-08 (Md. 1971); Simpson v. Prudential Ins. Co., 177 A.2d 417,
421 (Md. 1962).
32
In the case at hand, the Baltimore County/Connecticut General
Policy prohibits agent-modification. It provides:
POLICY CHANGES. Changes may be made in the policy only
by amendment signed by the Policyholder and by the
Insurance Company acting through its President, Vice
President, Secretary or Assistant Secretary. No agent
may change or waive any terms of the policy.
J.A. 118 (emphasis added). The policy plainly put Baltimore
County on notice that (1) any policy change must be in writing and
signed by a Connecticut General officer; and (2) neither Joe Mock,
Art Johnson, nor any other agent had any authority whatsoever to
amend the Baltimore County/Connecticut General Policy.
Nevertheless, the majority brushes aside as irrelevant the no-
modification clause: according to my colleagues, the provision is
inapposite “[b]ecause the policy does not apply to the IBNR.” See
ante at 21. The majority apparently views the IBNR agreement as a
different contract. Yet, since almost any modification can be
construed as a new contract, the majority’s conclusion that the
IBNR account is a brand-new agreement reads the no-modification
clause right out of the Policy. And, even if the IBNR account
could be considered a separate pact, the majority’s suggestion only
underscores the unreasonableness of the County’s alleged reliance.
Neither Joe Mock nor Art Johnson had any authority whatsoever to
amend the Baltimore County/Connecticut General Policy, much less
enter into a new contract. In short, Baltimore County had no more
reason to believe Joe Mock could orally bind Connecticut General to
33
a new insurance agreement than it had reason to believe he could
orally amend the existing one.
IV.
Whatever one’s view of the scope of fraudulent joinder, the
doctrine exists for a purpose: to afford fair treatment to out-of-
state defendants sued by in-state residents. It is obvious to me,
as it was to the district court, that Baltimore County is seeking
to have its claim heard in a forum which it believes will favor its
position vis-a-vis an out-of-state insurance company. While I have
total confidence in the ability of state courts to administer
justice impartially, a defendant’s right to remove a case that
could be heard in federal court should not be so easily overcome by
litigation tactics. See McKinney v. Bd. of Trs. of Mayland Cmty.
Coll., 955 F.2d 924, 927-28 (4th Cir. 1992).
The cost of permitting this sort of jurisdictional
gamesmanship extends beyond the mere defeat of what Congress deems
the legitimate purposes of diversity jurisdiction. Fraudulent
joinders exact a high toll on individuals who do not rightly belong
in a lawsuit: as a result, lives are disrupted by expensive and
unnecessary litigation. In my view, human beings are not
sacrificial pawns on the board of a party’s litigation strategy.
I would affirm the judgment of the district courts in all respects.
34