Sonya Hubbard v. Federated Mutual Insurance Co. ( 2015 )

United States Court of Appeals
For the Eighth Circuit
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No. 14-3210
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Sonya Hubbard, doing business as Moody Station and Grocery
lllllllllllllllllllll Plaintiff - Appellant
v.
Federated Mutual Insurance Company
lllllllllllllllllllll Defendant - Appellee
Don McKee, doing business as The Big Store; Jeremy D. McKee, doing business
as The Big Store
lllllllllllllllllllll Defendants
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Appeal from United States District Court
for the Western District of Missouri - Springfield
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Submitted: June 11, 2015
Filed: September 8, 2015
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Before GRUENDER, BEAM, and BENTON, Circuit Judges.
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BENTON, Circuit Judge.
Sonya Hubbard sued Federated Mutual Insurance Co. in state court for
vexatious refusal to pay a claim. Federated removed the case to federal court;
Hubbard moved to remand. The district court denied remand and dismissed
Hubbard’s claim. She appeals. Having jurisdiction under 28 U.S.C. § 1291, this court
affirms.1
I.
Federated, a Minnesota corporation with its principal place of business in
Minnesota, insured property owned by Hubbard, a Missouri citizen. She leased the
property to Don and Jeremy D. McKee, also Missouri citizens. A fire damaged the
property. Both Hubbard and the McKees, who said they exercised an option to
purchase the property, made claims against Federated.
In November 2011, Federated filed an interpleader in the Western District of
Missouri. See Federated Mut. Ins. Co. v. Moody Station & Grocery, No.
6:11-CV-03457 (W.D. Mo.) (“Federated I”), appeal docketed, No. 14-3847 (8th Cir.
Dec. 19, 2014). Federated said it owed $40,980.95 and that Hubbard and the McKees
disputed the distribution. Asserting that Federated owed more, Hubbard
counterclaimed for vexatious refusal to pay. See § 375.420 RSMo. (“[I]f it appears
from the evidence that [an insurance] company has refused to pay [a] loss without
reasonable cause or excuse, the court or jury may, in addition to the amount thereof
and interest, allow the plaintiff damages . . . .”). The district court authorized
Federated to deposit $40,980.95 with the court and dismissed Hubbard’s counterclaim
with prejudice for failure to state a claim.
The parties mediated. In a May 2013 e-mail to Federated’s counsel and the
McKees’ counsel, Hubbard’s counsel wrote:
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This opinion vacates the court’s previous opinion of August 20, 2015.
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The case or claim involving the McKee family is resolved. The terms
agreed upon include the payment to the McKee defendants the sum of
$10,879.39 from the total amount owed by Federated.
As the sum owed to the McKee defendants is less than $11,000.00, there
is no possible way that the McKee defendants should have to proceed
further as Federated has asserted it owes no less than $40,980.95.
Seven months later, this case began when Hubbard sued Federated and the
McKees in state court (“Federated II”). She again raised the vexatious-refusal-to-pay
claim and sought a declaratory judgment as to the McKees. Federated removed the
case to the Western District of Missouri. Hubbard moved to remand. Concluding that
Hubbard fraudulently joined the McKees, the district court dismissed them and denied
remand. The court then applied res judicata and collateral estoppel to Hubbard’s
claim. Hubbard appeals, challenging the denial of remand and dismissal of her claim.
After Hubbard filed this appeal, there was a bench trial in the interpleader case,
Federated I. In a judgment, the district court ordered a distribution of the interpleaded
funds and dismissed the case with prejudice. Hubbard filed a separate appeal in that
case. See Federated Mut. Ins. Co. v. Moody Station & Grocery, No. 14-3847 (8th
Cir. Dec. 19, 2014).
II.
This court reviews the remand denial de novo. See Junk v. Terminix Int’l Co.,
628 F.3d 439, 444 (8th Cir. 2010). Removal “is appropriate only if the action
originally could have been filed there.” Id., citing 28 U.S.C. § 1441(a)-(b). “A
plaintiff may move to remand the case if the district court lacks subject matter
jurisdiction.” Id., citing 28 U.S.C. § 1447(c). “If the district court concludes that it
does not have subject matter jurisdiction, it must remand the case.” Id. at 444-45.
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In its notice of removal, Federated alleged diversity of citizenship. See 28
U.S.C. § 1332(a)(1) (“The district courts shall have original jurisdiction of all civil
actions where the matter in controversy exceeds the sum or value of $75,000,
exclusive of interest and costs, and is between . . . citizens of different States . . . .”).
Diversity jurisdiction requires “complete diversity, that is where no defendant holds
citizenship in the same state where any plaintiff holds citizenship.” Junk, 628 F.3d
at 445. “In an exception to this rule, a district court may retain jurisdiction where the
nondiverse defendant has been fraudulently joined. Joinder is fraudulent when a
plaintiff files a frivolous or illegitimate claim against a non-diverse defendant solely
to prevent removal.” Id.
The fraudulent joinder of a defendant “is a question of subject matter
jurisdiction reviewed de novo.” Thompson v. R.J. Reynolds Tobacco Co., 760 F.3d
913, 915 (8th Cir. 2014). “A party has been fraudulently joined when there exists no
reasonable basis in fact and law to support a claim against it.” Id. “By requiring the
defendant to prove that the plaintiff’s claim against the non-diverse defendant has no
reasonable basis in law and fact, we require the defendant to do more than merely
prove that the plaintiff’s claim should be dismissed pursuant to a Rule 12(b)(6)
motion. In this analysis, we do not focus on the artfulness of the plaintiff’s
pleadings.” Knudson v. Sys. Painters, Inc., 634 F.3d 968, 980 (8th Cir. 2011)
(internal citation omitted). “All doubts about federal jurisdiction should be resolved
in favor of remand to state court.” Id. at 975.
Hubbard fraudulently joined the McKees. There is no reasonable basis in fact
and law to support a claim against them. See Thompson, 760 F.3d at 915. Hubbard’s
counsel said so in May 2013:
The case or claim involving the McKee family is resolved. . . . As the
sum owed to the McKee defendants is less than $11,000.00, there is no
possible way that the McKee defendants should have to proceed further
as Federated has asserted it owes no less than $40,980.95.
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(emphasis added). On appeal, Hubbard does not disown the e-mail. Instead, Hubbard
says she named the McKees “as defendants in order to obtain a declaration as to the
scope and extent of their previously claimed interest in policy proceeds.” Even so, she
did not need to sue them separately from the Federated I proceeding to obtain that
declaration.
The district court properly denied remand.
III.
This court reviews de novo the application of res judicata. Lynch v. Nat’l
Prescription Adm’rs, Inc., 787 F.3d 868, 871 (8th Cir. 2015). Missouri preclusion
law governs this case. See Laase v. Cnty. of Isanti, 638 F.3d 853, 856 (8th Cir. 2011)
(“The law of the forum that rendered the first judgment controls the res judicata
analysis.”).
“Res judicata ‘precludes the same parties . . . from relitigating the same cause
of action.’” Morgan v. State Farm Fire & Cas. Co., 344 S.W.3d 771, 780 (Mo. App.
2011) (ellipsis in original), quoting Creative Walking, Inc. v. Am. States Ins. Co., 25
S.W.3d 682, 686 (Mo. App. 2000). “A final judgment, rendered on the merits, by a
court of competent jurisdiction is conclusive as to the parties and their privies in all
other actions in the same or any other judicial tribunal of concurrent jurisdiction.” Id.
(internal quotation marks omitted). “Under Missouri law, a judgment on the merits
at the trial-court level is considered a final judgment for purposes of res judicata and
collateral estoppel, even if the appeal of that judgment is still pending.” Noble v.
Shawnee Gun Shop, Inc., 316 S.W.3d 364, 369 (Mo. App. 2010) (italics omitted).
Hubbard correctly notes that when the district court applied res judicata in
Federated II, there was no final judgment in Federated I. The error, however, was
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harmless. See Fed. R. Civ. P. 61 (“At every stage of the proceeding, the court must
disregard all errors and defects that do not affect any party’s substantial rights.”);
Laase, 638 F.3d at 859 (applying harmless error standard to res judicata analysis).
After Hubbard filed this appeal, the district court in Federated I ordered a distribution
of the interpleaded funds and dismissed the case with prejudice. Hubbard then
appealed that case. For res judicata purposes, there is now a final judgment in
Federated I. See Noble, 316 S.W.3d at 369.
The court properly dismissed Hubbard’s vexatious-refusal-to-pay claim in this
case, Federated II. This court need not decide if collateral estoppel also applies.
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The judgment is affirmed.
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