In the case of Reto v. Liberty Mutual Insurance and Stephania DeRosa, (Civil Action No. 18-2483) Judge Savage of the United States District Court for the Eastern District of Pennsylvania found that Plaintiffs fraudulently joined the claims adjuster to defeat diversity jurisdiction. The case was not remanded back to state court and remained in the Eastern District Court.
Plaintiff Steven Reto was injured in a car accident on May 22, 2014 and insured with Liberty Mutual Insurance at the time. He settled the third party bodily injury claim and then filed a claim for underinsured motorist benefits against Liberty Mutual. The complaint filed in state court alleged claims for breach of contract, loss of consortium, and bad faith, and named Liberty Mutual and the claims adjuster, Stephania DeRosa as defendants. Both Plaintiffs and DeRosa are Pennsylvania citizens. Liberty Mutual filed a removal to Federal Court contending that DeRosa was fraudulently joined and should be dismissed. The Plaintiffs on the other hand sought to remand the case back to state court asserting that DeRosa was a properly named defendant.
The court noted that for diversity jurisdiction to exist the opposing parties must be citizens of different states and the amount in controversy must exceed $75,000. However, if the removing defendant establishes that a non-diverse defendant was fraudulently joined to defeat diversity jurisdiction, the court disregards the citizenship of the non-diverse defendant and dismisses the non-diverse defendant. Joinder is fraudulent only where there is no reasonable factual or colorable legal basis to support the claim against the non-diverse defendant or the plaintiff has no real intention of pursuing an action against that defendant. Only where it is clear that the plaintiff cannot possibly recover from the non-diverse defendant will joinder be deemed fraudulent.
In the Reto case, the court determined that the claims against the claims adjuster, DeRosa, were wholly insubstantial and frivolous and, as a matter of law, there was no basis to support a breach of contract action and a bad faith action against her. DeRosa was not a party to the insurance contract and, therefore, she could not be held liable for a breach of contract. Further, the bad faith statute only applies to insurance companies and there was no basis for a bad faith action against DeRosa. Because there was no colorable claim against DeRosa, the court concluded that she was fraudulently joined in the action. The court dismissed her as a defendant and denied the Plaintiffs’ motion to remand.
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