United States District Court, D. Arizona
ORDER
DOUGLAS L. RAYES, UNITED STATES DISTRICT JUDGE
Before
the Court are counterclaimants Alan and Peggy Kasloff's
motions to remand (Docs. 8, 11) and counterdefendant Owners
Insurance Company's motion for leave to file a sur-reply
(Doc. 19).[1] Owners' motion for leave to file a
sur-reply is granted because the Kasloffs filed no opposition
to the request, the sur-reply fairly responds to an argument
the Kasloffs developed in their reply, and the sur-reply will
help the Court resolve the motions to remand. As explained
below, the Court grants the Kasloffs' motions to remand.
I.
Background
In
2015, the Kasloffs were involved in an automobile accident
with Scott Acton in Scottsdale, Arizona. The following year,
Peggy filed a complaint in Maricopa County Superior Court
asserting negligence claims against Alan and Acton based on
the automobile collision. Alan then filed a cross-claim
against Acton. The Kasloffs each obtained default judgments
against Acton after he failed to appear. Because Acton had
insufficient insurance coverage, the Kasloffs sent the
default judgments to their automobile insurer, Owners,
demanding payment under their underinsured motorist coverage.
After
receiving notice of the default judgments, Owners filed a
complaint in the United States District Court for the
District of Colorado seeking a declaratory judgment that its
policy, for various reasons, does not provide liability or
underinsured motorist coverage for the Kasloffs under these
circumstances. The Kasloffs moved to dismiss Owners'
complaint, arguing that it was premature and that the
Colorado District Court should not hear the case until after
the state court action resolved. The Colorado District Court
administratively closed the case after concluding that it
made more sense for Owners to intervene in the state court
action to protect its interests.
Thereafter,
Owners filed a complaint in intervention in the state court
action. The state court allowed Owners to intervene and to
participate in litigating the remaining issues of liability,
allocation of fault, and damages, but did not set aside the
default judgments against Acton. The Kasloffs each
counterclaimed against Owners for breach of contract, bad
faith, and declaratory relief with respect to various
coverage-related issues.
The
Kasloffs eventually settled Peggy's tort claims against
Alan through private mediation. Owners attended the mediation
but was not permitted to participate and was told only that
the Kasloffs had settled the claims between them. On October
17, 2018, the Kasloffs filed a notice of settlement with the
state court, which stated: “Plaintiff Peggy Kasloff
hereby notifies this Court that the matter has settled with
DEFENDANT ALAN KASLOFF ONLY. A Stipulation to Dismiss will be
forthcoming.” (Doc. 1-5 at 212.) In an October 19, 2018
minute entry, the state court calendared the case between the
Kasloffs for dismissal on November 19, 2018, “unless
prior to said date a Judgment is entered or a Stipulation for
Dismissal is presented.” (Id. at 214.) The
Kasloffs did not file a stipulation for dismissal, but the
state court formally dismissed Peggy's tort claims
against Alan on December 3, 2018 in accordance with its
October 19 minute entry. (Doc. 14-1.) As a result, the only
remaining litigation is between the Kasloffs and Owners.
The
Kasloffs are Colorado residents, Owners' principal place
of business is Ohio, and the amount in controversy exceeds
$75, 000. Accordingly, on November 29, 2018, Owners removed
the matter to this Court based on the Court's diversity
jurisdiction. 28 U.S.C. § 1332. The Kasloffs now ask the
Court to remand, arguing (1) the Colorado District
Court's order precludes Owners from removing, (2) Owners
waived its right to remove by litigating in state court, (3)
complete diversity is lacking because the Kasloffs'
interests might not perfectly align, and (4) Owners did not
timely remove within 30 days after receipt of the pleading,
motion, order, or other paper from which it first was
ascertainable that the case was removable. The Court agrees
with the Kasloffs' last argument. Because that issue is
dispositive, the Court will not discuss the Kasloffs'
alternative arguments, which in any event are not persuasive.
II.
Discussion
If a
case is not removable at the outset, a defendant still may
remove “within 30 days after receipt . . . through
service or otherwise, of a copy of an amending pleading,
motion, order or other paper from which it may be first
ascertained that the case is one which is or has become
removable.” 28 U.S.C. § 1446(b)(2)(3). Owners
could not have removed this case at the outset because
Peggy's tort claims against Alan defeated complete
diversity. This case became removable after the tort claims
between Peggy and Alan were effectively terminated because of
their settlement. Owners filed its notice of removal on
November 29, 2018. If Owners received a pleading, motion,
order, or other paper from which removability could have been
ascertained before October 30, 2018, its notice of removal is
untimely. If, however, Owners did not receive a pleading,
motion, order, or other paper from which removability could
have been ascertained until after October 30, 2018, its
notice of removal is timely.
The
Kasloffs argue that the Notice of Settlement they filed with
the state court on October 17, 2018, and the state
court's October 19, 2018 minute entry placing the claims
between the Kasloffs on the dismissal calendar put Owners on
adequate notice that the case had become removable. Owners
responds that it could not have been certain that the claims
between the Kasloffs would be dismissed until after November
19, 2018, the date the state court ordered the claims would
be dismissed unless the Kasloffs presented a judgment or a
stipulation to dismiss beforehand.
Owners
correctly notes that the Ninth Circuit has not addressed
whether a notice of settlement between non-diverse litigants,
or a court order acknowledging such a settlement, qualifies
as an “order or paper” from which removability
may be ascertained. Courts across the country and within the
Ninth Circuit are divided on this question, with some
concluding that removal is improper until the non-diverse
parties have been formally dismissed, and others concluding
that removal is proper even without a formal dismissal of the
non-diverse parties so long as a binding settlement has been
reached between them. See Price trustee of Vivian Price
Family Trust v. AMCO Ins. Co., No.
1:17-cv-01053-DAD-SKO, 2017 WL 4511062, at *2-3 (E.D. Cal.
Oct. 10, 2017) (collecting and synthesizing cases from
various jurisdictions). In this District, at least one judge
has considered this question and concluded that-absent unique
circumstances, such as the need for court approval of a
settlement-a notice of settlement between the non-diverse
parties is adequate to trigger the 30-day removal clock even
without a court order formally dismissing the non-diverse
parties. Moore v. Goodyear Tire & Rubber Co.,
No. CV-11-01174-PHX-NVW, 2011 WL 3684508, at *2 (D. Ariz.
Aug. 23, 2011). The Moore decision noted that a
contrary rule could encourage manipulation of settlements to
ensure that a non-diverse party did not formally get
dismissed until after the expiration of § 1446(c)'s
absolute one-year limitation on removal. Id.
Having
considered the parties' arguments and the competing
authorities, the Court concludes, in line with
Moore, that a formal dismissal of the non-diverse
parties is not required absent unique circumstances not
present here. Aside from finding this line of authority more
persuasive (as did the judge in Moore), the
Court's conclusion is bolstered by the long-standing
principle that the removal statute is strictly construed
against removal jurisdiction, and in doubtful cases
jurisdiction should be rejected. See Gaus v. Miles,
Inc., 980 F.3d 564, 566 (9th Cir. 1992). Indeed, adding
doubt to the timeliness of Owners' removal is the fact
that Owners itself does not seem not seem to take the
position that a formal dismissal of the claims between the
Kasloffs was required. As previously noted, the state court
issued an order on December 3, 2018, formally dismissing the
claims between the Kasloffs. Owners does not contend that
removability first became ascertainable from this order, nor
could it-Owners filed its notice of removal three days
before the state court issued this order.
Apparently, then, Owners believes it this matter became
removable at some point before the state court formally
dismissed the claims between the non-diverse parties.
III.
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