Gradeless v. American Mutual Share Insurance Corp., Slip Copy, 2010 WL 1935867 (S.D. Ind., May 7, 2010) (NO. 1:10CV86-WIL-DML).
I would be embarrassed too if a district court judge called me out for reading a case erroneously, then pointed out how my interpretation would force me to sue myself. After pointing out the plaintiffs’ implausible arguments, the court declined to remand the case to state court because there was complete diversity of the parties at the time of removal and the requisite amount in controversy.
The plaintiffs, Harry Gradeless and John Loudermilk, filed a case in the Hamilton County Superior Court asserting claims of fraud, negligence and rescission arising out of the merger between the defendant credit union and the credit union in which plaintiffs were members. Take note that the plaintiffs are members of this credit union, as it comes back to slap Gradeless and Loudermilk on the behind like a schoolmarm.
The defendants made a timely removal to the United States District Court for the Southern District of Indiana, Indianapolis Division. Not until after the removal did Gradeless and Loudermilk amend their complaint to name over forty additional plaintiffs. Had they amended their complaint prior to removal, the citizenship of the additional plaintiffs conceivably could have helped them get out of federal court. Perhaps they missed the day in civil procedure discussing the basics of removal; the court analyzes whether they had jurisdiction at the time of removal.
Let’s go back to the ABCs and 123s of federal civil procedure subject matter jurisdiction. Pursuant to 28 U.S.C. § 1332, diversity jurisdiction requires two things: 1) complete diversity of citizenship and 2) an amount in controversy that exceeds $75,000. So which lucky state were Gradeless and Loudermilk citizens of? Indiana. The defendant credit union was a citizen of Illinois, and American Mutual Insurance Corp., another defendant, was a citizen of Ohio. Indiana, Illinois and Ohio: complete diversity of citizenship of the parties at the time of removal. The parties did not dispute that the matter in controversy exceeded $75,000. As the Jackson 5 put it: “A-B-C is easy as 1-2-3.” (Editors’ Note: Click here for a trip down memory lane with the Jackson 5). This was a clear cut case that removal was proper because there was complete diversity and an amount in controversy over $75,000.
However, the plaintiffs thought they were too cool for school and argued that because the $5 million amount in controversy requirement under the Class Action Fairness Act was not met, the district court was barred from exercising any jurisdiction to hear the case. Gradeless and Loudermilk wanted the court to believe that CAFA establishes the sole basis for jurisdiction over class actions, and that any other bases for jurisdiction should be thrown out the window. Hmmm. Interesting argument. I don’t think we have heard this one before.
The court needed the plaintiffs to take a time out. CAFA does not serve to limit federal jurisdiction, but rather expands federal jurisdiction over class actions in which there is minimal diversity.
But Gradeless and Loudermilk refused to give up there. Hey, you have to give these guys credit. Even though their arguments lacked logic, they never stopped trying. The plaintiffs cited National Ass’n of Realtors v. National Real Estate Ass’n, Inc. to support their argument that complete diversity did not exist. 894 F.2d 937 (7th Cir. 1990). According to the plaintiffs, National Ass’n of Realtors suggested that the citizenship of a not-for-profit corporation is determined by the citizenship of its members, rather than the citizenship of the corporation itself.
The court interpreted that case differently, stating that the case said that the citizenship of the real party in interest is what matters. It just so happens that the real parties in interest in National Ass’n of Realtors were the members of the plaintiff organization rather than the organization itself. In the instant case, however, the real parties in interest were the defendant corporations, not their members.
Remember that disciplinarian schoolmarm I mentioned earlier? Well, the court was not shy to point out here that if the plaintiffs’ interpretation of National Ass’n of Realtors was followed, “the Plaintiffs would essentially be suing themselves.” Take that Gradeless and Loudermilk. Hit the books fellas and maybe next time the court won’t be able to make a mockery out of your arguments.
By: Nora Makky