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Doe v. Peoples

United States District Court, S.D. Mississippi, Northern Division

July 1, 2019

JOHN DOE AND JANE DOE, NATURAL PARENTS, NEXT FRIEND AND DULY-APPOINTED GUARDIANS OF JAMES DOE, A MINOR PLAINTIFF
v.
KELLY PEOPLES, ADAM PEOPLES, PEOPLES CONSTRUCTION CORPORATION, THE TRAVELERS, NATIONWIDE PROPERTY AND CASUALTY INSURANCE COMPANY AND UNKNOWN INSURANCE COMPANIES 1-10 DEFENDANTS

          MEMORANDUM OPINION AND ORDER

          TOM S. LEE, UNITED STATES DISTRICT JUDGE

         In July 2017, plaintiffs John and Jane Doe, parents of the minor James Doe, filed suit in the Circuit Court of Rankin County, Mississippi, against Kelly Peoples and Peoples Construction Company seeking damages under various legal theories based on allegations that in October 2016, Kelly Peoples, then a forty-year-old adult, had sex with the fourteen-year-old James Doe. In March 2018, the Does filed the present action in the Circuit Court of Rankin County seeking a declaratory judgment that the homeowners' insurance policy issued by Nationwide Property and Casualty Insurance Company (Nationwide) to Kelly Peoples, and a commercial automobile policy issued by The Travelers/The Charter Oak Fire Insurance Company (Charter Oak) to Peoples Construction Company, provide coverage for the allegations and claims in the underlying action. In this declaratory judgment action, the Does, in addition to naming Nationwide and Charter Oak as defendants, named Kelly Peoples, Adam Peoples and Peoples Construction Company as defendants. Nationwide and Charter Oak removed the case to this court and have now separately moved for summary judgment. Plaintiffs John and Jane Doe and each of the other named defendants have filed separate responses in opposition to these motions. The court, having considered the parties' submissions and memoranda, first concludes that it has subject matter jurisdiction based on diversity of citizenship as the Peoples defendants are properly regarded as and should be realigned as plaintiffs in this cause; and second, the court concludes that both insurers' summary judgment motions are well-taken and should be granted.

         Subject Matter Jurisdiction

         The Does are citizens of Mississippi, as are Kelly Peoples, Adam Peoples and Peoples Construction Company (the Peoples defendants). Nationwide and Charter Oak are nonresident insurers.[1] Thus, from the face of the complaint, it would appear that complete diversity of citizenship is lacking. See 28 U.S.C. § 1332 (district courts have jurisdiction where amount in controversy exceeds $75, 000 and the matter is between citizens of different states); McLaughlin v. Miss. Power Co., 376 F.3d 344, 353 (5th Cir. 2004) (§ 1332 requires “complete diversity” which “requires that all persons on one side of the controversy be citizens of different states than all persons on the other side.”) (citation omitted). In their notice of removal, however, Nationwide and Charter Oak assert that the Peoples defendants should be realigned as plaintiffs as their sole interest in this declaratory judgment action is adverse to that of the insurers and the same as that of the named plaintiffs, i.e., establishing coverage under the subject policies for the claims in the underlying lawsuit. See Griffin v. Lee, 621 F.3d 380, 388 (5th Cir. 2010) (generally accepted test of proper alignment in this circuit “‘is whether the parties with the same “ultimate interests” in the outcome of the action are on the same side.'”) (quoting Lowe v. Ingalls Shipbuilding, A Div. of Litton Sys., Inc., 723 F.2d 1173, 1178 (5th Cir. 1984) (citation omitted)); Zurn Indus., Inc. v. Acton Constr. Co., 847 F.2d 234, 236 (5th Cir. 1988) (parties' alignment for jurisdictional purposes “has to be determined from the ‘principal purpose of the suit,' and the ‘primary and controlling matter in dispute.'”) (quoting City of Indianapolis v. Chase Nat'l Bank, 314 U.S. 63, 62 S.Ct. 15, 86 L.Ed. 47 (1941)). None of the parties herein disputes that the Doe plaintiffs and the Peoples defendants have the same “ultimate interests” in the outcome of this case or questions the propriety of the proposed realignment. However, “[s]ubject-matter jurisdiction cannot be created by waiver or consent, ” Howery v. Allstate Ins. Co., 243 F.3d 912, 919 (5th Cir. 2001), and thus, regardless of whether any party has objected, the court has an independent duty to examine its jurisdiction, Simon v. Wal-Mart Stores, Inc., 193 F.3d 848, 850 (5th Cir. 1999). Here, the court has done so, and having fully considered the matter, finds that realignment of the Peoples defendants as plaintiffs is proper, both as a matter of procedure and substance.

         “Federal courts are not bound by the labels the parties give themselves in the pleadings”, Ashford v. Aeroframe Servs, L.L.C., 907 F.3d 385, 387 (5th Cir. 2018) (citing Zurn Indus., 847 F.2d at 236); instead, courts must “‘look beyond the pleadings, and arrange the parties according to their sides in the dispute, '” id. (quoting City of Indianapolis, 314 U.S. at 69, 62 S.Ct. 15). Moreover, “[a]ny realignment of parties should take place before jurisdiction is decided.” Id. (citing Peters v. Standard Oil Co. of Tex., 174 F.2d 162, 163 (5th Cir. 1949)).

         These principles obviously apply to a case that is originally brought in federal court. However, many of the the district judges in this circuit - maybe even a majority - have rejected the use of realignment of parties to create diversity jurisdiction in a removed case. See Jackson Cty., Miss. v. Singing River Health Sys., No. 1:18CV237-LG-RHW, 2018 WL 4183216, at *3 (S.D.Miss. Aug. 31, 2018) (observing that post-removal “[r]ealignment is currently disfavored among courts within the Fifth Circuit....”); Thompson v. Gen. Motors LLC, No. 416CV00026DMB-JMV, 2016 WL 7471328, at *4 n.3 (N.D. Miss. Dec. 28, 2016) (noting that despite a variance in views among district judges in this circuit as to when, if ever, post-removal realignment to create diversity is permissible, “‘in a more recent trend, courts in our circuit consistently disfavor realignment after removal.'”) (quoting Bilyeu v. Wells Fargo Ins. Servs., USA, Inc., No. 1:16-cv-23, 2016 WL 5721060, at *7 (W.D. La. Aug. 8, 2016)); Huntsman Corp. v. Int'l Risk Ins. Co., No. CIV.A. H-08-1542, 2008 WL 4453170, at *6 (S.D. Tex. Sept. 26, 2008) (stating that “the trend in this circuit disapproves of using realignment after removal to cure a defect in removal jurisdiction.”).

         The Fifth Circuit has not expressly endorsed realignment after removal to create diversity, but so far as the undersigned is aware, neither has it expressed disapproval of post-removal realignment. See Ashford v. Aeroframe Servs., LLC, No. 2:14-CV-992, 2015 WL 2089994, at *3 (W.D. La. May 4, 2015) (“The Fifth Circuit has remained silent as to whether realignment of the parties is proper in a removal action. Therefore, it cannot be said that a realignment of the parties would be contrary to law per se.”).[2] Nearly all of the circuit courts that have directly addressed the issue have approved of post-removal realignment of parties to create diversity jurisdiction.[3] Commentators have also found post-removal realignment to be permissible. See 14C Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 3723 (4th ed., updated Apr. 2019) (“Before determining removability under Section 1441(b) on the basis of diversity-of-citizenship jurisdiction, a district court will realign the parties according to their true interests in the outcome of the litigation, as it would were the case originally brought in the federal court.”); id. (stating that while the law of the forum state will provide the substantive rules to govern decision in a diversity suit, “it is well-settled that, for purposes of removal, federal law determines who is a plaintiff and who is a defendant.”).

         Although there are surely contexts in which post-removal realignment would be improper, in the undersigned's view, there is no warrant for wholesale rejection of the device. Moreover, the court is persuaded that in the circumstances of the present case, realignment is proper, as it was in Doe v. Sharma, No. CIVA307CV172HTWLRA, 2008 WL 3339942, at *4 (S.D.Miss. Aug. 6, 2008) (removed declaratory judgment action brought by tort claimant to establish insurance coverage for underlying claim in which court realigned alleged tortfeasors as plaintiffs as they would benefit, just as would the plaintiff, if the defendant insurers were found liable for coverage for the claims in the underlying state court suit), and in Jackson HMA, Inc. v. Saint Paul Fire & Marine Ins. Co., 246 F.Supp.2d 535, 537 (S.D.Miss. Jan. 27, 2003) (removed declaratory judgment action by decedent's medical provider concerning insurance coverage in which court realigned wrongful death claimants as plaintiffs as they shared the medical provider's interest in receiving insurance payments related to wrongful-death claims). Consequently, the court concludes it has diversity jurisdiction over the present action.

         Background Facts and the Underlying Lawsuit

         According to the allegations of the underlying complaint, on July 16, 2016, James Doe, the John and Jane Does' fourteen-year-old son, broke up with Kelly and Adam Peoples' minor daughter and blocked her on Snapchat. Following the break-up, Kelly, who was forty at the time, began following James on Snapchat and communicating with him via Snapchat and cell phone. She sent him nude photographs of herself by Snapchat and cell phone and convinced him to send her nude photos of himself in return. Before long, Kelly pursued a sexual relationship with James. She picked him up from school one day and drove him to a self-storage facility near his home where she made out with him in her vehicle. Then, on three subsequent occasions, she had sex with him. The first time, she picked him up near his home and took him to her home, where she had sex with him; the second, she had him meet her at midnight at his neighborhood pool, where she picked him up, drove him to a secluded area and had sex with him in her car; and the third, she again picked him up near his home and drove him to her home, where she drank heavily, gave him shots of vodka and had sex with him. On October 16, Kelly paid James $1, 000 to delete the nude photos of her from his cell phone. On October 31, 2016, James's parents confronted him, and he admitted to having had sex with Kelly.

         Kelly was indicted on January 19, 2017 for statutory rape, in violation of Mississippi Code Annotated § 97-3-65(1)(a). On October 3, 2017, she pled guilty to the charge and was given a fifteen-year suspended sentence.[4] On October 27, 2017, John and Jane Doe filed suit in the Circuit Court of Rankin County, Mississippi against Kelly Peoples, and against Peoples Construction Company. As to Kelly Peoples, the Does asserted one count for negligent infliction of emotional distress and three counts for negligence per se based on alleged violations of Mississippi Code Annotated § 97-3-65 (statutory rape/gratification of lust), and Mississippi Code Annotated § 97-5-49 (serving alcohol to/allowing consumption of alcohol by, minor). The Does sued Peoples Construction Company (PCC) for negligent entrustment, charging that during Kelly's illicit activities with James, she drove a vehicle owned by PCC with the company's permission and consent, notwithstanding that it knew or should have known of her illicit activities.

         On February 2, 2018, the Does then filed the present action in the Circuit Court of Rankin County seeking a declaratory judgment that insurance policies issued by Nationwide and Charter Oak provide coverage for their claims in the underlying action.

         The Insurance Policies

         The Nationwide Policy: Prior to October 2016, Nationwide issued to Kelly Peoples a homeowners' policy that was in effect in October 2016. Adam Peoples is a named insured under the policy. Nationwide's policy includes personal liability coverage, providing in relevant part as follows:

We will pay damages an Insured is legally obligated to pay due to an occurrence resulting from negligent personal acts or negligence arising out of the ownership, maintenance or use of real or personal property. We will provide a defense at our expense by counsel of our choice. ...

         The policy defines “occurrence” as “bodily injury or property damage resulting from an accident, including continuous or repeated exposure to the same general condition.” The policy excludes from coverage bodily injury

a) caused intentionally by or at the direction of an insured, including willful acts the result of which the Insured knows or ought to know will follow ...

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