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Bainum v. The Lincoln National Life Insurance Co.

United States District Court, W.D. Arkansas, Hot Springs Division

March 27, 2018

TIMOTHY BAINUM and MARY LYNDA ROBBINS, as Co-Trustees of the Bainum Family Insurance Trust PLAINTIFFS
v.
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY and AGENCY SERVICES OF ARKANSAS, INC. DEFENDANTS

          OPINION AND ORDER

          P.K. HOLMES, III CHIEF U.S. DISTRICT JUDGE.

         Before the Court are Plaintiffs' motion to remand (Doc. 20) and brief in support (Doc. 21). Defendant The Lincoln National Life Insurance Company (“Lincoln”) filed a response in opposition (Doc. 26). For the following reasons, the Court finds that Plaintiffs' motion to remand (Doc. 20) should be granted.

         I. Background

         In 2002, Lincoln issued a $10 million life insurance policy (“Policy”) to the Bainum Family Insurance Trust (“Trust”). The Policy insured the life of Evea Bainum. Agency Services of Arkansas, Inc. (“ASA”) brokered the Policy on behalf of the Trust.

         The Trust made periodic premium payments between February 2002 and February 2008, and the Policy accumulated a “cash value” of $2, 038, 922. In February 2008, the Trust stopped paying premiums because the cash value of the Policy was sufficient to make these payments.

         In December 2013, the Trust asked ASA to prepare an illustration showing the cash value of the policy. In response, ASA prepared an illustration which showed that the policy would lapse sometime in 2015 if no more premiums were paid.

         On February 9, 2015 and March 5, 2015, Lincoln sent letters to the Trust indicating that the Trust had missed a premium payment and that if the payment was not made by April 9, 2015, the Policy would be cancelled. On April 15, 2015, Lincoln sent a letter to the Trust stating that it was cancelling the policy.

         Plaintiffs allege that they did not receive any of these letters because they were mailed to the Trust's previous address which was no longer in use. Plaintiffs also allege that ASA received the letters and knew that they has been sent to the Trust's previous address, but did not inform Plaintiffs that the Policy would be cancelled if they did not make a premium payment or that the Policy was subsequently cancelled.

         Plaintiffs learned that Lincoln had cancelled the Policy on September 28, 2016. On October 14, 2016, Evea Bainum died. Lincoln refused to pay the $10 million policy benefit.

         On August 11, 2017, Plaintiffs filed a complaint (Doc. 1-1) in the Circuit Court of Pike County, Arkansas. Plaintiffs brought claims for declaratory judgment, breach of contract, and breach of the duty of good faith and fair dealing against Lincoln. Plaintiffs brought claims for breach of contract and negligence against ASA.

         On January 22, 2018, Lincoln filed a notice of removal (Doc. 1) asserting that Plaintiffs fraudulently joined ASA to evade the jurisdiction of this Court. On February 20, 2018, Plaintiffs filed their motion to remand this case to Circuit Court of Pike County, Arkansas (Doc. 20).

         II. Legal Standard

         Plaintiffs Timothy Bainum and Mary Lynda Robbins, who bring this suit in their capacity as co-trustees of the Trust, are both citizens of Arkansas. ASA is also a citizen of Arkansas, its place of incorporation and its principal place of business. 28 U.S.C. § 1332(c)(1). Lincoln is a citizen of both Indiana, its place of incorporation, and Pennsylvania, its principal place of business. Id. As Plaintiffs and ASA are citizens of the same state, ASA's presence in the litigation defeats federal diversity jurisdiction. See 28 U.S.C. § 1332(a)(1). Lincoln removed this case to federal court arguing (1) ASA was fraudulently joined in the state court action to defeat federal diversity jurisdiction; (2) ASA should therefore be dismissed as a defendant; and (3) once ASA is dismissed, subject matter jurisdiction in this Court will be proper due to the presence of complete diversity of citizenship among the remaining parties.

         “[A] plaintiff cannot defeat a defendant's ‘right of removal' by fraudulently joining a defendant who has ‘no real connection with the controversy.'” Knudson v. Sys. Painters, Inc., 634 F.3d 968, 976 (8th Cir. 2011) (quoting Chesapeake & Ohio Ry Co. v. Cockrell, 232 U.S. 146, 152 (1914)). Fraudulent joinder occurs when a plaintiff files a frivolous or illegitimate claim against a non-diverse defendant solely to prevent removal. Filla v. Norfolk S. Ry. Co., 336 F.3d 806, 809 (8th Cir. 2003). To prove fraudulent joinder, the removing defendant must show that there is no “reasonable basis for predicting that the state law might impose liability based upon the facts involved.” Junk v. Terminix Int'l Co., 628 F.3d 439, 446 (8th Cir. 2010). “Where applicable state precedent precludes the existence of a cause of action against a defendant, joinder is fraudulent . . . . However if there is a ‘colorable' cause of action-that is, if the state law might impose liability on the resident defendant under the facts alleged-then there is no ...


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