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PATIENT CARE, INC. v. FREEMAN

United States District Court, District of New Jersey


January 31, 1991

PATIENT CARE, INC., PLAINTIFF,
v.
MARTIN FREEMAN AND ESTHER FRIED, DEFENDANTS/THIRD-PARTY PLAINTIFFS, V. EMPLOYEE BENEFIT MANAGEMENT CORPORATION, THIRD-PARTY DEFENDANT.

The opinion of the court was delivered by: Debevoise, District Judge.

OPINION

This matter comes before the Court on the third-party defendant's motion for summary judgment. The defendants/third-party plaintiffs, however, have raised a substantial objection to this Court's jurisdiction to hear this case. I have concluded, after careful consideration, that while a third-party defendant is not precluded from removing the claim against it to federal court, in this case removal was improper because the third-party claim for indemnification is not "separate and independent" from the main cause of action against the defendants. Therefore, this Court lacks jurisdiction over the case and the matter must be remanded to state court, from where it was improvidently removed.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff Patient Care, Inc. ("Patient Care") initiated this lawsuit in the New Jersey Superior Court. In its complaint, plaintiff sued defendants Martin Freeman and Esther Fried for a sum of money allegedly owed for certain medical services provided for Mr. Freeman. The amount in controversy did not exceed $50,000, and there was no allegation that the citizenship of the parties was diverse. All of the claims in the complaint were based on ordinary state law causes of action. In short, as originally filed, there was no conceivable basis for federal subject matter jurisdiction over the case.

In response to the complaint, defendants filed an answer which denied the allegations in the complaint and raised certain defenses. In addition, as part of the same pleading, defendants brought a third-party complaint against third-party defendant Employee Benefit Management Corporation ("EBMC"). In their third-party complaint, defendants alleged that they were entitled to benefits under a group medical benefits plan, operated by EBMC, which would have covered the costs of the services for which they were being sued by Patient Care. Defendants sought indemnification from EBMC for any judgment plaintiff might obtain against them, and they brought separate claims against EBMC for the latter's alleged failure to provide benefits. All of defendants' claims against EBMC were framed as state law causes of action.

EBMC responded to the third-party complaint by filing a notice of removal with this Court.*fn1 The purported basis for removal was that defendants' claims, although framed as state law causes of action, were in fact preempted by the provisions of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001, et seq. and were displaced by ERISA's civil enforcement provisions. Therefore, EBMC reasoned, defendants' claims arose under federal law, and removal was proper under 28 U.S.C. § 1441(a).*fn2

EBMC thereafter moved for summary judgment on the third-party complaint, arguing that the insurance plan did not cover the services for which payment was sought. Defendants opposed the summary judgment motion on the merits, but also argued that this Court lacks jurisdiction because the case was improperly removed from state court.*fn3

The central issue raised by defendants' attack on this Court's jurisdiction, to which I now turn,*fn4 is whether, and if so, under what circumstances, a third-party defendant such as EBMC may remove a case to federal court.

DISCUSSION

More than thirty years ago a federal judge faced with the question of whether a third-party defendant could remove an action to federal court described the case law as a "field luxuriat[ing] in a riotous uncertainty." Harper v. Sonnabend, 182 F. Supp. 594, 595 (S.D.N.Y.1960). It is truly lamentable that this description remains accurate today. Despite the issuance of dozens of decisions during several decades, no uniform rule has developed. Indeed, a review of the cases reveals that even where two courts reach the same outcome, they rarely share a common rationale. Not only are there conflicts within several circuits, including the Third Circuit, there are even, as the decisions of this Court indicate, conflicts within individual judicial districts. Compare White v. Baltic Conveyor Co., 209 F. Supp. 716 (D.N.J.1962) (holding that a third-party defendant may not remove case to federal court) with Columbia Casualty Co. v. Statewide Hi-Way Safety, Inc., 94 F.R.D. 182, 184 (D.N.J.1982); Bond v. Doig, 433 F. Supp. 243 (D.N.J.1977) and Industrial Lithographic Co. v. Mendelsohn, 119 F. Supp. 284 (D.N.J.1954) (holding that third-party defendant may remove "separate and independent" claim). No doubt part of the confusion is due to the silence of the appellate courts. Only the Fifth and Seventh Circuits have addressed the issue, reaching opposite conclusions in opinions that are themselves somewhat equivocal. The Third Circuit has yet to address the question, so I am left to sort through the competing authorities, each of which is more or less persuasive, but none of which is binding.

While I have not attempted a comprehensive review of the case law,*fn5 it is apparently generally accepted that the majority view holds that third-party defendants may not remove a case to federal court.*fn6 This is no doubt due to the fact that the two leading commentators on federal procedure decided early on that only the original defendants to an action, and not the defendants to any cross-claim, counterclaim or third-party complaint, could remove the action to federal court. See 1A Moore's Federal Practice ¶ 0.167[10] (2d ed. 1989); 14A C. Wright, A. Miller & E. Cooper, Federal Practice & Procedure § 3724 (1985). The arguments for this view are various, but they typically begin with the language of the removal statute, which provides in relevant part:

    (a) Except as otherwise expressly provided by
  Act of Congress, any civil action brought in a
  State court of which the district courts of the
  United States have original jurisdiction, may be
  removed by the defendant or the defendants, to the
  district court of the United States for the
  district and division embracing the place where
  such action is pending. . . .

    (c) Whenever a separate and independent claim or
  cause of action, which would be removable if sued
  upon alone, is joined with one or more otherwise
  non-removable claims or causes of action, the
  entire case may be removed and the district court
  may determine all issues therein, or, in its
  discretion, may remand all matters not otherwise
  within its original jurisdiction.

28 U.S.C. § 1441(a), (c).*fn7

For those courts which would deny the right of removal to third party defendants, the point of departure for interpreting § 1441 is the "Congressional purpose to restrict the jurisdiction of the federal courts on removal. . . ." Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108, 61 S.Ct. 868, 872, 85 L.Ed. 1214 (1941).*fn8 From this premise of strict construction, the opponents of removal make two arguments regarding the text of § 1441, and two arguments regarding policy considerations.

The first textual argument is that whereas § 1441(c) speaks of the removable claim as being "joined" with a nonremovable claim, a third party claim is typically "not joined with, but rather . . . antagonistic to" the plaintiff's claim. Thomas v. Shelton, 740 F.2d 478, 486 (7th Cir. 1984). Reasoning that "Section 1441(c) is applicable only to claims joined by the plaintiff," Lowe's of Montgomery, Inc. v. Smith, 432 F. Supp. 1008, 1010 (M.D.Ala. 1977) (emphasis added), the argument concludes that only claims brought by the plaintiff against the original defendant, and not third-party claims, may be removed under that section.

The second, and somewhat weightier, textual argument is that § 1441(a) refers only to removal "by the defendant or the defendants," and thus, based on strict construction, removal may not be had under § 1441(a) by third-party defendants. See, e.g., Chase v. North American Systems, Inc., 523 F. Supp. 378, 382 (W.D.Pa. 1981); Lowe's of Montgomery, 432 F. Supp. at 1010; Greater New York Mutual Ins. Co. v. Anchor Construction Co., 326 F. Supp. 245, 248 (E.D.Pa. 1971). This argument is somewhat aided by reference to legislative history. Thus, Judge Pollak of the Eastern District of Pennsylvania has pointed out that while the removal statute had once expressly provided that either plaintiffs or defendants could remove actions to federal court, in 1887 the statute was amended to limit the right of removal to defendants. Based on this amendment the Supreme Court in Shamrock, supra, found that where a defendant files a counterclaim against a plaintiff, the plaintiff may not remove. Thus, Judge Pollak reasoned, there is no coherent reason "for denying the privilege of removal to a Shamrock plaintiff but granting it to a third-party defendant," and "there is no evidence that Congress . . . has adopted such a theory." Share v. Sears, Roebuck & Co., 550 F. Supp. 1107, 1109 (E.D.Pa. 1982).

Perhaps more important than these textual arguments,*fn9 however, are the policy arguments against removal by third-party defendants. First, it is contended that it would be "rather drastic to force the plaintiff, whose choice of forum normally should be honored, to litigate in a federal court that he did not choose and one to which his adversary originally could not have removed." Lowe's of Montgomery, 432 F. Supp. at 1010. See also Chase v. North American Systems, 523 F. Supp. at 382; Fiblenski v. Hirschback Motor Lines, Inc., 304 F. Supp. 283, 285 (E.D.Ark. 1969). As the Southern District of New York described it:

    It seems anomalous to allow a party, whose
  jurisdictional attributes are irrelevant to the
  main claim, to remove the entire suit to another
  court. Removal on such a basis is too much akin to
  the tail wagging the dog.

Burlingham, Underwood, Barron, Wright & White v. Luckenbach Steamship Co., 208 F. Supp. 544, 547 (S.D.N.Y. 1962).

More importantly, it is argued, allowing removal by third-party defendants fails to show proper "respect for the limits of the federal judicial power." Lowe's of Montgomery, 432 F. Supp. at 1013. As the Seventh Circuit put it:

  [N]ot only the language of section 1441(c), but
  also considerations of federalism, militate
  against removal. To allow removal of an entire
  suit on the basis of a third-party claim is to
  bring into the federal court an action the main
  part of which is not within that court's original
  jurisdiction, and is thus to enlarge federal at
  the expense of state jurisdiction in rather a
  dramatic way.

Thomas v. Shelton, 740 F.2d at 486. See also Lowe's of Montgomery, 432 F. Supp. at 1012 ("allowing removal by a third-party defendant brings into a federal court a suit between the original parties which has no independent basis for federal jurisdiction").

As noted, these various textual and policy arguments against removal by third-party defendants have commanded the support of a majority of the courts. Nonetheless, there is a substantial, and I think persuasive, counterattack by a significant minority of courts which have found removal permissible. Dealing with the textual arguments first, these courts point out that § 1441(c) in fact does not provide that only claims joined by the plaintiff may be removed. "Construing § 1441(c) to include only claims joined by the plaintiff inserts qualifying language into the statute not placed there by Congress." Ford Motor Credit Co. v. Aaron-Lincoln Mercury, Inc., 563 F. Supp. 1108, 1112 (N.D.Ill. 1983); see also Thomas v. Shelton, 740 F.2d at 490 (Swygert, J., concurring in the judgment).

Next, the proponents of removal meet head on the argument, elaborated by Judge Pollak, that the reference to "defendants" in § 1441(a) cannot include third-party defendants. Unlike the plaintiff-counterdefendant seeking removal in Shamrock, a third-party defendant

  ha[s] never voluntarily submitted itself to the
  jurisdiction of the state court. It was dragged
  into state court by service of process the same
  way that any other "defendant" is brought into
  court. . . . [It] is as much a defendant as if the
  case had been originally brought against it. [It]
  has been sued in the only meaningful sense of the
  word — it has been haled into court involuntarily
  and must defend an action for relief against it.

Ford Motor Credit, 563 F. Supp. at 1113 (footnotes omitted). Thus, Judge Pollak notwithstanding, there is a coherent reason for allowing third-party defendants, but not plaintiffs, to remove actions to federal court.

Turning to policy considerations, proponents of removal first point out that denying removal to protect the plaintiff's choice of forum simply overlooks the third-party defendant's equally important interest in having the federal claim against it heard in federal court. See Thomas v. Shelton, 740 F.2d at 490-91 (Swygert, J., concurring in the judgment); Ford Motor Credit, 563 F. Supp. at 1114. As these courts repeatedly point out, the presence of removal jurisdiction should not turn on the fortuity of whether a party is impleaded or sued directly. See, e.g., Carl Heck Engineers, Inc. v. Lafourche Parish Police Jury, 622 F.2d 133, 135 (5th Cir. 1980); Ford Motor Credit, 563 F. Supp. at 1114; Bond v. Doig, 433 F. Supp. 243, 247-48 (D.N.J. 1977).*fn10 See also Thompson v. Wheeler, 898 F.2d 406, 409 (3d Cir. 1990) ("`To adopt an inflexible rule barring removal by third party defendants . . . would have the curious effect of making a litigant's right to have a claim heard in a federal forum turn on the fortuity of being sued in a third-party complaint rather than in a separate action'") (quoting Mignogna v. Sair Aviation, Inc., 679 F. Supp. 184, 188 (N.D.N Y 1988)).*fn11

Likewise, where the third-party claim is one within the federal court's subject matter jurisdiction, jurisdictional considerations would seem to militate in favor of allowing the claim to be removed. In a diversity case, removal is necessary to "give effect to the federal policy of protecting out-of-state litigants against local prejudice in the state courts." Ford Motor Credit, 563 F. Supp. at 1114. And in a federal question case, removal is necessary to afford the third-party defendant an opportunity to have the federal claim against it heard in federal court. This latter point would have particular force where the third-party claim was one within the federal courts' exclusive jurisdiction; indeed, it is difficult to understand how a policy of non-removal could accomodate such a case. *fn12

Moreover, there is no reason why the plaintiff's choice of forum and the interest in avoiding an unwarranted expansion of federal jurisdiction cannot be protected by the district court's exercise of its discretion to "remand all matters not otherwise within its original jurisdiction." 28 U.S.C. § 1441(c). This will both insure that the plaintiff's claim is heard in its chosen forum, see Thomas v. Shelton, 740 F.2d at 490 (Swygert, J., concurring in the judgment), and avoid the constitutional problem of hearing a "separate and independent" non-federal claim in federal court. See Ford Motor Credit, 563 F. Supp. at 1115 n. 25. In fact, the court in Ford Motor Credit reported that "every case that we have been able to find which has permitted the removal of a third party action also remands the original claim to the state court." Id. at 1114-15.

Having said that, however, it should be noted that remanding non-removable claims is not unproblematic, which brings us to our final point. As mentioned earlier, see supra at 648 n. 9, the one common ground between proponents and opponents of third-party removal is that removal should only be allowed for claims that are, in the language of § 1441(c), "separate and independent." Indeed, I have been unable to locate any decision which finds third-party removal proper without also holding that a third-party claim can be removed only if it is "separate and independent" from the main cause of action. The reason for this is now apparent, for if the main cause of action and the third-party claim are interdependent, then remanding the former to state court will subject the defendant/third-party plaintiff to potentially inconsistent judgments in the state and federal courts. See, e.g., Thomas v. Shelton, 740 F.2d at 486; Greater New York Mutual Ins. Co., 326 F. Supp. at 249.

Thus, for the foregoing reasons, I conclude that a third-party defendant may remove the claim against it to federal court, so long as that claim is "separate and independent" from the main cause of action. In this case, therefore, I conclude that the third-party defendant, EBMC, may remove the third-party claim against it if and only if that claim is "separate and independent" from Patient Care's main cause of action against the defendants.

Defendants' claim against EBMC is essentially one for indemnification for any judgment plaintiff might obtain against them. As on the question of third-party removal generally, so also on the question of whether a third-party claim for indemnification is "separate and independent," the courts are split. Several courts have held that no claim for indemnification is "separate and independent" and therefore removal is always improper in such circumstances. See, e.g., Thomas v. Shelton, 740 F.2d at 486; Greater New York Mutual Ins. Co., 326 F. Supp. at 249. In fact, some courts, addressing the precise issue raised here, have held that a beneficiary's third-party ERISA claim against an insurer to indemnify against a possible judgment in a suit to recover medical expenses from the beneficiary is not "separate and independent" from the main action and therefore is not appropriate for removal. See, e.g., Sunny Acres Skilled Nursing v. Williams, 731 F. Supp. 1323, 1327 (N.D. Ohio 1990); Baldwin Country Eastern Shore Hospital Board, Inc. v. Windham, 706 F. Supp. 38 (S.D.Ala. 1989); University of Chicago Hospital & Medical Center v. Rivers, 701 F. Supp. 647, 648-49 (N.D.Ill. 1988).

Even those courts which support third-party removal agree that a claim for indemnification is not "separate and independent" (and therefore not removable) if it is based on a claim that the third-party defendant caused the plaintiff's injuries, e.g., as where the third-party defendant is alleged to be a joint tortfeasor. See Marsh Investment Corp. v. Langford, 652 F.2d 583, 584 (5th Cir. Unit A 1981), cert. denied sub nom. Ponchartrain State Bank v. Marsh Investment Corp., 454 U.S. 1163, 102 S.Ct. 1037, 71 L.Ed.2d 319 (1982); Mignogna v. Sair Aviation, Inc., 679 F. Supp. 184, 190 (N.D.N.Y. 1988). However, the Fifth Circuit has distinguished cases where the "third party complaint seeks indemnity based on a separate obligation owed to the defendant (such as a contractual indemnity obligation). . . ." In re Wilson Industries, 886 F.2d 93, 96 (5th Cir. 1989). In these circumstances, courts following the Fifth Circuit have held the third-party claim is removable because it "arose from this separate and independent contractual obligation." Id. See, e.g., Bond v. Doig, 433 F. Supp. at 248. In support of this conclusion, courts point out that the third-party claim could have been brought as a separate cause of action for declaratory relief. Id.; see also Carl Heck Engineers, 622 F.2d at 136. At least one court, following this approach, has held that a third-party claim for ERISA benefits, such as in this case, is "separate and independent" and therefore removable. See Charter Medical Corp. v. Friese, 732 F. Supp. 1160, 1162 (N.D.Ga. 1989).

Despite the existence of some authority for this position, however, I find the distinction between the two types of indemnification claims to be untenable. In describing the "separate and independent" language of § 1441(c) the Supreme Court held that "where there is a single wrong to plaintiff, for which relief is sought, arising from an interlocked series of transactions, there is no separate and independent claim or cause of action under § 1441(c)." American Fire & Casualty Co. v. Finn, 341 U.S. 6, 14, 71 S.Ct. 534, 540, 95 L.Ed. 702 (1951). The court in Ford Motor Credit, for example, interpreted this to mean that where "recovery in the allegedly removable claim is dependent on the result in the non-removable claim, the claims are not `separate and independent' within the meaning of § 1441(c)." 563 F. Supp. at 1111. See also Chase v. North American Systems, 523 F. Supp. at 382. This suggests the flaw in the convenient but artificial distinction the Fifth Circuit has drawn between indemnification as between joint tortfeasors and indemnification based on a separate contractual obligation. In either case, the right to indemnification is wholly dependent on a judgment being awarded against the defendant.

More fundamentally, to allow removal of an indemnification claim based on a contractual obligation would defeat the entire purpose of the requirement that the claim be "separate and independent." As explained above, this insures that the main action may be remanded to state court without subjecting the defendant/third-party plaintiff to potentially inconsistent judgments. However, that is precisely what would happen if the indemnification claim were severed and removed to federal court, because the third-party defendant would not be bound by any judgment in the state court finding the defendant/third-party plaintiff liable to the plaintiff for an indemnifiable injury.

Consequently, I decline to follow the holding of the Fifth Circuit and conclude instead that any third-party claim for indemnification is not a claim "separate and independent" from the main action, and therefore is not removable by the third-party defendant under § 1441.*fn13 As a result, this action was improperly removed and must be remanded to state court.

CONCLUSION

For the foregoing reasons, I conclude that while a third-party defendant may remove a claim against it to federal court if it is one within the original jurisdiction of the district courts, this right of removal is limited to claims which are "separate and independent" from the main cause of action. Because the third-party claim here is one for indemnification, I conclude that it is not a "separate and independent" claim and therefore is not removable, so that the action must be remanded to state court. The unfortunate but inevitable result of this decision is that it will be unreviewable by the Third Circuit. See 28 U.S.C. § 1447(d). As a consequence, rather than leading to a resolution of this vexing issue, this case will only contribute to the cacophony of opinions which already exists. An appropriate order follows.


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