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MONMOUTH-OCEAN COLLECTION SERVICE, INC. v. KLOR

United States District Court, District of New Jersey


April 5, 1999

MONMOUTH-OCEAN COLLECTION SERVICE, INC., ASSIGNEE OF KIMBALL MEDICAL CENTER, MCOC EMERGENCY PHYSICIANS, AND JERSEY SHORE RADIOLOGY ASSOCIATES, PLAINTIFFS,
v.
NOACH KLOR AND MICHLA KLOR, INDIVIDUALLY AND/OR JOINTLY, DEFENDANTS/THIRD-PARTY PLAINTIFFS, V. U.S. HEALTHCARE, INC., THIRD-PARTY DEFENDANT.

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

ORDER

For the reasons expressed in the Report and Recommendation of the Honorable Ronald J. Hedges. United States Magistrate Judge, filed on February 25, 1999; and this Court receiving no objection thereto:

It is on this 1st day of April, 1999

ORDERED that this action is remanded to the Superior Court of New Jersey, Law Division, Monmouth County; and it is further

ORDERED that the Report and Recommendation of the United States Magistrate Judge is adopted and incorporated as the Opinion of this Court.

HEDGES, United States Magistrate Judge.

REPORT AND RECOMMENDATION

INTRODUCTION

On December 16, 1998, I issued an Order directing third-party defendant U.S. Healthcare, Inc. ("Healthcare"), to show cause why this civil action should not be remanded. In response, Healthcare submitted a memorandum of law. There was no oral argument. Rule 78.

STATEMENT OF FACTS

This civil action originated with the filing of the Complaint on February 11, 1998 in the Superior Court of New Jersey, Law Division, Monmouth County. Plaintiff Monmouth-Ocean Collection Service, Inc. ("plaintiff"), was designated in the Complaint as the assignee of Kimball Medical Center, MCOC Emergency Physicians and Jersey Shore Radiology Associates. Noach Klor and Michla Klor were named as defendants. Plaintiff alleged in the First Count of the Complaint that defendants were indebted to Kimball Medical Center for "goods, sold and delivered, services rendered, and/or on a certain book account in the sum of $11,358.00." Plaintiff alleged in the Second Count that defendants were indebted to MCOC Emergency Physicians for "goods sold and delivered, services rendered, and/or on a certain book account the sum of $155.00." Plaintiff alleged in the Third Count that defendants were indebted to Jersey Shore Radiology Associates for "goods sold and delivered, services rendered, and/or on a certain book account in the sum of $6.76."

On June 19, 1998, defendants filed a Third-Party Complaint. Healthcare was named as the third-party defendant. The Third-Party Complaint alleged that Noach Klor "has multiple sclerosis and receives regular treatment at Kimball Medical Center, plaintiff's assignee." Paragraph 3. It further alleges that, for a certain period of time, Noach Klor's "medical expenses were covered through Medicare and Charity Care." Paragraph 4. Michla Klor is alleged to have seen a Healthcare newspaper advertisement and to have responded to that advertisement with a request for information. Paragraphs 5-7. Thereafter, Healthcare enrolled Noach Klor in a "Medicare Plan," after which Michla Klor requested that he be disenrolled. According to the Third-Party Complaint, as a result of Noach Klor's enrollment with Healthcare, neither Medicare nor Charity Care would pay for hospitalization in October of 1995 and, inasmuch as Noach Klor did not have a referral from a primary physician, neither would Healthcare. Paragraphs 8-16.

In the First Count of the Third-Party Complaint, the Klors alleged that the advertisement was misleading and in violation of the Consumer Fraud Act, N.J.S.A. 56:8-1 et seq. In the Second Count of the Third Party Complaint, the Klors alleged that Healthcare misrepresented Noach Klor's enrollment status to Kimball Medical Center and that, as a result of the misrepresentation, Healthcare "should be held liable for the cost of the medical services rendered." Paragraph 24. In the Third Count, the Klors alleged that Healthcare negligently failed to advise Noach Klor that he should have secured a referral from a primary care physician before being hospitalized.

Under the First Count, the Klors seek treble damages and attorney's fees pursuant to N.J.S.A. 56:8-19. Under the Second and Third Counts, the Klors seek indemnification from Healthcare should they be held liable to plaintiff.

Healthcare removed this civil action on August 14, 1998. Healthcare alleged that the Third-Party Complaint stated a federal question under 28 U.S.C. § 1331, that the Third-Party Complaint stated a claim for Medicare benefits against Healthcare, that Noach Klor was a Medicare beneficiary enrolled in Healthcare, and that the sole remedy of the Klors was to pursue an appeals process with the Health Care Financing Administration.

I conducted an initial scheduling conference on December 16, 1998. I questioned whether this civil action was removable and issued the pending Order to Show Cause.*fn1

DISCUSSION

The removal statutes are to be strictly construed with doubt as to the propriety of removal resolved in favor of remand. See, e.g., Sun Buick, Inc. v. Saab Cars USA, Inc., 26 F.3d 1259, 1267 (3d Cir. 1994). Only actions that could have originally been brought in federal court may be removed. Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 9-10, 27-28, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983).

Examination of the Complaint reveals that there is no diversity jurisdiction. Thus, removal must be predicated on the existence of a federal question. Charter Fairmount Institute, Inc. v. Alta Health Strategies, 835 F. Supp. 233, 234 (E.D.Pa. 1993). "In order for a case to be removable under § 1441 and § 1331, the well-pleaded complaint rule requires the federal question be presented on the face of the plaintiff's properly pleaded complaint." Railway Labor Executives Ass'n v. Pittsburgh & Lake Erie R.Co., 858 F.2d 936, 939 (3d Cir. 1988). The plaintiff is the master of the claim and may "avoid federal jurisdiction by exclusive reliance on state law." Caterpillar Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987) (footnote omitted). "[A] case may not be removed to a federal court on the basis of a federal defense ***." Allstate Ins. Co. v. 65 Sec. Plan, 879 F.2d 90, 93 (3d Cir. 1989).

Here, the "well-pleaded complaint" alleges only state law causes of action against defendants. It does not present a federal question on its face. The question thus arises whether a third-party defendant such as Healthcare may invoke the removal statutes. I am satisfied that Healthcare may not.

Any discussion of removal must begin with 28 U.S.C. § 1441. It provides, in pertinent 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. For
  purposes of removal under this chapter, the
  citizenship of defendants sued under fictitious names
  shall be disregarded.

  (b) Any civil action of which the district courts
  have original jurisdiction founded on a claim or
  right arising under the Constitution, treaties or
  laws of the United States shall be removable without
  regard to the citizenship or residence of the
  parties. Any other such action shall be removable
  only if none of the parties in interest properly
  joined and served as defendants is a citizen of the
  State in which such action is brought.

  (c) Whenever a separate and independent claim or
  cause of action within the jurisdiction conferred by
  section 1331 of this title 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 in which State law
  predominates.

Here, I must look to the allegations of the Third-Party Complaint and the Notice of Removal to determine whether removal was proper. See Schmidt v. Association of Apartment Owners, 780 F. Supp. 699, 701 (D.Hawai'i 1991). Healthcare, in its Notice of Removal, asserts that the Third-Party Complaint gave rise to a "federal question" within the meaning of 28 U.S.C. § 1331 and was thus removable pursuant to "§ 1441(a), (b) and (c)." ¶¶ 6, 8, Notice of Removal.

In Patient Care, Inc. v. Freeman, 755 F. Supp. 644 (D.N.J. 1991), Judge Debevoise stated:

    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. [755
  F. Supp. at 646].

Despite this lack of uniformity, Moore's Federal Practice concludes that Section 1441 does not authorize removal by third-parties:

    There are myriad and diverging views on whether
  third-party defendants may remove an action. Some
  courts granting third-party defendants the right of

  removal hold that there should be no difference
  between defendants and third-party defendants, while
  other courts permit removal if the third-party claim
  states a separate and independent action that would
  entitle the third-party defendant to removal ***.

    Some courts hold that a third-party cause of action
  is not removable if the main claim could not have
  been originally filed in federal court and removal is
  based solely on the third-party claim. Other courts
  prohibit third-party defendants from removing a case
  when the original defendants did not seek removal,
  under the theory that it would be unjust to permit a
  party not sued by the plaintiff to compel the
  plaintiff to try the case in a forum not of the
  plaintiff's choice. Other courts consider the
  third-party cause of action to be merely incidental
  or ancillary to the main nonremovable claim and not a
  separate controversy.

    The better view, consistent with the principle that
  removal jurisdiction is to be strictly construed, is
  that third-party claims are not removable, because
  only a party defending against claims asserted by a
  plaintiff ought to be able to remove. If the original
  defendant had no right to remove, or chose not to, an
  ancillary defendant should not be permitted to
  remove, absent express statutory authority? As in the
  case of counterclaims and cross-claims, third-party
  defendants are not defendants within the meaning of
  the removal statute ***. [16 D. Coquillette, G.
  Joseph, S. Schreiber, J. Solovy & G. Vario, Moore's
  Federal Practice, § 107.11[l][b][iv] (3d Cir. 1998)
  (footnotes omitted)].

"The majority of the rather considerable number of cases *** have concluded that a third-party defendant *** is not entitled to remove the case ***". 14C Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure, § 3724 at 40 (3d ed. 1998). See, e.g., Lewis v. Windsor Door Co., 926 F.2d 729, 733-34 (8th Cir. 1991); Thomas v. Shelton, 740 F.2d 478, 482-88 (7th Cir. 1984); Easton Financial Corp. v. Allen, 846 F. Supp. 652, 653 (N.D.Ill. 1994); Schmidt, supra, 780 F. Supp. at 702-03; Fleet Bank-NH v. Engeleiter, 753 F. Supp. 417, 418-19 (D.N.H. 1991).

In Carl Heck Engineers, Inc. v. Lafourche Parish Police Jury, 622 F.2d 133 (5th Cir. 1980), the court held that a third-party defendant could invoke Section 1441(c) and remove a "separate and independent claim." 622 F.2d at 135-36. Heck led to what is now recognized as the minority view on third-party removal and is followed in the Fifth and Eleventh Circuits. 14C Federal Practice & Procedure, § 3731 at 253-55. See, e.g., Price v. Alfa Mut. Ins. Co., 877 F. Supp. 597, 600-01 & n. 9 (M.D.Ala. 1995) (noting that Fifth Circuit precedent is binding on Eleventh Circuit); Anderson v. Transamerica Specialty Ins. Co., 804 F. Supp. 903, 905 (S.D.Tex. 1992); Marsh Investment Corp. v. Langford, 494 F. Supp. 344, 346-48 (E.D.La. 1980). Judge Debevoise adopted the rationale of Heck in Patient Care. Judge Gerry rejected Heck in Kaye Associates v. Board of Chosen Freeholders, 757 F. Supp. 486 (D.N.J. 1991).

In Kaye Associates, a third-party defendant removed an action on the basis of diversity of citizenship between it and the defendant/third-party plaintiff. In remanding, Judge Gerry reasoned as follows:

    At the outset, we note that the right of a party to
  remove a case from state to federal court is purely
  statutory — such that our removal jurisdiction exists
  only when authorized by Congress. *** It has been the
  policy of the courts to strictly construe removal
  statutes. ***

    Given that background, we think that the better
  interpretation of § 1441 is that section (c) is only
  applicable to claims joined by the plaintiff. First,
  the broad principles espoused by courts allowing
  removal by third-party defendants — i.e. that section
  (c) authorizes removal whenever there exists, in the

  state court action, a separate and independent claim
  which would be removable if sued upon alone — appears
  to conflict with other well- established rules
  regarding removal. For example, it is beyond dispute
  that a case cannot be removed solely on the basis of
  a defendant's counterclaim. *** This is true even if
  the defendant's counterclaim was separate and
  independent, and would have been removable if sued
  upon alone. *** Moreover, courts have established the
  general principle that removability is determined by
  the initial pleadings filed by the plaintiff and that
  a case nonremovable on the initial pleadings can
  become removable only pursuant to a voluntary act of
  the plaintiff. *** Although district courts have the
  discretion to remand all matters not otherwise within
  its original jurisdiction, removal by third-party
  defendants under § 1441(c) entails removal of the
  whole case — including removal of the original
  plaintiff's claim against the original defendant — on
  a basis other than the plaintiff's voluntary act.
  These conflicts are avoided if § 1441(c) is read so
  as to apply only claims joined by the plaintiff.

    Turning to the text of the statute, we note
  initially that § 1441(c), on its face, does not
  provide much guidance regarding whether or not
  removal by third-party defendants is appropriate.
  However, looking to the legislative history, it
  appears that that section was not intended to extend
  the right of removal to additional parties, such as
  third-party defendants. The antecedent of § 1441(c),
  the Separable Controversy Act, was adopted in
  response to the practice of some plaintiffs to join a
  co-citizen as a defendant in a state court action
  against a citizen of another state in order to
  destroy complete diversity — with the result that the
  non-citizen defendant was prevented from removing the
  case to federal court. *** The Act responded to that
  practice by permitting removal by the non-citizen
  defendant upon a showing that there was diversity and
  that the matter between him and the plaintiff was
  `separable' from the plaintiff's controversy with the
  non-diverse party. *** Section 1441(c) replaced that
  Act and substituted the new `separate and independent
  claim or cause of action' formulation for the notion
  of a `separable controversy'. The purpose of the
  amendment was (1) to avoid the difficulties in
  determining what constituted a `separable
  controversy', and (2) to limit removal from state
  courts by requiring `more complete disassociation
  between the federally cognizable proceedings and
  those cognizable in state courts before allowing
  removal.' ***

    Looking at that legislative history, it seems clear
  that the intent of § 1441(c) was to ensure that `the
  plaintiff cannot preclude the right to remove a
  removable claim through the device of joining a
  wholly separate and independent nonremovable claim.'
  *** Given that intent, the policy of strict
  construction of removal statutes, and the apparent
  conflict with other well-established principles of
  removal, we cannot conclude, without more express
  guidance from Congress, that section (c) was intended
  also to expand removal jurisdiction by allowing
  removal by third-party defendants. [757 F. Supp. at
  487-89 (citations and footnotes omitted)].

In Patient Care, the plaintiff had instituted suit against defendants in State court to recover for medical services. Defendants third-partied the operator of a group medical benefits plan. The operator removed, arguing that the third-party action was preempted by ERISA. Judge Debevoise concluded that a third-party defendant could remove a separate and independent claim under Section 1441(c):

    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. . . .' ***

  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. *** Reasoning
  that `Section 1441(c) is applicable only to claims
  joined by the plaintiff,' *** 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. *** 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 *** 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, 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.' ***

    More importantly, it is argued, allowing removal by
  third-party defendants fails to show proper `respect
  for the limits of the federal judicial power.' *** 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. ***

    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.' ***

    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 ***, 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. *** 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. ***

    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.' *** 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 accommodate such a case.

    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 ***, and avoid the
  constitutional problem of hearing a `separate and
  independent' non-federal claim in federal court. ***
  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.'
  ***

    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. ***

    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. [755 F. Supp. at 647-50
  (citations omitted in part) (footnotes omitted)].

  I decline to adopt the rationale of Patient Care.*fn2

There are several reasons to follow Judge Gerry's reasoning. First, as Judge Debevoise himself sets out in Patient Care, more than one interpretation may be given to Section 1441. If Section 1441 is to be strictly construed, and if doubt as to the propriety of removal is to be resolved in favor of remand, the interpretation against third-party removal should be adopted. Second, Patient Care does not address what Judge Posner, writing for the majority in the Thomas, supra, concluded was the apparent purpose of Section 1441(c):

  to prevent a plaintiff who sues a defendant in state
  court on a claim within the federal courts' original
  jurisdiction from attempting to defeat the
  defendant's right of removal by joining a claim
  within that jurisdiction. [740 F.2d at 482].

If Congress intended Section 1441(c) to "abridge the right of removal," American Fire & Cas. Co. v. Finn, 341 U.S. 6, 10, 71 S.Ct. 534, 95 L.Ed. 702 (1951), to allow a third-party defendant to remove would appear to frustrate congressional intent. Fourth, as the District of Hawai`i stated in Schmidt:

  [B]y allowing third-party removal, the original
  plaintiff's choice of forum is subjugated to the
  third-party defendant's choice of forum. There is no
  indication that Congress intended such a result when
  it drafted the removal statutes. The only way to
  respect the plaintiff's choice of forum and also
  allow third-party removal is to allow removal only of
  separate and independent third-party claims, and
  remanding all other claims to the state court. That
  `solution' defeats the judicial economy which the
  removal statutes seek to promote by allowing removal
  of an entire case. [780 F. Supp. at 703-04].

There is something to be said for the concern that third-party removal "is too much akin to the tail wagging the dog." Lewis, supra, 926 F.2d at 733 (quoting (1A J. Moore & B. Ringle, Moore's Federal Practice, ¶ 0.167[10] (2d ed. 1990))).

Judge Debevoise expressed particular concern that a federal question over which the district court had exclusive jurisdiction should be removable. Patient Care, supra, 755 F. Supp. at 649-50. Rather than allow third-party removal in that situation, the proper procedure (consistent with my analysis above), would be for the third-party defendant to move to dismiss in state court. See Lewis, supra, 926 F.2d at 734 n. 12. Unfortunately for third-party defendants, as the Supreme Court recognized in Franchise Tax Board, supra, the law governing removal "may produce awkward results." 463 U.S. at 12, 103 S.Ct. 2841.

Even assuming that my analysis is incorrect and that a third-party defendant may remove under Section 1441(c), is there a separate and independent claim here?

The Second and Third Counts of the Third-Party Complaint seek indemnification. In Patient Care, Judge Debevoise concluded that an indemnification claim cannot be "separate and independent:"

    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. *** 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. ***

    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. *** 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
  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.' *** 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. *** 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 nonremovable
  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 *** 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. As a result, this action was
  improperly removed and must be remanded to state
  court. [755 F. Supp. at 650-51 (citations omitted in
  part) (footnotes omitted)].

I adopt this analysis and conclude that a claim for indemnification cannot be "separate and independent."

In Sunny Acres Skilled Nursing v. Williams, 731 F. Supp. 1323 (N.D.Ohio 1990), a nursing home sued to collect for services rendered to a patient. The patient in turn third-partied an insurer to pay for the services under an employee health benefits plan. The insurer removed, arguing that the third-party claim has been preempted by ERISA. In remanding, the court held:

    Although the reasoning of the Seventh Circuit and
  the commentators denying third-party defendants
  appears more persuasive, this Court agrees with Judge
  Potter's well-reasoned opinion in Wagner v.
  Burkhart, 716 F. Supp. 304, 306 (N.D.Ohio 1989) that
  this issue need not be definitively resolved in light
  of the second issue — whether the claims meet the
  separate and independent test. In University of
  Chicago Hosp. & Medical Center v. Rivers,
  701 F. Supp. 647 (N.D.Ill. 1988), almost factually
  identical to the instant case, a hospital sued a
  patient to recover for services rendered. The patient
  sued the insurance company for denial of benefits
  under the ERISA plan. Judge Rovner held that

    the ERISA claim in this case is not separate and
    independent from the nonremovable claims. All of
    the claims relate to the [hospital's] failure to
    receive compensation for the services it rendered
    to [its patient]. The [hospital] blames [the
    patient], who in turn blames . . . the third-party
    defendants. Although the claims may be "separate"
    and involve different legal causes of action and
    different legal wrongs in a narrow sense, all of
    the claims are interrelated.

    *** the claims [here] can not be `separate' and
  `independent' because they are `an interlocked series
  of transactions,' not distinct or apart. Rather, the
  Williams' ERISA claims for denial of benefits,
  analogized to common law claim for indemnification,
  are contingent upon the Sunny Acres claim for
  services rendered. If Sunny Acres claim fails, there
  is little, if any need to address the claims against
  [third-party defendant] Metropolitan. Judge Rovner's
  reasoning, which is consistent with the `independent'
  claim test of the Sixth Circuit, is persuasive. It
  provides a basis for remand. [731 F. Supp. at 1327].

As in Sunny Acres, so here. The Klors seek indemnification from Healthcare. Those indemnification claims are not "separate and independent" and should be remanded.

Curiously, Healthcare does not address the First Count of the Third-Party Complaint, which asserts a claim under the Consumer Fraud Act.*fn3 I am aware of no authority which evidences congressional intent to preempt State regulation of advertisements by insurers. Therefore, the only possible jurisdictional basis for this claim would be diversity of citizenship under 28 U.S.C. § 1332(a)(1). I need not address this issue at all, however, inasmuch as Section 1441(c) was amended in 1990 to restrict its application to federal question cases. "No longer will Section 1441(c) removal be available in cases in which the sole basis of claimed federal jurisdiction is diversity of citizenship or any federal jurisdictional statute other than Section 1331." 16 Moore's Federal Practice, § 107.14[6][a] (3d ed. 1998). See Patient Care, supra, 755 F. Supp. at 647 n. 7.

CONCLUSION

For the reasons set forth above, Healthcare, a third-party defendant, cannot remove under Section 1441. Even assuming that Healthcare could remove under Section 1441(c), no "separate and independent" claim exists. Accordingly, this civil action should be remanded to the Superior Court of New Jersey, Law Division, Monmouth County.

Pursuant to Local Civil Rule 72.1(c)(2), the parties have ten (10) days from service of this Report and Recommendation to file and serve objections.

Feb. 25, 1999.


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