The opinion of the court was delivered by: Yohn, J.
This is an action to determine the obligations of parties to an
insurance policy. The plaintiffs, Spring-Ford Area School District
["SFASD"] and six of its employees,*fn1 brought this lawsuit in the
Court of Common Pleas of Montgomery County, Pennsylvania against Genesis
Insurance Company ["Genesis"], Genesis's claims adjuster, Kempes, Inc.
["Kempes"], special education student Kimberly Hoffman, and her parents,
Stephen and Claire Hoffman [collectively "Hoffmans"].*fn2 Genesis and
Kempes removed the case, claiming that complete diversity of citizenship
existed between the plaintiffs and the defendants. See Notice of Removal
(Doc. No. 1); Joinder by Def. Genesis Ins. Co. in Notice of Removal
(Doc. No. 2). Pending before the court is the plaintiffs' motion to
remand the case due to the notice of removal's failure to establish
complete diversity of citizenship. See Mot. to Remand (Doc. No. 6).
Because the nondiverse defendants, the Hoffmans, were fraudulently
joined, as that phrase has been defined, the court will deny the
plaintiffs' motion to remand.
FACTUAL AND PROCEDURAL BACKGROUND
On July 13, 2000, the plaintiffs filed a declaratory judgment complaint
in the Court of Common Pleas of Montgomery County, Pennsylvania. See
State Court Compl. (Doc. No. 1, Ex. A). According to the complaint,
Genesis issued SFASD a legal liability insurance policy for the period
between July 1, 1999 and July 1, 2000. See id. ¶ 25. On January 4,
2000, SFASD and six of its employees were sued by the Hoffmans for
failing to provide Kimberly Hoffman with a free appropriate public
education. See id. ¶¶ 14-15. On March 2, 2000, SFASD notified Genesis
about the Hoffmans' claims. See id. ¶ 17. Genesis failed to respond
to the written notice or to provide a defense before SFASD had to respond
to the Hoffmans' complaint. See id. ¶ 19. On June 29, 2000, Kempes
notified SFASD that Genesis would not provide SFASD or its employees with
a defense or indemnity against the Hoffmans' claims. See id. ¶ 23.
On September 25, 2000, Kempes submitted a notice of removal. See Notice
of Removal. Kempes claims that this court has subject matter jurisdiction
based on diversity of citizenship. See id. ¶ 13. Kempes acknowledges
that the Hoffmans, like the plaintiffs, are citizens of Pennsylvania but
Kempes claims that the Hoffmans' joinder was fraudulent because "the
Hoffmans have no interest in the outcome of the present case and the
plaintiffs have asserted no claim for relief against them." See id.
¶ 12. In the alternative, Kempes claims that, even if the Hoffmans do
have an interest in this lawsuit, that interest is more closely aligned
with those of the plaintiffs, and, therefore, the Hoffmans should be
realigned as plaintiffs. See id. On September 27, 2000, Genesis filed a
joinder in notice of removal. See Joinder by Def. Genesis Ins. Co. in
Notice of Removal.
Removal of a case from state court to federal court is governed by
28 U.S.C. § 1441-1452. Pursuant to 28 U.S.C. § 1441, a case may
be removed if the diversity of citizenship and amount in controversy
requirements of 28 U.S.C. § 1332 are met. The burden of establishing
removal jurisdiction is borne by the defendant, and failure to meet this
burden results in remand of the removed case. See McNutt v. General
Motors Acceptance Corp. of Indiana, 298 U.S. 178, 189 (1936); Dukes v.
U.S. Healthcare, Inc., 57 F.3d 350, 359 (3d Cir. 1995); Abels v. State
Farm Fire & Cas. Co., 770 F.2d 26, 29 (3d Cir. 1985). The defendant must
demonstrate that removal is proper based on the allegations in the
complaint and the notice of removal. See, e.g., Kerstetter v. Ohio Cas.
Ins. Co., 496 F. Supp. 1305, 1306-07 (E.D.Pa. 1980). In determining
whether a defendant has established removal jurisdiction, the Third
Circuit has cautioned that "the removal statutes are to be strictly
construed against removal and all doubts should be resolved in favor of
remand." Steel Valley Auth. v. Union Switch & Signal Div., 809 F.2d 1006,
1010 (3d Cir. 1987).
The existence of a fraudulently joined party may be disregarded for
purposes of determining diversity jurisdiction. See id. A party has been
fraudulently joined "`when there is no reasonable basis in fact or
colorable ground supporting the claim against the joined [non-diverse]
defendant, or no real intention in good faith to prosecute the action
against the defendant.'" Abels, 770 F.2d at 32 (quoting Goldberg v. CPC
Int'l, Inc., 495 F. Supp. 233, 239 (N.D.Cal. 1980)). Although "federal
law applies to the question of fraudulent joinder, the ultimate question
is whether there is arguably a reasonable basis for predicting that state
law might impose liability on the facts involved." 16 James Wm. Moore et
al., Moore's Federal Practice ¶ 107.14[c][iv][C] (3d ed. 1997).
In particular, "joinder may be considered fraudulent if the plaintiff has
failed to state a cause of action against the nondiverse defendant."
Selvaggi v. Prudential Prop. and Cas. Ins. Co., 871 F. Supp. 815, 818
(E.D.Pa. 1995) (citing Boyer v. Snap-on Tools Corp., 913 F.2d 108, 111-12
(3d Cir. 1990), cert. denied, 498 U.S. 1085 (1991)). However, the
removing party bears a "heavy burden
of persuasion" in demonstrating that a party has been fraudulently
joined. Batoff v. State Farm Ins. Co., 977 F.2d 848, 851 (3d Cir. 1992).
In determining whether a nondiverse defendant has been fraudulently
joined, all contested facts and all uncertainties as to the current state
of the applicable substantive law must be resolved in the plaintiff's
favor. See id. at 851-52. Furthermore, "if there is even a possibility
that a state court would find that the complaint states a cause of action
against any one of the [non-diverse] defendants, the federal court must
find that joinder was proper and remand the case to state court." Boyer,
913 F.2d at 111. Thus, in evaluating a claim of fraudulent joinder, the
court must (1) "focus on the plaintiff's complaint at the time the
petition for removal was filed"; (2) "assume as true all factual
allegations of the complaint"; and (3) "resolve any uncertainties as to
the current state of controlling substantive law in favor of the
plaintiff." Batoff, 977 F.2d at 851-52 (quotations omitted).
If the court finds that the nondiverse party was not fraudulently
joined, diversity jurisdiction may still exist if the nondiverse party
should be realigned. In order to determine whether parties should be
realigned, the Third Circuit employs a "principal purpose" or "primary
issue" test. See Ackerman v. Hook, 183 F.2d 11, 14-15 (3d Cir. 1950).
Under the "principal purpose" or "primary issue" test, "a court must
first identify the primary issue in controversy and then determine
whether there is a real dispute by opposing parties over that issue."
Diloreto v. CNA Ins. Co., No. CIV. A. 98-3488, 1998 WL 962024, at *2
(E.D.Pa. Dec. 18, 1998) (citing Ackerman, 183 F.2d at 14-15).
In their motion to remand, the plaintiffs contend that the non-diverse
defendants, the Hoffmans, were not fraudulently joined and that,
instead, they are indispensable parties to the action under both the
Pennsylvania Declaratory Judgment Act, 42 Pa. C.S. § 7540(a), and
Fed.R.Civ.P. 19. See Mem. of Law in Support of Pls.' Mot. to Remand at
3-4 (Doc. No. 6); Reply Mem. of Law in Support of Pls.' Mot. to Remand at
3-4 (Doc. No. 11). Furthermore, the plaintiffs maintain that the Hoffmans
should not be realigned as plaintiffs because the Hoffmans' interests are
adverse to those of the plaintiffs. See Mem. of Law in Support of Pls.'
Mot. to Remand at 4-7. Therefore, the plaintiffs claim that this case
should be ...