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Kips Bay Endoscopy Center, PLLC v. Travelers Indemnity Co.

United States District Court, S.D. New York

July 24, 2015

KIPS BAY ENDOSCOPY CENTER, PLLC, KIPS BAY ASSOCIATES, LLC, KIPS BAY ANESTHESIA, PC, and CONCORDE MEDICAL GROUP, PLLC, Plaintiffs,
v.
THE TRAVELERS INDEMNITY COMPANY, THE PHOENIX INSURANCE COMPANY, THE CHARTER OAK FIRE INSURANCE COMPANY, and THE CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., Defendants.

OPINION AND ORDER

EDGARDO RAMOS, District Judge.

Plaintiffs Kips Bay Endoscopy Center, PLLC ("Kips Bay Endoscopy"), Kips Bay Associates, LLC ("Kips Bay Associates"), Kips Bay Anesthesia, PC ("Kips Bay Anesthesia, " collectively, the "Kips Bay Plaintiffs"), and Concorde Medical Group, PLLC ("Concorde, " and collectively, "Plaintiffs") brought an action against The Travelers Indemnity Company ("Travelers"), The Phoenix Insurance Company ("Phoenix"), The Charter Oak Fire Insurance Company ("Charter Oak, " and collectively, the "Insurers"), and Consolidated Edison Company of New York, Inc. ("ConEd"). Pending before this Court are Plaintiffs' motion to remand this action to the Supreme Court of the State of New York and the Insurers' motion to sever the claims asserted against ConEd so that claims against the Insurers may remain in federal court. For the reasons discussed below, Plaintiffs' motion for remand is GRANTED and the Insurers' motion to sever is DENIED.

I. Factual Background

Plaintiffs are associated physicians who administer medical services to patients at their offices located in New York City. Compl. ¶¶ 1, 7. Defendant Travelers is an insurance company with its principal place of business in Hartford, Connecticut. Id. ¶ 2. Travelers wholly owns Defendants Phoenix and Charter. Id. ¶ 3. ConEd is a public utilities company with its principal place of business in New York City. Id. ¶¶ 4, 9.

On April 10, 2012, Travelers and Phoenix issued an insurance policy to the Kips Bay Plaintiffs covering the period from June 5, 2012 through June 5, 2013 for a premium of $1, 282. Id. ¶¶ 10, 12. On January 8, 2013, Travelers and Phoenix issued another insurance policy to Concorde covering the period from March 1, 2012 through February 28, 2013 for a premium of $53, 444. Id. ¶ 11-13. Under Plaintiffs' insurance policies, Plaintiffs purportedly were insured "against certain risks, including medical equipment, boiler and other machinery breakdown and business income loss and extra expense, " and the Insurers were required to pay for Plaintiffs' loss or damage due to the "necessary suspension of operations.'" Id. ¶¶ 14, 15. According to Plaintiffs, they were also insured against any power failure that resulted in Plaintiffs suffering a "Covered Cause of Loss." Id. ¶¶ 16, 17. A "Covered Cause of Loss" consists of lost business due to the breakdown of "covered equipment, " including medical and office equipment. Id. ¶ 19. Plaintiffs purportedly paid an additional premium to specifically include "utility failure" as a "Covered Cause of Loss" in their insurance policies. Id. ¶ 20. Plaintiffs' insurance policies allegedly state that "service interruption includes coverage for loss caused by or resulting from a breakdown to equipment that is owned, operated, or controlled by a public or private utility or distributor that directly generates, transmits, distributes, or provides the utility services or power supply services." Id. ¶ 20.

On October 29, 2012, Hurricane Sandy hit New York City causing extensive property damage and loss of electricity. Id. ¶ 29. ConEd normally provides "steam, electrical and other power" to Plaintiffs through its substation located at 14th Street and Avenue C (the "Avenue C Substation") but Plaintiffs' service was interrupted during Hurricane Sandy. Id. ¶¶ 9, 27, 32. Plaintiffs contend that "Con Ed's gross negligence in constructing, maintaining, and securing the... Avenue C Substation... led to the explosion and destruction of the Avenue C Substation and Plaintiffs' loss of electricity." Id. ¶¶ 27, 32. ConEd allegedly decided not to shut down the Avenue C Substation, notwithstanding its awareness of the impending storm, and despite "voluntarily shut[ting] down some of its [other] substations." Id. ¶¶ 30, 40, 41. ConEd does not contest that a storm, "albeit not one of the unprecedented intensity of Superstorm Sandy, " was forecasted the week prior to Hurricane Sandy hitting New York City and that ConEd preemptively interrupted service to some customers but did not preventively shutdown the Avenue C Substation. See ConEd's Answer at ¶ 30.

Plaintiffs claim that their offices lost electricity for five days during and after Hurricane Sandy. Compl. ¶ 32. As a result, during that time Plaintiffs purportedly lost 100% of their business revenue and incurred expenses trying to mitigate losses, amounting to approximately $710, 000.00. Id. ¶¶ 32, 37, 38. Plaintiffs claim that their "business income and extra expense loss... were caused by a Covered Cause of Loss, " namely, that Plaintiffs' "medical and office equipment... were unable to function" or be used by Plaintiffs to treat patients as a result of the power failure. Id. ¶¶ 18, 19. Plaintiffs also claim that ConEd's recklessness and/or negligence, "[t]he explosion of Con Ed equipment from any cause or source independent of a power failure or fluctuation, "[1] and "[a] major storm or hurricane" are "Covered Cause[s] of Loss, " not exclusions, and that Insurers are required to pay for Plaintiffs' resulting loss or damage. Compl. ¶¶ 22, 23, 25. Despite the insurance policies, Travelers denied coverage for losses sustained by Plaintiffs due to the power failure. Id. ¶ 17. The Insurers assert various affirmative defenses based on the alleged exclusions in Plaintiffs' insurance policies, including exclusions for loss or damage caused, directly or indirectly, by "water, " "fire or combustion explosion, " "hail or windstorm, " and "lack of excess power, light, heat, steam or refrigeration except as provided by business income coverage, extra expense coverage, utility interruption coverage and/or spoilage damage coverage." Insurers' Answer, Doc. 1 at 8-10.

II. Procedural History

On February 26, 2014, Plaintiffs brought this action in the Supreme Court of the State of New York asserting four causes of action: (1) breach of the implied covenant of good faith and fair dealing against all Defendants, (2) gross negligence against ConEd, (3) breach of fiduciary duty against ConEd, and (4) breach of contract against the Insurers. See Id. ¶ 43-58. The Insurers filed their answer to the Complaint on May 28, 2014. Doc.1, Ex. 2. ConEd filed its answer on July 14, 2014. Id. Ex. 3. On September 5, 2014, the Insurers removed the action to this Court pursuant to 28 U.S.C. §§ 1332, 1441, and 1446. Id. On October 8, 2014, Plaintiffs filed a motion to remand the action back to state court pursuant to 28 U.S.C. § 1447(c). Doc. 4. On December 5, 2014, the Insurers filed a motion to sever the claims against it from those of ConEd so that the Insurers may proceed in federal court. Doc. 18.

III. Legal Standard

The federal removal statute provides that "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." 28 U.S.C. § 1441(a) (2011). According to the Second Circuit, "[i]n light of the congressional intent to restrict federal court jurisdiction, as well as the importance of preserving the independence of state governments, federal courts construe the removal statute narrowly, resolving any doubts against removability." Lupo v. Human Affairs Int'l, Inc., 28 F.3d 269, 274 (2d Cir. 1994) (internal citation omitted). "Due regard for the rightful independence of state governments, which should actuate federal courts, requires that they scrupulously confine their own jurisdiction to the precise limits which the statute has defined.'" Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 109 (1941) (quoting Healy v. Ratta, 292 U.S. 263, 270 (1934)). The party seeking removal bears the burden of proving that the jurisdictional and procedural requirements of removal have been met. Burr v. Toyota Motor Credit Co., 478 F.Supp.2d 432, 436 (S.D.N.Y. 2006) (citing Mehlenbacher v. Akzo Nobel Salt, Inc., 216 F.3d 291, 296 (2d Cir. 2000)). "If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." 28 U.S.C. § 1447(c) (2011).

IV. Discussion

In support of its motion to remand, Plaintiffs assert that the Insurers improperly removed this action to federal court because (1) complete diversity is lacking in the instant action, and (2) the Insurers' removal was defective because Defendant ConEd did not consent to removal within the requisite thirty day period. Pls.' Mem. in Supp. of its Mot. to Remand ("Pls.' Mem."), Doc. 7 at 2-4. The Insurers argue that severing ConEd and the claims against it is appropriate under Rule 21 of the Federal Rules of Civil Procedure, or, alternatively, under the doctrine of fraudulent misjoinder. Defs.' Mem. in Support of Defs.' Mot. to Sever ("Defs.' Mem."), Doc. 19 at 1; Defs.' Opp'n to Pls.' Mot. to Remand ("Defs.' Opp'n"), Doc. 10 at 1. "[W]here removal is based on diversity jurisdiction; there must be complete diversity of citizenship between the plaintiff(s) and defendant(s)." Sons of the Revolution in New York Inc. v. Travelers Indemnity Company of America, No. 14 Civ. 03303 (LGS), 2014 WL 7004033, at *2 (S.D.N.Y. Dec. 11, 2014). There is no dispute that complete diversity does not exist as the parties are currently constituted; Plaintiffs and ConEd are citizens of New York.[2] Doc.1 ¶¶ 1, 4. With the removal of ConEd, the Insurers assert that this Court has diversity jurisdiction over this action pursuant to § 1332(a).

The instant action is substantially similar to Sons of the Revolution in New York Inc. v. Travelers Indemnity Company of America, No. 14 Civ. 03303 (LGS), 2014 WL 7004033 (S.D.N.Y. Dec. 11, 2014) (" Sons of the Revolution ").[3] In Sons of the Revolution, as in the instant case, the plaintiff brought an action against Travelers and ConEd due to damage resulting from its loss of electricity during Hurricane Sandy. Id. at *1-2. After Travelers removed the action and moved to sever ConEd, plaintiff moved to remand. Id. Judge Schofield denied Traveler's motion to sever under Rule 21 or fraudulent misjoinder because the plaintiff's claims against Travelers and ConEd arose out of the same occurrence-the plaintiff's ...


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