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Hershfeld v. JM Woodworth Risk Retention Group, Inc.

United States District Court, E.D. New York

May 1, 2017

D.O. ALVIN HERSHFELD and MEDICAL OFFICE OF HOWARD BEACH, P.C., Plaintiffs,
v.
JM WOODWORTH RISK RETENTION GROUP, INC., SALVATORE LEONE, and SANTA LEONE, Defendant.

          MEMORANDUM DECISION AND ORDER

          Brian M. Cogan Judge.

         Plaintiffs Alvin Hershfeld, D.O. and Medical Office of Howard Beach, P.C. commenced this declaratory judgment action in the Supreme Court of the State of New York, Queens County, based on JM Woodworth Risk Retention Group, Inc.'s (“JMW”) disclaimer of malpractice insurance coverage in a personal injury action brought by defendants Salvatore and Santa Leone. JMW removed the action to this Court based on diversity of citizenship, and plaintiffs have moved to remand the action, contending, inter alia, that both they and JMW are New York citizens. I agree with plaintiff; at all relevant times, JMW has been, and still is, a New York citizen, as are plaintiffs. There is no diversity of citizenship and therefore no subject matter jurisdiction. Pursuant to 28 U.S.C. § 1447(c), plaintiffs' motion to remand is therefore granted.

         BACKGROUND

         I. The Parties

         Alvin Hershfeld is a physician licensed in New York and employed by the Medical Office of Howard Beach, which is incorporated and maintains its principal place of business in New York. JMW, a risk retention group (a species of specialty insurance companies), formerly underwrote medical malpractice insurance policies predominantly in New York. JMW is a corporation organized under the laws of the State of Nevada. Three of JMW's four directors are located in New York, either in Syracuse, Rochester, or Oneida. Skip Pleninger, the director from Rochester, also serves as JMW's Chairman, Vice President, and Secretary.

         According to JMW, JMW has never had its own employees. Before 2014, JMW had delegated day-to-day operations of its business to Uni-Ter Underwriting Management Corporation (“Uni-Ter”), a Delaware corporation with its principal place of business in Georgia. As a result of alleged mismanagement, in early 2014, JMW replaced Uni-Ter and delegated its executive functions and day-to-day operations to Allied Professionals Insurance Services, Inc. (“APIS”), a corporation organized and existing under the laws of the State of California, having a principal place of business in California. New York State suspended JMW's authority to issue policies in New York State as of March 13, 2015, and on the same day, the State of Nevada approved a Voluntary Suspension of the Certificate of Authority for JMW to underwrite insurance coverage. JMW is thus currently in run-off, with APIS in charge of administering claims under JMW's previously written policies.

         JMW issued a policy to Hershfeld and the Medical Office, effective July 1, 2011, through July 1, 2013, and retroactive to July 1, 2008. In December 2013, defendants Salvatore and Santa Leone filed a medical malpractice suit in New York State Supreme Court, Queens County, Salvatore Leone and Santa Leone v Alvin Hershfeld, D.O. and Medical Office of Howard Beach, P.C., Queens County Index No.: 705826/2013 (“the Leone action”), arising out of alleged medical malpractice by plaintiffs in November 2011.

         JMW initially provided coverage for plaintiffs' defense, indemnification, and legal representation, hiring Harter Seacrest & Enery, P.C. of Rochester to defend the Leone action. In early 2015, JMW substituted the law firm of Marks O'Neill O'Brien Doherty & Kelly, P.C. in place of Harter Seacrest.

         On January 29, 2016, while the Leone action was on the trial calendar, JMW disclaimed coverage under the policy and ceased funding the defense. Marks O'Neill continued to provide legal representation until March 29, 2016, when it moved to withdraw for non-payment of its legal fees. The state court denied the motion to withdraw, and Marks O'Neill did not appeal. Plaintiffs allege that Marks O'Neill can no longer ethically defend them and in any event are unacceptable as defense counsel.

         At the time that plaintiffs first filed the instant declaratory judgment matter in state court, JMW was refusing to defend and indemnify plaintiffs. At some subsequent point in time, JMW resumed paying Marks O'Neill to defend, but under a reservation of rights on the indemnity and defense obligations.

         On November 16, 2016, JMW removed the declaratory judgment action to federal court, alleging diversity of jurisdiction. It is undisputed that Hershfeld and the Medical Office are New York citizens and that the Leones are also New York citizens. As to the Leones, JMW argues that the Court can disregard their citizenship because the Leones are nominal parties whose citizenship is irrelevant. JMW argues that its principal place of business is in California based on the California activities of APIS on JMW's behalf; further, because JMW is incorporated in Nevada, it is not a New York citizen for diversity purposes.

         II. JMW's Previous Positions Regarding Its Citizenship

         Several other federal courts have considered JMW's citizenship for diversity purposes. First, in JM Woodworth Risk Retention Group, Inc. v. Uni-Ter Underwriting Management Corp., No. 2:13-CV-0911 (D. Nev. August 4, 2014) (the “Uni-Ter action” or” Uni-Ter”), the court held that JMW's principal place of business was in New York. This was the position that JMW had urged the Court to take. (JMW had argued in the alternative that if New York was not its principal place of business, then it was Georgia based on Uni-Ter's actions in Georgia on its behalf.) All of JMW's board members submitted affidavits averring that all corporate decision-making took place in New York and that the Board of Directors, acting in New York, ratified all actions taken on behalf of the corporation.

         While the Uni-Ter motion to remand was sub judice, JMW commenced another action in this district in which it alleged, contrary to its position in Nevada, that it was not a New York citizen. J.M. Woodworth Risk Retention Grp., Inc. v. Wyckoff Heights Med. Ctr., No. 13-cv-00750 (E.D.N.Y.) (“Wyckoff Heights”). It relied on a close variation of its theory in the instant case - that the court should impute the location (Georgia) where its agent (at that time, Uni-Ter) performed insurance services on JMW's behalf as determinative of JMW's principal place of business. It acknowledged, however, that if the court in Uni-Ter accepted its argument that it was a New York citizen, then diversity would be lacking ...


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