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De Mendonca v. West Coast Life Insurance Co.

United States District Court, D. Hawaii

March 1, 2016





Defendants ASB Hawaii, Inc., and American Savings Bank (collectively “ASB”) object under 28 U.S.C. § 636(b)(1) and Local Rule 72.4 to a January 8, 2016 Findings and Recommendation of Magistrate Judge Richard Puglisi to Grant Plaintiffs’ Motion to Remand, Doc. No. 40 (“the January 8, 2016 F&R”). See Doc. No. 41. The January 8, 2016 F&R recommended that the court remand this action to the First Circuit Court, State of Hawaii (“State Court”) for lack of subject matter jurisdiction. It determined that Plaintiffs’ state law claims for breach of contract and violations of Hawaii Revised Statutes (“HRS”) § 480-2 against ASB did not present a federal question under the complete preemption doctrine set forth in Metropolitan Life Insurance Co. v. Taylor, 481 U.S. 58, 63-64 (1987) and similar cases. Upon de novo review, the court agrees that the complete preemption doctrine does not apply, and that the Amended Complaint does not otherwise present a substantial federal question. Accordingly, the court OVERRULES the objection, ADOPTS the January 8, 2016 F&R, and REMANDS the action to State Court for lack of federal subject matter jurisdiction.


Plaintiffs’ original Complaint alleged that Defendants West Coast Life Insurance Company and Protective Life Insurance Company (collectively, “West Coast Defendants”) are liable for insurer bad faith, breach of contract, and other state-law causes of action regarding a failure to pay benefits under a life insurance policy issued to Sheri De Mendonca, who passed away in 2015. See Doc. No. 1-2, Compl. The West Coast Defendants removed the original Complaint from State Court based on diversity of citizenship. See Doc. No. 1, Notice of Removal.

After removal, Plaintiffs filed a Motion seeking leave to file a First Amended Complaint (“FAC”) that repeated the allegations against the West Coast Defendants but also joined ASB -- corporate entities with the same citizenship as Plaintiffs -- as Defendants, asserting state-law claims against them for breach of contract and violations of HRS § 480-2. Doc. No. 23. The motion to amend was granted, and Plaintiffs filed the FAC on November 9, 2015. Doc. Nos. 22, 23. Because this amendment destroyed diversity of citizenship, Plaintiffs moved to remand the action under 28 U.S.C. §§ 1447(e).[1] Doc. No. 29. The January 8, 2016 F&R recommended granting Plaintiffs’ Motion to Remand. Doc. No. 40. ASB filed its Objection on January 22, 2016, Doc. No. 41, and Plaintiffs filed their Response on February 5, 2016. Doc. No. 45.

As to ASB, the FAC challenges the manner in which ASB ceased paying monthly premiums on Sheri De Mendonca’s life insurance policy.[2] The FAC alleges that, for nearly seven years, the premiums were being paid via automatic deduction from Sheri De Mendonca’s ASB checking account. FAC at 2. It alleges that she had “overdraft protection, ” whereby ASB was supposed to make automatic payments (such as her life insurance premiums) even if the account was overdrawn, subject to overdraft fees. Id. at 4; 11 ¶ 20. The West Coast Defendants had cancelled the life insurance policy in September 2014 (allegedly without providing proper or sufficient notice) after a July 23, 2014 premium was not paid. Regarding that July 2014 premium, the FAC alleges:

[ASB] indicated a “subtraction” from her account on July 23, 2014 in the amount of $43.68, payable to “WEST COAST LIFE INS. PREM, ” with the next entry of “OVERDRAFT FEE Insufficient Funds.” However, on the very next day [ASB] posted an addition of the $43.68 back into Sheri’s account. [ASB] never sent any notice to Sheri that it was declining West Coast Life Insurance’s request for payment, even though in its published representations regarding overdraft it had represented that it would authorize and pay overdrafts for “automatic bill payments.”

Id. at 4. It alleges the “[t]he July 23, 2014 posting of ‘OVERDRAFT FEE Insufficient Funds’ with [a] subtraction of $30.00 in no way identified to what specific transaction the overdraft fee applied, and directly followed the West Coast Life ‘subtraction.’” Id. ¶ 36. And it claims that “Defendant ASB did not notify [Plaintiffs] that [ASB] was now implementing a new policy whereby [ASB] would decline their automatic bill payments when they had insufficient funds.” Id. ¶ 34. It explains:

[ASB’s] false and deceptive representations regarding courtesy overdraft, its confusing manner of posting transactions, and failure to notify Sheri that it would decline West Coast’s $45.68 request for payment after apparently paying it, in conjunction with West Coast and Protective Life’s wrongful revocation of the automatic payment agreement and cancellation of Sheri’s policy, all without proper notice, has given rise to a broad number of harms to [Plaintiffs].

Id. at 5.

The FAC further alleges that “Neither [Plaintiff] authorized Defendant ASB to decline any automatic bill payment request by the West Coast Defendants, and they received no notice from Defendant ASB that the West Coast automatic bill payment request had been declined for any reason.” Id. ¶ 41.

Claiming a breach of contract against ASB, the FAC alleges that overdraft protection was an essential term of the ASB checking account. Id. ¶ 93. Plaintiffs “relied to their detriment on Defendant ASB’s representations that ASB would cover any automatic bill payments, even when their account was overdrawn, subject to overdraft fees.” Id. ¶ 94. “Defendant ASB breached the checking account agreement with [Plaintiffs] when the bank unilaterally rescinded the overdraft transaction to West Coast Life of July 23, 2014 and instituted an ‘addition’ to their overdrawn account the following day.” Id. ¶ 95.

In its HRS § 480-2 claim, the FAC alleges that “ASB made false and deceptive representations regarding ASB’s authorization and payment of automatic bill payments presented when a consumer’s account was overdrawn.” Id. ¶ 102. In particular, it refers to an ASB publication titled “What You Need to Know About Overdrafts and Overdraft Fees.” Id. ¶¶ 104-05. The § 480-2 claim, however, is not limited to the wording of that publication. For example, it further alleges that “[t]he manner in which Defendant ASB posts its overdraft fee transactions, without any identifying information as to which transaction the overdraft fee applies, is misleading, false and deceptive.” Id. ¬∂ 106. It claims that ‚ÄúDefendant ASB engaged in a deliberate, fraudulent, and manipulative scheme in which they offered Plaintiffs overdraft ...

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