Opinion
Civil Action No. 3:04-CV-0552-G.
July 8, 2004
MEMORANDUM ORDER
Before the court is the motion of the plaintiff Michael Climer ("Climer") to remand this case to the state court from which it was previously removed. For the reasons discussed below, Climer's motion is granted in part and denied in part.
I. BACKGROUND
This case arises from an insurance carrier's alleged refusal to timely pay benefits owed under a workers' compensation statute. Climer, a maintenance employee of Maxus Properties, Inc. ("Maxus"), was injured when attempting to move a refrigerator at work. See Plaintiff's Original Petition ("Petition") ¶ V, attached to Notice of Removal as Exhibit 1. Climer is a citizen of Texas, see Petition ¶ II; Notice of Removal ¶ 6, and it appears Maxus is a Texas corporation with its principal place of business in Texas, see Petition ¶¶ V-VI. The defendant, Twin City Fire Insurance Company ("Twin City"), was Maxus' workers' compensation insurance carrier on the date of the injury. See Petition ¶ VI. Twin City is an Indiana corporation; its principal place of business is currently disputed by the parties. Compare Notice of Removal ¶ 5 with Response to Motion to Remand and Brief in Support ("Response") at 1-2.
After his injury, Climer filed a claim for benefits with the Texas Workers' Compensation Commission (the "Commission"). Petition ¶ VII. According to Climer, a "Contested Case Hearing Officer" — and later the "Texas Workers' Compensation Commission's Appeals Panel" — ordered Twin City to pay Climer temporary income benefits for his disability. Id. Climer asserts that Twin City has failed to pay him the benefits. Id.; Plaintiff's Motion to Remand and Incorporated Brief in Support Thereof ("Motion") ¶ 1. On February 13, 2004, Climer filed suit against the defendant Twin City in the 249th Judicial District Court of Johnson County, Texas, asserting claims for violation of the Texas Workers' Compensation Act, the Texas Deceptive Trade Practices Act, and the Texas Insurance Code, as well as claims for breach of contract, negligence, tortious interference, and intentional infliction of emotional distress. See generally Petition.
On March 16, 2004, Twin City timely removed this action on the basis of diversity jurisdiction pursuant to 28 U.S.C. § 1441(a). Notice of Removal ¶ 9. On April 15, 2004, alleging improper removal, Climer filed the instant motion to remand the case back to state court. See Docket Sheet; Motion.
II. ANALYSIS
Title 28 U.S.C. § 1441(a) permits removal of "any civil action brought in a State court of which the district courts of the United States have original jurisdiction." Under this statute, "[a] defendant may remove a state court action to federal court only if the action could have originally been filed in the federal court." Aaron v. National Union Fire Insurance Company of Pittsburg, Pennsylvania, 876 F.2d 1157, 1160 (5th Cir. 1989), cert. denied, 493 U.S. 1074 (1990) (citations omitted). Removal jurisdiction must be strictly construed, however, because it "implicates important federalism concerns." Frank v. Bear Stearns Company, 128 F.3d 919, 922 (5th Cir. 1997); see also Willy v. Coastal Corporation, 855 F.2d 1160, 1164 (5th Cir. 1988). Furthermore, "any doubts concerning removal must be resolved against removal and in favor of remanding the case back to state court." Cross v. Bankers Multiple Line Insurance Company, 810 F. Supp. 748, 750 (N.D. Tex. 1992); see also Shamrock Oil Gas Corporation v. Sheets, 313 U.S. 100, 108-09 (1941); Healy v. Ratta, 292 U.S. 263, 270 (1934). The burden of establishing federal jurisdiction is on the party seeking removal. Frank, 128 F.3d at 921-22; Willy, 855 F.2d at 1164.
There are two principal bases upon which a district court may exercise removal jurisdiction: (1) the existence of a federal question, and (2) complete diversity of citizenship among the parties. See 28 U.S.C. §§ 1331, 1332. Here, the court cannot exercise jurisdiction over this case on the basis of a federal question because the case does not present any issues "arising under the Constitution, laws, or treaties of the United States." See 28 U.S.C. § 1331. However, the court can properly exercise jurisdiction on the basis of diversity of citizenship if Climer does not share citizenship with Twin City, and if the case involves an amount in controversy of at least $75,000. See 28 U.S.C. § 1332(a). It was on this basis that Twin City removed this action to the United States District Court for the Northern District of Texas. Notice of Removal ¶¶ 7-9.
Neither party disputes that the amount in controversy exceeds $75,000. See Notice of Removal ¶ 9.
Climer contends, however, that complete diversity of citizenship does not exist because Twin City has not established that the case involves a dispute between citizens of different states. Specifically, Climer asserts that diversity: (1) is absent, as Climer is a citizen of Texas and Twin City "maintains a principal place of business in Texas," Motion ¶ 7; and (2) is vitiated by 28 U.S.C. § 1332(c)(1), which allows Climer to sue Twin City, a foreign insurance company, under a Texas "direct action" statute, see Motion ¶ 8. Climer also asserts that removal of his claims is forbidden under 28 U.S.C. § 1445(c), which prohibits the removability of claims arising under state workers' compensation laws. See Motion ¶¶ 9-12.
A. Twin City's Principal Place of Business
For the purpose of establishing diversity jurisdiction, a corporation is deemed to be a citizen of the state in which it is incorporated and in which it has its principal place of business. See 28 U.S.C. § 1332(c)(1). "[E]very corporation has one and only one principal place of business." J.A. Olson Company v. City of Winona, Mississippi, 818 F.2d 401, 406 (5th Cir. 1987).
It is incumbent upon Twin City, the removing party seeking to avail itself of a federal court's limited subject matter jurisdiction, to prove that its principal place of business is not Texas. See Howery v. Allstate Insurance Company, 243 F.3d 912, 920 (5th Cir.), cert. denied, 534 U.S. 993 (2001). All disputes must be resolved in favor of Climer, the non-removing party. Dodson v. Spiliada Maritime Corporation, 951 F.2d 40, 42 (5th Cir. 1992).
The Fifth Circuit applies the "total activity" test to determine a corporation's principal place of business for diversity purposes. See Howery, 243 F.3d at 920 (citing Olson, 818 F.2d at 404-10). The "total activity" test is a "synthesis of the `place of activity' and `nerve center' tests." Id. at 920. The "place of activity" test focuses on the day to day activities of the business, see Olson, 818 F.2d at 408-09, while the "nerve center" test focuses on the site from which the business is directed and controlled, see id. at 406-08. Under the total activity test, a court looks to the "nature, location, importance, and purpose of a corporation's activities and the degree to which those activities bring the corporation into contact with the local community." Nauru Phosphate Royalties, Inc. v. Drago Daic Interests, Inc., 138 F.3d 160, 164 (5th Cir.), cert. denied, 525 U.S. 876 (1998).
The Olson court laid out three guiding precepts for conducting a principal place of business analysis: (1) the principal place of business of a corporation with operations spread over several states is generally its "nerve center;" (2) the principal place of authority and activity is generally more important than a detached location of executive offices; and (3) the principal place of business of a corporation with its corporate headquarters in one state and its place of activity in another will generally be in the state of its operations. Olson, 818 F.2d at 411; see also Barkley v. Beneficial Corporation, No. 4:03CV029-D-B, 2003 WL 22243890, at *2 (N.D. Miss. Sept. 25, 2003).
Twin City contends that the parties are completely diverse and that jurisdiction is proper in this court. See Notice of Removal ¶ 7; Response at 2. The court agrees. Twin City is incorporated in the State of Indiana and has its home office in Indianapolis, Indiana. Declaration of James Fischer ¶ 3, located in Appendix to Response to Motion to Remand; Notice of Removal ¶ 5; Response at 1-2. Twin City's main administrative office and its only bank account are located in the State of Connecticut. Declaration of James Fischer ¶ 4; Response at 2. Therefore, Twin City directs and controls its business from, and its day to day activities are carried out in, either Indiana or Connecticut — not Texas. See, e.g., Notice of Removal ¶ 5 (asserting that Twin City's principal place of business is Indiana); Maryland Casualty Company v. W.R. Grace Company, No. 88 Civ. 2613 (JSM), 1996 WL 34156, at *1 (S.D.N.Y. Jan. 30, 1996) ("Twin City [is] an Indiana corporation with its principal place of business in Connecticut . . ."); Twin City Fire Insurance Company v. Pittsburgh Corning Corporation, 813 F. Supp. 1147, 1147 (W.D. Pa. 1992) ("[Twin City] is a corporation organized pursuant to the laws of the State of Indiana, which maintains its principal place of business in Connecticut."), aff'd, 6 F.3d 780 (3d Cir. 1993) (table); Twin City Fire Insurance Company v. Country Mutual Insurance Company, No. 92 C 1226, 1992 WL 97669, at *1 (N.D. Ill. May 1, 1992) ("Twin City is a corporation organized under the laws of the State of Indiana, with its principal place of business in Hartford, Connecticut."). Applying the "total activity" test to these circumstances, the court finds that Twin City's principal place of business is not Texas and that the parties are therefore of diverse citizenship. See Howery, 243 F.3d at 920.
Climer asserts that Twin City "maintains a principal place of business in Texas as well as Indiana." Motion ¶ 7 (emphasis added). The case law is clear, however, that Twin City can only have one principal place of business. Olson, 818 F.2d at 406.
According to Twin City, it does not even have an office in Texas. Declaration of James Fischer ¶ 4.
B. The Direct Action Exception
Climer asserts that diversity is vitiated by 28 U.S.C. § 1332(c)(1). Motion ¶ 8. This statute provides, in pertinent part:
(c) For the purposes of this section and section 1441 of this title —
(1) a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business, except that in any direct action against the insurer of a policy or contract of liability insurance, whether incorporated or unincorporated, to which action the insured is not joined as a party-defendant, such insurer shall be deemed a citizen of the State of which the insured is a citizen . . .28 U.S.C. § 1332(c)(1) (emphasis added). This so-called "direct action exception" was enacted "to prohibit federal diversity jurisdiction in lawsuits filed under a state direct action statute which allows a plaintiff harmed by the insured, when both are citizens of the same state, to sue a foreign insurance company for recovery of benefits under the policy without having first to secure a judgment against the insured." Holland America Insurance Company v. Succession of Roy, 777 F.2d 992, 995 (5th Cir. 1985); see also Northbrook National Insurance Company v. Brewer, 493 U.S. 6, 10 (1989).
Texas has not enacted a direct action statute. State Farm Fire and Casualty Company v. Fullerton, 118 F.3d 374, 385 (5th Cir. 1997) (citing Jilani v. Jilani, 767 S.W.2d 671, 675-76 (Tex. 1988) (Mauzy, J., concurring)).
Climer's claims for violations of the Texas Deceptive Trade Practices Act and the Texas Insurance Code, as well as his claims for breach of contract, negligence, tortious interference, and intentional infliction of emotional distress, do not lie within the direct action exception of § 1332(c)(1). These claims do not arise from the actions or negligence of the insured, here Maxus. Instead, the claims arise from alleged improper conduct in handling Climer's workers' compensation claim and other alleged tortious activity for which Twin City would be directly liable to Climer. Thus, with respect to those claims, section 1332(c) does not apply and Twin City will not be clothed with the citizenship of Maxus for purposes of diversity jurisdiction.
The same is not true, however, of Climer's claim for benefits under the Texas workers' compensation statute. In Hernandez v. Travelers Insurance Company, the Fifth Circuit took a broad reading of the applicability of 28 U.S.C. § 1332(c)(1) in the context of workers' compensation claims. 489 F.2d 721, 723 (5th Cir.), cert. denied, 419 U.S. 844 (1974). The court held that a suit filed against an insurer under a workers' compensation statute is a "direct action" within the meaning of § 1332(c), id. at 723, despite the unique Texas statute which does not allow the employee to sue his employer directly, but relegates him to an action against the insurer. Id. at 724 (finding that the Texas workmen's compensation statute "goes further than a `direct action' statute, which simply permits a suit against the insurer, without joining the insured"). Thus, Climer's claim against Twin City under the Texas' workers' compensation statute, TEX. LAB. CODE § 410.208 (Vernon 2004), lies within the direct action exception to diversity jurisdiction under 28 U.S.C. § 1332(c)(1).
In sum, 28 U.S.C. § 1332(c)(1) does not prevent the exercise of diversity jurisdiction over Climer's claims based on the Texas Deceptive Trade Practices Act and the Texas Insurance Code, or over his claims for breach of contract, negligence, tortious interference, and intentional infliction of emotional distress. However, section 1332(c)(1) does preclude the exercise of diversity jurisdiction over Climer's claim under section 410.208 of the Texas Labor Code, and this claim must therefore be remanded.
C. Non-Removable Workers' Compensation Claims
Section 1445(c) provides that "[a] civil action in any State court arising under the workmen's compensation laws of such State may not be removed to any district court of the United States." 28 U.S.C. § 1445(c). Generally, if a state has a statutory provision within its workers' compensation law that creates the claim in question, that claim "arises under" the state's workers' compensation laws and is not removable. Hanna v. Fleetguard, Inc., 900 F. Supp. 1110, 1118 (N.D. Iowa 1995); see also Patin v. Allied Signal, Inc., 77 F.3d 782, 787-89 (5th Cir. 1996); Humphrey v. Sequentia, Inc., 58 F.3d 1238, 1246 (8th Cir. 1995). "On the other hand, if the claim is not expressly provided for in the state's statutory workers' compensation scheme, but rather is fashioned by the courts from a state's common law, the claim does not `arise under' the state's workers' compensation laws and therefore can be removed." Hanna, 900 F. Supp. at 1118; see also Patin, 77 F.3d at 787-89.
The issue before this court is whether Climer's claims "arise under" Texas' workers' compensation laws, precluding removal of these claims to this court and requiring a remand to state court pursuant to § 1445(c). Compare Motion ¶¶ 9-12 (asserting that removal of any of Climer's claims is forbidden under § 1445(c)) with Response at 3-5 (contending that none of Climer's claims arises under the Texas workers' compensation statutes).
In this case, Climer's state court petition alleges that Twin City violated a state workers' compensation statute, specifically TEX. LAB. CODE § 410.208 (Vernon Supp. 2004). Petition ¶ VIII. This statute provides:
(b) If an insurance carrier refuses or fails to comply with an interlocutory order, a final order, or a decision of the commission, the claimant may bring suit in the county of the claimant's residence or the county in which the injury occurred to enforce the order or decision.Id. § 410.208(b). This statute creates a cause of action against non-compliant insurance carriers, as it provides for "a penalty equal to 12 percent of the amount of benefits recovered in the judgment, interest, and reasonable attorney's fees for the prosecution and collection of the claim, in addition to a judgment enforcing the order or decision." Id. § 410.208(d). Because Climer brought his state court action pursuant to a Texas workers' compensation statute that created his cause of action, his claim "arises under" Texas workers' compensation laws and, by virtue of § 1445(c), is not removable to federal court. Therefore, Climer's claim under TEX. LAB. CODE § 410.208 must be remanded.
However, section 1445(c) is not applicable to Climer's claims that Twin City breached its duty of good faith and fair dealing. In Patin, the Fifth Circuit held
The Patin court explicitly rejected the only case cited by Climer, see Motion ¶ 12, for the proposition that bad faith claims are not removable, Walker v. Health Benefit Management Cost Containment, Inc., 860 F. Supp. 1163 (N.D. Tex. 1994). See Patin, 77 F.3d at 788.
that a covered employee's claims and the claims of those asserting rights through the employee against the employer's workers' compensation insurance carrier for breach of the duty of good faith and fair dealing are not immunized against removal to federal court by the provisions of 28 U.S.C. § 1445(c).77 F.3d at 784 (emphasis in original). Accordingly, Climer's claim for breach of the duty of good faith and fair dealing is subject to removal. In addition, Climer's claim for exemplary damages, see Petition ¶ IX, under TEX. LAB. CODE § 416.002 (Vernon 1996) — a statute that limits the amount of damages Climer may recover in a common law action for a breach of the duty of good faith and fair dealing against Twin City — is not immunized against removal. See Patin, 77 F.3d at 790 n. 36.
Climer's remaining causes of action — for violations of the Deceptive Trade Practices Act and the Texas Insurance Code, and for breach of contract, negligence, tortious interference, and intentional infliction of emotional distress — are only incidentally related to the Texas workers' compensation statutes. The Texas workers' compensation statutes did not create these causes of action and, therefore, they do not come within the ambit of the non-removability provision of § 1445(c).
III. CONCLUSION
As discussed above, removal of Climer's worker compensation claim under TEX. LAB. CODE § 410.208 was improper under both 28 U.S.C. § 1332(c)(1) and 28 U.S.C. § 1445(c). Accordingly, Climer's motion to remand his TEX. LAB. CODE § 410.208 claim is GRANTED, and this claim is SEVERED and REMANDED to the 249th Judicial District Court of Johnson County, Texas. The clerk shall mail a certified copy of this memorandum order to the district clerk of Johnson County, Texas. 28 U.S.C. § 1447(c).
However, Climer's motion to remand his remaining claims under the Texas Deceptive Trade Practices Act and the Texas Insurance Code — as well as his claims for breach of contract, negligence, tortious interference, and intentional infliction of emotional distress — is DENIED, as this court has diversity jurisdiction over those claims under 28 U.S.C. § 1332.