Opinion
Civil Action No. 5:04-CV-141-C.
August 31, 2004
ORDER
On this date the Court considered the Motion to Remand filed by Plains Independent School District ("Plaintiff") on July 23, 2004. The Court further considered the Notice of Removal filed June 23, 2004, by Defendants Maryland Casualty Company ("Maryland") and Zurich American Insurance Company ("Zurich") and the Response filed by Maryland and Zurich to Plaintiff's remand motion on August 12, 2004. The Court also considered the Response filed by Defendant Hicks-Burden, Inc. d/b/a HBI General Contractor ("HBI") to Plaintiff's remand motion on August 20, 2004. After considering all the relevant arguments and evidence, this Court GRANTS Plaintiff's Motion to Remand and REMANDS this action to the 121st Judicial District Court of Yoakum County, Texas.
I. BACKGROUND
This lawsuit was originally filed in the 121st Judicial District Court of Yoakum County, Texas, on October 22, 2003. A hail storm occurred in Plains, Texas on or about October 1, 2002. Defendant had previously issued an insurance policy to Plaintiff for a term of coverage beginning on January 20, 2002 until January 20, 2003. The policy insured the Plaintiff's facilities against direct loss resulting from, among other things, hail damage by providing replacement cost coverage. Plaintiff's cause of action arises from injuries allegedly suffered as a result of the Defendants undertaking actions intended to delay and distort the actually loss sustained by the Plaintiff by initially and significantly under-reporting the actual replacement cost and recklessly evaluating the claim; with the ultimate goal being to accomplish an early settlement with the Plaintiff far below the actual loss. Specifically, Plaintiff alleges that the Defendants undertook fraudulent and negligent actions, along with intentional misrepresentations, as part of a conspiracy designed to fraudulently induce and coerce the Plaintiff into accepting a lower cash amount settlement than the coverage under the policy by accepting a type of replacement roof different than that which existed prior to the hail damage. Plaintiff alleges that the conspiratorial and fraudulent actions and misrepresentations of Defendants, including HBI and Morris, led to a delay in bidding the replacement and repair of the roofs, which allegedly caused it to suffer greater damages.As stated above, on June 23, 2004, Defendants Maryland and Zurich removed this action to the United States District Court for the Northern District of Texas, Lubbock Division. The Defendants alleged that removal was proper because Defendants HBI and Scott Morris Engineering Consultants ("Morris") were fraudulently joined, in which case the Court should disregard the non-diverse citizenship of those two defendants for the purpose of establishing diversity jurisdiction. Defendants represented in their Notice of Removal that process had not been served on Defendant Morris and thus Morris' consent was not required for removal.
II. STANDARD
Once a case has been removed, the removing party bears the burden of proving that jurisdiction exists. Dodson v. Spiliada Maritime Corp., 951 F.2d 40, 42 (5th Cir. 1992) (citations omitted). Removal statutes are to be strictly construed and any uncertainty regarding jurisdiction is to be resolved in favor of remand Brown v. Demco, 792 F.2d 478, 482 (5th Cir. 1986). If the removing party alleges jurisdiction on the basis that non-diverse parties have been fraudulently joined, then the removing party must prove the existence of fraud. Carriere v. Sears, Roebuck and Co., 893 F.2d 98 (5th Cir. 1990). To prove its allegation of fraud, the removing defendant must show either that there is no reasonable basis for predicting that state law would allow recovery against the in-state defendant in state court; or that there has been outright fraud in the plaintiff's pleadings of jurisdictional facts. B., Inc. v. Miller Brewing Co., 663 F.2d 545 (5th Cir. 1981); Badon v. RJR Nabisco Inc., 236 F.3d 282, 286 n. 4 (5th Cir. 2000); see also, Travis v. Irby, 326 F.3d 644, 648 (5th Cir. 2003) ("If there is arguably a reasonable basis for predicting that the state law might impose liability on the facts involved, then there is no fraudulent joinder. This possibility, however, must be reasonable, not merely theoretical.") (italics omitted; citation omitted).
In determining whether the joinder of parties is fraudulent, the district court must evaluate all unchallenged factual allegations, including those in the complaint, in the light most favorable to the plaintiff, resolving all contested issues of substantive fact and ambiguities in state law in favor of the plaintiff. Griggs v. State Farm Lloyds, 181 F.3d 694, 699-702 (5th Cir. 1999).
However, the court must not "pre-try" substantive factual issues in order to answer the discrete threshold question of whether the joinder of an in-state defendant is fraudulent. B., Inc., 663 F.2d at 546. The court must not decide whether the plaintiff will actually or even probably prevail on the merits but must look only for a reasonable possibility that plaintiff may do so. Dodson, 951 F.2d at 42; Travis, 326 F.3d at 648. If the possibility exists that a plaintiff may prevail, then "a good faith assertion of such an expectancy in a state court is not a sham . . . and is not fraudulent in fact or in law." B., Inc., 663 F.2d at 550 (internal quotations and citations omitted). If, however, no possible claims exist against the non-diverse defendant, its presence must be disregarded for jurisdictional purposes. Tedder v. F.M.C. Corp., 590 F.2d 115, 116-17 (5th Cir. 1979).
III. DISCUSSION
The basis for Defendants' argument that removal is proper is their contention that the non-diverse defendants, HBI and Morris, have been fraudulently joined, thus allowing the Court to ignore their citizenship for the purpose of establishing diversity jurisdiction. Defendants' contention of fraudulent joinder rests primarily on their argument that the Plaintiff has no reasonable possibility of recovery on its claims against Defendants HBI and Morris. Defendants and Plaintiff argue whether Plaintiff can meet the elements of Plaintiff's claims against HBI and Morris for fraud, misrepresentation, and conspiracy.
The Fifth Circuit has held that a defense upon which fraudulent joinder is based that requires a determination of the merits should be disposed of by the state court. See Smallwood v. Illinois Central R.R. Co., 342 F.3d 400 (5th Cir. 2003) ( en banc hearing granted on other grounds); see also B., Inc., 663 F.2d at 546; Travis, 326 F.3d at 648.
After a careful review of the record before this Court, the reasonable possibility exists that the Plaintiff's arguments may succeed in state court. Therefore, viewing all facts in the light most favorable to Plaintiff, Defendants have established only that a fact issue exists which would require resolution by a jury. The Defendants have not established that Plaintiff cannot possibly recover against HBI or Morris. Accordingly, this Court cannot determine that HBI and Morris have been fraudulently joined based on Defendants' no-evidence defense. State court, and not this Court, is the proper forum for determining the merits of whether Plaintiff has sufficient evidence, circumstantial or direct, to be able to persuade a jury as to the claims against HBI and Morris.
As Plaintiff's counsel aptly stated in Plaintiff's Brief in Support of its Motion to Remand, "Defendants['] removal of this action is simply an attempt to circumvent the state court's jurisdiction by having this court rule on a no-evidence motion for summary judgment guised as a removal action." Pl. Br. at ¶ 65.
This Court also finds that the representations made by HBI and Morris to Plaintiff regarding (1) the requirements of bidding the roof replacement, (2) whether the bitumen roof is of the same quality as a foam roof, and (3) whether HBI was qualified to do the job, are all arguably a reasonable basis for predicting that the state law might impose liability on the facts involved in this case and the possibility exists that the Plaintiff may prevail. Moreover, the fact that HBI's "estimate" or "bid" was the same as the amount Maryland declared would be the amount it would pay to cover the claim, also creates fact issues for the jury to determine. The joinder of Defendants HBI and Morris is therefore "not a sham . . . and is not fraudulent in fact or in law." B., Inc., 663 F.2d at 550 (internal quotations and citations omitted). Therefore, removal is improper and remand under these circumstances is required.
IV. CONCLUSION
For the foregoing reasons, the Court cannot conclude that there is no reasonable possibility that Plaintiff has stated a claim cognizable in state court against Defendants HBI and Morris. Thus, Defendants have failed to meet their burden of proving fraudulent joinder as to HBI and Morris, and this Court cannot ignore their citizenship for the purpose of determining diversity jurisdiction. Absent complete diversity, removal is improper and remand is required. After considering all the relevant arguments and evidence, this Court GRANTS Plaintiff's Motion to Remand and REMANDS this action to the 121st Judicial District Court of Yoakum County, Texas. Pursuant to 28 U.S.C. § 1447(c), the Court finds that it lacks jurisdiction over this case. Costs of removal are taxed against Defendants Maryland and Zurich. The Clerk of this Court shall mail a certified copy of this order to the District Clerk of Yoakum County, Texas.
SO ORDERED.