Opinion
Civil Action No. 3:01-CV-1305-D
October 15, 2001
MEMORANDUM OPINION AND ORDER
The instant motions to remand and to dismiss present the question whether there is any possibility under Texas law that plaintiffs can recover against a defendant-adjuster employed by an insurance company, and, therefore, whether he was fraudulently joined so that the case is removable despite his Texas citizenship, and whether the action against him should be dismissed. Because the court holds that it is possible that plaintiffs can recover against the adjuster, it concludes that he was not fraudulently joined, denies defendants' motion to dismiss, and remands this case to state court. The court denies plaintiffs' request for attorney's fees and costs.
I
Plaintiffs Clinton H. Russell ("Russell") and Norma Russell sued defendant State Farm Lloyds ("State Farm") and a State Farm employee adjuster, Jason Divin ("Divin"), in Texas state court. They alleged that plumbing leaks caused foundation damage to their home, which was insured by State Farm. Plaintiffs asserted causes of action for breach of contract, unfair insurance practices under Tex. Ins. Code Ann. art. 21.21 (Vernon 1981 Pamp. Supp. 2001), and in violation of the Texas Deceptive Trade Practices-Consumer Protection Act, Tex. Bus. Com. Code Ann. §§ 17.41-17.826 (Vernon 1987 Pamp. Supp. 2001), and for breach of the duty of good faith and fair dealing. State Farm removed the case based on diversity of citizenship, contending that Divin, a Texas citizen, was fraudulently joined.
Plaintiffs move to remand based on an absence of complete diversity. Defendants move to dismiss plaintiffs' claims against Divin. Because both motions present the same issue, the court will consider them together.
II A
The presence of Divin as a defendant is to be disregarded for removal purposes if his joinder is fraudulent. See B., Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (5th Cir. Unit A Dec. 1981). The jurisprudence of, and procedure for determining, fraudulent joinder are well settled. The burden of proving fraudulent joinder is on defendants. They must "show either that there is no possibility that the plaintiff would be able to establish a cause of action against the in-state defendants in state court or that there has been outright fraud in pleading the jurisdictional facts." Pesch v. First City Bank of Dallas, 637 F. Supp. 1530, 1537 (N.D. Tex. 1986) (Fitzwater, J.). The removing party carries a heavy burden when attempting to prove fraudulent joinder. See Cavallini v. State Farm Mut. Auto Ins. Co., 44 F.3d 256, 259 (5th Cir. 1995). "The removing party must prove that there is absolutely no possibility that the plaintiff will be able to establish a cause of action against the in-state defendant in state court, or that there has been outright fraud in the plaintiff's pleading of jurisdictional facts." Id (quoting Green v. Amerada Hess Corp., 707 F.2d 201, 205 (5th Cir. 1983)). This circuit has clearly established the standard for determining fraudulent joinder: "After all disputed questions of fact and all ambiguities in the controlling state law are resolved in favor of the nonremoving party, the court determines whether that party has any possibility of recovery against the party whose joinder is questioned." Corriere v. Sears, Roebuck Co., 893 F.2d 98, 100 (5th Cir. 1990). The court is to follow a summary judgment-like procedure for disposing of fraudulent joinder issues. Id. This procedure allows the court to pierce the pleadings and look to affidavits and deposition testimony for evidence of fraud or of the possibility that a plaintiff can state a claim against a nondiverse defendant under state law. Id. The procedure does not in any way mitigate the removing party's difficult burden, however, that must be overcome when attempting to prove fraudulent joinder. Id.
B
Plaintiffs allege in their state court petition that the foundation of their home has experienced differential movement as a result of plumbing leaks. They contend that, in an effort to avoid paying their claim, State Farm hired a biased engineer to investigate the cause of the damage to their home. SeePet. at 3. Plaintiffs maintain that State Farm, acting by and through its agents and employees, deliberately misrepresented the terms of the policy and wrongfully refused to pay for the damages to their home. Id. They also allege that Divin (1) "represented the policy provided coverage for damage caused as a result of plumbing leaks[,]" (2) "disregarded all pertinent evidence relevant to why this damage was caused by the plumbing leaks[,]" (3) "failed to fully and properly investigate the Plaintiffs' claim[,]" and (4) "engaged in an unconscionable course of action by misrepresenting and concealing material facts in connection with this insurance claim." Id. at 4.To determine whether there is any possibility that plaintiffs can recover against Divin based on their state court petition, the court focuses on their allegations under article 21.21 of the Texas Insurance Code. Article 21.21 is designed to
regulate trade practices in the business of insurance by defining, or providing for the determination of, all such practices in this state which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined.
Tex. Ins. Code art. 21.21, § l(a). In Liberty Mutual Insurance Co. v. Garrison, 966 S.W.2d 482, 484 (Tex. 1998), the Texas Supreme Court explained that "[s]ection 3 of Article 21.21 prohibits any person from engaging in deceptive trade practices in the insurance business, and section 16 provides a private cause of action against a person that engages in an act or practice declared in section 4 of the article to be unfair or deceptive." Id(citing Tex. Ins. Code art. 21.21, § 16(a) (Vernon 1981 Pamp. Supp. 2001)). Further, article 21.21 defines "person" to include "any individual, corporation, association, partnership, reciprocal exchange, inter-insurer, Lloyds insurer, fraternal benefit society, and any other legal entity engaged in the business of insurance, including agents, brokers, adjusters and life insurance counselors." Id. §§ 2(a) (emphasis added). Thus article 21.21, § 2(a) specifically provides that the definition of "person" includes an adjuster. Moreover, in Liberty Mutual the court rejected the premise that an individual employee of an insurance company was not included within § 2(a)'s definition of "person." See Liberty Mutual, 966 S.W.2d at 485.
Plaintiffs contend the facts they have pleaded make out a cause of action under article 21.21, § 4(10)(a)(ii). This section makes an "unfair settlement practice" "failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim with respect to which the insurer's liability has become reasonably clear." This, in turn, is an "unfair method of competition or an unfair or deceptive act or practice in the business of insurance." Section 3 of article 21.21 prohibits a "person" from engaging in such practices.
Their petition does not specifically cite § 4(10)(a)(ii), but it does refer to Tex. Ins. Code Ann. art. 21.21 and subsequently states that "Defendants, State Farm Lloyds and Jason Divin, are guilty of the following unfair insurance practices: . . .
D. Not attempting in good faith to effectuate a prompt, fair, and equitable settlement of claims submitted in which liability has become reasonably [sic] [.]"
Pet. at 5. Given the virtually identical language of § 4(10)(a)(ii), the court construes this to be an allegation that Divin violated this section.
The question therefore becomes whether plaintiffs sufficiently allege in their petition that Divin — who is a "person" under § 2(a) — failed to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim with respect to which State Farm's liability had become reasonably clear. Plaintiffs allege that Divin "disregarded all pertinent evidence relevant to why this damage was caused by the plumbing leaks" and "failed to fully and properly investigate the Plaintiffs' claim." Pet. at 4. Because both actions could be a means of obstructing, rather than effectuating, a prompt, fair, and equitable settlement of a claim with respect to which the insurer's liability had become reasonably clear, the allegation sufficiently pleads a basis for a Texas court to find that Divin violated § 4(10)(a)(ii). In Shiplesy v. National Fire Ins. of Hartford, 1998 WL 355493, at *4 (N.D. Tex. 1998) (Boyle, J.), a judge of this court found that similar allegations, made under precisely the same statutory section, were sufficient to defeat an assertion that an insurance adjuster had been fraudulently joined.
Additionally, plaintiffs argue that they have pleaded facts sufficient to support a cause of action under § 4(10)(a)(iv). Section 4(10)(a)(iv) defines as an "unfair settlement practice" "failing to provide promptly to a policyholder a reasonable explanation of the basis in the policy, in relation to the facts or applicable law, for the insurer's denial of a claim or for the offer of a compromise settlement of a claim." State Farm's notice of removal contains a letter that Russell wrote to Divin in which Russell demands an explanation for State Farm's denial of coverage of the foundation damage. See Not. of Rem., Ex. 1. In the letter, Russell insisted on an explanation "in relation to the facts," namely, the disputed facts surrounding the cause of the foundation damage. Russell objected to the procedure that Divin had employed to investigate the claim. These objections are similar to the assertion contained in the petition that Divin "disregarded all pertinent evidence relevant to why this damage was caused by the plumbing leaks" and "failed to fully and properly investigate the Plaintiffs' claim." Pet. at 4. Both assertions, if true, would indicate that Divin failed "to provide promptly to a policyholder a reasonable explanation of the basis in the policy, in relation to the facts or applicable law, for the insurer's denial of a claim or for the offer of a compromise settlement of a claim." Tex. Ins. Code Ann. art. 21.21 § 4(10)(a)(iv) (Vernon 1981 Pamp. Supp. 2001) (emphasis added). Accordingly, the court cannot say that there is no possibility that plaintiffs would be able to establish a cause of action against Divin in state court under § 4(10)(a)(ii) or § 4(10)(a)(iv).
Plaintiffs' petition does not specifically cite § 4(10)(a)(iv), but it does refer to article 21.21 and alleges that "Defendants, State Farm Lloyds and Jason Divin, are guilty of the following unfair insurance practices: . . .
G. Failing to provide promptly to a policyholder a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for the denial of a claim or for the offer of a company's settlement.
Pet. at 6. Given the virtually identical language of § 4(10)(a)(iv), the court construes this to be an allegation that Divin violated this section.
C
The court acknowledges the fact-specific nature of the inquiry that is necessary to resolve motions such as those presently before the court. Both parties have cited numerous district court rulings on motions to remand involving facts that possess some degree of similarity to those presented here. The decision that the court now reaches is in accord with many of the cases cited. See, e.g., Faaititi v. State Farm Lloyds, Civil Action No. 3:00-CV-2181-G, slip op. at 6 (N.D. Tex. Jul. 20, 2001) (Fish, J.); Gustamonte v. State Farm Lloyds, Civil Action No. A-00-CA-068-SS, slip op. at 2 (W.D. Tex. Jul. 11, 2000) (distinguishing allegations at issue in Gustamonte from those present in Pousson v. State Farm, A-98-CA-762-SS (W.D. Tex. Jan. 6, 1999), and Tedford v. State Farm, A-99-CA-152-SS (W.D. Tex. May. 25, 1999), in which remand was held proper where "the plaintiffs alleged an employee of State Farm intentionally hired biased engineers to issue a fraudulent report that would support a denial of the plaintiff's claims.").
The court recognizes, however, that its ruling is not in accord with Dougherty v. State Farm Lloyds, 2001 WL 1041817 (N.D.Tex. Aug. 30, 2001) (McBryde, J.), recently decided by another judge of this court. Although the state court petition in Dougherty is virtually identical to the one in the present case, the court respectfully disagrees with Dougherty's reliance on Griggs v. State Farm Lloyds, 181 F.3d 694, 699 (5th Cir. 1999). See Dougherty, 2001 WL 1041817, at *2 (stating "the court is satisfied that the facts of this case fit the pattern of Griggs"). In Griggs "[t]he only factual allegation even mentioning Blum [the adjuster joined in the state court action] merely states that `Defendant[ ], through its local agent, Lark Blum, issued an insurance policy.'" Griggs, 181 F.3d at 699. The petition in the present case contains several passages that specifically refer to Divin's conduct. Further, Griggs found "no facts warranting liability" based on a conclusion that Blum's alleged misrepresentations constituted mere puffery. Id. at 701. Here, plaintiffs' claim under § 4(10)(a)(ii) does not rely on a theory of misrepresentation. Given the distinguishing features between Griggs and the present case, the court declines to conclude, as did Dougherty, that Griggs controls. Removal jurisdiction is to be strictly construed. Willy v. Coastal Corp., 855 F.2d 1160, 1164 (5th Cir. 1988). Because defendants have not shown that there exists "absolutely no possibility" that plaintiffs could establish a cause of action against Divin in state court, the court grants plaintiffs' motion to remand and denies defendants' motion to dismiss.
Moreover, in Griggs, as in Dougherty, the plaintiff failed even to serve process on the joined adjuster. See id at 698; Dougherty, 2001 WL 1041817, at *2. There is no record evidence of an absence of service in the instant case.
In their reply brief, plaintiffs contend that complete diversity is lacking, regardless whether Divin's citizenship is counted, because "State Farm Lloyds is acting by and through its Attorney-in-Fact, State Farm Lloyds Inc., a Texas Corporation with its principal place of business in Dallas, Texas." Ps. Rep. Br. at 2. The court disagrees. The Fifth Circuit has held that "[b]ecause attorneys in fact are not members of Lloyds plan insurance associations, we look only to the citizenship of the underwriters to determine whether diversity jurisdiction exists." Royal Ins. Co. v. Quinn-L Capital Corp., 3 F.3d 877, 883 (5th Cir. 1993). Here, because each of the underwriters is a citizen of Illinois rather than Texas, State Farm Lloyds is diverse from each of the plaintiffs. See Not. of Rem. at 3.
III
Under 28 U.S.C. § 1447(c), "[a]n order remanding the case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal." The decision to award fees is a matter of discretion. See Avitts v. Amoco Prod. Co., 111 F.3d 30, 32 (5th Cir. 1997); Miranti v. Lee, 3 F.3d 925, 928 (5th Cir. 1993) (stating that "the propriety of the defendant's removal continues to be central in determining whether to impose fees."). Plaintiffs allege that defendants removed the action in bad faith, citing several cases involving similar allegations against State Farm and its adjusters wherein removal has been found improper. See Ps. Mot. to Rem. at 5. Given the highly fact-specific nature of the inquiry, and the fact that courts-including judges of this court-have reached different conclusions about essentially the same questions, the court in its discretion declines to award plaintiffs any attorney's fees or costs.* * *
Plaintiffs' August 8, 2001 motion to remand is granted except to the extent they seek attorney's fees. Defendants' July 17, 2001 motion to dismiss is denied. The court holds that it lacks subject matter jurisdiction and, pursuant to 28 U.S.C. § 1447(c), remands this case to the 13th Judicial District Court of Navarro County, Texas. The clerk of court shall effect the remand according to the usual procedure.
SO ORDERED.