Summary
holding that claims for penalties under sections 22:658 and 22:1220 cannot stand alone and require that there be a viable underlying claim, such as a breach of contract
Summary of this case from Hibbets v. Lexington Ins. Co.Opinion
Civil Action No. 04-2434, Section "K" (3).
January 27, 2005
ORDER AND REASONS
Before the Court is Plaintiff Mary Edwards' Motion To Remand (Rec.Doc.5). The Court heard oral argument on this motion on November 10, 2004. After reviewing the pleadings, memorandum, and relevant law, the Court DENIES plaintiff's Motion to Remand.
BACKGROUND
On July 16, 2004, plaintiff filed a class action petition for damages in Civil District Court for the Parish of Orleans, against Allstate Property and Casualty Insurance Company ("Allstate), a foreign insurance company, and James White, a Louisiana resident, who is an employee and/or agent of Allstate. Plaintiff alleges that defendants purposefully engage in a corporate scheme which includes withholding payment of general contractors' overhead and profit or not paying the proper amount of contractors' overhead and profit from homeowner dwelling claims. Plaintiff alleges these payments are to be calculated in the Actual Cash Value amount paid by way of indemnity to policyholders. Plaintiff alleged breach of contract claims, bad faith claims under La.Rev.Stat. 22:1220 and 22:658 and other applicable provisions of the Louisiana Civil Code, and finally, fraud and deceit claims against both defendants. Allstate removed this action on August 24, 2004, based on diversity jurisdiction, stating that James White was fraudulently joined and that the amount in controversy exceeded $75,000. On August 31, 2004, defendant Allstate filed a Motion to Dismiss Plaintiff's Class Action Petition under Rule 12(b). On September 23, 2004, plaintiff filed the instant motion. The Court heard arguments on both motions on November 10, 2004.
LEGAL STANDARD
Pursuant to 28 U.S.C. § 1441(a), an action filed in state court may be removed to federal court if the action is one over which the federal court has subject matter jurisdiction. The burden of establishing jurisdiction is on the party seeking removal. Jernigan v. Ashland Oil, Inc., 989 F.2d 812, 815 (5th Cir. 1993). In the motion to remand, the non-movant carries a heavy burden in establishing fraudulent joinder and must demonstrate it by clear and convincing evidence. Id. at 814. In a September 10, 2004, en banc decision, the Fifth Circuit departed from its use of the term "fraudulent joinder" and adopted the term "improper joinder," noting there is no substantive difference between the two terms. Smallwood v. Illinois Central Railroad Co., 385 F.3d 568, 571, n. 1 (5th Cir. 2004). The Court emphasized the purpose of the improper joinder inquiry is to determine the appropriateness of joinder, not the merits of the case. Id. at 574. There are two ways to establish improper joinder: "'(1) actual fraud in the pleading of jurisdictional facts, or (2) inability of the plaintiff to establish a cause of action against the non-diverse party in state court.'" Id. (citing Travis v. Irby, 326 F.3d 644, 647 (5th Cir. 2003)). In the instant matter, the second way to establish improper joinder is before the Court. The appropriate test is "whether the defendant has demonstrated that there is no possibility of recovery by the plaintiff against the in-state defendant, which stated differently means that there is no reasonable basis for the district court to predict that the plaintiff might be able to recover against an in-state defendant." Smallwood, 385 F.3d at 573 ( citing Travis, 326 F.3d at 646-47). The Fifth Circuit in Travis further explained: "[T]he question is whether there is arguably a reasonable basis for predicting that the state law might impose liability on the facts involved. If that possibility exists, a good faith assertion of such an expectancy in a state court is not a sham, is not colorable and is not fraudulent in fact or in law." Travis, 326 F.3d at 647. This possibility that state law may impose liability, however, must be reasonable, not merely theoretical. Id. at 648.
A district court may resolve improper joinder claims in two ways. The first is that a court may conduct a Rule 12(b)(6) type analysis, looking initially at the allegations of the complaint to determine whether the plaintiff has alleged a claim under state law against the in-state defendant. Smallwood, 385 F.3d at 573. The second way involves those cases in which a plaintiff has stated a claim, but has misstated or omitted discrete facts that would determine the propriety of joinder. Id. In these cases, hopefully few in number, the district court may, in its discretion, pierce the pleadings and conduct a summary inquiry. Id. The Fifth Circuit cautioned "that a summary inquiry is appropriate only to identify the presence of discrete and undisputed facts that would preclude plaintiff's recovery against the in-state defendant . . . [a]ttempting to proceed beyond this summary process carries a heavy risk of moving the court beyond jurisdiction and into a resolution of the merits." Id. at 574-75. Furthermore, district courts should resolve all disputed questions of fact and substantive law in favor of the plaintiff. Jackson v. Pneumatic Prod. Corp., 2001 WL 238214, at *1 (E.D.La. 2001). Finally, "[i]f the right to remove is doubtful, the case should be remanded." Sullivan v. Gen-Corp, Inc., 1995 WL 321743, at *2 (E.D.La. 1995) (Duval, J.) (quoting Ryan v. Dow Chemical Co., 781 F.Supp. 934, 939 (E.D.N.Y. 1992)).
APPLICABLE LAW AND ANALYSIS
Plaintiff's Motion To Remand and Rebuttal to Allstate's Opposition to Motion to Remand focus only on tort claims against defendant White, specifically intentional misrepresentation and delictual fraud. Plaintiff asserts that defendant White "intentionally under-adjusted Plaintiff's insurance claim, all the while knowing that as a policy holder she was entitled to additional payments for contractors' overhead and profit which would be incurred by Plaintiff when repairing her home." (Motion for Remand). Furthermore, plaintiff argues Louisiana courts recognize that there may be circumstances under which an adjuster assumes a duty when an adjuster makes promises, claims, or misrepresentations to claimants. In its Opposition to the Motion to Remand, defendant argues that plaintiff attempts to manufacture a fraud claim out of White's participation in adjusting her homeowner's insurance policy claim, yet plaintiff's lawsuit amounts to a cause of action against White for the processing and handling of an insurance claim. Furthermore, defendant argues there is no reasonable possibility of plaintiff obtaining relief in a Louisiana court for this type of claim against an adjuster.
Although it appears to the Court that plaintiff's petition alleges statutory claims against defendant White, plaintiff states that there are no statutory claims against defendant White. (Plaintiff's Rebuttal to Allstate's Opposition to Motion to Remand Rec.Doc.14). Plaintiff also does not argue breach of contract claims against defendant, James White, in the Motion to Remand. Thus, the claims considered before this Court are plaintiff's tort claims against defendant, James White, for fraud and deceit.
For authorities recognizing a cause of action for delictual fraud/intentional misrepresentation, plaintiff cites these cases: Pittman v. Piper, 542 So.2d 700, 702 (La.App. 4 Cir. 1989); Guidry v. U.S. Tobacco Co., Inc., 188 F.3d 619, 626-27 (5th Cir. 1999) ("The elements of a Louisiana delictual fraud or intentional misrepresentation cause of action are: (a) misrepresentation of a material fact, (b) made with the intent to deceive, and (c) causing justifiable reliance with resultant injury.").
The Court disagrees with the way defendant frames plaintiff's lawsuit. This suit is not merely for the processing and handling of an insurance claim, but for an alleged fraudulent corporate scheme on the part of Allstate and White's participation in this scheme which deprived plaintiff and others of general contractors' profit and overhead costs in the payment of Actual Cash Value. Plaintiff's petition clearly reads that the claim against White is for fraud/deceit. Specifically the petition alleges:
31
Allstate and James White failed to inform her [plaintiff] that, according to wholly accepted industry standards, she was clearly entitled to compensation for contractors' overhead and profit. Consequently, Allstate and James White fraudulently withheld from Mary Edwards important information pertinent to her claim.
32
Allstate and James White were fully aware of the fact that the withholding of contractors' overhead and profit payments from the cash value adjustments was unlawful and unjust.
35
Mary Edwards was misled by James White and Allstate's failure to disclose the full extent of her coverage and, as a consequence, Mary Edwards has suffered damages as a result of James White and Allstate's fraud and deceit.
36
The individual silence of James White and Allstate's corporate silence in the face of the clear duty of good faith and fair dealing, and to make full disclosure of all applicable policy benefits, represents fraud, which fraudulent behavior remained undisclosed and undiscovered by Mary Edwards who was wrongfully deprived of policy benefits by reason of the wrongful behavior of James White and Allstate.
Louisiana courts and federal courts applying Louisiana law have recognized that, as a general rule, no cause of action lies against an insurance adjuster for processing and handling of an insurance claim. See Rich v. Bud's Boat Rentals, Inc., 1997 WL 785668 at *3(E.D.La.) ("This Court has found no case imposing a duty on an independent insurance adjuster to an insured to conduct a proper investigation or to advise an insured of covered issues."). Southern Hotels Ltd. P'ship v. Lloyd's Underwriters at London Cos., 1996 WL 48001 at *1 (E.D.La.) (granting insurance adjusters' motion to dismiss insured's claims of negligent investigation of claim on ground that insurance adjusters have no tort duty to insureds). Furthermore, Louisiana courts have consistently held that as a general rule, there is no duty on the part of an insurance adjuster to advise a claimant of the proper prescriptive period. Pellerin v. Cashway Pharmacy of Franklin, Inc., 396 So.2d 371, 373 (La.App. 1st Cir. 1981) ("As a general rule, there is no relationship existing between a claimant and the insurance adjuster on which a duty to inform of prescription can be based."); Flowers v. U.S. Fidelity Guaranty Co., 367 So.2d 744, 746 (La.App. 1st Cir. 1974) (holding same).
However, courts recognize an adjuster may owe a tort duty to an insured when an adjuster may have undertaken such duty. Pellerin v. Cashway Pharmacy of Franklin, Inc., 396 So.2d 371, 373 (La.App. 1 Cir. 1981) ("[T]here may be circumstances in which the adjuster may be said to have undertaken such a duty. Examples may include the relative education of the parties, the diligence of the claimant in seeking the facts, the actual or apparent authority of the adjuster, the content of his promises to the claimants, misrepresentation and fraud.") (emphasis added) (citation omitted); See also, Alarcon v. Aetna Cas. Sur. Co., 538 So.2d 696, 699 (La.App. 5th Cir. 1989) ("[U]nder some circumstances a tort duty may exist in the settlement of an insurance claim.") ( citing Pellerin, supra); Motion v. Travelers Ins. Co., Et al., No.Civ.A. 03-2487 at *4 (E.D.La. 2003) (recognizing same); Rich v. Bud's Boat Rentals, Inc., 1997 WL 785668 at *3 (E.D.La) (recognizing same). See also, Lorinda Ross et ux. v. Allstate Ins. Co., Et al., No.Civ.A. 04-1292 (E.D.La. filed July 7, 2004) (granting Motion to Remand for claims against adjuster for intentional/negligent infliction of emotional distress). The Court also notes the following: "Although an adjuster does not have an affirmative obligation to disclose information about the potential success of a claim, he has an obligation to be truthful when he undertakes to give a claimant information about the potential success of his claim when he knows or reasonably should know that the claimant is relying on the information that he provides to make important decisions about his claim." 46A C.J.S. Insurance § 1345(2004). Thus, the Court finds an adjuster under certain circumstances can be liable for a tort, specifically fraud. However, the Court does not find that these circumstances exist in this case.
As stated above, the plaintiff's petition clearly alleges a cause of action against defendant James White for fraud. Yet, under the specific facts alleged in the petition and the law in Louisiana regarding the payment of general contractors' profit and overhead costs in Actual Cash Value, the Court finds that there is no reasonable basis to predict that plaintiff might be able to recover against defendant White. First of all, the plaintiff fails to allege that Mary Edwards actually used a general contractor for the damages on her home which would require the overhead and profit costs in the payment in Actual Cash Value as plaintiff alleges. There are no allegations as to any circumstances in the petition that would mandate the payment of a general contractor's overhead and profit costs. Second, even if the necessary facts were alleged, under the law in Louisiana, there are no express cases or statutes stating that profit and overhead costs are to be included in the payment of Actual Cash Value when a general contractor is needed. Furthermore, as defendant pointed out in its Motion to Dismiss which plaintiff does not contradict, there is no provision in the insurance policy which expressly provides for the payment of these costs. A claim for delictual fraud or intentional misrepresentation of material fact requires (a) a misrepresentation of material fact; (b) made with intent to deceive; and (c) causing justifiable reliance with resultant injury. Guidry v. U.S. Tobacco Co. Inc., 188 F.3d 619, 627 (5th Cir. 1999) (citations omitted). The requisite scienter requirement needed for a claim of fraud or fraudulent misrepresentation is absent from this case. It is impossible to conceive that adjuster James White had the "intent to deceive" plaintiff Mary Edwards when there is nothing in the law or in the insurance policy which mandates the payment of profit and overhead costs. The possibility that state law may impose liability must be reasonable, not merely hypothetical. Travis, 326 F.3d at 648. At this point, there is no reasonable basis for this Court to predict that the state law might impose liability on the facts involved. Id. at 646-647. The Court in Kimball v. Modern Woodmen of America, 939 F.Supp. 479, 482 (M.D.La. 1996) denied plaintiff's motion to remand because there was no possibility of recovery against insurance agent for fraudulent misrepresentations because "plaintiffs . . . must establish that [agent] acted with knowledge (or reckless disregard) of the falsity of the company's misrepresentations" yet "there are no factual allegations in the petition (or attestations by [plaintiff] in his affidavit) to support the contention that the [agent] knew the statements to be false or that he acted with reckless disregard of the truth." The Court denied remand due to the fact that the scienter requirement was not satisfied.
In the event plaintiff is allowed to amend her petition in order to allege necessary facts for this particular lawsuit, "a post-removal amendment that attempts to alter the causes of action alleged in the state petition will not defeat jurisdiction of a case that is properly removed." Oiler v. Biomet Orthopedics, Inc., Et al., 2003 WL 22174285 at *2 (E.D.La.) ( citing Cavallini v. State Farm Mu. Auto Ins. Co., 44 F.3d 256, 264 (5th Cir. 1995) ("Without such a rule, disposition of the [jurisdictional] issue would never be final.").
Plaintiff concedes in her Opposition to Defendant's Motion To Dismiss Plaintiff's Class Action Petition that there is no Louisiana jurisprudence holding that the term Actual Cash Value requires the payment of O P costs whenever it is likely a general contractor will be needed to repair the damage. Plaintiff relies upon the following cases: Mazzocki v. State Farm Fire Casualty Corp., 1 A.D. 3rd 9, 766 N.Y.S.2d 179 (N.Y.App.Div. 2003); Gilderman v. State Farm Ins. Co., 649 A.2d 941, 945 (1994); Salesin v. State Farm Ins. Co., 581 N.W.2d 781, 791 (Mich.Ct.App. 1998). The Court notes that there are two cases discussing the term Actual Cash Value; however, neither discuss the particular argument alleged in this lawsuit. See Bingham v. St. Paul Ins. Co., 503 So.2d 1043, 1045 (La.App. 2 Cir. 1987); Gauthreaux v. USAA Casualty Ins. Co., 2001 WL 65573 at *5(E.D.La.).
The Court is not hereby ruling on the merits of plaintiff's claim as there may be in the definition of Actual Cash Value a possible claim against Allstate for failing to pay these costs; however, the Court does not find a reasonable theory of recovery on the substantive claim of fraud against defendant, James White, given the necessary elements for delictual fraud and intentional misrepresentation, the current state of the law regarding the payment of general contractors' overhead and profit costs, and the absence of alleged facts in the petition.
The Court requested further briefing in light of the holding in Smallwood, which would require a court to remand a case to state court under the common defense theory. Both parties argued that Smallwood would not apply. The Court notes there was not a common defense raised by defendant in opposing plaintiff's Motion to Remand. In the event the Courts finds that Allstate is not required to pay overhead and profits costs as part of Actual Cash Value under the circumstances in this case, this Court is aware that this would automatically apply to the benefit of the adjuster if he were still a defendant to this lawsuit. However, if the Court were to find that Allstate should pay these costs, it does not necessarily mean that the adjuster was responsible to have knowledge of this. Thus, in the Court's mind, Smallwood is not applicable.
Smallwood provides: "[O]n a motion to remand, a showing that compels a holding that there is no reasonable basis for predicting that state law would allow the plaintiff to recover against the in-state defendant necessarily compels the same result for the nonresident defendant, there is no improper joinder; there is only a lawsuit lacking in merit." 385 F.3d 568, 574.
For the reasons stated above,
IT IS HEREBY ORDERED that plaintiff's Motion to Remand (Rec.Doc.5) is DENIED. IT IS FURTHER ORDERED that defendant, James White, is DISMISSED WITH PREJUDICE.