Summary
dismissing an action against an adjuster because under Texas law there is no action for negligent claims handling
Summary of this case from Universal Casualty Company v. Gilbert Plumbing Co.Opinion
CIVIL ACTION NO. 3:00-CV-2181-G.
July 19, 2001.
MEMORANDUM ORDER
Before the court are the following motions by the plaintiffs Satoa Faaitiiti and Suzy Faaitiiti (collectively, "the Faaitiitis"): (1) motion to remand and for attorney's fees/sanctions; (2) motion for leave to file first amended original petition; (3) motion for sanctions; and (4) motion for partial summary judgment. Also before the court are the following motions by Defendants State Farm Lloyds Insurance Company ("State Farm") and Jonathan Cooper ("Cooper"): (1) motion to dismiss fraudulently joined defendant Cooper pursuant to rule 12(b)(6); (2) motion for partial summary judgment. For the following reasons, the motion to dismiss fraudulently joined defendant Cooper is denied, and the motion to remand is granted. The motion for sanctions is denied in part and reserved in part. Determination of the motions for partial summary judgment and the motion for leave to file first amended original petition are reserved to the judge of the state court on remand.
I. BACKGROUND
In December, 1998, the Faaitiitis filed a claim for plumbing leaks under their State Farm homeowners insurance policy. Brief in Support of Defendant State Farm Lloyds' Motion for Partial Summary Judgment ("State Farm's Summary Judgment Brief") at 3. See also Plaintiff's Motion for Partial Summary Judgment and Brief (Subject to Motion to Remand) ("Faaittiitis' Summary Judgment Motion and Brief") at 3. The claim was assigned for handling to Cooper, a State Farm adjuster and a citizen and resident of Texas. Faaitiitis' Summary Judgment Motion and Brief at 3. See also Plaintiffs' Original Petition ("Petition") at 2, attached as Exhibit 2 to Notice of Removal, and Notice of Removal at 5. State Farm paid for the repair of the leak and attendant costs. State Farm's Summary Judgment Brief at 3. The gravamen of the Faaitiitis' claim is that the plumbing leak caused foundation problems with their house. Id. State Farm contends that the foundation problems were caused by settlement. Id. at 3-4. State Farm has refused to pay for repair of the foundation of the Faaitiitis' home because the applicable homeowners policy excludes loss caused by settlement. Id. at 4.
The Faaitiitis filed this suit in the County Court at Law Number 1 of Dallas County, Texas on April 17, 2000. See Petition. State Farm removed the case to this court on October 4, 2000 on diversity of citizenship grounds. State Farm contends that it learned of the removability of this case at the Faaitiitis' depositions on September 21, 2000 and that these depositions constitute "other paper[s]" within the meaning of 28 U.S.C. § 1446(b). Notice of Removal at 2-3.
II. ANALYSIS A. Motion to Dismiss Fraudulently Joined Defendant Cooper and Motion to Remand 1. Fraudulent Joinder Standard
State Farm contends that the court has diversity jurisdiction but that the defendant Cooper was fraudulently joined by the Faaitiitis to defeat such jurisdiction. Notice of Removal at 3. The removing party carries a heavy burden when attempting to prove fraudulent joinder. See Cavallini v. State Farm Mutual Auto Insurance Company, 44 F.3d 256, 259 (5th Cir. 1995); Ford v. Elsbury, 32 F.3d 931, 935 (5th Cir. 1994) (quoting B., Inc. v. Miller Brewing Company, 663 F.2d 545, 549 (5th Cir. 1981)). "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." Cavallini, 44 F.3d at 259 (quoting Green v. Amerada Hess Corporation, 707 F.2d 201, 205 (5th Cir. 1983), cert. denied, 464 U.S. 1039 (1984)). Although this circuit has cautioned against "pretrying a case to determine removal jurisdiction," it has also endorsed "piercing the pleadings" in a summary judgment-like procedure to determine state law questions in an effort to resolve allegations of fraudulent joinder. See Carriere v. Sears, Roebuck and Company, 893 F.2d 98, 100 (5th Cir.), cert. denied, 498 U.S. 817 (1990). "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." Id.
To avoid remand, State Farm must show that there is no possibility that the Faaitiitis can establish any claim against Cooper. See Burden v. General Dynamics Corporation, 60 F.3d 213, 216 (5th Cir. 1995). Therefore, if there is even a possibility that the state court would find a cause of action stated against Cooper, then this court must find that Cooper was properly joined and must remand the case. See B. Inc., 663 F.2d at 550. The Faaitiitis' petition alleges the following causes of action against Cooper: (1) negligence; (2) Texas Insurance Code/Texas Administrative Code violations; (3) breach of the duty of good faith and fair dealing; and (4) breach of contract. Petition at 2-8. State Farm contends that under Texas law, the Faaitiitis cannot maintain any of these causes of action against an insurance employee-adjuster. Brief in Support of Defendants' Response to Plaintiffs' Motion to Remand and for Attorney's Fees/Sanctions ("Response to Motion to Remand") at 12. See also Motion to Dismiss Fraudulently Joined Defendant Cooper Pursuant to Rule 12(b)(6) ("Motion to Dismiss") at 1-2.
2. Does Texas Law Give the Faaitiitis a Cause of Action Against Cooper?
State Farm is correct that under Texas law, the Faaitiitis cannot maintain causes of action against Cooper as a State Farm employee-adjuster for breach of the duty of good faith and fair dealing or for negligent claims handling. See Brooks v. American Home Insurance Company, No. 3:97-CV-0515-P, 1997 WL 538727, *2-*3 (N.D. Tex. Aug. 20, 1997) (citing Natividad v. Alexsis, Inc., 875 S.W.2d 695 (Tex. 1994), and Higginbotham v. State Farm Mutual Automobile Insurance Company, 103 F.3d 456, 460 (5th Cir. 1997)). However, it is equally clear that the Faaitiitis may have a cause of action against Cooper for violations of the Texas Insurance Code. Article 21.21 of the Texas Insurance Code provides that "[n]o person shall engage in this state in any trade practice which is defined in this Act as . . . an unfair method of competition or an unfair or deceptive act or practice in the business of insurance." TEX. INS. CODE ART. 21.21 § 3 (Vernon 1981). An employee-adjuster is a "person" within the meaning of the Article 21.21. See Shipley v. National Fire Insurance of Hartford, No. CA 3:95-0972-BC, 1998 WL 355493, *3 (N.D. Tex. June 25, 1998). Under Section 4 of Article 21.21, "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" and "refusing to pay a claim without conducting a reasonable investigation with respect to the claim" fall into the category of unfair methods of competition or unfair or deceptive acts or practices. TEX. INS. CODEART. 21.21 § 4(10)(a)(ii) and § 4(10)(a)(viii). The Faaitiitis' petition states that "[a] claim was made under the warranty insurance policy but same was wrongfully denied without reasonable investigation." Petition at 2. Among other allegations, the petition specifically charges a violation of Article 21.21 § 4(10)(a)(ii) and § 4(10)(a)(viii) as well as damages arising therefrom. Petition at 3-7. These provisions of the Insurance Code have been held, both in this district and in the Western District of Texas, to apply to individual insurance claims adjusters. See Shipley, 1998 WL 355493 at *3-*4; Bruner v. State Farm Lloyds, No. SA-99-CA-100-EP, 1999 WL 33290662 *2 (W.D. Tex. Mar. 16, 1999). State Farm urges this court to find, in contravention of the holding of Shipley, that these provisions of the Insurance code apply only to an insurer, and not to an individual claims adjuster "who has no authority or power to pay claims." Defendants' Response to Plaintiffs' Motion to Remand and for Attorneys' Fees/Sanctions ("Response to Motion to Remand") at 4. In the absence of any authority in support of State Farm's position, this court declines to so hold. When the factual allegations of the petition are construed in the light most favorable to the Faaitiitis, State Farm has failed to carry its burden of showing that there is no possibility that the state court would find a cause of action stated against Cooper. Because there exists a possibility that the Faaitiitis will be able to establish a cause of action against Cooper in state court, this court cannot say that the Faaitiitis' joinder of Cooper was fraudulent. Accordingly, State Farm's motion to dismiss fraudulently joined defendant Cooper pursuant to rule 12(b)(6) is denied. With Cooper's citizenship considered, there is not complete diversity of citizenship, and the court must remand this case for lack of subject matter jurisdiction. See 28 U.S.C. § 1441(b), 1447(c).
Because the court finds that the Faaitiitis may have a cause of action against Cooper for Texas Insurance Code violations, it need not address the somewhat closer question of whether Texas law provides for a cause of action against Cooper for breach of contract.
The relevant portions of the petition are as follows:
The representations, acts, conduct, and omissions of Defendants as described above constitute unfair methods of competition and unfair and deceptive acts or practices in violation of Article 21.21 of the Insurance Code . . . including, but not limited to, the following:
* * *
(2) Engaging specifically in the Plaintiffs' claims and/or in dealing with other insureds with such frequency as to constitute a general business practice of the following:
* * * *
(b) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims submitted in which liability has become reasonably clear; (4)
* * *
(f) Refusing to pay claims without conducting a reasonable investigation based upon all available information. (15)
Petition at 3-4.
B. Motion for Attorney's Fees/Sanctions
In addition to remand, the Faaitiitis seek an award of attorney's fees and sanctions, alleging that the removal of this case was effected "in complete bad faith and for a wrongful purpose." Motion to Remand at 2. See also Motion for Sanctions and Brief in Support ("Motion for Sanctions") at 2-3. The Faaitiitis also seek sanctions for alleged discovery violations and violations of this court's mediation order. Motion for Sanctions at 2-4. With regard to removal, the Faaitiitis contend that State Farm misrepresented their petition and removed this case from state court even thought it was aware of case law from this district holding that federal jurisdiction did not exist. Id. at 2. State Farm, however, did not affirmatively misrepresent the Faaitiitis' claims; it acknowledged the applicability of Shipley, and explicitly asked this court to "establish new law" regarding the applicability of the Texas Insurance Code to employee-adjusters. Brief in Support of Defendants' Response to Plaintiffs' Motion to Remand and for Attorney's Fees/Sanctions ("Brief in Response to Motion to Remand") at 8. Accordingly, the Faaitiitis' motion for attorney's fees and/or sanctions is denied insofar as such fees or sanctions derive from State Farm's removal of this case. The Faaitiitis' motion for sanctions is also denied insofar as such sanctions are sought for violation of this court's mediation order. The court reserves judgment on the Faatiitis' motion for sanctions insofar as those sanctions are sought for discovery violations.
III. CONCLUSION
For the reasons stated above, State Farm's motion to dismiss fraudulently joined defendant Cooper pursuant to rule 12(b)(6) is DENIED, and the Faaitiitis' motion to remand is GRANTED. The Faaitiitis' motion for attorney's fees/sanctions is DENIED in part and RESERVED in part. Decision of the Faaitiitis' motion for partial summary judgment and motion for leave to file first amended original petition and of State Farm's motion for partial summary judgment are reserved to the county court at law judge on remand. This case is REMANDED to the County Court at Law Number 1 of Dallas County, Texas. The clerk shall mail a certified copy of this memorandum order to the county clerk of Dallas County, Texas. 28 U.S.C. § 1447(c).