Opinion
Civil Action No. 04-1932 SECTION "C" (2).
December 6, 2004
ORDER AND REASONS
Laura A. Cisneros, a third year law student at Loyola University of New Orleans School of Law, assisted in the research and preparation of this decision.
Before the Court is Plaintiffs' Motion to Remand (Rec. Doc. 4). Defendants have alleged that the non-diverse defendant in the litigation was fraudulently joined, and therefore the case was properly removed. After reviewing the arguments of counsel, the record, and the applicable law, this Court concludes Plaintiffs have asserted a colorable claim against the in-state defendant and that the Motion to Remand should be granted.
Background
In this case, Plaintiffs filed suit in state court for damages resulting from the allegedly faulty revaluation and the resulting increased billing of their homeowners insurance premium. Plaintiffs named as party defendants are the diverse insurance company, Encompass Insurance Company, ("Encompass") along with non-diverse Shepherd Brothers, L.L.C., d/b/a Tom Shepherd Insurance ("Shepherd"). Defendants argue that Plaintiffs only have a cause of action against Encompass and that Shepherd's citizenship should be ignored. (Rec. Doc. 7, p. 2).
This Court collectively refers to Encompass and Shepherd as "Defendants."
According to the Court's reading of the Petition, Plaintiffs are claiming fault on the part of Defendants in conjunction with Plaintiffs' homeowners insurance. Specifically, they claim that Defendants negligently obtained an erroneously inflated revaluation of the property value and breached their fiduciary duty by failing to catch the error or otherwise verify the information, causing Plaintiffs' escrow account with the lender to incur a significant negative balance. Plaintiffs also allege Defendants subsequently failed to correct the error. (Petition, ¶¶ VII., VIII., XIV. XVIII.).
Defendants advance three arguments in opposition to Plaintiffs' Motion to Remand. First, Defendants maintain that Plaintiffs' joinder of Shepherd was a "pretext" to defeat diversity jurisdiction. Second, Defendants contend that Plaintiffs can not sustain a cause of action against Shepherd for breach of fiduciary duty with regard to the failure to catch the allegedly erroneous appraisal or the failure to correct the alleged error. Defendants' final argument is that even if Plaintiffs have sufficiently plead a cause of action against Shepherd, it has prescribed.
Although Defendants argue that the joinder of Shepherd was a "pretext," the Court finds that Defendants have not established that Plaintiffs "do not intend to secure a judgment" against Shepherd. See Englade v. Glaxo Smithkline, 206 F.Supp.2d 815, 817 (E.D.La. 2002). There is no issue of fraud as to the pleading of the jurisdictional facts in the present case.
The Court notes that it has read the Petition to set forth a negligence claim regarding the allegedly negligent revaluation, which has not been addressed in the opposition. (Petition, ¶ VII.). The viability of this claim would be sufficient to warrant remand.
Discussion
The standard for determining when a defendant has been fraudulently joined is well established in the Fifth Circuit. To establish fraudulent joinder, the party seeking removal must show "the inability of the plaintiff to establish a cause of action against the non-diverse party in state court." Smallwood v. Illinois Railroad Company, 352 F.3d 220, 222-23 (5th Cir. 2003); See also, B., Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (5th Cir. 1981). Courts examine "[i]f there is 'arguably a reasonable basis for predicting that the state law might impose liability on the facts involved.'" Smallwood, 352 F.3d at 223 (citing Jernigan v. Ashland Oil Inc., 989 F.2d 812, 816 (5th Cir. 1993)). Furthermore, the Fifth Circuit has stated that "[i]f the plaintiff has any possibility of recovery under state law against the party whose joinder is questioned, then the joinder is not fraudulent in fact or law. Rich III v. Bud's Boat Rentals, Inc., 1997 WL 785668, 2 (E.D.La. 2003) (citing Burden v. General Dynamics Corp., 60 F.3d 213, 216 (5th Cir. 1995) (emphasis added).
A party is considered fraudulently joined when the plaintiff has not or can not state a claim for relief against that individual or entity under the applicable substantive law or does not intend to secure a judgment against that defendant. Englande, 206 F.Supp.2d at 817 (citing Erdey v. American Honda Co., Inc., 96 F.R.D. 593, 595 (M.D.La. 1983)). The key inquiry to a claim of fraudulent joinder is whether the facts as alleged support the plaintiff's substantive claims against the non-diverse defendants. Englande, 206 F.Supp.2d at 819 (citing B., Inc., 663 F.2d at 545). To determine whether jurisdiction is present for removal, courts consider the claims in the state court petition as they existed at the time of removal. Englande, 206 F.Supp.2d at 816 (citing Cavallini, 44 F.3d at 264). Any ambiguities are construed against removal, as the removal statute should be strictly construed in favor of remand. Englande, 206 F.Supp.2d at 816 (citing Acuna v. Brown Root, Inc., 200 F.3d 335, 339 (5th Cir. 2000)).
The removing defendant bears the burden of proving that non-diverse defendants have been fraudulently joined to defeat diversity. Englande v. Glaxo SmithKline 206 F.Supp.2d 815, 817 (E.D.La. 2002) (citing Cavallini v. State Farm Mut. Auto Ins. Co., 44 F.3d 256, 264 (5th Cir. 1995)). Because the fraudulent joinder doctrine is a narrow exception to the rule that diversity jurisdiction requires complete diversity, the burden of demonstrating fraudulent joinder is a heavy one. Smallwood, 352 F.3d at 222.
Application
Defendants contend Plaintiffs' breach of fiduciary duty claim against Shepherd for the alleged failure to catch the error is not a cognizable claim. Defendants assert that Plaintiffs' Petition does not allege that Shepherd was acting as a fiduciary and that the cases cited by Plaintiffs are inapplicable because they stand for the limited proposition that an insurance agent/broker only owes a fiduciary duty to their client to procure insurance requested by the client. Defendants maintain that the cases cited by Plaintiffs do not impose on an insurance agent/broker the obligation to double-check the work product of an unrelated, independent company. Likewise, Defendants maintain that Plaintiffs do not have a cause of action against Shepherd for failing to correct the alleged premium problems caused by the appraisal.
Without admitting liability, Defendants indicate that Encompass is the proper defendant against whom Plaintiffs' claims should be made. Defendants read the Petition as asserting that Shepherd was acting solely as an agent of Encompass. (Petition, ¶¶ XV and XVI). Based on Defendants' interpretation, they contend that as an agent for Encompass, Shepherd owed no fiduciary duty to the Plaintiffs. Plaintiffs object, relying on the proposition that an independent insurance agency, like Shepherd, can have a legal responsibility to act in the best interests of the insured.
In Gardner v. State Farm, 2004 WL 1488668 (E.D.La.), this Court found ample support for the proposition that, under Louisiana law, insurance agents and brokers owe the same duty to a client for whom they have agreed to procure insurance. Moreover, under Louisiana law, an insurance agent and an insurance broker have a fiduciary duty to the insured as well as the insurer. See e.g., Taylor v. Sider, 765 So.2d 416, 419 (4th Cir. 2000); Gardner, 2004 WL 1488668 at 2, Williams v. Fab-Con, Inc., 990 F.2d 228 (5th Cir. 1993); Offshore Production Contractors, Inc., v. Republic Underwriters Ins. Co., 910 F.2d 224 (5th Cir. 1990); Neustadter v. Bridges, 406 So.2d 738 (La.App. 4th Cir. 1981).
The Taylor court held that Lousiana law imposed a fiduciary duty on insurance agents in their dealings with the insured in certain circumstances. Taylor, 765 So.2d at 419. In Taylor, the plaintiff alleged that had she been informed of the relevant provisions of Louisiana law, she may have opted for a different type of coverage which would have provided recovery for her loss. Id. Accepting the plaintiffs' allegations as true, the court found that she had adequately asserted a cause of action against defendants as to the insurance agent's duty in procuring insurance and informing the insured of the policy limitations and exclusions. Id.
Here, Plaintiffs have alleged that the defendants obtained the revaluation, that Shepherd was actively involved in obtaining insurance for Plaintiffs at all times relevant to this matter, that Shepherd obtained and failed to act on the erroneous appraisal in breach of the duty owed Plaintiffs, and that said breach caused Plaintiffs' to suffer damages. Although the Court disagrees with Defendants' narrow interpretation of the holding in Taylor that this fiduciary duty is exclusively limited to the act of procuring insurance, it finds that the allegations of the Petition adequately state a claim even under that interpretation. Accepting Plaintiffs' allegations as true, this Court can not conclude that there is no possibility under Louisiana law for potential recovery against Shepherd.
This Court is mindful of the fact that the duties of an agent or broker may vary according to the circumstances of the professional arrangement. It is not necessary for this Court to determine at this initial stage of the proceedings whether Shepherd provided insurance services to Plaintiffs as an agent or a broker under the facts alleged by Plaintiffs.
In addition, the Court finds that the Petition clearly states that Plaintiffs were unaware that Defendants obtained the revaluation in December 2002 or that the lender paid the premium. (Petition, ¶ VI.). Under La.Rev.Stat. 9:5606(A), a claim against an insurance agent or broker "arising out of an engagement to provide insurance services" shall be filed within one year from the date of the alleged act, omission or neglect, or within one year from the date that event "is discovered or should have been discovered," but in no event within three years from the date of the alleged act, omission or neglect. The Petition clearly states that Plaintiffs were unaware of the fact of the wrongful revaluation in December 2002 and that the lender paid the first allegedly erroneous premium. (Petition, ¶ VI.). Based on these allegations, the Court can not find that all claims against Shepherd have prescribed as a matter of law.
Conclusion
This Court concludes that Defendants have failed to establish that Plaintiffs have no possibility of establishing a cause of action against Shepherd as alleged in the Petition. Thus, Shepherd was not fraudulently joined and diversity jurisdiction is defeated.
This Court does not intend for anything in this order to be construed as addressing the merits of any claim or defense.
In accordance with the foregoing,
IT IS ORDERED that the Motion to Remand is hereby GRANTED. This matter is hereby REMANDED to the 22nd Judicial District Court for the Parish of St. Tammany, State of Louisiana for lack of subject matter jurisdiction under 28 U.S.C. § 1447(c). Plaintiffs' request for attorney's fees under is DENIED.