Opinion
MO:23-CV-00046-DC-RCG
07-05-2023
GREGORY SCOTT, Plaintiff, v. BERKLEY REGIONAL INSURANCE COMPANY and, TEXAS MUTUAL INSURANCE COMPANY, Defendants.
REPORT AND RECOMMENDATION OF THE U.S. MAGISTRATE JUDGE
RONALD C. GRIFFIN UNITED STATES MAGISTRATE JUDGE
BEFORE THE COURT are Plaintiff Gregory Scott's Motion to Remand and Defendant Texas Mutual Insurance Company's Motion to Remand. (Docs. 9, 11). This matter is before the undersigned United States Magistrate Judge through a standing order of referral pursuant to 28 U.S.C. § 636 and Appendix C of the Local Court Rules for the Assignment of Duties to United States Magistrate Judges. After due consideration, the undersigned RECOMMENDS that both Motions to Remand be GRANTED. (Docs. 9, 11).
I. Background
On February 13, 2023, Plaintiff Gregory Scott (“Plaintiff”) sued Defendants Berkley Regional Insurance Company (“Defendant BRIC”) and Texas Mutual Insurance Company (“Defendant TMIC”) seeking a declaratory judgment to determine the underlying tort issues resulting from a motor vehicle accident. (Doc. 1-3). Plaintiff's case was filed in the 142nd District Court, Midland County, Texas in cause #CV59292 and styled as Gregory Scott, Plaintiff vs. Berkley Regional Insurance Company and Texas Mutual Insurance Company, Defendants. Id. Plaintiff is a citizen of Texas. Id. at 2. Defendant BRIC is a company with its principal place of business in Iowa and Defendant TMIC is a company with its principal office in Texas. Id.
According to Plaintiff's Original Petition, on November 6, 2019, Plaintiff was a passenger in a vehicle when he was struck by another vehicle and severely injured. Id. at 3. The vehicle Plaintiff occupied at the time of the accident was owned by his employer and insured by Defendant BRIC under a commercial auto policy which included uninsured/underinsured coverage. (Doc. 1-3 at 4). Further, Plaintiff was injured in the course and scope of his employment and his employer was a worker's compensation subscriber. Id. at 5. Thus, Defendant TMIC, the worker's compensation carrier, paid Plaintiff's medical expenses pursuant to the worker's compensation policy. Id.
On March 20, 2023, Defendant BRIC removed this action from state court on the basis of diversity jurisdiction, claiming that Defendant TMIC was improperly joined. (Doc. 1 at 2). On March 21, 2023, Defendant BRIC filed a Motion to Dismiss. (Doc. 4). Plaintiff then filed his Motion to Remand on April 10, 2023, moving this Court to remand under 28 U.S.C. § 1447(c). (Doc. 9). Defendant TMIC filed its Motion to Remand on April 11, 2023, requesting the same. (Doc. 11). Defendant BRIC filed one response to both motions on April 24, 2023. (Doc. 15). On May 1, 2023, Defendant TMIC filed its Reply. (Doc. 16). Consequently, this matter is ripe for disposition.
II. Legal Standard
Pursuant to 28 U.S.C. § 1441(a), a party may be permitted to remove any civil action brought in a state court of which the district courts of the United States have original jurisdiction. This case was removed based on diversity jurisdiction under 28 U.S.C. §§ 1332, 1441, and 1446 et seq. (Doc. 1). To remove a case based on diversity jurisdiction, “all persons on one side of the controversy [must] be citizens of different states than all persons on the other side.” Harvey v. Grey Wolf Drilling Co., 542 F.3d 1077, 1079 (5th Cir. 2008). Moreover, according to § 1441(b), a case cannot be removed based on diversity jurisdiction if any properly joined defendant is a citizen of the state in which the action is brought.
An improper joinder inquiry requires the federal district court to determine whether it has jurisdiction over the removed case. § 1441(b); Int'l Energy Ventures Mgmt., L.L.C. v. United Energy Grp., Ltd., 818 F.3d 193, 210 (5th Cir. 2016). Improper joinder may be established two ways: 1) actual fraud in the pleading of jurisdictional facts, ¶ 2) inability of the plaintiff to establish a cause of action against the nondiverse party in state court. See Smallwood v. Ill. Cent. R. Co., 385 F.3d 568, 573 (5th Cir. 2004) (quoting Travis v. Irby, 326 F.3d 644, 646-47 (5th Cir. 2003)). “[T]he test for fraudulent joinder is whether the defendant has demonstrated that there is no possibility of recovery by the plaintiff against an 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.” Id. To determine fraudulent joinder, “[t]he court may conduct a Rule 12(b)(6)-type analysis, looking initially at the allegations of the complaint to determine whether the complaint states a claim under state law against the in-state defendant. Ordinarily, if a plaintiff can survive a Rule 12(b)(6) challenge, there is no improper joinder.” Id. (citing McKee v. Kansas City S. Ry. Co., 358 F.3d 329, 334 (5th Cir. 2004)). The federal court has no jurisdiction and must remand the removed case if a nondiverse defendant has been properly joined. § 1447. Conversely, if it is found that the nondiverse defendant has been improperly joined, the court must deny the request for remand and dismiss without prejudice the claims against the nondiverse defendant. Int'l Energy, 818 F.3d at 210.
A federal court must apply the federal pleading standard to the issue of improper joinder. Id. at 208. The plaintiff's pleading must contain facts sufficient to state a plausible claim for relief on its face and provide more than a mere possibility of recovery. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007). Additionally, the pleadings must provide more than mere “labels and conclusions” and not simply restate the elements of a cause of action. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Furthermore, it is the burden of the defendant seeking removal to demonstrate that the district court has no reasonable basis to predict that the plaintiff may be able to recover against the nondiverse defendant. Smallwood, 385 F.3d at 573.
III. Discussion
Here, Plaintiff seeks remand, arguing that complete diversity does not exist and that Defendant TMIC was properly joined “[b]ecause TMIC has statutory subrogation interest in any [underinsured motorist] benefits due Plaintiff under the BRIC policy, and BRIC contends that a policy exclusion precludes Plaintiff's claim and TMIC's subrogation.” (Doc. 9 at 2). Defendant TMIC also seeks remand, asserting that “[a]s there are competing claims against the policy benefits owing by [Defendant BRIC], [Defendant TMIC] is a necessary party.” (Doc. 11 at 2). Defendant BRIC argues Defendant TMIC was improperly joined for the purpose of defeating diversity jurisdiction; further, Defendant BRIC claims Plaintiff seeks advisory opinions from the Court, in addition to being unable to establish any cause of action against Defendant TMIC. (Doc. 15 at 3). Lastly, Defendant BRIC requests that, should the Court determine Defendant TMIC was properly joined, that the Court realign Defendant TMIC as a plaintiff in the instant case. Id. at 10.
“[T]he court may conduct a Rule 12(b)(6)-type analysis . . . to determine whether the complaint states a claim under state law against the in-state defendant.” Morris v. De Luna, No. DR-20-CV-025-AM-VRG, 2021 WL 2980715, *3 (W.D. Tex. Feb. 4, 2021) (quoting Smallwood, 385 F.3d at 573 (5th Cir. 2004)) (quotations omitted). When analyzing claims of improper joinder, “the district court is limited to causes of action and allegations asserted in the petition” and “must resolve all factual disputes and ambiguities in favor of the plaintiff.” Grant v. Casas, No. 5:21-CV-05-DAE, 2021 WL 2792431, *2 (W.D. Tex. Mar. 4, 2021); see Bell v. Wal-Mart No. 2978/Sam, No. 4:11-CV-576-A, 2011 WL 5022815, *2 (N.D. Tex. Oct. 18, 2011). Moreover, post-removal filings cannot be considered by the court if they present new causes of action or theories of liability. Morris, 2021 WL 2980715, at *3. Thus, the Court will examine Plaintiff's Original Petition to determine whether he has pleaded facts sufficient to state a plausible claim for relief.
“The stated purpose of the [Uniform] Declaratory Judgments Act is ‘to settle and afford relief from uncertainty and insecurity with respect to rights, status, and other legal relations.'” Bonham State Bank v. Beadle, 907 S.W.2d 465, 467 (Tex. 1995) (quoting Tex. Civ. Prac. & Rem. Code § 37.002(b)). Further, “[t]he UDJA is intended to provide an effective remedy for settling disputes before substantial damages accrue,” Allstate Ins. Co. v. Irwin, 627 S.W.3d 263, 269 (Tex. 2021), and “is often preventative in nature” Id. (citing Cobb v. Harrington, 190 S.W.2d 709 (Tex. 1945)). However, declaratory judgments are “appropriate only if a justiciable controversy exists as to the rights and status of the parties and the controversy will be resolved by the declaration sought.” Id. (citing Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 446 (Tex. 1993)). In this context, a justiciable controversy exists if there is “a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Frye v. Anadarko Petroleum Corp., 953 F.3d 285, 294 (5th Cir. 2019) (quoting MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007)). Although a justiciable controversy must exist, “[a] person seeking a declaratory judgment need not have incurred actual injury; a declaratory judgment action will lie if the facts show the presence of ‘ripening seeds of controversy.'” Boy Scouts of Am. v. Hartford Accident & Indem. Co., 443 F.Supp.3d 753, 760 (N.D. Tex. 2020) (quoting Prime Income Asset Mgmt. Co., Inc. v. Waters Edge Living LLC, No. 3:07-CV-0102-D, 2007 WL 2229050, at *5 (N.D. Tex. Aug. 3, 2007)).
Relevant here, Texas courts have determined that “an insured can use the UDJA to establish the prerequisites to recovery in a UM/UIM case.” Irwin, 627 S.W.3d at 268 (quoting Allstate Ins. Co. v. Irwin, 606 S.W.3d 774, 778 (Tex. App.-San Antonio 2019)). “For a policy beneficiary of UIM insurance to recover benefits, the insured must show: ‘(1) that the insured has underinsured motorist coverage, (2) that the underinsured motorist negligently caused the accident that resulted in the covered damages, (3) the amount of the insured's damages, and (4) that the underinsured motorist's insurance coverage is deficient.'” Ochoa v. Allstate Fire & Cas. Ins. Co., No. SA-20-CV-319-XR, 2020 WL 2129252, at *2 (W.D. Tex. May 5, 2020) (quoting In re Liberty Cty. Mut. Ins. Co., 537 S.W.3d 214, 220 (Tex. App.-Houston [1st Dist.] 2017, orig. proc.)). Additionally, however, “[workers' compensation] carriers have a subrogation right to enforce and recover damages that an injured employee is owed ‘from a third party who is or becomes liable to pay damages' for the employee's injury.” Resol. Oversight Corp. v. Garza, 2009 WL 1981424, at *2 (Tex. App.-Austin 2009) (citing Tex. Lab. Code § 417.001). Pursuant to Texas Labor Code § 417.002, “any money recovered goes first to the workers' compensation carrier, and ‘until [the] carrier is reimbursed in full, “the employee or his representatives have no right to any of such funds.”'” Id. at *4 (quoting Tex. Mut. Ins. Co. v. Ledbetter, 251 S.W.3d 31, 36 (Tex. 2008)).
To support his position, Plaintiff relies in part upon Sanchez v. Great Am. Ins. Co., which also dealt with plaintiffs involved in an automobile accident seeking a declaratory judgment against both their employer's insurer and workers' compensation carrier, Defendant TMIC. 5-20-CV-00699-OLG-RBF, 2020 WL 5948268 (W.D. Tex. Oct. 7, 2020), report and recommendation adopted, 2020 WL 6545979 (W.D. Tex. Oct. 26, 2020). Like the policy at issue here, Great American's policy included UM/UIM coverage. Id. at *1. The plaintiffs sought a declaratory judgment “regarding which of their medical expenses arising out of the May 17, 2016 accident are payable by [Defendant TMIC] and whether [Defendant TMIC] is entitled to a subrogation lien with respect to past medical expenses already paid.” Id. at *3. Despite the plaintiffs and Defendant TMIC being Texas citizens, Great American removed the case to the Western District of Texas claiming Defendant TMIC was improperly joined and promptly filed a motion to dismiss. Id. at *2. The plaintiffs then filed a motion to remand, which the court ultimately granted. Id. Great American argued that Defendant TMIC was improperly joined because the plaintiffs did not assert a cause of action against Defendant TMIC or allege facts to suggest a controversy existed between them. Sanchez, 2020 WL 5948268, at *2. While the court acknowledged that the plaintiffs' Original Petition was not “a model of clarity,” it found the plaintiffs' “request for a declaratory judgment with respect to [Defendant TMIC's] payment obligations and validity of its secured liens is a justiciable controversy for purposes of the Texas Declaratory Judgment Act.” Id. at *2-*4 (citing Bonham, 907 S.W.2d at 467). The court concluded that, while the plaintiffs' “Original Petition approache[d] the very edge of acceptable pleadings under federal standards, [the plaintiffs'] request for a declaratory judgment with respect to [Defendant TMIC's] payment obligations and validity of its secured liens [was] a justiciable controversy for purposes of the Texas Declaratory Judgment Act.” Id. at *4.
Although Defendant BRIC disagrees, the Court finds that the instant case is sufficiently analogous to Sanchez and that Defendant BRIC has not met its burden in sufficiently demonstrating that Defendant TMIC was improperly joined. Plaintiff seeks a declaratory judgment because “UIM cases . . . depend on the determination of the underlying tort issues that control the validity of an insured's UIM claim against his insurer.” (Doc. 1-3 at 5). Plaintiff's Original Petition states that, to date, Defendant TMIC has paid $35,733.34 in medical expenses pursuant to his employer's workers' compensation policy. Id. Plaintiff also asserts that his medical expenses may increase, as he continues to receive medical care for injuries sustained in the accident. Id. According to Defendant BRIC's policy, it is obligated to pay “only damages not paid or payable under workers' compensation.” Id. Plaintiff claims that such provisions “are invalid under Texas law on the grounds that a carrier cannot contractually abrogate a worker's compensation carrier's statutory subrogation rights.” Id. (citing Emps. Cas. Co. v. Dyess, 957 S.W.2d 884 (Tex. App.-Amarillo 1998, writ denied)). Thus, similar to the Sanchez plaintiffs, Plaintiff seeks a declaratory judgment:
1. That Plaintiff was an insured under the Policy's UIM coverage;
2. That Plaintiff sustained compensable damages due to bodily injuries caused by the accident;
3. That the injuries and damages were proximately caused by the negligence of Homero Rubio;
4. That determines the amount of damages Plaintiff is legally entitled to recover for injuries and damages proximately caused by Homero Rubio;
5. That the limits of liability insurance available for Mr. Rubio were insufficient to fully compensate Plaintiff for his loss;
6. That determines whether TEXAS MUTUAL's statutory subrogation interest is abrogated under the BERKLEY Policy; and
7. There determines the statutory subrogation interest of TEXAS MUTUAL.(Doc. 1-3 at 6).
Defendant TMIC's statutory subrogation interest and possible subrogation lien directly impacts all three parties' potential obligations. Further, all disputed questions of fact and ambiguities in state law are to be resolved in Plaintiff's favor. Grant, 2021 WL 2792431, *2. Given the instant case's similarity to Sanchez and the dispute as to the provisions in Defendant BRIC's policy, the Court concludes that Defendant BRIC has not shown there is no possibility of recovery by Plaintiff against Defendant TMIC. Thus, Defendant TMIC's citizenship is properly considered, and its Texas citizenship thus defeats complete diversity. Because subject matter jurisdiction is lacking, the Court declines Defendant BRIC's request to realign Defendant TMIC as a plaintiff and RECOMMENDS that Plaintiff and Defendant TMIC's Motions to Remand be GRANTED. (Docs. 9, 11).
IV. Recommendation
In accordance with the discussion above, the undersigned RECOMMENDS that the Motions to Remand be GRANTED and the case be REMANDED to the 142nd District County, Midland County, Texas. (Docs. 9, 11). Further, the undersigned RECOMMENDS, assuming the adoption of this report and recommendation, that Defendant BRIC's Motion to Dismiss be DENIED AS MOOT. (Doc. 4).
SIGNED this 5th day of July, 2023.
Instructions for Service and Notice of Right to Appeal/Object
In the event that a party has not been served by the Clerk with this Report and Recommendation electronically, pursuant to the CM/ECF procedures of this District, the Clerk is ORDERED to mail such party a copy of this Report and Recommendation by certified mail. Pursuant to 28 U.S.C. § 636(b)(1), any party who desires to object to this report must serve and file written objections within fourteen (14) days after being served with a copy. A party filing objections must specifically identify those findings, conclusions, or recommendations to which objections are being made; the District Judge need not consider frivolous, conclusive, or general objections. Such party shall file the objections with the Clerk of the Court and serve the objections on all other parties. A party's failure to file such objections to the proposed findings, conclusions, and recommendations contained in this report shall bar the party from a de novo determination by the District Judge. Additionally, a party's failure to file written objections to the proposed findings, conclusions, and recommendations contained in this report within fourteen (14) days after being served with a copy shall bar that party, except upon grounds of plain error, from attacking on appeal the unobjected-to proposed factual findings and legal conclusions accepted by the District Judge. Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996).