Josie Rodis et al v. Allstate Insurance Company et al

Filing 20

ORDER DENYING DEFENDANT ALLSTATES MOTION TO DISMISS FRAUDULENTLY JOINED DEFENDANTS 7 , 9 AND GRANTING PLAINTIFFS MOTION TO REMAND 8 by Judge Dean D. Pregerson. cc: order, docket, remand letter to Los Angeles Superior Court, No. BC 511084(MD JS-6. Case Terminated) .(Attachments: # 1 remand letter) . (lc) Modified on 12/12/2013 (lc).

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cc: order, docket, remand letter to
Los Angeles Superior Court, No. BC511084

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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JOSIE RODIS, an individual,
and DANIEL KATZMAN, an
individual,

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Plaintiffs,
v.
ALLSTATE INSURANCE COMPANY,
an Illinois corporation;
SERVICEMASTER PROFESSIONAL
RESTORATION, a California
entity of unknown form;
ENVIROCHECK, INC., a
California corporation,
Defendants.
___________________________

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Case No. CV 13-07686 DDP (CWx)
ORDER DENYING DEFENDANT
ALLSTATE’S MOTION TO DISMISS
FRAUDULENTLY JOINED DEFENDANTS
AND GRANTING PLAINTIFFS’ MOTION
TO REMAND.
[DKT Nos. 7, 8, 9]

Before the court are Plaintiffs Jose Rodis and Daniel

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Katzman’s Motion to Remand Action to State Court, Defendant

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Allstate Insurance Company’s Motion to Dismiss Fraudulently Joined

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Defendants, and Defendant ServiceMaster Professional Restoration’s

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Motion to Dismiss Pursuant to Rule 12(b)(6). The motions are fully

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briefed and suitable for adjudication without oral argument. The

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court now adopts the following order.

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I. Background
The present motions arise from Plaintiffs’ joining of two

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instate companies, ServiceMaster Professional Restoration

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(“ServiceMaster”) and Envirocheck, Inc. (“Envirocheck”), with whom

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they dealt in pursuing property insurance claims under a policy

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issued by Allstate Insurance Company (“Allstate”). (First Amended

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Complaint ¶ 9.)

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Plaintiffs allege the following in their First Amended
Complaint. Plaintiffs insured their home with Allstate, which

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issued them an “Allstate Deluxe Homeowner Policy Plus” policy for

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their property at 6195 Rodgerton Drive in Los Angeles, California.

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(Id. ¶ 10.) Two events in early 2012 led them to file claims under

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the policy. In April 2012, a wind and rain storm caused damage to

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the property’s roof and various rooms’ ceilings and walls. (Id. ¶

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11.) In May 2012, Plaintiffs discovered that a pipe connected to

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the bathroom shower valve had suddenly broken and was leaking. (Id.

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¶ 12.)

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Plaintiffs allege that, on June 5, 2012, Allstate dispatched

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ServiceMaster to the residence and directed ServiceMaster to

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conduct restoration and cleaning services with respect to the

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plumbing-related damage. (Id. ¶ 15.) On the same day, Allstate

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and/or ServiceMaster dispatched Envirocheck to test for lead and

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asbestos in the bathroom, but not to test for mold. (Id. ¶ 16.)

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Plaintiff Rodis allegedly signed a written “work order” form

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provided by Envirocheck stating that Rodis was the client, that she

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was responsible for paying for Envirocheck’s services, and that the

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results of the company’s testing would be for her sole and

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exclusive use and benefit. (Id.)
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Subsequently ServiceMaster informed Plaintiffs that Allstate

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would not be covering the plumbing problem because the policy

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covered only burst pipes and there was no coverage for a leaking

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pipe. (Id. ¶ 18.)

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Plaintiffs assert that Envirocheck never submitted a bill to

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Plaintiffs and never reported the results of their testing to

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Plaintiffs. (Id. ¶ 19.) Plaintiffs also assert that subsequent

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independent testing commissioned by Plaintiffs confirmed the

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existence of lead, asbestos, and mold at the property. Plaintiffs

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allege that Allstate paid Envirocheck directly in order to obtain

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the test results directly and hide them from Plaintiffs. (Id.)

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Subsequently, following seven months of investigation and

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Plaintiffs’ hiring of a public adjuster to present claims to

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Allstate, in January 2013 Allstate issued a partial letter of

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denial to Plaintiffs. (Id. ¶ 20-26.) Allstate stated that it was

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extending coverage “only to the damaged living room ceiling” and

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stated that the loss was $800, below the policy’s $1000 deductible.

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(Id. ¶¶ 22-26.)

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On September 17, 2013, Plaintiffs filed the instant suit,

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asserting causes of action for breach of contract (against

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Allstate), breach of the implied covenant of good faith and fair

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dealing (against Allstate), and civil conspiracy to defraud

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(against Allstate, ServiceMaster, and Envirocheck). (Id. ¶¶ 28-48.)

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As discussed below, the present motions primarily concern the

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civil conspiracy to defraud claim. Plaintiffs First Amended

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Complaint describes this claim as follows:

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43. Upon information and belief, Envirocheck and
ServiceMaster entered into a conspiracy with Allstate whereby
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Envirocheck and ServiceMaster would provide investigations and

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reports on damaged homes to Allstate that concealed the true

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nature and scope of damage so that damages appeared to be much

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less than actually incurred.

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44. Upon information and belief, Envirocheck and

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ServiceMaster maintained an unwritten policy and agreement

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with Allstate whereby Allstate sends claimants to Envirocheck

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and ServiceMaster for inspections and/or reports. Envirocheck

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and ServiceMaster then either provide investigations or

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reports that conceal the true nature and scope of damage.

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Allstate then uses these inaccurate, fraudulent inspections or

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reports as an excuse to deny or delay claims, although

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benefits are justly due and owing. In exchange, Allstate

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directs claimants to undergo inspections by Envirocheck and

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ServiceMaster and pays Envirocheck and ServiceMaster

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substantial sums of money for conducting these inspections and

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preparing these false reports.

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45. The systematic, methodical and institutional pattern

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and practice as described above was followed in relationship

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to plaintiffs’ subject claims.

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asbestos samples from plaintiffs’ home, falsely lead [sic]

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plaintiffs to believe that the results of the testing would be

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for plaintiffs’ sole and exclusive benefit, gave the test

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results directly to Allstate and/or ServiceMaster instead of

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plaintiffs, and then concealed the test results from

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Plaintiffs. ServiceMaster refused to provide restoration

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services to the storm-related damage, intentionally failed to

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recommend testing for mold, and arbitrarily withdrew
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Envirocheck took the lead and

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restoration services from the plumbing related damage based on

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its own coverage decision.

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(¶¶ 43-45.)
On October 17, 2013, Allstate removed this action to federal

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court under 28 U.S.C. § 1441(b), asserting that jurisdiction may be

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exercised on the basis of diversity. (DKT No. 1 (Notice of Removal

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¶ 15.)) Allstate subsequently moved to have ServiceMaster and

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Envirocheck--both non-diverse defendants based in California--

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dismissed as fraudulently joined such that there would be complete

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diversity. (DKT. No. 7.) Plaintiffs moved to remand the case back

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to California Superior Court. (DKT. No. 8.) Defendant ServiceMaster

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moved to dismiss for failure to state a claim under Rule 12(b)(6.)

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II. Legal Standard
The present motions concern whether this court may exercise
diversity jurisdiction over the instant suit.
A diversity action such as the present one may only be removed

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to federal court where there is complete diversity of citizenship.

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Hunter v. Philip Morris USA, 582 F.3d 1039, 1043 (9th Cir. 2009).

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There is a strong presumption against removal jurisdiction, which

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“must be rejected if there is any doubt as to the right of removal

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in the first instance.” Geographic Expeditions, Inc. v. Estate of

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Lhotka ex. rel Lhotka, 599 F.3d 1102, 1107 (9th Cir. 2010) (citing

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Gauss v. Miles, Inc., 980 F.2d 564, 567 (9th Cir. 1992). Allstate,

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as the proponent of federal jurisdiction, bears the burden to prove

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that removal is proper. Id.

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Allstate relies on an “exception to the requirement of

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complete diversity” which applies “where a non-diverse defendant
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has been ‘fraudulently joined.’” Morris v.. Princess Cruises, Inc.,

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236 F.3d 1061, 1067 (9th Cir.2001). “[F]raudulently joined

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defendants will not defeat removal on diversity grounds.” Ritchey

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v. Upjohn Drug Co., 139 F.3d 1313, 1318 (9th Cir.1998). However,

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“there is a general presumption against fraudulent joinder.”

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Fraudulent joinder will only be found “‘[i]f the plaintiff fails to

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state a cause of action against a resident defendant, and the

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failure is obvious according to the settled rules of the state.’”

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Hamilton Materials, Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1206

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(9th Cir.2007) (quoting McCabe v. Gen. Foods Corp., 811 F.2d 1336,

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1339 (9th Cir.1987)).

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As a defendant asserting fraudulent joinder, Allstate “carries

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the heavy burden of establishing the absence of any possibility of

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recovery” on the part of Plaintiffs. Lighting Sci. Group Corp. v.

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Koninklijke Philips Elecs. N.V., 624 F.Supp.2d 1174, 1179

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(E.D.Cal.2008); see also id. (“The claim of fraudulent joinder must

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be supported by clear and convincing evidence, with all ambiguities

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resolved in favor of the non-removing party.”). Remand must be

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granted unless the defendant establishes that there is no

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possibility that the plaintiff could prevail on any cause of action

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it asserted against the non-diverse defendant. See Levine v.

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Allmerica Fin. Life Ins. & Annuity Co., 41 F.Supp.2d 1077, 1078

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(C.D.Cal.1999).

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Deciding whether a defendant is fraudulently joined requires a

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court to “walk a very fine line: it must consider the merits of a

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matter without assuming jurisdiction over it.” Davis v. Prentiss

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Props. Ltd., 66 F.Supp.2d 1112, 1114 (C.D.Cal.1999). “[S]ome room

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must exist between the standard for dismissal under Rule 12(b)(6),
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for example, and a finding of fraudulent joinder.” Id. at 1115.

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Even “where it is doubtful whether the complaint states a cause of

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action against the resident defendant, the doubt is ordinarily

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resolved in favor of the retention of the case in state court.”

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Ballesteros v. American Standard Ins. Co. of Wisc., 436 F.Supp.2d

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1070, 1072 (D. Ariz.2006) (quoting Albi v. Street & Smith Publ'ns.,

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140 F.2d 310, 312 (9th Cir.1944)). Merely a “‘glimmer of hope’ that

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plaintiff can establish [a] claim is sufficient to preclude

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application of fraudulent joinder doctrine.” Mirchandani v. BMO

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Harris Bank NA, No. CV–11–2286–PHX–GMS, 2011 WL 6019311, at *3

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(D.Ariz. Dec. 5, 2011). In fact, “a federal court's

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fraudulent-joinder consideration should be akin to an application

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of Rule 11.” Davis, 66 F.Supp.2d at 1115.

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Accordingly, in order to decide whether Plaintiff fraudulently

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joined ServiceMaster and Envirocheck, the Court must examine

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Plaintiffs' claims against these parties, although the analysis is

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not as searching as would be appropriate for a Rule 12(b)(6) motion

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to dismiss. See Davis, 66 F.Supp.2d at 1114.

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III. Discussion
Because their validity is dispositive of the present motions,

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the court focuses on Allstate’s arguments for fraudulent joinder

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and considers them in turn.

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First, Allstate argues that ServiceMaster and Envirocheck must

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be dismissed because “an agent of an insurance company cannot be

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liable for conspiring to breach a duty owed by the insurance

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company.” (Motion to Remand at 5.) In support of this contention,

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Allstate relies principally on Icasiano v. Allstate Ins. Co., 103
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F.Supp.2d 1187, 1190 (N.D.Cal. 2000). There, a plaintiff alleged a

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conspiracy to defraud between an insurance company and the

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insurance company’s own adjuster. As discussed further below, the

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court held that the conspiracy claim could not lie because “an

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agent cannot be held liable for a conspiracy to violate a duty

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peculiar to the insurance company.” Id. at 1189. Allstate argues

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that, under this principle, the claims against ServiceMaster and

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Envirocheck must be dismissed because, it claims, the only duties

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Plaintiffs have alleged to have been violated are those owed to

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Plaintiffs by Allstate per the insurance policy. (Fraudulent

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Joinder Motion at 6.)

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Plaintiffs counter by asserting that Icasiano is inapposite

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because “Plaintiffs are not alleging that Allstate conspired with

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itself,” i.e. its own employee, but instead “that Allstate

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conspired with two third parties.” (Opposition to Fraudulent

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Joinder Motion at 10.) Plaintiffs rely on Younan v. Equifax Inc.,

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111 Cal. App. 3d 498, 511 (1980), which involved allegations that

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the defendant, an insurer, hired and employed a separate company to

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select and induce a local doctor to examine the plaintiff and

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prepare a medical report which would falsify the Plaintiff’s

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condition. Id. at 478. In holding that the conspiracy claim was

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viable, the court explained that “[a] cause of action for

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conspiracy will lie against agents and employees of insurers even

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though the former are not parties to the agreement of insurance

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when they join the insurer in a conspiracy to defraud the insured.”

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Id. at 511.

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Similarly, plaintiffs rely on Sprague v. Equifax, Inc., 166
Cal. App. 3d. 1012 (1985) (finding that plaintiff properly alleged
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a conspiracy to defraud where there was sufficient evidence from

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which a jury could infer that a non-insurance company engaged by

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insurer to investigate claim conspired with insurance company to

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fraudulently deny benefits) and Diaz v. Allstate Insurance Group,

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185 FRD 586 (1998) (remanding action to state court after

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permitting joinder of non-diverse third-party contractor defendants

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where plaintiff alleged that insurer and contractors conspired to

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defraud plaintiffs by, inter alia, underestimating damages).

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Plaintiffs assert that the approval expressed in Younan,

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Sprague, and Diaz for claims alleging conspiracies to defraud by

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insurers and third-party entities provides strong authority for

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Plaintiffs’ instant claim against Allstate, ServiceMaster, and

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Envirocheck. The court agrees. Allstate appears to acknowledge that

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these cases are strong authority for Plaintiffs, but asserts that

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those cases are no longer good law because they predate Icasiano.

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(Fraudulent Joinder Motion at 1.)

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The court is unpersuaded.

First, contrary to Allstate’s

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contention, it does not appear that the Icasiano court contradicted

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the earlier cases on which Plaintiffs rely. In considering the

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import of Younan, the Icasiano court explained:

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Younan involved allegations that the defendant insurer,

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American Home Assurance Company hired and employed defendant

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Equifax Inc. to select and induce a local doctor to examine

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the plaintiff and prepare a medical report which would falsify

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the plaintiff's condition. Younan, 111 Cal.App.3d at 512, 169

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Cal.Rptr. 478. The plaintiff alleged that American Home

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Assurance Company retained Equifax knowing that Equifax worked

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with doctors who would participate in the scheme to prepare
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false medical reports. Id. As such, Younan involved

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allegations that two separate entities involved in the

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insurance business conspired together to defraud the

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plaintiff, and did not involve accusations that an employee of

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an insurance company conspired with the insurance company to

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defraud an insured. There is nothing in Younan to indicate

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that employees of insurers, engaged in the process of

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administering a claim, can be held independently liable to an

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insured under a tort or contract theory. Plaintiff has not

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pointed to a case similar to the present one where a court

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allowed a claim against an insurance agent acting solely as

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the representative of the insurer in the course of handling a

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claim.

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Icasiano, 103 F.Supp.2d at 1190. The Icasiano court plainly

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considered Younan to be good law and it did not purport in any way

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to overrule it.

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Second, in light of the language quoted above, it is at the

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very least debatable whether the Icasiano court intended a rule

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that would prohibit conspiracy claims against entities which are

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not employees of the insurer or similarly situated in acting

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“solely as the representative of the insurer.” Icasiano, 103

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F.Supp.2d at 1190. Here, Plaintiffs allege that Envirocheck was not

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acting solely as Allstate’s representative, but instead that

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Envirocheck identified Rodis as its client and stated that its

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testing services were for her sole and exclusive use and benefit.

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(FAC ¶ 16.)

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Third, even construing the Icasiano court’s most general
language in the light most favorable to Allstate, it would not
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appear that the language on which Allstate relies would prevent

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Envirocheck from being named as a defendant. Allstate makes much of

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the following phrase from the Icasiano order: “As long as the duty

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is owed by the insurance company only, and regardless of whether it

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derives from contract or tort, the insurance company’s agents

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cannot be held liable for conspiring to violate that duty.”

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Icasiano, 103 F.Supp.2d at 1189-90, quoted by in Allstate’s

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Fraudulent Joinder Motion at 6. However, the condition “as long as

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the duty is owed by the insurance company only” does not appear to

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obtain in the current claim. While Plaintiffs’ complaint focuses on

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the duties owed by Allstate under the insurance policy, Plaintiffs

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also appear to allege that Envirocheck breached duties Envirocheck

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owed independently to Plaintiffs. These duties stem from the work

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order allegedly signed between the parties naming Plaintiff Rodis

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as Envirocheck’s client, which Plaintiffs claim Envirocheck

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breached in furtherance of its conspiracy with Allstate. (See FAC

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¶¶ 16, 44, 45.)

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Allstate additionally contends that Plaintiffs have failed to

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state facts sufficient to constitute a cause of action because

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“Allstate cannot be liable in tort for the non-Allstate Defendants’

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conduct.” (Fraudulent Joinder Motion at 8.) However, the authority

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cited by Allstate--Rattan v. United Services Auto Ass’n, 84

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Cal.App.4th 715 (2000) and Moncada v. Allstate Ins. Co., 471

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F.Supp.2d 997 (N.D.Cal. 2006)–-does not support such a sweeping

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rule. Both cases involved the question of whether an insurance

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company may be held liable for the faulty workmanship of its third-

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party contractors. Rattan held that the plaintiff could not be

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permitted to state a tort cause of action against an insurer based
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on the insurer’s guarantee of the contractor’s work. 84 Cal.App.4th

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at 722. Moncada held that an insurer was not liable for a breach of

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express warranty by a contractor where Allstate’s preferred vendor

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guaranteed the contractor’s work. 471 F.Supp.2d at 997. As

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Plaintiffs point out, unlike both cases, the current action does

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not involve allegations of faulty workmanship, and, unlike the

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present case, neither Rattan nor Moncada involved allegations of a

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conspiracy to defraud, fraud, or negligent misrepresentation

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(Opposition at 11.) Accordingly, neither Rattan nor Moncada rule

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out the possibility, as alleged here, that third party defendants

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might be held liable for the fraudulent concealment of test results

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calculated to minimize Allstate’s obligations under the insurance

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policy.

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In sum, Allstate has not shown that Plaintiffs have “failed to

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state a cause of action against a resident defendant, and the

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failure is obvious according to the settled rules of the state.’”

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Hamilton Materials, 494 F.3d at 1206. Accordingly, the court will

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not find that ServiceMaster and Envirocheck were fraudulently

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joined. Because both parties are non-diverse vis-a-vis Plaintiffs,

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the court must find that complete diversity has not been

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demonstrated and that the court therefore may not exercise

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jurisdiction under 28 U.S.C. § 1441.

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IV. Conclusion

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For the reasons set forth herein, the court DENIES Allstate’s

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Motion to Dismiss Fraudulently Joined Defendants and GRANTS

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///

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Plaintiffs’ Motion to Remand.

Additionally, because the court

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finds that it does not have jurisdiction over this case, it does

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not reach ServiceMaster’s Motion to Dismiss Pursuant to Rule

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12(b)(6).

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IT IS SO ORDERED.

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Dated:December 12, 2013
DEAN D. PREGERSON
United States District Judge

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