Rudzik et al v. Star Insurance Company et al
Filing
28
MEMORANDUM AND ORDER granting 16 Motion to Remand. The action is hereby forthwith remanded to the District Court of Grant County, Kansas. Signed by District Judge Monti L. Belot on 4/28/2015. (smg)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
KENYA D. RUDZIK; CHANCE R. RUDZIK; )
TLC TRUCKING, LLC; and
)
REYMUNDO ESTRADA GARCIA,
)
)
Plaintiffs,
)
)
v.
)
)
STAR INSURANCE COMPANY;
)
CUSTARD INSURANCE ADJUSTERS; and
)
DONALD SEWARD,
)
)
Defendants.
)
)
CIVIL ACTION
No.
14-1421-MLB
MEMORANDUM AND ORDER
The following are before the court:
1. Plaintiffs’ motion to remand (Doc. 16);
Star Insurance Co. response (Doc. 19);
Plaintiffs’ reply (Doc. 24);
2. Defendants Custard Ins. Adjusters and Donald
Seward’s motion to dismiss (Docs. 17, 18);
Plaintiffs’ response (Doc. 25);
Defendants’ reply (Doc. 26); and
3. Defendant Star Ins. Co.’s motion to
consolidate cases (Docs. 7, 8); and
Plaintiffs’ response (Doc. 11).
I. Background.
On November 28, 2012, Kenya Rudzik was making a left turn on US
Highway 83 in Haskell County, Kansas, when her car was rear-ended by
a tractor-trailer driven by TLC Trucking employee Reymundo Estrada
Garcia (hereinafter “Estrada”). Rudzik suffered severe injuries,
including a spinal cord injury with paraplegia.
At the time of the accident, TLC Trucking had an automobile
liability policy in effect with Star Insurance Company. The policy had
a coverage limit of $1,000,000 per accident. Prior to this accident,
Star Insurance had contracted with Custard Insurance Adjusters, an
independent adjusting company, for services including investigation,
adjusting and advising Star with respect to insurance claims. Star
sent the Rudzik claim to Custard, and Custard employee Donald Seward
was assigned to work on it.
Seward and various Star employees gathered information about the
accident over the next several months. During this period, counsel for
the Rudziks requested that Seward or Star disclose the policy limits
and whether there was any excess coverage, but they refused to do so.
On February 20, 2013, a Star employee allegedly told Rudziks’ counsel
that he could request and receive that information in the discovery
process but that Star was not authorized to disclose it. At this time,
there was no “discovery process” because there was no lawsuit.
The Rudziks allege that as of February 2013 defendants knew that
liability was clear on the part of Estrada, TLC’s driver, that Kenya
Rudzik’s injuries were severe and her damages would likely exceed the
policy limits, and that TLC had no excess insurance coverage.
In April 2013, Star sent an email asking Seward to confirm that
the Rudziks’ home had been remodeled to accommodate Kenya Rudzik’s
disability,
as
the
Rudziks
had
reported,
and
to
make
discrete
inquiries in Rudzik’s home town to confirm the extent of her injuries.
Seward responded that they would do so and subsequently confirmed both
the remodel and Kenya Rudzik’s evident paralysis.
On May 16, 2013, a Star adjuster advised Rudziks’ counsel that
the policy limit was $1 million and that there was no excess coverage.
He requested that Rudziks’ counsel provide a medical record confirming
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that Kenya Rudzik was paralyzed. Star did not initiate settlement
discussions or make a settlement offer.
On May 17, 2013, Rudziks’ counsel mailed a petition to the state
district court in Grant County, naming TLC and Estrada as defendants.
(He also sent Rudzik’s medical records to Star). The petition was
filed May 21, 2013, and was served on TLC and Estrada on July 22,
2013. Shortly thereafter a Star employee contacted Rudziks’ counsel
and asked if they intended to make a settlement demand. Rudziks’
counsel declined to do so, saying it was the Rudziks’ position that
Star had breached its contract with TLC and had acted negligently or
in bad faith. The Star employee did not make a settlement offer.
On October 23, 2013, an attorney representing Star contacted
Rudziks’ counsel and offered the policy limit of $1,000,000. The
Rudziks declined the offer.
On or before September 29, 2014, the Rudziks entered into a
“Glenn v. Fleming”1 agreement with TLC and Estrada under which the
latter two assigned all of their rights against Star Insurance to the
Rudziks. The agreement asserted that Star breached its contract with
TLC and engaged in negligence and bad faith. In exchange for this
assignment of rights, the Rudziks promised to seek satisfaction of any
judgment only from Star and not from TLC or Estrada. In the agreement,
TLC and Estrada admitted that Estrada negligently caused the accident;
that his negligence was imputed to TLC; that Rudzik was paralyzed as
a result of the accident; that TLC had a policy with Star providing
$1,000,000 in coverage; and that the Rudziks had incurred damages well
1
See Glenn v. Fleming, 247 Kan. 296, 799 P.2d 79 (1990).
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in excess of that amount. The parties agreed to waive jury trial and
have the court determine fault and damages.
On September 29, 2014, the Hon. Bradley E. Ambrosier of the
Grant County district court held a bench trial on the Rudziks’ claims
against TLC and Estrada.2 Star Insurance was not a party and did not
participate. On October 23, 2014, Judge Ambrosier entered a judgment
finding Estrada 100% at fault and awarding the Rudziks damages against
TLC and Estrada in the amount of $10,482,974.60, plus interest and
costs.
On November 6, 2014, Star Insurance filed a complaint in this
court against the Rudziks, TLC Trucking and Estrada. The complaint
asked for a declaratory judgment that Star did not breach its
insurance contract or act in bad faith, such that its liability was
limited, at most, to the $1,000,000 policy limit. Star Insurance Co.
v. TLC Trucking, et al., Case No. 14-1368 (D. Kan.). The complaint
asserted
subject
matter
jurisdiction
by
virtue
of
diversity
of
citizenship.
On December 1, 2014, the Rudziks (joined by TLC Trucking and
Estrada) filed a petition in Grant County district court against Star
Insurance,
Custard
Insurance
Adjusters,
and
Donald
Seward.
The
petition alleged that Star Insurance was liable for the $10.4 million
judgment
because
it
breached
its
contract
with
TLC
and
acted
negligently and in bad faith. It similarly alleged that Custard and
Seward “owed and undertook a duty to Insureds to properly investigate
2
One of the signatures on the aforementioned settlement
agreement was apparently witnessed by the district judge on the day
of the bench trial.
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and adjust the Rudziks’ insurance claim, to act in Insureds best
interest in doing so, and to timely and properly advise the Insurer
of the need to provide insurance information and documentation to the
Rudziks, to initiate settlement discussions and to offer the policy
limits.” Doc. 1-1 at 17. Custard and Seward allegedly “breached their
contract with Insurer, breached their duty owed to Insureds, and acted
negligently and in bad faith in investigating, adjusting and advising
Insurer on the Rudzik claim” and thereby caused both the filing of the
original suit against TLC and Estrada and the resulting $10.4 million
judgment.
On December 19, 2014, Star removed the Grant County action to
this court; this is the matter now before the court. (Rudzik, et al.
v. Star Insurance Co., et al., Case No. 14-1421 (D. Kan.)). The notice
of removal alleges that diversity jurisdiction exists even though
Seward and the Rudziks are citizens of Kansas because “Seward has been
fraudulently and improperly joined in this action for the sole purpose
of destroying complete diversity in an attempt to defeat removal,”
such that his citizenship may be disregarded. Doc. 1 at 2.
II. Motion to Remand (Doc. 16).
Plaintiffs move to remand case number 14-1421 to state court,
arguing
diversity
jurisdiction
does
not
exist.
They
claim
Star
Insurance has not met its “heavy burden” to show that Seward was
fraudulently joined to defeat diversity jurisdiction.
Standards. A case may generally be removed to federal court if
it is one over which the federal courts have original jurisdiction.
28 U.S.C. § 1441(a). Original jurisdiction includes disputes between
citizens of different states where the amount in controversy exceeds
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$75,000. 28 U.S.C. § 1332(a)(1). For such diversity jurisdiction to
exist, there must be complete diversity between the parties at the
time of the filing of the complaint. See Siloam Springs Hotel, LLC v.
Century Sur. Co., ___F.3d
___, 2015 WL 1430335, *5 (10th Cir., Mar.
31, 2015). This means all parties on plaintiffs’ side must be diverse
from all parties on defendants’ side. See Dutcher v. Matheson, 733
F.3d 980, 987 (10th Cir. 2013).
A defendant who is “fraudulently joined” need not be considered
for the purposes of determining complete diversity. See Smoot v.
Chicago, Rock Island & Pac. R.R. Co., 378 F.2d 879, 882 (10th Cir.
1967) (“[F]ederal courts may look beyond the pleadings to determine
if the joinder, although fair on its face, is a sham or fraudulent
device to prevent removal.”). To establish fraudulent joinder, the
removing party must demonstrate either: 1) actual fraud in the
pleading of jurisdictional facts (something Star does not claim); or
2) inability of the plaintiff to establish a cause of action against
the non-diverse party in state court. Dutcher, 733 F.3d at 988. This
is Star’s claim.
In making a fraudulent joinder determination, the court is not
required to take all allegations in the complaint at face value. Upon
specific allegations of fraudulent joinder, the court may pierce the
pleadings, consider the entire record, and determine the basis of
joinder by any means available. Dodd v. Fawcett Publications, Inc.,
329 F.2d 82, 85 (10th Cir. 1964). The objective of this inquiry is not
to pre-try the merits of the claim, but to decide whether there is a
reasonable basis to believe the plaintiff might succeed on at least
one claim against the non-diverse defendant. See Braznell v. Waite,
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525 Fed.Appx. 878 (10th Cir. 2013).
As plaintiffs point out, establishing fraudulent joinder is a
heavy burden under which any factual issues or ambiguous legal
questions must be resolved in a plaintiffs’ favor. Dutcher, 733 F.3d
at 988. To meet its burden, a defendant must “demonstrate that there
is no possibility that [plaintiffs] would be able to establish a cause
of action against [Seward] in state court.” See Montano v. Allstate
Indemnity, 211 F.3d 1278 (Table), 2000 WL 525592, *1 (Apr. 14, 2000).
This standard is more exacting than that for dismissing a claim under
Fed. R. Civ. P. 12(b)(6). Montano, 2000 WL 525592, *2. See also
Stillwell v. Allstate Ins. Co., 663 F.3d 1329, 1333 (11th Cir. 2011)
(the plausibility standard of Twombly and Iqbal asks for more than a
mere possibility that a defendant has acted unlawfully; by contrast
all that is required to defeat a fraudulent joinder claim is a
possibility of stating a valid cause of action).
Discussion.
Plaintiffs TLC and Estrada contend they have properly pled
claims against Seward for negligence and for third party beneficiary
breach of contract. Doc. 16 at 4.
Negligence
Turning first to the negligence claim against Seward, TLC and
Estrada allege that Seward had a legal duty to them to properly
investigate and adjust the Rudzik claim, that he breached those
duties, that harm to them was a foreseeble result of failing to
investigate and adjust with reasonable care, and that TLC and Estrada
suffered damages as a result. TLC and Estrada acknowledge there are
no Kansas cases recognizing such a claim. Nevertheless, they cite a
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few cases from other jurisdictions that allow negligence claims
against independent adjusters and argue that general principles of
Kansas negligence law should allow a claim against Seward.
The chances of survival of TLC and Estrada’s negligence claim
against Seward are not good, given the Kansas Supreme Court’s emphatic
rejection of a tort remedy for bad faith (including negligent)
handling of claims by an insurer, and its insistence that such claims
arise not from obligations imposed by law but from an insurer’s
express and implied obligations under an insurance contract. See Glenn
v. Fleming, 247 Kan. 296, 313, 799 P.2d 79 (1980); Guarantee Abstract
& Title Co., Inc. v. Interstate Fire and Cas. Co., Inc., 232 Kan. 76,
652 P.2d 665 (1982) (“a claim that an insurer acted negligently in
performing its contractual duty to defend on behalf of the insured
does not create a tort action”); Aves by and through Aves v. Shaw, 258
Kan. 506, 512, 906 P.2d 642 (1995) (“a plaintiff who seeks damages
from an insurer under a third-party bad faith action must bring the
action as a contract claim.”). Moreover, the majority view among other
states is that no negligence claim lies against an independent
adjuster in these circumstances. See e.g.,Trinity Baptist Church v.
Brotherhood Mut. Ins. Svcs., LLC, 341 P.3d 75 (Okla. 2014) (“A
majority of courts in other states have held that an insured cannot
maintain a separate tort action for negligence against an independent
insurance adjuster hired by the insurer because the independent
adjuster owed the insured no duty of care.”). See also Thomas R.
Malia, Liability of Independent or Public Insurance Adjuster to
Insured for Conduct in Adjusting Claim, 50 A.L.R. 900 (1986).
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Breach of Contract
On the breach of contract claim, TLC and Estrada contend that
they were intended beneficiaries of a contract for adjusting services
between Star and “Custard/Seward,” such that they have standing to sue
for breach of that contract. They acknowledge there are no Kansas
cases allowing such a claim on these facts, but they point out that
Kansas generally recognizes third-party beneficiary claims, and they
say they have properly alleged all the elements of a claim. They argue
Judge Crow’s rejection of a bad faith claim against an independent
adjusting company in Wolverton v. Bullock, 35 F.Supp.2d 1278 (D. Kan.
1998) is distinguishable because the plaintiff in that case did not
claim to be a third party beneficiary of the adjusting contract, and
also because that case was not decided under fraudulent joinder
standards.
The breach of contract claim is doubly doubtful, resting not
only on an unexplained allegation that Custard employee Seward somehow
personally bound himself on a contract with Star for adjusting
services, but also resting on the application of a third party
beneficiary theory with no support in Kansas case law and contrary to
the prevailing view elsewhere. See Restatement (Second) of Agency §320
(“Unless otherwise agreed, a person making or purporting to make a
contract with another as agent for a disclosed principal does not
become a party to the contract.”); 3 Couch on Insurance §48:64 (3rd
ed. 2012) (“An insured is not a third-party beneficiary to a contract
between an insurer and an independent insurance adjuster hired by the
insurer to investigate a loss....”).
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Conclusion
Despite the dim prospects of success on these claims, the court
concludes that Star has not met its heavy burden of establishing
fraudulent joinder. First, insofar as the parties’ dispute presents
a legal issue, neither the Kansas Supreme Court nor any lower Kansas
court has specifically addressed a third-party beneficiary contract
claim or a negligence claim against an independent adjuster hired by
an insurer. There is one federal decision on similar facts, Wolverton
v. Bullock, 35 F.Supp.2d 1278 (D. Kan. 1998), but as TLC and Estrada
point out, no third-party beneficiary contract claim was made in that
case. Moreover, whether or not a claim can be asserted against an
independent adjuster is ultimately one of state law on which the
Kansas courts have not yet ruled. Additionally, even though a majority
of decisions in other states find that no claim lies against an
independent adjuster for negligence or for breach of contract under
a
third-party
beneficiary
theory,
there
are
at
least
a
few
jurisdictions where such claims have been recognized. Given the
absence of a controlling Kansas decision, the court cannot say there
is no possibility that Kansas would recognize such a claim, even if
the current posture of Kansas law suggests the chance is remote.
The absence of controlling Kansas case law on these claims
refutes Star’s contention that Seward’s joinder could only have been
for the purpose of defeating diversity jurisdiction. It may well be
that a court applying Kansas law will ultimately find that plaintiffs
have no claim for relief against Seward. But that is not the question
presented here. See Dutcher v. Matheson, 733 F.3d 980, 989 (10th Cir.
2013)
(failure
to
show
fraudulent
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joinder
does
not
mean
that
plaintiffs have stated a valid claim); Montano, 2000 WL 525592 at *2
(standard for fraudulent joinder is more exacting than that for
dismissing a claim under Rule 12(b)(6)). “A claim which can be
dismissed only after an intricate analysis of state law is not so
wholly insubstantial and frivolous that it may be disregarded for
purposes of diversity jurisdiction.” Id. (citing Batoff v. State Farm
Ins. Co., 977 F.2d 848, 851-53 (3rd Cir. 1992)). Because Kansas courts
have not specifically addressed whether an insured can recover against
an independent adjuster in these circumstances, and rulings from other
states give plaintiffs at least a good faith basis for arguing that
Kansas law should be construed to allow such claims, there remains
uncertainty in Kansas law on which plaintiffs are entitled to the
benefit of the doubt insofar as fraudulent joinder is concerned. This
entails the kind of merits determination that should be left to the
state court where the action was commenced.
Second,
from
a
purely
practical
standpoint,
the
lack
of
discovery presents a problem. Federal courts are courts of limited
jurisdiction. The court declines to keep the case while the parties
conduct discovery when subject matter jurisdiction is in question. Not
only will this be contrary to Fed. R. Civ. P. 1, it will present
potential appellate issues as well. None of these stumbling blocks are
present in the state court.
The court finds that complete diversity among the parties does
not exist and that case number 14-1421 must be remanded to state
court.
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III. Conclusion.
Plaintiffs’ Motion to Remand (Doc. 16) is granted. The action
is hereby forthwith remanded to the District Court of Grant County,
Kansas.
The court finds that each party should bear its own costs and
expenses and that no fees should be awarded in connection with the
removal or remand. See 28 U.S.C. § 1447(c).
The court is without jurisdiction to rule on the remaining
motions in the case.
IT IS SO ORDERED.
Dated this 28th
day of April 2015, at Wichita, Kansas.
s/Monti Belot
Monti L. Belot
UNITED STATES DISTRICT JUDGE
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