Hambelton et al v. State Farm Fire and Casualty Company et al

Filing 7

MEMORANDUM OPINION & ORDER, ; IT IS HEREBY ORDERED that this matter be REMANDED to the Greenup Circuit Court. Signed by Judge Henry R. Wilhoit, Jr on 7/2/18.(SMT)cc: COR, Certified copy to Greenup Circuit Court.

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION
ASHLAND
CIVIL ACTION NO. 18-65-HRW
PLAINTIFFS,

JASON AND TINA HAMBELTON,

v.

MEMORANDUM OPINION AND ORDER

STATE FARM FIRE AND CASUALTY COMPANY.
and
LINDSEY PATTON,

DEFENDANTS.

This matter is before the Court on its own motion based on the Court's inherent power
and duty to insure the requirements for subject matter jurisdiction are satisfied in all cases.
Notice of Removal [Docket No. 1] in the above-styled action states that this Court may
exercise subject matter jurisdiction over this matter pursuant to 28 U.S.C. §1332. Upon review
of the Notice, this Court found that a serious question existed as to whether it may properly
exercise jurisdiction over this matter. Specifically, in setting forth the basis for removal,
Defendants maintain that Lindsey Patton has been fraudulently joined as parties so as to defeat
federal jurisdiction. This Court directed the parties to submit briefs in this regard [Docket No.
4]. Having reviewed the parties' submissions [Docket Nos. 5 and 6], as well as the record
herein, the Court finds that Defendants have not met the stringent requirements for establishing
fraudulent joinder, and, as such, remand is warranted

I.
On February 7, 2018, a six-foot portion of the cinderblock foundation of the Hambeltons'

home collapsed. [Complaint, Docket No. 1-1, if 1O]. At all relevant times, the Hambeltons had
insurance coverage for their home through Defendant State Farm, Policy Number 17-BY-G9551. Id at ifif 6-9.
On February 13, State Farm's adjuster, Defendant Linsdey Patton, inspected the home
and indicated to Plaintiffs that "there was nothing that could have been done to prevent it," that
he was not qualified to handle the claim, and that he would have someone more qualified look
into the matter. Id. at iii! 17-19.

One week later, the Hambeltons received a letter from Patton

stating, that the collapse had been caused by the "expansion of the adjacent soil from the
hydrostatic pressure placed on it from the heavy rains, and soil saturation we have in the area
currently." Patton added that "based on the information we currently have and the policy
language noted above, we are unable to assist you with this loss." Id at iii! 20-21.
The Hambeltons filed this lawsuit against State Farm as well as Lindsey Patton in
Greenup Circuit Court alleging that State Farm breached its contract of insurance and violated
Kentucky's Consumer Protection Act, KRS.367.110 et seq. [Docket No. I-I, Counts I and VI].
Plaintiffs also allege the following claims against both State Farm and its adjuster, Linsdey
Patton: negligence and bad faith, under both common law and Kentucy's Unfair Settlement
Practices Act ("UCSPA"), KRS.304.12-230 and 304.12-235. Id., Counts II, III, IV, and V.
Plaintiffs seek compensatory and punitive damages.
Defendants filed a Notice of Removal alleging jurisdiction pursuant to 28 U.S.C. § 1332,
which provides, in pertinent part:
The district comts shall have original jurisdiction of all civil actions where the
matter in controversy exceeds the sum or value of $75,000, exclusive of interest
and costs, and is between... citizens of different States;
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28 U.S.C. § 1332 (a)(l). The requisite amount in controversy does not appear in dispute, as the
policy at issue has limits of $75.400 for the dwelling with dwelling extension costs, $56,550 for
personal property and actual loss for loss of use. [Docket No. 1].
With regard to citizenship, in its Notice of Removal Defendants state that Plaintiffs are
citizens of Kentucky, State Farm is a citizen and domiciliary of the State of Illinois, where it
maintains its principal place of business and that Lindsey Patton is a citizen of Kentucky. Id. at

irir 10-12.
Defendants acknowledge that absence of diversity of citizenship but claims that the nondiverse Defendant Lindsey Patton was fraudulently joined as a defendant for the specific purpose
of defeating federal jurisdiction. They contend that, as Patton was fraudulently joined, his
citizenship is not relevant to the jurisdiction inquiry and that this Court may properly exercise
jurisdiction over this matter.

II.
The "party seeking to bring a case into federal court carries the burden of establishing
diversity jurisdiction." Coyne v. Am. Tobacco Co., 183 F.3d 488, 493 (6th Cir. 1999) (internal
citation and quotation marks omitted). There must be complete diversity such that no plaintiff
is a citizen of the same state as any defendant. V&M Star, LP v. Centimark Corp., 596 F.3d
354, 355 (6th Cir. 2010) (citing Lincoln Prop. Co. v. Roche, 546 U.S. 81, 89 (2005)). However,
fraudulent joinder of a non-diverse party does not defeat removal on diversity grounds.
Alexander v. Elec. Data Sys. Corp., 13 F.3d 940, 948-49 (6th Cir. 1994).

The relevant inquiry is whether the plaintiff had at least a colorable cause of action

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against the defendant in state court. Jerome-Duncan, Inc. v. Auto-By-Tel, LLC, 176 F.3d 904,
907 (6th Cir. 1999). A colorable cause of action exists ifthere is "arguably a reasonable basis
for predicting that the state law might impose liability on the facts involved." Alexander, 13 F.3d
at 949. This is a less searching inquiry than that triggered by a motion to dismiss under
Rule 12(b)(6) of the Federal Rules of Civil Procedure. See Gibson v. Am. Min. Ins. Co., No.
08-118-ART, 2008 WL 4602747, *5 (E.D. Ky. Oct. 16, 2008) (citing Batoffv. State Farm Ins.

Co., 977 F.2d 848, 852 (3d Cit. 1992)). "If there is a colorable basis for predicting that a
plaintiff could recover against the non-diverse defendant, the Court must remand the action to
state court." Appel v. PACCAR, Inc., 2006 WL 2873434 (W.D. Ky. Oct. 4, 2006) (citing

Boladian v. UMG Recordings, Inc., 123 F. App'x 165, 168 (6th Cir. 2005)). "All doubts as to
the propriety ofremoval are resolved in favor ofremand." Coyne, 183 F.3d at 493.

III.
Patton is the only defendant who is a citizen of Kentucky and, therefore, not diverse
from the plaintiffs. Accordingly, the Court must determine whether the plaintiffs have asserted
any claim against Patton that is at least colorable.
In their Complaint, Plaintiffs allege Patton did not sufficiently inspect the area of collapse
for signs of deterioration or other conditions that would have justified payment on the their
claim. They further allege in in the letter denying their claim, Patton "disregarded their rights
and omitted the relevant language contained in the policy that would have justified the rightful
payment of this claim."

Id. at ~ 21.

The plaintiffs' claims against Patton include violations of the Unfair Claims Settlement
Practices Act ("UCSPA"), Ky. Rev. Stat. § 304.12-230.
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The UCSPA prohibits seventeen specific acts or omissions including:
(1) Misrepresenting pertinent facts ... relating to coverages at
issue; (2) Failing to aclmowledge and act reasonably promptly
upon communication with respect to claims arising under
insurance policies; (3) Failing to adopt and implement reasonable
standards for the prompt investigation of claims arising under
insurance policies; (4) Refusing to pay claims without conducting a
reasonable investigation based upon all available information; ...
(6) Not attempting in good faith to effectuate a prompt, fair and
equitable settlement of claims in which liability has become
reasonably clear."

Ky. Rev. Stat. § 304.12-230.
Defendants contend that such claims are not viable when asserted against claims adjusters
like Patton but, as evident from a review of the relevant case law (including that cited by the
parties), this is far from clear. See e.g., Fugate v. Ohio Cas. Ins. Co., No. 16-cv-37-JMH, 2016
WL 3892399, *3 (E.D. Ky. July 13, 2016); Stacy v. Grange Indemnity Ins. Co., No.
14-133-ART, 2014 WL 12605047, *1-2 (E.D. Ky. Dec. 4, 2014); Gibson, 2008 WL 4602747, *5
(concluding that defendants failed to show lack of colorable basis for UCSPA claims against
insurance adjusters). But see e.g. Delamar v. Mogan, 966 F. Supp. 2d 755, 759 (W.D. Ky. 2013);
Wolfe v. State Farm Fire & Cas. Co., No. 3: 10-cv-545, 2010 WL 4930680, *3 (W.D. Ky. Nov.
30, 2010) (concluding that contractual obligation must exist between parties to be held liable for
bad faith).
The Kentucky Supreme Court's decision in Davidson v. American Freightways, Inc.,
25 S.W.3d 94 (Ky. 2000), continues to provide the most persuasive guidance. See Howard v.
Allstate Insurance Company, No. 5: 14-173-DCR, 2014 WL 5780967, *6-7 (E.D. Ky. Nov. 5,
2014). Under Davidson, both the UCSPA and common law bad faith claims apply "to

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persons or entities engaged in the business of insurance." Id at *6 (quoting Davidson, 25
S.W;3d at 95). While Davidson indicates that a bad faith cause of action requires a contractual
obligation, it does not require privity of contract between the plaintiff and defendant. Instead,
the Kentucky Supreme Comi stated that the UCSPA applies to "insurance companies and their

agents in the negotiation, settlement, and payment of claims made against policies, certificates
or contracts of insurance." Davidson, 25 S.W.3d at 98 (emphasis added). Since insurance
adjusters are agents of insurance companies who are routinely involved in these activities, they
are arguably "in the business of insurance" and potentially liable for bad faith claims. Howard,
2014 WL 5780967, *6-7.
In seeking to remain in this federal forum, Defendants rely upon Brown v. Indemnity

Insurance Company ofNA., No. 17-cv-193-JMH, 2017 WL 30115171 (E.D. Ky. July 14, 2017),
in which Judge Joseph Hood denied remand based on the fraudulent joinder of an insurance
adjuster. However, in that case, the Court did not conclude that joinder was fraudulent because
an insurance adjuster cannot be liable for bad faith under Kentucky law. Rather, the Court
retained jurisdiction because the plaintiffs had failed to allege any facts on which to base a claim
against the adjuster. Brown, 2017 WL 30115171, *3.
Such is not the case here. Plaintiffs allege that, in performing his duties for State Farm,
Patton did not conduct a sufficient investigation and misrepresented information, allegations
which fall squarely within the purview of the UCSPA.
This is not say that the case against Patton will survive a dispositive motion. That is not
for this Court to decide. However, there is a colorable basis for recove1y.

IV.
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The Court "must resolve all disputed questions of fact and ambiguities in the controlling
... state law in favor of the non -removing party." Coyne, 183 F.3d at 493 (internal quotation
marks omitted). Any doubts concerning the propriety ofremoval are resolved in favor of
remand. Id For the reasons explained, the defendants have not met the heavy burden of
establishing fraudulent joinder.

Accordingly, IT IS HEREBY ORDERED that this matter be REMANDED to the
Greenup CircuiJ:ourt. ~L{
This

d

day~, 2018.
Signed By:
Henry R. W/lhojt,

Jr.

United States District Judge

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