One Way Investments Inc v. Century Surety Company et al

Filing 16

MEMORANDUM OPINION AND ORDER denying 6 Motion to Remand to State Court filed by One Way Investments Inc. (Ordered by Judge Sidney A Fitzwater on 12/11/2014) (Judge Sidney A Fitzwater)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
ONE WAY INVESTMENTS, INC.,

§
§
Plaintiff,
§
§ Civil Action No. 3:14-CV-2839-D
VS.
§
§
CENTURY SURETY COMPANY, et al., §
§
Defendants. §
MEMORANDUM OPINION
AND ORDER
Plaintiff One Way Investments, Inc. (“One Way”) moves to remand this case based
on lack of complete diversity, citing the Texas citizenship of One Way and of defendant
Richard Mattoni (“Mattoni”). Defendants Century Surety Company (“Century”), VeriClaim,
Inc. (“VeriClaim”), and Mattoni oppose the motion on the basis that Mattoni has been
improperly joined. Concluding that defendants have met their heavy burden of establishing
improper joinder, the court denies the motion.
I
This lawsuit arises in connection with a storm that caused wind and hail damage to
One Way’s property, a building. According to One Way’s state-court first amended petition,
Century insured the property under a commercial property insurance policy (the “Policy”);
Century assigned VeriClaim as the adjusting company to oversee the claims adjustment
process, and Century and/or VeriClaim assigned Mattoni as the individual field adjuster.
One Way alleges that Mattoni failed to conduct a reasonable investigation and concluded that

there was no wind or hail damage to the building caused by the storm; although he observed
damage to the roof and interior units, he attributed the damage to other factors, including
water intrusion through every other opening besides the roof; and he substantially
underestimated the damages to the building. One Way also asserts that its own roofing
contractor and public adjusters determined, after conducting a thorough inspection of the
exterior and interior, that hail had caused extensive damage requiring urgent repairs and
replacement of the roof and building appurtenances, and that Mattoni under-scoped the
damages during his investigation. One Way also avers that Century, VeriClaim, and Mattoni
misrepresented that the damage to the property was not covered under the Policy, even
though the damage was caused by a covered occurrence, thereby violating Tex. Ins. Code
Ann. § 541.060(a)(1); failed to make an attempt to settle One Way’s claim in a fair manner,
although they were aware of their liability under the Policy, thereby violating Tex. Ins. Code
Ann. § 541.060(a)(2)(A); failed to affirm or deny coverage of One Way’s claim within a
reasonable time, thereby violating Tex. Ins. Code Ann. § 541.060(a)(4); refused to fully
compensate One Way under the Policy, even though Mattoni failed to conduct a reasonable
investigation, thereby violating Tex. Ins. Code Ann. § 541.060(a)(7); and knowingly or
recklessly made false representations as to material facts and/or knowingly concealed all or
part of material information from One Way. One Way sues Mattoni under Tex. Ins. Code
Ann. § 541.151 based on the alleged violations of Tex. Ins. Code Ann. § 541.060(a)
enumerated above.
One Way moves to remand, contending that One Way’s and Mattoni’s Texas
-2-

citizenship deprives this court of subject matter jurisdiction and precludes removal.
Defendants oppose the motion based on the doctrine of improper joinder. One Way has not
filed a reply brief, and the remand motion is now ripe for decision.
II
For a case to be removed 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) (citation omitted).
Moreover, under 28 U.S.C. § 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 (here, Texas).
The doctrine of improper joinder is a narrow exception to the rule of complete
diversity, and it “entitle[s] a defendant to remove to a federal forum unless an in-state
defendant has been ‘properly joined.’” Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568, 573
(5th Cir. 2004) (en banc). The doctrine allows federal courts to defend against attempts to
manipulate their jurisdiction, such as by joining nondiverse parties solely to deprive federal
courts of diversity jurisdiction. See id. at 576. But because “the effect of removal is to
deprive the state court of an action properly before it, removal raises significant federalism
concerns.” Gasch v. Hartford Accident & Indem. Co., 491 F.3d 278, 281 (5th Cir. 2007).
Therefore, the removal statute is strictly construed, with “any doubt about the propriety of
removal [being] resolved in favor of remand.” Id. at 281-82. Moreover, in determining
whether a party has been improperly joined, the court “resolve[s] all contested factual issues
-3-

and ambiguities of state law in favor of the plaintiff.” Id. at 281. The party seeking removal
bears a heavy burden to prove improper joinder. Smallwood, 385 F.3d at 574.
Improper joinder is established by showing that there was either actual fraud in the
pleading of jurisdictional facts or that the plaintiff is unable to establish a cause of action
against the nondiverse defendant in state court. Parsons v. Baylor Health Care Sys., 2012
WL 5844188, at *2 (N.D. Tex. Nov. 19, 2012) (Fitzwater, C.J.) (citing Smallwood, 385 F.3d
at 573). Under the second alternative—the one at issue in this case—the test for improper
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.
Smallwood, 385 F.3d at 573; see also Travis v. Irby, 326 F.3d 644, 648 (5th Cir. 2003)
(explaining that terms “no possibility” of recovery and “reasonable basis” for recovery have
essentially identical meaning, and holding that pleadings must show more than “any mere
theoretical possibility of recovery”). To assess “whether a plaintiff has a reasonable basis
of recovery under state law[,]”
[t]he court may conduct a [Fed. R. Civ. P.] 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.
That said, there are cases, hopefully few in number, in which a
plaintiff has stated a claim, but has misstated or omitted discrete
facts that would determine the propriety of joinder. In such
cases, the district court may, in its discretion, pierce the
-4-

pleadings and conduct a summary inquiry.
Smallwood, 385 F.3d at 573 (footnotes omitted).
III
A
Defendants maintain that One Way has improperly joined Mattoni. Relying on Tex.
R. Civ. P. 91a, they contend that, judged by the pleading standard that it imposes, One Way
has failed to allege a reasonable basis to predict it can recover against Mattoni. They contend
that, for Mattoni to be held liable, One Way must be able to show that he committed a
violation of the Texas Insurance Code and that this violation was a cause of damage or
legally recognized harm to One Way. Defendants posit that One Way’s damage or harm is
Century’s failure to pay what One Way believes it is owed under the Policy; that an
independent adjuster does not have a contractual relationship with the insurance carrier’s
insured and does not have individual liability for payments made or due under the Policy;
that the duty to conduct a reasonable investigation is part of the “special relationship”
between the insured and insurer that imposes the duty of good faith and fair dealing on the
insurer to pay once liability is reasonably clear; that the lack of a contractual relationship
with the insured also means that an independent adjuster has no duty to affirm or deny
coverage or issue a “reservation of rights” while assisting the carrier’s investigation of a
claim; and that even though the Texas Insurance Code allows actions against adjusters, and
even if Mattoni violated the Code, One Way would have a claim against him only if his
violation caused an injury that is separate from an injury arising from the insurer’s
-5-

nondelegable duty under the Policy. Defendants also argue that One Way has not alleged
specific facts regarding individual misrepresentations that Mattoni made, nor has it alleged
detrimental reliance on injury from a misrepresentation, and that post-loss misrepresentations
generally do not give rise to liability; that a policy’s promise to promptly compensate does
not become a misrepresentation merely because an insurer disputes whether a loss is
compensable and delays payment; that an insurer’s statement to an insured that coverage is
denied is not an actionable misrepresentation merely because it is later determined that
coverage was appropriate; that One Way complains that Mattoni told One Way that the
Policy did not provide coverage after investigating the claim; and that One Way does not
allege that Mattoni represented that it would receive a particular kind of policy or that he had
previously represented that One Way’s loss would be covered because he is an adjuster, not
a sales agent. Defendants reason that, because One Way is simply trying to recast its
complaint regarding Century’s alleged underpayment of the claim as a misrepresentation by
Mattoni, there is no basis for imposing liability on him for One Way’s misrepresentation
claims.
B
Defendants have met their heavy burden of demonstrating that there is no reasonable
basis for the court to predict that One Way might be able to recover against Mattoni. One
Way alleges that Mattoni committed the following violations of Tex. Ins. Code Ann.
§ 541.060(a), for which he may be held liable under Tex. Ins. Code Ann. § 541.151:
§ 541.060(a)(1), § 541.060(a)(2)(A), § 541.060(a)(4), and § 541.060(a)(7).
-6-

Mattoni cannot be held liable under § 541.060(a)(1). One Way alleges that Mattoni
and the other two defendants “misrepresented to [One Way] that the damage to the Property
was not covered under the Policy, even though the damage was caused by a covered
occurrence.” Am. Pet. ¶ 21. This conclusory allegation necessarily relates to the assertions
that Mattoni failed to conduct a reasonable investigation and concluded that there was no
wind or hail damage to the building caused by the storm; that although he observed damage
to the roof and interior units, he attributed the damage to other factors, including water
intrusion through every other opening besides the roof; and that he substantially
underestimated the damages to the building, that is, that “Mattoni under-scoped the damages
during his investigation.” Id. at ¶ 19. In other words, as pleaded, One Way is alleging that
Mattoni misrepresented that the damage to the property was not covered under the Policy by
representing that the wind and hail damage to the building was far less extensive than it
actually was and that it was caused by factors that did not trigger coverage under the Policy.
But those statements are of a type that this court has held are not within the scope of
§ 541.060(a)(1) because they do not relate to the “coverage at issue.” Messersmith v.
Nationwide Mut. Fire Ins. Co., 10 F.Supp.3d 721, 724 (N.D. Tex. 2014) (Solis, J.)
(holding, inter alia, that claims adjuster had been improperly joined because alleged
misrepresentations that “there was no damage to . . . roof when in fact there was damage”
and “that the damage was only cosmetic in nature when in fact there was leaking resulting
from the damage” were not statements that related to coverage at issue).

“The

misrepresentation must be about the details of a policy, not the facts giving rise to a claim
-7-

for coverage.” Id. One Way does not allege that Mattoni made misrepresentations about the
details of the Policy.
One Way cannot recover against Mattoni under § 541.060(a)(2)(A). As Messersmith
explains, “§ 541.060(a)(2), which prohibits ‘failing to attempt in good faith to effectuate a
prompt, fair, and equitable settlement’ of claims where the insurer’s liability is reasonably
clear . . . forces insurance companies to pay a claim when the evidence is ‘reasonably clear.’”
Messersmith, 10 F.Supp.3d at 724. An adjuster “cannot be held liable under this section
because, as an adjuster, [he] does not have settlement authority on behalf of [the insurer.]”
Id. “[His] sole role is to assess the damage.” Id.
One Way cannot recover against Mattoni under § 541.060(a)(7).
Like [§ 541.060(a)(2)] the bad behavior that the statute targets
is an insurer’s refusal to pay under certain circumstances. Those
who can be held liable are the insurance company or the
individual at the insurance company who refuses to pay the
claim, not the individual responsible for conducting the
investigation.
Messersmith, 10 F.Supp.3d at 725.
Finally, One Way cannot recover against Mattoni under § 541.060(a)(4)(A), which
provides that it is an unfair settlement practice to “fail[] within a reasonable time to . . .
affirm or deny coverage of a claim to a policyholder[.]” The court has located no case under
§ 541.060(a)(4)(A) or its predecessor statute indicating that it applies to adjusters. Cases that
discuss this section refer to the obligations of insurers. See, e.g., Stewart Info. Servs. Corp.
v. Great Am. Ins. Co., 997 F.Supp.2d 650, 675 (S.D. Tex. 2014) (stating that “Section

-8-

541.060(a)(4) of the Insurance Code provides that it is an unfair settlement practice for an
insurer to fail within a reasonable time to (A) affirm or deny coverage of a claim to a
policyholder; or (B) submit a reservation of rights to a policyholder”); S. Farm Bureau Life
Ins. Co. v. Lusk, 2014 WL 897812, at *1 (S.D. Tex. Mar. 6, 2014) (referring to alleged
violation of “Article 21.21(4)(10)(a) (now codified at § 541.060(a)(4)(A)), which prohibits
insurance companies from failing within a reasonable time to affirm or deny coverage of a
claim to a policyholder”). Borrowing language and reasoning from Messersmith, the court
holds that an adjuster cannot be held liable under this section because an adjuster does not
have authority on behalf of the insurer to affirm or deny coverage of a claim to a
policyholder.
Accordingly, because defendants have met their heavy burden of demonstrating that
Mattoni has been improperly joined, Mattoni’s Texas citizenship may be disregarded.
Because the properly-joined parties are completely diverse, One Way’s motion to remand
must be denied.
*

*

*

One Way’s August 27, 2014 motion to remand is denied.
SO ORDERED.
December 11, 2014.

_________________________________
SIDNEY A. FITZWATER
UNITED STATES DISTRICT JUDGE
-9-