Cardona v. ASI Lloyds et al
Filing
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MEMORANDUM OPINION AND ORDER granting 4 Motion to Remand Pursuant to 28 USC 1447(c): Accordingly, this case is REMANDED to the 101st Judicial District Court, Dallas County, Texas. (Ordered by Senior Judge A. Joe Fish on 1/6/2015) (twd)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
MARIA CARDONA,
Plaintiff,
VS.
ASI LLOYDS, ET AL.,
Defendants.
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CIVIL ACTION NO.
3:14-CV-3736-G
MEMORANDUM OPINION AND ORDER
Before the court is the plaintiff’s motion to remand pursuant to 28 U.S.C.
§ 1447(c) (docket entry 4). For the reasons stated below, the plaintiff’s motion is
granted and the case is remanded to the 101st Judicial District Court, Dallas County,
Texas.
I. BACKGROUND
A. Factual Background
This case concerns an insurance dispute over damages to a property located at
1110 Berkley Avenue in Dallas, Texas (the “property”). Plaintiff’s Original Petition
(“Complaint”) at 3 (attachment 2, docket entry 1). The property’s owner and the
plaintiff in the present action, Maria Cardona, insured the property through a policy
(the “policy”) issued by one of the defendants, ASI Lloyds (“ASI”). Id. at 2-3. After
a hail storm damaged the property, the plaintiff submitted a claim to ASI under the
policy. Id. at 3. ASI assigned the defendant Christopher Buchanan to investigate and
adjust the plaintiff’s claim. Id. According to the plaintiff, Buchanan “conducted a
substandard inspection of Plaintiff’s Property,”. . . “which vastly underscoped [sic]
the actual covered damages to the Property.” Id. The plaintiff attributes this faulty
assessment to an undervaluation of material costs, an improper calculation of
applicable sales tax, and a failure to consider the actual cost of contractors, among
other things. Id. at 4. Relying on Buchanan’s allegedly flawed findings, ASI refused
to compensate the plaintiff for the damages at issue in her claim. Id.
The plaintiff alleges that “all conditions precedent to recovery upon the Policy
ha[ve] been carried out and accomplished by” her. Id. at 5. Consequently, she
brought this action asserting causes of action for breach of contract, violations of
Sections 541 and 542 of the Texas Insurance Code, violations of the Deceptive Trade
Practices Act, breach of the duty of good faith and fair dealing, and fraud. Id. at 814. Except for the breach of contract claim,1 the complaint directs all the causes of
1
The complaint states that “ASI’s and BUCHANAN’s failure and refusal
. . . to pay the adequate compensation as they are obligated to do under the terms of
the Policy in question and under the laws of the State of Texas, constitutes a breach
(continued...)
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actions against both ASI and Buchanan. See id. For purposes of diversity
jurisdiction, ASI is a citizen of Florida, Buchanan is a citizen of Texas, and the
plaintiff is also a citizen of Texas. See Notice of Removal ¶¶ 4-5 (docket entry 1);
Plaintiff Maria Cardona’s Opposed Motion to Remand and Supporting
Memorandum (“Motion to Remand”) ¶ 4 (docket entry 4); see also Royal Insurance
Company of America v. Quinn-L Capital Corporation, 3 F.3d 877, 882 (5th Cir. 1993)
(citing Carden v. Arkoma Associates, 494 U.S. 185, 195-96 (1990)) (“For purposes of
ascertaining whether the federal courts have diversity jurisdiction, an unincorporated
association is considered to have the citizenship of its members.”), cert. denied, 511
U.S. 1032 (1994).
B. Procedural Background
This case was originally filed in the 101st Judicial District Court, Dallas
County, Texas, on September 2, 2014. Notice of Removal ¶ 1 (docket entry 1).
Claiming that Buchanan had “been fraudulently joined,” the defendants removed the
case to this court on October 17, 2014. Id. ¶ 6. Less than a month later, the plaintiff
filed the instant motion to remand the case to the Texas state court. Motion to
1
(...continued)
of ASI’s contract with Plaintiff.” Complaint at 8. The last portion of the quoted
language clarifies that the plaintiff and ASI are the parties to the contract. Therefore,
Buchanan’s actions are relevant to the breach of contract claim only to the extent
they inform whether ASI breached its responsibilities under the contract.
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Remand. The defendants filed a response (docket entry 5) to this motion and the
plaintiff filed her reply (docket entry 6). The motion is now ripe for decision.
II. ANALYSIS
A. Applicable Law
1. Removal Jurisdiction and Improper Joinder
Under 28 U.S.C. § 1441(a), “any civil action brought in a State court of which
the district courts of the United States have original jurisdiction, may be removed by
the defendant or the defendants, to the district court of the United States for the
district and division embracing the place where such action is pending.” This statute
provides district courts with removal jurisdiction over both federal question and
diversity of citizenship cases. See 28 U.S.C. §§ 1331, 1332. However, there is one
exception to the general equivalence between district court’s original jurisdiction and
removal jurisdiction: when a civil action is only removable on the basis of diversity
jurisdiction, it “may not be removed if any of the parties in interest properly joined and
served as defendants is a citizen of the State in which the action is brought.” 28
U.S.C. § 1441(b)(2) (emphasis added).
While the text of § 1441(b)(2) is limited to cases involving an in-state
defendant,2 in all removal cases asserting diversity of citizenship jurisdiction, courts
2
As discussed in greater detail in footnote 3, a properly joined defendant
prevents removal because he/she is an in-state defendant (i.e., his/her joinder violates
§ 1441(b)(2)) and/or because he/she violates the complete diversity requirement of
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should prevent plaintiffs from using improper joinder to violate defendants’ right to
removal jurisdiction. Smallwood v. Illinois Central Railroad Company, 385 F.3d 568,
572-73 (5th Cir. 2004) (en banc), cert. denied, 544 U.S. 992 (2005). In the words of
the Fifth Circuit, “The Federal courts should not sanction devices intended to prevent
the removal to a Federal court where one has that right, and should be equally
vigilant to protect the right to proceed in the Federal court as to permit the state
courts, in proper cases, to retain their own jurisdiction.” Id. at 573 (quoting 14
CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE § 3641, at 173
(3d ed. 1998)); see also Alabama Great Southern Railway Company v. H.C. Thompson,
200 U.S. 206, 218 (1906) (“[T]he Federal courts may and should take such action as
will defeat attempts to wrongfully deprive parties entitled to sue in the Federal courts
of the protection of their rights in those tribunals.”); Borden v. Allstate Insurance
Company, 589 F.3d 168, 171 (5th Cir. 2009) (citing Salazar v. Allstate Texas Lloyd’s,
Inc., 455 F.3d 571, 574 (5th Cir. 2006)) (“The fraudulent joinder doctrine ensures
that the presence of an improperly joined, non-diverse defendant does not defeat
federal removal jurisdiction premised on diversity.”). Accordingly, a district court will
only consider properly joined defendants when determining whether or not diversity
jurisdiction exists in removal cases.
2
(...continued)
§ 1332.
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When a court conducts this inquiry , “[t]he petition as filed in the state court
at the time of removal controls. . . .” Edwea, Inc. v. Allstate Insurance Company, Civil
Action No. H-10-2970, 2010 WL 5099607, at *2 (S.D. Tex. Dec. 8, 2010) (citing
Cavallini v. State Farm Mutual Auto Insurance Company, 44 F.3d 256, 264 (5th Cir.
1995)). “The party claiming federal subject matter jurisdiction has the burden of
proving it exists.” Peoples National Bank v. Office of the Comptroller of the Currency of the
United States, 362 F.3d 333, 336 (5th Cir. 2004) (citing Pettinelli v. Danzig, 644 F.2d
1160, 1162 (5th Cir. 1981)). Therefore, in cases of removal, “[t]he burden of proof
is on the removing party.” Guillory v. PPG Industries, Inc., 434 F.3d 303, 308 (5th
Cir. 2005) (citing B., Inc. v. Miller Brewing Company, 663 F.2d 545, 549 (5th Cir.
1981)). This burden requires the trial court to “resolve all disputed questions of fact
in favor of the plaintiff and then determine whether there could possibly be a valid
cause of action set forth under state law.” B., Inc., 663 F.2d at 551.
To succeed on a motion for improper joinder, the defendants must
demonstrate either “(1) actual fraud in the pleading of jurisdictional facts, or
(2) inability of the plaintiff to establish a cause of action against the non-diverse party
in state court.” Smallwood, 385 F.3d at 573 (quoting Travis v. Irby, 326 F.3d 644,
646-47 (5th Cir. 2003)). This latter method, the only one at issue in the present
case, requires the defendants to establish that “there is no reasonable basis for the
district court to predict that the plaintiff might be able to recover against an in-state
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defendant.”3 Id. To determine if the defendant has made this showing, a court
generally conducts “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.” Id. In the less common case where “a plaintiff has
stated a claim, but has misstated or omitted discrete facts that would determine the
propriety of joinder,” a summary inquiry is appropriate. Id. As in Edwea, “[n]o party
in the present case . . . has asked for such an inquiry. Instead, the parties have
focused solely on whether the plaintiff[’s] state-court petition provides a reasonable
basis to predict that [she] may recover against the in-state defendant under Texas
3
In Smallwood, the improperly joined defendant, the Mississippi
Department of Transportation (“MDOT”), was a citizen of Mississippi, the forum
state. The plaintiff in the action was also a citizen of Mississippi. Therefore, if
MDOT was properly joined, its presence in the case would have barred removal both
because it destroyed diversity jurisdiction under § 1332 and because it violated the
in-state defendant rule of § 1441(b)(2). Smallwood, 385 F.3d at 571-74. Throughout
Smallwood, the court references the “in-state defendant.” See id. 573. This phrase
appropriately describes the MDOT and it applies equally to Buchanan in this case.
Id. at 571-72. However, as implied in the discussion above, Smallwood’s reasoning
extends to out-of-state defendants who destroy diversity as well. For example, in a
situation where a Texas citizen sues a properly joined Illinois citizen and an
improperly joined Texas citizen in the state of Louisiana, the improperly joined Texas
citizen is not an in-state defendant (i.e., §1441(b)(2) is inapplicable), but
nevertheless, the party’s status as a defendant would destroy diversity jurisdiction.
The logic of Smallwood justifies an inquiry into improper joinder under these
circumstances.
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law.”4 2010 WL 5099607 at *2 (citing Smallwood, 385 F.3d at 573-74). Thus, the
court will undertake the necessary “Rule 12(b)(6)-type analysis.”
The Fifth Circuit’s use of the phrase “Rule 12(b)(6)-type analysis” does not
indicate that this inquiry requires application of the federal motion to dismiss
standard detailed in Bell Atlantic Corporation v. Twombly, 550 U.S. 544 (2007), and
Ashcroft v. Iqbal, 556 U.S. 662 (2009). In fact, “[t]he majority of courts have held
that a federal court should not look to the federal standard for pleading . . . to
determine whether the state-court petition provides a reasonable basis for predicting
that the plaintiff could recover against the in-state defendant at least when . . . the
state pleading standard is more lenient.” Edwea, 2010 WL 5099607 at *5 (citing, e.g.,
4
In their response brief, the defendants note that a court can undertake a
“summary judgment inquiry” when assessing an improper joinder claim. Defendants’
Response to Plaintiff Maria Cardona’s Opposed Motion to Remand and Supporting
Memorandum (“Response”) ¶ 3.3. Despite the defendants’ awareness of this
alternative inquiry, nearly all of the arguments in their brief appear directed at the
plaintiff’s failure to properly plead a claim against Buchanan. Id. (The relevant
headings in the brief include “Plaintiff Did Not Allege Actionable Causes of Action
Against Buchanan,” Plaintiff’s Alleged Damages are Insufficient to Sustain Claims
Against Buchanan,” “Plaintiff’s Alleged Facts are Insufficient to Sustain Claims
Against Buchanan,” and “Plaintiff [sic] Alleged Facts are also Insufficient to Satisfy
Rule 9(b) for Claims of Fraud and Violations of the Texas Insurance Code Against
Buchanan.” These headings focus on the plaintiff’s allegations rather than any
proffered evidence.). These arguments, as a result, necessitate only a “Rule 12(b)(6)type analysis.”
The defendants do claim, however, that the plaintiff failed to serve
Buchanan. While this claim is more than a mere attack on the sufficiency of the
pleadings, it does not justify a summary judgment inquiry for the reason set forth
below.
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Warren v. State Farm Mutual Automobile Insurance Company, Civil Action No. 3:08-CV0768-D, 2008 WL 4133377, at *4 (N.D. Tex. Aug. 29, 2008) (Fitzwater, C.J.)
(“Because state court plaintiffs should not be required to anticipate removal to federal
court, the court assesses the sufficiency of the factual allegations of [the plaintiff’s]
complaint under Texas’ notice-pleading standard.”)). In Akerblom v. Ezra Holdings
Limited, the Fifth Circuit endorsed the Edwea approach by applying Texas’ notice
pleading requirements when conducting an improper joinder analysis. 509 Fed.
Appx. 340, 344-345 (5th Cir. 2013). Applying the state pleading standard in these
circumstances is “[t]he more logical choice . . . because ‘the purpose of a fraudulent
joinder analysis is to determine whether a state court might permit a plaintiff to
proceed with his claims . . ..’” DNJ Logistic Group, Inc. v. DHL Express (USA), Inc., 727
F. Supp. 2d 160, 165 (E.D.N.Y. 2010) (emphasis in original) (quoting Kuperstein v.
Hoffman-La Roche, Inc., 457 F. Supp. 2d 467, 471-72 (S.D. N.Y. 2006)).
Furthermore, “the decision as to the sufficiency of the pleadings is for the state
courts, and for a federal court to interpose its judgment would fall short of the
scrupulous respect for the institutional equilibrium between the federal and state
judiciaries that our federal system demands.” Henderson v. Washington National
Insurance Company, 454 F.3d 1278, 1284 (11th Cir. 2006). As a result, this court
must discuss Texas’ pleading requirements.
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2. Pleading Standard Under Texas Law
Rules 45 and 47 of the Texas Rules of Civil Procedure detail the pleading
standard under Texas law. In relevant part, Rule 45 requires a complaint to “consist
of a statement in plain and concise language of the plaintiff’s cause of action. . . .
That an allegation be evidentiary or be of legal conclusion shall not be grounds for an
objection when fair notice to the opponent is given by the allegations as a whole.”
TEX. R. CIV. P. 45(b). Rule 47 reiterates the essential element of Texas’ pleading
regime: the text of the complaint must be “sufficient to give fair notice of the claim
involved.” TEX. R. CIV. P. 47(a). A party satisfies this pleading standard if “an
opposing attorney of reasonable competence, with the pleadings before him, can
determine the nature of the controversy and the testimony that would probably be
relevant.” Coffey v. Johnson, 142 S.W.3d 414, 417 (Tex. App.--Eastland 2004, no
pet.). This standard does “not require that the plaintiff set out in his pleadings the
evidence upon which he relies to establish his asserted cause of action.” Paramount
Pipe & Supply Company, Inc. v. Muhr, 749 S.W.2d 491, 494-95 (Tex. 1988) (citing
Edwards Feed Mill v. Johnson, 311 S.W.2d 232, 234 (Tex. 1958)).
3. Applying Texas’ Pleading Standard to Private Actions Under
Chapter 541 of the Texas Insurance Code
Chapter 541 of the Texas Insurance Code (the “chapter”) prohibits a diverse
range of unfair or deceptive insurance practices. Particularly relevant to this case is
§ 541.060, which details unfair settlement practices, including “misrepresenting to a
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claimant a material fact or policy provision relating to coverage at issue.” TEX. INS.
CODE § 541.060(a)(1). The chapter provides a private right of action “against
another person for those damages caused by the other person engaging” in the
activities prohibited under § 541.060. Id. § 541.151. A person, for purposes of the
chapter, includes “an individual, corporation, association, partnership, reciprocal or
interinsurance exchange, Lloyd’s plan, fraternal benefit society, or other legal entity
engaged in the business of insurance, including an agent, broker, adjuster, or life and
health insurance counselor.” Id. § 541.002. Relying on the plain text of the statute,
the Fifth Circuit confirmed that the chapter “clearly authorizes . . . actions against
insurance adjusters in their individual capacities.” Gasch v. Hartford Accident &
Indemnity Company, 491 F.3d 278, 282 (5th Cir. 2007).
To succeed on a private cause of action asserting a violation of § 541.060, the
plaintiff must demonstrate “injury independent of the denial of policy benefits.”
Provident American Insurance Company v. Castaneda, 988 S.W.2d 189, 199 (Tex. 1998)
(Castaneda discusses article 21.21 of the Texas Insurance Code. This section was
repealed and recodified as §§ 541.051-162 of the current Texas Insurance Code.
Environmental Procedures, Inc. v. Guidry, 282 S.W.3d 602, 611 n.5 (Tex. App.-Houston [14th Dist.] 2009, pet. denied)). Contra United National Insurance Company
v. AMJ Investments, LLC, 447 S.W.3d 1, 11-12 (Tex. App.--Houston [14th Dist.]
2014, pet. for review filed). In Rocha v. Geovera Specialty Insurance Company, the court
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concluded that at the motion to remand stage “allegations that the adjuster was directly
responsible for committing a violation of the insurance code” satisfy Castaneda’s
“independent injury” requirement. Civil Action No. 7:13-CV-589, 2014 WL 68648,
at *15 (S.D. Tex. Jan. 8, 2014). To reach this conclusion, the court relied on the
Fifth Circuit’s discussion of the Texas Insurance Code in Hornbuckle v. State Farm
Lloyds, 385 F.3d 538, 544-45 (5th Cir. 2004).
In Hornbuckle, the Fifth Circuit reversed an award of attorney’s fees that
followed a district court’s decision to grant a motion to remand. Id. at 546. The
court presumed that “there is no reasonable possibility that Texas would allow
recovery under [§ 541.060] . . . against an insurance company employee, who in the
course of his employment engages in business of insurance [sic], in the absence of
evidence sufficient to sustain a finding that that employee himself committed a
violation” of § 541.060. Id. at 545 (emphasis in original). Because “there was no
arguably reasonable possibility [that the plaintiff] could produce sufficient evidence
to sustain a finding of actionable wrongdoing on [the adjuster’s] part,” the trial court
should not have granted attorney’s fees to the plaintiff. Id. at 546. Rocha relied on
this reasoning to conclude that, at the pleading stage, a plaintiff satisfies Castaneda’s
“independent injury” requirement merely by alleging the defendant was directly
responsible for the violation. 2014 WL 68648 at *4.
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Throughout its analysis in Hornbuckle, however, the Fifth Circuit does not
discuss or cite the Castaneda case, or more specifically, Castaneda’s discussion of the
“independent injury” requirement. See Hornbuckle, 385 F.3d at 544-45. Moreover, in
arriving at its decision, the court emphasized that the presence of deposition
testimony transformed the district court’s motion to remand analysis from a typical
“Rule 12(b)(6)-type analysis” into a summary judgment inquiry. Id. at 545. To
make this point, the Fifth Circuit cites approvingly a portion of the defendant’s brief
in opposition to the motion to remand: “This Removal . . . is not based upon
whether Plaintiff has pleaded causes of action that meet the threshold of stating a
claim upon which the Courts have determined relief may theoretically be granted
against a non-diverse [insurance adjuster], but rather upon whether Plaintiff has any
evidence at all that would support any of her claims.” Id. (emphasis in original).
Therefore, Hornbuckle fails to clarify the “Rule 12(b)(6)-type analysis” a district court
undertakes when considering a motion to remand, specifically as it applies to Texas
Insurance Code claims.
Hornbuckle and Castaneda, while not informative in clarifying the “Rule
12(b)(6)-type analysis,” are helpful in elucidating what elements a plaintiff must
prove to ultimately succeed on a claim under the Texas Insurance Code. Specifically,
successful claims demonstrate that the defendant was directly responsible for the
alleged injury and that the “injury [is] independent of the denial of policy benefits.”
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Hornbuckle, 385 F.3d at 545; Castaneda, 988 S.W.2d at 199. The analysis of these
elements in Castaneda and Hornbuckle is concerned solely with the evidentiary stage of
litigation. Castaneda, 988 S.W.2d at 199 (The court notes that “there is no evidence of
lost credit reputation in this case,” where the loss of credit reputation was the alleged
“independent injury.”) (emphasis added); Hornbuckle, 385 F.3d at 545 (see discussion
in the immediately preceding paragraph). Neither of these opinions, however,
indicates that parties are “required by any law or rule authorizing or regulating any
particular action or defense” to include these elements in their pleadings. See TEX. R.
CIV. P. 45(c) (emphasis added). Absent an explicit instruction from the Texas
Supreme Court indicating otherwise, pleading a Texas Insurance Code claim requires
only “a statement in plain and concise language of the plaintiff’s cause of action” that
provides “fair notice to the opponent.” TEX. R. CIV. P. 45(b); see also Household
Finance Corporation III v. DTND Sierra Investments, LLC, No. 04-13-00033-CV, 2013
WL 5948899, at *3 (Tex. App.--San Antonio Nov. 6, 2013, no pet.) (mem. op.)
(quoting Elite Door & Trim, Inc. v. Tapia, 355 S.W.3d 757, 766 (Tex. App.--Dallas
2011, no pet.)) (“The fair notice standard ‘relieves the pleader of the burden of
pleading evidentiary matters with meticulous particularity.’”).
B. Application of Law to the Present Dispute
The plaintiff pleads a valid claim for relief against Buchanan under the Texas
Insurance Code. The complaint identifies Buchanan as an insurance adjuster.
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Complaint at 3-4. Furthermore, it states that he “engaged in unfair settlement
practices by misrepresenting material facts to Plaintiff -- that the covered damage to
the Property was much less than it actually is” and “underestimated and undervalued
the cost of materials required for the necessary repairs, incorrectly applied material
sales tax, and failed to include contractor’s overhead and profit.” Id. at 4. These
allegations indicate that Buchanan “misrepresent[ed] to [the plaintiff] a material fact
or policy provision relating to coverage at issue.” TEX. INS. CODE § 541.060(a)(1).
While the plaintiff may ultimately be unsuccessful in proving Buchanan violated
§ 541.060, at this stage, the court is confident that Buchanan “can determine the
nature of the controversy and the testimony that would probably be relevant.” Coffey,
142 S.W.3d at 417. Because the plaintiff has pled a valid claim against Buchanan,
Buchanan has been properly joined. Buchanan’s status as a Texas citizen for
purposes of 28 U.S.C. § 1332 destroys diversity jurisdiction and therefore requires
the court to remand the action. See 28 U.S.C. § 1447(c).
The plaintiff’s failure to serve Buchanan does not alter the court’s conclusion.
Texas Rule of Civil Procedure 121 states, “An answer shall constitute an appearance
of the defendant so as to dispense with the necessity for the issuance or service of
citation upon him.” Therefore, upon filing a joint answer with ASI, Buchanan waived
his right to service. Defendants ASI Lloyds and Christopher James Buchanan’s
Original Answer (attachment 2, docket entry 1).
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III. CONCLUSION
For the reasons stated above, the plaintiff’s motion to remand is GRANTED.
Accordingly, this case is REMANDED to the 101st Judicial District Court, Dallas
County, Texas. The clerk shall mail a certified copy of this memorandum opinion
and order to the district clerk of Dallas County, Texas. 28 U.S.C. § 1447(c).
SO ORDERED.
January 6, 2015.
___________________________________
A. JOE FISH
Senior United States District Judge
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