Edwards v. State Farm Lloyds et al

Filing 23

Memorandum Opinion and Order denying 9 Motion to Dismiss and granting 15 Motion to Remand. This case is REMANDED to the 191st Judicial District Court of Dallas County, Texas. (Ordered by Senior Judge A. Joe Fish on 8/14/2017) (rekc)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

JOSEPH EDWARDS, JR.,
Plaintiff,
VS.
STATE FARM LLOYDS, ET AL.,
Defendants.

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CIVIL ACTION NO.
3:17-CV-0171-G

MEMORANDUM OPINION AND ORDER

Before the court are the motions of the defendant Donald Gary Hodge
(“Hodge”) to dismiss for improper joinder (docket entry 9) and of the plaintiff Joseph
Edwards, Jr. (“Edwards”) to remand this case to the state court from which it was
previously removed (docket entry 15). For the reasons stated below, the motion to
remand is granted, and the motion to dismiss is denied.
I. BACKGROUND
This case arises from the alleged mishandling of Edwards’s insurance claim for
damage to the roof of his house located at 3909 Pleasant Valley Road, Sachse, Texas,
75048, caused by a storm on April 20, 2016. See Plaintiff’s Original Petition and

Motion to Compel Mediation (“Petition”) ¶¶ 10, 12, attached to Defendant State
Farm Lloyds’ Notice of Removal (“Notice”) as Exhibit D (docket entry 1). Following
the storm, Edwards filed an insurance claim under a property insurance policy (the
“policy”) issued by the defendant State Farm Lloyds (“State Farm”). Id. ¶ 12. State
Farm assigned Hodge, an adjuster, to investigate, inspect, and prepare a report on the
claim. See generally id.
Edwards asserts that Hodge improperly adjusted the claim on the damaged
property through “numerous errors[.]” Id. ¶ 13. Hodge allegedly failed to report all
of the damage he observed during the inspection and “grossly undervalued” the
damages. Id. Edwards further alleges that Hodge’s misrepresentations led State Farm
to underpay on the insurance claim, including a refusal to pay to repair half of
Edwards’s roof. Petition ¶¶ 13, 14, 28.
On August 8, 2016, Edwards filed this suit against State Farm, an Illinois
citizen, and Hodge, a Texas citizen, in the 191st Judicial District Court of Dallas
County, Texas, to recover damages resulting from the mishandling of his insurance
claim and for unfair settlement practices. See generally id., Notice. On January 19,
2017, State Farm removed the case to this court based on diversity of citizenship,
arguing that Edwards, a Texas citizen, improperly joined Hodge to defeat diversity
jurisdiction. See Notice ¶ 11. On February 16, 2017, Edwards moved to remand this
case to the state court, arguing that removal was improper because the parties lack

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complete diversity of citizenship. See Plaintiff’s Opposed Motion to Remand
(“Motion to Remand”) at 5 (docket entry 15).
State Farm does not dispute that the amount in controversy exceeds $75,000.
See Notice ¶ 15. Therefore, the only issue before the court is whether Hodge was
properly joined as a defendant.
II. ANALYSIS
A. Legal Standard
1. Removal Jurisdiction
28 U.S.C. § 1441(a) permits the removal of “any civil action brought in a
[s]tate court of which the district courts of the United States have original
jurisdiction.” 28 U.S.C. § 1441(a). The statute allows a defendant to “remove a
state court action to federal court only if the action could have originally been filed in
federal court.” Anderson v. American Airlines, Inc., 2 F.3d 590, 593 (5th Cir. 1993).
However, the removal statute must be strictly construed because “removal
jurisdiction raises significant federalism concerns.” Willy v. Coastal Corporation, 855
F.2d 1160, 1164 (5th Cir. 1988); see also Gutierrez v. Flores, 543 F.3d 248, 251 (5th
Cir. 2008). Therefore, “any doubts concerning removal must be resolved against
removal and in favor of remanding the case back to state court.” Cross v. Bankers
Multiple Line Insurance Company, 810 F. Supp. 748, 750 (N.D. Tex. 1992) (Means, J.);
see also Shamrock Oil & Gas Corporation v. Sheets, 313 U.S. 100, 108-09 (1941). The

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party seeking removal bears the burden of establishing federal jurisdiction. Willy,
855 F.2d at 1164.
There are two principal bases upon which a district court may exercise removal
jurisdiction: the existence of a federal question, see 28 U.S.C. § 1331, and complete
diversity of citizenship among the parties. See 28 U.S.C. § 1332. Here, the removing
defendant has alleged only diversity of citizenship as a basis for this court’s
jurisdiction. See Notice ¶ 8. The court can properly exercise jurisdiction on the basis
of diversity of citizenship after removal only if three requirements are met: (1) the
parties are of completely diverse citizenship, see 28 U.S.C. § 1332(a); (2) none of the
properly joined defendants is a citizen of the state in which the case is brought, see 28
U.S.C. § 1441(b); and (3) the case involves an amount in controversy of more than
$75,000, see 28 U.S.C. § 1332(a). In this case, both Edwards and Hodge are citizens
of Texas. See Petition ¶¶ 2, 4; Notice at 3. However, State Farm contends that
removal is proper because Hodge was improperly joined in this suit. Notice ¶ 11.
2. Improper Joinder
Even if a defendant has the same citizenship as the plaintiff, a federal court
can still exercise removal jurisdiction over an action if the court finds that the
plaintiff improperly joined the non-diverse defendant. The Fifth Circuit has
recognized two grounds on which a court can find that a defendant was improperly
joined: “‘(1) actual fraud in the pleading of jurisdictional facts, or (2) inability of the

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plaintiff to establish a cause of action against the non-diverse party in state court.’”
Smallwood v. Illinois Central Railroad Company, 385 F.3d 568, 573 (5th Cir. 2004) (en
banc) (quoting Travis v. Irby, 326 F.3d 644, 646-47 (5th Cir. 2003)), cert. denied, 544
U.S. 992 (2005)).
Only the latter ground is at issue here. To satisfy the second ground for
improper joinder, a defendant must demonstrate 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.” Id. (emphasis added).
When applying this test, the court does not “determine whether the plaintiff
will actually or even probably prevail on the merits of the claim [against the in-state
defendant], but look[s] only for a possibility that the plaintiff might do so.” Guillory
v. PPG Industries, Inc., 434 F.3d 303, 308-09 (5th Cir. 2005) (citing Dodson v. Spiliada
Maritime Corporation, 951 F.2d 40, 42-43 (5th Cir. 1992); B., Inc. v. Miller Brewing
Company, 663 F.2d 545, 549 (5th Cir. 1981)). Furthermore, the party seeking
removal bears the heavy burden of proving that joinder was improper. Smallwood,
385 F.3d at 574. This burden requires the trial court to resolve all “contested issues
of material fact, and any ambiguity or uncertainty in the controlling state law” in the
plaintiff’s favor. Griggs v. State Farm Lloyds, 181 F.3d 694, 699 (5th Cir. 1999). The
court can only deny the plaintiff’s motion for remand if, as a matter of law, there is

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absolutely no possibility that the plaintiff can state a valid claim against the nondiverse defendant in state court. See B., Inc., 663 F.2d at 554. If the defendant
cannot prove improper joinder, remand is mandated. Smallwood, 385 F.3d at 575.
To determine whether the plaintiff is unable to establish a cause of action
against a non-diverse defendant, “[a] federal court must apply the federal pleading
standard.” International Energy Ventures Management, L.L.C. v. United Energy Group,
Ltd., 818 F.3d 193, 208 (5th Cir. 2016).
3. Pleading Standard under Federal Law
FED. R. CIV. P. 8(a)(2) provides that a complaint shall contain “a short and
plain statement of the claim showing that the pleader is entitled to relief.” FED. R.
CIV. P. 12(b)(6) authorizes dismissal of a complaint “for failure to state a claim upon
which relief can be granted.” A motion under Rule 12(b)(6) should be granted only
if it appears beyond doubt that the plaintiff could prove no set of facts in support of
his claims that would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46
(1957); Leffall v. Dallas Independent School District, 28 F.3d 521, 524 (5th Cir. 1994)
(citations omitted). Before dismissal is granted, the court must accept all wellpleaded facts as true and view them in the light most favorable to the non-movant.
Capital Parks, Inc. v. Southeastern Advertising and Sales System, Inc., 30 F.3d 627, 629
(5th Cir. 1994) (citation omitted); Norman v. Apache Corporation, 19 F.3d 1017, 1021

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(5th Cir. 1994) (citations omitted); Chrissy F. by Medley v. Mississippi Department of
Public Welfare, 925 F.2d 844, 846 (5th Cir. 1991).
4. Liability under Texas Insurance Code
Edwards contends that Hodge, an individual adjuster, violated multiple
subsections of § 541.060 of the Texas Insurance Code (“§ 541.060”), as Hodge’s
conduct constituted unfair settlement practices. See Petition ¶¶ 26-33. Texas law
recognizes suits against insurance adjusters in their individual capacities under the
Texas Insurance Code, see TEX. INS. CODE § 541.002(2), and the Texas Supreme
Court has “specifically held that ‘[t]he business of insurance includes the
investigation and adjustment of claims and losses.’” Centaurus Unity v. Lexington
Insurance Company, 766 F. Supp. 2d 780, 787 (S.D. Tex. 2011) (Lake, J.) (quoting
Vail v. Texas Farm Bureau Mutual Insurance Company, 754 S.W.2d 129, 132 (Tex.
1998)) (other citation omitted). The Fifth Circuit has also held that an adjuster who
services insurance policies for an insurer engages in the business of insurance and is
subject to the Texas Insurance Code. Id. (citing Gasch v. Hartford Indemnity Company,
491 F.3d 278, 282 (5th Cir. 2007)). Moreover, the Fifth Circuit has held that
independent adjusters may be found liable. Id. (collecting cases holding that
individual adjusters are subject to the Texas Insurance Code).

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B. Application of Law to the Present Dispute
Because Texas law recognizes claims against adjusters like Hodge in their
individual capacities, the relevant inquiry is whether Edwards has properly stated a
claim against Hodge for his conduct as an individual adjuster. In making this
determination, the question before the court is whether “there is no reasonable basis
for the district court to predict that the plaintiff might be able to recover against”
Hodge, the non-diverse, in-state defendant, for violations of Chapter 541 of the
Texas Insurance Code. See Smallwood, 385 F.3d at 573.
The court finds that Edwards has pleaded a potentially valid claim for relief
against Hodge under the Texas Insurance Code. Edwards’s petition identifies Hodge
as the insurance adjuster and specifically alleges that he violated § 541.060. By
alleging that Hodge performed specific acts, including conducting a substandard
investigation, failing to include in his report all of the damages noted during his
inspection, and undervaluing the damages he observed during the inspection, all of
which led to the underpayment of Edwards’s claim and an inequitable evaluation of
Edwards’s losses, Edwards has sufficiently stated his claim that Hodge misrepresented
the amount of damage to his property, a material fact related to the coverage at issue.
Furthermore, the allegations clearly distinguish between Hodge and State Farm,
leaving no question that Hodge, rather than State Farm, allegedly performed these
acts.

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Because Edwards has asserted a potentially valid claim against Hodge, Hodge
has been properly joined. Hodge’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).
III. CONCLUSION
For the reasons stated above, the defendants’ motion to dismiss is DENIED,
and the plaintiff’s motion to remand is GRANTED. Accordingly, this case is
REMANDED to the 191st Judicial District Court of Dallas County, Texas. The
clerk shall mail a certified copy of this order to the district clerk of Dallas County,
Texas. 28 U.S.C. § 1447(c).
SO ORDERED.
August 14, 2017.

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A. JOE FISH
Senior United States District Judge

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