Avalanche Food Group, LLC et al v. Starr Surplus Lines Insurance Company et al

Filing 19

ORDER ON MOTION TO REMAND granting 10 Motion to Remand.(Signed by Judge Nelva Gonzales Ramos) Parties notified.(mserpa, 2)

United States District Court
Southern District of Texas

ENTERED
January 09, 2018

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
CORPUS CHRISTI DIVISION

David J. Bradley, Clerk

AVALANCHE FOOD GROUP, LLC, et al, §
§
Plaintiffs,
§
VS.
§ CIVIL ACTION NO. 2:17-CV-338
§
STARR SURPLUS LINES INSURANCE §
COMPANY, et al,
§
§
Defendants.
§
ORDER ON MOTION TO REMAND
Plaintiffs Avalanche Food Group, LLC and AFG SPID, Inc. filed this action
against their insurance carriers,1 along with their independent adjuster, Jay Adame, Sr.
(Adame), alleging violations of the Texas Insurance Code.2 At issue is a claim for
business interruption losses caused by a city-wide water contamination event on or about
December 15, 2016. Plaintiffs originally filed the action in the 94th Judicial District
Court of Nueces County, Texas on August 31, 2017.
The Carriers removed the action to this Court on October 27, 2017, within thirty
days of being served with the summons and complaint. D.E. 1, ¶ 4. The basis for
removal is diversity jurisdiction pursuant to 28 U.S.C. § 1332. It is undisputed that the
amount in controversy requirement is met. However, Defendant Adame is a Texas
citizen, destroying the diversity of citizenship requirement.

In support of federal

1

Defendants Starr Surplus Lines Insurance Company, Chubb Custom Insurance Company, General Security
Indemnity Insurance Company of Arizona (collectively Carriers).
2

In addition to the claims against Adame, Plaintiffs allege breach of contract, breach of the duty of good faith and
fair dealing, and insurance code violations against the Carriers.

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jurisdiction, the Carriers argue that Defendant Adame is improperly joined such that the
Court may disregard his citizenship.
Before the Court is Plaintiffs’ motion to remand (D.E. 10), in which Plaintiffs
defend against the improper joinder argument. The Carriers have filed their response
(D.E. 17). For the reasons set out below, the Court GRANTS the motion to remand (D.E.
10).
DISCUSSION
A. Standard of Review
On a motion to remand, “[t]he removing party bears the burden of showing that
federal jurisdiction exists and that removal was proper.” Manguno v. Prudential Prop. &
Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002). “Any ambiguities are construed against
removal because the removal statute should be strictly construed in favor of remand.” Id.
The strict construction rule arises because of “significant federalism concerns.” See
generally, Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108–09 (1941).
“The party seeking removal bears a heavy burden of proving that the joinder of the
in-state party was improper.” Smallwood v. Illinois Cent. R.R. Co., 385 F.3d 568, 574
(5th Cir. 2004) (en banc).

The removing party proves improper joinder by

demonstrating: (1) actual fraud in the pleading of jurisdictional facts; or (2) the inability
of the plaintiff to establish a cause of action against the non-diverse defendant in state
court. See Crockett v. R.J. Reynolds Tobacco Co., 436 F.3d 529, 532 (5th Cir. 2006)
(citing Travis v. Irby, 326 F.3d 644, 646–47 (5th Cir. 2003)); see also Boone v. Citigroup,
Inc., 416 F.3d 382, 388 (5th Cir. 2005). Only the second method is at issue here.
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The motion to remand must be granted unless “there is absolutely no possibility
that the plaintiff will be able to establish a cause of action against the non-diverse
defendant in state court.” Griggs v. State Farm Lloyds, 181 F.3d 694, 699 (5th Cir.
1999). The existence of a viable claim is determined according to federal pleading
standards. Int'l Energy Ventures Mgmt., L.L.C. v. United Energy Grp., Ltd., 818 F.3d
193, 208 (5th Cir. 2016). Under federal standards, the pleadings must allege sufficient
facts to demonstrate that the claim alleged is plausible rather than speculative. Ashcroft
v. Iqbal, 556 U.S. 662 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).
B. Sufficiency of the Allegations Against Adame
1. The Facts and their Fit
Plaintiffs have alleged the following facts against Adame:
 In adjusting the claim, Adame retained an accounting expert that was
biased in favor of the Carriers;
 Adame was aware of policy provisions prohibiting the reduction of a
claim for certain stock, supplies, merchandise, and services, had no
evidence of such items, yet adjusted the loss so as to reduce it for such
items;
 Adame persisted in this error despite having it pointed out to him; and
 Adame prepared a sworn statement and proof of loss containing these
errors and tried to get Plaintiffs to sign it.

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D.E. 1-4, ¶ 15.3

The Twombly/Iqbal analysis requires that the Court treat these

allegations as true. Twombly, 550 U.S. at 555.
The Carriers claim that Plaintiffs’ allegations are based upon the patently false
premise that the policy prohibited the challenged reductions of the gross earnings
calculation from which Plaintiff’s loss is derived. Rather, they argue, the policy requires
those reductions. D.E. 17, p. 12; D.E. 17-2, pp. 4-5.4 Plaintiffs’ articulation of their
claim does appear to contradict the clear policy requirements for reductions of the
categories of costs listed. Thus the claim is not cognizable on that basis.5
However, Plaintiffs also plead that Adame procured a biased calculation, making
those reductions, when there was no evidence to support any of the costs assigned to
those reductions. D.E. 1-4 (“In spite of having no evidence whatsoever of any expenses
that met the policy’s definitions . . . .”). The operative factual allegations, fairly read, are
that Adame adjusted the loss using false deductions, supported by a biased expert that he
retained in order to lend her imprimatur to his wrongful acts, solely to provide a result
favorable to the Carriers. He did this knowingly by persisting after Plaintiffs specifically
challenged the calculations. Properly understood, the Court must now determine whether
3

Under the heading “Facts,” Plaintiffs go on to state that Defendants (without listing Defendants or distinguishing
among them) engaged in conduct described as violations of the Texas Insurance Code and knowing or reckless false
representations or concealments. Id., ¶¶ 18-22, 27. These allegations are not factual but rather are formulaic and
conclusory. For that reason, they fail the federal pleading requirements of Twombly and Iqbal and are thus
disregarded.
4

In a Rule 12(b)(6)-type inquiry, the Court may consider documents identified as central to the claims made. Funk
v. Stryker Corp., 631 F.3d 777, 783 (5th Cir. 2011); Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498–99
(5th Cir. 2000).
5

In their Response to Defendants’ Motion to Dismiss (D.E. 12), Plaintiffs recite their claim as challenging
reductions “other than” those listed in the referenced policy language. Id., p. 3. They seek leave to amend to make
that change to their pleading. Id., p. 6; D.E. 12-1, p. 4. Either way, Plaintiffs are complaining that improper
deductions, without supporting evidence of the costs deducted, were made against their loss. Thus any correction in
the articulation of their claim would not change the remand analysis herein.

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these factual allegations support the Texas Insurance Code causes of action invoked
against Adame.
At the outset, the Court notes that an adjuster is a “person” subject to the
requirements of the Texas Insurance Code with regard to acts undertaken in the business
of insurance—an issue the Carriers do not dispute.

Tex. Ins. Code § 541.002(2);

Hornbuckle v. State Farm Lloyds, 385 F.3d 538, 544 (5th Cir. 2004); Liberty Mut. Ins.
Co. v. Garrison Contractors, Inc., 966 S.W.2d 482, 486 (Tex. 1998). See also, D.E. 17,
p. 3. While the Texas Insurance Code generally applies to Adame, the question for the
Court is whether the alleged conduct states violations of any of the five specific
provisions Plaintiffs invoked. The Court considers each in turn.
Section 541.060(a)(1): “misrepresenting to a claimant a material fact or policy
provision relating to coverage at issue . . . .” The Carriers complain that Plaintiffs have
not alleged a misrepresentation that relates to coverage but rather that Plaintiffs simply
disagree with the loss calculation. However, a fair reading of the allegations includes the
concept that Adame misrepresented the existence of costs that fall within the terms of the
coverage definitions of items to be deducted from the claimed loss. Thus the alleged
facts arguably fit section (1).
Section 541.060(a)(2): “failing to attempt in good faith to effectuate a prompt,
fair, and equitable settlement of: (A) a claim with respect to which the insurer's liability
has become reasonably clear . . . .” The Carriers complain that Plaintiffs’ invocation of
this provision is merely conclusory. However, Plaintiffs’ allegations include bad faith in
misrepresenting the evidence of qualified costs and hiring a biased expert. They also
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allege that Adame failed to respond appropriately to notice that the loss calculation was
incorrect. The allegations are factual rather than conclusory and arguably fit section (2).
Section 541.060(a)(3):

“failing to promptly provide to a policyholder a

reasonable explanation of the basis in the policy, in relation to the facts or applicable law,
for the insurer's denial of a claim or offer of a compromise settlement of a claim . . . .”
The Carriers argue only that the allegations of a violation of this section are conclusory.
While Plaintiffs disagree with the loss calculation, it is true that they make no factual
allegation that its basis was withheld from them or that it was unreasonably delayed by
anything that Adame did. The allegations do not fit section (3).
Section 541.060(a)(4): “failing within a reasonable time to: (A) affirm or deny
coverage of a claim to a policyholder . . . .” Again, the Carriers complain that Plaintiffs’
allegations with respect to this violation are conclusory. The Court agrees. Furthermore,
it appears that Plaintiffs concede that the Carriers offered coverage of the claim. The
only disputes have to do with the manner in which the loss calculation was performed
and its results.

And, again, Plaintiffs do not allege that Adame was personally

responsible for any timing issues. The allegations do not fit section (4).
Section 541.060(a)(7): “refusing to pay a claim without conducting a reasonable
investigation with respect to the claim . . . .” The Carriers challenge this claim as
conclusory and patently contradicting the policy language requiring the deductions taken.
The Court has acknowledged that the policy permits deductions for the categories of
costs at issue. However, the Carriers’ arguments fail to take into consideration Plaintiffs’
allegation that there was no evidence to support the actual deduction of particular sums
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from the loss claimed.

This goes to the reasonableness of the investigation.

The

allegations fit section (7).
Thus the Court finds that the factual allegations are sufficient to support claims
under Texas Insurance Code § 541.060(a)(1), (2), and (7).
2. Whether the Provisions Apply to Adjusters
Regardless of whether the alleged conduct appears to violate these three
provisions of the Texas Insurance Code, the Carriers further challenge the viability of
each on legal grounds. They argue that, as a matter of law, the duties involved are owed
only by insurance companies such that the provisions cannot apply to an adjuster’s
conduct. Lopez v. United Prop. & Cas. Ins. Co., 197 F. Supp. 3d 944, 950 (S.D. Tex.
2016) (rejecting § 541.060(a)(2) claim against adjuster because it governs only insurance
companies); Gutierrez v. Allstate Fire & Casualty Ins. Co., No. 3:17-CV-0636-D, 2017
WL 2378298, * 3-4 (N.D. Tex. June 1, 2017) (rejecting § 541.060(a)(2) and (7) and
numerous other causes of action as not applicable to adjusters); Vallejo v. Allstate Vehicle
& Property Ins. Co., No. 7:17-CV-94, 2017 WL 2240796, *3-4 (S.D. Tex. May 23, 2017)
(rejecting liability of adjuster under (a)(2) for both factual insufficiency and liability
restricted to insurance company, but rejecting (a)(7) claim only for factual insufficiency);
One Way Investments, Inc. v. Century Sur. Co., No. 3:14–CV–2839–D, 2014 WL
6991277, *4 (N.D. Tex. December 11, 2014) (rejecting (a)(1) claim as conclusory and
not addressing policy terms, and rejecting (a)(2) and (7) claims on the basis that they
govern only insurance companies).

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First, none of the Carriers’ cases hold that § 541.060(a)(1) claims against adjusters
are precluded because liability may only be ascribed to insurance companies. Instead,
when subsection (a)(1) is raised, the claim is rejected for some other reason, such as its
conclusory nature.

Thus at least one of Plaintiffs’ causes of action survives this

challenge, which is sufficient to require remand.

Gray ex rel. Rudd v. Beverly

Enterprises-Miss., Inc., 390 F.3d 400, 412 (5th Cir. 2004).
Second, even while making this claim, the Carriers acknowledge, “There is no
clear consensus on this issue amongst federal courts.” D.E. 17, p. 12 n.3. See also,
Lopez, 197 F. Supp. 3d at 950 (noting that the case law is not settled, but opting to limit
adjuster liability under (a)(2)). There is a split among trial courts and the parties have
cited no decision from the Fifth Circuit or Supreme Court of Texas to resolve the
disagreement and this Court has found none.
Specifically with respect to subsection (a)(2), one recent Northern District of
Texas opinion holds not only that the statutory language encompasses the role of an
adjuster, but that any conflict among the courts on this issue must be resolved in favor of
remand under the standard of review and burden of proof. Roach v. Allstate Vehicle and
Property Ins. Co., No. 3:15-CV-3228-G, 2016 WL 795967, *5-6 (N.D. Tex. February 29,
2016) (holding that an adjuster can “effectuate” the settlement of a claim under (a)(2)
even if he cannot finalize that settlement) (citing African Methodist Episcopal Church v.
Lucien, 756 F.3d 788, 793 (5th Cir. 2014) (holding that “any ambiguities of state law
must be resolved” in favor of remand)); Mary v. Allstate Texas Lloyd's, No. 3:16-CV-

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3383-L-BN, 2017 WL 6462009, at *2 (N.D. Tex. Dec. 19, 2017) (same; collecting
cases).
Despite their burden of proof to demonstrate that there is no possibility of a viable
claim against Adame, the Carriers do not attempt to resolve the conflict in the cases but
rather cite only to the opinions that reject the claims against adjusters. The Court
declines to read the provisions of § 541.060(a)(1), (2), and (7) as applying only to
insurance companies and not to adjusters. The Court resolves any ambiguities in the law
in favor of remand pursuant to the applicable standard of review.
C. Piercing the Pleadings Regarding Adame’s Liability
Last, the Carriers suggest that the Court may pierce the pleadings and consider
summary judgment-type evidence that defeats Plaintiffs’ apparent claims.
The court may conduct 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. 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 pleadings and conduct a summary inquiry.
Smallwood v. Illinois Cent. R. Co., 385 F.3d 568, 573 (5th Cir. 2004).
With their response to the motion to remand, the Carriers have offered Plaintiffs’
state court petition, the insurance policy language involved, and the Affidavit of Adame.
They suggest that their evidence demonstrates that Plaintiffs misstated or omitted discrete
facts regarding whether Adame was properly joined. The Court has already considered
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the pleading and the policy in determining that Plaintiffs have stated a claim upon which
relief may be granted, consistent with a Rule 12(b)(6) analysis. See Funk, 631 F.3d at
783; Collins, 224 F.3d at 498–99. The only question is whether the Affidavit should be
considered and, if so, whether it changes the analysis.
The Affidavit (D.E. 17-3) confirms Adame’s assignment as adjuster on this case
and his participation in the retention of the accountant. It denies any involvement in the
loss calculations as a matter of accounting expertise.

However, it fails to address

Plaintiffs’ allegation that amounts included in the loss calculation are not based upon
evidence. Setting aside the self-serving nature of the Affidavit, it is incomplete to
address all of Plaintiffs’ claims. It further risks going beyond a “summary inquiry,”
which should be limited to undisputed “misstated or omitted discreet facts” that would
easily refute the propriety of Adame’s joinder and ventures into the merits of the case.
The Court, in its discretion, declines to expand the inquiry to include Adame’s Affidavit.
CONCLUSION
For the reasons set out above, the Court GRANTS the motion to remand (D.E. 10)
and REMANDS this case to the 94th Judicial District Court of Nueces County, Texas, the
court from which it was removed.
ORDERED this 9th day of January, 2018.
___________________________________
NELVA GONZALES RAMOS
UNITED STATES DISTRICT JUDGE

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