Fernandez et al v. Scottsdale Insurance Company et al
Filing
19
MEMORANDUM OPINION AND ORDER OF REMAND Granting 7 MOTION to Remand. (Signed by Judge Kenneth M. Hoyt) Parties notified.(clamey, )
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
§
§
Plaintiffs,
§
vs.
§
§
SCOTTSDALE INSURANCE COMPANY, et §
al,
§
§
Defendants.
§
ANTONIO FERNANDEZ, et al,
CIVIL ACTION NO. H-10-cv-04601
MEMORANDUM OPINION AND ORDER OF REMAND
I.
INTRODUCTION
Pending before the Court is the plaintiffs’, Antonio Fernandez and Gloria Fernandez (the
“plaintiffs”), motion to remand and supporting memorandum (Dkt. No. 7). The defendants,
Scottsdale Insurance Company (“Scottsdale”), Wardlaw Claims Service, Inc. (“Wardlaw”),
William Bradford Jones (“Jones”), and Kenneth Bentley (“Bentley”) (collectively, the
“defendants”) have filed responses in opposition to the plaintiff’s motion (Dkt. Nos. 9 & 11,
respectively) and the plaintiffs have filed reply (Dkt No. 13). Having carefully considered the
motion, responses, reply and the applicable law, the Court is of the opinion that the plaintiffs’
motion to remand should be GRANTED.
The above-styled and numbered civil action is,
therefore, REMANDED, pursuant to 28 U.S.C. § 1447(c), to the 11th Judicial District Court of
Harris County, Texas, where it was originally filed and assigned Cause No. 2010-55352.
II.
FACTUAL BACKGROUND
The plaintiffs, both residents of Harris County, Texas, are the owners of a homeowners’
insurance policy (the “Policy”) issued by Scottsdale, insuring the real property located at 1840
Ojeman, Houston, Harris County, Texas 77080 (the “property”). The policy was in effect at the
1 / 12
time Hurricane Ike traveled through Harris County, Texas, causing severe damage to several
commercial and residential properties throughout the Gulf-coast region, including the plaintiffs’
property.
Shortly after the hurricane, the plaintiffs filed a claim against the policy for roof damage,
structural damage, water damage and wind damage. The plaintiffs requested that Scottsdale
cover the cost of repairs to the property pursuant to the Policy. Scottsdale assigned Wardlaw to
adjust the plaintiffs’ claim. Thereafter, Bentley and Jones were assigned as individual adjusters
on the claim by Scottsdale and/or Wardlaw. The plaintiffs contend that Jones performed a
cursory inspection and investigation relative to their damages and undervalued their claim.
They further contend that Scottsdale failed and refused to adequately compensate them for
damages covered under the Policy.
On September 2, 2010, the plaintiffs filed an action in the 11th Judicial District Court of
Harris County, Texas, against Scottsdale, Wardlaw, Jones and Bentley (collectively, the
“defendants”), alleging that their claim for repairs of the property, occurring as a result of
Hurricane Ike, was improperly handled and wrongfully denied. Specifically, they allege causes
of action against the defendants jointly for common law fraud and conspiracy to commit fraud.
As to Jones and Bentley, individually and Wardlaw, they allege causes of action for unfair
settlement practices under §§ 541.060(a)(1), 541.060(a)(2)A, 541.060(a)(3), 541.060(a)(4) and
541.060(a)(7) of the Texas Insurance Code. As to Scottsdale only, they allege causes of action
for breach of contract, unfair settlement practices under § 541.060 of the Texas Insurance Code,
breach of the prompt payment provisions of the Texas Insurance Code, § 542.051 et seq., and
breach of the duty of good faith and fair dealing.
2 / 12
Scottsdale, pursuant to 28 U.S.C. §§ 1332, 1441 and 1446, eventually removed the statecourt action to this Court on the basis of diversity jurisdiction, asserting that Wardlaw and Jones,
both non-diverse defendants, had been improperly joined as defendants in the action. The
plaintiffs, in response, filed the instant motion to remand, alleging that removal of this case was
improper in that Wardlaw and Jones were not improperly joined as defendants in this action and
complete diversity of citizenship is non-existent among the parties. Accordingly, the plaintiffs
urge this Court to remand the instant action to the state court in which it was originally filed.
III.
CONTENTIONS OF THE PARTIES
A.
The Plaintiffs’ Contentions
The plaintiffs assert that Scottsdale’s removal of this case was improper because the
Court lacks subject matter jurisdiction over this action since complete diversity of citizenship
does not exist among the parties. They maintain that Wardlaw and Jones, both Texas defendants,
are properly joined in this case and that sufficient facts have been alleged against them to state a
viable claim under state law. They further argue that Scottsdale’s contention that Wardlaw and
Jones were added to this lawsuit solely for the purpose of depriving this Court of federal
jurisdiction is without merit. Accordingly, they assert that Scottsdale has failed to meet its heavy
burden of proving improper joinder and this case should be remanded to the state court in which
it was originally filed.
B.
Scottsdale’s Contentions
Scottsdale argues that removal of the instant action to federal court was proper because
no reasonable basis exists for predicting that the plaintiffs can recover against Wardlaw and/or
Jones given the lack of specific facts supporting the causes of action alleged against them. It
further avers that the plaintiffs have failed to allege facts demonstrating that Wardlaw and Jones
3 / 12
committed any violation that may have caused them any harm. Specifically, with respect to the
plaintiffs’ causes of action under the Texas Insurance Code, Scottsdale contends that their
allegations are conclusory and constitute nothing more than a verbatim recitation of the statutory
language contained in the Texas Insurance Code. As to the plaintiffs’ causes of action for fraud,
Scottsdale contends that the plaintiffs have failed to plead their claims with sufficient
particularity. Consequently, Scottsdale argues that Wardlaw and Jones have been improperly
joined in this lawsuit for the sole purpose of defeating diversity and depriving this Court of
subject matter jurisdiction. Thus, Scottsdale contends that this Court should disregard Wardlaw
and Jones’ citizenship for purposes of determining diversity jurisdiction and deny the plaintiffs’
motion to remand.
IV.
STANDARD OF REVIEW
The applicable statute provides two grounds for remand:
procedure; and (2) lack of subject matter jurisdiction.
(1) a defect in removal
See 28 U.S.C. § 1447(c); Things
Remembered, Inc. v. Petarca, 516 U.S. 124, 127 - 28, 116 S. Ct. 494, 133 L. Ed.2d 461 (1995).
A remand for lack of subject matter jurisdiction is permissible at any time before final judgment,
with or without a motion. 28 U.S.C. § 1447(c). Here, the essential inquiry is whether removal of
the state court action on the basis of diversity of citizenship was proper in light of the facts
presented.
Pursuant to 28 U.S.C. § 1441(a), a defendant is permitted to remove an action from a
state court to a federal court only if the action is one over which the federal court has original
jurisdiction. See 28 U.S.C. § 1441(a). The federal diversity jurisdiction statute provides that
federal courts have original jurisdiction over all civil actions where the matter in controversy
exceeds $75,000, exclusive of costs and interest, and diversity of citizenship exists. See 28
4 / 12
U.S.C. § 1332(a). “It is well-established that the diversity statute requires ‘complete diversity’ of
citizenship:
A district court generally cannot exercise diversity jurisdiction if one of the
plaintiffs shares the same state citizenship as any one of the defendants.” Corfield v. Dallas Glen
Hills LP, 355 F.3d 853, 857 (5th Cir. 2003) (citing Whalen v. Carter, 954 F.2d 1087, 1094 (5th
Cir. 1992)). In analyzing whether diversity jurisdiction exists, however, a court may disregard
the citizenship of parties that have been improperly joined. Smallwood v. Ill. Cent. R.R. Co., 385
F.3d 568, 572 - 73 (5th Cir. 2004) (en banc) cert. denied, 544 U.S. 992, 125 S. Ct. 1825, 161
L.Ed.2d 755 (2005). Nevertheless, the burden of establishing fraudulent or improper joinder
rests on the party asserting it and is indeed a heavy burden. Travis v. Irby, 326 F.3d 644, 649
(5th Cir. 2003).
In order to establish fraudulent or improper joinder of a party, the defendant 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. In this case, the parties do not dispute that Wardlaw and Jones are Texas
residents, thus the Court’s analysis will focus only on the second prong of this test. Under the
second prong, the Court is required to determine “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.” Id. (citing Irby, 326 F.3d at 647 – 48).
“Since the purpose of the improper joinder inquiry is to determine whether or not the in-state
defendant was properly joined, the focus of the inquiry must be on the joinder, not the merits of
the plaintiff’s case.” Smallwood, 385 F.3d at 573.
5 / 12
In assessing whether a defendant has been improperly joined, the court “must evaluate all
of the factual allegations in the light most favorable to the plaintiff, resolving all contested issues
of substantive fact in favor of the plaintiff.” Guillory v. PPG Indus., Inc., 434 F.3d 303, 308 309 (5th Cir. 2005) (quoting B., Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (5th Cir. 1981)).
It must also “resolve all ambiguities in the controlling state law in the plaintiff’s favor.”
Guillory, 434 F.3d at 308 (internal citations omitted). In this regard, the court is not required to
“determine whether the plaintiff will actually or even probably prevail on the merits of the claim,
but look only for a possibility that the plaintiff might do so.” Id. at 309 (internal citations
omitted).
When determining the possibility of recovery under state law, the court is permitted to
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.”
Smallwood, 385 F.3d at 573 (internal citations omitted). “Ordinarily, if a plaintiff can survive a
Rule 12(b)(6) challenge, there is no improper joinder.” Id.; Guillory, 434 F.3d at 309. In cases
“in which a plaintiff has stated a claim, but has misstated or omitted discrete facts that would
determine the propriety of joinder . . . the district court may, in its discretion, pierce the pleadings
and conduct a summary inquiry.” Smallwood, 385 F.3d at 573 (citing Badon v. RJR Nabisco,
Inc., 224 F.3d 382, 389 n.10 (5th Cir. 2000); accord Guillory, 434 F.3d at 309. This summary
inquiry “is appropriate only to identify the presence of discrete and undisputed facts that would
preclude plaintiff’s recovery against the in-state defendant.” Smallwood, 385 F.3d at 573 – 74
(citing Irby, 326 F.3d at 648 – 49). The Fifth Circuit, nevertheless, has cautioned “district courts
against “pretrying a case to determine removal jurisdiction.” Cavallini v. State Farm Mut. Auto
Ins. Co., 44 F.3d 256, 263 (5th Cir. 1995) (internal citation omitted).
6 / 12
V.
ANALYSIS AND DISCUSSION
The plaintiffs argue that remand in this case is appropriate because complete diversity of
citizenship is non-existent among the parties. The parties do not dispute that the amount in
controversy has been satisfied or that the defendants Wardlaw and Jones are Texas residents.
Thus, absent a showing that Wardlaw and Jones were improperly joined, subject matter
jurisdiction in this case is lacking. Smallwood, 385 F.3d at 572 – 73; see also Guillory, 434 F.3d
at 307 - 08. Accordingly, here, the improper joinder issue turns on whether the plaintiffs can
establish any potentially viable state-law cause of action against Wardlaw and/or Jones.
In this case, Scottsdale does not contest that it is possible to maintain a claim under
Chapter 541 of the Texas Insurance Code against an adjuster in his individual capacity. See, e.
g., Liberty Mutual Ins. Co. v. Garrison Contractors, Inc., 966 S.W.2d 482, 484 (Tex. 1998);
Gasch v. Hartford Accident & Indem. Co., 491 F.3d 278, 283 (5th Cir. 2007); Hornbuckle v.
State Farm Lloyds, 385 F.3d 538, 544 n.9 (5th Cir. 2004); Blanchard v. State Farm Llovds, 206
F. Supp.2d 840, 845 (S.D. Tex. 2001) (citing Griggs v. State Farm Lloyds, 181 F.3d 694, 700
(5th Cir. 1999)). It contends, rather, that the plaintiffs have failed to set forth any specific facts
in support of their claims against Jones and/or Wardlaw and have failed to make the required
“factual fit” between their asserted theories of recovery and their allegations. As a consequence,
it argues that there is no reasonable possibility of recovery against Wardlaw and/or Jones based
on the facts alleged by the plaintiffs in their Original Petition. This Court disagrees.
The Fifth Circuit, in Smallwood, sanctioned a Rule 12(b)(6)-type assessment as the preferred
method for determining a plaintiff’s possibility of recovery under state law. Smallwood, 385 F.3d at
573. Under this type of inquiry, a petition “requires more than labels and conclusions, and a
formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v.
7 / 12
Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 1964 – 65, 167 L. Ed.2d 929 (2007) (citing Papasan
v. Allain, 478 U.S. 265, 286, 106 S. Ct. 2932, 92 L. Ed.2d 209 (1986)). “Factual allegations must be
enough to raise a right to relief above the speculative level . . . on the assumption that all the
allegations in the complaint are true . . . .” Id. (internal citations omitted).
Having found that insurance adjusters are generally subject to liability under the Texas
Insurance Code, the Court must now determine whether Wardlaw and/or Jones, were “persons”
engaged in the insurance business with respect to the plaintiffs’ claims against them. See
Garrison Contractors, 966 S.W.2d at 487 (reasoning that “section 16 of Article 21.211 provides
a cause of action against insurance company employees whose job duties call for them to engage
in the business of insurance.”); Vargas v. State Farm Lloyds, 216 F. Supp.2d 643, 648 (S.D. Tex.
2002) (noting that “[a]lthough the duties of an insurance adjuster are starkly different from those
of an insurance agent, an insurance adjuster nevertheless engages in the business of insurance by
investigating, processing, evaluating, approving, and denying claims.”)
In this case, it is
undisputed that Wardlaw and/or Jones adjusted the plaintiffs’ claim on Scottsdale’s behalf. As
Scottsdale’s adjusters, Wardlaw and/or Jones were tasked with the responsibility of evaluating
the plaintiffs’ claim in terms of legitimacy and value. Accordingly, Wardlaw and/or Jones are
“persons” subject to liability under Chapter 541 of the Texas Insurance Code since claims
adjusters qualify as “persons” engaged in the business of insurance. See Gasch v. Hartford
Accident & Indem. Co., 491 F.3d 278, 283 (5th Cir. 2007).
1 “
Section 3 of Article 21.21 prohibits any person from engaging in deceptive trade practices in the insurance
business, and section 16 provides a private cause of action against a person that engages in an act or practice
declared in section 4 of the article to be unfair or deceptive.” Garrison Contractors, 966 S.W.2d at 484 (citing TEX.
INS. CODE art. 21.21 § 16(a)). Article 21.21 has since been repealed. The pertinent parts of § 16 are currently
codified at § 541.060 of the TEX. INS. CODE.
8 / 12
Next, the Court must determine whether the plaintiffs have alleged any potentially viable
cause of action against Wardlaw and/or Jones as a result of their work as adjusters with respect
to the plaintiffs’ claim. The Fifth Circuit has explained, however, that to establish a reasonable
possibility that a Texas state court would permit recovery against an employee-adjuster for
claims alleged under the Texas Insurance Code, the plaintiffs must demonstrate that “the
employee, himself, committed a violation that caused the harm. Hornbuckle, 385 F.3d at 545.
Particularly, in their Original Petition, the plaintiffs assert, inter alia, the following allegations
against Wardlaw and Jones:
Defendant Scottsdale assigned Defendant Wardlaw to adjust the [plaintiffs’]
claim.
Defendant Wardlaw and/or Defendant Scottsdale then assigned
Defendants Jones and Bentley as the individual adjusters on the claim. Defendant
Bentley assigned Plaintiffs’ claim to Jones. On September 26, 2008, Jones visited
Plaintiffs’ residence to inspect for damages. Jones spent a mere 15 minutes
conducting his inspection and did not conduct a thorough investigation of
hurricane damage. He did not even get on the roof. Jones’ estimate failed to
include all the damages to the residence, underestimated the severity of the
damage, undervalued the cost of repairs to the damaged property, and underpaid
the Plaintiffs’ claims, thereby denying properly covered damages.
(Docket Entry No. 7, Ex. A at ¶ 19.). Additionally, with regard to their claims under § 541.060
of the Tex. Ins. Code, the plaintiffs allege that Jones and Bentley, as individual claims adjusters,
committed the following unfair settlement practices:
23.
24.
failed to make an attempt to settle Plaintiffs’ claim in a fair manner,
[despite being] aware of their liability to Plaintiffs under the Policy;
25.
9 / 12
misrepresented to [them] that the damage to the Property was not covered
under the Policy, even though the damage was caused by a covered
occurrence. . . .;
failed to explain to Plaintiffs the reasons for their offer of an inadequate
settlement. . . . failed to offer Plaintiffs adequate compensation, without
any explanation why full payment was not being made. . . . did not
communicate that any future settlements or payments would be
forthcoming to pay for the entire losses covered under the Policy, . . . . ;
26.
failed to affirm or deny coverage of Plaintiffs’ claim within a reasonable
time. Specifically, Plaintiffs did not receive timely indication of
acceptance or rejection regarding the full and entire claim in writing . . . .;
and
27.
refused to fully compensate Plaintiffs under the terms of the Policy, even
though [they] failed to conduct a reasonable investigation. Specifically,
[Wardlaw and Jones] performed an outcome-oriented investigation of
Plaintiffs’ claim, which resulted in a biased, unfair and inequitable
evaluation of Plaintiffs’ losses on the Property. . . .;
(Docket Entry No. 7, Ex. A at ¶¶ 23 - 27.) Regarding their claim for fraud, the plaintiffs allege
that Wardlaw and Jones “knowingly or recklessly made false representations, . . . , as to material
facts and/or knowingly concealed all of part of material information from [them].” Id. at ¶ 32.
Finally, the plaintiffs aver that their “damages are a direct result of [Wardlaw and Jones’]
mishandling of [their] claim.” Id. at ¶ 69.
In sum, the plaintiffs allege in their Original Petition that:
(1) their property was
damaged as a result of Hurricane Ike; (2) their property was insured at all material times hereto
under a Policy issued by Scottsdale; (3) Scottsdale assigned Wardlaw, Bentley and/or Jones to
adjust their claim and inspect their property; and (4) Wardlaw and/or Jones allegedly mishandled
their claim, by inter alia, failing to fulfill their duties in the manner prescribed by the Texas
Insurance Code, including misrepresenting the extent of the Policy’s coverage, failing to attempt
a fair settlement, failing to explain Scottsdale’s reasons for offering an inadequate settlement
and/or a denial of full payment. Based on these allegations, the plaintiffs allege that Wardlaw
and/or Jones’ conduct amounts to violations of the Texas Insurance Code for which they could
be held liable.
When resolving all factual disputes and ambiguities in the plaintiffs’ favor as this Court is
required to do, the Court determines that the plaintiffs’ assertions tend to suggest that Wardlaw,
Bentley and/or Jones, while acting as “persons” engaged in the business of insurance, performed
10 / 12
and/or contributed in some way to Scottsdale’s investigation and/or decision relative to their
claim. Assuming such, Wardlaw and/or Jones could potentially be held personally liable to the
plaintiffs under § 541.060 of the Texas Insurance Code.2 Indeed, while the facts presented do
not indisputably establish that Texas law will impose liability on Wardlaw and/or Jones for the
causes of action alleged, the plaintiffs are not required to make such a showing at this stage of
the litigation.
Instead, it is Scottsdale’s heavy burden to establish with certainty that the
plaintiffs have no reasonable possibility of recovery against Wardlaw and/or Jones. Scottsdale
has provided this Court with no such evidence from which it could forecast that the plaintiffs
have no reasonable possibility of recovery against Wardlaw and/or Jones in state court. For
these reasons, the Court finds that Scottsdale has not satisfied its burden of establishing that
Wardlaw and/or Jones were improperly joined in this lawsuit and remand is, therefore,
warranted.
VI.
CONCLUSION
Because Scottsdale has not shown that there exists no reasonable possibility that the
plaintiffs could establish a cause of action against Wardlaw and/or Jones under the Texas
Insurance Code, the Court concludes that it has not met its heavy burden of demonstrating
improper joinder on the facts alleged in this case. In light of the foregoing, the shared citizenship
of Wardlaw, Jones and the plaintiffs defeats diversity and prevents this Court from exercising
jurisdiction over the instant action. Accordingly, the plaintiffs’ motion to remand is GRANTED.
This civil action is hereby remanded, pursuant to 28 U.S.C. § 1447(c), to the 11th Judicial
2
Since the Court finds that a possibility exists that the plaintiffs may be able to maintain a cause of action against
Wardlaw and/or Jones under the Texas Insurance Code, it does not consider whether the plaintiffs have alleged
actionable facts against Wardlaw and/or Jones for fraud.
11 / 12
District Court of Harris County, Texas, where it was originally filed and assigned Cause No.
2010-55352.
It is so ORDERED.
SIGNED at Houston, Texas this 26th day of May, 2011.
___________________________________
Kenneth M. Hoyt
United States District Judge
12 / 12
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?