R&M Enterprises v. American Southern Insurance Company
Filing
26
ORDER AND OPINION, entered, granting 6 Motion to Dismiss. ;denying as moot 15 Motion to Strike; denying as moot 16 Motion to Dismiss. granting 23 Motion to Dismiss. Case is REMANDED to the 334th Judicial District Court of Harris County TX, Case terminated on 1/25/2018.(Signed by Judge Melinda Harmon) Parties notified.(jdav, 4)
United States District Court
Southern District of Texas
ENTERED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
R&M ENTERPRISES,
Plaintiff,
VS.
AMERICAN SOUTHERN INSURANCE
COMPANY, AND
ASSURANCE RESOURCES, INC.
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January 26, 2018
David J. Bradley, Clerk
CIVIL ACTION NO. 4:16-CV-03639
Defendants.
ORDER AND OPINION
Before the Court is Defendant American Southern Insurance Company’s (“American
Southern”) Motion to Dismiss under FED. R. CIV. P. 12(b)(6), Doc. 6, Plaintiff, R&M
Enterprises’ (“R&M”) Response, Doc. 9, American Southern’s Motion to Strike R&M’s First
Amended Complaint, Doc. 15, R&M’s Response and Motion for Leave to File R&M’s First
Amended Complaint, Doc. 19, and R&M’s Supplement to its Motion for Leave, Doc. 25,
American Southern’s Motion to Dismiss R&M’s First Amended Complaint under FED. R. CIV. P.
12(b)(6), Doc. 16, R&M’s Response, Doc. 20, and Defendant Assurance Resources, Inc.’s
(“Assurance”) Motion to Dismiss under FED. R. CIV. P. 12(b)(1), Doc. 23. After considering
these documents and the applicable law, the Court grants American Southern’s initial Motion to
Dismiss, Doc. 6, but grants R&M’s Motion for Leave to File its First Amended Complaint
(“FAC”), Doc. 19, rendering American Southern’s Motion to Strike as moot, Doc. 15.
Considering the remaining motions, the Court grants Assurance’s Motion to Dismiss, Doc. 23,
which moots American Southern’s subsequent Motion to Dismiss, Doc. 16, and remands this
case to state court.
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I. Background
On November 18, 2016, R&M filed its Original Petition in state court alleging that
American Southern refused “to pay the costs to defend R&M, as required under the insurance
policy” in accordance with “Section 1B– Contingent Liability Policy.” Doc. 1 at 12, (Cause No.
2016-80160 in the 334th Judicial District Court of Harris County, Texas). R&M asserted the
claims of breach of contract, promissory estoppel, suit on sworn account, violations of the Texas
Deceptive Trade Practices Act, violation of the Texas Insurance Code Chapter 541, violation of
Texas Insurance Code Chapter 542, and bad faith. Id. at 14–20. Attached to the petition were an
affidavit from the firm who defended R&M, Martin, Disiere, Jefferson, & Wisdom L.L.P., (the
“Firm”), stating that the firm defended R&M on behalf of American Southern, Ex. 1, the Firm’s
account statement to “Assurance Resources, Inc.,” Ex. 2, the firm’s invoices to “Assurance
Resources, Inc.,” Ex. 3A–3I, and an invoice for expert witness services, Ex. 4. Id. at 24–121.
Subsequently, American Southern removed the case to this Court under diversity jurisdiction.
See 28 U.S.C. § 1332; Doc. 1 at 2.
American Southern then filed its motion to dismiss and requests that the Court dismiss
R&M’s complaint for lack of standing and capacity to sue. Doc. 6. American Southern asserts
that “the attachments to [R&M]’s Original Petition establish the attorney fees [R&M] bases its
claims on were payable to the law firm of Martin, Disiere, Jefferson, & Wisdom L.L.P. and are
owed by Assurance. . . .” Id. at 2. Because “[a]ll of [R&M’s] claims arise from a third party’s
alleged failure to pay the attorney of another third party,” American Southern asserts that R&M
lacks standing to bring this suit and capacity to sue for these claims. Id. at 1–2. Therefore,
American Southern asserts that R&M’s “claims should be dismissed.” Id. at 2. R&M responded.
Doc. 9.
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This Court issued a scheduling order setting the date to file motions for leave to amend
pleadings and join new parties as June 30, 2017. Doc. 11. Next, the parties filed a joint case
management plan wherein American Southern indicated that it intended to add Assurance “as a
third-party defendant” following the resolution of American Southern’s motion to dismiss. Doc.
10 at 2.1
More than twenty-one days after the American Southern’s motion to dismiss, R&M filed
its FAC, wherein it added a “negligent and fraudulent misrepresentation” claim against
American Southern and joined Assurance, asserting claims “for breach of contract, unjust
enrichment, money had and received, tortious interference with existing contract, violations of the
Texas Deceptive Trade Practices Act, and misrepresentation” against Assurance . Doc. 13 at 12–13.
Among the attachments to the FAC is an unsigned renewal endorsement of R&M’s
limited liability policy. The liability policy lists the policy holder as R&M and the issuer as
American Southern. Doc. 13-3 at 3, 5. The policy designates Assurance as the claims
administrator, “Authorized Surplus Lines Agent,” and the receiver of notices and suits
concerning this policy. Id. at 4–5. And policy section I B contains the language, “We will pay
Your legal defense in connection with a Claim of an Eligible Person.” Id. at 10.
American Southern then filed its Motion to Strike the FAC as untimely, without written
consent of American Southern, and without leave of court as required under FED. R. CIV. P. 15.
Doc. 15. R&M responded by requesting leave to file its FAC. Doc. 19. R&M attached in support
an e-mail from American Southern’s counsel, suggesting that “[R&M] will need to seek these
damages from [Assurance]” because Assurance “controlled all aspects of retention of all counsel
1
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American Southern also indicated that American Southern Insurance Company v.
Assurance Resources, Inc., Case Number 16-cv-01382, was related. Doc. 10 at 1. The
Court takes judicial notice of the dispute between these parties over liability to pay the
insurance claims from a motor vehicle-related injury.
on this claim and had a contractual obligation with our client to set aside premium dollars to pay
these fees and costs.” Doc. 19-1 at 2. The e-mail added, American Southern “had to shut down
this related claims program because it lost substantial money, and they are out significant
dollars.” Id. R&M later supplemented its motion for leave. Doc. 25.
Subject to its Motion to Strike, American Southern filed a second motion to dismiss
against the FAC asserting the same arguments presented in its earlier motion to dismiss. Doc. 16.
R&M responded. Doc. 20.
Subsequently, Assurance filed a motion to dismiss under FED. R. CIV. P. 12(b)(1)
asserting that the Court “lacks subject-matter jurisdiction” because “there is not complete
diversity between the parties.” Doc. 23 at 1. In support, Assurance attaches an affidavit from its
president and its articles of incorporation, indicating that Assurance “is incorporated in the State
[of] Texas and duly registered with the Texas Secretary of state.” Doc. 23-1 at 2–6.
All motions are now ripe for adjudication.
II. Motion to Dismiss under 12(b)(6)
American Southern requests that the Court dismiss R&M’s complaint under 12(b)(6) for
lack of standing and capacity to sue because the debt is owed to the Firm from Assurance, not to
R&M from American Southern. Doc. 6.
When a district court reviews a motion to dismiss pursuant to FED. R. CIV. P. 12(b)(6), it
must construe the complaint in favor of the plaintiff and take all well-pleaded facts as true.
Wolcott v. Sebelius, 635 F.3d 757, 763 (5th Cir. 2011) (citing Gonzalez v. Kay, 577 F.3d 600,
603 (5th Cir. 2009)). “Dismissal is appropriate only if the complaint fails to plead ‘enough facts
to state a claim to relief that is plausible on its face.’” Leal v. McHugh, 731 F.3d 405, 410 (5th
Cir. 2013) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim [is plausible
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on its face] when the pleaded factual content allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Montoya v. FedEx Ground Package Sys.,
Inc., 614 F.3d 145, 148 (5th Cir. 2010) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009))
(internal quotation marks omitted). “The plausibility standard is not akin to a ‘probability
requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.”
Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 556). “While a complaint attacked by a
Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, . . . a plaintiff’s
obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action will not do.”
Twombly, 550 U.S. at 544 (citations omitted). A court may also review the documents attached
to a motion to dismiss if the complaint refers to the documents and they are central to the claim.
Kane Enters v. MacGregor (USA), Inc., 322 F.3d 371, 374 (5th Cir. 2003).
But “[w]hen a plaintiff’s complaint fails to state a claim, the court should generally give
the plaintiff at least one chance to amend the complaint under rule 15(a) before dismissing the
action.” Champlin v. Manpower Inc., No. 4:16-CV-421, 2016 WL 3017161, at *2 (S.D. Tex.
May 26, 2016) (citing Great Plains Trust Co. v. Morgan Stanely Dean Witter & Co., 313 F.3d
305, 329 (5th Cir. 2002)).
To bring a breach of contract and related claims, a party must have standing, usually by
being a party to the contract. See Kiper v. BAC Home Loans Servicing, LP, No. 4:11-CV-3008,
2012 WL 5456105, at *2 (S.D. Tex. Nov. 6, 2012), aff’d sub nom. Kiper v. BAC Home Loans
Servicing, L.P., 534 Fed. Appx. 266 (5th Cir. 2013).
American Southern asserts that R&M lacks standing because “neither R&M nor
American Southern has any interest in the underlying dispute.” Doc. 6 at 5. In support of its
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motion to dismiss, American Southern alleges that R&M’s exhibits to its Original Petition
demonstrate that the debt is owed to “Assurance Resources, Inc.” from the “law firm of Martin,
Disiere, Jefferson, & Wisdom L.L.P.”2 Id. at 2. Therefore, American Southern asserts that the
dispute is between these third parties and should be dismissed.
R&M’s exhibits negate its assertions against American Southern in its Original Petition.
See MacGregor, 322 F.3d at 374. The Original Petition makes numerous counts against
American Southern and the affidavit of the Firm asserts that the “litigation” was “on behalf of
the defendant[] American Southern.” Doc. 1 at 24. But, attached to the affidavit are invoices sent
to Assurance, not American Southern. Id. at 24–121. The exhibits do not show how or if
American Southern was involved in the transaction.3 See Kiper, 2012 WL 5456105, at *2.
Because the exhibits contradict R&M’s bare allegations, the Court holds that R&M lacks
standing to sue American Southern. See generally MacGregor, 322 F.3d at 374. In having found
R&M lacks of standing, the Court need not consider whether it lacked capacity to sue Americans
Southern. Thus, the Court GRANTS American Southern’s Motion to Dismiss.
2
American Southern incorrectly asserts that the debt owing to the Firm is not actionable.
An insurer becomes liable when it wrongfully rejects its defense obligation, even prior to
submission of the costs for that defense. See Trammell Crow Residential Co. v. Virginia
Sur. Co., Inc., 643 F. Supp. 2d 844, 859 (N.D. Tex. 2008) (citing Lamar Homes, Inc. v.
Mid–Continent Cas. Co., 242 S.W.3d 1, 19–20 (Tex. 2007)); see also Cox Operating,
L.L.C. v. St. Paul Surplus Lines Ins. Co., 795 F.3d 496, 508–09 (5th Cir. 2015)
(discussing steps insurers must take and point at which interest begins to accrue under the
Texas Prompt Payments Act). American Southern allegedly became liable when it
wrongly rejected a defense obligation owed to R&M, if any. Whether R&M’s defense
firm is still owed money directly is irrelevant to the present analysis.
3
Without the subsequent contract R&M attached to the FAC, the evidence does not show
that Assurance is allegedly American Southern’s agent as claims administrator or that
American Southern allegedly contracted with R&M. Without evidence that American
Southern contracted either directly or through Assurance, R&M lacked standing to sue
American Southern. See Kiper v. BAC Home Loans Servicing, LP, No. 4:11-CV-3008,
2012 WL 5456105, at *2 (S.D. Tex. Nov. 6, 2012), aff’d sub nom. Kiper v. BAC Home
Loans Servicing, L.P., 534 Fed. Appx. 266 (5th Cir. 2013).
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But the Court has often given a plaintiff one chance to amend, and the Court does so
here. See Champlin, 2016 WL 3017161, at *2. Accordingly, the Court
GRANTS R&M’s motion for leave to file its FAC.
III. Motion to dismiss under 12(b)(1)
Assurance asserts that the Court lacks subject-matter jurisdiction because both R&M and
Assurance are Texas corporations. Doc. 23 at 1–2. R&M also alleges that Assurance is a Texas
corporation in its FAC: R&M concedes that “Assurance is a Texas defendant,” so “the Court
faces a jurisdictional defect,” Doc. 13 at 2. And in its supplement to its motion for leave, R&M
also concedes that joinder of Assurance “would destroy the Court’s diversity jurisdiction and
require remand.” Doc. 25 at 1. Because neither Assurance nor R&M contest Assurance’s status
as a Texas defendant, the Court finds that Assurance is a citizen of Texas. See 28 U.S.C. §
1332(c)(1).
Under 28 U.S.C. §1332, a defendant may remove a case if there is (1) complete diversity
of citizenship and (2) the amount in controversy is greater than $75,000, exclusive of interests
and costs. Id. “If after removal the plaintiff seeks to join additional defendants whose joinder
would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and
remand the action to the State court.” 28 U.S.C. § 1447(e); Doc. 25 at 1–2.
Where the nondiverse parties were joined after the case was removed, not before, the
standard is not whether the new parties were fraudulently joined, but whether the Court, when
“confronted with an amendment to add a nondiverse nonindispensable party, should use its
discretion in deciding whether to allow that party” to be joined. Hensgens v. Deere & Co., 833
F.3d 1179, 1182 (5th Cir. 1987), appeal after remand, 869 F.2d 879 (5th Cir. 1989), cert. denied,
493 U.S. 851 (1989); see 28 U.S.C. § 1447(e). “The court should ‘scrutinize that amendment
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more closely than an ordinary amendment’ and ‘consider a number of factors to balance the
defendant's interests in maintaining the federal forum with the competing interests of not having
parallel lawsuits.” Villarreal v. Wells Fargo Bank, N.A., 814 F.3d 763, 768–69 (5th Cir. 2016)
(citing Hensgens, 833 F.3d at 1182).
The court should consider four equitable factors on whether to allow joinder: “[(1)] the
extent to which the purpose of the amendment is to defeat federal jurisdiction, [(2)] whether
plaintiff has been dilatory in asking for amendment, [(3)] whether plaintiff will be significantly
injured if amendment is not allowed, and [(4)] any other factors bearing on the equities.” Id.
(citing id.). For the first factor, courts have considered whether the claim asserted was a ruse to
defeat jurisdiction, whether plaintiff knew of the identity of the added party at the filing of the
state court petition, how soon after removal the petition was amended, and if the amendment was
filed prior to a plaintiff’s motion to remand. See Boyce v. CitiMortgage, Inc., 992 F. Supp. 2d
709, 716–17 (W.D. Tex. 2014). For the second factor, courts have considered the “time between
the original state court action and the request to amend, and the time between removal and the
request,” the stage of litigation, and whether trial or pre-trial dates have been scheduled. Lowe v.
Singh, No. CIV.A. H-10-1811, 2010 WL 3359525, at *2 (S.D. Tex. Aug. 23, 2010) (holding
amendment six months after initial filing was not dilatory); see Boyce v. CitiMortgage, Inc., 992
F. Supp. 2d at 720–21 (concerning stage of litigation and scheduling). For the third factor, courts
have whether the plaintiff can obtain complete relief absent the amendment and whether the
plaintiff will be forced to litigate against the non-diverse defendants in a different court system
with different timetables and procedural rules. Id. at 721.
“If [the court] permits the amendment of the nondiverse defendant, then it must remand
to the state court, [but i]f the amendment is not allowed, the federal court maintains jurisdiction.”
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Hensgens, 833 F.3d at 1182; see also Priester v. JP Morgan Chase Bank, N.A., 708 F.3d 667,
679 (5th Cir. 2013) (affirming Hensgens as the correct legal standard to determine whether
joinder of non-diverse parties should be permitted after removal).
In the FAC, R&M concedes that it creates a federal jurisdiction problem when it
amended the FAC to include Assurance as a defendant. Doc. 13. In its supplement to the Motion
for Leave to file the FAC, R&M suggests that it meets all the factors necessary to approve the
amendment and remand the case to state court. Doc. 25 at 4. As to the first factor, R&M suggests
that the amendment was not intended to defeat jurisdiction because R&M alleges that its claims
are “facially valid” and R&M did not know “the extent and nature of Assurance’s involvement in
this matter or the specifics of its relationship with American Southern until after the case was
removed.” Id. at 5. Upon removal, R&M alleges that it learned of the grounds to sue Assurance
following American Southern’s comments in the joint discovery plan: American Southern
considered adding Assurance as a third-party defendant. Id. at 10. As to the second factor, R&M
alleges it was not dilatory because it filed its FAC “less than six months after the state court suit
was filed and five months after the notice of removal . . . shortly after learning new information
about Assurance.” Id. at 11–12. As to the third factor, R&M alleges that it will be injured
because “American Southern has ‘lost substantial money, and they are out significant dollars,’
and pursuing Assurance in state court would “result in parallel judicial proceedings that would
increase costs, lead to judicial inefficiency, and may produce conflicting results.” Id. at 14.
Fourth, as to the equitable factors, R&M suggests two “main points:” (1) “because the claims
against American Southern are based on state law, there is no reason to anticipate that the state
court would not or could not make fair determinations on the matters at issue”; and (2)
“American Southern has already disclosed its intent to join Assurance as a party defendant in this
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case, which will ultimately destroy the Court’s diversity jurisdiction” by allowing R&M to assert
claims against Assurance. Id. at 15 (citing State Nat’l Ins. Co. v. Yates, 391 F.3d 577, 579 (5th
Cir. 2004) (holding that district court lacked supplemental jurisdiction over a defendant-added
third-party defendant when original jurisdiction was based on diversity). Thus, R&M requests
that the Court allow the joinder of Assurance, and remand the case to state court. Id. at 16.
The Court agrees that the factors weigh in R&M’s favor. The first factor is whether the
purpose of the amendment was to defeat federal jurisdiction. Hensgens, 833 F.3d at 1182. Even
presuming that R&M knew of Assurance’s involvement, as evidenced by the Firm’s invoices,
the remaining facts weigh in favor of amendment: the claims against Assurance are facially
valid, the Original Petition was not amended quickly after removal, and the FAC was filed prior
to a plaintiff’s a suggestion of remand in its supplemental motion. See Boyce, 992 F. Supp. 2d at
716–17; Doc. 25. Thus, the Court holds that the purpose of the amendment was not to defeat
federal jurisdiction. See Boyce, 992 F. Supp. 2d at 716–17.
The second factor, whether plaintiff has been dilatory in asking for amendment, also
weighs in favor of the amendment. Id. The Court agrees that filing an FAC within six months of
the original petition and five months of removal is not dilatory. See Lowe, 2010 WL 3359525, at
*2. And while the Court has issued a scheduling order setting dates, litigation has not proceeded
beyond filing the complaint and 12(b) challenges to the complaint. See Boyce, 992 F. Supp. 2d at
720–21. Thus, the Court holds that R&M was not dilatory in asking for the amendment.
Next, the third factor, whether plaintiff will be significantly injured if amendment is not
allowed, is neutral to the amendment. Id. at 721. The Court agrees that parallel state and federal
proceedings would not be efficient, but R&M could theoretically obtain full relief from
American Southern as the allegedly contracting insurer. See id. American Southern’s counsel’s
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statement in an e-mail is not conclusive of American Southern’s inability to pay a judgment,
which R&M concedes. Doc. 25 at 14. Thus, the Court does not hold R&M will be injured if
amendment is not allowed.
And the fourth open factor weighs in favor of amendment. The Court agrees that the
record indicates that American Southern also believes Assurance is responsible for the disputed
defense costs. In its motion to dismiss, American Southern’s ground for R&M’s lack of standing
is in part because Assurance failed to pay the Firm. Doc. 6 at 1–2. Also, in an e-mail allegedly
from its counsel, American Southern suggests that “[R&M] will need to seek these damages
from [Assurance].” Doc. 1-1 at 2. Next, in the joint case management plan, American Southern
indicated that it intended to add Assurance “as a third-party defendant” following the resolution
of American Southern’s motion to dismiss. Doc. 10 at 2. And American Southern’s allegation
and intended action is consistent with the contract attached to the FAC, which designates
Assurance as the claims administrator, “Authorized Surplus Lines Agent,” and the receiver of
notices and suits concerning this policy. Doc. 13-3 at 4–5. But American Southern has not added
Assurance as a third-party defendant, so the Court need not consider whether that addition would
destroy diversity, as R&M suggests. See Yates, 391 F.3d at 579. Instead, American Southern’s
assertion that Assurance should be joined as a third-party defendant sufficiently favors allowing
R&M’s amendment to join Assurance. See Hensgens, 833 F.3d at 1182; Boyce, 992 F. Supp. 2d
at 720–21. Thus, the Court holds that the fourth factor weighs in favor of amendment.
Thus, the Court concludes that it should allow R&M to add Assurance as a party, even
though the action divests the Court of its jurisdiction. And having lost its jurisdiction, the Court
declares that all other pending motions in the case are moot. Accordingly, the Court
GRANTS Assurance’s Motion to Dismiss, Doc. 23, and REMANDS this case to state
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court.
IV. Conclusion
For the foregoing reasons, the Court hereby ORDERS the following:
1. American Southern’s first Motion to Dismiss is GRANTED, Doc. 6.; but
2. R&M’s Motion for Leave to File R&M’s First Amended Complaint, Doc. 19, is
GRANTED;
3. American Southern’s Motion to Strike R&M’s First Amended Complaint, Doc. 15, is
MOOT;
4. Assurance’s Motion to Dismiss for lack of jurisdiction, Doc. 23, is GRANTED;
5. American Southern’s Motion to Dismiss R&M’s First Amended Complaint under
FED. R. CIV. P. 12(b)(6), Doc. 16, is MOOT; and
6. This case should be REMANDED to state court under Cause No. 2016-80160 in the
334th Judicial District Court of Harris County, Texas.
SIGNED at Houston, Texas, this 25th day of January, 2018.
___________________________________
MELINDA HARMON
UNITED STATES DISTRICT JUDGE
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