Hooper v. Allstate Texas Lloyd's et al
MEMORANDUM AND ORDER granting 7 Motion to Abstain and Remand. Hoopers request for attorneys fees is DENIED. This case is REMANDED to the 151st Judicial District Court in Harris County, Texas.(Signed by Judge Keith P Ellison) Parties notified.(arrivera, 4)
United States District Court
Southern District of Texas
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
LILLIE JEAN HOOPER,
ALLSTATE TEXAS LLOYD’S, et al.,
October 06, 2017
David J. Bradley, Clerk
§ CIVIL ACTION NO. 4:17-CV-2038
MEMORANDUM AND ORDER
Pending before the Court is Plaintiff Lillie Jean Hooper’s Motion to Abstain and
Remand. (Doc. No. 7.) Having considered the filings, the responses thereto, and applicable law,
the Court GRANTS the motion.
The following account is drawn from the allegations in Hooper’s original petition. (Doc.
No. 1-2.) Hooper holds a homeowner’s insurance policy on property at 3619 Saratoga Drive in
Houston, Texas. (Id. at 3.) That policy covers damage from wind and hailstorms. (Id.) A storm
on April 19, 2016 evidently caused such damage, for which Hooper submitted a claim to
Defendant Allstate Texas Lloyd’s. (Id.) Hooper asserts that the storm severely damaged her
home, and in particular its roof, exposing the interior of the home to water damage. (Id.)
On October 14, 2016, adjusters assigned or hired by Allstate, Defendants Katherine
Marjorie Hernandez and Joe Edd Bobbitt, Jr., evaluated the damage. (Id. at 5.) They conducted a
second assessment on December 14. (Id.) Hooper alleges that Hernandez and Bobbitt intended to
deny her claim or to gauge her claim within the limit of her deductible. (Id. at 3–4.) As a result,
Hernandez and Bobbitt reported that no insured items had been damaged, evaluated the total
damage at $0, and “fabricate[d]” explanations of the visible damage that attributed it to causes
not covered by the policy. (Id. at 3–5.) Hooper engaged an independent evaluator, who estimated
the damage at $26,459.86. (Id. at 4.)
Hooper sued Allstate, Hernandez, and Bobbitt in the 151th Judicial District Court in
Harris County, Texas. Her claims against Allstate are for breach of contract, Texas Insurance
Code violations, Texas Deceptive Trade Practices (DTPA) violations, fraud, and breach of the
duty of good faith and fair dealing. (Id. at 7–11.) Against Hernandez and Bobbitt, she brings
claims for Texas Insurance Code violations, DTPA violations, fraud, negligence, and gross
negligence. (Id. at 11–21.)
Defendants removed the case to this Court. (Doc. No. 1.) They argue that this Court has
diversity jurisdiction because Hooper is a resident and citizen of Texas while Allstate Texas
Lloyd’s, an association of underwriters, has residence and citizenship in Illinois and New Jersey.
(Id. at 3.) There appears to be no dispute that the amount-in-controversy requirement for
diversity jurisdiction is met. Likewise, it is undisputed that Hernandez and Bobbitt are citizens of
Texas. (Id.) Defendants nevertheless maintain that this Court has jurisdiction, arguing that
Hernandez and Bobbitt were improperly joined. (Id.) The Court’s subject-matter jurisdiction thus
turns on the question of improper joinder.
Generally, “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.” 28 U.S.C. § 1441(a). Removal is therefore possible in “all civil actions where
the matter in controversy exceeds the sum or value of $75,000, exclusive of interests and costs,
and is between citizens of different States.” 28 U.S.C. § 1332(a)(1). Diversity jurisdiction
requires each plaintiff to have citizenship diverse from each defendant. Int’l Energy Ventures
Mgmt., L.L.C. v. United Energy Group, Ltd., 818 F.3d 193, 199 (5th Cir. 2016).
The doctrine of improper joinder stems from the text of 28 U.S.C. § 1441(b)(2): “A civil
action otherwise removable solely on the basis of [diversity jurisdiction] 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 such action is brought.” If the proper joinder of non-diverse defendants defeats diversity
jurisdiction, then their improper joinder does not have that result. Thus, “the purpose of the
improper joinder inquiry is to determine whether or not the in-state defendant was properly
joined.” Smallwood v. Illinois Cent. R.R. Co., 385 F.3d 568, 573 (5th Cir. 2004) (en banc). In this
inquiry, “[t]he burden of proof is on the removing party.” Guillory v. PPG Industries, Inc., 434
F.3d 303, 308 (5th Cir. 2005).
There are two types of improper joinder: “(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.” Travis v. Irby, 326 F.3d 644, 646–47 (5th Cir. 2003). Under the latter type, “the test
for fraudulent joinder is 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.” Smallwood, 385 F.3d at 573. There must be more than a “mere
theoretical possibility of recovery under local law.” Id. at 573 n.9 (quoting Badon v. RJR
Nabisco, Inc., 236 F.3d 282, 286 n.4 (5th Cir. 2000)).
A court can make the improper-joinder determination in one of two ways. It can conduct
a Rule 12(b)(6) analysis, scrutinizing the complaint’s allegations to see whether the complaint
states a claim on which relief can be granted. “Ordinarily, if a plaintiff can survive a Rule
12(b)(6) challenge, there is no improper joinder.” Smallwood, 385 F.3d at 573. Alternatively, the
court can “pierce the pleadings and conduct a summary inquiry.” Id. As between these two
methods, “a court may choose to use either one of these two analyses, but it must use one and
only one of them, not neither or both.” Int’l Energy Ventures, 818 F.3d at 207.
“[D]ecisions about removal must be made on the basis of federal law, not state law.” Int’l
Energy Ventures, 818 F.3d at 202. Consequently, if the court elects to do a 12(b)(6) analysis, it
applies the federal pleading standard, rather than the state pleading standard. Id. Therefore, the
court’s analysis begins with Rule 8(a)(2)’s requirement for pleadings––“a short and plain
statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). “A
pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause
of action will not do. Nor does a complaint suffice if it tenders ‘naked assertion[s]’ devoid of
‘further factual enhancement.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 557 (2007)). The complaint must plead “only
enough facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. “A
claim has facial plausibility when the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556
U.S. at 678.
When doing a Rule 12(b)(6) analysis as part of an improper-joinder inquiry, a district
court must also heed the Fifth Circuit’s instruction that “any doubt about the propriety of
removal must be resolved in favor of remand.” Gasch v. Hartford Acc. & Indem. Co., 491 F.3d
278, 281–82 (5th Cir. 2007). “[T]he existence of even a single valid cause of action against instate defendants (despite the pleading of several unavailing claims) requires remand of the entire
case to state court.” Gray ex rel. Rudd v. Beverly Enterprises-Mississippi, Inc., 390 F.3d 400,
412 (5th Cir. 2004). Important interests are at stake in the decision to remand. “It is imperative
that a motion to remand be resolved as swiftly as possible so that the plaintiff maintains his right
to choose the forum in which to litigate.” Guillory, 434 F.3d at 310.
The Court elects the 12(b)(6) approach, because no evidentiary record yet exists that
could be reached by piercing the pleadings. Cognizant that only one valid cause of action must
exist for remand to be required, the Court begins with Hooper’s claims under the Texas
Insurance Code against Hernandez and Bobbitt. “A person may not engage in this state in a trade
practice that is defined in this chapter as or determined under this chapter to be an unfair method
of competition or an unfair or deceptive act or practice in the business of insurance.” Tex. Ins.
Code § 541.003. Hooper alleges that, among other violations, Hernandez and Bobbitt engaged in
the following unfair practice: “failing to attempt in good faith to effectuate a prompt, fair, and
equitable settlement of a claim with respect to which the insurer’s liability has become
reasonably clear.” Tex. Ins. Code § 541.060(a)(2)(A). (Doc. No. 7 at 12, 16.)
Defendants respond that Hernandez and Bobbitt cannot be found liable under § 541.060.
(Doc. No. 8 at 13.) Defendants cite several federal district court decisions finding that the
section’s prohibitions apply only to insurers and not to adjusters. (Id.) This question of individual
liability under § 541.060 has roiled the federal district courts in Texas. See Memorandum and
Order Granting Remand, Diep v. First Cmty. Ins. Co., No. 4:17-cv-438, at 10–12 (S.D. Tex. May
5, 2017) (Doc. No. 7) (Atlas, J.) (analyzing divergence among the courts); Mehar Holdings, LLC
v. Evanston Ins. Co., 2016 WL 5957681, at *4 (W.D. Tex. Oct. 14, 2016) (Ezra, J.) (same).
The weight of authority favors the courts holding that adjusters may be found
individually liable under § 541.060. The Texas Insurance Code’s prohibition of unfair settlement
practices applies to any “person.” § 541.003. The Code defines “person” as “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.” § 541.002. Adjusters are
expressly included in this definition.
Construing essentially identical statutory text in an earlier version of the Code,1 the Texas
Supreme Court ruled that an insurance agent could be held individually liable for engaging in
unfair insurance practices. Liberty Mut. Ins. Co. v. Garrison Contractors, Inc., 966 S.W.2d 482,
487 (Tex. 1998). The court noted that individuals were included in the definition of “person,” as
long as they were “engaged in the business of insurance.” Id. at 484–85. Scrutinizing the
activities of the insurance agent at issue, the court found that he was so engaged and was thus
potentially liable under the Insurance Code. Id. at 487.
The Fifth Circuit then applied the Texas Supreme Court’s ruling to insurance adjusters.
Gasch, 491 F.3d at 280. The Fifth Circuit found that “Texas law clearly authorizes Art. 21.21
actions against insurance adjusters in their individual capacities.” Id. (citing the since-repealed
provision recreated in Chapter 541).
On the basis of these decisions, federal courts have repeatedly remanded cases involving
Texas Insurance Code claims against adjusters similar to those of the present case. See Diep, No.
Tex. Ins. Code Art 21.21 §§2, 3, 4, repealed in 2005 and re-codified in substantially similar
form in Chapter 541.
4:17-cv-438, at 10–13; Mehar Holdings, 2016 WL 5957681, at *4. Those decisions reaching the
opposite conclusion on adjuster liability are less well supported. Each appears to rely on
Messersmith v. Nationwide Mut. Fire Ins. Co., 10 F. Supp. 3d 721, 724 (N.D. Tex. 2014) (Solis,
J.).2 There, the court held that individual adjusters could not be held liable for violations of §
541.060(a)(2)(A). Id. The court reasoned that adjusters lack settlement authority on behalf of the
insurers that employ them. Id. While this interpretation of the statute is not implausible, it is not
the only one possible. Because Messersmith lacked a citation to any Texas or federal authority,
binding or otherwise, it does not conclusively resolve the question.
The Court concedes the reasonableness of its colleagues’ alternative view. It simply finds
that the matter is not fully resolved. When a decisive question of state law is in dispute, it “must
be resolved in favor of remand because ‘[a]ny ambiguities are construed against removal and in
favor of remand to state court.” Mehar Holdings, 2016 WL 5957681, at *4 (quoting Hood ex rel.
Mississippi v. JO Morgan Chase Co., 737 F.3d 78, 84 (5th Cir. 2013)).
The determinative question is thus whether Hooper has supported her Insurance Code
claims with sufficient factual allegations. Hooper alleges that Hernandez and Bobbitt evaluated
her home on two occasions; that they misrepresented the amount of damage and the costs of
repair; that they fabricated alternative explanations for visible damage to her home to place the
damage outside of her policy’s scope; that they did so intentionally; and that their evaluation
deviated markedly from the conclusions of a third-party adjuster. (Doc. No. 1-2 at 3–5.)
See, e.g., Lopez v. United Prop. & Cas. Ins. Co., 197 F. Supp. 3d 944, 950 (S.D. Tex. 2016)
(Hanks, J.); Meritt Buffalo Events Ctr., LLC v. Cent. Mut. Ins. Co., 2016 WL 931217, at *4 (N.D.
Tex. Mar. 11, 2016) (Fitzwater, J.); Montoya v. State Farm Mut. Auto. Ins. Co., 2016 WL
5942327, at *4 (W.D. Tex. Oct. 12, 2016) (Lamberth, J.); Mainali Corp. v. Covington Specialty
Ins. Co., 2015 WL 5098047, at *4 (N.D. Tex. Aug. 31, 2015) (Fitzwater, J.) (applying the
holding of Messersmith to § 541.060(a)(3)).
The Court holds that these allegations have adequate detail to reach the threshold of facial
plausibility and thus to state a claim on which relief can be granted under Texas Insurance Code
§ 541.060(a)(2)(A) against Hernandez and Bobbitt. Because “the existence of even a single valid
cause of action against in-state defendants (despite the pleading of several unavailing claims)
requires remand of the entire case to state court,” Gray, 390 F.3d at 412, the Court does not need
to reach Hooper’s numerous other claims against Hernandez and Bobbitt.
Concerning Hooper’s request for attorney’s fees, the Court finds that the confused state
of the law on § 541.060 gave Allstate “objectively reasonable grounds” to seek removal on the
basis of improper joinder. See Hornbuckle v. State Farm Lloyds, 385 F.3d 538, 541 (5th Cir.
2004). As such, Hooper is not entitled to attorney’s fees for the litigation of this issue.
The existence of a valid claim against Defendants Hernandez and Bobbitt means that they
are properly joined in this action. Because they are citizens of Texas, like Plaintiff Hooper, the
Court lacks diversity jurisdiction. Remand of the case to the Texas district court is required.
Accordingly, Hooper’s Motion to Abstain and Remand is GRANTED. Hooper’s request
for attorney’s fees is DENIED. This case is REMANDED to the 151st Judicial District Court in
Harris County, Texas.
IT IS SO ORDERED.
SIGNED at Houston, Texas, on this the 6th day of October, 2017.
KEITH P. ELLISON
UNITED STATES DISTRICT JUDGE
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