Garza, Jr. et al v. Geovera Specialty Insurance Company et al

Filing 12

ORDER re: 8 Motion to Remand.(Signed by Judge Micaela Alvarez) Parties notified.(bgarces, 7)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
MCALLEN DIVISION
ROGELIO GARZA, JR., et al,
Plaintiffs,
VS.
GEOVERA SPECIALTY INSURANCE
COMPANY, et al,
Defendants.

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§ CIVIL ACTION NO. 7:13-CV-525
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ORDER
Pending before the Court is the motion to remand filed by Plaintiffs Rogelio Garza, Jr.
and Veronica Garza (collectively, “Plaintiffs”).1 Defendants have filed a response in opposition,
to which Plaintiffs have filed a reply.2 After considering the motion, response, reply, record and
relevant authorities, the Court GRANTS the motion to remand.
I. BACKGROUND
On July 16, 2013, Plaintiffs filed suit in state court asserting various insurance-related
causes of action arising from either of two hailstorms occurring on March 29, 2012 or April 12,
2012.3 Defendants removed the action to this Court on September 27, 2013, asserting subject
matter jurisdiction under 28 U.S.C. § 1332, with the complete diversity due to the improper
joinder of Defendants Team One Adjusting Service, LLC (“Team One”) and Kenneth Allen
DeMaster (“DeMaster”).4

1

Dkt. No. 8.
Dkt. Nos. 9 (“Response”) & 10 (“Reply”).
3
See Dkt. No. 1, Attach. 4 (“Petition”) at p. 4.
4
See Dkt. No. 1 (“Notice of Removal”) at ¶ 16.
2

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On October 28, 2013, Plaintiffs filed the instant motion to remand but the Court had
previously issued an order on October 23, 2013, abating the action until December 11, 2013
pursuant to requirements of the Texas Insurance Code.5 The Court now considers the motion to
remand in conjunction with the responsive filings.
II. DISCUSSION
A. Legal Standard
The Court does not have subject matter jurisdiction under 28 U.S.C. § 1332 unless the
parties are completely diverse and the amount in controversy exceeds $75,000.6 In light of the
conjunctive requirements of the statute, failure to satisfy the diversity requirement is fatal to
subject matter jurisdiction and, therefore, to a successful removal by Defendants.
The Court notes that “doubts regarding whether removal jurisdiction is proper should be
resolved against federal jurisdiction.”7 At the same time, the Fifth Circuit has described the
doctrine of improper joinder as “a narrow exception to the rule of complete diversity, and the
burden of persuasion on a party claiming improper joinder is a heavy one.”8 “[T]he Court must
resolve all ambiguities of state law in favor of the non-removing party.”9
When the Court is considering whether a party was improperly joined, “[t]he 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.”10
The Court “determin[es] removal jurisdiction on the basis of claims in the state court complaint
as it exists at the time of removal.”11 The Court notes that a 12(b)(6)-type analysis is
5

See Dkt. No. 7.
28 U.S.C. § 1332(a).
7
Acuna v. Brown & Root Inc., 200 F.3d 335, 339 (5th Cir. 2000) (citation omitted).
8
Campbell v. Stone Ins., Inc., 509 F.3d 665, 669 (5th Cir. 2007) (internal quotation marks and citations omitted).
9
Id. (internal quotation marks and citation omitted).
10
Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568, 573 (5th Cir. 2004) (en banc) (citations omitted).
11
Cavallini v. State Farm Mut. Auto Ins. Co., 44 F.3d 256, 264 (5th Cir. 1995).
6

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distinguishable from a pure-12(b)(6) analysis; in the improper joinder context, the Court
evaluates the petition under the state-court pleading standards.12 The Supreme Court of Texas
has stated:
In determining whether a cause of action was pled, plaintiff’s pleadings must be
adequate for the court to be able, from an examination of the plaintiff's pleadings
alone, to ascertain with reasonable certainty and without resorting to information
aliunde the elements of plaintiff’s cause of action and the relief sought with
sufficient information upon which to base a judgment.13
In other words, the pleading must state a cause of action and give fair notice of the relief
sought.14
B. Analysis
As an initial matter, the Court defines the scope of its consideration. Defendants Team
One and DeMaster, as the only non-diverse defendants, are the only defendants whose joinder
affects the Court’s subject matter jurisdiction. Secondly, the Court emphasizes that a
determination that either Team One or DeMaster are properly joined serves to defeat the Court’s
subject matter jurisdiction and requires granting the motion to remand. As a result, the Court will
first consider the propriety of DeMaster’s joinder, before considering that of Team One, if
necessary. Finally, although the response asserts arguments which address the joinder of other
defendant-adjusters, such as Defendant Perfetti, the analysis will only address DeMaster’s
joinder, even if the same arguments are applicable against Defendant Perfetti.
For ease of analytical progression, the Court first addresses Defendants’ contention that
“claims against an independent adjusting firm or an independent adjuster, where there is not

12

For Judge Rosenthal’s thorough explanation of why the Court uses the state court pleading standards in the
improper joinder context, see Edwea, Inc. v. Allstate Ins. Co., No. H-10-2970, 2010 WL 5099607 (S.D. Tex. Dec.
8, 2010).
13
Stoner v. Thompson, 578 S.W.2d 679, 683 (Tex. 1979) (citation omitted).
14
Id. See also TEX. R. CIV. P. 45 & 47.

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privity with the insured, cannot be sustained.”15 As both parties acknowledge, the Texas
Supreme Court most directly spoke to this issue in Liberty Mut. Ins. Co. v. Garrison Contractors,
Inc.,16 where the Court specifically considered whether an insurer’s agent-employee fell within
the code’s definition of a “person” subject to code-violation liability.17 The Garrison Court first
looked to statutory language, which then defined “person” with language highly similar to the
following definition as currently codified in Chapter 541:

“Person” means 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.18
The Garrison Court held that the agent-employee fell within the bi-partite definition of “person”
by meeting both the classification criterion as an “individual,” and the activity criterion as
“engaged in the business of insurance.” The reasoning bears on this analysis in two ways. First,
the Garrison Court distinguished between individual employees of an insurer by reference to the
activity criterion, i.e. whether the individual was “engaged in the business of insurance,”
contrasting the agent-employee with an insurer’s janitor or clerical worker.19 Second, the
Garrison Court roundly rejected the petitioners’ argument for an extra-statutory distinction
between employees and non-employees, noting that such a view would betray the legislative
intent to comprehensively regulate insurance, creating “anomalous results” such that independent
agents would be subject to liability but employee-agents would not.20

15

See Response at ¶ 4.6.
966 S.W.2d 482 (1998).
17
The Court here notes that the Garrison Court considered violations under Article 21.21, the previous iteration of
the code violations asserted by Plaintiffs.
18
Compare TEX. INS. CODE § 541.002(2) (emphasis added) with Garrison, 966 S.W.2d at 485 (quoting TEX. INS.
CODE, art. 21.21, § 2(a) (“‘Person’ means any individual, corporation, association, partnership, reciprocal
exchange, inter-insurer, Lloyds insurer, fraternal benefit society, and any other legal entity engaged in the business
of insurance, including agents, brokers, adjusters and life insurance counselors.”).
19
See Garrison, 966 S.W.2d at 486.
20
See id. at 485-86.
16

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Defendants now argue for the same, rejected distinction, albeit with reverse application,
by asserting that DeMaster’s independent, non-employee status prevents his individual liability
for misrepresentation under the Texas Insurance Code.21 The Court rejects this argument.
Defendants first attempt to support the argument by citing Natividad v. Alexsis, Inc.,22 a
case in which the Texas Supreme Court reiterated the need for a “special relationship,” created
by contractual privity, in order to sustain the claim at issue against the adjusting-company
defendant. However, the Natividad Court was considering a claim for breach of the common law
duty of good faith and fair dealing, a claim which Defendants acknowledge by footnote is not
asserted against Team One and DeMaster, but nevertheless rely on Natividad as “relevant to
illustrate the special relationship between the insured and the insurer.”23 Although arguably
relevant to other claims asserted against the non-diverse defendants, the Natividad special
relationship is irrelevant to the claim for violations of the Texas Insurance Code. For this reason,
the Fifth Circuit in Gasch v. Hartford Acc. & Indem. Co. emphasized this limitation of
Natividad’s holding, writing that even if the plaintiffs’ claim for breach of the common law duty
of good faith and fair dealing were to fail under Natividad, “that case’s holding still does not bar
their [insurance code] claim against [the adjuster] and Garrison explicitly authorizes it.”24
Defendants’ argument that Gasch stands for the proposition that only the employee of an insurer

21

Although the Court acknowledges the two federal district court opinions cited in support of limiting Garrison’s
application only to defendants allegedly involved in the specific activity performed by the employee-agent in
Garrison, the opinions: (1) are merely persuasive authority and not binding on this Court; (2) are inapposite since
both describe a lack of allegational specificity which does not describe the instant petition; and (3) are
unpersuasive in light of Garrison’s defining “engaged in the business of insurance” by those specific activities or
by the necessity of insurance expertise to perform the job, [See Garrison, 966 S.W.2d at 486] expertise which the
Court finds is required for adjusters.
22
875 S.W.2d 695 (Tex. 1994).
23
See Response at p. 5, n.2. See also Petition at ¶¶ 69 & 70 (asserting claim for breach of the duty of good faith and
fair dealing against GeoVera alone).
24
Gasch, 491 F.3d 278 (5th Cir. 2007).

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can be held liable under the insurance code is, even in the most gracious light, a gross
misinterpretation of the Gasch opinion.25
The propriety of determining insurance-code liability based on Garrison’s bi-partite
statutory application, rather than Natividad’s special relationship rubric, is even reinforced by
Dagley v. Haag Engineering Co.,26 a case which Defendants curiously cite in support of
Natividad’s applicability.27 In Dagley, a Texas court of appeals upheld summary judgment on
insurance violations in favor of the engineering-company defendant since, “[a]s an independent
firm hired to provide engineering services,” the company was not “engaged in the business of
insurance” within the meaning of the insurance code because it did not “make any
representations regarding the coverage of the policies” or “adjust any claims.”28
In contrast, the petition in this case directs several allegations against DeMaster, and
specifically includes allegations that he engaged in the type of representation and adjusting
actions which the Dagley Court found distinguishable:
The Court has jurisdiction over Defendant DeMaster because this defendant
engages in the business of adjusting insurance claims in the State of Texas, and
Plaintiffs’ causes of action arise out of this defendant’s business activities in the
State of Texas.29
Defendant GeoVera assigned Defendant Team One to adjust the claim. Defendant
Team One and/or Defendant GeoVera then assigned Defendants DeMaster and
Perfetti as the individual adjusters on the claim. The adjusters assigned to
Plaintiffs’ claim were improperly trained and failed to perform a thorough
investigation of Plaintiffs’ claim. DeMaster conducted a substandard inspection of
Plaintiffs’ Property. For example, DeMaster spent a mere forty-five (45) minutes
inspecting Plaintiffs’ entire Property for hail storm and/or windstorm damages.
Furthermore, DeMaster told Plaintiffs that, because he believed their damages
were low, they would not have insurance coverage if they continued with their
25

Response at ¶ 4.10 (“However, a proper reading of Gasch shows that an adjuster who is not an employee of the
insurance company but only an employee of an entity hired by the insurance company to investigate or inspect a
claim cannot be liable to an insured under the insurance code.”) (emphasis in original).
26
18 S.W.3d 787 (Tex. App.—Houston [14th Dist.] 2000, no pet.).
27
See Response at ¶ 4.8.
28
Dagley, 18 S.W.3d at 793.
29
Petition at ¶ 11.

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claim. DeMaster was neither qualified nor authorized to make coverage
determinations. The inadequacy of DeMaster’s inspection is further evidenced by
his report, which failed to include all of Plaintiffs’ hail storm and/or windstorm
damages noted upon inspection. Moreover, the damages that DeMaster actually
included in his report were grossly undervalued. DeMaster also improperly
withheld material sales tax and a contractors’ overhead and profit from his
estimate, in total contravention of applicable Texas Department of Insurance
directives. Ultimately, DeMaster’s estimate did not allow adequate funds to cover
the cost of repairs to all the damages sustained. DeMaster’s inadequate
investigation was relied upon by GeoVera in this action and resulted in Plaintiffs’
claim being undervalued and underpaid.30
Together, Defendants GeoVera, Team One, DeMaster, and Perfetti set about to
deny and/or underpay on properly covered damages. As a result of these
Defendants’ unreasonable investigation of the claim, including not providing full
coverage for the damages sustained by Plaintiffs, as well as under-scoping the
damages during their investigation and thus denying adequate and sufficient
payment to Plaintiffs to repair their home, Plaintiffs’ claim was improperly
adjusted. The mishandling of Plaintiffs’ claim has also caused a delay in their
ability to fully repair their home, which was resulted in additional damages. To
this date, Plaintiffs have yet to receive the full payment to which they are entitled
under the Policy.31
In light of the above allegations, the petition appears to sufficiently allege that DeMaster violated
§ 541.060 of the Texas Insurance Code, which states in relevant part:
(a) It is an unfair method of competition or an unfair or deceptive act or practice
in the business of insurance to engage in the following unfair settlement practices
with respect to a claim by an insured or beneficiary: . . . (1) misrepresenting to a
claimant a material fact or policy provision relating to coverage at issue; . . . (7)
refusing to pay a claim without conducting a reasonable investigation with respect
to the claim; . . . .32
The Court now addresses Defendants’ arguments that the petition fails to adequately allege a
cause of action against DeMaster. Acknowledging the application of the state-court pleading
standards discussed above,33 the first argument put forth by Defendants is that “Plaintiffs have

30

Petition at ¶ 19.
Id. at ¶ 21.
32
TEX. INS. CODE ANN. § 541.060 (West Supp. 2011).
33
See Response at ¶ 4.23.
31

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failed to give Defendants fair and adequate notice of the facts upon which Plaintiffs’ claims
against Team One and DeMaster are based.”34
However, the allegations set forth above belie Defendants’ position. The portions of the
petition set out above clearly allege DeMaster’s role as an adjuster engaged in the business of
insurance, such that he is a “person” subject to the insurance code.35 Moreover, by alleging that
DeMaster did not conduct a reasonable investigation and engaged in misleading or deceptive
behavior, the petition sufficiently alleges that DeMaster violated portions of Section 541.060 of
the insurance code.36 As a result of those considerations, the Court finds that the petition both
states a cause of action against DeMaster and gives DeMaster fair notice of the relief sought.
These findings form the basis of this ultimate conclusion: the allegations in the petition are
sufficient to state a claim against DeMaster under state-court pleading standards.
Finally, relying primarily on Provident American Ins. Co. v. Castaneda,37 Defendants
assert that the allegations do not indicate the type of damages which are recoverable against
DeMaster based on an extra-contractual claim.38 However, Castaneda affects the instant analysis
only insofar as it requires that claims under the Texas Insurance Code establish a defendant’s
conduct was the cause in fact of the plaintiff’s actual damages.39 In Hornbuckle v. State Farm
Lloyds, the Fifth Circuit indicated that this requirement, as applied to adjusters at this early stage
in the proceeding, is satisfied by allegations that the adjuster was directly responsible for
committing a violation of the insurance code and that the Castaneda causation-requirement is

34

Id. at ¶ 4.23.
See TEX. INS. CODE ANN. § 541.002 (West Supp. 2011); Gasch v. Hartford Accident & Indem. Co., 491 F.3d 278,
280 & n.2, 282 (5th Cir. 2007) (citing Liberty Mut. Ins. Co. v. Garrison Contractors, Inc., 966 S.W.2d 482, 484
(Tex. 1998)).
36
See TEX. INS. CODE ANN. § 541.060 (West Supp. 2011).
37
988 S.W.2d 189 (Tex. 1998).
38
See Response at ¶ 4.16.
39
Castaneda, 988 S.W.2d at 192.
35

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met by those allegations.40 Here, the allegations clearly allege DeMaster’s individual violations,
and further that the conduct resulted in Plaintiffs’ damages; though the cases cited by Defendants
require ultimate evidentiary support for those allegations, those allegations are taken as true at
this stage of the proceedings.
C. Conclusion
In light of the above, the Court finds that DeMaster is properly joined. Since this finding
vitiates the jurisdictionally-requisite diversity, the Court will not consider further arguments
regarding Team One, the other non-diverse defendant.
III. CONCLUSION
Based on the foregoing considerations, the Court finds that Defendants have not met their
burden that a non-diverse defendant is improperly joined. Accordingly, the Court finds that it
lacks jurisdiction because the parties are not completely diverse and GRANTS Plaintiffs’ motion
to remand and REMANDS this case to the 332nd Judicial District of Hidalgo County, Texas.
IT IS SO ORDERED.
DONE this 8th day of January, 2014, in McAllen, Texas.

_______________________________
Micaela Alvarez
UNITED STATES DISTRICT JUDGE

40

Hornbuckle v. State Farm Lloyds, 385 F.3d 538, 545 (5th Cir. 2004).

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