Shade Tree Apartments, LLC v. Great Lakes Reinsurance (UK) PLC et al

Filing 11

ORDER GRANTING Plaintiff's 8 Motion to Remand to State Court. IT IS ORDERED that this case is REMANDED to the 335th Judicial District Court of Lee County, Texas. Signed by Judge Sam Sparks. (klw)

rj
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION

2015
Fl

DEC

II

FM 3:25

F. ..........

SHADE TREE APARTMENTS, LLC,

Plaintiff,
Case No. A-15-CA-843-SS

-vs-

GREAT LAKES REINSURANCE (UK) PLC,
PHILIP A. KNOX, SENECA INSURANCE
COMPANY, INC., ALAN RUSCHER,
Defendants.

BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause, and

specifically Defendant Seneca Insurance Company, Inc.'s Notice of Removal [#1]; Plaintiff Shade
Tree Apartments, LLC's Opposed Motionto Remand [#8]; and Defendant Seneca's Response [#10]

thereto. Having reviewed the documents, the relevant law, and the file as a whole, the Court now

enters the following opinion and orders GRANTING Shade Tree's motion.

Background
This is an insurance coverage dispute arising out of damage caused by two separate wind and

hailstorms. Plaintiff Shade Tree Apartments, LLC is the owner of real property located at 495 South

Polk Street, Giddings, Texas 78924/348 E. Industry Street, Giddings, Texas 78924 (the Property).
Once on May 25, 2011, and again on April 27, 2014, storms caused severe damage to the Property.

Shade Tree submitted a claim for roof and water damage caused by the May 25, 2011 storm to Great

Lakes Reinsurance (UK) PLC, pursuant to a policy effective February 8, 2011, to February 8, 2012,
and separately filed a claim for roof and water damage caused by the April 27, 2014 storm to

V

Defendant Seneca Insurance Company, Inc. pursuant to a later-issued policy effective February 8,
2014, to February 8, 2015.

After receiving notice of loss, Great Lakes sent its claim adjuster, Philip A. Knox, and Seneca

sent its claim adjuster, Alan Ruscher,' to investigate the respective claims. Shade Tree alleges Knox
and Ruscher, acting independently of each other, performed substandard, outcome-oriented

investigations and misrepresented the amount of covered damages under their respective policies.
See

Notice Removal [#1-3] Ex. 2 (Orig. Pet.) ¶J H, S. Shade Tree specifically alleges Knox failed

to provide updates regarding the status of the claim, purposefully delayed re-inspection of the

property, and failed to provide a supplemental estimate of repair costs he had orally agreed were

covered under the policy. Id. ¶ I. Shade Tree alleges Ruscher relied on an unreliable third-party

investigation to determine the damage found by the engineer was caused by a storm outside the
policy period. Id. ¶ U. As a result of the adjusters' misconduct, Shade Tree alleges Great Lakes and

Seneca undervalued and wrongfully denied Shade Tree's claims, leaving Shade Tree unable to
properly and completely repair damages caused by the storm, causing additional damage to the
Property.

See

id.

¶J J, X.

On August 13, 2015, Shade Tree, a Texas resident, filed suit against Great Lakes, Seneca,

Knox and Ruscher in the 335th Judicial District Court of Lee County, Texas.

See id

at

1.

Shade

Tree alleges Knox and Ruscher are Texas citizens and Great Lakes and Seneca are not. Id. at 1-2.

Shade Tree asserts breach of contract claims against Great Lakes and Seneca; claims for negligence,

According to Shade Tree, Alan Ruscher was not a licensed adjuster in Texas, See Notice Removal [#1-3] Ex.
2 (Orig. Pet.) ¶ T. Defendants disabused the Court of this allegation in their response to Shade Tree's motion to remand,
see Resp. [#10] at 5 n.2, and thus the Court will not consider it for purposes of the instant motion.
1

-2-

gross negligence and negligent misrepresentation against Knox and Ruscher; and Texas Insurance

Code violations as well as claims for breach of duty of good faith and fair dealing, fraud, conspiracy,
and aiding and abetting against all four Defendants. Shade Tree also asserts violations of the Texas

Deceptive Trade Practices Act specifically against Great Lakes and Knox. Id. at 11-22.

On September 18, 2015, Seneca removed the case to this Court, arguing Ruscher and Knox,
the two non-diverse defendants, were improperly joined and this Court could therefore exercise

diversity jurisdiction over Shade Tree's claims. Notice Removal [#1] at 2-4. On November 4,2015,
Shade Tree filed the instant Motion to Remand on the grounds there is not complete diversity. Mot.

Remand [#8]. The motion is ripe for consideration.

Analysis
I.

Legal Standard
"[T]he burden of establishing federal jurisdiction is placed upon the party seeking removal."

Willy

v.

Coastal Corp., 855 F.2d 1160, 1164 (5th Cir. 1988). Moreover, because removal

jurisdiction raises significant federalism concerns, courts must strictly construe removal jurisdiction.
Id. District courts have original jurisdiction over civil actions between "citizens

where the amount in controversy exceeds $75,000. 28 U.S.C.

§ 13 32(a).

of different States,"

The Supreme Court has

interpreted this statute to require "complete diversity"that is, the citizenship of every plaintiffmust
be different from that of every defendant. Caterpillar Inc.

v.

Lewis, 519 U.S. 61,68 (1996). Further,

the removal statute states diversity actions are removable "only if none of the parties in interest
properly joined and served as defendants is a citizen of the State in which such action is brought."
28 U.S.C.

§

1441(b).

-3-

"The fraudulent joinder doctrine ensures that the presence of an improperly joined,

non-diverse defendant does not defeat federal removal jurisdiction premised on diversity."2 Borden
v.

Allstate Ins. Co., 589 F.3d 168, 171(5th Cir. 2009). "One way in which a diverse defendant may

establish improper joinder is by showing the inability of the plaintiff to establish a cause of action
against the non-diverse party in state court." Id. (quotation omitted). The test for improper joinder

relevant to this case 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." Smallwoodv. Ill. Cent. R.R. Co., 385 F.3d 568, 573 (5th Cir. 2004).

"A 'mere theoretical possibility of recovery under local law' will not preclude a finding of
improper joinder." Id. at 573 n.9 (quoting Badon v. RJR Nabisco, Inc., 236 F.3d 282, 286 n.4 (5th
Cir. 2000)). Courts assess whether a plaintiff has a reasonable basis for recovery by conducting "a

Rule I 2(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." Id. at 573. Generally,

if the plaintiff can survive a Rule I 2(b)(6) challenge, there is no improper joinder.

Id. However, if

the plaintiff "has stated a claim, but has misstated or omitted discrete facts that would determine the

propriety ofjoinder,]

. . .

the district court may, in its discretion, pierce the pleadings and conduct

a summary inquiry." Id. In all cases, "the focus ofthe inquiry must be on the joinder, not the merits

of the plaintiffs case," and the "party seeking removal bears a heavy burden of proving that the
joinder of the in-state party was improper." Id. at 573, 574.

2

Similarly, § 1441(b) prevents removal only if one of the "properly joined" defendants is a citizen of the state
in which the action is brought. Thus, an improper joinder makes § 144 1(b) inapplicable.

II.

Application
Shade Tree moves to remand this case back to state court for the following reason: there is

not complete diversity between the parties because Defendants Knox and Ruscher, the insurance
adjusters, are citizens of Texas. Specifically, Shade Tree argues its original petition alleges at least
one viable cause of action against the non-diverse defendants and, as such, Defendants have failed

to meet their heavy burden of establishing Knox and Ruscher were improperly joined. Defendants,

of course, disagree. Defendants argue Knox and Ruscher were improperly joined because there is
"no possibility of recovery" against them as Shade Tree failed to allege any specific actionable
conduct by either adjuster and Texas law does not provide for recovery against adjusters in these
circumstances.
The sole question before the Court is whether Defendants have shown Shade Tree has no

possibility of succeeding on any claim against Knox and Ruscher. See Smaliwood, 385 F.3d at 573.
To answer this question, the Court must apply the Texas "fair notice" pleading standard in

examining Shade Tree's original petition. See Int'l Energy Ventures Mgmt., L. L. C.

v.

United Energy

Grp., Ltd., 800 F.3d 143, 149 (5th Cir. 2015) (holding state court petitions should be analyzed under

the Texas fair notice pleading standard for purposes ofimproperjoinder analysis); see also Sai Hotel
Grp. Ltd.

v.

Steadfast Ins. Co., No. W-1 5-CV-263, 2015 WL 6511434, at *34 (W.D. Tex. Oct. 27,

2015). Under the Texas "fair notice" pleading standard, the petition must contain "a short statement

of the cause of action sufficient to give fair notice of the claim involved."

TEX. R. Civ.

P.

47. The

rule has been interpreted such that "the pleading need only allow 'an opposing attorney of reasonable

competence

. . .

[to] ascertain the nature and basic issues

relevant." Int'l Energy, 800 F.3d at 149 (quoting Hayden

of controversy and testimony probably
v.

Allstate Tex. Lloyds, No. H-10-646,

2011 WL 340388, at *7 (S.D. Tex. Jan 20, 2011)). Even conclusory or "bare bones" pleadings must

be upheld as long so the opposing party can reasonably infer a cause of action from what is

specifically stated in the petition. See Edwea, Inc.

v.

Allstate Ins. Co., No. H- 10-2970, 2010 WL

5099607, at *3 (S.D. Tex. Dec. 8, 2010) (citing Boyles

v.

Kerr, 855 S.W.2d 593, 601 (Tex. 1993)).

Shade Tree asserts claims against Knox and Ruscher for violations of the Texas Insurance

Code as well as for breach of good faith and fair dealing, fraud, conspiracy, aiding and abetting,

negligence, gross negligence, and negligent misrepresentation. Shade Tree also brings a claim for
violations of the DTPA against Knox. Despite the inclusion of numerous claims against Knox and

Ruscher, Shade Tree devotes substantially all of its remand motion to establishing a cause of action

against the adjusters for violations of the Texas Insurance Code. Shade Tree relegates any defense
as to the basis of its remaining claims to a single footnote on the final page of its memorandum. See

Mot. Remand [#8J at 10 n. 1 ("Plaintiff also alleges additional allegations against Knox and Ruscher,

including, but not limited to, negligence and negligent misrepresentation.

These claims are

actionable against Knox and Ruscher. Great Lakes and Knox have no basis to argue otherwise.")
Because the Court finds there is a possibility of recovery as to Knox and Ruscher for violations of
the Texas Insurance Code, it need not address the remaining claims.

An insurance adjuster may be held liable for deceptive or misleading acts in violation of the
Texas Insurance Code. See Gasch
2007).

v.

HartfordAccident & Indem. Co., 491 F.3d 278, 282 (5th Cir.

Liability attaches both to adjusters employed directly by an insurance company and

independent contractors. Liberty Mut. Ins. Co.

v.

Garrison Contractors, Inc., 966 S.W.2d 483, 485

(Tex. 1998). The issue is thus whether Shade Tree has alleged sufficient facts to support a

reasonable basis to predict recovery against either Knox or Ruscher under this theory of liability.

Shade Tree specifically alleges the non-diverse defendants engaged in false, misleading, and
deceptive acts and unfair settlement practices in violation of Chapter 541 of the Texas Insurance

Code by: (1) "misrepresenting to Plaintiff pertinent facts or policy provisions relating to the coverage
at issue," TEX.

INS.

CODE. § 541.060(a)(1); (2)

"failing to attempt in good faith to effectuate a

prompt, fair, and equitable settlement of claims submitted in which liability has become reasonably
clear," id.

§

541 .060(a)(2); (3) "failing to provide Plaintiff with a reasonable explanation of the basis

in the insurance policy in relation to the facts or applicable law for the denial of a claim or for the

offer of a company's settlement," id.
a reasonable amount of time," id.

§

§

541 .060(a)(3); (4) "failing to affirm or deny coverage within

541 .060(a)(4); and (5) "refusing to pay Plaintiffs claim without

conducting a reasonable investigation with respect to the claim,

Id.

§

541.060(a)(7).

See

Orig. Pet.

D. Shade tree also alleges Knox and Ruscher "violated Section 542 by failing to accept or reject

[it's] claim in writing within the statutory timeframe.

. .

[and] by failing to pay [it's] claim within

the statutory period." Orig. Pet. ¶ B.
Evaluating Shade Tree's original petition in light of the lenient Texas fair notice pleading
standard, the Court concludes Seneca has not met its heavy burden of demonstrating there is no

reasonable basis for recovery against either Knox or Ruscher. As to both Knox and Ruscher, Shade
Tree alleged the following identical allegations, substituting the relevant party names and details for

each defendant:

Defendant Knox was the agent for Great Lakes and represented Great Lakes in regard
to Plaintiff's claim. Knox also adjusted the Plaintiffs claim by investigating,
processing, evaluating, approving, and/or denying, in whole or in part, Plaintiffs

claim....

Defendant Knox improperly adjusted the Plaintiffs claim. Defendant Knox
conducted a substandard inspection, which is evidenced in his report, which failed
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to include many of Plaintiff's damages. His estimate did not allow adequate funds
to cover repairs to restore Plaintiff's home. Without limitation, Knox misrepresented
the cause of, scope of, and cost to repair the damage to Plaintiff's Property, as well
as the amount of and insurance coverage for Plaintiff's claim/loss under Plaintiff's
insurance policy. Knox made these and other misrepresentations to Plaintiff as well
as to Great Lakes.
Plaintiff and Great Lakes both relied on Knox's
misrepresentations, including but not limited [sic] those regarding the cause of, scope
of', and cost to repair the damage to Plaintiff's Property, and Plaintiff has been
damaged as a result of such reliance. Knox's misrepresentations caused Great Lakes
to underpay Plaintiff on his insurance claim and, as such, Plaintiff has not been able
to properly and completely repair the damages to Plaintiff's property. This has
caused additional, further damage to Plaintiff's property. Knox also advised Plaintiff
as to how the Property could be repaired so as to prevent further damage to Plaintiff's
Property. This advice was negligent and false because it turns out Plaintiff could not
properly repair the Property and prevent future damage by following Knox's advice.
Plaintiff's Property has sustained further damages as a result.

Defendants Great Lakes and Knox misrepresented that the damages caused by the
wind and hailstorm were only $182,362.03.
However, Defendants'
misrepresentations were false because Plaintiff's wind and hailstorm damages far
exceed this amount and were caused by a covered occurrence.
Defendants Great Lakes and Knox failed to properly adjust the claims and
Defendants have denied at least a portion of the claims without an adequate
investigation, even though the Policy provided coverage for losses such as those
suffered by Plaintiff.
See Orig. Pet. [#1-3] ¶J G, H, J, K.

As Defendants insist, these conclusory allegations, standing alone, are a formulaic recitation

of the elements of a claim for violating the Texas Insurance Code and would not give rise to liability
for failure to enhance their generic pleadings with any actionable facts. See, e.g., Plascencia v. State

Farm Lloyds et. al., No. 4:14-cv-524-A (N.D. Tex. Sept. 25, 2014). Indeed, these same boilerplate
allegations have been made by the law firm currently representing Shade Tree in myriad other state

court suits, which "provides a strong suggestion that in each of those cases the filing law firm set
upon a course of trying to prevent removal to federal court. Id. at 16. However, the original petition

in this case includes more specific allegations ofwrongful conduct by Knox and Ruscher beyond the

boilerplate pleadings presented in Placensia. The Court refuses to impute improper motives on the
law firm representing Shade Tree merely because it has been found to have improperly joined

adjusters in the

past.3

With regard to Knox, Shade Tree alleges the following specific conduct:
Mr. Knox acknowledged additional items were that were not included in his estimate.
This included, without limitation, some decking for the roofs, work on the meter
masts, and overhead and profit. Based on the representations of Mr. Knox, the
insured believed that a supplemental estimate was to be provided for approval within
a week. As of the date of this suit, no supplemental estimate has been provided for
review or approval by the insured.
Orig. Pet. [#1-3] ¶ H. With regard to Ruscher, Shade Tree alleges:

Defendants Seneca and Ruscher. . . misrepresented that the damages caused by the
hail and windstorm were not covered under the Policy. Defendants relied on an
unreliable investigation by Nelson Forensics to determine that the damages found by
the engineer were in fact caused by a storm outside the policy period. Based on the
engineer's report, he performed a hail search over a 10-year period at that location.
According to his findings, there were only 3 dates that produced hail in close
proximity to the property. From this hail data, he asserted that the damage occurred
on the only date outside the policy period. His complete and intentional disregard for
the significant hail that fell the same distance from the property during the policy
period not only shows the outcome-oriented investigation but establishes the
unreliability of his report as well as his lack of expertise.
Id.

¶J T, U. These additional factual allegations are sufficient to provide Knox and Ruscher with

fair notice of the claims against them for violations of § 541 of the Texas Insurance Code. Shade

Tree has specifically outlined the way in which Knox and Ruscher failed to properly adjust its
claims: in Knox's case, by allegedly misrepresenting that payment for some decking on the roof,
Defendants argue Ruscher was not a citizen of Texas at the time Shade Tree filed suit and therefore his
presence does not defeat diversity, and alternatively, Shade Tree's failure to properly serve Ruscher is evidence the
adjusters' joinder is merely a ploy to stay out of federal court. See Resp. [#10] at 5. Even if true, this argument does
not change the outcome here because Knox, a citizen of Texas who has been properly served, remains a party-defendant
to this suit, thereby destroying complete diversity.

work on the meter masts, and overhead and profit would be included in a new estimate of covered

benefits and then failing to provide such an estimate and to respond to Shade Tree's inquiries in a
timely manner, and in Ruscher' s case, by purposefully ignoring hail storms occurring during the

policy period and then by misrepresenting that the cause of the wind and hail damage was a storm
that occurred outside the policy period. See, e.g., Birch

v.

Stiliwater Ins. Co. et al., No. 5:1 5-cv-

448-DAE, 2015 WL 5125885, at *4 (W.D. Tex. Sept. 1, 2015) (finding substantially similar
allegations sufficient to state a claim against a non-diverse adjuster where the plaintiff alleged that
the adjuster "failed to properly document all of Plaintiffs damages, including misrepresenting the

shingle damage on Plaintiffs roof, which affected his estimate of the claim and the benefits that [the
insurance company] ultimately paid out to Plaintiff').

Defendants argue Shade Tree cannot recover against the non-diverse adjusters for violations

of the Texas Insurance Code as matter of law based on a recent line of cases holding that adjusters
can only be liable if they misrepresent the scope of the coverage or have settlement authority on

behalf of the insurer. See, e.g., One Way Invests., Inc.

v.

Century Sur. Co., No. 3:1 4-C V-283 90-D,

2014 WL 6991277, at *4_5 (N.D. Tex. Dec. 11,2014). If controlling, the holding in One Way would

foreclose recovery against Knox and Ruscher because Shade Tree does not allege the two nondiverse defendants misrepresented details about the policy itself or otherwise had any settlement

authority on behalf of Great Lakes and Seneca. However, decisions since One Way have cast doubt
on its reasoning. In Linron Properties, Ltd.

the court explained that

§

v.

Wausau Underwriters Insurance Co., for example,

541 .060(a)(2)(A)'s statutory language suggests adjusters may be liable

under the section even if they do not have settlement authority. Section 541 .060(a)(2)(A) prohibits
"failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement." No. 3:1 5-cv-10-

00293-B, 2015 WL 3755071, at

5

(N.D. Tex. June 16, 2015). Drawing on the definition of the

word "effectuate," the Linron court explained that "[t]he fact that the statute uses the word

'effectuate' rather than a word that conveys finality (e.g., finalize), suggests that its prohibition
extends to all persons who play a role in bringing about a prompt, fair, and equitable settlement of
a claim," including adjusters. Id. at *5; see also Exchange Servs. Inc.

v.

Seneca Ins. Co., Inc., No.

3:15-cv-01873-M, 2015 WL 6163383, at *4_5 (N.D. Tex. Oct. 16, 2015) (finding viable causes of

action against adjusters under Chapter 541 ofthe Texas Insurance Code in similar circumstances and
collecting cases).
In the context of a motion to remand, the split in authority regarding the scope of an
insurance adjuster's liability under the Texas Insurance Code must be resolved in favor of remand.
See Birch, 2015 WL 5125885, at *2 ("Because removal jurisdiction implicates federalism concerns,

'[amy ambiguities are construed against removal and in favor of remand." (citations omitted)); see
also Hood ex rel. Miss.

v.

JP Morgan Chase & Co., 737 F.3d 78, 84 (5th Cir. 2013). Indeed, the

Court declines to usurp the authority of Texas courts to determine whether Texas law provides the
requested relief against adjusters as a matter of law and instead only asks whether there is a

reasonable basis to predict that Shade Tree might be able to recover against Knox or Ruscher.
Smallwood, 385, F.3d at 573. Considering the myriad other district court cases finding claims for

violations of the Texas Insurance Code exist under circumstances similar to those alleged by Shade
Tree, including Linron and its progeny, and considering the federalism concerns favoring remand,

the Court finds Defendants have not met their heavy burden of showing there is no possibility Shade
Tree could recover against Knox or Ruscher in state court.

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Conclusion
Having found Shade Tree could at least potentially recover against Knox and Ruscher for

violations of, at a minimum,

§

541 .060(a)(2)(A), the Court finds Knox and Ruscher were not

improperly joined. Because a single actionable claim against either Knox or Ruscher destroys
diversity, the Court need not consider Shade Tree's remaining claims, and remands the case to the
335th Judicial District Court of Lee County, Texas.

Accordingly,
IT IS ORDERED that Plaintiff Shade Tree Apartments' Motion to Remand [#8] is

GRANTED;
IT FURTHER ORDERED that this case is REMANDED to the 335th Judicial

District Court of Lee County, Texas;
IT IS FINALLY ORDERED that the Clerk of Court shall mail a certified copy of this
order to the Clerk of the 355th Judicial District Court of Lee County, Texas.
SIGNED this the /1

- day of December 2015.

SAM
UNITED STATES DISTRICT JUDGE

843 mot rem ord mns.wpd

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