Affordable Portable Structures, Inc. et al v. The Cincinnati Insurance Company et al
ORDER GRANTING 5 Motion to Remand to State Court. Signed by Judge Robert Pitman. (td)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
STRUCTURES, INC. and
JFJ GROUP, INC.,
THE CINCINNATI INSURANCE
COMPANY and ALFRED GRAY,
Before the Court in the above-styled cause is the Motion to Remand filed by Plaintiffs
Affordable Portable Structures, Inc. and JFJ Group, Inc. (collectively “Plaintiffs”). (Dkt. 6). Having
considered the parties submissions and the relevant law, the Court finds that the motion should be
Plaintiffs are entities incorporated under the laws of the State of Texas with their principal
places of business in Austin, Texas. Defendant Cincinnati Insurance Company (“Cincinnati”) is an
insurance company incorporated under the laws of the State of Ohio. Its principal place of business
is in Fairfield, Ohio. Defendant Alfred Gray is an individual adjuster employed by Cincinnati. He
resides in or around Austin, Texas.
Plaintiffs allege that they purchased property insurance from Defendant Cincinnati for the
policy period between November 15, 2014, and November 15, 2015. On or around May 23, 2015,
while that policy was active, a tornado or windstorm allegedly caused substantial damage to
Plaintiffs’ two buildings. Plaintiffs assert that they reported this loss to Cincinnati and its agents.
Cincinnati then assigned Alfred Gray to investigate the loss and adjust the claim. Cincinnati and
Gray thereafter hired Rimkus Consulting Group (“Rimkus”) to assess the potential damage to
Plaintiffs’ buildings. According to Plaintiffs, Rimkus is known to provide results-oriented reports
that favor insurance companies and minimize damage estimates. It was for that reason, Plaintiffs
believe, that Defendants hired Rimkus.
The report that Rimkus ultimately provided allegedly downplayed the damage sustained by
Plaintiffs’ buildings during the storm. As a result, Plaintiffs assert that they hired an engineer, James
Dixon (“Dixon”), to assess the damage. The results of Dixon’s investigation differed dramatically
from those of Rimkus’s. For example, whereas the Rimkus report found that the framing, wall and
roof panels, and overhead doors were not damaged during the storm, Dixon found that, as a result
of the storm, the frames were not plumb, panels and rakes were misaligned, and screws were missing
and loose, causing water damage and weakening structural integrity. A consultant hired by Plaintiffs
estimated that it would cost $698,111.69 to repair the storm damage that Dixon had identified.
Despite the extensive damage, Plaintiffs allege that Defendant Gray prepared an estimate
putting the cost of repair at only $25,935.38—less than 3.5% of the figure estimated by Plaintiffs’
consultant. Plaintiffs allege the Gray is an experienced adjuster and, as such, knew or should have
known that the Rimkus report vastly underestimated the amount of damage caused to Plaintiffs’
buildings. Accordingly, Plaintiffs assert, Gray’s decision to conduct no further investigation was
unreasonable and did not constitute a good faith attempt to effectuate a prompt, fair, and equitable
Plaintiffs filed this lawsuit against Defendants in state court on October 19, 2016. They
assert claims against both Defendants under the Texas Insurance Code and the Texas Deceptive
Trade Practices Act, and against Cincinnati for breach of the common law duty of good faith and
fair dealing. On December 2, 2016, Defendants removed the action on the basis of this Court’s
diversity jurisdiction. Though Gray, like Plaintiffs, is a citizen of Texas for jurisdictional purposes,
Defendants argue that he was fraudulently joined in this action to defeat diversity. Plaintiffs filed a
motion to remand the action on December 27, 2016. They assert that they have alleged a viable
claim against Gray and that this Court therefore lacks diversity jurisdiction.
A defendant in a civil action filed in state court may remove the action to the federal district
court if the action is within the original subject-matter jurisdiction of the federal courts. 28 U.S.C.
§ 1441(a). Federal courts have original jurisdiction over state-law controversies in which there is
complete diversity of citizenship between the parties and the amount in controversy exceeds
$75,000. 28 U.S.C. § 1332. Where a plaintiff has joined both diverse and non-diverse defendants, the
diverse defendant may still remove the case on the basis of diversity jurisdiction by showing that the
non-diverse defendant was improperly joined. Cuevas v. BAC Home Loans Servicing, LP, 648 F.3d 242,
249 (5th Cir. 2011). The improper joinder doctrine is a narrow exception to the rule of complete
diversity. It allows the court to “look behind the pleadings to ensure that parties are not improperly
creating or destroying diversity jurisdiction.” Mississippi ex rel. Hood v. AU Optronics Corp., 134 S. Ct.
736, 745 (2014) (discussing the diversity jurisdiction statute); Smallwood v. Ill. Cent. R.R. Co., 385 F.3d
568, 573–72 (5th Cir. 2004) (holding that the doctrine rests on the “statutory underpinnings” of the
diversity jurisdiction and removal statutes).
A removing party may show improper joinder by demonstrating 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.” Cuevas, 648 F.3d at 249 (citing Smallwood, 385 F.3d at
573). Under the second prong, the inquiry is whether “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. The standard is similar to that under Federal Rule of Civil Procedure 12(b)(6). Travis
v. Irby, 326 F.3d 644, 648 (5th Cir. 2003). The court looks at the complaint to determine whether
there are sufficient factual allegations of “specific actionable conduct” to support the asserted causes
of action. First Baptist Church of Mauriceville, Tex. v. GuideOne Mut. Ins. Co., No. 1:07-CV-288, 2008 WL
4533729, at *4 (E.D. Tex. Sept. 29, 2008). Conclusory allegations are insufficient. Id. The removing
party bears the burden of establishing improper joinder and all contested factual issues and
ambiguities of state law are resolved in favor of the plaintiff. Gasch v. Harford Acc. & Indem. Co., 491
F.3d 278, 281 (5th Cir. 2007).
Plaintiffs’ Insurance Code Claims
The Texas Insurance Code has several provisions forbidding unfair and deceptive practices
in the business of insurance. One of these, section 541.060, forbids “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 ,” among other prohibited practices. Tex. Ins. Code §
541.060(a)(2). The Insurance Code provides a private right of action against any person who engages
in these practices. Id. § 541.151.
Defendants do not dispute the general proposition that insurance adjusters like Gray risk
personal liability for violations of the Texas Insurance Code. (See Defs.’ Response, Dkt. 6, at 4).
Rather, the disagreement between the parties concerns the circumstances under which personal
liability attaches. Defendants’ argue that Plaintiffs have not asserted an appropriate individual claim
against Gray because they have not alleged that that Gray acted outside the scope of his employment
or that Gray caused an injury to Plaintiffs that is distinct from Cincinnati’s actions. Plaintiffs respond
that such a showing is not required; rather, according to Plaintiffs, insurance adjusters are personally
liable for their role in violating the Texas Insurance Code whether they act within the scope of their
employment or not.
The parties have identified an active conflict among the federal courts interpreting Texas
law. Following the Texas Supreme Court’s decision in Liberty Mutual Insurance Co. v. Garrison
Contractors, Inc., 966 S.W.2d 482 (Tex. 1998), which established that insurance agents may be held
individually liable for violations of the Insurance Code, the federal courts have struggled to define
the preconditions of that liability. It is clear that an individual agent may be personally liable
“notwithstanding the fact that he acted within the scope of his employment.” Crown Life Ins. Co. v.
Casteel, 22 S.W.3d 378, 386 (Tex. 2000). However, some federal courts have required the plaintiff to
show that the adjuster has caused “an injury distinguishable from the insure[r]’s actions.” See, e.g.,
Aguilar v. State Farms Lloyds, No. 4:15-CV-565-A, 2015 WL 5714654, at *3 (N.D. Tex. Sept. 28,
2015). Other courts have held that a plaintiff may validly assert identical claims against the insurer
and its agent—that is, without the need to establish an independent injury. See, e.g., Eduardo v. Great
Lakes Reinsurance (Uk) PLC, DR-15-CV-00073-AM/VRG, 2016 WL 4371946, at *6 (W.D. Tex. Jan.
There is reason to doubt the more exacting requirements set out in cases such as Aguilar.
First, the Texas Legislature has instructed courts to liberally construe to provisions of Chapter 541
of the Insurance Code to effectuate its underlying purpose, Tex. Ins. Code § 541.008, which,
according to the Texas Supreme Court, is “to comprehensively regulate and prohibit deceptive
insurance practices”—an aim achieved by broadening liability to the agents of insurers. Garrison, 966
S.W.2d at 485–86. Second, the provisions of the Insurance Code were recognized as a departure
from traditional agency principles under the common law, Casteel, 22 S.W.3d at 385, but a “distinct
injury” requirement hearkens back to traditional rules of liability within the employer-employee
relationship. See, e.g., Leicht v. Hornsby, 935 S.W.2d 114, 117 (a corporate agent may be personally
liable for negligence if he violates a duty that is distinct from the duties owed by his employer).
Ultimately, however, it is unnecessary for this Court to resolve the issue. As noted above,
this Court must resolve all ambiguities of state law in favor of remand. Gasch, 491 F.3d at 281. Thus,
if the Court determines that Plaintiffs have alleged a plausible claim against Gray—without regard to
whether the Plaintiffs allege a distinct injury—the Court will remand the case to allow the state
courts to resolve this ambiguous issue of state law.
The Court finds that Plaintiffs have indeed alleged specific conduct of Gray that plausibly
suggests liability under the Insurance Code. For example, Plaintiffs allege that Gray hired an
engineering firm with knowledge that the firm would unfairly investigate Plaintiffs’ claims and
minimize Cincinnati’s liability. Thereafter, according to Plaintiffs, Gray prepared his estimate on the
basis of a report that he, due to his long experience, knew was inadequate and unfair. This allegedly
led to Cincinnati’s offering to compensate Plaintiffs for only a small fraction of the damages they
sustained. This plausibly alleges that Gray did not attempt in good faith to effectuate a fair and
equitable settlement of Plaintiffs’ claim. See Tex. Ins. Code § 541.060(a)(1)(3); Blanchard v. State Farm
Lloyds, 206 F. Supp. 2d 840, 847 (S.D. Tex. 2001) (holding allegations that adjuster hired biased
engineering firm, disregarded evidence of damage, and failed to conduct a fair investigation showed
reasonable possibility of actionable violation Texas Insurance Code). Taking these allegations as true
and drawing all reasonable inferences in favor of the Plaintiff, the Court concludes that Plaintiffs
have stated a claim sufficient to withstand a Rule 12(b)(6)-type inquiry. See Travis, 326 F.3d at 648.
Having found that a plausible claim exists against Gray, remand is appropriate.
“Badges of Improper Joinder”
As an argument apart from whether Plaintiffs have a viable claim against Gray under the
Insurance Code, Defendants assert that so-called “badges of improper joinder” are present in this
case and favor dismissal of Gray from this action.
Defendants are correct that some district courts have considered certain characteristics of a
lawsuit—apart from the viability of the claims—to be relevant to the issue of improper joinder. See,
e.g., Plascencia v. State Farm Lloyds, No. 4:14-CV-524-A, 2014 WL 11474841, at *6–7 (N.D. Tex. Sept.
25, 2014). In Plascencia, for example, the Court identified several such “badges” that, if present, favor
a finding of improper joinder. Id. These include the use of form complaints and motions, a failure to
effectuate service of process on the non-diverse party, and the lack of any plausible reason for suing
the non-diverse defendant other than to defeat federal jurisdiction. Id.
This Court can find no Fifth Circuit or Supreme Court precedent endorsing consideration of
these factors where the plaintiff has otherwise stated a valid claim against a non-diverse defendant—
indeed, Plascencia did not purport to rely on such authority, see id. 1—and the Court is not certain that
these factors are relevant. The Fifth Circuit has identified the pertinent inquiry as whether “(1) the
plaintiff has stated a claim against a defendant that he fraudulently alleges is nondiverse, or (2) the
plaintiff has not stated a claim against a defendant that he properly alleges is nondiverse.” Int’l Energy
Ventures Mgmt., L.L.C. v. United Energy Grp., Ltd., 818 F.3d 193, 199 (5th Cir. 2016) (emphasis in
original). These “badges” have no bearing on whether there was fraud in pleading the jurisdictional
facts establishing diversity-of-citizenship, and they have nothing to do with whether the plaintiff’s
allegations—whether or not contained in a boilerplate complaint—state a valid claim.
Additionally, consideration of these factors strikes the Court as unnecessary in most
instances. The “badges” may often be present in situations where the plaintiff has no reasonable
possibility of recovery against the non-diverse defendant, but in those cases it is the failure of the
claim—not the presence of “badges”—that warrants denial of a motion to remand. See Int’l Energy,
818 F.3d at 199. Indeed, Plascencia itself—and each case it relied on—had already found that the
Griggs v. State Farm Lloyds, 181 F.3d 694 (5th Cir. 1999), is the sole Fifth Circuit case cited in this
portion of the Plascencia opinion. After holding that the plaintiff’s complaint did not state a valid
claim against the non-diverse defendant, the Griggs court stated in dicta that the plaintiff’s failure to
effect service of process on that defendant suggested that the plaintiff had no intent to pursue its
claims against her. Id. at 699. This dicta was neither an instruction to district courts to consider the
status of service in each case, nor does it illustrate any workable standard by which a district court
may assess how many “badges” must be present before denial of remand is appropriate. See id. In
any event, this “badge” is not present in the present case. (See Return Receipt, Dkt. 3, at 4).
plaintiff’s complaint itself was deficient before considering these “badges.” Plascencia, 2014 WL
11474841, at *6; Griggs v. State Farm Lloyds, 181 F.3d 694 at 699; Jimenez v. Travelers Indem. Co., No. H09-1308, 2010 WL 1257802, at *5 (S.D. Tex. Mar. 25, 2010); Struder v. State Farm Lloyds, No.
4:13cv413, 2014 WL 234352, at *4 (E.D. Tex. Jan. 21, 2014); DeCluette v. State Farm Lloyds, No. 3:12CV-4449-B, 2013 WL 607320, at *3 (N.D. Tex. Feb. 2013); First Baptist Church, 2008 WL 4533729, at
*5 (relying on the dicta of Griggs and finding that plaintiff intended to pursue its claims before
denying remand on the basis of insufficient allegations); Dougherty v. State Farm Lloyds, No.
401CV0611A, 2001 WL 1041817, at *2 (N.D. Tex. Aug. 30, 2001). These cases provide no support
for the proposition that a court should nonetheless dismiss an otherwise seemingly valid claim
because it has satisfied itself that a sufficient number of “badges” are present.
In short, having found that Plaintiffs have established a possibility of recovery against Gray,
the Court declines to consider these other factors.
For the foregoing reasons, the Court GRANTS Plaintiffs’ Motion to Remand, (Dkt. 5), and
ORDERS that this case is remanded back to the 200th District Court of Travis County, Texas, in
Cause No. D-1-GN-16-005273.
SIGNED on May 23, 2017.
UNITED STATES DISTRICT JUDGE
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