Mehar Holdings, LLC v. Evanston Insurance Company et al
ORDER GRANTING 14 Motion for Reconsideration re 13 Order. The Court GRANTS 4 Motion to Remand. Signed by Judge David A. Ezra. (rf)
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
COMPANY; BRUSH COUNTRY
CLAIMS, LTD, and ROBERT SOEFJE;§
CHRISTOPHER DEMARIE d/b/a
UNITED INSURANCE SPECIALISTS, §
MEHAR HOLDINGS, LLC d/b/a
ORDER GRANTING MOTION FOR RECONSIDERATION
Before the Court is a Motion for Reconsideration filed by Mehar
Pursuant to Local Rule CV-7(h), the Court finds this matter suitable for disposition
without a hearing. After careful consideration of the memoranda filed in support
of and in opposition to the pending Motion, the Court, for the reasons that follow,
GRANTS the Motion for Reconsideration.
This is a first-party insurance case arising out of a fire that damaged
Plaintiff’s property. (“Pet.,” Dkt. # 1-5, Ex. B.) Plaintiff owns a Fiesta Inn and
Suites Hotel (“the Property”) located in San Antonio, Texas. (Id. at 3.) The
Property is covered by insurance policy number MKLV11PP002334 (“the Policy”)
issued by Defendant Evanston Insurance Company (“Evanston”). (Id.)
On or about April 3, 2015, Plaintiff contends that the Property
suffered “sustained extensive damage” as a consequence of a fire. (Id.) Plaintiff
filed a claim with Evanston, who assigned it to Brush Country Claims, Ltd.
(“Brush”). (Id. at 4.) Brush assigned Robert Soefje (“Soefje”) as the adjuster for
the claim responsible for investigating and reporting on the loss. (Id.)
On April 27, 2016, Plaintiff filed a lawsuit in the 45th Judicial District
Court in Bexar County, Texas, against Evanston, Brush, Soefje, and Christopher
DeMarie d/b/a United Insurance Specialists, LLC (“United”). (Orig. Pet.) Plaintiff
contends that Defendants have failed, inter alia, to comply with the Texas
Insurance Code and have not adequately paid Plaintiff in accordance with the
Policy. Plaintiff seeks a declaratory judgment against Evanston that the Policy
provides coverage for the cost to repair the Property; it also asserts causes of action
against Evanston for (1) breach of contract; (2) violations of the Texas Insurance
Code, Tex. Ins. Code §§ 541 & 542; (3) violations of the Texas Deceptive Trade
Practices Act (“DPTA”), Tex. Bus. & Com. Code § 17.45; and (4) “common law
bad faith.” (Id.
against Brush and
Soefje, for violation of section 541.060 of the Texas Insurance Code. (Id. at 9.)
On May 31, 2016, Evanston timely removed the case to this Court
pursuant to 28 U.S.C. §§ 1441, 1446. (Dkt. # 1.) Evanston invokes the Court’s
diversity jurisdiction pursuant to 28 U.S.C. § 1332, arguing that Brush and Soefje,
who are Texas citizens like Plaintiff, are improperly joined parties. (Dkt. # 1.) On
August 9, 2016, the Court issued an order denying Mehar’s motion for remand on
the basis that Brush and Soefje were improperly joined because Mehar had failed
to state viable claims against either of them. (Dkt. # 13.) Specifically, the Court
found that Mehar failed to plead any facts to state a claim under Section
541.060(a)(1) of the Texas Insurance Code. (Id.
held that that an insurance adjuster could not be liable under Sections
541.060(a)(2) (4) and (7).
On September 1, 2016, Mehar filed a Motion for Reconsideration.
(Dkt. # 14.) Evanston filed a Response (Dkt. # 15), and Mehar filed a Reply (Dkt.
“[T]he Federal Rules of Civil Procedure do not recognize a general
motion for reconsideration.” St. Paul Mercury Ins. Co. v. Fair Grounds Corp., 123
F.3d 336, 339 (5th Cir. 1997). Rather, courts treat such motions as motions
pursuant to either Rule 54(b), 59(e), or 60 depending on when the motion is
brought and the type of order that the party requests the Court to reconsider. See,
e.g., id. (treating a motion to reconsider as a motion pursuant to Rule 59(e)); see
also U.S. Bank National Assoc. v. Borunda, No. EP-15-CV-109-PRM, 2016 WL
2625287, at *3 (W.D. Tex. May 5, 2016) (treating a motion to reconsider an order
granting partial summary judgment pursuant to Rule 54(b)).
“[E]very order short of a final decree is subject to reopening at the
discretion of the district judge.” Moses H. Cone Mem’l Hosp. v. Mercury Const.
Corp., 460 U.S. 1, 12 (1983). Therefore, “[i]nterlocutory orders, such as grants of
partial summary judgment, are . . . left within the plenary power of the court that
rendered them to afford such relief from them as justice requires.” McKay v.
Novartis Pharm. Corp.
02 (5th Cir. 2014). Consequently, an
order denying a motion to remand is an interlocutory order, and a motion to
reconsider such an order is governed by Federal Rule of Civil Procedure 54(b).
Pursuant to Rule 54(b), interlocutory orders may be “revised at any
time before the entry of a judgment adjudicating all the claims and all the parties’
rights and liabilities.” Fed. R. Civ. P. 54(b). Neither Rule 54(b) nor the Fifth
Circuit articulates a standard by which to decide whether reconsideration is
merited. However, the Fifth Circuit has “explained that when a district court rules
on an interlocutory order, it is ‘free to reconsider and reverse its decision for any
reason it deems sufficient, even in the absence of new evidence or an intervening
change in or clarification of the substantive law.’” Zarnow v. City of Wichita
Falls, Tex., 614 F.3d 161, 171 (5th Cir. 2010) (citing Lavespere v. Niagara Mach.
& Tool Works, Inc., 910 F.2d 167, 185 (5th Cir. 1990), abrogated on other grounds
by Little v. Liquid Air Corp., 37 F.3d 1069 (5th Cir. 1994)). “Although the precise
standard for evaluating a motion to reconsider under Rule 54(b) is unclear, whether
to grant such a motion rests within the discretion of the court.” Dos Santos v. Bell
Helicopter Textron, Inc. Dist., 651 F. Supp. 2d 550, 553 (N.D. Tex. 2009); Brown
v. Wichita Cty., Tex., No. 7:05-CV-108-O, 2011 WL 1562567, at *2 (N.D. Tex.
Apr. 26, 2011) (“The district court’s discretion in this respect is broad.”).
A party sued may remove “any civil action brought in a State court of
which the district courts of the United States have original jurisdiction.” 28 U.S.C.
§ 1441(a). The district courts have original jurisdiction of civil actions where the
matter in controversy exceeds the sum or value of $75,000, exclusive of costs and
interest, and is between citizens of different states. 28 U.S.C. § 1332. The rule of
complete diversity “requires that all persons on one side of the controversy be
citizens of different states than all persons on the other side.” Harvey v. Grey Wolf
Drilling Co., 542 F.3d 1077, 1079 (5th Cir. 2008). However, “the improper
joinder doctrine constitutes a narrow exception to the rule of complete diversity.”
Cuevas v. BAC Home Loans Servicing, LP, 648 F.3d 242, 249 (5th Cir. 2011)
(citing McDonal v. Abbott Labs., 408 F.3d 177, 183 (5th Cir. 2005)). “[T]he
purpose underlying the improper joinder inquiry is to determine whether or not the
in-state defendant was properly joined.” Abbott Labs., 408 F.3d at 183. “The
burden is on the removing party; and the burden of demonstrating improper joinder
is a heavy one.” Cuevas, 648 F.3d at 249.
To establish improper joinder, the removing party must demonstrate
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.”
Id. (quoting Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568, 573 (5th Cir. 2004)
(en banc)). Under the second prong of the improper joinder doctrine, a defendant
who “demonstrate[s] that there is no possibility of recovery by the plaintiff against
an in-state defendant,” or “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[,]”
successfully demonstrates improper joinder. Smallwood, 385 F.3d at 573; Carriere
v. Sears, Roebuck & Co., 893 F.2d 98, 100 (5th Cir. 1990) (“After all disputed
questions of fact and all ambiguities in the controlling state law are resolved in
favor of the non-removing party, the court determines whether that party has any
possibility of recovery against the party whose joinder is questioned.”). However,
“[a] mere theoretical possibility of recovery under local law will not preclude a
finding of improper joinder.” Smallwood, at 573 n. 9 (internal citations omitted).
A court evaluates the reasonable basis of recovery under state law by
“conduct[ing] a Rule 12(b)(6)-type analysis” or “pierc[ing] the pleadings and
conduct a summary inquiry.” Id.
It is well established that a Rule 12(b)(6) analysis requires a plaintiff
to plead “enough facts to state a claim to relief that is plausible on its face.” Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “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.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Although “detailed factual
allegations” are not necessary, a plaintiff must provide “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 555. The statements in the complaint must be
sufficiently detailed to “give the defendant fair notice of what the . . . claim is and
the grounds upon which it rests.” Id.
In the removal context where the removing party invokes the Court’s
diversity jurisdiction, the Court looks to the state court complaint or petition to
determine whether the plaintiff has stated a claim. In doing so, the Court applies
the federal pleading standard articulated above. Int’l Energy Ventures Mgmt.,
LLC v. United Energy Grp., Ltd., 818 F.3d 193, 208 (5th Cir. 2016).
Mehar principally argues that the Court’s order denying its motion for
remand contradicts Fifth Circuit precedent interpreting the Texas Insurance Code.
In Gasch v. Hartford Accident & Indem. Co., an insured party sued an
insurance company and the individual adjuster for denying a death benefit.
491 F.3d 278, 279 (5th Cir. 2007). There, the plaintiff alleged that the adjuster
“failed to investigate the claim reasonably.” Id. at 280. The Gasch Court noted
that “Texas law clearly authorizes Article 21.21 1 actions against insurance
adjusters in their individual capacities” and that an adjuster “very well may be held
individually liable for a violation of Article 21.21.” Id. at 282 (citing Liberty
Mutual Ins. Co. v. Garrison Contractors, Inc., 966 S.W.2d 482 (Tex. 1998)).
Article 21.21 was the predecessor statute of the current Section 541.060 of the
Texas Insurance Code. See Act of May 22, 2003, 78th Leg., R.S., ch. 1274,
§ 26(a)(1), sec. 561.060, 2003 Tex. Gen. Laws 3611, 3662, 4138 (effective April 1,
Construing Gasch, this Court determined that “an adjuster may be
held liable under the Texas Insurance Code.” (Dkt. # 13 (citing Gasch, 491 F.3d at
282; Tex. Ins. Code § 541.002(2) (defining “person” to include “adjuster”)).
However, for an adjuster to be held individually liable, they have to had committed
some act that is prohibited by the section, not just be connected to an insurance
company’s denial of coverage. Messersmith v. Nationwide Mut. Fire Ins. Co., 10
F. Supp. 3d 721, 724 (N.D. Tex. 2014). A plaintiff can’t just allege a violation of
the general insurance code and hope for the best. Therefore, in evaluating whether
a plaintiff has stated a claim against an adjuster under the Texas Insurance Code,
the Court must determine whether (1) an adjuster can be liable under the specific
section of the Insurance Code as a matter of law, and (2) if so, whether plaintiff has
pled sufficient factual content to create a reasonable basis of recovery under state
law. See Smallwood, 385 F.3d at 573. This Court then determined that an adjuster
could be held liable under section 541.060(a)(1) if an adjuster “misrepresented” a
material fact to a claimaint, but found that Plaintiff failed to allege that an adjuster
made a misrepresentation. (Dkt. #
541.060(a)(2)(A) did not extend to adjusters as a matter of law. (Id.) The Court
based its holding on a recent line of district court cases.
Indeed, federal district courts are split as to whether an adjuster may
be held liable under section 541.060(a)(2)(A). This section states that “it is an
unfair method of competition or an unfair or deceptive act or practice [by] 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). Those federal district courts holding that the
section does not apply to adjusters, reason that an adjuster cannot be held liable
because they lack settlement authority, and thus cannot “effectuate a prompt, fair,
and equitable settlement.” See Lopez v. United Prop. & Cas. Ins. Co.
Messersmith, 10 F. Supp. 3d at
724; One Way Investments, Inc. v. Century Sur. Co. No. 3:14-cv-2839, 2014 WL
6991277 (N.D. Tex. Dec. 11, 2014). On the other hand, those district courts that
find an adjuster may be liable under section 541.060(a)(2)(A) reason that an
adjuster has the ability to “effectuate a prompt, fair, and equitable settlement”
because the adjuster is the one who investigates and evaluates insurance claims.
See Roach v. Vehicle, No. 3:15-CV-3228-G, 2016 WL 795967, at *
Feb. 29, 2016); Shade Tree Apartments, LLC v. Great Lakes Reins. (UK) PLC,
No. A-15-CA-843Linron Prop., Ltd. v. Wausau Underwriters Ins. Co., No. 3:15-CV-293, 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. Linron,
2015 WL 3755071 at *5.
In the context of a motion to remand, this split in authority regarding
the scope of an insurance adjuster’s liability under the Texas Insurance Code must
be resolved in favor of remand because “[a]ny ambiguities are construed against
removal and in favor of remand to state court.” Hood ex rel. Mississippi v. JO
Morgan Chase & Co., 737 F.3d 78, 84 (5th Cir. 2013). Indeed, given the
federalism concerns present where a federal court is called upon to interpret a state
law for the first time, this Court declines to usurp the authority of the Texas state
courts. As such, Defendants have failed to meet their heavy burden that there is no
reasonable basis by which Plaintiff could recover against the in-state adjusters
under section 541.060(a)(2)(A). See Smallwood, 385 F.3d at 573.
Finally, to the extent that Defendants argue that Plaintiff has
insufficiently pled factual allegations to state a claim under section
541.060(a)(2)(A), the Court finds that Plaintiff has stated a claim. Plaintiff alleges
that “[t]he Adjuster failed to inspect the property and the damages, failed to request
information, failed to fully investigate the claim, failed to respond to requests for
information from Plaintiff, failed to timely evaluate the claim, failed to timely
estimate the claim, and to timely and properly report to the Insurance Defendants
and make recommendations to the Insurance Defendants.” (Dkt. # 1-5 at 10.) If
true, these factual allegations could reasonably form a basis to recover under
section 541.060(a)(2)(A) against the in-state adjuster for failing to “effectuate a
prompt, fair, and equitable settlement” of the insurance claim. See Martinez v.
State Farm Lloyds, No. 3:16-cv-040, 2016 WL 4427489, at *2 (N.D. Tex. Aug. 22,
2016) (finding that similar factual allegations constitute a well-pled claim under
section 541.060(a)(2)(A)). Accordingly, since at least a reasonable basis exists
that Plaintiff might be able to recover against the in-state adjusters, these parties
were properly joined, complete diversity is destroyed, and the Court lacks subject
matter jurisdiction over the claims.
For the reasons explained above, the Court GRANTS the Motion for
Reconsideration (Dkt. # 14), VACATES the Order Denying the Motion to
Remand (Dkt. # 13), and GRANTS the Motion to Remand (Dkt. # 4.) The Court
ORDERS this case remanded to the 45th Judicial District Court of Bexar County.
IT IS SO ORDERED.
DATE: San Antonio, Texas, October 14, 2016.
DAVID ALAN EZRA
UNITED STATES DISTRICT JUDGE
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