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Elizabeth Holmes v. Acceptance Casualty Insurance Company and Wellington Claim Service Company

April 29, 2013



Pending before the court is Plaintiff Elizabeth Holmes's ("Holmes") Motion to Remand. Holmes seeks remand to state court on the ground that this court lacks subject matter jurisdiction because the parties are not completely diverse. Having reviewed the pending motion, the submissions of the parties, the pleadings, and the applicable law, the court is of the opinion that remand is not warranted.

I. Background

On October 9, 2012, Holmes filed her original petition in the 260th Judicial District Court of Orange County, Texas, asserting claims for common law fraud, negligence, breach of contract, and violations of the Texas Deceptive Trade Practices Act ("DTPA") and the Texas Insurance Code. It is undisputed that Holmes is a citizen and resident of the State of Texas. Defendant Acceptance Casualty Insurance Company ("Acceptance") is a Nebraska corporation with its principal place of business in North Carolina. Defendant Wellington Claim Service Company ("Wellington") is a Texas corporation.

On December 7, 2012, Acceptance removed the case to this court on the basis of diversity of citizenship, alleging that complete diversity exists among the real parties in interest and that the amount in controversy exceeds $75,000.00, exclusive of interest and costs. Acceptance asserts that because Wellington was improperly joined as a defendant to defeat diversity, it should be dismissed as a party to this action and its citizenship ignored for jurisdictional purposes. On January 7, 2013, Holmes filed a motion to remand the case to state court, contending that Wellington was properly joined, and, therefore, because complete diversity does not exist among the parties, federal jurisdiction is lacking.

II. Analysis "'Federal courts are courts of limited jurisdiction.'" Rasul v. Bush, 542 U.S. 466, 489 (2004) (quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994)); accord Halmekangas v. State Farm Fire & Cas. Co., 603 F.3d 290, 292 (5th Cir. 2010); Johnson v. United States, 460 F.3d 616, 621 n.6 (5th Cir. 2006); McKee v. Kan. City S. Ry. Co., 358 F.3d 329, 337 (5th Cir. 2004). "'They possess only that power authorized by Constitution and statute, which is not to be expanded by judicial decree.'" Rasul, 542 U.S. at 489 (quoting Kokkonen, 511 U.S. at 377 (citations omitted)). The court "must presume that a suit lies outside this limited jurisdiction, and the burden of establishing federal jurisdiction rests on the party seeking the federal forum." Howery v. Allstate Ins. Co., 243 F.3d 912, 916 (5th Cir.), cert. denied, 534 U.S. 993 (2001) (citing Kokkonen, 511 U.S. at 377); see also Hertz Corp. v. Friend, 559 U.S. 77, ___, 130 S. Ct. 1181, 1194 (2010); Boone v. Citigroup, Inc., 416 F.3d 382, 388 (5th Cir. 2005). In an action that has been removed to federal court, a district court is required to remand the case to state court if, at any time before final judgment, it determines that it lacks subject matter jurisdiction. See 28 U.S.C. § 1447(c); Grupo Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567, 571 (2004); In re 1994 Exxon Chem. Fire, 558 F.3d 378, 392 (5th Cir. 2009); McDonal v. Abbott Labs., 408 F.3d 177, 182 (5th Cir. 2005).

When considering a motion to remand, "[t]he removing party bears the burden of showing that federal jurisdiction exists and that removal was proper." Manguno v. Prudential Prop. & Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002); accord DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 342 n.3 (2006); Gutierrez v. Flores, 543 F.3d 248, 251 (5th Cir. 2008); In re Hot-Hed Inc., 477 F.3d 320, 323 (5th Cir. 2007); Guillory v. PPG Indus., Inc., 434 F.3d 303, 308 (5th Cir. 2005); Boone, 416 F.3d at 388. "'This extends not only to demonstrating a jurisdictional basis for removal, but also necessary compliance with the requirements of the removal statute.'" Roth v. Kiewit Offshore Servs., Ltd., 625 F. Supp. 2d 376, 382 (S.D. Tex. 2008) (quoting Albonetti v. GAF Corp. Chem. Grp., 520 F. Supp. 825, 827 (S.D. Tex. 1981)); accord Crossroads of Tex., L.L.C. v. Great-West Life & Annuity Ins. Co., 467 F. Supp. 2d 705, 708 (S.D. Tex. 2006); Smith v. Baker Hughes Int'l Branches, Inc., 131 F. Supp. 2d 920, 921 (S.D. Tex. 2001). "Only state-court actions that originally could have been filed in federal court may be removed to federal court by the defendant." Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987)(citing28 U.S.C. § 1441(a)); see Aetna Health Inc. v. Davila, 542 U.S. 200, 207 (2004); Halmekangas, 603 F.3d at 294; Gutierrez, 543 F.3d at 251. "The removal statute ties the propriety of removal to the original jurisdiction of the federal district courts." Frank v. Bear Stearns & Co., 128 F.3d 919, 922 (5th Cir. 1997); see 28 U.S.C. § 1441(a); Hoskins v. Bekins Van Lines, 343 F.3d 769, 772 n.2 (5th Cir. 2003). Because removal raises significant federalism concerns, the removal statutes are strictly and narrowly construed, with any doubt resolved against removal and in favor of remand. See Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09 (1941); Gutierrez, 543 F.3d at 251; Gasch v. Hartford Accident & Indem. Co., 491 F.3d 278, 281-82 (5th Cir. 2007); In re Hot-Hed Inc., 477 F.3d at 323.

Federal courts have subject matter jurisdiction and are authorized to entertain causes of action only where a question of federal law is involved or where there is diversity of citizenship between the parties and the amount in controversy exceeds $75,000.00, exclusive of interest and costs. See 28 U.S.C. §§ 1331, 1332; Arbaugh v. Y & H Corp., 546 U.S. 500, 513 (2006); Lincoln Prop. Co. v. Roche, 546 U.S. 81, 89 (2005); Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552 (2005); Halmekangas, 603 F.3d at 294; McDonal, 408 F.3d at 181.In order to determine whether jurisdiction is present in a removed action, the claims set forth in the state court petition are considered as of the date of removal. See Wis. Dep't of Corr. v. Schacht, 524 U.S. 381, 391 (1998); Campbell v. Stone Ins., Inc., 509 F.3d 665, 669 n.2 (5th Cir. 2007); McGowin v. ManPower Int'l, Inc., 363 F.3d 556, 558 n.1 (5th Cir. 2004); Manguno, 276 F.3d at 723. In removed cases where, as here, there is no suggestion that a federal question is involved, subject matter jurisdiction exists only if there is complete diversity among the parties and the amount in controversy exceeds $75,000.00. See 28 U.S.C. § 1332; Lincoln Prop. Co., 546 U.S. at 89; Exxon Mobil Corp., 545 U.S. at 552; Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996); Halmekangas, 603 F.3d at 294; Heritage Bank v. Redcom Labs., Inc., 250 F.3d 319, 323 (5th Cir.), cert. denied, 534 U.S. 997 (2001). Complete diversity requires that no plaintiff be a citizen of the same state as any defendant. See Exxon Mobil Corp., 545 U.S. at 552; Caterpillar Inc., 519 U.S. at 68; Wallace v. La. Citizens Prop. Ins. Corp., 444 F.3d 697, 702 (5th Cir. 2006); Heritage Bank, 250 F.3d at 323. Furthermore, removal is appropriate only if none of the parties properly joined and served as defendants are citizens of the state in which the action was brought. See 28 U.S.C. § 1441(b); Lincoln Prop. Co., 546 U.S. at 89; Gasch, 491 F.3d at 281; Crockett v. R.J. Reynolds Tobacco Co., 436 F.3d 529, 531-32 (5th Cir.), cert. denied, 548 U.S. 907 (2006).

In the case at bar, although there is no dispute that Plaintiff Holmes and Defendant Acceptance are citizens of different states and that more than $75,000.00 is at issue, complete diversity may be lacking in this case because Defendant Wellington is a citizen of Texas. Therefore, to establish the existence of diversity jurisdiction, Acceptance must show that Wellington was fraudulently or improperly joined as a defendant to this action. See Crockett, 436 F.3d at 532; Guillory, 434 F.3d at 307-08; Hawthorne Land Co. v. Occidental Chem. Corp., 431 F.3d 221, 224-25 (5th Cir. 2005), cert. denied, 549 U.S. 811 (2006); Heritage Bank, 250 F.3d at 323; Hart v. Bayer Corp., 199 F.3d 239, 246 (5th Cir. 2000). "The removing party bears the heavy burden of proving that non-diverse defendants have been fraudulently joined to defeat diversity, either by showing that (1) there has been outright fraud in the plaintiff's recitation of jurisdictional facts, or (2) there is no possibility that the plaintiff would be able to establish a cause of action against the non-diverse defendants in state court." Burden v. Gen. Dynamics Corp., 60 F.3d 213, 217 (5th Cir. 1995); accord Gasch, 491 F.3d at 281; Larroquette v. Cardinal Health 200, Inc., 466 F.3d 373, 376 (5th Cir. 2006); Holder v. Abbott Labs., Inc., 444 F.3d 383, 387 (5th Cir. 2006); Guillory, 434 F.3d at 308-09; McDonal, 408 F.3d at 183; Melder v. Allstate Corp., 404 F.3d 328, 330 (5th Cir. 2005); Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568, 573 (5th Cir. 2004), cert. denied, 544 U.S. 992 (2005). The United States Court of Appeals for the Fifth Circuit has held that there is no difference between the terms "improper joinder" and "fraudulent joinder" in the context of removal jurisdiction. See Smallwood, 385 F.3d at 571 n.1. "The removing party has the burden of establishing improper joinder by showing: Plaintiff['s] inability to establish a claim under state law against the non-diverse defendant; or actual fraud in pleading jurisdictional facts." Melder, 404 F.3d at 330; accord Smallwood, 385 F.3d at 573.

A determination of improper joinder must be based on an analysis of the causes of action alleged in the complaint at the time of removal. See Borden v. Allstate Ins. Co., 589 F.3d 168, 171 (5th Cir. 2009); Cavallini v. State Farm Mut. Auto Ins. Co., 44 F.3d 256, 264 (5th Cir. 1995); Hook v. Morrison Milling Co., 38 F.3d 776, 780 (5th Cir. 1994). Where the defendant maintains that federal jurisdiction is proper, the court must evaluate all the factual allegations in the plaintiff's state court pleadings in the light most favorable to the plaintiff, resolving all contested issues of substantive fact in favor of the plaintiff, and then examine relevant state law and resolve all uncertainties in favor of the nonremoving party. See Ross v. Citifinancial, Inc., 344 F.3d 458, 462-63 (5th Cir. 2003), cert. denied, 546 U.S. 813 (2005); Travis v. Irby, 326 F.3d 644, 649 (5th Cir. 2003); Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 312 (5th Cir. 2002); Hart, 199 F.3d at 246. Furthermore, the "'court must normally assume all the facts as set forth by the plaintiff to be true.'" Burden, 60 F.3d at 217 (quoting Green v. Amerada Hess Corp., 707 F.2d 201, 205 (5th Cir. 1983), cert. denied, 464 U.S. 1039 (1984)).

While a court, when considering allegations of improper joinder, should refrain from pre-trying the case or conducting an evidentiary hearing, it may utilize a summary judgment-type procedure "that allows it to pierce the pleadings and examine affidavits and deposition testimony for evidence of fraud or the possibility that the plaintiff can state a claim under state law against a nondiverse defendant." Great Plains Trust Co., 313 F.3d at 311; accord Guillory, 434 F.3d at 309-10; Hornbuckle v. State Farm Lloyds, 385 F.3d 538, 542 (5th Cir. 2004); Travis, 326 F.3d at 648-49; Delgado v. Shell Oil Co., 231 F.3d 165, 179 (5th Cir. 2000), cert. denied, 532 U.S. 972 (2001). "Post-removal filings may not be considered, however, when or to the extent that they present new causes of action or theories not raised in the controlling petition filed in state court." Griggs v. State Farm Lloyds, 181 F.3d 694, 700 (5th Cir. 1999) (citing Cavallini, 44 F.3d at 263).

"A district court should ordinarily resolve [claims of] improper joinder by conducting a Rule 12(b)(6)-type analysis." McDonal, 408 F.3d at 183 n.6; see also Boone, 416 F.3d at 388 ("A motion to remand is normally analyzed with reference to the well-pleaded allegations of the complaint, which is read leniently in favor of remand under a standard similar to Rule 12(b)(6)."); Smallwood, 385 F.3d at 573. If a plaintiff can survive a Rule 12(b)(6)-type challenge, there is generally no improper joinder. Guillory, 434 F.3d at 309; Smallwood, 385 F.3d at 573. "That said, there are cases, hopefully few in number, in which the plaintiff has stated a claim, but has misstated or omitted discrete facts that would determine the propriety of joinder. In such cases, the district court may, in its discretion, pierce the pleadings and conduct a summary inquiry." Smallwood, 385 F.3d at 573 (citing Badon v. RJR Nabisco Inc., 224 F.3d 382, 389 n.10 (5th Cir. 2000)); accord Guillory, 434 F.3d at 309. The court, however, must carefully distinguish an attack on the overall merits of the case from a showing that defendants were improperly joined in order to defeat diversity. See Smallwood, 385 F.3d at 573 ("[T]he focus of the inquiry must be on the joinder, not on the merits of the plaintiff's case."); see also Gasch, 491 F.3d at 284 ("[A] meritless claim against an in-state defendant is not the equivalent of improper joinder."); B., Inc. v. Miller Brewing Co., 663 F.2d 545, 546 (5th Cir. 1981) ("[D]istrict courts must not 'pre-try' substantive factual issues in order to answer the discrete threshold question of whether the joinder of an in-state defendant is fraudulent.").

In the instant case, because Defendant does not claim actual fraud in Plaintiff's recitation of jurisdictional facts, it must demonstrate that there is no possibility that Holmes could establish a cause of action against Wellington. See Gasch, 491 F.3d at 281; Larroquette, 466 F.3d at 374; Holder, 444 F.3d at 387; Guillory, 434 F.3d at 308; Melder, 404 F.3d at 330; Smallwood, 385 at 573; Travis, 326 F.3d at 648; Great Plains Trust Co., 313 F.3d at 312. "Merely pleading a valid state law claim, or one whose validity is reasonably arguable, against the resident defendant does not mean that the joinder of the resident defendant is not fraudulent." Hornbuckle, 385 F.3d at 542(citing LeJeune v. Shell Oil Co., 950 F.2d 267, 271 (5th Cir. 1992)). "In evaluating a claim of fraudulent joinder, we do not determine whether the plaintiff will actually or even probably prevail on the merits of the claim, but look only for a possibility that the plaintiff may do so." Rodriguez v. Sabatino, 120 F.3d 589, 591 (5th Cir. 1997), cert. denied, 523 U.S. 1072 (1998); see Guillory, 434 F.3d at 308-09; Sid Richardson Carbon & Gasoline Co. v. Interenergy Res., Ltd., 99 F.3d 746, 751 (5th Cir. 1996); Burden, 60 F.3d at 216. "'If that possibility exists, a good faith assertion of such an expectancy in a state court is not a sham . . . and is not fraudulent in fact or in law.'" B., Inc., 663 F.2d at 550 (quoting Bobby Jones Garden Apartments, Inc. v. Suleski, 391 F.2d 172, 177 (5th Cir. 1968)); accord Travis, 326 F.3d at 647. "This possibility, however, must be reasonable, not merely theoretical." Great Plains Trust Co., 313 F.3d at 312 (citing Badon v. RJR Nabisco Inc., 236 F.3d 282, 286 n.4 (5th Cir. 2000)); accord Boone, 416 F.3d at 388; Gray ex rel. Rudd v. Beverly Enters.-Miss., Inc., 390 F.3d 400, 405 (5th Cir. 2004); Travis, 326 F.3d at 648. "'If there is "arguably a reasonable basis for predicting that the state law might impose liability on the facts involved," then there is no fraudulent joinder,'" and the case must be remanded for lack of diversity. Great Plains Trust Co., 313 F.3d at 312 (quoting Badon, 236 F.3d at 286 (quoting Jernigan v. Ashland Oil Inc., 989 F.2d 812, 816 (5th Cir.), cert. denied, 510 U.S. 868 (1993))); see Gray, 390 F.3d at 402; Smallwood, 385 F.3d at 589-90; Sid Richardson Carbon & Gasoline Co., 99 F.3d at 751.

In assessing whether a plaintiff could possibly establish a claim against a non-diverse defendant, the court must apply the law of the state in which the action was brought-in this case, Texas. See Travis, 326 F.3d at 647; Hart, 199 F.3d at 247. "[W]hether the plaintiff has stated a valid state law cause of action depends upon and is tied to the factual fit between the plaintiff['s] allegations and the pleaded theory of recovery." Griggs, 181 F.3d at 701; see Burden, 60 F.3d at 218-21. Based on the court's research, the United States Court of Appeals for the Fifth Circuit has not resolved in a published decision the issue of whether to apply the federal 12(b)(6) standard or the more lenient Texas "fair notice" standard when evaluating the sufficiency of factual allegations for the purpose of determining improper joinder. Nonetheless, in Akerblom v. Ezra Holdings, Ltd., an unpublished case, the appeals court applied Texas pleading standards in an analysis of improper joinder. No. 12-20182, 2013 WL 363112, at *4, 7 (5th Cir. Jan. 28, 2013) ("[F]or determining improper joinder vel non, [plaintiff's] Texas state-court petition (complaint) is the primary document considered. A Texas state-court petition must "consist of a statement in plain and concise language of the . . . cause of action.") (citing TEX. R. CIV. P. 45(a) & (b)).

District courts in Texas have differed regarding which standard to apply. Compare Escuadra v. Geovera Specialty Ins. Co., 739 F. Supp. 2d 967, 976-77 (E.D. Tex. 2010) (applying federal standard), and King v. Provident Life & Accident Ins. Co., 1:09-CV-983, 2010 WL 2730890, at *4 (E.D. Tex. June 4, 2010) (same), with Stevenson v. Allstate Tex. Lloyd's, No. 11-CV-3308, 2012 WL 360089, at *3 (S.D. Tex. Feb. 1, 2012) (applying Texas standard), and Hayden v. Allstate Tex. Lloyds, H-10-646, 2011 WL 240388, at *7-8 (S.D. Tex. Jan. 20, 2011) (same). It appears, however, that the majority of district courts which have addressed this issue favor application of the state pleading standard. Edwea, Inc. v. Allstate Ins. Co., H-10-2970, 2010 WL 5099607, at *5 (S.D. Tex. Dec. 8, 2010).*fn1 After reviewing these authorities, the court is persuaded that applying the state pleading standard is the better approach. Because Plaintiff filed her petition in state court in accordance with Texas pleading standards, it would be unfair to hold her to the more stringent standard of federal court. Centro Cristiano Cosecha Final, Inc., 2011 WL 240335, at *14; Edwea, Inc., 2010 WL 5099607, at *5-6. ...

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