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Adaptive Modifications, LLC v. Atlantic Casualty Insurance Co.

United States District Court, E.D. Texas, Sherman Division

April 29, 2019




         Pending before the Court is Plaintiff Adaptive Modifications, LLC's Motion to Remand (Dkt. #10). Having considered the motion and the relevant pleadings, the Court finds that the motion should be denied.


         Plaintiff's business purpose is to transform living spaces into functional and accessible homes for the disabled and elderly to promote independent living (Dkt. #10 ¶ 12). Plaintiff's sole member is James Boren (Dkt. #10 ¶ 7). In March 2015, Mr. Boren asked Defendant Dan Mitchell-a retail insurance agent for Defendant Trimark Insurance Group (“Trimark”)-to procure a commercial general liability policy for Plaintiff (Dkt. #1 ¶ 7; Dkt. #10 ¶ 12).

         Mr. Boren's meeting with Mr. Mitchell was short (Dkt. #10 ¶ 13). Although Mr. Mitchell asked Mr. Boren few questions, Mr. Boren remembers explaining to Mr. Mitchell that he “performs all types of work, including minor plumbing, installation of handrails and wall attachments, attaching faucets and toilets, tilting work in bathroom areas, and all other handyman type of work” on behalf of Plaintiff (Dkt. #10 ¶¶ 12-13). Mr. Boren told Mr. Mitchell that the general commercial liability policy procured for Plaintiff must cover this work (Dkt. #10 ¶ 13). Mr. Mitchell assured Mr. Boren that he would procure a policy for Plaintiff that covered this work and any damages that might occur (Dkt. #10 ¶ 13). The policy procured by Mr. Mitchell allegedly covers only carpentry work (Dkt. #10 ¶ 13).

         To procure Plaintiff's policy, Mr. Mitchell applied to Defendant Delta General Agency Corporation, North Texas Branch (“Delta”) to underwrite the policy (Dkt. #1 ¶ 7). Acting as a managing general agent, Delta enabled Defendant Atlantic Casualty Insurance Company (“Atlantic”) to issue Plaintiff's policy for a period covering March 13, 2015, through March 13, 2016 (Dkt. #1 ¶¶ 6-7).[1]

         In 2015, Plaintiff participated in nonparty Inc.'s (“Amazon”) “beta program for services.” (Dkt. #1-5 ¶ 10). As part of this program, Amazon contracted Plaintiff to perform handyman-type jobs for customers who ordered products through Amazon. (Dkt. #1-5 ¶ 10). In December 2015, nonparties Mr. and Ms. Haberman ordered a faucet from Amazon and Amazon contracted Plaintiff to install the faucet (Dkt. #1-5 ¶ 10; Dkt. #10 ¶ 18). The faucet later leaked allegedly causing damage to the Habermans' property (Dkt. #1-5 ¶ 10). The Habermans reported the leak to Amazon and Amazon contracted Plaintiff to install a new faucet. After installing the new faucet, Amazon told Plaintiff it would “handle the Habermans' matter.” (Dkt. #10 ¶ 20).

         In March 2017, the Habermans filed an underlying suit concerning the alleged property damage caused by the leaking faucet (Dkt. #1-5 ¶ 11). The Habermans served Plaintiff with notice of the underlying suit in March 2018 (Dkt. #1-5 ¶ 11). Plaintiff contacted Atlantic requesting Atlantic defend and indemnify Plaintiff in the underlying suit pursuant to the insurance policy (Dkt. #1-5 ¶ 11). Atlantic denied Plaintiff's claim (Dkt. #1-5 ¶ 11).

         Consequently, on November 5, 2018, Plaintiff sued Defendants in the 219th Judicial District Court of Collin County, Texas (Dkt. #1 ¶ 1; Dkt. #1-5). Plaintiff alleges claims for violations of Chapter 541 of the Texas Insurance Code, violations of Section 17.46(b) of the Texas Deceptive Trade Practices Act (“DTPA”), breach of contract, and negligence against the Defendants (Dkt. #1-5 ¶¶ 12-24). On December 13, 2018, Defendants removed the case to this Court (Dkt. #1). On January 11, 2019, Plaintiff filed its motion to remand (Dkt. #10). Defendants filed a response to the motion on January 28, 2019 (Dkt. #16). Plaintiff did not file a reply in support of the motion.


         “Federal courts are courts of limited jurisdiction, possessing only that power authorized by Constitution and statute.” Gunn v. Minton, 568 U.S. 251, 256 (2013) (quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994)). “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) (citing 28 U.S.C. § 1441(a)). “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.” Humphrey v. Tex. Gas Serv., No. 1:14-CV-485, 2014 WL 12687831, at *2 (E.D. Tex. Dec. 11, 2014) (citations omitted). The Court “must presume that a suit lies outside [its] limited jurisdiction, ” Howery v. Allstate Ins. Co., 243 F.3d 912, 916 (5th Cir. 2001), and “[a]ny ambiguities are construed against removal and in favor of remand to state court.” Mumfrey v. CVS Pharmacy, Inc., 719 F.3d 392, 397 (5th Cir. 2013) (citing Manguno v. Prudential Prop. & Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002)). “When considering a motion to remand, the removing party bears the burden of showing that federal jurisdiction exists and that removal was proper.” Humphrey, 2014 WL 12687831, at *2 (quoting Manguno, 276 F.3d at 723).


         I. Diversity Jurisdiction

         Defendant removed this case pursuant to 28 U.S.C. § 1441 arguing the Court may exercise diversity jurisdiction under 28 U.S.C. § 1332 (Dkt. #1 ¶ 3). The parties do not dispute that complete diversity-required to establish original jurisdiction under § 1332-does not exist as Plaintiff and Defendants Trimark, Delta, and Mr. Mitchell are citizens of Texas (collectively, “Texas Defendants”) (Dkt. #1-5 ¶¶ 4, 5-8). However, Defendant Atlantic-a citizen of North Carolina-claims that Plaintiff improperly joined the Texas Defendants to defeat diversity jurisdiction (Dkt. #1 ¶ 3; Dkt. #16).[2] Accordingly, Defendants contend the Court may exercise diversity jurisdiction after dismissing the improperly joined defendants.

         II. Improper Joinder

         To avoid removal and to preserve their venue choice, plaintiffs sometimes join non-diverse parties for the sole purpose of defeating diversity jurisdiction. 13F Charles Alan Wright et al., Federal Practice and Procedure § 3641.1 (3d ed. 1998). “[T]he improper joinder doctrine constitutes a narrow exception to the rule of complete diversity” allowing a defendant to challenge a plaintiff's attempt to join a diversity-destroying party. 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)). To establish improper joinder, the removing party has the burden to 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.'” Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568, 573 (5th Cir. 2004) (en banc) (quoting Travis v. Irby, 326 F.3d 644, 646-47 (5th Cir. 2003)). In other words, if a defendant demonstrates that the plaintiff either fraudulently pleaded jurisdictional facts concerning the non-diverse party or the plaintiff is unable to establish a cause of action against the non-diverse party, the defendant may remove the case under the improper joinder exception to the complete diversity rule.

         Under the second prong-inability to establish a cause of action against the non-diverse party-the test 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.”[3] Smallwood, 385 F.3d at 573. Courts resolve this question by conducting a Federal Rule of Civil Procedure 12(b)(6) analysis or piercing the pleadings and conducting a summary inquiry. River of Life Assembly of God v. Church Mut. Ins. Co., 1:19-CV-49-RP, 2019 WL 1468933, at *1 (W.D. Tex. Apr. 3, 2019) (quoting Smallwood, 385 F.3d at 573) (citing Int'l Energy Ventures Mgmt., L.L.C. v. United Energy Grp., Ltd., 818 F.3d 193, 201 (5th Cir. 2016)).

         Courts choose to either perform a Rule 12(b)(6) analysis or pierce the pleadings and conduct a summary inquiry, “but it must use one and only one of them, not neither or both.” Int'l Energy, 818 F.3d at 207 (emphasis in original). If a court chooses the 12(b)(6) route, the court applies the federal pleading standards. Id. at 207-08. A court should only choose to pierce the pleadings and conduct a summary inquiry to “identify the presence of discrete and undisputed facts that would preclude [a] plaintiff's recovery against the in-state defendant.” Smallwood, 385 F.3d at 573-74. Under either inquiry, “the motive or purpose of the joinder of the in-state defendants is not relevant.” Id. The decision concerning whether to apply the 12(b)(6) analysis or to pierce the pleadings and conduct a summary inquiry is within the discretion of the trial court. Davidson v. Georgia-Pac, L.L.C., 819 F.3d 758, 765 (5th Cir. 2016) (quoting Smallwood, 385 F.3d at 573). The Fifth Circuit “has consistently found improper joinder where a non-jurisdictional affirmative defense (such as statute of limitations) conclusively bars the plaintiffs claims against the non-diverse defendant.” Flagg v. Stryker Corp., 819 F.3d 132, 139 n.32 (5th Cir. ...

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