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Davis v. Travelers Lloyds of Texas Insurance Co.

United States District Court, W.D. Texas, Austin Division

April 30, 2019

MICHAEL STUART DAVIS
v.
TRAVELERS LLOYDS OF TEXAS INS. CO. and RICK LIMER

          REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

          ANDREW W. AUSTIN UNITED STATES MAGISTRATE JUDGE

         TO: THE HONORABLE LEE YEAKEL UNITED STATES DISTRICT JUDGE

         Before the Court are Plaintiff's Opposed Motion to Remand (Dkt. No. 4); and Defendants' Response (Dkt. No. 5). The District Judge referred the motions to the undersigned for report and recommendation pursuant to 28 U.S.C. §636(b)(1)(B), Fed.R.Civ.P. 72, and Rule 1(d) of Appendix C of the Local Court Rules.

         I. GENERAL BACKGROUND

         Michael Stuart Davis filed this suit in the 261st District Court of Travis County, Texas. He alleges that he owned a Texas Residential Insurance Policy issued by Travelers, insuring his residence in Austin, Texas. When the property sustained water damage Davis filed a claim under the policy. Rick Limer was assigned by Travelers as the adjuster on the claim. Davis alleges that Limer conducted a substandard investigation and inspection, under-reported the damage to the property, and undervalued the damage he observed. Davis alleges that because of Limer's actions, his claim was wrongly denied by Travelers. Davis brings claims against Travelers for breach of contract, violations of the Texas Prompt Payment of Claims Act (TPPCA), claims under both Chapters 541 and 542 of the Texas Insurance Code, and breach of the duty of good faith and fair dealing. He also brings various causes of action against Limer, including a claim under Chapter 541 of the Texas Insurance Code.

         Travelers and Limer removed the case to this court based upon diversity, asserting that Limer, though a Texas citizen, is improperly joined. Davis now moves to remand, arguing that he has properly pled a claim against Limer, and Limer's citizenship should therefore be taken into account. Because the Court agrees that Limer was not improperly joined, complete diversity of citizenship is lacking and this case should therefore be remanded to state court.

         II. LEGAL STANDARD

         The removal statutes are the starting point for analyzing any claim of improper joinder. Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568, 572 (5th Cir. 2004), cert. denied, 544 U.S. 992 (2005). To remove a case based on diversity, the defendant must demonstrate that all of the prerequisites of diversity jurisdiction contained in § 1332 are satisfied, including the requirement of “complete” diversity of citizenship. Id. at 572. Complete diversity “requires that all persons on one side of the controversy be citizens of different states than all persons on the other side.” McLaughlin v. Miss. Power Co., 376 F.3d 344, 353 (5th Cir. 2004). A non-diverse defendant does not destroy diversity, however, when that defendant was “improperly or collusively joined to manufacture federal diversity jurisdiction.” Smallwood, 385 F.3d at 572. The “heavy burden” to demonstrate that a party has been improperly joined is on the removing party. Id. at 574. The Fifth Circuit recognizes two avenues to establish improper joinder: “(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.” Travis v. Irby, 326 F.3d 644, 646-47 (5th Cir. 2003); Int'l Energy Ventures Mgmt., L.L.C. v. United Energy Grp., Ltd., 818 F.3d 193, 199 (5th Cir. 2016).

         Davis argues that in determining whether he has adequately pled a cause of action against Limer, the Court should employ the Texas “fair notice” standard and not the more stringent federal standard. However, in conducting the improper-joinder analysis, federal courts apply federal pleading standards. Int'l Energy Ventures, 818 F.3d at 208. Thus, federal courts conduct a Rule 12(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. “Ordinarily, if a plaintiff can survive a Rule 12(b)(6) challenge, there is no improper joinder.” Id. This means that the Court will examine whether Davis has asserted facts-which the Court accepts as true-that “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 554, 570 (2007). In this context, courts “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). Moreover, “§ 1441's holistic approach to removal mandates that the existence of even a single valid cause of action against [defendant] . . . (despite the pleading of several unavailing claims) requires remand of the entire case to state court.” Gray v. Beverly Enters.-Miss., Inc., 390 F.3d 400, 412 (5th Cir. 2004).

         III. ANALYSIS

         Davis asserts several claims against Limer. He contends that Limer misrepresented the damages covered by the policy at issue, and misrepresented the costs required to repair the covered damage. Dkt. No. 1-1 at ¶ 41. He also contends that Limer engaged in conduct that constitutes unfair acts or practices in the business of insurance. Id. at ¶ 42. The Texas Insurance Code creates a private right of action to anyone who sustains actual damages caused by “a person” engaging in an act or practice defined in Chapter 541 to be an unfair act or practice of insurance. Tex. Ins. Code In § 541.151. Chapter 541 identifies a number of actions as unfair acts or practices, including making misrepresentations of the scope of a policy, as well as a litany of “unfair settlement practices.” Tex. Ins. Code §§ 541.051, 541.060. The definition of “person” includes “an individual . . . engaged in the business of insurance, including an agent, broker, adjuster, or life and health insurance counselor.” Id. at § 541.002(2) (emphasis added). Thus, Chapter 541 of the Texas Insurance Code explicitly allows suit to be filed against an insurance adjuster based on a failure to properly settle a claim or engaging in a prohibited act or practice. On its face, Davis' petition appears to allege such a claim.

         Travelers and Limer nevertheless argue that Davis' claim against Limer is predicated on the allegation that Limer improperly denied Davis' claim. They point out that because only Travelers was Davis' insurer, and thus only Travelers could have paid Davis' claim, it is impossible for Limer to have improperly denied the claim. Dkt. No. 5 at 3. To support this argument, the Defendants rely on a number of cases. See Messersmith v. Nationwide Mut. Fire Ins. Co., 10 F.Supp.3d 721, 723 (N.D. Tex. 2014) (holding that insurance adjuster was improperly joined because Tex. Ins. Code § 541.060(a) applies only to insurers); One Way Investments, Inc. v. Century Surety Company, 2014 WL 6991277, at *4 (N.D. Tex. Dec. 11, 2014) (same); Plascencia v. State Farm Lloyds, 2014 WL 11474841, at *6-7 (N.D. Tex. Sept. 25, 2014) (same).

         The cases Travelers relies on are only part of the story, however. As Judge Chestney noted recently,

there is hardly consensus among the district courts in this Circuit as to the availability of a remedy against an adjuster with respect to all sections of Section 541.060. In fact, a survey of the case law reveals “many seemingly inconsistent cases both remanding and denying remand ...

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