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Axel Brokers, Inc. v. United Fire & Casualty Co.

United States District Court, S.D. Texas, Laredo Division

August 23, 2019

AXEL BROKERS, INC., Plaintiff,
v.
UNITED FIRE & CASUALTY COMPANY and DAVID S. WALTON, Defendants.

          ORDER

          Marina Garcia Marmolejo United States District Judge.

         This case concerns Defendant United Fire & Casualty Company's alleged liability for storm damage to a commercial building owned by Plaintiff. United Fire removed the case to federal court on the basis of diversity jurisdiction. The parties, however, are not completely diverse: United Fire is a citizen of Iowa; but Plaintiff and Defendant Walton, an adjuster employed by United Fire, are citizens of Texas.

         While the lack of complete diversity ordinarily would defeat federal jurisdiction, United Fire asks the Court to ignore Walton's citizenship under the doctrine of improper joinder, because there was no possibility that Plaintiff could recover against Walton in state court. (Dkt. No. 1 at 2). In that regard, before this case was filed, United Fire executed an "election of legal responsibility" under Texas Insurance Code § 542.006, by which it assumed Walton's liability and precluded any cause of action against him. (Id.). For its part, Plaintiff appears to acknowledge that United Fire's election rendered Walton an improperly joined party, (see Dkt. No. 4 at 1-2). It now seeks the Court's leave to voluntarily dismiss the claims against him. (Id. at 2).

         After considering the parties' submissions, the Court agrees that Walton was improperly joined as a party to this case. The Court therefore grants the parties' motion (Dkt. No. 1 at 2-3; Dkt. No. 4 at 2) to DISMISS the claims against Walton without prejudice.

         I. Background

         In May 2017, a storm damaged a commercial building that Plaintiff owned. (Dkt. No. 1-3 at 3). Plaintiff filed an insurance claim with United Fire, which then assigned adjuster David Walton to inspect the property damage. (Id.). According to Plaintiff, Walton underestimated the extent of the damage, and United Fire knowingly relied upon Walton's undervaluation in denying some of Plaintiffs claim. (Id. at 3-6).

         In April 2019, United Fire notified Plaintiff that, pursuant to § 542A.006 of the Texas Insurance Code, United Fire was "elect[ing] to accept whatever liability its agent, David Scott Walton [ ], might have to [Plaintiff] for [Walton's] alleged acts or omissions related to the claim." (Dkt. No. 1-8 at 2). About a month later, Plaintiff filed suit in state court, alleging claims against United Fire and Walton for breach of the common law duty of good faith and fair dealing and violations of chapters 541 and 542 of the Texas Insurance Code. Plaintiff also alleged a separate cause of action against United Fire for breach of contract. (Dkt. No. 1-3 at 8-12).

         United Fire was served on June 3, 2019. (Dkt. No. 1-2). It filed a Notice of Removal on June 24, 2019. In its Notice of Removal, United Fire asserts that Walton was improperly joined and urges the Court to disregard his citizenship in evaluating the parties' diversity. (Dkt. No. 1 at 2). United Fire reasons that because of its pre-lawsuit election of liability for Walton's actions, there is "no reasonable basis" for the Court to "predict that the Plaintiff might be able to recover against Walton." (Id.).

         Plaintiff responded to Defendant's Notice of Removal in an Advisory filed on August 9, 2019.[1]Initially, Plaintiff does "not concede" that Walton was improperly joined, recalling that Walton was "the claims adjuster assigned to the claim that made the basis of this lawsuit." (Dkt. No. 4 at 1-2). However, Plaintiff acknowledges that a motion to remand would "likely be denied" because of United Fire's pre-lawsuit election of liability. Plaintiff therefore seeks leave to voluntarily dismiss the claims against Walton. (Id. at 2).

         II. Legal Standard

         With limited exceptions, a federal district court may exercise "removal jurisdiction over an action if the district court could have exercised original jurisdiction over it." Elam v. Kan. City S. Ry. Co., 635 F.3d 796, 803 (5th Cir. 2011) (citing 28 U.S.C. § 1441(a)). As relevant here, a case may be removed pursuant to 28 U.S.C. § 1332 if "there is complete diversity of citizenship and the amount in controversy is greater than $75, 000 exclusive of interests and costs." Allen v. Walmart Stores, L.L.C., 907 F.3d 170, 183 (5th Cir. 2018).

         The doctrine of improper joinder is a "narrow exception to the rule of complete diversity." McDonal v. Abbott Labs., 408 F.3d 177, 183 (5th Cir. 2005). When a plaintiff improperly joins a non-diverse defendant, the Court may disregard the citizenship of the improperly joined defendant, dismiss that defendant from the case, and exercise subject-matter jurisdiction over the remaining, diverse defendants. Flagg v. Stryker Corp., 819 F.3d 132, 136 (5th Cir. 2016) (en banc). The "heavy" burden of proving improper joinder falls to the removing party. Cuevas v. BAC Home Loans Servicing, LP, 648 F.3d 242, 249 (5th Cir. 2011).

         Improper joinder can be established in two ways: "(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. III. Cent. R.R. Co., 385 F.3d 568, 573 (5th Cir. 2004) (en banc) (citation omitted). To make the second showing, a defendant must demonstrate 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." Id.; see also Cumpian v. Alcoa World Alumina, L.L.C., 910 F.3d 216, 219-20 (5th Cir. 2018) (analyzing improper joinder under Federal Rule of Civil Procedure 12(b)(6) standard).

         III. ...


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