N&O Holdings LLC v. State Auto. Mut.
| Decision Date | 11 May 2022 |
| Docket Number | SA-22-CV-0186-JKP |
| Parties | N&O HOLDINGS LLC, Plaintiff, v. STATE AUTOMOBILE MUTUAL and GERALD PTACEK, Defendants. |
| Court | U.S. District Court — Western District of Texas |
Before the Court is Defendant State Automobile Mutual Insurance Company's Motion to Dismiss Gerald Ptacek with Prejudice Pursuant to Texas Insurance Code § 542A.006 (ECF No. 6). The defendant insurance company (“SAM”) seeks dismissal of its adjuster-agent (“Ptacek”) with prejudice in accordance with state law. Plaintiff has filed a response (ECF No. 8) and the Court finds no need for a reply brief. See W.D. Tex. Civ. R. 7(e)(2) (“The court need not wait for a reply before ruling on a motion.”) After considering the motion, briefing other relevant filings, and the applicable law, the Court grants the motion to the extent that SAM seeks dismissal of Ptacek. But it dismisses him without prejudice in accordance with Fifth Circuit law.
This case presents no dispute that Defendant Ptacek is a nondiverse party. And “as long as a nondiverse party remains joined, the only issue the court may consider is that of jurisdiction itself.” Int'l Energy Ventures Mgmt., LLC v. United Energy Grp., Ltd., 818 F.3d 193 209 (5th Cir. 2016). Federal courts always have “jurisdiction to determine [their] own jurisdiction.” United States v. Ruiz, 536 U.S 622, 622 (2002). Through this limited authority, courts may dismiss an improperly joined party. Int'l Energy, 818 F.3d at 209. Such dismissal, furthermore, must be without prejudice because when “considering whether a nondiverse party was improperly joined . . . the court is only considering jurisdiction.” Id. at 209-10.
The motion before the Court concerns a post-suit election of liability by SAM pursuant to Tex. Ins. Code § 542A.006. The parties do not dispute that the insurance company elected to accept responsibility for Ptacek after Plaintiff commenced its state action but before SAM removed the action to federal court. Nor do they dispute that this is an action to which Chapter 542A applies.
The undersigned has previously confronted the issues presented by the parties in relation to Tex. Ins. Code § 542A.006. See Wyatt v. Allstate Vehicle & Prop. Ins. Co., No. SA-21-CV-00960-JKP, 2021 WL 5771873, at *1-3 (W.D. Tex. Dec. 3, 2021); Tabib v. Metro. Lloyds Ins. Co. of Tex., No. SA-21-CV-0116-JKP, 2021 WL 1721853, at *1-2 (W.D. Tex. Apr. 30, 2021); Koenig v. Unitrin Safeguard Ins. Co., No. SA-20-CV-00887-JKP-HJB, 2021 WL 51762, at *1-3 (W.D. Tex. Jan. 6, 2021); Mazhar Footsteps, LLC v. AmGuard Ins. Co., No. SA-20-CV-00955-JKP-HJB, 2020 WL 7670245, at *1-5 (W.D. Tex. Dec. 24, 2020). Koenig and Tabib are factually indistinguishable from the current case - both involve a post-suit election of liability made before removal of the state action. Compare 2021 WL 1721853, at *1 () with ECF No. 1-8 (). While Mazhar also involved a post-suit election, the election of liability was made in the notice of removal itself and in an emailed letter sent that same day. See 2020 WL 7670245, at *2. Similarly, Wyatt involved a post-suit election attached as an exhibit to the notice of removal. See 2021 WL 5771873, at *1.
In each of these prior cases, this Court recognized a developed “split of authority” on how to apply § 542A.006 when the insurer “has made its election in the state court proceedings or at the time of removal.” See Wyatt, 2021 WL 5771873, at *2; Tabib, 2021 WL 1721853, at *2; Koenig, 2021 WL 51762, at *3, Mazhar, 2020 WL 7670245, at *3. And in Koenig, the Court found the Mazhar analysis equally applicable to that case. See 2021 WL 51762, at *3. Based on the analyses and discussions set out in these prior cases the Court is naturally inclined to rule similarly. As already noted, and as pointed out in Mazhar, despite § 542A.006 providing “for dismissal with prejudice following an insurer's election, ” the Fifth Circuit requires that “an improperly joined party” be dismissed without prejudice. 2020 WL 7670245, at *5 n.4 ().
The parties recognize the split of authority and unsurprisingly urge the Court to apply the side of the split that favors their position. The Court has considered Plaintiff's response to the motion and its arguments for why this Court lacks jurisdiction. But Plaintiff presents no argument that the Court has not already considered previously. Plaintiff merely relies on non-binding caselaw that is in conflict with this Court's established approach. Plaintiff, however, presents no new breakthrough, no persuasive decision, or any binding precedent requiring or persuading the Court to deviate from its prior path.
The Court has reviewed its prior decisions on this matter and reaffirms its commitment to its established approach. Of its four cases, only one, Koenig, has prompted any disagreement. In Kessler v. Allstate Fire and Casualty Insurance Company, 541 F.Supp.3d 718 (N.D. Tex. 2021), the Northern District of Texas disagreed with the defendant's arguments relying on Koenig. Of course, Koenig followed the approach established in Mazhar.
the Mazhar case sets out this Court's reasoning. It relies on two en banc decisions of the Fifth Circuit to find that a post-filing, pre-removal election under § 542A.006 makes the case removable under diversity jurisdiction. See 2020 WL 7670245, at *3-5 (). In taking its position, Kessler emphasizes that no binding authority controls. See 541 F.Supp.3d at 728-29. Yet, although considering Smallwood, Kessler does not discuss Flagg at any point. One court that disagrees with Kessler specifically notes this omission. See Valverde v. Maxum Cas. Ins. Co., 558 F.Supp.3d 385, 400 (S.D. Tex. 2021). Flagg was the tipping point in this Court's analysis of the § 542A.006 issue presented.
This Court readily agrees that this is “an area of law - improper joinder jurisprudence -that is notoriously opaque.” See Kessler, 541 F.Supp.3d at 731. And it does not disagree that this may be “a close question of law.” See id. Absent Flagg, Kessler's position would be stronger. Further, while the Court has no disagreement with the proper lens from which to view jurisdictional issues and questions of removal, see id. (), the Court finds that each legal principle supports its approach. As stated in Mazhar:
Because removal raises significant federalism concerns, the removal statute is strictly construed ‘and any doubt as to the propriety of removal should be resolved in favor of remand.'” Gutierrez v. Flores, 543 F.3d 248, 251 (5th Cir. 2008) (quoting In re Hot-Hed, Inc., 477 F.3d 320, 323 (5th Cir. 2007)). “Any 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). The removing party has the burden to show “that federal jurisdiction exists and that removal was proper.” Scar-lott v. Nissan N. Am., Inc., 771 F.3d 883, 887 (5th Cir. 2014) (quoting Mumfrey, 719 F.3d at 397).
Thus, although federal courts “must presume that a suit lies outside [its] limited jurisdiction, ” the presumption may be overcome by “the party seeking the federal forum.” Howery v. Allstate Ins. Co., 243 F.3d 912, 916 (5th Cir. 2001). When that party presents an irrevocable election under § 542A.006, it carries its burden on the jurisdictional issue absent other issues of jurisdiction. Second, although the federal courts strictly construe removal statutes and resolve “any doubt about the propriety of removal” in favor of remand, an irrevocable § 542A.006 election may remove any such doubt. Third, although the federal courts must “resolve any contested issues of material fact, and any ambiguity or uncertainty in the controlling state law” in the plaintiff's favor, Griggs v. State Farm Lloyds, 181 F.3d 694, 699 (5th Cir. 1999), no one contests that SAM has irrevocably elected to accept responsibility for its adjuster under § 542A.006, and there is no ambiguity or uncertainty in Texas law that the plaintiff therefor had no possibility of recovery against Ptacek at the time of removal.
If there is ambiguity or uncertainty, it lies with Fifth Circuit precedent, not state law. But, as discussed in Mazhar, Flagg “focuses on ‘plaintiff's possibility of recovery against that defendant at the time of removal.'” 2020 WL 7670245, at *3 (quoting Flagg, 819 F.3d at 137 (emphasis in original)). As noted in Valverde, “the Fifth Circuit en banc and otherwise has repeatedly instructed district courts to test improper joinder at the time of removal, not as the plaintiff's claims ‘existed when first made.'” 558 F.Supp.3d at 400-01 (quoting Ramirez v. Allstate Vehicle & Prop. Ins. Co., 490 F.Supp.3d 1092, 1104 (S.D. Tex. 2020)). This Court agrees that the Fifth Circuit has not “left the law in such disarray that the Court is entitled to breezily remand a case over which diversity jurisdiction evidently attaches.” See id. at 401.
Although Flagg dealt with questions of exhaustion, that distinction does not lessen the clear import of the decision. Four times in Flagg, the Fifth Circuit states that the relevant time for examining jurisdictional facts is “at the time of removal.” See 819 F.3d at 137 (), 138 (twice), 140. At one point,...
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