Biodiesel v. Ace American Ins. Co.

Decision Date11 June 2010
Docket NumberCivil Action No. G-10-132.
CourtU.S. District Court — Southern District of Texas


Allen Craig Eiland, Attorney at Law, Galveston, TX, David Watkin Jones, Beck Redden et al., Richard Warren Mithoff, Jr., Mithoff Law Firm, Russell Stanley Post, Beck Redden Secrest LLP, Houston, TX, for Plaintiff.

Bryan P. Vezey, Joseph A. Ziemianski, Cozen O. Connor, Houston, TX, Wade B. Williams, Lewis and Williams, Galveston, TX, for Defendants.


KENNETH M. HOYT, District Judge.


Before the Court are the plaintiff, Galveston Bay Biodiesel, L.P.'s, motion to remand (Doc. No. 13), and the defendants, Ace American Insurance Company and Liberty Mutual Insurance Company's response to the plaintiff's motion (Doc. No. 17). Having carefully reviewed the parties' submissions, the record and the applicable law, the Court hereby Grants the plaintiff's motion to remand and remands this case to state court.


This dispute arose as a result of damages caused to the plaintiff's property during Hurricane Ike. Afterward, the plaintiff made claims under contracts of insurance issued by the defendants [Ace Policy No. EPRN04289997 and Liberty Mutual Policy No. 3D522313002] for the period from January 16, 2008 to January 16, 2009. The policies covered physical loss or damage to the real property, business interruption, extra expenses and certain extensions. The plaintiff timely submitted its claim to the defendants and were informed that the policies “contain a $15,000,000 annual aggregate sublimit for all costs and loss associated with [Hurricane Ike] and that such sublimit is the total amount recoverable under the policies.”

In addition to Ace and Liberty Mutual, the plaintiff also sued Starr Technical Risks Agency of Texas, Inc., and its employee, Vincent Milligan. Ace and Liberty Mutual employed Starr and its employee, Milligan, to adjust the plaintiff's claim. By joining these two defendants, both residents of Texas, the plaintiff contends that diversity jurisdiction is defeated. See 28 U.S.C. § 1441(a).

III. CONTENTIONS OF THE PARTIES A. The Plaintiff's Contentions

The plaintiff asserts that remand is appropriate because of it claims against Starr and Milligan which claims provide a reasonable basis for recovery against them. The plaintiff points out that Chapter 541 of the Texas Insurance Code provides for suits and a basis for recovery against adjusters for unfair settlement practices. In this regard, the plaintiff asserts that, apart from Ace and Liberty Mutual's conduct, Starr and Milligan: (a) failed “to attempt in good faith to effectuate a prompt, fair, and equitable settlement of [its] claim ...”; (b) failed “to provide promptly to [the plaintiff] a reasonable explanation of the basis in the policies, in relations to the facts or applicable law, for the denial of [its] claims;” and (c) misrepresented “to [the plaintiff] material facts and policy provision relating to the coverage at issue.”

B. Ace and Liberty Mutual's Contentions

The defendants removed the case to this Court from the 122nd Judicial District Court of Galveston County, Texas. In their response to the plaintiff's motion to remand this case to that court, the defendants contend that the plaintiff's fraud claim against Starr and Milligan, does not comply with the pleading strictures of Federal Rule of Civil Procedure, Rule 9(b). The defendants point to the plaintiff's pleadings and argue that the “factual allegations against Starr and Milligan” fail to adequately state fraud-based claims against them. The defendants point out that, while Ace and Liberty Mutual, parties to the insurance contract and subject to breach of contract claims apart from fraud, Starr and Milligan do not occupy a similar relationship with the plaintiff. Therefore, the defendants argue that fraud, apart from the contractual obligations owed by Ace and Liberty Mutual, must be pled with particularity; otherwise, Starr and Milligan have been improperly added merely to defeat diversity and; therefore, their citizenship should be disregarded.


The applicable statute provides two grounds for remand: (1) a defect in removal procedure; and (2) lack of subject matter jurisdiction. See 28 U.S.C. § 1447(c); Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 127-28, 116 S.Ct. 494, 133 L.Ed.2d 461 (1995). A remand for lack of subject matter jurisdiction is permissible at any time before final judgment, with or without a motion. 28 U.S.C. § 1447(c). Here, the essential inquiry is whether removal of the state court action on the basis of diversity of citizenship was proper in light of the facts presented. Pursuant to 28 U.S.C. § 1441(a), a defendant is permitted to remove an action from a state court to a federal court only if the action is one over which the federal court has original jurisdiction. The federal diversity jurisdiction statute provides that federal courts have original jurisdiction over all civil actions where the matter in controversy exceeds $75,000, exclusive of costs and interest, and diversity of citizenship exists. See 28 U.S.C. § 1332(a).

“It is well established that the diversity statute requires ‘complete diversity’ of citizenship: A district court generally cannot exercise diversity jurisdiction if one of the plaintiffs shares the same state citizenship as any one of the defendants.” Corfield v. Dallas Glen Hills LP, 355 F.3d 853, 857 (5th Cir.2003) (citing Whalen v. Carter, 954 F.2d 1087, 1094 (5th Cir.1992)). In analyzing whether complete diversity jurisdiction exists, however, a court may disregard the citizenship of parties that have been improperly joined. Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568, 572-73 (5th Cir.2004) (en banc). Nevertheless, the burden of establishing fraudulent or improper joinder rests on the party asserting it and is indeed a heavy burden. Travis v. Irby, 326 F.3d 644, 649 (5th Cir.2003). In order to establish fraudulent or improper joinder of a party, the defendant must 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, 385 F.3d at 573.

In this case, the parties do not dispute that Bickett is a Texas resident, and thus the Court's analysis will focus only on the second prong of this test. Under that prong, the Court is required to determine “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.” Id. (citing Irby, 326 F.3d at 647-48). “Since the purpose of the improper joinder inquiry is to determine whether or not the in-state defendant was properly joined, the focus of the inquiry must be on the joinder, not the merits of the plaintiff's case.” Smallwood, 385 F.3d at 573.

In assessing whether a defendant has been improperly joined, the court “must evaluate all of the factual allegations in the light most favorable to the plaintiff, resolving all contested issues of substantive fact in favor of the plaintiff.” Guillory v. PPG Indus., Inc., 434 F.3d 303, 308-09 (5th Cir.2005) (quoting B., Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (5th Cir.1981)). It must also “resolve all ambiguities in the controlling state law in the plaintiff's favor.” Guillory, 434 F.3d at 308 (internal citations omitted). In this regard, the court is not required to “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 might do so.” Id. at 309 (internal citations omitted).

When determining the possibility of recovery under state law, the court is permitted to 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.” Smallwood, 385 F.3d at 573 (internal citations omitted). “Ordinarily, if a plaintiff can survive a Rule 12(b)(6) challenge, there is no improper joinder.” Id.; Guillory, 434 F.3d at 309. However, the defendant also asserts a FRCP Rule 9(b) defense to the plaintiff's motion to remand. 1


In the case at bar, the plaintiff does not argue that a procedural defect exists in the removal process from state court. Nor does it assert that the amount in controversy is insufficient. It solely contends that diversity of citizenship between the defendants and Starr and Milligan is lacking. It is undisputed that both Starr and Milligan are Texas citizens, and therefore, absent a showing that they were improperly joined, subject matter jurisdiction is absent. Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568, 572-73 (5th Cir.2004) (en banc). Hence, the improper joinder issue is a function of whether the plaintiff has pleaded a potentially viable cause of action against Starr and Milligan under Chapter 541 of the Texas Insurance Code. As described below, the Court finds that it has.

A. Potential Liability for Starr and Milligan as Individual Actors

The defendants assert that Starr and Milligan were improperly joined because they cannot be held individually liable for actions taken during the course of their work as insurance adjusters. The plaintiff disagrees, arguing that Starr and Milligan are potentially be liable for actions taken in the course of their employment. In this regard, the plaintiff states (with citations and footnotes omitted) that:

[The plaintiff] has asserted Starr and Milligan violated Chapter 541 of the Texas Insurance Code by engaging in unfair settlement practices. These...

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