Borden v. Allstate Ins. Co.

• Decision Date: 20 November 2009
• Docket Number: No. 08-30515.,08-30515.
• Parties: Earl BORDEN, Plaintiff-Appellant, v. ALLSTATE INSURANCE COMPANY; Greg Ruiz, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

589 F.3d 168

Earl BORDEN, Plaintiff-Appellant, v. ALLSTATE INSURANCE COMPANY; Greg Ruiz, Defendants-Appellees.

No. 08-30515.

United States Court of Appeals, Fifth Circuit.

November 20, 2009.

Mary Ann Hand (argued), Salvador E. Gutierrez, Jr., Gutierrez & Hand, Chalmette, LA, for Borden.

Gerald Joseph Nielsen (argued), William Truman Treas, Nielsen Law Firm, L.L.C., Kelly C. Bogart, Jennifer May Morris, Duplass, Zwain, Bourgeois, Pfister, Winstock, Metairie, LA, Daniel Lee Dysart, Dysart & Tabary, Chalmette, LA, for Defendant-Appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before JONES, Chief Judge, and GARZA and STEWART, Circuit Judges.

EDITH H. JONES, Chief Judge:

Plaintiff Earl Borden ("Borden") appeals a grant of summary judgment in favor of Defendants Allstate Insurance Company ("Allstate") and insurance agent Greg Ruiz ("Ruiz") denying coverage for his Hurricane Katrina flood loss. Borden argues that the district court lacked subject matter jurisdiction and, alternatively, that material fact issues precluded summary judgment. We hold that the district court possessed federal question jurisdiction and correctly entered judgment in favor of Ruiz, but it overlooked Borden's affidavit in opposition to Allstate's summary judgment motion. The judgment is AFFIRMED IN PART, VACATED IN PART, and the case is REMANDED for further proceedings.

I. Background

Borden owned a Standard Flood Insurance Policy ("SFIP") issued by Allstate as a Write-Your-Own carrier participating in the National Flood Insurance Program ("NFIP"). On August 29, 2005, Borden's home suffered flood damage from Hurricane Katrina. When he attempted to file a claim under the flood insurance policy a week and a half later, Allstate informed him that the policy had expired on July 8, 2005, because of his failure to pay the renewal premium. Borden asserts that he never received the annual renewal notice.

Borden, a Louisiana citizen, sued Allstate in state court, alleging that Allstate negligently failed to issue a flood insurance policy and negligently represented that Borden had flood insurance coverage. Allstate, an Illinois citizen, removed the case to federal court on the basis of 28 U.S.C. § 1332 diversity jurisdiction. Borden subsequently joined Allstate's agent Ruiz, also a Louisiana citizen, as a defendant. Allstate did not object to the joinder. Shortly afterward, Allstate filed a motion for summary judgment and also moved for the court to "clarify" its subject matter jurisdiction or, in the alternative, disallow joinder of the non-diverse party. The district court granted Allstate's motion for summary judgment and dismissed the claims against both defendants without addressing Allstate's other motions. The court later denied Borden's motion to set aside the judgment, which was filed simultaneously with this appeal.

II. Standard of Review

We review questions of subject matter jurisdiction de novo. In re Bissonnet Invs. LLC, 320 F.3d 520, 522 (5th Cir.2003). We also review a grant of summary judgment de novo. Croft v. Governor of Tex., 562 F.3d 735, 742 (5th Cir. 2009) (citation omitted). Summary judgment is appropriate when "the record demonstrates that `there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.'" Id. (citation omitted).

III. Discussion

A. Jurisdiction

"The basic statutory grants of federal-court subject-matter jurisdiction are contained in 28 U.S.C. §§ 1331 and 1332." Arbaugh v. Y&H Corp., 546 U.S. 500, 513, 126 S.Ct. 1235, 1244, 163 L.Ed.2d 1097 (2006). Borden contends that the district court lacked subject matter jurisdiction, but Allstate argues that jurisdiction is proper on both § 1331 federal question and § 1332 diversity of citizenship grounds. We hold that only federal question jurisdiction is present here.

Diversity jurisdiction does not exist because both Borden and defendant Ruiz are Louisiana citizens. Allstate argues, however, that because Borden's claims against Ruiz were perempted under Louisiana law when he was joined, the joinder was fraudulent and should have been ignored for purposes of determining subject matter jurisdiction. Allstate knows better.

The fraudulent joinder doctrine ensures that the presence of an improperly joined, non-diverse defendant does not defeat federal removal jurisdiction premised on diversity. Salazar v. Allstate Tex. Lloyd's, Inc., 455 F.3d 571, 574 (5th Cir. 2006). One way in which a diverse defendant may establish improper joinder is by showing "the 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) (quoting Travis v. Irby, 326 F.3d 644, 646-47 (5th Cir.2003)). Allstate contends that it established fraudulent joinder because Borden named Ruiz as a defendant in June 2007, almost two years after Borden discovered that no flood insurance coverage was in effect. Louisiana law provides a peremptive period of only one year for tort actions against an insurance agent arising from insurance services. LA.REV.STAT. ANN. § 9:5606(A).

Contrary to Allstate's position, the fraudulent joinder doctrine is inapplicable. In Cobb v. Delta Exports, Inc., 186 F.3d 675 (5th Cir.1999), this court held that "[t]he fraudulent joinder doctrine does not apply to joinders that occur after an action is removed." Id. at 677 (emphasis in original). Instead, the doctrine permits courts to ignore "only those non-diverse parties on the record in state court at the time of removal." Id. The Cobb court reasoned that, when a non-diverse defendant is named in an original state court action to prevent removal, the diverse defendant has no opportunity to contest joinder before it occurs and must rely upon the fraudulent joinder doctrine. Id. at 678. In contrast, a diverse defendant can argue that a post-removal joinder is improper before the court grants the plaintiff leave to amend. Id. Thus, once a court permits post-removal joinder of a non-diverse defendant, the fraudulent joinder doctrine is not thereafter available, "[t]he court [loses] subject matter jurisdiction," and remand is required pursuant to 28 U.S.C. § 1447(e).¹ Id. Allstate even cited Cobb to the district court in its motion to "clarify" jurisdiction.

As in Cobb, the district court granted Borden's unopposed motion to amend his complaint to add claims against Ruiz after Allstate removed the case. The district court then lost subject matter jurisdiction, and Allstate may not now assert fraudulent joinder in an effort to reinstate complete diversity. Cobb seems to create a trap for the unwary diverse defendant, or a device exploitable by a clever plaintiff. But the district court, properly apprised of Cobb, could have either denied Ruiz's joinder to begin with, or it could have vacated its order of joinder. Allstate neither timely apprised the court nor sought vacatur.

Nevertheless, the district court had federal question jurisdiction. Though unskillfully pled, Borden's claim for relief may only be characterized as "arising under" federal law for purposes of federal question jurisdiction. Federal question jurisdiction exists when "a well-pleaded complaint establishes either that federal law creates the cause of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal law." Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 27-28, 103 S.Ct. 2841, 2856, 77 L.Ed.2d 420 (1983). In West v. Harris, 573 F.2d 873 (5th Cir.1978), this court held that federal law applies to a dispute under a policy issued pursuant to the NFIP, which is a federal program effectuating federal policies and paid for by the federal fisc. Id. at 881. Thus, as our sister circuits have held, an action for breach of an SFIP, a policy issued pursuant to the NFIP, satisfies § 1331 by raising a substantial question of federal law. See Studio Frames Ltd. v. Standard Fire Ins. Co. 369 F.3d 376, 379-80 (4th Cir.2004); Downey v. State Farm Fire & Cas. Co., 266 F.3d 675, 681-82 (7th Cir.2001) (predicating jurisdiction on the doctrine of Clearfield Trust Co. v. United States, 318 U.S. 363, 63 S.Ct. 573, 87 L.Ed. 838 (1943), which "establishe[d] that, when the duties or rights of the United States are at stake under a federal program, that federal interest requires the application ... of federal law"); Newton v. Capital Assur. Co., 209 F.3d 1302, 1304-05 (11th Cir.2000); Van Holt v. Liberty Mut. Fire Ins. Co., 163 F.3d 161, 167 (3d Cir.1998). That state law may control some aspects of the relation between the policyholder and insurance company, see, e.g., Campo v. Allstate Ins. Co., 562 F.3d 751 (5th Cir.2009), does not eliminate federal jurisdiction, which promotes uniformity in the interpretation of policies backed by the federal fisc. See Clearfield Trust, supra, 63 S.Ct. at 575.

Borden's claim is one for continued insurance coverage due to Allstate's breach of the provisions of the SFIP. Borden's SFIP, which is codified in the federal regulations, provides:

1. This policy will expire at 12:01 a.m on the last day of the policy term.

2. We must receive payment of the appropriate renewal premium within 30 days of the expiration date.

3. If we find, however, that we did not place your renewal notice into the U.S. Postal Service, or if we did mail it, we made a mistake, e.g., we used an incorrect, incomplete, or illegible address, which delayed its delivery...