Edwea Inc v. Allstate Ins. Co.
| Decision Date | 08 December 2010 |
| Docket Number | CIVIL ACTION NO. H-10-2970 |
| Parties | EDWEA, INC., et al., Plaintiffs, v. ALLSTATE INSURANCE COMPANY, et al., Defendants. |
| Court | U.S. District Court — Southern District of Texas |
This is one of many insurance-coverage disputes resulting from property damage after a 2008 hurricane in Houston, Texas. This suit involves damage to eleven commercial properties. The plaintiffs, Edwea Inc., Elevia, Inc., and Dr. Nancy Mai, own the properties. They sued Allstate Insurance Company and Assurance Company of America, as well as an individual Allstate agent, Nguyen Van Thi. Against all the defendants, the plaintiffs alleged violations of Texas common law, including negligence, breach of contract, breach of the duty of good faith and fair dealing, breach of fiduciary duties, negligent misrepresentation, and fraud; violations of the Texas Deceptive Trade Practices Act, Tex. Bus. & Comm. Code § 17.01, et seq. ("DTPA"); and violations of the Texas Insurance Code, Tex. Ins. Code § 541.001, et seq. As to Van Thi, the plaintiffs also asserted separate negligence causes of action for failing to procure proper coverage and for misrepresenting coverage.
The plaintiffs filed suit in the Harris County, Texas state court. The defendants timely removed and the plaintiffs moved to remand, (Docket Entry No. 11), to which the defendants responded, (Docket Entry No. 13). In their motion to remand, the plaintiffs argue that this court does not have diversity jurisdiction under 28 U.S.C. § 1332(a)(1). The parties agree that for purposes of diversity jurisdiction, Edwea, Elevia, Dr. Mai and Van Thi are Texas citizens; Allstate is an Illinois citizen; and Assurance is a citizen of both New York and Illinois. As an in-state defendant, Van Thi's presence in the suit defeats federal removal jurisdiction. The defendants argue that the plaintiffs improperly joined Van Thi and that his Texas citizenship should be disregarded. The plaintiffs respond that they have properly sued Van Thi and that federal removal jurisdiction is lacking.
Based on the motions, responses, and replies; the parties' submissions; and the applicable law, the plaintiffs' motion to remand is granted.1 This action is remanded to the 295th District Court of Harris County, Texas. The reasons are explained in detail below.
A defendant has the right to remove a case to federal court when federal subject-matter jurisdiction exists and the removal procedure has been properly followed. See 28 U.S.C. § 1441. A federal court has subject-matter jurisdiction based on diversity of citizenship "where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between... citizens of different States." 28 U.S.C. § 1332(a). Although there is complete diversity among the plaintiffs (all Texas citizens), and Allstate (an Illinois citizen) and Assurance (a citizen of both Illinois and New York), § 1441(b) states that "[a]ny other such action [of which the district courts have original jurisdiction] shall be removable only if none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought." Van Thi's presence in the suit as an in-state defendant precludes removal jurisdiction if he was properly joined.
To establish that a nondiverse defendant has been improperly joined for the purpose of defeating diversity jurisdiction, the removing party must prove either that there has been actual fraud in the pleading of jurisdictional facts or that there is no reasonable possibility that the plaintiff will be able to establish a cause of action against that party in state court. Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568, 573 (5th Cir. 2004) (en banc), cert. denied, 544 U.S. 992, 125 S. Ct. 1825, 161 L. Ed. 2d 755 (2005). The second approach focuses on whether plaintiff has asserted a valid state-law cause of action against the nondiverse defendant. Id. The test is whether "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. In determining whether there is a reasonable basis to predict the plaintiff might recover against a defendant under state law, a court conducts "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. "If the plaintiff can survive a Rule 12(b)(6) challenge, there [generally] is no improper joinder." Id. There are cases in which a further summary inquiry is appropriate to "identify the presence of discrete and undisputed facts that would preclude plaintiffs recovery against the in-state defendant." Id. at 573-74; see, e.g., Guillory v. PPG Industries, Inc., 434 F.3d 303, 311 (5th Cir. 2005) (). No party in the present case, however, has asked for such an inquiry. Instead, the parties have focused solely on whether the plaintiffs' state-court petition provides a reasonable basis to predict that they may recover against the in-state defendant under Texas law. Smallwood, 385 F.3d at 573-74. The petition as filed in the state court at the time of removal controls the inquiry. See Cavallini v. State Farm Mut. Auto Ins. Co., 44 F.3d 256, 264 (5th Cir. 1995). If the pleading reveals a reasonable basis of recovery on one cause of action, the court must remand the entire suit to state court. Rubin v. Daimlerchrysler Corp., No. Civ. A. H044021, 2005 WL 1214605, at *2 (S.D. Tex. May 20, 2005).
The defendants argue that joining Van Thi was improper because the plaintiffs' complaint fails to allege facts in support of the claims against Van Thi in their state-court petition to state a claim under a Rule 12(b)(6)-type analysis. The federal courts have reached inconsistent results over whether a court deciding if a plaintiff s state-court petition provides a reasonable basis for predicting recovery against an in-state defendant under state law applies the federal pleading standard if the standard that applies under that state's law is more lenient.
The defendants assert that this court must apply the standards articulated in the Supreme Court's decisions in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007), and Ashcroft v. Iqbal, ---U.S. 129 S. Ct. 1937 (2009). In these decisions, the Supreme Court confirmed that Rule 12(b)(6) must be read in conjunction with Rule 8(a), which requires "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Twombly abrogated the Supreme Court's prior statement in Conley v. Gibson, 355 U.S. 41, 45-46 (1957), that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." See Twombly, 550 U.S. at 562-63 (). The Supreme Court held that to withstand a Rule 12(b)(6) motion, a complaint must contain "enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570. The Court explained that "the pleading standard Rule 8 announces does not require 'detailed factual allegations, ' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 555).
The plaintiffs assert that in the Rule 12(b)(6)-type inquiry into their state-court petition, the federal pleading-sufficiency standard does not apply because the Texas pleading standard is more lenient. The Texas Supreme Court has held that "Texas follows a 'fair notice' standard for pleading, which looks to whether the opposing party can ascertain from the pleading the nature and basic issues of the controversy and what testimony will be relevant." Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 896 (Tex. 2000). Rule 47 of the Texas Rules of Civil Procedure requires "a short statement of the cause of action sufficient to give fair notice of the claim involved." " " Id. (citing Roark v. Allen, 633 S.W.2d 804, 810 (Tex. 1982)). Rule 45(b) of the Texas Rules of Civil Procedure states: "[t]hat an allegation be evidentiary or be of legal conclusion shall not be grounds for objection when fair notice to the opponent is given by the allegations as a whole." A court must uphold the petition as to a cause of action that may be reasonably inferred from what is specifically stated, even if an element of the cause of action is not specifically alleged. Boyles v. Kerr, 855 S.W.2d 593, 601 (Tex. 1993).
Several Texas district courts have held that the federal pleading-sufficiency standard applies to a analyzing improper joinder. See, e.g., Doucet v. State Farm Fire and Cas. Co., No. 1:09-CV-142, 2009 WL 3157478, at *5 (E.D. Tex. Sept. 25, 2009); First Baptist Church ofMauriceville, Tex. v. GuideoneMut. Ins. Co., No. 1:07-CV-988, 2008 WL 4533729, at *4 (E.D. Tex. Sept. 29, 2008); King v. Provident Life and Accident Ins. Co., No. 1:09-CV-983, 2010 WL 2730890, at *4 (E.D. Tex. June 4, 2010). The courts in these cases cited Griggs v. State Farm Lloyds, 181 F.3d 694 (5th Cir. 2004), which stated that "whether the plaintiff has stated a valid state law cause of action depends upon and is tied to the factual fit between the plaintiffs' allegations and the pleaded theory of recovery." Id...
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