Hornbuckle v. State Farm Lloyds

• Decision Date: 10 September 2004
• Docket Number: No. 03-10938.,03-10938.
• Citation: 385 F.3d 538
• Parties: Paula R. HORNBUCKLE, Plaintiff-Appellee, v. STATE FARM LLOYDS; Matt Kirkpatrick, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 538

385 F.3d 538

Paula R. HORNBUCKLE, Plaintiff-Appellee, v. STATE FARM LLOYDS; Matt Kirkpatrick, Defendants-Appellants.

No. 03-10938.

United States Court of Appeals, Fifth Circuit.

September 10, 2004.

David W. Holland (argued), Boyd, Saindon & Grisham, San Antonio, TX, for Plaintiff-Appellee.

David V. Jones, Matthew Fisher Wymer (argued), Jones, Kurth, Andrews & Ortiz, San Antonio, TX, for Defendants-Appellants.

Appeal from the United States District Court for the Northern District of Texas.

Before GARWOOD, HIGGINBOTHAM and SMITH, Circuit Judges.

GARWOOD, Circuit Judge:

Defendants-appellants State Farm Lloyds (State Farm) and Matt Kirkpatrick (Kirkpatrick) appeal the district court's order awarding attorney fees to plaintiff-appellee, Paula Hornbuckle (Hornbuckle), after granting plaintiff's motion to remand. We reverse.

Facts and Proceedings Below

On April 24, 2000, Hornbuckle filed a claim with her insurer, State Farm, to repair foundation damage that occurred at her home. She gave the date of loss as February 1, 2000. State Farm assigned Claims Specialist Kirkpatrick to adjust the claim. Baker Brothers Rotovision, retained by State Farm to conduct plumbing tests, sent a report to State Farm on May 3, 2000, informing it that sewer line leaks existed in Hornbuckle's house, but that no pressurized supply line leaks existed. After performing a personal inspection, Kirkpatrick employed Perdue and Associates (Perdue) to perform an analysis of the cause of the damage to Hornbuckle's foundation.¹

After hiring Perdue, State Farm sent a "reservation of rights" letter to Hornbuckle, alerting her that they were reserving their right to deny her coverage pending Perdue's report. While Hornbuckle's policy does cover foundation damage that is caused by or results from water leaks, and State Farm did in fact fix and pay for the water leaks, and the damage that they caused, in the reservation of rights letter, State Farm pointed out that Hornbuckle's policy does "not cover loss caused by ... wear and tear, deterioration or loss caused by any quality in property that causes it to damage or destroy itself .... settling, cracking, bulging, shrinkage, or expansion of foundations, walls, [or] floors .... earthquake, landslide or earth movement."

Perdue inspected Hornbuckle's residence on July 19, 2000, and prepared an engineering report on August 18, 2000 which was then sent to State Farm. In the report, Perdue found that the foundation damage originated not from the water leaks, but from fluctuating moisture levels in the soil. A copy of this report was sent to Hornbuckle August 23, and in a letter dated September 7, 2000, State Farm delivered its decision that the foundation damage to Hornbuckle's home was not covered under her policy, and therefore it would not pay to repair the foundation damage itself.

In response, Hornbuckle's now husband Don Hipp (Hipp), identified by Hornbuckle as an engineer, but of a different type from Perdue, prepared a letter which Hornbuckle sent to State Farm September 24 raising questions about and criticizing the Perdue report. The letter was not received by State Farm until November 17. State Farm delivered the Hipp letter to Perdue for review, and Perdue responded to the points made by Hipp and determined that it did not require a change in its opinion. Kirkpatrick presented this second Perdue report to Hornbuckle on December 14, 2000. This was the last significant contact that adjuster Kirkpatrick had with Hornbuckle or her claim. She was informed that, though State Farm was not going to pay the foundation claim, if she decided to pursue the claim and obtained a report from another engineer, it would take a look at it.

In January 2002, Hornbuckle retained engineer Mike Cooper (Cooper) to examine the foundation damage. He submitted a report which was forwarded by Hipp to State Farm on February 6, 2002. The Cooper report stated that the house was outside of construction tolerances and required 31 piers for repair. State Farm transferred the Cooper report to Perdue, who then re-inspected Hornbuckle's home for reevaluation purposes on March 18, 2002. Perdue concluded that the foundation problems were not due to the earlier repaired leaks, and delivered a report stating such on April 26, 2002 to State Farm, which then promptly notified Hornbuckle that its opinion remained unchanged and it still would not pay the claim. Hornbuckle then submitted to State Farm a foundation repair proposal prepared by Longhorn Foundation Repair, Inc., dated September 29, 2001, for 39 piers in the amount of $13,250.

On August 23, 2002, Hornbuckle filed suit against Kirkpatrick and State Farm in Texas state court. Her complaint alleged that State Farm breached its contract, violated the duty of good faith and fair dealing, violated the Texas Insurance Code, and violated the Texas Deceptive Trade Practices Act. It sought "[a]ctual, economic, additional, and exemplary damages" and "reasonable attorneys' fees" in unspecified amounts. Kirkpatrick and Hornbuckle are both Texas citizens, while State Farm is a citizen of Illinois.

As part of the discovery process, Hornbuckle was deposed. Based upon answers provided in the deposition, on May 6, 2003, State Farm and Kirkpatrick removed the case to federal court, contending that Hornbuckle fraudulently joined Kirkpatrick to destroy diversity. On May 23, 2003, Hornbuckle filed her motion to remand and for costs and attorney fees, to which State Farm filed its response on June 13, 2003.

The district court in its August 14, 2003 order rejected State Farm's contentions, holding that "[i]n light of Plaintiff's allegations and deposition testimony, and resolving all contested issues of fact in favor of the Plaintiff, the Court cannot conclude that there is no reasonable possibility that Plaintiff can recover against Kirkpatrick in state court." The district court, noting the motion to remand's contention that "State Farm removed this case despite the numerous cases involving similar allegations against State Farm and its adjusters wherein removal has been found improper," went on to hold that, because plaintiff had "numerous factual allegations supporting her claims in both her petition and deposition and the repeated admonitions of numerous Texas federal courts in similar cases, State Farm could not have had an objectively reasonable basis for believing that Plaintiff fraudulently joined Defendant Kirkpatrick." Therefore, the court ordered State Farm to pay the $750 attorney's fees associated with the removal petition.² State Farm now appeals the district court's award of attorney fees, asserting that Hornbuckle's deposition testimony, combined with her inability to articulate specific factual allegations of wrongdoing on the part of Kirkpatrick, provided State Farm and Kirkpatrick with an objectively reasonable basis to remove the cause of action, and therefore the district court erred in awarding attorney fees. We agree.

Discussion

1. Standard of Review

Although this Court may not review a district court's remand for lack of subject matter jurisdiction,³ we may review the district court's award of attorney fees. Miranti v. Lee, 3 F.3d 925, 927-28 (5th Cir.1993) ("Guided by ... authorities which favor appellate review of a sanctions order (even if the remand order itself is not reviewable), we hold that § 1447(d) does not prohibit review by this court of the order of costs and fees."); see also Garcia v. Amfels, Inc., 254 F.3d 585, 587 (5th Cir.2001).

We review a district court's section 1447(c)⁴ order for attorney fees under an abuse of discretion standard. Garcia, 254 F.3d at 587 (citing Valdes v. Wal-Mart Stores, Inc., 199 F.3d 290, 292 (5th Cir.2000)). While we may not review the decision to remand itself, we must, as part of our examination of the award of fees, consider the objective validity of the removing party's efforts, at the time that party attempted to remove the case. Valdes, 199 F.3d at 293 ("We evaluate the objective merits of removal at the time of removal, irrespective of the fact that it might ultimately be determined that removal was improper."). Fees should only be awarded if the removing defendant lacked "objectively reasonable grounds to believe the removal was legally proper." Id.⁵

2. Fraudulent joinder

As this case came to us, it is undisputed that the removal would have been proper if Kirkpatrick's joinder was fraudulent (see note 2 supra). It has long been settled in this circuit that this depends on "`whether there is arguably a reasonable basis for predicting that the state law might impose liability [on the resident defendant] on the facts involved,'" Badon v. RJR Nabisco Inc., 236 F.3d 282, 286 (5th Cir.2000) (quoting Bobby Jones Garden Apartments, Inc. v. Suleski, 391 F.2d 172, 176-77 (5th Cir.1968)), or "`whether there was a reasonable basis in law and fact'" for the claim against the resident defendant. Badon, 236 F.3d at 286 (quoting Parks v. New York Times Co., 308 F.2d 474, 479 (5th Cir.1962)). See also, e.g., Jernigan v. Ashland Oil, 989 F.2d 812, 816 (5th Cir.1993); Fields v. Pool Offshore Inc., 182 F.3d 353, 357 (5th Cir.1999). Merely pleading a valid state law claim, or one whose validity is reasonably arguable, against the resident defendant does not mean that the joinder of the resident defendant is not fraudulent, for as we held in LeJeune v. Shell Oil Co., 950 F.2d 267, 271 (5th Cir.1992):

"In this circuit, a removing party's claim of fraudulent joinder to destroy diversity is viewed as similar to a motion for summary judgment.... A court is to pierce the pleadings to determine whether, under controlling state law, the non-removing party has a valid claim against the non-diverse parties."

See also, e.g., Keating v. Shell Chemical Co., 610 F.2d 328, 333 (5th Cir.1980) (to resolve fraudulent joinder claim remand appropriate to determine not by "a full dress trial on the merits" but "[b]y summary judgment...