Huber v. Tower Grp., Inc.

• Decision Date: 09 May 2012
• Docket Number: No. CIV. 2:12–642 WBS JFM.,CIV. 2:12–642 WBS JFM.
• Citation: 881 F.Supp.2d 1195
• Parties: Christopher M. HUBER and Marian Huber, Plaintiffs, v. TOWER GROUP, INC., a Delaware corporation; Tower Insurance Company of New York, a subsidiary of Tower Group, Inc., doing business in California as Tower Select Insurance Company; Donald K. Sams and Associates, Inc.; and Does 1–20, Defendants.
• Court: U.S. District Court — Eastern District of California

881 F.Supp.2d 1195

Christopher M. HUBER and Marian Huber, Plaintiffs,

v.TOWER GROUP, INC., a Delaware corporation; Tower Insurance Company of New York, a subsidiary of Tower Group, Inc., doing business in California as Tower Select Insurance Company; Donald K. Sams and Associates, Inc.; and Does 1–20, Defendants.

No. CIV. 2:12–642 WBS JFM.

United States District Court, E.D. California.

May 9, 2012.

R. Ellis Harper, Law Offices of R. Ellis Harper, Nevada City, CA, for Plaintiffs.

Thomas Nienow, San Francisco, CA, for Defendants.

MEMORANDUM AND ORDER RE: MOTION TO REMAND AND MOTIONS TO DISMISS

WILLIAM B. SHUBB, District Judge.

Plaintiffs Christopher M. Huber and Marian Huber brought this action against defendants Tower Group, Inc. (“Tower Group”), Tower Insurance Company of New York (“Tower Insurance”), a subsidiary of Tower Group, Inc., doing business in California as Tower Select Insurance Company (“Tower Select”), and Donald K. Sams and Associates, Inc. (“Sams & Associates”), stating claims arising out a homeowners' insurance dispute. Presently before the court is plaintiffs' motion to remand to state court on the basis that removal was improper because Sams & Associates is not a sham defendant. (Docket No. 18.) Also before the court are Sams & Associates' and Tower Group's motions to dismiss for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). (Docket Nos. 9, 11.)

I. Factual and Procedural Background

Plaintiffs own real property in Grass Valley, California. Plaintiffs' property was insured through a homeowners' insurance policy purchased from Tower Select. (Compl. ¶ 14, Ex. 1.) In early September 2010, plaintiffs' property was damaged during severe weather. ( Id. ¶ 18.) Plaintiffs made a claim for damages on October 25, 2010, at the office of their insurance broker. ( Id. ¶ 19.)

Plaintiffs allege that after they filed their claim, Tower Select retained Sams & Associates as a “captive private insurance adjuster” to view and assess the damages to the property. ( Id. ¶ 20.) On November 23, 2010, Sams & Associates retained Cecil Construction Company (“Cecil”) to begin emergency repairs to the property. ( Id. ¶ 20.) Plaintiffs allege that the emergency repairs left the property in a state of disrepair and made their house uninhabitable after the property was penetrated by toxic mold, rats, and other vermin. ( Id. ¶¶ 20, 22.)

Plaintiffs estimate that repairs on all of the damaged structures on the property will cost approximately $115,690.05 and that the complete eradication of the mold problem will cost approximately $27,321.68. ( Id. ¶¶ 22, 24.)

On February 14, 2012, plaintiffs, who are California residents, filed suit in state court against Tower Group, a Delaware corporation having its principal place of business in New York, Tower Insurance, a New York corporation having its principal place of business in New York, and Sams & Associates, a California corporation. (Not. of Removal at 1–2, Ex. A (Docket No. 1).) Defendants removed the action to federal court pursuant to 28 U.S.C. § 1441(b) on the ground that diversity of citizenship exists because Sams & Associates is a sham defendant.¹ Plaintiffs contest that Sams & Associates is a sham defendant and now move to remand to state court.

II. DiscussionA. Remand to State Court

“[A]ny civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district ... where such action is pending.” 28 U.S.C. § 1441(a). The Ninth Circuit strictly construes the removal statute against removal jurisdiction, and the party seeking removal bears the burden of establishing federal jurisdiction. Geographic Expeditions, Inc. v. Estate of Lhotka, 599 F.3d 1102, 1107 (9th Cir.2010) (citing Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir.1992)). Any questions regarding the propriety of removal are resolved in favor of the party moving for remand. Matheson v. Progressive Specialty Ins. Co., 319 F.3d 1089, 1090 (9th Cir.2003). If removal was improper, “the district court lack[s] subject matter jurisdiction, and the action should [be] remanded to the state court.” Toumajian v. Frailey, 135 F.3d 648, 653 (9th Cir.1998) (citing 28 U.S.C. § 1447(c)).

Federal courts have original jurisdiction over cases where all parties are citizens of different states and the amount in controversy exceeds $75,000. 28 U.S.C. § 1332. Here, plaintiffs allege that they have been damaged in excess of $200,000, therefore the amount in controversy exceeds $75,000.² The remaining issue, therefore, is whether diversity exists between all parties.

On the face of the Complaint, it seems clear that complete diversity does not exist between all parties as Sams & Associates and plaintiffs are California citizens and that, therefore, removal was improper. Defendants argue, however, that Sams & Associates is a fraudulently joined defendant and that the court should disregard its citizenship for purposes of determining diversity jurisdiction. (Notice of Removal at 3:6–5:6.)

A non-diverse defendant may be disregarded for purposes of determining complete diversity if that defendant was fraudulently joined. Hamilton Materials Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1206 (9th Cir.2007). A plaintiff has fraudulently joined a defendant when the “plaintiff fails to state a cause of action against a resident defendant, and the failure is obvious according to the settled rules of the state.” McCabe v. Gen. Foods Corp., 811 F.2d 1336, 1339 (9th Cir.1987). There is a general presumption against a finding of fraudulent joinder, and the removing party must prove by clear and convincing evidence that joinder was fraudulent. Hamilton Materials Inc., 494 F.3d at 1206. If there is a “non-fanciful possibility that the plaintiffs can state a claim against the non-diverse defendant, the [district] court must remand.” Vu v. Ortho–McNeil Pharm., Inc., 602 F.Supp.2d 1151, 1154 (N.D.Cal.2009).

1. Claims Under Insurance Code section 790.03

Plaintiffs raise one cause of action against Sams & Associates alleging negligent adjustment of loss.³ Plaintiffs appear to raise this claim under California Insurance Code section 790.03. ( See Compl. ¶ 51; Pls.' Opp'n to Mot. to Dismiss Sams & Assocs. at 7:11–12 (Docket No. 16) (“Sams & Associates is liable to plaintiffs under Insurance Code § 790.03.”)) Section 790.03 enumerates conduct that constitutes unfair insurance practices and provides a basis for regulatory action by the Insurance Commissioner. In Moradi–Shalal v. Fireman's Fund Insurance Co., 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58 (1988), the California Supreme Court determined that there is no private cause of action under California Insurance Code section 790.03. Id. at 304, 250 Cal.Rptr. 116, 758 P.2d 58. Plaintiffs are therefore unable to state a claim under section 790.03.

The Moradi–Shalal court further held that, although private claims under section 790.03 are barred, plaintiffs are nevertheless permitted to bring common law claims against insurers for the same conduct. Id. at 304–05, 250 Cal.Rptr. 116, 758 P.2d 58. The Moradi–Shalal decision, however, does not grant plaintiffs the right to bring negligence-based claims that simply mimic a section 790.03 claim because such an action is necessarily indistinguishable from the barred statutory action under section 790.03. Adelman v. Assoc. Int'l Ins. Co., 90 Cal.App.4th 352, 370 n. 11, 108 Cal.Rptr.2d 788 (2d Dist.2001); see also Doyle v. Safeco Ins. Co., No. CV F 08–1587, 2008 WL 5070055, at *6 (E.D.Cal. Nov. 26, 2008). California courts have accordingly held that there exists no separate cause of action for negligent handling of an insurance claim. See Everett Assocs., Inc. v. Transcon. Ins. Co., 35 Fed.Appx. 450, 452 (9th Cir.2002); Caso v. Hartford Cas. Ins. Co., No. CIV S–07–101, 2008 WL 1970024, at *7 (E.D.Cal. May 2, 2008); Benavides v. State Farm Gen. Ins. Co., 136 Cal.App.4th 1241, 1252, 39 Cal.Rptr.3d 650 (2006) (finding that a claim for negligent claims handling cannot be sustained independent of a claim for breach of contract).

Because plaintiffs are unable to state a claim against Sams & Associates under section 790.03 or for negligent adjustment of loss, the court will interpret plaintiffs' claim as a simple negligence claim.

2. Plaintiffs' Ability to Raise a Negligence Cause of Action

To prove a cause of action for negligence, plaintiffs must show “(1) a legal duty to use reasonable care, (2) breach of that duty, and (3) proximate cause between the breach and (4) the plaintiff's injury.” Mendoza v. City of L.A., 66 Cal.App.4th 1333, 1339, 78 Cal.Rptr.2d 525 (2d Dist.1998). “The existence of a legal duty to use reasonable care in a particular factual situation is a question of law for the court to decide.” Vasquez v. Residential Invs., Inc., 118 Cal.App.4th 269, 278, 12 Cal.Rptr.3d 846 (4th Dist.2004). Defendants argue that Sams & Associates is a fraudulently joined party because, as an independent insurance adjuster, it does not owe a duty of care to plaintiffs and is thus exempt from liability.

The Ninth Circuit has noted that “under California law, negligence claims do not generally lie against insurers.” Conestoga Servs. Corp. v. Exec. Risk Indem., Inc., 312 F.3d 976, 980 (9th Cir.2002); see also Everett Assocs., 35 Fed.Appx. at 452;Sanchez v. Lindsey Morden Claims Servs., Inc., 72 Cal.App.4th 249, 254–55, 84 Cal.Rptr.2d 799 (2d Dist.1999) (“[N]egligence is not among the theories or recovery generally available against insurers.”). “Despite the open-ended language of California courts that negligence actions generally do not lie against insurers, there is no case law that provides a guide for when such exceptions are appropriate.” Diamond v. State Farm Mut. Auto. Ins. Co., No. CIV S–09–1110, 2011 WL 1807331, at *18 (E.D.Cal. May 11, 2011).

California courts have developed...