Kessler v. Allstate Fire & Cas. Ins. Co.

• Decision Date: 25 May 2021
• Docket Number: Civil Action No. 4:21-cv-00173-P
• Citation: 541 F.Supp.3d 718
• Parties: Kenneth KESSLER, Plaintiff, v. ALLSTATE FIRE AND CASUALTY INSURANCE COMPANY et al., Defendants.
• Court: U.S. District Court — Northern District of Texas

541 F.Supp.3d 718

Kenneth KESSLER, Plaintiff,

v.ALLSTATE FIRE AND CASUALTY INSURANCE COMPANY et al., Defendants.

Civil Action No. 4:21-cv-00173-P

United States District Court, N.D. Texas, Fort Worth Division.

Signed May 25, 2021

Chad Troy Wilson, Patrick Connell McGinnis, Allen B. Landon, Chad T. Wilson Law Firm PLLC, Webster, TX, Joseph M. Erwin, Law Office of Joseph M. Erwin, Dallas, TX, for Plaintiff.

Susan E. Egeland, Sara Inman, Faegre Drinker Biddle & Reath LLP, Dallas, TX, for Defendant Allstate Fire and Casualty Insurance Company.

OPINION AND ORDER

Mark T. Pittman, UNITED STATES DISTRICT JUDGE

In this first-party-insurance case the Court must consider a relatively new Texas statute's impact on the Court's subject matter jurisdiction. See TEX. INS. CODE § 542A.006. The law allows an insurer to "elect to accept whatever liability an agent might have to the claimant for the agent's acts or omissions," and if the election is made after a claimant files suit, the court "shall dismiss the action against the agent with prejudice." Id. In this case, Plaintiff Kenneth Kessler sued his insurer, Allstate Fire and Casualty Insurance Company (who is diverse), and adjuster William Van Mason (who is non-diverse), in state court. Subsequently, Allstate elected to accept whatever liability Mason might have, but before the state court had taken any action dismissing Mason, Allstate removed the case under diversity jurisdiction, alleging that Mason was improperly joined at the time of removal.

Now before the Court is Plaintiff's Motion to Remand (ECF No. 9) and Allstate's Response (ECF No. 11). A central question to resolving the Motion is whether the Court should consider Mason's citizenship. The Fifth Circuit has not ruled on this question and district courts are deeply divided. See Ramirez v. Allstate Vehicle & Prop. Ins. Co. , 490 F. Supp. 3d 1092 (S.D. Tex. 2020) (citing cases).

Having now considered the parties’ arguments, pleadings, Allstate's appendix, and the applicable law, the Court concludes that it must consider Mason's citizenship, that Mason was not improperly joined, and thus, that the Court lacks jurisdiction over this case. Accordingly, for the reasons stated below, Plaintiff's Motion to Dismiss will be GRANTED and this case REMANDED.

BACKGROUND

This is a simple state-law coverage dispute. Plaintiff alleges that on or about July 9, 2017, his property sustained extensive storm damage. ECF No. 1-5 at ¶¶ 9–10. Plaintiff alleges that Allstate issued an insurance policy that covers the cost of the repairs and that Plaintiff submitted a claim to Allstate. Id. at ¶ 12. Allstate sent its adjuster, Mason, out to inspect the Property and Mason found that the losses were not covered. Id. at ¶ 14. Plaintiff contends that Mason's inspection was substandard, that Mason misrepresented the cause and amount of damages, and that Mason ultimately recommended that Allstate deny Plaintiff's claim. Id. at ¶¶ 17–27.

On January 14, 2021, Plaintiff filed an original petition ("Orig. Pet.") against Defendants Allstate and Mason in the 153rd District Court of Tarrant County, Texas. Orig. Pet., ECF No. 1-5. Plaintiff alleged claims for breach of contract, unfair settlement practices, breach of duty of good faith and fair dealing, and violations of DTPA (Orig. Pet. at ¶¶ 36–51) against Allstate and claims of unfair settlement practices and violations of the DTPA against Mason (Id. at ¶¶ 52–60). On February 9, 2021, Allstate filed an answer (ECF No. 1-8) and notice of election of responsibility for Mason (ECF No. 1-9) pursuant to Section 542A.006 of the Texas Insurance Code. Allstate included a proposed order dismissing Mason, but before the order was signed, on February 22, 2021, Allstate removed the case to this Court. ECF No. 1.

In its Notice of Removal ("Nt. of Removal"), Allstate asserted that this Court has diversity jurisdiction as the amount in controversy exceeds $75,000 and the parties are completely diverse. Id. at ¶ 2. With respect to the citizenship of the parties, Allstate acknowledged that Mason—like Plaintiff—is a citizen of Texas but argued that Mason's citizenship should be disregarded because Mason was improperly joined. Id. at ¶¶ 2, 9. Allstate additionally asserted that Mason was improperly joined because Plaintiff's allegations fail to establish a cause of action against Mason and that Allstate's evidence affirmatively demonstrates that Plaintiff has no claim against Mason. Id. at ¶¶ 18, 21.

Plaintiff filed a Motion to Remand, asserting that Mason was not improperly joined because it is undisputed that Allstate elected to accept responsibility for Mason after Plaintiff had filed suit. ECF No. 9 at ¶ 12. Moreover, Plaintiff argues that Allstate cannot carry its burden of establishing Plaintiff has no possibility of recovery against Mason because Texas law provides viable causes of action against adjuster's in first-party insurance disputes and because Plaintiff has pleaded sufficient facts to state such a claim. Id. at ¶¶ 12–18. Finally, Plaintiff asserts the voluntary-involuntary rule is inapplicable as Mason is still a party and that remand is appropriate because Plaintiff could not have filed this case in this Court due to the lack of diversity. Id. at ¶¶ 19–30.

Allstate responds that Mason was improperly joined because at the time of removal, there was no possibility of recovery against Mason due to Allstate's election of liability pursuant to Section 542A of the Texas Insurance Code. ECF No. 11 at ¶ 9. Allstate noted a split of authority on how to apply Section 542A when (as in this case) an election is made after the lawsuit was filed but before the case was removed. Id. at ¶ 11. Allstate urged the Court to rely on cases from the Western and Southern District Courts that focused on the possibility of recovery at the time of removal (after an election of liability) rather than looking at a possibility of recovery from the non-diverse adjuster at the time of filing. Id. at ¶¶ 11–14 (citing Koenig v. Unitrin Safeguard Ins. Co. , No. SA-20-CV-00887-JKP-HJB, 2021 WL 51762 (W.D. Tex. Jan. 6, 2021) ; Ramirez , 490 F. Supp. 3d 1092 ). Allstate additionally argues that Plaintiff has essentially used a form pleading and none of the allegations are accurate or sufficient to establish the possibility of recovery against Mason and that external evidence supports this. Id. at ¶¶ 15–23.

The Motion to Remand is now ripe for review.

LEGAL STANDARD

Motions to remand are governed by 28 U.S.C. § 1447(c), which provides that, "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." 28 U.S.C. § 1447(c). When considering a motion to remand, "[t]he removing party bears the burden of showing that federal jurisdiction exists and that removal was proper." Manguno v. Prudential Prop. & Cas. Ins. Co. , 276 F.3d 720, 723 (5th Cir. 2002). When the party relies on improper joinder, the burden of persuasion is a "heavy one ." Kling Realty Co., Inc. v. Chevron USA, Inc. , 575 F.3d 510, 514 (5th Cir. 2009) (emphasis added). Additionally, the Court must "resolve any contested issues of material fact, and any ambiguity or uncertainty in the controlling state law" in Plaintiff's favor. Griggs v. State Farm Lloyds , 181 F.3d 694, 699 (5th Cir. 1999).

DISCUSSION OF APPLICABLE LAW

To determine whether Mason's citizenship should be considered for jurisdictional purposes, the Court must resolve two conflicting rules. First , Plaintiff raises the voluntary-involuntary rule, which states that "an action nonremovable when commenced may become removable thereafter only by the voluntary act of the plaintiff." Hoyt v. Lane Const. Corp. , 927 F.3d 287, 295 (5th Cir. 2019). Second , Allstate cites the improper-joinder doctrine, which allows for the removal of actions when the plaintiff cannot "establish a cause of action against the non-diverse party in state court." Id. Although there have now been dozens of district court cases analyzing this conflict, no clear consensus has emerged. See Ramirez , 490 F. Supp. 3d at 1102–03. A proper application of these rules requires a full understanding of their pedigrees and rationales.

After conducting this inquiry below, the Court concludes that the two rules protect different interests that sit in tension: the voluntary-involuntary rule protects a plaintiff's right to choose its forum; the improper-joinder rule protects a defendant's right to a federal forum. Each rule must have some application, and neither can destroy the other.

A. Principles of federalism and separation of powers limit federal jurisdiction.

"Federal courts are courts of limited jurisdiction, possessing only that power authorized by Constitution and statute." Gunn v. Minton , 568 U.S. 251, 256, 133 S.Ct. 1059, 185 L.Ed.2d 72 (2013) (Roberts, C.J.) (quoting Kokkonen v. Guardian Life Ins. Co. of Am. , 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994) ); cf. Bank of U.S. v. Deveaux , 9 U.S. 61, 87, 5 Cranch 61, 3 L.Ed. 38 (1809) (Marshall, C.J.) ("The duties of this court, to exercise jurisdiction where it is conferred, and not to usurp it where it is not conferred, are of equal obligation."), overruled in part by Louisville, C. & C.R. Co. v. Letson , 43 U.S. 497, 2 How. 497, 11 L. Ed. 353 (1844). The Supreme Court has instructed that federal courts must "scrupulously confine" their jurisdiction to the statutory text that gives diversity jurisdiction:

The policy of the [diversity] statute calls for its strict construction. The power reserved to the states, under the Constitution (Amendment 10 ), to provide for the determination of controversies in their courts, may be restricted only by the action of Congress in conformity to the judiciary sections of the Constitution (article 3 ). Due regard for the rightful independence of state governments, which should actuate federal courts, requires that they scrupulously confine their own jurisdiction to the precise limits which

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