Moody Nat. Bank, Galveston v. St. Paul Mercury, Civ.A. G-02-039.

• Citation: 193 F.Supp.2d 995
• Decision Date: 05 April 2002
• Docket Number: No. Civ.A. G-02-039.,Civ.A. G-02-039.
• Parties: MOODY NATIONAL BANK OF GALVESTON, Plaintiff, v. ST. PAUL MERCURY INSURANCE COMPANY and Galveston Insurance Associates, Defendants.
• Court: U.S. District Court — Southern District of Texas

193 F.Supp.2d 995

MOODY NATIONAL BANK OF GALVESTON, Plaintiff, v. ST. PAUL MERCURY INSURANCE COMPANY and Galveston Insurance Associates, Defendants.

No. Civ.A. G-02-039.

United States District Court, S.D. Texas, Galveston Division.

April 5, 2002.

Andrew J Mytelka, Joseph Alan Charles Fulcher, Greer Herz & Adams, Galveston, TX, for Moody National Bank of Galveston, plaintiff.

Michael Keeley, Strasburger & Price, Dallas, TX, Gary J Siller, Strasburger & Price, LLP, Houston, TX, for St Paul Mercury Insurance Company, defendant.

Rick Lee Oldenettel, Oldenettel & McCabe, Houston, TX, for Galveston Insurance Associates, defendant.

ORDER GRANTING PLAINTIFF'S MOTION TO REMAND

KENT, District Judge.

On December 19, 2001, Plaintiff Moody National Bank of Galveston ("MNB") filed suit against Defendant St. Paul Mercury Insurance Company ("St.Paul") in the 56th Judicial District Court of Galveston County, Texas, alleging causes of action for breach of insurance contract, violations of the Texas Insurance Code, Tex.Ins.Code arts. 21.21, 21.55, breach of implied warranty of suitability, breach of express warranty of fitness for a particular purpose, and seeking a declaratory judgment of the Parties' rights and obligations under the insurance policy. On December 26, 2001, Plaintiff filed its First Amended Original Petition, asserting additional claims for breach of implied warranty of suitability, breach of express warranty of fitness for a particular purpose, and negligence against Defendant Galveston Insurance Associates ("GIA"). Defendant St. Paul then timely removed the action to this Court on January 22, 2002 on the basis of diversity jurisdiction. Now before the Court is Plaintiff's Motion to Remand. Because the Court finds that subject matter jurisdiction is lacking, Plaintiff's Motion to Remand is hereby GRANTED.

I.

The facts giving rise to the present lawsuit are as follows. According to Plaintiff's First Amended Original Petition, Defendant GIA solicited MNB to purchase insurance coverage for its various banking facilities for property losses stemming from burglary, theft, and mysterious disappearance. Pursuant to GIA's solicitation, MNB purchased a Financial Institution Bond (Policy No. 0442BD0023) issued by Defendant St. Paul on September 17, 1998 ("the Policy"). The Policy was effective from September 22, 1998 to the date of cancellation or termination, and provided MNB with extended insurance coverage and indemnity for a variety of losses, most notably including "[l]oss of property resulting directly from robbery, burglary, misplacement, mysterious unexplainable disappearance and damage thereto or destruction thereof ... while the property is lodged or deposited within offices or premises located anywhere." (Policy ¶ B1.) Within the effective Policy period, specifically sometime between February 28, 2001, and March 5, 2001, Plaintiff avers that MNB's main facility located at 2302 Post Office in Galveston, Texas was burglarized. The burglars allegedly stole cash, coins, currency, and jewelry valued at approximately $851,210.00 from a file safe located on the seventh floor of the bank in the office of Robert L. Moody, Sr. ("Moody"), the Chairman of the Board and Chief Executive Officer of MNB. Soon after the burglary, MNB submitted a claim to St. Paul requesting payment for this property loss. St. Paul, however, refused to pay MNB's claim on the stated ground that the stolen items were the personal property of Moody, not of Plaintiff MNB, and therefore did not constitute the type of property covered under the Policy.¹ In order to mitigate its damages, MNB subsequently paid $841,110.00 to Moody to compensate him for his loss of property.²

On the basis of these facts, MNB filed a lawsuit in Texas state court against Defendant St. Paul for breach of insurance contract, violations of the Texas Insurance Code, Tex.Ins.Code arts. 21.21, 21 .55, breach of implied warranty of suitability, breach of express warranty of fitness for a particular purpose, and seeking a declaratory judgment of the Parties' rights and obligations under the insurance policy. In the alternative, MNB also pled causes of action against Defendant GIA for breach of implied warranty of suitability, breach of express warranty of fitness for a particular purpose, and negligence. With specific regard to these latter claims, Plaintiff avers that GIA is subject to liability for making affirmative misrepresentations regarding the scope of coverage provided under the Policy.

II.

Defendant removed Plaintiff's action on the basis of diversity jurisdiction. See 28 U.S.C. § 1332; § 1441(a). Furthermore, an examination of the face of Plaintiff's Petition reveals that no basis exists for federal question jurisdiction pursuant to 28 U.S.C. § 1331. Consequently, for the Court to enjoy subject matter jurisdiction over this removed action, there must be complete diversity of citizenship between the properly joined Plaintiff and Defendants, 28 U.S.C. § 1332, and no properly joined Defendant may be a resident of the state of Texas, 28 U.S.C. § 1441(b).

In order to invoke diversity jurisdiction under § 1332, the amount in controversy must exceed $75,000, and there must exist complete diversity of citizenship between the properly joined Plaintiff and Defendants. See 28 U.S.C. § 1332(a); Strawbridge v. Curtiss, 3 Cranch 267, 268, 2 L.Ed. 435 (1806). The first requirement for diversity jurisdiction is satisfied because neither Party disputes that the amount in controversy exceeds $75,000. With regard to complete diversity of citizenship, the Parties also agree as to the citizenship facts. Plaintiff MNB is a Texas corporation with its principal place of business in Galveston, Texas. Defendant St. Paul is a Minnesota corporation with its principal place of business in St. Paul, Minnesota. Finally, Defendant GIA is a Texas corporation with its principal place of business in Galveston, Texas.

Because the Parties concur that both Plaintiff and Defendant GIA are residents of the state of Texas, the key inquiry in resolving Plaintiff's Motion to Remand is whether or not Defendant GIA has been properly joined to this action. Defendant St. Paul contends that GIA was fraudulently joined to destroy diversity jurisdiction in federal court, and therefore should be dismissed on that ground. If Defendant GIA was fraudulently joined to this lawsuit, then removal is clearly warranted because complete diversity of citizenship exists between Plaintiff and Defendant St. Paul. If, on the other hand, Defendant GIA is a proper party to this action, removal jurisdiction would be absent. Specifically, removal would be improper for two reasons: there would not be complete diversity of citizenship between Plaintiff and Defendants as required by 28 U.S.C. § 1332, and at least one Defendant would be a resident of the state in which the removal court sits, contrary to the provisions of 28 U.S.C. § 1441(b).

The Court begins by noting that "the burden of persuasion placed upon those who cry `fraudulent joinder' is indeed a heavy one." B., Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (5th Cir. Unit A Dec.1981). In order to prove that a non-diverse defendant was fraudulently joined in a case to defeat diversity jurisdiction, the removing party must show either that there has been outright fraud in the plaintiff's pleadings of jurisdictional facts or that there is absolutely no possibility that the plaintiff will be able to establish a cause of action against the non-diverse defendant in state court. See Sid Richardson Carbon & Gasoline Co. v. Interenergy Resources, Ltd., 99 F.3d 746, 751 (5th Cir. 1996); Cavallini v. State Farm Mut. Auto Ins. Co., 44 F.3d 256, 259 (5th Cir.1995). "If the plaintiff has any possibility of recovery under state law against the party whose joinder is questioned, then the joinder is not fraudulent in fact or law." Burden v. Gen. Dynamics Corp., 60 F.3d 213, 216 (5th Cir.1995) (emphasis added).

The Fifth Circuit has endorsed a summary judgment-like procedure for disposing of fraudulent joinder claims, specifically permitting courts to resolve disputes by "piercing the pleadings" and "considering summary judgment-type evidence such as affidavits and deposition testimony." Cavallini, 44 F.3d at 263. In assessing a "no possibility of recovery" fraudulent joinder claim, the Court must evaluate all of the contested factual allegations in the light most favorable to the plaintiff. In addition, the Court must resolve any uncertainties concerning the current status of controlling state substantive law in favor of the plaintiff. See Sid Richardson, 99 F.3d at 751; Burden, 60 F.3d at 216. "After all disputed questions of fact and all ambiguities in the controlling state law are resolved in favor of the nonremoving party, the court determines whether that party has any possibility of recovery against the party whose joinder is questioned." Carriere v. Sears, Roebuck & Co., 893 F.2d 98, 100 (5th Cir.1990); see also Burden, 60 F.3d at 216.

III.

Defendant's burden is indeed a heavy one, and the Court finds that Defendant has failed to carry it. To prove its allegation of fraudulent joinder, St. Paul argues both that MNB fraudulently pled jurisdictional facts, and that MNB has no possibility of recovery against GIA in state court. First, and notwithstanding the Parties' agreement as to the citizenship facts, St. Paul oddly and quite erroneously attempts to frame one of its arguments as an allegation of outright fraud in Plaintiff's pleading of jurisdictional facts. Specifically, St. Paul avers that MNB only joined Defendant GIA to the action to destroy diversity jurisdiction in federal court, as evidenced by statements made by MNB's President, Vic Pierson ("Pierson"), and MNB's Counsel, Robert Shattuck, Jr. ("Shattuck"), to GIA's President, Thad McCormick ("McCormick"). According to McCormick, Pierson stated during a conversation with him that MNB did not believe that GIA...