Morgan v. Chubb Lloyds Ins. Co. of Tex.

• Decision Date: 25 May 2021
• Docket Number: Civil Action No. 4:21-cv-00100-P
• Citation: 541 F.Supp.3d 754
• Parties: Leonard D. MORGAN, et al., Plaintiffs, v. CHUBB LLOYDS INSURANCE COMPANY OF TEXAS, Defendant.
• Court: U.S. District Court — Northern District of Texas

541 F.Supp.3d 754

Leonard D. MORGAN, et al., Plaintiffs,

v.CHUBB LLOYDS INSURANCE COMPANY OF TEXAS, Defendant.

Civil Action No. 4:21-cv-00100-P

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

Signed May 25, 2021

Perry J. Dominguez, II, Perry Dominguez Law Firm PLLC, Castle Hills, TX, Marc K. Whyte, Whyte PLLC, San Antonio, TX, Mario Gil Herrera, HH Law Firm, Dallas, TX, for Plaintiffs.

Jennifer Gossom Martin, Timothy P. Delabar, Wilson, Elser, Moskowitz, Edelman & Dicker LLP, Dallas, TX, for Defendant.

OPINION AND ORDER REMANDING CASE TO STATE COURT

Mark Pittman, UNITED STATES DISTRICT JUDGE

In this first-party-insurance case, the Court must first decide a Texas statute's effect on its subject-matter jurisdiction. See TEX. INS. CODE § 542A.006. The statute 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, Plaintiffs sued their insurer, Chubb (who is diverse), and agent, Smith (who is non-diverse), in state court. Chubb then elected to accept whatever liability Smith might have, and the state court dismissed Smith. Chubb then removed the case under diversity jurisdiction.

Now before the Court is Plaintiffs’ motion to remand, which forces the Court to answer this question: in determining diversity jurisdiction, does the Court consider Smith's citizenship? The Fifth Circuit has not ruled on this question and the 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 and applicable law, the Court concludes that it must consider Smith's citizenship. Accordingly, this Court lacks jurisdiction and will REMAND .

BACKGROUND

This is a simple state-law coverage dispute. Plaintiffs allege that a storm damaged their property during their Chubb insurance policy's term. Pls.’ Amend. Pet. at 4, ECF No. 1-4. Plaintiffs submitted the damage to Chubb, and Chubb assigned Sean Smith to investigate the claim. Id. According to Plaintiffs, Chubb and Smith "performed an outcome-oriented investigation" and improperly denied Plaintiffs’ claim. Pls.’ Amend. Pet. at 4–6.

On September 28, 2020, Plaintiffs filed this case in Texas state courts, naming both Chubb and Smith as defendants. Pls.’ Orig. Pet. at 1, ECF No. 1-3. On November 11, Chubb invoked the newly enacted Texas Insurance Code § 542.006(c) and elected to accept Smith's liability. Def.’s Notice of Removal at 1, ECF 1. On December 17, Chubb moved to dismiss Smith and sever defendants, which on January 13, 2021, the state court granted.

Now with the only remaining defendant being Chubb, a New Jersey, New York, and Pennsylvania citizen, Chubb filed its notice of removal based on diversity jurisdiction. ECF No. 1. Plaintiffs timely filed a motion to remand, arguing that they properly joined Smith and his dismissal was involuntary, requiring remand. Pls.’ Mot. to Remand at 3, ECF No. 12. Chubb responded that Smith was improperly joined because, once Chubb elected to accept Smith's liability, Plaintiffs have no possibility of recovery against Smith. Def.’s Resp. at 3–4, ECF No. 13. Plaintiffs’ motion to remand is now ripe.

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 Plaintiffs’ favor. Griggs v. State Farm Lloyds , 181 F.3d 694, 699 (5th Cir. 1999).

DISCUSSION OF APPLICABLE LAW

To determine whether Smith's citizenship should be considered for jurisdictional purposes, the Court must resolve two conflicting rules within removal jurisdiction. First , Plaintiffs raise 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 , Defendants cite the improper-joinder rule, which allows defendants to remove 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 regarding the rules’ interaction. See Ramirez , 490 F. Supp. 3d at 1102–03. In an effort to properly apply these rules, the Court sets out the rules’ 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 to the statutory text.

"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. (5 Cranch) 61, 87, 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. (2 How.) 497, 11 L.Ed. 353 (1844). Federal courts must "scrupulously confine" their jurisdiction to the statutory text that gives 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 the statute has defined.

Healy v. Ratta , 292 U.S. 263, 270, 54 S.Ct. 700, 78 L.Ed. 1248 (1934) ; cf. City of Indianapolis v. Chase Nat. Bank of City of New York , 314 U.S. 63, 76, 62 S.Ct. 15, 86 L.Ed. 47 (1941) ("The dominant note in the successive enactments of Congress relating to diversity jurisdiction is one of jealous restriction, of avoiding offense to state sensitiveness, and of relieving the federal courts of the overwhelming burden of ‘business that intrinsically belongs to the state courts’ in order to keep them free for their distinctive federal business."). These concerns require this Court to "presume that a suit lies outside [its] limited jurisdiction." Howery v. Allstate ins. Co. , 243 F.3d 912, 916 (5th Cir. 2001).¹

B. Section 1441 permits defendants to remove cases with complete diversity.

Chubb argues that the Court has removal jurisdiction. See 28 U.S.C. § 1441. Thisstatute creates jurisdiction over cases filed in state court that could have originally been filed in federal court. The statute states:

Except as otherwise expressly provided by Act of Congress, any 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 and division embracing the place where such action is pending.

Id. § 1441(a). Due to the presumption against federal jurisdiction, the removal statute is to be "strictly construed, and any doubt about the propriety of removal must be resolved in favor of remand." Gasch v. Hartford Acc. & Indem. Co. , 491 F.3d 278, 281–82 (5th Cir. 2007) (cleaned up). "This is so because ‘removal jurisdiction raises significant federalism concerns.’ " Duncan v. Safeco Ins. Co. , No. 7:20-CV-119-M-BP, 2020 WL 6811485, at *1 (N.D. Tex. Oct. 30, 2020) (Ray, M.J.) (quoting Willy v. Coastal Corp. , 855 F.2d 1160, 1164 (5th Cir. 1988) ).

In this case, Chubb relies on the original-jurisdiction ground of diversity jurisdiction. See 28 U.S.C. § 1332(a). Diversity jurisdiction grants district courts original jurisdiction over civil actions where the amount in controversy exceeds $75,000 and the parties have completely diverse citizenship, meaning "that all persons on one side of the controversy be citizens of different states than all persons on the other side." McLaughlin v. Miss. Power Co. , 376 F.3d 344, 353 (5th Cir. 2004) (citation omitted).

C. Under Section 1446(b), a case not originally removable can become removable, but only through the plaintiff's voluntary act.

If a case develops diversity jurisdiction after the initial pleading, then it can also be removed. Hoyt , 927 F.3d at 295. Section 1446(b)(3) governs this situation. Subject to exceptions not applicable here:

[I]f the case stated by the initial pleading is not removable, a notice of removal may be filed within 30 days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from

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