Waste Mgmt., Inc. v. AIG Specialty Ins. Co.

• Decision Date: 04 September 2020
• Docket Number: No. 19-20674,19-20674
• Citation: 974 F.3d 528
• Parties: WASTE MANAGEMENT, INCORPORATED; Waste Management Hawaii, Incorporated, Plaintiffs—Appellants, v. AIG SPECIALTY INSURANCE COMPANY, formerly known as Chartis Specialty Insurance Company, Defendant—Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

974 F.3d 528

WASTE MANAGEMENT, INCORPORATED; Waste Management Hawaii, Incorporated, Plaintiffs—Appellants,

v.AIG SPECIALTY INSURANCE COMPANY, formerly known as Chartis Specialty Insurance Company, Defendant—Appellee.

No. 19-20674

United States Court of Appeals, Fifth Circuit.

FILED September 4, 2020

Joseph Phillip Thacker, Brouse McDowell, Naples, FL, Stacy Berliner, Brouse McDowell, Cleveland, OH, David M. Gunn, Beck Redden, L.L.P., Houston, TX, for Plaintiffs-Appellants.

John Frederick O'Connor, Jr., Attorney, Roger Eugene Warin, Steptoe & Johnson, L.L.P., Washington, DC, Ellen Mary Van Meir, Thompson, Coe, Cousins & Irons, L.L.P., Dallas, TX, for Defendant-Appellee.

Before Jones, Elrod, and Higginson, Circuit Judges.

Stephen A. Higginson, Circuit Judge:

Plaintiff-Appellants Waste Management, Incorporated ("WMI") and Waste Management Hawaii, Incorporated ("WMHI") (collectively "Waste") entered into an insurance contract with Defendant-Appellee AIG Specialty Insurance Company ("ASIC"). Following two environmental contamination events, the DOJ commenced a grand jury investigation into Waste's actions. The investigation led to an indictment that was resolved through a plea agreement in 2015. ASIC denied Waste coverage for all costs associated with the criminal proceedings, and Waste filed suit in Texas state court against ASIC and AIG Claims, Incorporated ("AIG Claims"), which served as the insurance adjuster for ASIC. ASIC removed on the basis of diversity jurisdiction, arguing that AIG Claims, a non-diverse party, had been improperly joined. The district court agreed and denied Waste's motion to remand. The district court then determined, after a hearing, that ASIC had no duty to defend Waste against the criminal allegations and granted summary judgment in favor of ASIC. Waste appeals, arguing that the district court erred in denying its motion to remand and in granting summary judgment for ASIC. We AFFIRM.

I

Waste operated the Waimanalo Gulch Sanitary Landfill ("WGSL") under a contract with the city of Honolulu, Hawaii. In late 2010 and early 2011, heavy storms flooded a section of the WGSL. On both occasions, contaminated water was discharged into the Pacific Ocean through an open manhole. The contamination included medical waste such as syringes, blood vials, and catheters, which washed up on nearby beaches.

The Environmental Protection Agency ("EPA") investigated, and on January 25, 2011, it issued an Administrative Order on Consent ("AOC"). Among other things, the AOC required Waste to engage in response work to clean up the discharge. The AOC also explicitly reserved the federal government's right to pursue Waste for other criminal and civil penalties. Waste complied with the AOC, and on August 24, 2011, the EPA informed Waste that the response work had been completed to its satisfaction.

Meanwhile, in April 2011, the Department of Justice ("DOJ") commenced a grand jury investigation into Waste's actions. On April 30, 2014, WMHI and two of its employees were indicted for, inter alia, knowing discharge of pollutants into a water of the United States, in violation of the "Criminal Penalties" provision of the Clean Water Act. 33 U.S.C. §§ 1311(a), 1319(c)(2)(A). Pursuant to a plea agreement, which explicitly provided that it was separate from any potential civil claims against Waste, the defendants ultimately pleaded guilty to negligent discharge of pollutants, also in violation of the "Criminal Penalties" provision of the Clean Water Act. 33 U.S.C. §§ 1311(a), 1319(c)(1)(A). On October 26, 2015, the federal district court in Hawaii imposed a sentence of a $400,000 fine, $200,000 in restitution to neighboring businesses, and a $250 assessment against WMHI.

Civil claims against Waste under the Clean Water Act were tolled during the pendency of the criminal proceedings. Thereafter, in April 2019, Waste entered into a consent decree to resolve the civil proceedings arising out of these pollution incidents.

Waste sought coverage from ASIC for, inter alia, costs associated with defending the criminal proceedings detailed above. According to Waste, these costs were covered by its "Pollution Legal Liability" insurance policy, effective January 2011 through January 2014. That insurance policy, which provided Waste with $50 million dollars of coverage per incident with a $5 million deductible, contained the following relevant provisions.

In "COVERAGE D," ASIC agreed "[t]o pay on behalf of the Insured, Loss that the Insured becomes legally obligated to pay as a result of a Claim for Clean-Up Costs resulting from a Pollution Condition, beyond the boundaries of the Insured Property ...." ASIC also agreed that "[w]hen a Claim is made against the Insured to which [Coverage D] applies, ... [ASIC] has ... the duty to defend such Claim, even if groundless, false, or fraudulent." However, "[t]his policy [did] not apply to Claims or Loss ... [d]ue to any criminal fines, criminal penalties or criminal assessments."

The policy defined "Claim" as "a written demand received by the Insured alleging liability or responsibility and seeking a remedy on the part of the Insured for Loss under [Coverage D]." It defined "Clean-Up Costs" as "reasonable and necessary expenses, including legal expenses incurred with [ASIC's] written consent ..., for the investigation, removal, treatment ..., remediation ..., or disposal of soil, surfacewater, groundwater, ... or other contamination [t]o the extent required by Environmental Laws ...." In turn, it defined "Environmental Laws" as "any federal, state, provincial or local laws (including but not limited to, statutes, rules, regulations, ordinances, guidance documents, and governmental, judicial or administrative orders and directives) that are applicable to the Pollution Condition."

AIG Claims handled Waste's claim on behalf of ASIC, and ASIC denied coverage for all costs associated with the criminal proceedings.

Waste brought suit against ASIC and AIG Claims in Texas state court. Waste alleged that ASIC violated its duty to defend and its duty to indemnify under the insurance contract, that ASIC breached its duty of good faith and fair dealing with Waste, and that both defendants had violated provisions of the Texas Insurance Code.

ASIC timely removed to federal court, arguing that AIG Claims was improperly joined solely to defeat federal diversity jurisdiction.¹ Waste moved to remand. The district court determined that there was no reasonable probability that Waste would recover against AIG Claims. It therefore denied Waste's motion to remand and denied Waste's subsequent motion for reconsideration.

Waste then filed an amended complaint, which dropped AIG Claims as a defendant. Waste and ASIC filed cross-motions for summary judgment on whether ASIC had a duty to defend Waste against the criminal allegations. The district court granted summary judgment in favor of ASIC, finding no duty to defend against the criminal allegations. Thereafter, the district court granted ASIC's motion for summary judgment on all remaining claims. Waste appeals.

II

We review the district court's denial of Waste's motion to remand de novo. See Vantage Drilling Co. v. Hsin-Chi Su , 741 F.3d 535, 537 (5th Cir. 2014). We also review the district court's grant of summary judgment de novo, applying the same standard as the district court. See Castellanos-Contreras v. Decatur Hotels, LLC , 622 F.3d 393, 397 (5th Cir. 2010) (en banc); McCorkle v. Metro. Life Ins. Co. , 757 F.3d 452, 456 (5th Cir. 2014). Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In making this determination, we view all evidence in the light most favorable to the non-moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

III

Waste first challenges the district court's denial of its motion to remand. The district court determined that AIG Claims was improperly joined in order to defeat federal jurisdiction.

The fraudulent joinder doctrine provides that a district court must disregard, for diversity jurisdiction purposes, the citizenship of an improperly joined defendant. See Borden v. Allstate Ins. Co. , 589 F.3d 168, 171 (5th Cir. 2009) ; Smallwood v. Ill. Cent. R.R. Co. , 385 F.3d 568, 572 (5th Cir. 2004) (en banc). A non-diverse defendant is improperly joined if there was actual fraud in the pleading of jurisdictional facts or the plaintiff cannot establish a cause of action against the non-diverse defendant. See Mumfrey v. CVS Pharmacy, Inc. , 719 F.3d 392, 401 (5th Cir. 2013). Only the second possibility is raised in this appeal.

To determine whether the plaintiff can establish a cause of action against the non-diverse defendant, the district court conducts a Federal Rule of Civil Procedure 12(b)(6) analysis. See Smallwood , 385 F.3d at 573 ; see also Int'l Energy Ventures Mgmt., L.L.C. v. United Energy Grp., Ltd. , 818 F.3d 193, 208 (5th Cir. 2016) (holding that the federal pleading standard applies when determining whether a plaintiff has stated a claim against a non-diverse defendant). The "complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotation marks and citation omitted). "[T]he existence of even a single valid cause of action against [non-diverse] defendants (despite the pleading of several unavailing claims) requires remand of the entire case to state court." Gray v. Beverly Enters.-Miss., Inc. , 390 F.3d 400, 412 (5th Cir. 2004).

Waste argues that it sufficiently alleged that AIG Claims violated Texas Insurance Code sections 541.060(a)(2), (a)(4), and (a)(7) by failing to attempt to effectuate a prompt, fair, and equitable settlement; failing to affirm or deny...