Williams v. Homeland Ins. Co. of N.Y.

• Decision Date: 30 November 2021
• Docket Number: No. 20-30196,20-30196
• Citation: 18 F.4th 806
• Parties: George Raymond WILLIAMS, Medical Doctor, Orthopaedic Surgery, a Professional Medical, L.L.C., Plaintiff—Appellant, v. HOMELAND INSURANCE COMPANY OF NEW YORK ; Med-Comp USA, Incorporated, Defendants—Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

18 F.4th 806

George Raymond WILLIAMS, Medical Doctor, Orthopaedic Surgery, a Professional Medical, L.L.C., Plaintiff—Appellant,

v.HOMELAND INSURANCE COMPANY OF NEW YORK ; Med-Comp USA, Incorporated, Defendants—Appellees.

No. 20-30196

United States Court of Appeals, Fifth Circuit.

FILED November 30, 2021

Nicholas John Wehlen, Esq., Stone Pigman Walther Wittmann, L.L.C., Arthur Mahony Murray, Esq., Murray Law Firm, New Orleans, LA, Thomas Allen Filo, Esq., Cox, Cox, Filo, Camel & Wilson, L.L.C., Lake Charles, LA, Patrick C. Morrow, Sr., Esq., Morrow, Morrow, Ryan, Bassett & Haik, Opelousas, LA, for Plaintiff—Appellant.

Catherine Emily Stetson, Esq., Hogan Lovells US, L.L.P., Washington, DC, Alexander Biays Bowerman, Kendyl Gilmore, David Newmann, Hogan Lovells US, L.L.P., Philadelphia, PA, Sara C. Valentine, Esq., Raymond Peter Ward, Adams & Reese, L.L.P., New Orleans, LA, for Defendants—Appellees.

Before Jones, Haynes, and Ho,¹ Circuit Judges.

Haynes, Circuit Judge:

A class of Louisiana medical providers (the "Class") sued a number of Louisiana Preferred Provider Organizations (the "PPOs") in Louisiana state court on state law causes of action approximately ten years ago. The Class amended its decade-old state lawsuit to assert newly assigned bad faith insurance claims against Homeland Insurance Company, an out-of-state defendant. After Homeland removed the case to federal court, the district court concluded the claims were barred by an earlier Delaware judgment and dismissed the suit. The Class contends that the district court lacked jurisdiction because a non-diverse defendant remained in the case from the original lawsuit, and, alternatively, that the court erred in granting preclusive effect based on the statute of limitations dismissal in Delaware. We agree that the district court lacked jurisdiction. Accordingly, the district court's jurisdictional holding is REVERSED, the district court's judgment and other orders are VACATED, and the case is REMANDED to the district court with instructions to remand the entire case to state court.

I. BACKGROUND

With a long procedural history, this case returns on appeal for the third time.² In 2009, Plaintiff George Raymond Williams filed a putative class action in Louisiana state court on behalf of the Class against three Louisiana defendants, including Med-Comp USA. Med-Comp operated a PPO network, which contracted with the proposed class of medical providers for discounted rates. The Class alleged that the PPOs violated the Louisiana Preferred Provider Organization Act ("PPO Act") by discounting the Class's bills without prior notice. See LA. STAT. ANN. § 40:2203.1(G). In 2011, the Class amended its complaint to add claims against additional non-Louisiana defendants: CorVel Corporation, Homeland Insurance, and Executive Risk Specialty Insurance.

Executive Risk and Homeland removed the case to federal court, asserting both ordinary diversity jurisdiction under 28 U.S.C. § 1332(a) and jurisdiction under the Class Action Fairness Act's ("CAFA") minimal diversity jurisdiction under 28 U.S.C. § 1332(d)(2). CorVel and the Class sought to remand pursuant to CAFA's local controversy exception. 28 U.S.C. § 1332(d)(4). The district court found the criteria of the exception satisfied and remanded the case to Louisiana state court. Homeland appealed, but we affirmed the remand order. Williams I , 657 F.3d at 293.

On remand, after receiving class certification, the Class settled with Executive Risk and all of the Louisiana defendants except Med-Comp. The Class also prevailed on its direct-action claims against Homeland in state court—leaving Med-Comp as the sole remaining defendant. See Williams v. SIF Consultants of La., Inc. , 209 So. 3d 903, 906, 912 (La. Ct. App. 2016) (affirming summary judgment in favor of the Class on its claims against Homeland).

As part of their settlement agreement, CorVel (Homeland's insured) assigned to the Class its insurance coverage claims against Homeland. This assignment underlies the present dispute. The assignment, however, did not initially include the bad faith claim CorVel was pursuing against Homeland in Delaware state court.³ See Homeland Ins. Co. of N.Y. v. CorVel Corp. , 197 A.3d 1042 (Del. 2018). Although CorVel initially prevailed against Homeland, the Delaware Supreme Court reversed, holding that the claim was barred by the statute of limitations. Id. at 1044. CorVel then assigned the entirety of its claims against Homeland to the Class.

The Class then amended its still unresolved complaint against Med-Comp⁴ in Louisiana state court to assert the bad faith claim against Homeland that CorVel had just lost on in Delaware. The litigation then consisted of the Class bringing state law PPO Act claims as a class against one non-diverse defendant (Med-Comp) and a state law bad faith insurance claim as an assignee against one diverse defendant (Homeland).

After being joined again in state court, Homeland removed the case to federal court on the basis of ordinary diversity jurisdiction and CAFA minimal diversity jurisdiction. Homeland justified removal by arguing that Med-Comp's non-diverse Louisiana citizenship could be disregarded because the PPO Act claims against Med-Comp were "improperly and egregiously misjoined" with the assignment-based bad faith claim against Homeland. The Class moved to remand.

Adopting a magistrate judge's report and recommendation, the district court denied the motion to remand in part and granted it in part. The district court retained jurisdiction over the bad faith claim against Homeland and remanded the PPO Act claims against Med-Comp to state court.⁵ Bypassing CAFA, the district court reasoned that it had ordinary diversity jurisdiction over the case because Homeland was diverse from the Class and because Med-Comp, the non-diverse defendant, was improperly joined. Without addressing the viability of the Class's PPO Act claims against Med-Comp, the district court reasoned that improper joinder applied because, in its capacity as CorVel's assignee, the Class lacked a reasonable basis for recovery against Med-Comp.

The Class moved for leave to appeal under CAFA's interlocutory appeal mechanism. 28 U.S.C. § 1453(c)(1) ; see Williams II , 788 F. App'x at 298. A prior panel of this court denied the Class's motion. We held that the Class did not raise a CAFA issue because the district court based its jurisdictional holding entirely on ordinary diversity jurisdiction. Id. at 298–99.

Homeland then moved to dismiss the bad faith claim, which the Delaware Supreme Court had resolved in its favor based on the statute of limitations. The district court approved a magistrate judge's report and recommendation concerning the motion and held that under the Full Faith and Credit Act, 28 U.S.C. § 1738, the court must look to Delaware law for applicable preclusion principles. Concluding that Delaware would apply claim preclusion to a case that had been dismissed for failure to file within the statute of limitations, the court dismissed. The Class timely appealed.

II. DISCUSSION

The district court concluded that it had ordinary diversity jurisdiction under 28 U.S.C. § 1332(a)(1). We have jurisdiction to evaluate whether the district court was correct. See In re Transtexas Gas Corp. , 303 F.3d 571, 576–77 (5th Cir. 2002). "We review questions of subject matter jurisdiction de novo." Wagner v. United States , 545 F.3d 298, 300 (5th Cir. 2008) (quotation omitted). When analyzing whether the proponent of jurisdiction has established improper joinder, we examine all factual allegations and ambiguities of state law in the light most favorable to the party resisting jurisdiction. See Campbell v. Stone Ins., Inc. , 509 F.3d 665, 669 (5th Cir. 2007).

The Class asserts that jurisdiction in federal district court was improper because Med-Comp's presence destroyed complete diversity of the parties and barred removal.⁶ The Class alternatively contends that the district court erred in dismissing the bad faith claim on claim preclusion grounds. Because we conclude that the district court lacked jurisdiction in this case, we do not reach the merits of the claim preclusion issue.

A. Jurisdiction

A defendant can remove "any civil action brought in a State court of which the district courts of the United States have original jurisdiction." 28 U.S.C. § 1441(a). Two types of original jurisdiction are at issue here: (1) ordinary diversity jurisdiction under 28 U.S.C. § 1332(a)(1) and (2) CAFA minimal diversity jurisdiction under 28 U.S.C. § 1332(d).⁷ We discuss both below.

1. Ordinary Diversity Jurisdiction & Improper Joinder Doctrine

A case exhibits diversity of citizenship when the parties are citizens of different states and the amount in controversy exceeds $75,000. 28 U.S.C. § 1332(a)(1). But removal based on diversity is precluded "if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought." § 1441(b)(2). Moreover, ordinary diversity jurisdiction requires complete diversity—all of the plaintiffs must be citizens of different states than all of the defendants. Flagg v. Stryker Corp. , 819 F.3d 132, 136 (5th Cir. 2016) (en banc). If a non-diverse defendant is improperly joined, however, a district court can disregard the citizenship of that defendant for the purposes of evaluating its jurisdiction. Id. Our precedents in this area are not based upon the text of the statute but rather on the concept that fake or fraudulent joinder of a party to defeat federal jurisdiction should not be approved.

The district court purported to apply our established improper joinder doctrine—namely, that a defendant is improperly joined if there is no possibility of recovery against it—but its reasoning and conclusions cannot be squared with this circuit's improper joinder jurisprudence. Rather, the district court functionally applied the fraudulent misjoinder doctrine, which we have never adopted and do...