Opinion
Civil Action 1:22-cv-02092-RM-SKC
08-09-2023
THORNTON HAMILTON LLC, Plaintiff, v. OWNERS INSURANCE COMPANY, et al., Defendant.
RECOMMENDATION RE: PENDING MOTIONS
S. Kato Crews United States Magistrate Judge
When a spring hail and windstorm caused damage to Plaintiff Thornton Hamilton LLC's commercial property, Plaintiff submitted a claim under its insurance policy to Defendant Owners Insurance Company. Dkt. 6 at ¶¶7-11. After the parties could not come to an agreement regarding the value of the alleged damages, Plaintiff invoked the policy's appraisal provision. Id. at ¶¶40-42. The parties selected their respective appraisers who, in turn, selected the umpire. Id. at ¶¶42-44. Following Plaintiff's and Owners' respective repair estimates, the umpire signed an appraisal award identifying a replacement cost value of $973,781.59, and an actual cash value of $922,987.92.
Owners then issued a check to Plaintiff for $878,423.43. It tendered this payment to Plaintiff along with a letter from Gregory R. Giometti, an attorney with Defendant Giometti & Mereness P.C. (G&M). The letter expressed Owners' belief that the umpire was not qualified under the policy based on information it had obtained about his criminal record, and further requested Plaintiff agree to vacate the appraisal award as a result. Id. at ¶¶52, 55-56, 60. The letter also stated if Plaintiff did not agree to voluntarily vacate the appraisal award, Owners would file a declaratory judgment action in the United States District Court to invalidate the award. Id. at ¶60. According to Plaintiff, it agreed to vacate the appraisal award based on Defendants' threat of litigation. Id. at ¶61.
After vacating the appraisal award, when the parties still could not come to an agreement on the value of the damages, Plaintiff filed suit in state court against Owners (a Michigan corporation/citizen) and G&M (a Colorado corporation/citizen). See Dkt. 6. Owners removed the action to this Court based on diversity jurisdiction under 28 U.S.C. § 1332(a), contending G&M had been fraudulently joined, and it also filed a separate motion to dismiss G&M, Dkt. 21, for the same reason. Plaintiff has filed a competing motion to remand this matter back to the state district court. Dkt. 23. G&M also filed a motion to dismiss for failure to state a cognizable claim, which this Court previously denied, without prejudice, to first address the jurisdictional questions. Dkts. 3 (motion to dismiss), 41 (order).
Plaintiff is a citizen of Colorado.
Plaintiff's Motion to Remand and Owners' Motion to Dismiss are before the Court on referral. The Court has carefully reviewed the motions and related briefing, the record, and relevant law. No hearing is necessary. For the following reasons, the Court recommends Plaintiff's Motion to Remand, Dkt. 23, be denied; and Owners' Motion to Dismiss, Dkt. 21, be denied as moot.
ANALYSIS
Because G&M is a Colorado corporation, its presence in this lawsuit destroys diversity jurisdiction. But Owners argues Plaintiff has fraudulently joined G&M for that specific purpose. Plaintiff argues G&M's joinder was not fraudulent because Plaintiff has asserted a viable claim for negligent misrepresentation against G&M.
A. Diversity Jurisdiction & Fraudulent Joinder
As courts of limited jurisdiction, federal courts must have a statutory basis for their jurisdiction. See Morris v. City of Hobart, 39 F.3d 1105, 1111 (10th Cir. 1994) (citing Castaneda v. INS, 23 F.3d 1576, 1580 (10th Cir. 1994)). When a civil action filed in state court satisfies the requirements for original federal jurisdiction - federal question or diversity - the defendant may remove the action under 28 U.S.C. § 1441(a); see Huffman v. Saul Holdings LP, 194 F.3d 1072, 1076 (10th Cir. 1999) (“When a plaintiff files in state court a civil action over which the federal district courts would have original jurisdiction based on diversity of citizenship, the defendant or defendants may remove the action to federal court ....”) (citation omitted). But because there is a presumption against removal jurisdiction, Pritchett v. Office Depot, Inc., 420 F.3d 1090, 1095 (10th Cir. 2005) (cleaned up), defendants seeking removal bear the burden of establishing, by a preponderance of the evidence, that removal is proper. McPhail v. Deere & Co., 529 F.3d 947, 953 (10th Cir. 2008); Montoya v. Chao, 296 F.3d 952, 955 (10th Cir. 2002).
Relevant here, in the absence of complete diversity, a defendant may nevertheless remove a case to federal court based on diversity jurisdiction if a plaintiff has joined a non-diverse party fraudulently to defeat federal jurisdiction. See Am. Nat'l Bank & Trust Co. v. Bic Corp., 931 F.2d 1411, 1412 (10th Cir. 1991).
To establish fraudulent joinder, the removing party must demonstrate either: (1) actual fraud in the pleading of jurisdictional facts, or (2) inability of the plaintiff to establish a cause of action against the non-diverse party in state court.Dutcher v. Matheson, 733 F.3d 980, 988 (10th Cir. 2013) (cleaned up). “The burden of demonstrating fraudulent joinder is extremely heavy.” Est. of Hill v. Allstate Ins. Co., 354 F.Supp.2d 1192, 1196 (D. Colo. 2004). “If there is even a possibility that the state court would find that the complaint states a cause of action against the resident defendant, the federal court must find that the joinder was proper and remand the case to state court.” Frontier Airlines, Inc. v. United Air Lines, Inc., 758 F.Supp. 1399, 1404 (D. Colo. 1989).
B. The Negligent Misrepresentation Claim Against G&M
Plaintiff asserts a single claim against G&M for negligent misrepresentation based on Giometti's letter, on behalf of Owners, regarding the appraisal umpire's qualifications. Dkt. 6 at ¶¶93-96. According to Plaintiff, in his letter, Giometti stated that the umpire had a prior criminal history, and therefore, was not qualified to be an umpire under the insurance policy. Giometti allegedly contended that because the umpire had not disclosed his criminal history, vacatur of the appraisal award was required. Dkt. 6 at ¶¶55-56. Plaintiff argues because there are no Colorado laws (statutory or case law) prohibiting those with criminal histories from serving as umpires-or requiring vacatur of awards when they do-G&M is liable for negligent misrepresentation. See Dkt. 23 at pp.5-8.
After careful review, the Court finds Owners has met its burden to demonstrate Plaintiff's inability to establish a negligent misrepresentation claim against G&M, and thus, its joinder was fraudulent. In Colorado, an attorney's liability to a non-client “is generally limited to a narrow set of circumstances in which the attorney has committed fraud or a malicious or tortious act, including negligent misrepresentation.” Allen v. Steele, 252 P.3d 476, 482 (Colo. 2011). A claim of negligent misrepresentation requires a plaintiff to plausibly allege: “(1) [the defendant] in the course of his or her business, profession or employment; (2) [made] a misrepresentation of a material fact, without reasonable care; (3) for the guidance of others in their business transactions; (4) with knowledge that his or her representations will be relied upon by the [plaintiff]; and (5) the [plaintiff] justifiably relied on the misrepresentation to his or her detriment.” Allen, 252 P.3d at 482 (Colo. 2011) (citing Restatement (Second) of Torts (1977) §552 (Information Negligently Supplied for the Guidance of Others)).
Owners argues Plaintiff has failed to sufficiently allege Giometti made a misrepresentation of material fact. It argues Plaintiff only contests Giometti's legal opinions, which are not actionable.Dkt. 37.
Owners also contends none of Giometti's alleged representations were made for Plaintiff's benefit or guidance in a business transaction, and even if he had made such representations, Plaintiff could not have justifiably relied on them. Because the Court agrees there has been no misrepresentation of material fact, it does not address these remaining arguments.
Plaintiff, citing Mehaffy, Rider, Windholz & Wilson v. Cent. Bank Denver, N.A., 892 P.2d 230 (Colo. 1995), contends the Colorado Supreme Court has held that mixed statements of law and fact can constitute misrepresentations of material fact supporting a claim of negligent misrepresentation. Dkt. 23 at p.6. Plaintiff argues Giometti, like the attorney defendants in Mehaffy, applied law to facts in his letter, and therefore, his statements sufficiently form the basis of Plaintiff's tort claim. Id. But the holding in Mehaffy is not as broad as Plaintiff construes it.
In Mehaffy, the Winter Park Town Council issued promissory notes to finance its urban renewal plan. Mehaffy, 829 P.2d. at 233. Central Bank expressed interest in purchasing the notes, but before completing the purchase, several governmental entities sued the Town arguing it failed to comply with Colorado law before moving forward with the renewal plan. Id. The Bank told the Town it would not purchase the notes if there was any risk the lawsuit had merit. Id.
To reassure the Bank, the attorney defendants issued comfort letters on behalf of the Town stating the notes were valid and the lawsuit had no merit. Id. The letters represented-despite undisputed facts to the contrary-that the Town had in fact complied with Colorado law. Id. at 234. Based on the attorney's assurances, the Bank purchased the notes; however, when the lawsuit against the Town was successful, the notes went into default and the Bank sued the attorney defendants for negligent misrepresentation. Id. at 234-35.
The defendant attorneys argued the comfort letters expressed only opinions of law for which they could not be held liable. Id. at 237. The Colorado Supreme Court disagreed, concluding the letters contained mixed statements of law and fact. Id. But contrary to Plaintiff's assertion here, it was not simply the defendant attorneys' application of law to the facts that made the letters actionable. Instead, the Colorado Supreme Court specifically noted the attorneys represented, as fact, that the Town had complied with Colorado law, when in reality it had not. Id. at 238. The Supreme Court found that because the comfort letters included statements that could constitute misrepresented facts, the attorney defendants were not entitled to summary judgment.
Considering Giometti's letter in this case, while the Court “may not ‘pre-try' claims to determine whether there is a possibility of recovery against the resident defendant,” Frontier Airlines, Inc. v. United Air Lines, Inc., 758 F.Supp. 1399, 1404 (D. Colo. 1989) (citation omitted), it may review evidence outside of the pleadings in its analysis. Estate of Hill, 354 F.Supp. at 1196. Consequently, although it was not cited by either party, the Court has reviewed Giometti's letter found in the docket, Dkt. 3-1, and concludes it is distinguishable from the comfort letters in Mehaffy.
First, Plaintiff's characterization of Giometti's letter is not entirely accurate. Plaintiff contends Giometti “misrepresented . . . the applicability of the Umpire's unrelated history and its effect [on] the validity of the appraisal award.” Dkt. 6 at ¶94. In actuality, Giometti first discusses general law regarding an umpire's duty to disclose facts that may raise questions about the umpire's impartiality. Dkt. 3-1 at pp.2-3. He then describes that after receiving the appraisal award, Owners learned the umpire pleaded guilty to a class 5 felony for theft of insurance proceeds arising from his service as a roofing contractor repairing hailstorm damage. Id. at pp.3-4. The letter discusses Owners' concerns regarding the umpire's ability to be fair in light of his conviction for theft of insurance proceeds, and Owners' position the umpire was not qualified as a result. Id. at 4. Thus, Giometti's letter is not as definitive in its pronouncements of law and fact as Plaintiff suggests-Giometti discusses law related to an umpire's disclosure obligations; conveys his client's concerns over the nature of this umpire's felony conviction; informs Plaintiff of his client's position that the umpire was not qualified to serve; that his client, therefore, viewed the appraisal award as void; and suggested the parties agree to vacate the appraisal award as a result. None of these statements are representations of a material fact.
But even assuming the letter contains mixed questions of law and fact, as Plaintiff argues, Plaintiff has still not plausibly alleged a misrepresentation of a material fact. Although Plaintiff argues the umpire's conviction is unrelated to the appraisal, there is no suggestion Giometti misrepresented the nature of the conviction. Nor does Plaintiff challenge Owners' representation that it did not know of the conviction until after the appraisal was complete. Instead, it is clear Plaintiff's objection is with Owner's position that the umpire was disqualified from serving based on his felony conviction-and his failure to disclose it-and that the appraisal award, therefore, was invalid. But the letter presents these positions as Owners' mere opinions or legal conclusions. Application of law to otherwise undisputed facts does not bring Giometti's letter within the scope of Mehaffy. See Chacon v. Scavo, 145 Colo. 222, 358 P.2d 614 (1960) (representations whether certain lots were usable as building sites required an interpretation of the relevant city ordinances and were not actionable because they were representations of law).
Because Plaintiff has failed to plausibly allege any misrepresentation of a material fact by G&M, it has not stated a viable claim against the law firm, and Owners, therefore, has met its burden to demonstrate, by a preponderance of the evidence, Plaintiff's inability to establish its cause of action against G&M. The Court, therefore, recommends finding G&M's joinder was fraudulent.
This finding should not be interpreted as the Court's opinion regarding Plaintiff's motive for bringing this claim against G&M.
* * *
For the reasons shared above, the Court recommends DENYING Owners' Motion to Remand, Dkt. 23, and dismissing G&M from the case based on a finding that G&M's joinder was fraudulent. The Court further recommends DENYING Owners' Motion to Dismiss, Dkt. 21, as MOOT.
In the alternative to dismissing G&M based on the finding of fraudulent joinder, if the presiding judge adopts the recommendation to deny the Motion to Remand, the Court recommends reinstating G&M's Motion to Dismiss (Dkt. 3) and granting it for the same reasons supporting denial of the Motion to Remand. The Giometti letter may be properly considered on the Motion to Dismiss because it is referenced in the complaint and central to Plaintiff's claim against G&M. U.S. Olympic Comm. v. Am. Media, Inc., 156 F.Supp.2d 1200, 1204 (D. Colo. 2001).