Summary
finding plaintiff stated a claim under the Texas DTPA against insurance agent who allegedly misrepresented insurance coverage
Summary of this case from KIW, INC. v. ZURICH AMERICAN INSURANCE COMPANYOpinion
No. 3-04-CV-0506-BD (P).
June 23, 2004
MEMORANDUM OPINION AND ORDER
Plaintiffs Up North Plastics, Inc. ("Up North") and Poly-America, L.P. ("Poly-America") have filed a motion to remand this case to Texas state court. For the reasons stated herein, the motion is granted.
I.
Plaintiffs are affiliated companies engaged in the business of manufacturing, recycling, and selling plastic products. On or about May 15, 2002, Poly-America purchased an all-risk insurance policy from J.T. Shackelford ("Shackelford") and Horizon Insurance Group ("Horizon"), as agents for AIG Insurance Services, Inc. ("AIGIS"), AIG Claim Services, Inc. ("AIGCS"), and/or National Union Fire Insurance Company of Pittsburgh, Pennsylvania ("NUFIC"). (Plf. Sec. Am. Compl. at 3, ¶¶ 4.2-4.3; see also Def. Rem. App., Tab 26). While this policy was in effect, a fire damaged eight rail cars, owned by Exxon Mobil, Equistar, and Nova Chemical, that were parked at plaintiffs' manufacturing plant in Cottage Grove, Minnesota. (Plf. Sec. Am. Compl. at 4, ¶¶ 4.8-4.10). The estimated damage to the rail cars was $327,724. ( Id. at 4, ¶ 4.9). Plaintiffs also incurred $75,000 in costs associated with extinguishing the fire. ( Id. at 4, ¶ 4.11). After plaintiffs filed a claim under the policy, the insurers hired Starr Technical Risks Agency of Texas, Inc. ("STRAT") and VeriClaim, Inc. ("VeriClaim") to adjust the loss. ( Id. at 5, ¶ 4.12). The insurers subsequently denied a substantial portion of plaintiffs' claim under the policy. ( Id. at 5, ¶ 4.15).
Defendants contend that the policy was issued by Birmingham Fire Insurance Company of Pennsylvania, who has denied coverage and filed a declaratory judgment action against plaintiffs in Minnesota federal court. That case remains pending. Birmingham Fire Ins. Co. of Pennsylvania v. Up North Pastics, Inc., et al., Civ. No. 04-21 (RHK/AJB).
On March 21, 2003, Up North sued Shackelford, Horizon, AIGIS, and VeriClaim in Texas district court for breach of contract, negligence, and violations of the Texas Deceptive Trade Practices Act and the Texas Insurance Code. (Def. Rem. App., Tab 2). In an amended petition filed on February 23, 2004, Poly-America joined the lawsuit and plaintiffs named STRAT, AIGCS, and NUFIC as additional defendants. ( Id., Tab 31). Thereafter, AIGIS removed the case to federal court alleging that Shackelford, Horizon, and STRAT — all citizens of Texas — were fraudulently joined to defeat federal diversity jurisdiction. Plaintiffs now move to remand the case to state court. The motion has been fully briefed by the parties and is ripe for determination.
The state court action was dismissed for want of prosecution on December 9, 2003, but reinstated on February 13, 2004. ( See Def. Rem. App., Tabs 10 30).
Up North is a Minnesota corporation with its principal place of business in Cottage Grove, Minnesota. Poly-America is a Texas limited partnership doing business in Grand Prairie, Texas. Horizon and STRAT are Texas corporations and Shackelford is a citizen of Texas. The other defendants are citizens of different states for diversity purposes. ( See Def. Not. of Rem. at 3-4, ¶¶ 8-10). Because complete diversity does not exist, federal subject matter jurisdiction is proper only if defendants can prove that Horizon, STRAT, and Shackelford all were fraudulently joined. See Burden v. General Dynamics Corp., 60 F.3d 213, 218 (5th Cir. 1995).
II.
The fraudulent joinder of an in-state defendant will not defeat federal diversity jurisdiction. Burden v. General Dynamics Corp., 60 F.3d 213, 221 (5th Cir. 1995); Cavallini v. State Farm Mutual Auto Ins. Co., 44 F.3d 256, 258 (5th Cir. 1995). However, the burden of proving fraudulent joinder is extremely heavy. B, Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (5th Cir. 1981). The removing party must show either: (1) outright fraud in the pleading of jurisdictional facts; or (2) that there is no possibility the plaintiffs will be able to establish a cause of action against the non-diverse defendants. Burden, 60 F.3d at 217; B., Inc., 663 F.2d at 549. The standard of proof is clear and convincing evidence. Grassi v. Ciba-Geigy, Ltd., 894 F.2d 181, 186 (5th Cir. 1990). The court need not decide whether plaintiffs will actually or even probably prevail on the merits, but only whether there is a possibility they may do so. Dodson v. Spiliada Maritime Corp., 951 F.2d 40, 42 (5th Cir. 1992). Where such a possibility exists, "the good faith assertion of such an expectancy . . . is not fraudulent in fact or in law." B, Inc., 663 F.2d at 550 (citations omitted). The court must construe the pleadings and evidence in the light most favorable to plaintiffs and resolve all factual disputes in their favor. Dodson, 951 F.2d at 42.
A.
Plaintiffs argue that Shackelford, Horizon, and STRAT were properly joined because Texas law prohibits agents from engaging in unfair or deceptive trade practices in the business of insurance. See, e.g. Griggs v. State Farm Lloyds, 181 F.3d 694, 701 (5th Cir. 1999), citing Liberty Mutual Insurance Co. v. Garrison Contractors, Inc., 966 S.W.2d 482, 484-86 (Tex. 1998) (Texas Insurance Code) and State Farm Fire Casualty Co. v. Gros, 818 S.W.2d 908, 913 (Tex.App.-Austin 1991, no writ) (DTPA). However, the mere pleading of a cause of action against an agent is not sufficient to defeat removal jurisdiction. Rather, "whether the plaintiff has stated a valid state law cause of action depends upon and is tied to the factual fit between the plaintiffs' allegations and the pleaded theory of recovery." Id. If the facts alleged by plaintiffs do not state an actionable claim against the non-diverse defendants, the mere hypothetical possibility they could bring such a claim is not enough to warrant remand Id.
B.
In their second amended complaint, plaintiffs allege that Shackelford and Horizon violated the DTPA and the Texas Insurance Code "by making misrepresentations regarding insurance coverage . . ." (Plf. Sec. Am. Compl. at 6, ¶ 5.6). More particularly, plaintiffs contend that Shackelford, an agent of Horizon, told Letha Black, an employee of plaintiffs, that the policy sold to Poly-America provided coverage for any property physically located on the insured premises. (Plf. Sec. Am. Compl. at 6-7, ¶¶ 5.7(a)-(c)). Plaintiffs further maintain that this representation proved to be false and was the producing cause of damages because defendants have taken the position that the policy does not cover fire damage to the rail cars parked at plaintiff's manufacturing facility. ( Id., at 7, ¶¶ 5.7(d), 5.8, 5.10). These allegations, viewed in the light most favorable to plaintiffs, are sufficient to state a claim against Shackelford and Horizon under the DTPA and the Texas Insurance Code. See McLaughlin, Inc. v. Northstar Drilling Technologies, Inc., ___ S.W.3d ___, 2004 WL 743338 at * 5 (Tex.App.-San Antonio, Apr. 7, 2004, no pet. hist.), citing TEX. BUS. COMM. CODE ANN. § 17.50(a)(1) (Vernon 2002) ("In order for a consumer to maintain a cause of action [under the DTPA], the consumer must show that the misrepresentation was a producing cause of his or her damages and that the consumer relied on the misrepresentation to his or her detriment.").Defendants counter that the mere breach of a promise to perform a contractual obligation is not actionable under the DTPA. See Crawford v. Ace Sign, Inc., 917 S.W.2d 12, 14-15 (Tex. 1996); DeLaurentis v. United Services Automobile Association, ___ S.W.3d ___, 2004 WL 349922 at *8 (Tex.App.-Houston [14th Dist.], Feb. 26, 2004, no pet.). While this is a correct statement of law, it is inapposite here. Plaintiffs' second amended complaint alleges that Shackelford made representations that induced them to purchase the insurance policy made the basis of this suit. Texas courts have consistently held that such conduct gives rise to a DTPA claim independent of any contract. See Dallas Fire Insurance Co. v. Texas Contractors Surety Appellees Casualty Agency, 128 S.W.3d 279, 293-94 (Tex.App. — Fort Worth 2004), pet. for review filed (Mar. 5, 2004) (No. 2-01-397-CV); Howell Crude Oil Co. v. Donna Refinery Partners, Ltd., 928 S.W.2d 100, 108-09 (Tex.App.-Houston [14th Dist.] 1996, writ denied). Even the cases on which defendants rely recognize this distinction. See DeLaurentis, 2004 WL 349922 at *8 ("Notably, the Policyholder does not assert the Insurer ever told her mold-related damage would be covered under the policy or that such representations induced her to purchase the policy.").
CONCLUSION
Defendants have failed to prove by clear and convincing evidence that Shackelford and Horizon were fraudulently joined solely to defeat diversity jurisdiction. Consequently, federal jurisdiction is not proper. Plaintiffs' motion to remand is granted. The court will remand this case to the 44th Judicial District Court of Dallas County, Texas by separate order issued today.
The resolution of this issue pretermits consideration of whether STRAT, the other non-diverse defendant, was fraudulently joined.
SO ORDERED.