Insurance Claim Denial And Remand

Insurance lawyers need to understand every way possible for maintaining their case in State Court whenever possible.  It is not possible too often, so when it is possible it needs to be done.

This 2021, opinion from the Northern District of Texas, Dallas Division, shows how one case was allowed to be in State Court.  The opinion is styled, Richard Conrad and Brenda Conrad v. Cincinnati Insurance Company and John W. Schuster.

This is a property insurance coverage dispute.  The Conrads sued Cincinnati and Schuster, an employee of Cincinnati who adjusted the claim, for various violations of the Texas Insurance Code and breach of contract after the Defendants concluded there was minimal damage to the property.  Suit was filed in State Court and the Defendants had the case removed to Federal Court based on diversity jurisdiction and the assertion that Schuster was improperly joined in the lawsuit.  The Conrads filed a Motion to Remand the case back to the State Court.

For a case to be removed based on diversity jurisdiction, all persons on one side of
the controversy must be citizens of different states than all persons on the other side.  This means that no plaintiff can be a citizen of the same state as even one defendant.  Moreover, under 28 U.S.C., Section 1441(b), a case cannot be removed based on diversity jurisdiction if any properly-joined defendant is a citizen of the state in which the action is brought.

The doctrine of improper joinder is a narrow exception to the rule of complete
diversity, and it entitles a defendant to remove to a federal forum unless an in-state defendant has been properly joined.  The doctrine allows federal courts to defend against attempts to manipulate their jurisdiction, such as by joining non-diverse parties solely to deprive federal courts of diversity jurisdiction.  Therefore, the removal statute is strictly construed, with any doubt about the propriety of removal being resolved in favor of remand.  In determining whether a party was improperly joined, the court resolves all contested factual issues and ambiguities of state law in favor of the plaintiff.  The party seeking removal bears a heavy burden to prove improper joinder.

Improper joinder is established by showing that there was either actual fraud in the pleading of jurisdictional facts or that the plaintiff is unable to establish a cause of action against the non-diverse defendant in state court.  Under the second alternative—the one at issue here—the test for improper joinder is whether the defendant has demonstrated that there is no possibility of recovery by the plaintiff against an in-state defendant, which stated differently means that there is no reasonable basis for the district court to predict that the plaintiff might be able to recover against an in-state defendant.  To assess whether a plaintiff has a reasonable basis of recovery under state law, the court may conduct a Rule 12(b)(6)-type analysis, looking initially at the allegations of the complaint to determine whether the complaint states a claim under state law against the in-state defendant.  Ordinarily, if a plaintiff can survive a Rule 12(b)(6) challenge, there is no improper joinder.  That said, there are cases, hopefully few in number, in which a plaintiff has stated a claim, but has misstated or omitted discrete facts that would determine the propriety of joinder. In such cases, the district court may, in its discretion, pierce the pleadings and conduct a summary inquiry.

When deciding whether a defendant has been improperly joined, a federal district
court must apply the federal pleading standard.  This standard requires the plaintiff to plead enough facts to state a claim to relief that is plausible on its face.  A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.  Where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not shown—that the pleader is entitled to relief.  Furthermore, under Rule 8(a)(2), a pleading must contain a short and plain statement of the claim showing that the pleader is entitled to relief.  Although the pleading standard Rule 8 announces does not require detailed factual allegations, it demands more than labels and conclusions.

Here is the unique part that got this case remanded:

Cincinnati maintains that the motion to remand must be denied because the Conrads did not move to remand within the 30-day period prescribed by 28 U.S.C., Section 1447(c).  The court disagrees.

Section 1447 provides, in relevant part, that a “motion to remand the case on the basis of any defect other than the lack of subject matter jurisdiction must be made within 30 days after the filing of the notice of removal under Section 1446(a).”  The Conrads are moving to remand on the ground that the court lacks subject matter jurisdiction because the parties are not completely diverse citizens.  By statute, remand is mandatory “if at any time prior to final judgment it appears that the district court lacks subject matter jurisdiction.”  Accordingly, the 30-day limit imposed by Section 1447(c) does not apply to the Conrads’ motion, and their motion is timely because they filed it “prior to final judgment.”



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