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Johnson v. State Farm Fire and Casualty Co.

United States District Court, N.D. Oklahoma

October 22, 2019




         The Court has for its consideration Plaintiffs' Motion to Remand (Doc. 10). Defendant State Farm Fire and Casualty Company opposes remand, arguing that Plaintiffs Leemon Howard Johnson and Kimberly Ann McIntire fraudulently joined State Farm's adjuster, Defendant Michael Hopkins, in order to defeat removal. (See State Farm's Notice of Removal, Doc. 2; State Farm's Response to Plaintiffs' Motion to Remand, Doc. 13). For the reasons set out below, the Court concludes that joinder of Mr. Hopkins was proper. Plaintiffs' Motion to Remand is, therefore, granted.

         I. Background

         This dispute arose after a fire destroyed the home of Mr. Johnson and Ms. McIntire, leading them to file a claim under their policy with State Farm. Mr. Hopkins, a State Farm employee, investigated the claim. (Doc. 2-14 at 1-2). After the adjustment process ended at loggerheads, Mr. Johnson and Ms. McIntire filed suit in Osage County District Court. The initial petition's three-counts pleaded breach of contract and bad faith against State Farm and intentional infliction of emotional distress against Mr. Hopkins. (Doc. 2-2 at 3-5). Mr. Johnson and Ms. McIntire later amended the petition to add an allegation of tortious interference with contract against Mr. Hopkins. (Doc. 2-8 at 6-7). Shortly thereafter, State Farm filed a Notice of Removal with the Court (Doc. 2).

         Mr. Johnson and Ms. McIntire timely filed this Motion to Remand (Doc. 10), arguing that the Court lacks jurisdiction to hear this case. Mr. Johnson and Ms. McIntire are citizens of Oklahoma, and Mr. Hopkins is also a citizen of Oklahoma. (Doc. 10 at 1). Because the claims are based in state law, and Mr. Hopkins is a non-diverse defendant, Mr. Johnson and Ms. McIntire argue that the Court lacks subject matter jurisdiction over the action and must, therefore, remand it to state court.

         II. Legal Standards: Removal and Fraudulent Joinder

         When a plaintiff brings a civil action in state court, but a federal district court has proper jurisdiction to hear it, a defendant may remove the case to federal court. 28 U.S.C. § 1441(a). The relevant jurisdictional grant in this case, 28 U.S.C. § 1332(a), provides that district courts shall have original jurisdiction over civil actions between citizens of different states. Jurisdiction is proper, however, only where there is complete diversity of citizenship; no plaintiff can be a citizen of the same state as any of the defendants. Caterpillar, Inc. v. Lewis, 519 U.S. 61, 68 (1996). Additionally, where federal jurisdiction is based in diversity, the so-called forum-defendant rule bars removal when any of the “properly joined” defendants is a citizen of the state where the action was originally brought. 28 U.S.C. § 1441(b)(2).

         A defendant may nevertheless remove a case to federal court based on diversity if the plaintiff fraudulently joined the nondiverse defendant in order to defeat federal jurisdiction. Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 97 (1921); Am. Nat'l Bank & Trust Co. of Sapulpa v. Bic Corp., 931 F.2d 1411, 1412-13 (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) (quoting Cuevas v. BAC Home Loans Servicing, LP, 648 F.3d 242, 249 (5th Cir. 2011)). “The defendant seeking removal bears a heavy burden of proving fraudulent joinder, and all factual and legal issues must be resolved in favor of the plaintiff.” Id.

         It is not entirely clear what the removing party must prove in order to “demonstrate” a plaintiff's “inability to establish a cause of action.”[1] Dutcher did not announce a standard of proof, and the Tenth Circuit, in a pair of recent, unpublished cases, seemed to announce contradictory standards. In Montano v. Allstate Indemnity, the court held that the party alleging fraudulent joinder must prove the plaintiff “ha[s] no possibility of recovery” against the nondiverse defendant. No. 99-2225, 2000 U.S. App. LEXIS 6852, at *12 (10th Cir. Apr. 14, 2000) (emphasis added). In Nerad v. AstraZeneca Pharm., Inc., however, the court said fraudulent joinder turned on “whether there is a reasonable basis to believe the plaintiff might succeed in at least one claim against the nondiverse defendant.” Id. 203 Fed.Appx. 911, 913 (10th Cir. 2006) (emphasis added) (citing Badon v. RJR Nabisco, Inc., 224 F.3d 282, 293 (5th Cir. 2000)). “A ‘reasonable basis', ” the court said, “means just that: the claim need not be a sure-thing, but it must have a basis in the alleged facts and the applicable law.” Id.

         Significant daylight separates the two standards. Belief in a plaintiff's eventual success may be unreasonable even as a possibility of recovery, however slim, remains. Consequently, the Court must determine which standard will guide its inquiry. A careful read of the cases shows Montano to be the weightier authority.

         In Montano, the plaintiffs sued their insurer and its agent, whom they alleged had negligently failed to procure insurance coverage as directed. 2000 U.S. App. LEXIS 6852, at *2- 3, *6. Although joinder of the agent destroyed complete diversity, the insurance company successfully removed the case based on fraudulent joinder. Id. at *3. On appeal, the Tenth Circuit reversed.

         The court brushed aside the insurance company's argument that, under New Mexico law, an insurance agent was not an agent of the insured and could therefore not be held liable to him. After reviewing state law, the court concluded that this immunity was not absolute. Id. at *8-9. Proving fraudulent joinder, the court explained, requires more than a showing that recovery is unlikely in state court:

This standard is more exacting than that for dismissing a claim under Fed.R.Civ.P. 12(b)(6); indeed, the latter entails the kind of merits determination that, absent fraudulent joinder, should be left to the state court where the action commenced. “A claim which can be dismissed only after an intricate analysis of state law is not so wholly insubstantial and frivolous that it may be disregarded for purposes of diversity jurisdiction.”

Id. at *5-6 (citation omitted) (quoting Batoff v. State Farm Ins. Co., 977 F.2d 848, 851-53 (3d Cir. 1992). Because the state's agent-immunity rule was not absolute, the insurance company had failed to prove that the ...

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