fraudlent joinder of adjusters - cooper & scully joinder of adjusters... · analysis of...

FRAUDLENT JOINDERFRAUDLENT JOINDEROF ADJUSTERSOF ADJUSTERS

Presented byPresented by

WES JOHNSONWES JOHNSON

©© 2015 This paper and/or presentation provides information on gen2015 This paper and/or presentation provides information on general legal issues. It is not intended to provide advice on anyeral legal issues. It is not intended to provide advice on any specific legal matter orspecific legal matter orfactual situation, and should not be construed as defining Coopefactual situation, and should not be construed as defining Cooper and Scully, P.C.'s position in a particular situation. Each cr and Scully, P.C.'s position in a particular situation. Each case must be evaluated onase must be evaluated onits own facts. This information is not intended to create, andits own facts. This information is not intended to create, and receipt of it does not constitute, an attorneyreceipt of it does not constitute, an attorney--client relationship. Readers should not act onclient relationship. Readers should not act onthis information without receiving professional legal counsel.this information without receiving professional legal counsel.

WHAT COURT DO I WANT TOWHAT COURT DO I WANT TOTRY/SETTLE/APPEAL MYTRY/SETTLE/APPEAL MY

COVERAGE CASE?COVERAGE CASE?

THE PERCEPTION IS THATTHE PERCEPTION IS THATFEDERAL COURT IS BETTERFEDERAL COURT IS BETTER

FOR COVERAGE CASESFOR COVERAGE CASESFROM THE INSURANCEFROM THE INSURANCECARRIER PERSPECTIVECARRIER PERSPECTIVE

REMOVALREMOVAL

Since many carriers believe that federalSince many carriers believe that federalcourt is a better venue for them; theycourt is a better venue for them; theyseek toseek to ““removeremove”” state court actions tostate court actions tofederal court when they are capable offederal court when they are capable ofdoing sodoing so

IS IT REMOVABLE?IS IT REMOVABLE?

Federal Question/based on a FederalFederal Question/based on a FederalStatute;Statute;

All Defendants are citizens of differentAll Defendants are citizens of differentstates and agree on removal;states and agree on removal;

Amount is over $75,000;Amount is over $75,000;

Removal is sought within 30 days ofRemoval is sought within 30 days ofservice.service.

DETERMINING CORPORATEDETERMINING CORPORATECITIZENSHIPCITIZENSHIP

A corporation is a “citizen” both of the state inwhich it was incorporated and of the statewhere it has its principal place of business. 28U.S.C. §1332(c)(1).

Therefore, actions brought in the courts ofeither state cannot be removed to federal court.

WHY IS THE ADJUSTERWHY IS THE ADJUSTERBEING SUED IN ADDITION TOBEING SUED IN ADDITION TOTHE INSURANCE COMPANY?THE INSURANCE COMPANY?

POLICYHOLDER STRATEGYPOLICYHOLDER STRATEGY

Prevent RemovalPrevent Removal

Perception works both waysPerception works both ways

Policyholders believe state court providesPolicyholders believe state court providesa better remedya better remedy

FRAUDLENT JOINDERFRAUDLENT JOINDER

In some cases, a party (adjuster) is added as aIn some cases, a party (adjuster) is added as aDefendant in order to eliminate diversity ofDefendant in order to eliminate diversity ofcitizenship between the parties for the solecitizenship between the parties for the solepurpose of preventing removalpurpose of preventing removal

Generally, this is referred to asGenerally, this is referred to as ““fraudulentfraudulentjoinderjoinder””

ELEMENTS OF FRAUDULENTELEMENTS OF FRAUDULENTJOINDERJOINDER

To prove fraudulent joinder, the removing party mustTo prove fraudulent joinder, the removing party mustprove either:prove either:

(1) actual fraud in the pleading of jurisdictional facts,(1) actual fraud in the pleading of jurisdictional facts,oror

(2)(2) plaintiffplaintiff’’s inability to establish a cause of actions inability to establish a cause of actionagainst the nonagainst the non--diverse party in state courtdiverse party in state court..

Smallwood v. Illinois Cen. R.R. CoSmallwood v. Illinois Cen. R.R. Co., 385 F. 3d 568, 573., 385 F. 3d 568, 573(5(5thth Cir. 2004).Cir. 2004).

ANALYSIS OF FRAUDULENT JOINDERANALYSIS OF FRAUDULENT JOINDER

1.1. Does it appear the plaintiff intended to pursue aDoes it appear the plaintiff intended to pursue aclaim against the inclaim against the in--state defendant;state defendant;

2.2. Does state law recognize the cause of action againstDoes state law recognize the cause of action againstthe defendant;the defendant;

3.3. Does the state court petition allege sufficient factsDoes the state court petition allege sufficient factsagainst the defendant;against the defendant;

4.4. When the state court petition fails to allegeWhen the state court petition fails to allegesufficient facts, is there other evidence in the recordsufficient facts, is there other evidence in the recordwhich clarifies the claim set forth in the petition?which clarifies the claim set forth in the petition?


1.1. Does it appear the plaintiff intended to pursue a claimDoes it appear the plaintiff intended to pursue a claimagainst the defendant?against the defendant?

---- Petition usually controlsPetition usually controls---- Factors:Factors:

1. whether the defendant is only minimally mentioned;1. whether the defendant is only minimally mentioned;2. whether any actionable facts or causes of action are2. whether any actionable facts or causes of action are

specifically alleged against the defendant; and,specifically alleged against the defendant; and,3. whether the defendant was ever served.3. whether the defendant was ever served.

First Baptist Church of Mauriceville, Texas v.First Baptist Church of Mauriceville, Texas v. GuideOneGuideOne MutMut..Ins. CoIns. Co., 2008 WL 4533729 (E.D. Tex. Sep. 29, 2008)., 2008 WL 4533729 (E.D. Tex. Sep. 29, 2008)


2.2. Does state law recognize the cause of actionDoes state law recognize the cause of actionagainst the defendant?against the defendant?

---- If the court determines that a plaintiff cannot recoverIf the court determines that a plaintiff cannot recoverfrom the [defendant] because the asserted claimsfrom the [defendant] because the asserted claimsare not valid under state law, the individual is notare not valid under state law, the individual is notproperly joined.properly joined.

First Baptist Church of Mauriceville, Texas v.First Baptist Church of Mauriceville, Texas v. GuideOneGuideOne MutMut. Ins. Co. Ins. Co., 2008., 2008WL 4533729, at *4 (E.D. Tex. Sep. 29, 2008)WL 4533729, at *4 (E.D. Tex. Sep. 29, 2008)

ANALYSIS OF FRAUDULENTANALYSIS OF FRAUDULENTJOINDER OF INSURANCE ADJUSTERSJOINDER OF INSURANCE ADJUSTERS

2.2. Does state law recognize the cause of actionDoes state law recognize the cause of actionagainst the adjuster?against the adjuster?

XXXXNOT LiableNOT Liable

May be liableMay be liable

IndependentIndependentAdjusterAdjusterInIn--House AdjusterHouse Adjuster

BREACH OF DUTYBREACH OF DUTYOF GOOD FAITHOF GOOD FAITH

AND FAIRAND FAIRDEALING *DEALING *

** Absent any contractual relationship between the insured and theAbsent any contractual relationship between the insured and the adjusteradjuster






BREACH OFBREACH OFCONTRACT *CONTRACT *

** Absent any contractual relationship between the insured and theAbsent any contractual relationship between the insured and the adjusteradjuster



NOT LiableNOT Liable

X (unsettled)X (unsettled)XXMay be liableMay be liable


VIOLATIONS OFVIOLATIONS OFTEXASTEXAS

INSURANCEINSURANCECODECODE §§541541






NEGLIGENTNEGLIGENTCLAIMSCLAIMS

HANDLINGHANDLING



NOT LiableNOT Liable

XXXXMay be liableMay be liable


FRAUDFRAUD


3.3. Does the state court petition allege sufficient facts againstDoes the state court petition allege sufficient facts againstthe defendant? (FACTUAL FIT ANALYSIS)the defendant? (FACTUAL FIT ANALYSIS)

1. whether the defendant is only minimally mentioned;1. whether the defendant is only minimally mentioned;2. whether any actionable facts or causes of action are2. whether any actionable facts or causes of action are

specifically alleged against the defendant; and,specifically alleged against the defendant; and,3. whether the defendant was ever served.3. whether the defendant was ever served.

A defendant may defeat remand (to state court) by showing thatA defendant may defeat remand (to state court) by showing thatthe petition fails to allegethe petition fails to allege ““specific actionable conductspecific actionable conduct”” sufficientsufficientto support the cause of action.to support the cause of action.

First Baptist Church of Mauriceville, Texas v.First Baptist Church of Mauriceville, Texas v. GuideOneGuideOne MutMut. Ins. Co. Ins. Co.,.,2008 WL 4533729, at *4 (E.D. Tex. Sep. 29, 2008)2008 WL 4533729, at *4 (E.D. Tex. Sep. 29, 2008)..


4.4. When the state court petition fails to allegeWhen the state court petition fails to allegesufficient facts, is there other evidence in thesufficient facts, is there other evidence in therecord which clarifies the claim set forth in therecord which clarifies the claim set forth in thepetition?petition?

A federal court has discretion to consider other evidence in theA federal court has discretion to consider other evidence in therecord ...record ... to the extent that the factual allegations containedto the extent that the factual allegations containedtherein clarifies or amplifies the claims actually alleged in ththerein clarifies or amplifies the claims actually alleged in theepetitionpetition……..

Examples of such evidence include affidavits and deposition testExamples of such evidence include affidavits and deposition testimony.imony.

Griggs v. State Farm Lloyds,Griggs v. State Farm Lloyds, 181 F.3d 694, 699181 F.3d 694, 699--700 (5700 (5thth Cir. 1999)Cir. 1999)

RECENT DECISIONSRECENT DECISIONS

JONES V. ALLSTATEJONES V. ALLSTATE

Northern District of Texas (2014)Northern District of Texas (2014)

Policyholders filed suit directly againstPolicyholders filed suit directly againstAllstateAllstate

Allstate removedAllstate removed

Policyholders nonPolicyholders non--suited mattersuited matter

ReRe--filed against Allstate and their in statefiled against Allstate and their in stateadjusteradjuster

JONES V. ALLSTATEJONES V. ALLSTATE

Allstate removed anyway arguingAllstate removed anyway arguingfraudulentfraudulent joinderjoinder

Court noted Allstate held heavy burden toCourt noted Allstate held heavy burden todemonstrate actual fraud or an inability todemonstrate actual fraud or an inability toestablish a cause of action in state courtestablish a cause of action in state court

Court held this burden was met becauseCourt held this burden was met becauseAllstate demonstrated that there was noAllstate demonstrated that there was nofactual allegation against adjuster otherfactual allegation against adjuster otherthan his residencythan his residency

ONE WAY INVESTMENTS V.ONE WAY INVESTMENTS V.CENTURY SURETY COMPANYCENTURY SURETY COMPANY

Northern District of Texas (2012)Northern District of Texas (2012)

Direct allegations against independentDirect allegations against independentadjuster regarding hail claimsadjuster regarding hail claims

Carrier removed anyway arguingCarrier removed anyway arguingfraudulentfraudulent joinderjoinder

Allegations against adjuster were forAllegations against adjuster were formultiple violations of Texas Insurancemultiple violations of Texas InsuranceCode; bad faith, improper claims handlingCode; bad faith, improper claims handling

ONE WAY INVESTMENTS V.ONE WAY INVESTMENTS V.CENTURY SURETY COMPANYCENTURY SURETY COMPANY

One Way moved to remand to state courtOne Way moved to remand to state courton basis that specific allegations madeon basis that specific allegations madeabout the adjusterabout the adjuster

Century prevailed as Court held that theCentury prevailed as Court held that theindependent adjusterindependent adjuster’’s role was to assesss role was to assessthe damage, not pay or deny the claimthe damage, not pay or deny the claim

All of the insurance code allegations failedAll of the insurance code allegations failedas a resultas a result

MARQUEZ V. ALLSTATEMARQUEZ V. ALLSTATELLOYDSLLOYDS

Southern District of Texas (2014)Southern District of Texas (2014)

Claim for wind and hail damage to homeClaim for wind and hail damage to home

Allegations against Allstate and its in stateAllegations against Allstate and its in stateadjuster regarding improper adjustmentadjuster regarding improper adjustmentand underpayment of claimand underpayment of claim

Removed to federal courtRemoved to federal court

MARQUEZ V. TEXAS LLOYDSMARQUEZ V. TEXAS LLOYDS

Court that removal was properCourt that removal was proper

There were allegations against adjuster forThere were allegations against adjuster foraction under the Insurance Codeaction under the Insurance Code

However, they were considered too general toHowever, they were considered too general toestablish a reasonable basis of liability on theestablish a reasonable basis of liability on theadjusteradjuster

The allegations only spoke generally toThe allegations only spoke generally to““DefendantsDefendants”” –– not attributed the complained ofnot attributed the complained ofconduct specific to the adjusterconduct specific to the adjuster

ESTEBAN V. STATE FARMESTEBAN V. STATE FARMLLOYDSLLOYDS

Northern District (2014)Northern District (2014)

Another homeowner claimAnother homeowner claim

Sued State Farm and independentSued State Farm and independentadjusteradjuster

State Farm argued that since adjuster wasState Farm argued that since adjuster wasnot employee,not employee, joinderjoinder was improperwas improper

Court held that the fact that adjuster wasCourt held that the fact that adjuster wasnot employee did not determinenot employee did not determine joinderjoinderimproperimproper

ESTEBAN V. STATE FARMESTEBAN V. STATE FARM

Court then evaluated the sufficiency of theCourt then evaluated the sufficiency of theallegations against the adjuster;allegations against the adjuster;

This district judge applied the TexasThis district judge applied the Texas ““fair noticefair notice””pleading standards, which only require that thepleading standards, which only require that theopposing party have notice enough to ascertainopposing party have notice enough to ascertainthe cause of action brought against himthe cause of action brought against him

Court held that the allegations of improperCourt held that the allegations of improperclaims handling under the Insurance Code wereclaims handling under the Insurance Code weresufficentsufficent and remandedand remanded

fraudlent joinder of adjusters - cooper & scully joinder of adjusters... · analysis of...

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