Rains v. Csaa Fire & Cas. Ins. Co., Case No. 20-CV-0400-CVE-FHM

RANDY RAINS and JOHNA RAINS, Plaintiffs, v. CSAA FIRE AND CASUALTY INSURANCE COMPANY,d/b/a AAA INSURANCE COMPANY, a foreign insurance company;and CSAA INSURANCE EXCHANGE, an interinsurance exchange; andCORD CHARVAT, an individual, Defendants.

Case No. 20-CV-0400-CVE-FHM

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OKLAHOMA

November 16, 2020

OPINION AND ORDER

This matter comes before the Court for consideration of the notice of removal (Dkt. # 2) filed by defendant CSAA Fire & Casualty Insurance Company ("FCIC").

Plaintiffs, Randy and Johna Rains, filed an action in the District Court of Tulsa County, Oklahoma, on June 25, 2020, regarding the underpayment of insurance benefits. Plaintiffs named three defendants in the complaint: their insurance company (FCIC), the interinsurance exchange (CSAA Insurance Exchange ("exchange")), and the agent who procured their insurance (Cord Charvat ("Charvat")). Dkt. # 2-2. Plaintiffs asserted claims against FCIC and the exchange for breach of contract and for breach of the duty of good faith and fair dealing. Dkt. #2-2, at 5-8. Plaintiffs also asserted a claim against Charvat for negligent procurement of their insurance contract. Dkt. #2-2, at 8-11. Plaintiffs assert they are owed damages in excess of $75,000. Dkt. # 2-2, at 11. Plaintiffs also seek additional punitive damages.

On August 12, 2020, FCIC removed the action to this Court pursuant to 28 U.S.C. § 1441(a). Section 1441(a) states that "any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending." 28 U.S.C. § 1441(a). FCIC asserts that removal is proper because this Court has original jurisdiction under 28 U.S.C. § 1332.

Plaintiffs have filed a motion to remand(Dkt. # 16). Plaintiffs argue that the parties are not diverse under § 1332 because at least one defendant is, like them, a resident of Oklahoma for the purposes of diversity jurisdiction. Plaintiffs also request fees and costs, alleging that the removal is wrong as a matter of law. FCIC responds (Dkt. # 25) that there is complete diversity when considering only the properly joined parties. FCIC argues that the citizenship of defendant Charvat, the insurance agent, should be disregarded as he was not properly joined as a party prior to removal. FCIC also argues that the exchange does not qualify as a citizen of Oklahoma. FCIC asserts that, in any event, the citizenship of both Charvat and the exchange should be disregarded because they are fraudulently joined. Finally, FCIC argues that fees and costs should not be awarded to plaintiffs because removal was proper. The motion is fully briefed (Dkt. ## 16, 25, 30).

I.

The following allegations are taken from the petition in the underlying action: in 2006, plaintiffs purchased a new home in Jenks, Oklahoma. Dkt. # 2-2, at 1, 4. Prior to purchasing the home, plaintiffs received a home inspection report that indicated that the home was in excellent condition and no repairs were necessary. Id. at 4. In April 2016, plaintiffs contacted defendant Charvat, FCIC's insurance agent, to procure insurance coverage on their house. Id. Plaintiffsrequested replacement coverage for damage caused by storms, hail, and wind. Id. Charvat asserted he could procure such coverage, but stated that he would need to perform an inspection of the house first. Id. Charvat inspected the roof and declared it to be in excellent condition. Id. As a result, Charvat represented that he could insure plaintiffs' home for its entire replacement cost. Id. at 9. Charvat "independently established, calculated, and set the replacement cost policy limits." Id. at 10. Charvat determined the policy coverage using FCIC valuation software. Id. Plaintiffs had no other input in determining policy limits other than answering Charvat's questions. Id.

Charvat advised FCIC that the home met the underwriting requirements and procured plaintiffs' policy. Id. at 4. FCIC accepted plaintiffs' check for the premium. Id. at 5. At no point did Charvat or FCIC state that there were issues with the roof that would affect coverage. Id. Approximately one year after plaintiffs procured the policy, plaintiffs' insurers "without warning to the [p]laintiffs, raised the premium and changed their roof from a full replacement policy to an actual cash value policy." Id. at 10.

In June 2018, plaintiffs' home suffered hail and wind damage. Id. at 5. Plaintiffs notified FCIC that the house had sustained damage due to hail and wind and was told by both Charvat and the adjuster that the damage would be covered. Id. Plaintiffs' replacement cost policy was in effect at all material times. Id. However, plaintiffs state that the contract was breached when FCIC failed to pay plaintiffs the full amount owed to them under the insurance policy (i.e. the replacement cost). Id. at 6.

Plaintiffs filed an action in state court against FCIC, the exchange, and Charvat on June 25, 2020. Plaintiffs seek relief from FCIC and the exchange for breach of contract, and for breach of the duty of good faith and fair dealing. Plaintiffs also brought a claim against Charvat for negligentprocurement of an insurance contract. Dkt. #2-2, at 5-11. FCIC removed this action on August 12, 2020, on the basis of diversity jurisdiction. Dkt. # 2. At that time, Charvat had not yet been served in state court. Dkt. ## 2, at 3; 16, at 5. He has since been served. Dkt. # 16, at 5.

II.

Federal courts are courts of limited jurisdiction, and there is a presumption against the exercise of federal jurisdiction. Merida Delgado v. Gonzales, 428 F.3d 916, 919 (10th Cir. 2005); Penteco Corp. Ltd. Partnership--1985A v. Union Gas System, Inc., 929 F.2d 1519, 1521 (10th Cir. 1991). "It is well-established that statutes conferring jurisdiction upon the federal courts, and particularly removal statutes, are to be narrowly construed in light of our constitutional role as limited tribunals." Pritchett v. Office Depot, Inc., 420 F.3d 1090, 1095 (10th Cir. 2005). The party invoking federal jurisdiction has the burden to allege jurisdictional facts demonstrating the presence of federal subject matter jurisdiction. McNutt v. General Motors Acceptance Corp. of Indiana, Inc., 298 U.S. 178, 182 (1936) ("It is incumbent upon the plaintiff properly to allege the jurisdictional facts, according to the nature of the case."); Montoya v. Chao, 296 F.3d 952, 955 (10th Cir. 2002) ("The burden of establishing subject-matter jurisdiction is on the party asserting jurisdiction."). "The Court resolves doubtful cases in favor of remand." McDonald v. CSAA Ins. Exch., 2017 WL 887108, at *2 (W.D. Okla. Mar. 6, 2017) (citing Fajen v. Found. Reserve Ins. Co., 683 F.2d 331, 333 (10th Cir. 1982)).

A defendant may remove a case to federal court if the case is one over "which the district courts of the United States have original jurisdiction." 28 U.S.C. § 1441(a). Under 28 U.S.C. § 1332, federal courts have "original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between . . . citizens ofdifferent states." The Supreme Court has construed § 1332 to require complete diversity, and the "plaintiff must meet the requirements of the diversity statute for each defendant . . ." Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826 (1989).

III.

The parties dispute four main jurisdictional issues.: (i) whether Charvat's citizenship should be considered because he had not been properly served at the time of removal under 28 U.S.C. § 1441(b) and, if it is considered; (ii) whether he has been fraudulently joined; (iii) whether the exchange qualifies as a citizen of Oklahoma for the purposes of determining diversity jurisdiction, and, if it does; (iv) whether the exchange is fraudulently joined. Because the Court finds Charvat is properly joined, the Court remands this action to state court based on the absence of complete diversity and does not reach the issues relating to the exchange.

A. Diversity Jurisdiction

For the purposes of diversity jurisdiction, it is uncontested that plaintiffs are citizens and residents of Tulsa County, Oklahoma. Dkt. ## 2-2, at 1; 2, at 2. FCIC asserts it is an Indiana corporation with its principal place of business in California. Dkt. # 2, at 3. Plaintiffs assert that Charvat is an individual domiciled in Oklahoma. Dkt. # 2-2, at 1. Charvat's summons in the state court action lists an Oklahoma address. Dkt. #22-1, at 1. Instead of challenging that Charvat is a resident of Oklahoma, FCIC argues that Charvat's citizenship is irrelevant. Dkt. #2, at 3. FCIC asserts that the plain language of 28 U.S.C. § 1441(b)(2) dictates that a case may be removed if all parties "properly joined and served" in a state court action are diverse under § 1332. FCIC argues that because Charvat had not yet been properly served at the time of removal his citizenship is notconsidered when assessing removal under 28 U.S.C. § 1441(b)(2). FCIC is mistaken. Section 1441(b)(2) does not apply to this action.

Under 28 U.S.C. § 1441(b)(2), "[a] civil action otherwise removable solely on the basis of the jurisdiction under section 1332(a) of this title" may not be removed if any defendant "properly joined and served . . . is a citizen of the State in which such action is brought." 28 U.S.C. § 1441(b)(2) (emphasis added). The plain text dictates that for § 1441(b)(2) to apply the civil action must, at minimum, be "otherwise removable" on the basis of diversity jurisdiction. To determine "whether a party has adequately presented facts sufficient to establish diversity jurisdiction" courts "examine the face of the complaint." Gaines v. Ski Apache, 8 F.3d 726, 729 (10th Cir. 1993); see also Hunter Douglas Inc. v. Sheet Metal Workers Intern. Ass'n, Local 159...