Xu v. Weis

WEI MIN XU, Plaintiffs, v. MATT WEIS; JANE DOE WEIS; and ALLSTATE FIRE AND CASUALTY INSURANCE COMPANY, Defendants.

No. 2:22-CV-OOII8-TL

United States District Court, W.D. Washington, Seattle

February 21, 2023

ORDER REGARDING SUBJECT MATTER JURISDICTION AND REMANDING CASE

Tana Lin United States District Judge

This matter is before the court on its order to show cause Regarding subject Matter Jurisdiction. Dkt. No. 16. Having reviewed the Parties' briefing, their presentation at oral argument, and the relevant record, the Court hereby finds that it lacks subject matter jurisdiction, DENIES Plaintiff's request for attorney fees and costs, and REMANDS this case to King County superior Court.

I. Background

This case arises out of an underinsured motorist insurance claim related to a motor vehicle collision. Dkt. No. 1-1 at 2. Defendants Matt Weis and “Jane Doe” Weis (the “Weis Defendants”) are residents of the State of Washington, and Defendant Allstate is a foreign insurance corporation that conducts business in the State of Washington. Id. Allstate insured the vehicle that Plaintiff Wei Min Xu was driving at the time of the motor vehicle collision. Id. at 3. Mr. Weis is the claim handler and insurance adjustor with Allstate assigned to Mr Xu's claim with Allstate. Id. Ms. Weis is the unknown spouse of Mr. Weis. Id. As relevant to this Order, Mr. Xu asserts a breach of a common law duty of bad faith and a violation of the Consumer Protection Act (“CPA”) against Mr. Weis.^[1]Id. at 7.

Mr. Xu filed this case in King County Superior Court in January 2022. Dkt. No. 3-3 at 2. Allstate timely removed the case to this Court, asserting diversity jurisdiction on the basis that Mr. Weis^[2]is fraudulently joined as a party to this case and should be disregarded for the purposes of determining diversity jurisdiction. Dkt. No. 1 at 3-4.

On April 20, 2022, the Court noted the Weis Defendants appeared not to have been served with process and ordered Mr. Xu to show cause why the Weis Defendants should not be dismissed for failure to serve process under Federal Rule of Civil Procedure 9(m). Dkt. No. 10 at 2. Mr. Xu responded by asking the Court to recognize that service was effected as to Defendant Mr. Weis, based on three attempts to serve him. Dkt. Nos. 11, 12. Allstate responded in turn arguing that Mr. Xu failed to demonstrate adequate service of process on Mr. Weis and that the Weis Defendants are improperly joined in this case. Dkt. No. 13 at 2-3.

In reviewing the Parties' responses to the April 20 order, the Court was reminded that it must first assure itself that it has subject matter jurisdiction over this case. Dkt. No. 16 at 2-4. On June 7, the Court ordered Allstate to show cause why the case should not be remanded for lack of subject matter jurisdiction. Dkt. No. 16 at 1. Parties briefed the issue (Dkt. Nos. 17, 18, 20), and oral argument took place on December 1, 2022.

II. Legal Standard

“[A] district court ha[s] a duty to establish subject matter jurisdiction over the removed action sua sponte, whether the parties raised the issue or not.” United Investors Life Ins. Co. v. Waddell & Reed, Inc., 360 F.3d 960, 967 (9th Cir. 2004). “If . . . it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.” 28 U.S.C. § 1447.

III. Discussion

A. Length of Defendant Allstate's Reply Brief

As an initial matter, the Court stated in its June 7 Order to Show Cause that “any reply brief shall not exceed six (6) pages.” Dkt. No. 16 at 4. Allstate did not seek the Court's leave to extend its page limit, yet it filed a reply that is nine pages long. Dkt. No. 20. The Court may refuse to consider any text in excess of the page limit. See Local Civil Rule (“LCR”) 7(e)(6). Here, however, Mr. Xu has not objected to the length of Allstate's reply brief and in any case was given an opportunity to address any portion of Allstate's reply brief at oral argument. Therefore, the Court will not strike the extra pages in this specific instance, as Mr. Xu does not suffer prejudice from the length of Allstate's reply brief.

B. Fraudulent Joinder

Allstate bases its removal on diversity jurisdiction. Dkt. No. 1 at 2; see 28 U.S.C. § 1441 (removal statute). “[A] federal court may exercise diversity jurisdiction ‘only if there is no plaintiff and no defendant who are citizens of the same State.'” Weeping Hollow Ave. Tr. v. Spencer, 831 F.3d 1110, 1112 (9th Cir. 2016) (quoting Wis. Dep't of Corr. v. Schacht, 524 U.S. 381, 388 (1998)); see also 28 U.S.C. § 1332(a).

There is a strong presumption against federal jurisdiction in a removed case. See, e.g., Hunter v. Philip Morris USA, 582 F.3d 1039, 1042 (9th Cir. 2009). The court must resolve “all ambiguity in favor of remand to state court.” Id.

Both Mr. Xu and Mr. Weis are citizens of Washington (Dkt. No. 1-1 at 3), which ordinarily defeats diversity jurisdiction. Allstate argues that Mr. Weis's presence must be disregarded for the purposes of establishing diversity jurisdiction because he was fraudulently joined in this case. See Dkt. No. 1 at 3-4.

When “the plaintiff fails to state a cause of action against a resident [and therefore diversity-destroying] defendant, and the failure is obvious according to the settled rules of the state,” the nondiverse defendant is deemed “fraudulently joined” and ignored for the purposes of determining diversity.^[3]Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001) (quoting McCabe v. Gen. Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987)); see also Weeping Hollow Ave. Tr., 831 F.3d at 1113 (fraudulent joinder looks to whether plaintiff can state reasonable or colorable claim for relief). In short, “if there is a possibility that a state court would find that the complaint states a cause of action against [the nondiverse defendant,] the federal court must find that the joinder was proper and remand the case to the state court.” Grancare, LLC v. Thrower ex rel. Mills, 889 F.3d 543, 548 (9th Cir. 2018) (emphasis in original) (quoting Hunter, 582 F.3d at 1046) (holding that the standard for fraudulent joinder is different from the Rule 12(b)(6) standard).

Defendants bear the burden of showing, by clear and convincing evidence, that fraudulent joinder exists and that removal was proper. See, e.g., Hamilton Materials, Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1206 (9th Cir. 2007) (“clear and convincing evidence” standard); see also Grancare, LLC, 889 F.3d at 548 (defendant bears a “heavy burden”).

Allstate argues that Mr. Xu's claims of bad faith and CPA violations against Mr. Weis are barred by Washington law. Dkt. No. 17 at 4. Allstate argues that the Washington Supreme Court decision Keodalah v. Allstate Insurance Co. (“Keodalah II”), 449 P.3d 1040 (Wash. 2019) (en banc), “confirmed” a long-standing stance of Washington courts that such claims are barred. Dkt. No. 17 at 5-6. According to Allstate, no court applying Washington law has recognized a common law bad faith claim against an insurance adjustor, and Keodalah II bars any bad faith or CPA violation claims against an individual adjustor. Dkt. No. 20 at 2.

Mr. Xu argues that Mr. Weis is properly joined because Keodalah II only holds that (1) there is no statutory bad faith claim against an individual adjustor (under RCW 48.01.030); and (2) there is no per se CPA claim against an individual adjustor. Dkt. No. 18 at 3. Mr. Xu argues that Keodalah II does not address whether a plaintiff may allege common law bad faith claims or non-per se CPA claims against an individual insurance adjustor, as explained by Justice Mary Yu's dissenting opinion. Id. at 4. Mr. Xu further notes that several decisions of this District have already held that Keodalah II left open whether common law bad faith and non-per se CPA claims may be asserted against an individual adjustor. Id. at 4-6.

1. Keodalah v. Allstate Insurance Co.

In 2018, the Washington Court of Appeals held that an individual employee insurance adjustor may be individually liable for bad faith claims and CPA claims. Keodalah v. Allstate Ins. Co. (“Keodalah I”), 413 P.3d 1059, 1065 (Wash.Ct.App. 2018), rev'd by Keodalah II, 449 P.3d 1040. Then, in 2019 (notably, before Mr. Xu initiated this action), the Supreme Court of Washington reversed, holding that there is no implied cause of action for insurance bad faith against individual insurance representatives under RCW 48.01.030. Keodalah II, 449 P.3d at 1046. The court based this holding on a close analysis of RCW 48.01.030, including its statutory and historical context. Id. The court also held that insurance adjustors are not subject to personal liability for per se CPA claims brought on the basis of violations of Washington Administrative Code (“WAC”) 284-30-330(2), (4), (6)-(8), and (13) and RCW 48.01.030, in part because an insurance agent is outside of the quasi-fiduciary relationship between the insurance company and the insured under RCW 48.01.030. Id. at 1047-48.

Justice Mary Yu dissented from the majority opinion in Keodalah II, writing that: (1) the Supreme Court had only reached the statutory bad faith claim but failed to reach whether the plaintiff had asserted a viable common law claim of bad faith; and (2) she would affirm the insured's per se CPA claim against the insurance representative. Id. at 1050 (Yu, J., dissenting). Justice Yu noted that the Supreme Court had never addressed the question of whether an employee adjustor owes a common law duty of good faith to the insured but argued that there was some basis in Washington precedent to find such a duty. Id. at 1051-52. She also added that “[c]onsiderations of policy, common sense, logic, and justice support recognizing a common law duty.” Id. at 1052-53.

2. Aftermath of Keodalah II

The ...