Didyoung et al v. Allstate Insurance Company et al, No. 2:2012cv00348 - Document 15 (D. Ariz. 2012)

Court Description: ORDER denying 7 Plaintiffs' Motion to Remand and denying Plaintiffs' Motion for Costs and Fees. Plaintiff's claims against Frontier are dismissed with 30 days leave to amend. The Clerk is directed to terminate Defendant Frontier Adjusters of Show Low if plaintiffs fail to file an amended complaint. IT IS FURTHER ORDERED denying 13 Motion for Leave to File Sur-Reply. Signed by Judge G Murray Snow on 6/1/12.(LSP)
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Didyoung et al v. Allstate Insurance Company et al 1 Doc. 15 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 10 Joseph Didyoung and Donna Didyoung, husband and wife, ORDER Plaintiffs, 11 12 13 14 15 16 No. CV-12-348-PHX-GMS v. Allstate Insurance Company, a stock company and a foreign corporation and subsidiary of Allstate Property and Casualty Insurance Company; Frontier Adjusters of Show Low, an Arizona corporation, Defendants. 17 18 19 Pending before the Court are Plaintiffs’ Motion to Remand for Lack of Complete Diversity and an accompanying Motion for Costs and Fees. (Doc. 7.) For the reasons 20 21 22 23 discussed below, both of Plaintiffs’ motions are denied. BACKGROUND Plaintiffs are husband and wife, who jointly owned and resided in property located 24 25 in Show Low, Arizona. On or about January 22, 2010, Plaintiffs’ property was destroyed 26 by record snowfall, which caused the collapse of the roof of the property. (Doc. 1-1, ¶6.) 27 At the time of the collapse, the property was insured by Defendant, Allstate 28 Dockets.Justia.com 1 2 Property and Casualty Insurance Company. (Doc. 1-1, ¶5.) Allstate Property and Casualty Insurance Company, an Illinois insurance company, is wholly owned by 3 4 5 Defendant Allstate Insurance Company. Allstate Insurance Company is incorporated in Delaware. (Doc. 2 at 2). 6 Plaintiffs have also named Frontier Adjusters of Show Low as Defendants. 7 8 9 10 Frontier Adjusters of Arizona is incorporated in Arizona and provides independent adjusting services to Allstate Defendants (Doc. 1-1, ¶4; Doc. 4, ¶4). Frontier was served only after the Allstate Defendants moved for removal. (Doc. 7-1). 11 Plaintiffs allege that Allstate failed to adjust the loss properly, based on a negligent 12 13 evaluation performed by Frontier. (Doc 1-1, ¶8). Plaintiffs further allege that the failure 14 to properly adjust was the result of a systemic claims process redesign enacted by Allstate 15 in the 1990s. (Doc 1-1, ¶¶14-21). As a result, Plaintiffs seek compensatory damages 16 17 18 from Allstate and Frontier (Doc 1-1, ¶A) and additional bad faith and exemplary damages from Allstate, together with reasonable attorney’s fees and costs. (Doc 1-1, ¶¶B–D) 19 DISCUSSION 20 21 I. Legal Standard 22 A. 23 “The party asserting jurisdiction has the burden of proving all jurisdictional facts.” 24 Remand and Fraudulent Joinder Tectonics, Inc. v. Aero Alloy, 912 F.2d 1090, 1092 (9th Cir. 1990) (citing McNutt v. Gen. 25 26 Motors Acceptance Corp., 298 U.S. 178, 189 (1936)). A case may be properly removed 27 from state court if the district court could have exercised original jurisdiction. 28 U.S.C. § 28 -2- 1 2 1441(a) (2006). The Court has subject-matter jurisdiction of cases in which defendants and plaintiffs are citizens of different states and the amount in controversy is greater than 3 4 5 6 $75,000. 28 U.S.C. § 1332 (2006). The Supreme Court has interpreted § 1332 to require complete diversity between parties, where “the citizenship of each plaintiff is diverse from the citizenship of each defendant.” Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 7 8 (1996). However, if a plaintiff names a non-diverse Defendant to defeat diversity 9 jurisdiction, but, “fails to state a cause of action against a resident defendant, and the 10 failure is obvious according to the settled rules of the state,” the district court may 11 determine that the party is fraudulently joined, and exercise jurisdiction. McCabe v. 12 13 14 15 General Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987). Ordinarily courts determine federal jurisdiction “solely by an examination of the plaintiff’s case, without recourse to the defendant’s pleadings,” Ritchey v. Upjohn Drug 16 17 18 19 Co., 139 F.3d 1313, 1318 (9th Cir. 1998). However, when “fraudulent joinder is an issue, [courts] will go somewhat further.” Id. Courts have found fraudulent joinder where plaintiff’s claims are barred procedurally, Ritchey, 139 F.3d at 1319, or where there is no 20 21 cognizable claim stated against the resident defendant under state law, McCabe, 811 F.2d 22 at 1339. Importantly, joinder is not fraudulent when “the assertion made by the removing 23 defendant ‘went to the merits of the action as an entirety, and not to the joinder; that is to 24 say, it indicated that the plaintiff’s case was ill founded as to all the defendants.’” 25 26 Ritchey, 139 F.3d at 1318 (quoting Chesapeake & Ohio Ry. Co. v. Cockrell, 232 U.S. 27 146, 153 (1914)). 28 -3- 1 2 In considering whether a defendant is fraudulently joined, “[t]he Court must therefore walk a very fine line: it must consider the merits of a matter without assuming 3 4 5 6 jurisdiction over it.” Davis v. Prentiss Props. Ltd., 66 F. Supp. 2d 1112, 1114 (C.D. Cal. 1999). Courts in the Ninth Circuit have thus concluded “that some room must exist between the standard for dismissal under Rule 12(b)(6), for example, and a finding of 7 8 fraudulent joinder.” Id. at 1115. Even a “‘glimmer of hope’ that plaintiff can establish 9 claim is sufficient to preclude application of fraudulent joinder doctrine.” Ballesteros v. 10 Am. Standard Ins. Co. of Wisc., 436 F. Supp. 2d 1070, 1072 (D. Ariz. 2006) (quoting 11 Gottlieb v. Westin Hotel Co., 990 F.2d 323, 327 (7th Cir. 1993)). Where there is a 12 13 “glimmer of hope,” “Federal jurisdiction must be rejected if there is any doubt as to the 14 right of removal.” Id. (citing Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992)). 15 16 B. Dismissal Under Rule 12(b)(6) 17 “Analytically, a fraudulent joinder finding compels dismissal of the ‘sham 18 defendants.’” Isaacs v. Broido, 358 F. App’x 874, 876 (9th Cir. 2009). Dismissal for 19 20 failure to state a claim can be based on either the “lack of a cognizable legal theory or the 21 absence of sufficient facts alleged under a cognizable legal theory.” Balistren v. Pacifica 22 Police Department, 901 F.2d 696, 699 (9th Cir. 1990). 23 24 To survive dismissal for failure to state a claim pursuant to Federal Rule of Civil 25 Procedure 12(b)(6), a complaint must contain more than “labels and conclusions” or a 26 27 “formulaic recitation of the elements of a cause of action”; it must contain factual 28 -4- 1 2 allegations sufficient to “raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). While “a complaint need not contain 3 4 5 6 detailed factual allegations . . . it must plead ‘enough facts to state a claim to relief that is plausible on its face.’” Clemens v. DaimlerChrysler Corp., 534 F.3d 1017, 1022 (9th Cir. 2008) (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the 7 8 plaintiff pleads factual content that allows the court to draw the reasonable inference that 9 the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 10 1949 (2009) (citing Twombly, 550 U.S. at 556). The plausibility standard “asks for more 11 than a sheer possibility that a defendant has acted unlawfully.” When a complaint does 12 13 not “permit the court to infer more than the mere possibility of misconduct, the complaint 14 has alleged—but it has not shown—that the pleader is entitled to relief.”Iqbal, 129 S.Ct. 15 at 1950 (internal quotation omitted). 16 When analyzing a complaint for failure to state a claim under Rule 12(b)(6), “[a]ll 17 18 19 allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party.” Smith v. Jackson, 84 F.3d 1213, 1217 (9th Cir. 1996). However, 20 21 legal conclusions couched as factual allegations are not given a presumption of 22 truthfulness, and “conclusory allegations of law and unwarranted inferences are not 23 sufficient to defeat a motion to dismiss.” Pareto v. FDIC, 139 F.3d 696, 699 (9th Cir. 24 1998). 25 26 Dismissal under Rule 12(b)(6) may occur either by motion or sua sponte. Wong v. 27 Bell, 642 F.2d 359, 361-62 (9th Cir. 1981). Where a motion to dismiss is granted, a 28 -5- 1 2 district court should provide leave to amend unless it is clear that the complaint could not be saved by any amendment. Oliver v. Long, CV-06-2429-PCT-LOA, 2007 WL 1098527 3 4 5 6 (D. Ariz. Apr. 12, 2007) (citing Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir. 2002)). In the past, the Ninth Circuit has instructed District Courts to dismiss fraudulently joined parties, sua sponte. See, e.g., Isaacs, 358 F. App’x at 876. When dismissing a 7 8 claim on its own initiative, “the court must give notice of its sua sponte intention to 9 invoke Rule 12(b)(6) and afford plaintiffs an opportunity to at least submit a written 10 memorandum in opposition to such motion.” Wong, 642 F.2d at 361-62 (citing Crawford 11 v. Bell, 599 F.2d 890, 893 (9th Cir. 1979)). However, “[s]uch a dismissal may be made 12 13 without notice where the claimant cannot possibly win relief.” Omar v. Sea-Land Serv., 14 Inc., 813 F.2d 986, 991 (9th Cir. 1987). 15 16 II. Analysis 17 18 While Frontier is a resident Defendant, Plaintiff has not stated a cognizable cause 19 of action against Frontier. Frontier is, therefore, a sham defendant. Sham defendants must 20 be dismissed from the case, and do not destroy diversity jurisdiction. 21 22 A. Remand and Fraudulent Joinder 23 “Absent a cause of action against a resident defendant, where the failure is obvious 24 according to the settled rules of the state, the joinder of the resident defendant is 25 26 27 fraudulent.” McCabe, 811 F.2d at 1339. “[F]raudulent joinder inquiry focuses on the validity of the legal theory being asserted against the non-diverse defendant.” Davis, 66 28 -6- 1 2 F. Supp. 2d at 1114. “Accordingly, if the facts alleged in the Complaint taken as true and drawing all inferences in Plaintiff’s favor, can possibly state a claim under Arizona law 3 4 5 6 against [the defendant] in question, there is no fraudulent joinder….” Ballesteros, 436 F. Supp. 2d at 1073. In McCabe, the Ninth Circuit was asked to find that a defendant was fraudulently 7 8 joined. There, the Court noted that the facts alleged against that defendant were not 9 sufficient to establish the elements required for the claims asserted under California state 10 law. McCabe, 811 F.2d at 1339. Therefore, the Ninth Circuit noted, “[o]n the basis of the 11 complaint alone, the district court could rightly conclude that no cause of action had been 12 13 14 15 stated against” defendants” and that they were, therefore fraudulently joined. Id. Plaintiffs style this case as a “breach of contract” and “bad faith” case. (Doc. 1-1 at 3.) In two prior cases in this district, this Court has addressed the question of whether 16 17 18 19 an adjuster may be held liable for breach of the duty of good faith and fair dealing under Arizona law. In both cases the Court found the question to be unsettled. Allo v. American Family Mut. Ins. Co., CV-08-0961-PHX-FJM, 2008 WL 4217675 (D. Ariz. Sept. 12, 20 21 2008); Wapniarski v. Allstate Ins. Co., CV-10-0823-PHX-LOA, 2010 WL 2534167 (D. 22 Ariz. June 18, 2010). Because any doubt as to whether the plaintiff has stated a valid 23 cause of action under the laws of the state should be resolved in against a finding of 24 fraudulent joinder, see Albi, 140 F.2d at 312, both cases were remanded. 25 26 However, despite the styling of the case itself, the legal theory asserted against 27 Frontier sounds neither in breach of contract nor in bad faith. Rather, as clarified by 28 -7- 1 2 Plaintiffs’ Reply, the claim against Frontier is limited to a claim sounding in negligence, which, in this state, is without merit. (Doc. 12 at 1, 2.) 3 4 5 6 To establish negligence in Arizona, a plaintiff must show there was a duty on part of defendant towards Plaintiff. Holliman v. United States, 22 F. Supp. 2d 1111, 1112 (D. Ariz. 1998) (citing Ontiveros v. Borak, 136 Ariz. 500, 667 P.2d 200, 204 (1983)). 7 8 Plaintiffs have not, however, alleged that Frontier owed them duty. Frontier was hired by 9 Allstate; no privity of contract existed between Plaintiffs and Frontier. Similarly, 10 Plaintiffs make no assertion of an implied contractual duty of good faith and fair dealing 11 owed insureds by third-party adjusters in the state of Arizona. 12 13 Negligent claim handling is not a cause of action recognized by the state of 14 Arizona against insurers. Miel v. State Farm Mut. Auto. Ins. Co., 185 Ariz. 104, 111, 912 15 P.2d 1333, 1340 (App. 1995). Similarly, Arizona has rejected holding independent 16 17 18 19 adjusters liable for negligent claim handling. Meineke v. GAB Business Services, 195 Ariz. 564, 568 (App. 1999) (“We see no reason to apply a different rule when the insurer’s agent, the adjuster, mishandles a claim.”). Where there is no duty, there is no 20 21 22 23 24 cause of action for negligence, and such a failure is “obvious according to the settled rules of the state.” McCabe, 811 F.2d at 1339. In reply, Plaintiffs argue that while Arizona has not adopted liability for independent adjusters, a minority of jurisdictions have. See, e.g., Morvay v. Hanover Ins. 25 26 Cos., 127 N.H. 723, 506 A.2s 333, 335 (1986) (holding that independent investigator 27 owes a duty to insured to conduct a fair and reasonable investigation); Brown v. State 28 -8- 1 2 Farm Fire & Cas. Co., 2002 OK CIV APP 107, 58 P.3d 217, 223 (holding that independent adjuster owes a duty to insured to conduct fair and a reasonable 3 4 5 6 investigation). As in the presenting case, in Meineke, Plaintiffs sued a third party insurance adjuster hired by Plaintiffs’ insurer to investigate a fire loss. There, the Arizona Court of 7 8 Appeals declined to find liability for the third party adjuster on grounds that “the 9 relationship between adjuster and insured is sufficiently attenuated by the insurer’s 10 control over the adjuster to be an important factor that militates against imposing a 11 further duty on the adjuster to the insured.” Meineke 185 Ariz. at 270. 12 13 For the purposes of determining whether Frontier was properly joined, it would be 14 enough to find that Plaintiffs have “a glimmer of hope” that a state court may so find. 15 Ballesteros, 436 F. Supp. 2d at 1072. Here, however, Plaintiffs bring a suit against a third 16 17 18 19 party insurance adjuster hired to investigate a property loss. Given the similarity to Meineke, which is directly on point, Plaintiffs do not have even a “glimmer of hope” that an Arizona court will find Frontier liable. Sham defendants do not defeat diversity 20 21 22 23 24 jurisdiction. Ritchey, 139 F.3d at 1318. Because the amount at controversy is not in dispute, and because the parties are diverse, this court has subject-matter jurisdiction. B. Dismissal Under Rule 12(b)(6) Because Frontier was fraudulently joined, Frontier must be dismissed from the 25 26 case. “Analytically, a fraudulent joinder finding compels dismissal of the ‘sham 27 defendants.’” Isaacs v. Broido, 358 F. App’x 874, 876 (9th Cir. 2009). To survive 28 -9- 1 2 dismissal for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint must contain more than “labels and conclusions” or a “formulaic recitation of 3 4 5 6 the elements of a cause of action”; it must contain factual allegations sufficient to “raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). 7 8 Plaintiffs do not assert any factual allegations against Frontier sufficient to raise a 9 right to relief. Beyond the mere allegation that Frontier performed a “negligent evaluation 10 . . . which completely misrepresented the scope of and severity of the damage to the 11 residence” and did not “perform a complete investigation of this loss,” (Doc. 12 at 1, 2), 12 13 However, “conclusory allegations of law and unwarranted inferences are not sufficient to 14 defeat a motion to dismiss.” Pareto v. FDIC, 139 F.3d 696, 699 (9th Cir. 1998). Plaintiffs 15 have not included any factual allegations indicating a duty on the part of Frontier that 16 17 18 19 would give rise to a negligence claim. Therefore, as indicated above, under a theory of negligence, there is no a cognizable claim in Arizona law under which Plaintiffs may proceed against Frontier. 20 21 Additionally, as indicated above, Plaintiffs have not alleged facts adequate to 22 support a claim against Frontier in “breach of contract” or “bad faith.” Nor have Plaintiffs 23 indicated any other factual basis under which they may have a “right to relief.” Because 24 Frontier was fraudulently joined, and because Plaintiffs have not presented a cognizable 25 26 claim against Frontier, dismissal of Defendant Frontier under Rule 12(b)(6) is 27 appropriate. 28 - 10 - 1 2 CONCLUSION Despite the strong presumption against removal, where there is not a “glimmer of 3 4 5 6 hope” that Arizona will recognize a cause of action against Frontier, this court must conclude that Frontier is a sham defendant, fraudulently joined. Ballesteros, 436 F. Supp. 2d at 1072. Diversity jurisdiction therefore exists and this Court will not remand the case 7 8 9 10 11 for lack of diversity. Fraudulently joined parties can and will be dismissed by this Court, sua sponte. Wong, 642 F.2d at 361; Isaacs v. Broido, 358 F. App’x at 876. IT IS THEREFORE ORDERED: 1. Plaintiffs’ Motion to Remand (Doc. 7) is DENIED. 13 2. Plaintiffs’ request for Costs and Fees is DENIED. 14 3. Plaintiffs’ claims against Frontier are DISMISSED with leave to amend, 12 15 within 30 days of the date of this Order, to state a cognizable claim. If Plaintiff fails to 16 17 18 19 amend, the Clerk of Court is directed to terminate Defendant Frontier Adjusters of Show Low, without further leave of the Court. 4. The Motion for Leave to File Sur-Reply (Doc. 13) is denied. 20 21 Dated this 1st day of June, 2012. 22 23 24 25 26 27 28 - 11 -