Dream Builders of Mobile, LLC v. Scottsdale Insurance Company et al

IN THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
DREAM BUILDERS OF MOBILE, LLC, )
)
Plaintiff, )
)
vs. ) CIV. A. NO. 24-0329-KD-MU
)
SCOTTSDALE INSURANCE )
COMPANY, et al., )
)
Defendants. )
REPORT AND RECOMMENDATION
This case, which was originally filed in the Circuit Court of Mobile County, was
removed to this Court by Defendant Scottsdale Insurance Company (“Scottsdale”).
(Doc. 1). On October 14, 2024, Plaintiff Dream Builders of Mobile, LLC filed a Motion
to Remand to State Court. (Doc. 10). Scottsdale has filed a Response in Opposition to
Plaintiffs’ Motion to Remand (Doc. 14). Plaintiff did not file a reply brief. (See Docket
Sheet). This motion has been referred to the undersigned for a report and
recommendation pursuant to 28 U.S.C. § 636(b)(1)(B) and S.D. Ala. Gen LR
72(a)(2)(S). For the reasons set forth herein, the undersigned Magistrate Judge
recommends that Plaintiff’s motion to remand be GRANTED and that this action be
REMANDED to the Circuit Court of Mobile County, Alabama.
I. RELEVANT PROCEEDINGS
On August 6, 2024, Plaintiff filed this action against Defendants Scottsdale,
John J. Pilger, III Insurance Agency (the “Agency”), and several fictitious parties in the
Circuit Court of Mobile County, Alabama. (Doc. 1-2). Plaintiff, an Alabama citizen,
seeks recovery from Defendants based on alleged conduct and performance of their
respective duties to Plaintiff in relation to a loss alleged by Plaintiff to property covered
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under an insurance policy obtained through the Agency and issued by Scottsdale. (Id.,
PageID. 34-39). The parties agree that Scottsdale is indisputably diverse in citizenship
from Plaintiff; however, the Agency, an Alabama corporation, is not. (Doc. 10).
Scottsdale filed a notice of removal, pursuant to 28 U.S.C. §§ 1332, removing
the action to this Court on September 10, 2024. (Doc. 1). In its notice of removal,
Scottsdale alleged that removal was proper pursuant to 28 U.S.C. § 1332(a) because
there is complete diversity of citizenship between Plaintiff and all properly joined
defendants and the amount in controversy exceeds the sum of $75,000. (Id., PageID
3). Scottsdale asserts in its removal notice that the Court should not consider the
citizenship of the Agency on diversity analysis because it has been fraudulently joined.
(Id.). On October 14, 2024, Plaintiff moved to remand this case on the ground that
Scottsdale has failed to meet its burden of proving that there is complete diversity of
citizenship because the Agency was not fraudulently joined or otherwise misjoined.
(Doc. 10).
II. LEGAL STANDARD
Because Scottsdale removed this case to federal court, it has the burden of
proving that federal jurisdiction exists. See Pacheco de Perez v. AT&T Co., 139 F.3d
1368, 1380 (11th Cir. 1998); Brown v. Endo Pharmaceuticals, Inc., 38 F. Supp. 3d
1312, 1321 (S.D. Ala. 2014). “Because removal jurisdiction raises significant
federalism concerns, federal courts are directed to construe removal statutes strictly,”
and “all doubts about jurisdiction should be resolved in favor of remand to state court.”
Univ. of S. Ala. v. Am. Tobacco Co., 168 F.3d 405, 411 (11th Cir. 1999) (emphasis
added); see also Burns v. Windsor Ins. Co., 31 F.3d 1092, 1095 (11th Cir. 1994)
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(holding that any questions or doubts are to be resolved in favor of returning the case
to state court).
Generally, federal diversity jurisdiction requires complete diversity between the
plaintiffs and the defendants; however, the doctrine of fraudulent joinder “provides an
exception to the requirement of complete diversity.” Triggs v. John Crump Toyota,
Inc., 154 F.3d 1284, 1287 (11th Cir. 1998), quoted in Brown, 38 F. Supp. 3d at 1321.
Scottsdale claims that the exception applies here because the Agency was
fraudulently joined, and therefore, federal jurisdiction is proper in this case based on
diversity of citizenship. (Docs. 1, 14). Plaintiff asserts that the Agency was not
fraudulently joined because the complaint sets forth valid claims against the Agency
under Alabama law; thus, federal jurisdiction is not proper. (Doc. 10).
The legal standard to establish fraudulent joinder in this district was succinctly
set forth in McKenzie v. Janssen Biotech, Inc., Civ. A. 17-0111-WS-B, 2017 WL
2670738 (S.D. Ala. June 21, 2017):
“In a removal case alleging fraudulent joinder, the removing party has
the burden of proving that ... there is no possibility the plaintiff can
establish a cause of action against the resident defendant.”
Pacheco de Perez v. AT&T Co., 139 F.3d 1368, 1380 (11th Cir. 1998)
(citation omitted); see also Stillwell v. Allstate Ins. Co., 663 F.3d 1329,
1332 (11th Cir. 2011) (“To establish fraudulent joinder, the removing
party has the burden of proving by clear and convincing evidence that ...
there is no possibility the plaintiff can establish a cause of action against
the resident defendant”) (citation and internal marks omitted).
“The burden of establishing fraudulent joinder is a heavy one.”
Pacheco de Perez, 139 F.3d at 1380; see also Stillwell, 663 F.3d at
1332 (similar). “If there is even a possibility that a state court would
find that the complaint states a cause of action against ... the
resident defendant [ ], the federal court must find that the joinder
was proper and remand the case to the state court.” Stillwell, 663
F.3d at 1333 (citations omitted); see also Pacheco de Perez, 139 F.3d at
1380 (“Where a plaintiff states even a colorable claim against the
resident defendant, joinder is proper and the case should be remanded
to state court.”). Thus, the plaintiff “need only have a possibility of
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stating a valid cause of action in order for the joinder to be
legitimate.” Stillwell, 663 F.3d at 1333 (citation omitted); see also Ullah
v. BAC Home Loans Servicing LP, 538 F. App’x 844, 846 (11th Cir.
2013) (adopting the “even a possibility” formulation and explaining that
“[t]he standard for evaluating whether the plaintiff can establish a cause
of action against the resident defendant is very lenient”).
Significantly, the fraudulent joinder standard differs from, and is
less stringent than, the Twombly/Iqbal “plausibility” test that
governs motions to dismiss under Rule 12(b)(6) of the Federal
Rules of Civil Procedure. See Kimball v. Better Business Bureau of
West Florida, 613 F. App’x 821, 823 (11th Cir. 2015) (“Notably, the
standard for assessing fraudulent joinder differs from the one used for
Rule 12(b)(6) motions to dismiss [.]”). Whereas the Twombly test “asks
for more than a sheer possibility that a defendant has acted unlawfully,
... all that is required to defeat a fraudulent joinder claim is a possibility of
stating a valid cause of action.” Stillwell, 663 F.3d at 1333 (citations
omitted). Unlike the plausibility test that governs Rule 12(b)(6) motions in
federal court, the Eleventh Circuit utilizes a possibility test for fraudulent
joinder that incorporates pleading standards applicable in state court.
Under Alabama law, “dismissal for failure to state a claim is properly
granted only when it appears beyond a doubt that the plaintiff can prove
no set of facts entitling him to relief.” Stovall v. Universal Const. Co., 893
So. 2d 1090, 1101 (Ala. 2004) (citations omitted); see also Ex parte
Austal USA, LLC, [233 So.3d 975, 981], 2017 WL 836567, *5 (Ala. Mar.
3, 2017) (“a Rule 12(b)(6) dismissal is proper only when it appears
beyond doubt that the plaintiff can prove no set of facts in support of the
claim that would entitle the plaintiff to relief”) (citation and internal
quotation marks omitted); Mooneyham v. State Bd. of Chiropractic
Examiners, 802 So. 2d 200, 203 (Ala. 2001) (“[m]otions to dismiss under
Rule 12(b)(6) should be granted sparingly”) (citation omitted). Thus,
Alabama law provides that “[t]he dismissal of a complaint is not proper if
the pleading contains even a generalized statement of facts which will
support a claim for relief.” McKelvin v. Smith, 85 So. 3d 386, 389 (Ala.
Civ. App. 2010) (citations and internal quotation marks omitted). The
fraudulent joinder analysis in this case proceeds in recognition of that
legal standard.
2017 WL 2670738, at *3-4 (footnotes omitted) (emphasis added).
“The determination of whether a resident defendant has been fraudulently
joined must by based upon the plaintiff’s pleadings at the time of removal,
supplemented by any affidavits and deposition transcripts submitted by the parties.”
Pacheco de Perez v. AT&T Co., 139 F.3d 1368, 1380 (11th Cir. 1998). In evaluating a
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claim of fraudulent joinder, the district court must “resolve all questions of fact ... in
favor of the plaintiff.” Cabalceta v. Standard Fruit Co., 883 F.2d 1553, 1561 (11th Cir.
1989). Additionally, any uncertainties about substantive state law must also be
resolved in favor of the plaintiff. Crowe v. Coleman, 113 F.3d 1536, 1538 (11th Cir.
1997). In Triggs v. John Crump Toyota, Inc., 154 F.3d 1284, 1287 (11th Cir. 1998), the
Eleventh Circuit held that joinder is fraudulent in three situations: (1) when there is no
possibility that the plaintiff can prove a cause of action against the resident defendant;
(2) when there is outright fraud in the plaintiff’s pleading of jurisdictional facts; and (3)
when a diverse defendant is joined with a nondiverse defendant as to whom there is
no joint, several, or alternative liability and where the claim against the diverse
defendant has no real connection to the claim against the nondiverse defendant.
III. ANALYSIS
In the instant case, Scottsdale relies solely on the first situation set forth in
Triggs, arguing that there is no possibility that Plaintiff can prove a cause of action
against the Agency for either cause of action alleged in Plaintiff’s complaint against it.
In its complaint, Plaintiff alleges that it reported an insurance claim for damages to its
insured property to Scottsdale and/or the Agency; that “[r]epresentatives, agents,
and/or employees of Agency assumed the duty of assisting Plaintiff with Plaintiff’s
Claim and made representations to Plaintiff that the Agency was communicating with
Scottsdale” regarding the claim; that during the alleged untimely or inadequate
investigation of the claim by Scottsdale, Plaintiff took steps to mitigate the damages to
its property; that Scottsdale later disclaimed the claim, partially on the ground that it
needed to inspect prior to the repairs to confirm the damage; and that Scottsdale has
not paid the claim. (Doc. 1-2, PageID. 34-35). In addition to causes of action directed
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against Scottsdale, Plaintiff asserted two causes of action against the Agency: Count
III for negligence and Count IV for negligent hiring, training, and supervision. (Id.,
PageID. 38-39). In Count III, Plaintiff averred that the Agency had a duty to reasonably
assist Plaintiff with its claim once the Agency took steps to assist and made
representations to Plaintiff that it was assisting; that the Agency breached its duty
when it failed to reasonably assist Plaintiff with its claim; and that the breach of duty by
the Agency caused Plaintiff to suffer damages. (Id., PageID. 38). In Count IV, Plaintiff
alleged that the Agency had a duty to Plaintiff, as its customer, to use reasonable
practices for hiring, training, and supervision of its employees, representatives, and
agents; that it breached said duty when it allowed its personnel to fail to assist Plaintiff
and/or manage Plaintiff’s claim in a reasonable manner after assuming the duty to do
so on behalf of the Agency; and that said breach of duty damaged Plaintiff. (Id.,
PageID. 39).
Scottsdale asserts that there is no reasonable possibility that Plaintiff can prove
a cause of action against the Agency because Plaintiff cannot establish that the
Agency owed any legal duty to Plaintiff to assist it with its claim and further, even if it
could, the statute of limitations bars the claims set forth by Plaintiff against the
Agency. (Doc. 14, PageID. 883). The Court will address whether Scottsdale has met
its burden of proving that there is no possibility Plaintiff can establish a cause of action
against the Agency by addressing its arguments in turn.
A. No Duty Argument
As to the no duty argument, Scottsdale points to an Alabama case in which
state courts have held that “insurance agents generally are not liable for actions other
than obtaining insurance coverage for their insured unless a special relationship has
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been established between the parties.” Somnus Mattress Corp. v. Hilson, 280 So. 3d
373, 381 (Ala. 2018) (quoting 3 Steven Plitt, et al., Couch on Insurance § 46:38 (3d
ed. 2011)) (holding that, absent a special relationship, an insurance agent has no duty
to advise clients about the adequacy of their insurance coverage). As discussed by
the Somnus court, courts have held that a special relationship can be established by
showing proof of “‘an express agreement, or a long established relationship of
entrustment from which it clearly appears the agent appreciated the duty of giving
advice, and compensation for consultation and advice was received apart from the
premiums paid by the insured.’” Id. at 384 (quoting Nelson v. Davidson, 155 Wis. 2d
674, 683-84, 456 N.W.2d 343, 347 (1990) (emphasis in original omitted)). Courts have
also found a special relationship that overrides the general rule of no-duty when an
agent holds himself out as being a highly-skilled insurance expert and the insured
relies on that expertise to the insured’s detriment or when an agent assumes an
additional duty by either express agreement with or promise to the insured. Id. at 384
(internal quotations and citations omitted).
The issue here is whether the negligence claim Plaintiff has asserted
against the Agency is possibly viable under Alabama law. As set forth above, under
the applicable law, Scottsdale must prove by clear and convincing evidence that
there is no possibility that Plaintiff could prevail in any court in this state. See
Pacheco de Perez, 139 F.3d at 1380; Stillwell, 663 F.3d at 1332. “If there is even a
possibility that a state court would find that the complaint states a cause of action
against [the Agency],” Scottsdale’s argument fails. See Stillwell, 663 F.3d at 1333
(citations omitted). “The plaintiff need not have a winning case against the allegedly
fraudulent defendant; he need only have a possibility of stating a valid cause of
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action in order for the joinder to be legitimate.” Trigg, 154 F.3d at 1287 (emphasis in
original).
Neither party has cited, and the Court has not found, a case discussing what
duty, if any, an insurance agency may have to its client with regard to assisting with
claim notification under Alabama law. The Alabama state law cases Scottsdale cites
hold that an insurance agency generally owes no duty to its client other than the
procurement of requested insurance unless a special relationship exists between the
agency and the client. A special relationship can be found to have been established
when an agent assumes an additional duty by either express agreement with or
promise to the insured. Somnus, 280 So. 3d at 384. Plaintiff has alleged that the
Agency had a duty to assist it with making a claim against Scottsdale “once it took
steps, by and through its agents, representatives and/or employees, to so assist
Plaintiff, and after agents, representatives, and/or employees of Agency made
representations to Plaintiff on behalf of Agency that is was so assisting.” (Doc. 1-2,
PageID. 34). This allegation seems to sufficiently allege a special relationship under
Alabama’s lenient notice pleading standard. Plaintiff has further alleged that the
Agency breached such duty proximately causing its damages.
Keeping in mind the Court’s duty to “evaluate the factual allegations in the light
most favorable to the plaintiff and [to] resolve any uncertainties about state
substantive law in favor of the plaintiff,” the Court finds that Scottsdale has not carried
its “heavy” burden of proving by “clear and convincing evidence” that there is no
possibility that Plaintiff has stated a negligence claim against the Agency under
Alabama law.
B. Statute of Limitations Argument
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Scottsdale also argues that there is no possibility that Plaintiff has stated a valid
claim against the Agency because the two-year statute of limitations for negligence
claims in Alabama bars Plaintiff’s claims against the Agency. Plaintiff acknowledges
that the statute of limitations for negligence claims in Alabama is two years but argues
that its action was filed within two years of when it could first have been brought.
To begin its analysis, the Court turns to the issue of what information it may rely
upon in making this decision. The law in the Eleventh Circuit is clear that in deciding
whether a party has been fraudulently joined in a removed action, the deciding court
may only rely “upon the plaintiff’s pleadings at the time of removal, supplemented by
any affidavits and deposition transcripts submitted by the parties.” Pacheco de Perez
139 F.3d at 1380; see also Cabalceta, 883 F.2d at 1561 (holding that “in addressing
the issue of fraudulent joinder, the district court ... can consider any submitted
affidavits and/or deposition transcripts”). In the instant case, no affidavits or deposition
transcripts have been submitted by the parties; therefore, the Court may only consider
Plaintiff’s pleadings; that is, Plaintiff’s complaint, in determining whether Scottsdale
has met its burden of proving that there is no possibility Plaintiff can state a claim
against the Agency due to the two-year statute of limitations. Thus, the Court cannot
consider the arguments made in Scottsdale’s brief based upon its interpretation of
documents attached to the notice of removal that were not submitted by affidavit or
deposition.
Under Alabama law, “[a] negligence cause of action accrues as soon as the
plaintiff is entitled to maintain the action, i.e., at the time of the first legal injury,
regardless of whether the full amount of damages is apparent.” Long v. Jefferson Cty.,
623 So. 2d 1130, 1137 (Ala. 1993). Plaintiff’s complaint contains no mention of any
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dates; therefore, relying solely upon the complaint, this Court cannot find that
Scottsdale has met its burden of proving that there is no possibility that Plaintiff has
stated a valid claim against the Agency because the statute of limitations bars
Plaintiff’s claims against the Agency. Even if the Court were to consider Scottsdale’s
submissions, the Court would not be able to make such a finding because the law in
Alabama is unclear as to when Plaintiff could have maintained this action under the
unique factual scenario presented here. This Court must refrain from “adjudicating the
merits of cases that do not appear readily to be frivolous or fraudulent.” Crowe v.
Coleman, 113 F.3d 1536, 1542 (11th Cir. 1997).
IV. CONCLUSION
Because Defendant John J. Pilger, III Insurance Agency is not diverse from
Plaintiff and because Scottsdale has failed to prove that it was fraudulently joined, the
requirements for diversity jurisdiction have not been met. This Court, therefore, lacks
jurisdiction over Plaintiff’s action. Accordingly, it is RECOMMENDED that Plaintiff’s
motion to remand be GRANTED and that this case be REMANDED to the Circuit
Court of Mobile County, Alabama.
NOTICE OF RIGHT TO FILE OBJECTIONS
A copy of this report and recommendation shall be served on all parties in the
manner provided by law. Any party who objects to this recommendation or anything in
it must, within fourteen (14) days of the date of service of this document, file specific
written objections with the Clerk of this Court. See 28 U.S.C. § 636(b)(1); Fed. R. Civ.
P. 72(b); S.D. Ala. Gen. LR 72(c)(1) & (2). The parties should note that under Eleventh
Circuit Rule 3-1, “[a] party failing to object to a magistrate judge’s findings or
recommendations contained in a report and recommendation in accordance with the
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provisions of 28 U.S.C. § 636(b)(1) waives the right to challenge on appeal the district
court’s order based on unobjected-to factual and legal conclusions if the party was
informed of the time period for objecting and the consequences on appeal for failing to
object. In the absence of a proper objection, however, the court may review on appeal
for plain error if necessary in the interests of justice.” 11th Cir. R. 3-1. To be specific,
an objection must identify the specific finding or recommendation to which objection is
made, state the basis for the objection, and specify the place in the Magistrate Judge’s
report and recommendation where the disputed determination is found. An objection
that merely incorporates by reference or refers to the briefing before the Magistrate
Judge is not specific.
DONE this the 17th day of March, 2025.
s/P. BRADLEY MURRAY
UNITED STATES MAGISTRATE JUDGE
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