White Sands Construction, Inc. v. Pillar Engineering, LLC et al

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
WHITE SANDS
CONSTRUCTION, INC.,
Plaintiff,
v. 	Civ. No. 26‐2694 GBW/JHR
PILLAR ENGINEERING, LLC
and AXA XL INSURANCE
COMPANY,
Defendants.
MEMORANDUM OPINION AND ORDER
THIS MATTER comes before the Court on Plaintiff’s Motion to Remand. Doc. 13.
Having reviewed the briefing and relevant law, the Court will grant the motion for the
reasons explained below.
I. 	BACKGROUND
Plaintiff filed this action in the Twelfth Judicial District on June 18, 2026,
asserting state law claims based on a construction project in Ruidoso, New Mexico.
Doc. 1‐1 at 1–10. Plaintiff White Sands Construction, Inc. served as the general
contractor for the project. Id. at ¶ 7. Defendant Pillar Engineering, LLC (“Pillar”) was
retained as the engineer of record. Id. at ¶ 8. Plaintiff alleges that Pillar’s engineering
services were defective and that Plaintiff was forced to remediate the defective work at
its own expense. Id. at ¶¶ 6–24.
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Defendant XL Specialty Insurance Company (“XL”), incorrectly named in the
complaint as AXA XL Insurance Company, see doc. 1 at 3, was Pillar’s insurer and
provided coverage for claims arising from the project. Doc. 1‐1 at ¶¶ 3, 25. The
complaint alleges that XL was obligated to defend and indemnify Plaintiff because
Plaintiff was a third party beneficiary and/or additional insured under the relevant
insurance policy. Id. at ¶ 58. XL refused to process Plaintiff’s claims under the policy.
Id. at ¶ 60. Plaintiff asserts claims against XL for breach of contract and breach of the
implied covenant of good faith and fair dealing. Id. at ¶¶ 55–72.
XL removed the action to federal court on August 14, 2026. Doc. 1. On August
21, 2026, XL filed a motion to dismiss for failure to state a claim, arguing that Plaintiff is
not an additional insured, a third‐party beneficiary, or otherwise entitled to assert a
direct action against XL. Doc. 4. On September 3, 2026, Plaintiff filed the instant motion
for remand. Doc. 13.
II. 	LEGAL STANDARD
A defendant may remove an action to federal court if a United States district
court would have original jurisdiction over the action. 28 U.S.C. § 1441(a). As relevant
here, a federal district court has subject matter jurisdiction over an action if the parties
are diverse in citizenship and the amount in controversy exceeds $75,000. 28 U.S.C. §
1332(a)(1). The diversity requirement is satisfied only by “complete” diversity, which
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means that “no plaintiff may be a citizen of the same state as any defendant.” Grynberg
v. Kinder Morgan Energy, L.P., 805 F.3d 901, 905 (10th Cir. 2015).
Federal jurisdiction attaches at removal, and “the propriety of removal is judged
on the complaint as it stands at the time of the removal.” Pfeiffer v. Hartford Fire Ins. Co.,
929 F.2d 1484, 1488 (10th Cir. 1991) (citations omitted). “Removal statutes are to be
strictly construed, and all doubts are to be resolved against removal.” Fajen v. Found.
Reserve Ins. Co., 683 F.2d 331, 333 (10th Cir. 1982) (citations omitted).
III. 	A NALYSIS
Plaintiff moves to remand the case for lack of complete diversity. Plaintiff is “a
New Mexico corporation . . . with its principal place of business in New Mexico.” Doc.
1‐1 at ¶ 1. The complaint states that Pillar “is a New Mexico limited liability
company.”1 Id. at ¶ 2. XL does not dispute that both Plaintiff and Pillar are New
Mexico citizens for purposes of diversity jurisdiction. See doc. 1 at 3–5. However, XL
contends that under the doctrine of fraudulent misjoinder, diversity of citizenship
“must be considered without reference to Defendant Pillar” because the joinder of XL,
the insurer, is inappropriate in an action against its insured. Id. at 5; see also doc. 17 at 2–
4.
1 This allegation does not conclusively establish Pillar’s citizenship for federal diversity purposes
because it is unsupported by factual allegations about the citizenship of each of Pillar’s members. See
Siloam Springs Hotel, L.L.C. v. Century Sur. Co., 781 F.3d 1233, 1237–38 (10th Cir. 2015) (“[I]n determining
the citizenship of an unincorporated associated for purposes of diversity, federal courts must include all
the entities’ members.” (citations omitted)). However, it was XL’s burden on removal to show that
Pillar’s citizenship does not destroy diversity. Because XL has not made this showing and does not
dispute that Pillar is a citizen of New Mexico, the Court conducts no further inquiry.
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A. 	Fraudulent Misjoinder
Fraudulent misjoinder is also referred to as “procedural misjoinder.” See Lopez
v. Spur Energy Partners, LLC, Civ. No. 22‐937 JB/LF, 2024 U.S. Dist. LEXIS 234901, at *30
(D.N.M. Dec. 31, 2024). It occurs “when a plaintiff sues a diverse defendant in state
court and joins a non‐diverse or in‐state defendant even though the plaintiff has no
reasonable procedural basis to join such defendants in one action.” Lafalier v. State Farm
Fire & Cas. Co., 391 F. App’x 732, 739 (10th Cir. 2010) (quoting E. Farish Percy, Defining
the Contours of the Emerging Fraudulent Misjoinder Doctrine, 29 Harv. J.L. & Pub. Pol’y
569, 572 (2006)). Unlike fraudulent joinder, which “inquires into the substantive factual
or legal basis for the plaintiff’s claim,” fraudulent misjoinder “inquires into the
procedural basis for the plaintiff’s joinder of the spoiler.” Lopez, 2024 U.S. Dist. LEXIS
234901, at *30 (quoting Percy, 9 Harv. J.L. & Pub. Pol’y at 572).
Under the Federal Rules, two or more parties may be joined in one action as
defendants if:
(A) 	any right to relief is asserted against them jointly, severally, or in the
alternative with respect to or arising out of the same transaction,
occurrence, or series of transactions or occurrences; and
(B) 	any question of law or fact common to all defendants will arise in the
action.
Fed. R. Civ. P. 20(a)(2). 2 If these requirements are not met, “joinder is improper even if
2 Some courts have also considered whether joinder is proper under state procedural rules. See,
e.g., Crockett v. R.J. Reynolds Tobacco Co., 436 F.3d 529, 533 (5th Cir. 2006) (holding that joinder was
improper if the requirements found in Rule 20 and the equivalent Texas rule were not met). To the extent
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there is no fraud in the pleadings and the plaintiff does have the ability to recover
against each of the defendants.” Crockett v. R.J. Reynolds Tobacco Co., 436 F.3d 529, 533
(5th Cir. 2006); see also Tapscott v. MS Dealer Serv. Corp., 77 F.3d 1353, 1360 (11th Cir.
1996) (“A defendant’s ‘right of removal cannot be defeated by a fraudulent joinder of a
resident defendant having no real connection with the controversy.’” (quoting Wilson v.
Republic Iron & Steel Co., 257 U.S. 92, 97 (1921))). If a defendant is fraudulently
misjoined, the federal court may “[d]isregard[] the citizenship of the improperly joined
parties . . . and sever[] and remand[] the remainder of the action to state court.”
Tapscott, 77 F.3d at 1360.
Assuming, without deciding, that fraudulent misjoinder doctrine is recognized
in the Tenth Circuit, 3 XL has failed to demonstrate it supports diversity jurisdiction
here. First, XL has not shown that its joinder with Pillar is procedurally deficient. The
claims against Pillar and XL share a common factual basis: Pillar’s allegedly defective
work on the construction project and Plaintiff’s damage therefrom.4 C.f. Tapscott, 77
it is relevant, the New Mexico procedural rule for joinder is substantively identical to Rule 20. See Rule 1‐
020(A) NMRA.
3 So far, the Tenth Circuit has declined to recognize the doctrine. See Lafalier v. State Farm Fire &
Cas. Co., 391 F. App’x 732, 739 (10th Cir. 2010) (“There may be many good reasons to adopt procedural
misjoinder . . . [b]ut we need not decide that issue today, because the record before us does not show that
adopting the doctrine would change the result in this case.”); Parson v. Johnson & Johnson, 749 F.3d 879,
893 (10th Cir. 2014) (observing that the doctrine of fraudulent misjoinder “has not yet been adopted
within this circuit”). But see Lopez, 2024 U.S. Dist. LEXIS 234901, at *34 (noting that fraudulent misjoinder
has been applied on several occasions in the District of New Mexico).
4 The precise contractual basis for the claims against XL is admittedly unclear. The complaint
alleges that Plaintiff was “a third‐party beneficiary and/or additional insured under the policies,” doc. 1‐1
at ¶ 58, but does not include the relevant policy language or any additional details about the contractual
relationship between Plaintiff and XL. XL attached to the notice of removal an insurance policy issued to
Pillar on August 14, 2022. Doc. 1‐1 at 40–76. In its motion to dismiss, XL cites the section of the policy
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F.3d at 1360 (claims were improperly joined where there was no allegation of joint
liability, the transactions on which the claims were based were “wholly distinct,” and
the only commonality alleged was that the violations arose under the same law). XL
argues that the claims are unrelated because “[t]he claims against Pillar arise from
alleged wrongful acts in providing construction engineering services to Plaintiff
whereas the claims against XL arise out of its alleged failure to provide benefits under
an insurance policy.” Doc. 17 at 6. But as XL also acknowledges, the claims against it
are wholly dependent on the outcome of the claims against Pillar. See id. at 3 (“Because
the liability action against Pillar has not been concluded and there has been no judicial
determination of fault or an award of damages, XL has been improperly added as a
defendant in this action.”). In fact, the crux of XL’s argument is not that the claims
against it are procedurally unrelated to the claims against Pillar but that they are
substantively improper—i.e., that they cannot (at present) be brought at all. See id. at 2–
4; doc. 1 at 1–5. As explained above, the relevant question for fraudulent misjoinder is
whether joinder of the claims is procedurally appropriate, not whether the claims are
substantively viable. See Lafalier, 391 F. App’x at 739 (quoting Percy, 9 Harv. J.L. & Pub.
Pol’y at 572). Furthermore, to qualify as fraudulent misjoinder, the joinder must be not
just procedurally improper but “egregious.” See id. (quoting Tapscott, 77 F.3d at 1360).
that defines the term “INSURED” and argues that Plaintiff did not fall under any of the seven
enumerated categories. Doc. 4 at 4–5. Ultimately, for the reasons explained herein, the Court does not
reach these substantive questions of New Mexico law. Likewise, the Court does not assess the sufficiency
of the allegations under Fed. R. Civ. P. 12(b)(6).
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The Court finds no such violation here. Based on the allegations of the complaint, there
appears to be an arguably proper procedural basis to join the claims against XL with the
claims against Pillar.
Second, the Court finds that the doctrine of fraudulent misjoinder would not
create removal jurisdiction even if the claims against XL and Pillar were improperly
joined. Fraudulent misjoinder authorizes the federal court to disregard “the citizenship
of the improperly joined parties.” Tapscott, 77 F.3d at 1360 (emphasis added). XL
contends that it, not Pillar, is the improperly joined party. See, e.g., doc. 17 at 2 (“Plaintiff
improperly joined XL in the same action in which it asserts claims against XL’s insured
(Pillar).”), 3 (“XL has been improperly added as a defendant in this action”). XL’s
argument is grounded in the New Mexico Supreme Court’s holding that “joinder of the
insurer is inappropriate” in an action against its insured. Martinez v. Reid, 46 P.3d 1237,
1239 (N.M. 2002) (emphasis added). At most, therefore, a showing of fraudulent
misjoinder would entitle the Court to disregard the citizenship of XL—the “improperly
joined part[y].” Tapscott, 77 F.3d at 1360. But Pillar, not XL, is the jurisdictional
“spoiler,” Lopez, 2024 U.S. Dist. LEXIS 234901, at *30 (quoting Percy, 9 Harv. J.L. & Pub.
Pol’y at 572), so federal jurisdiction would not attach regardless. In short, the Court
lacks removal jurisdiction even if XL was “fraudulently misjoined.”
Finally, the Court returns to the bedrock principle that “all doubts are to be
resolved against removal.” Fajen, 683 F.2d at 333. To the extent there is any uncertainty
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about whether fraudulent misjoinder doctrine applies to this case, the Court must
resolve that uncertainty in favor of remand and does so here.
B. 	Fraudulent Joinder
Although XL’s removal argument is expressly based on “fraudulent misjoinder,”
see doc. 1; doc. 17 at 4 n.1, the thrust of its principal argument—that Plaintiff has no claim
against XL under New Mexico law—is substantive, not procedural, and more closely
aligns with a theory of fraudulent joinder. See Lopez, 2024 U.S. Dist. LEXIS 234901, at
*30 (“[F]raudulent joinder doctrine inquires into the substantive factual or legal basis
for the plaintiff’s claim[.]” (quoting Percy, 9 Harv. J.L. & Pub. Pol’y at 572)). The Court
therefore considers its applicability.
To prove fraudulent joinder, the removing party must show “that there is no
possibility of recovery by the plaintiff against an in‐state defendant.” Smallwood v. III.
Cent. R.R. Co., 385 F.3d 568, 573 (5th Cir. 2004); see also Montano v. Allstate Indem., 2000
U.S. App. LEXIS 6852, at *4–5 (10th Cir. Apr. 14, 2000) (“To prove their allegation of
fraudulent joinder [the removing parties] must demonstrate that there is no possibility
that [plaintiff] would be able to establish a cause of action against [the joined party] in
state court.” (alterations in original) (quoting Hart v. Bayer Corp., 199 F.3d 239, 246 (5th
Cir. 2000)). The impossibility of recovery must be clear. See Batoff v. State Farm Ins. Co.,
977 F.2d 848, 851–53 (3d Cir. 1992) (“A claim which can be dismissed only after an
intricate analysis of state law is not so wholly insubstantial and frivolous that it may be
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disregarded for purposes of diversity jurisdiction.”). The removing defendant “bears a
heavy burden of proving fraudulent joinder, and all factual and legal issues must be
resolved in favor of the plaintiff.” Dutcher v. Matheson, 733 F.3d 980, 988 (10th Cir. 2013)
(quoting Pampillonia v. RJR Nabisco, Inc., 138 F.3d 459, 461 (2d Cir. 1998)).
XL contends that Plaintiff is neither an additional insured nor a third‐party
beneficiary under the applicable policy, and therefore, that Plaintiff has no possibility of
recovery against XL. Doc. 17 at 2–3; see also Martinez, 46 P.3d at 1240; Raskob v. Sanchez,
970 P.2d 580, 581 (N.M. 1998). However, there can be no reasonable argument that XL
was “fraudulently joined to defeat diversity,” Keating v. Shell Chem. Co., 610 F.2d 328,
331 (5th Cir. 1980), because its joinder did not defeat diversity. Pillar, not XL, is the in‐
state defendant against whom the impossibility of recovery must be shown. It is
therefore immaterial for purposes of removal jurisdiction whether Plaintiff has a cause
of action against XL, and the doctrine of fraudulent joinder does not defeat remand in
this case.
C. 	Attorney Fees and Costs
Plaintiff requests its costs and expenses under 28 U.S.C. § 1447(c), which
provides that “[a]n order remanding the case may require payment of just costs and any
actual expenses, including attorney fees, incurred as a result of the removal.” Doc. 13 at
10. The court has discretion to award fees “only where the removing party lacked an
objectively reasonable basis for seeking removal.” Garrett v. Cook, 652 F.3d 1249, 1254
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(10th Cir. 2011) (quoting Porter Trust v. Rural Sewer Water & Solid Waste Mgmt. Dist. No.
1, 607 F.3d 1251, 1253 (10th Cir. 2010)). While the Court disagrees with XL’s
interpretation of fraudulent misjoinder doctrine, it does not find that XL’s arguments
were objectively unreasonable or made in bad faith. See Martin v. Franklin Capital Corp.,
546 U.S. 132, 140 (2005) (explaining that fee awards under § 1447(c) should effect the
purpose of “deter[ring] removals sought for the purpose of prolonging litigation and
imposing costs on the opposing party”). The Court therefore declines to award fees
under § 1447(c).
IV. 	CONCLUSION
For the foregoing reasons, it is hereby ORDERED that Plaintiff’s Motion to
Remand (doc. 13) is GRANTED; this action is REMANDED to the Twelfth Judicial
District; and all parties shall bear their own fees and costs.
IT IS SO ORDERED.
_____________________________________________
GREGORY B. WORMUTH
CHIEF UNITED STATES MAGISTRATE JUDGE
Presiding by Consent
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