Whitcomb v. Twin City Fire Insurance Company

1 WO [5] 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA [8] 9 Katherine Whitcomb, No. CV-20-01770-PHX-MTL 10 Plaintiff, ORDER 11 v. 12 Twin City Fire Insurance Company, et al., 13 Defendants. [14] 15 Before the Court is Plaintiff’s Motion to Remand. (Doc. 6.) For the following 16 reasons, the Court will grant the motion and remand this matter to state court.1 17 I. BACKGROUND 18 Plaintiff Katherine Whitcomb (“Plaintiff” or “Ms. Whitcomb”) filed a complaint 19 against Defendant Twin City Fire Insurance Company (“Defendant” or “Twin City”) in the 20 Arizona Superior Court on July 31, 2020. (Doc. 1-2.) It states that Ms. Whitcomb is a 21 resident of Maricopa County, Arizona, and that Twin City is a Minnesota company. (Id. 22 ¶ 2.) It also states that Twin City provided comprehensive automobile insurance coverage 23 to Barbara Whitcomb and Aaron Hodges for “themselves and additional drivers listed on 24 the policy.” (Id. ¶ 8.) Plaintiff claims that on November 15, 2016, she was involved in a 25 collision with an uninsured driver while driving an automobile covered under the policy. 26 She suffered “significant head, neck, back, knees and shoulder injuries.” (Id. ¶¶ 11-13.) 27 1 Although neither party requested oral argument, both parties have submitted legal memoranda and oral argument would not have aided the Court’s decisional process. See 28 Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998); see also LRCiv 7.2(f); Fed. R. Civ. P. 78(b). 1 On May 11, 2018, Ms. Whitcomb submitted a claim for “uninsured motorist 2 coverage benefits” to Twin City. (Id. ¶ 16.) On June 11, 2018, Twin City “sent a letter 3 stating they had completed their review of the demand package but could neither accept or 4 reject [the] demand as they were wanting prior records.” (Id. ¶ 17.) Ms. Whitcomb asserts 5 that Twin City failed to adequately investigate or give equal consideration to her claims, 6 and by its “unreasonable investigation and adversarial position,” has “forced Plaintiff into 7 litigation.” (Id. ¶¶ 18-20.) The original complaint asserts claims for declaratory relief, 8 breach of contract, breach of the covenant of good faith and fair dealing, and bad faith 9 against Twin City.2 (Id. at 6-11.) 10 Twin City filed a Notice of Removal to this Court on September 10, 2020, asserting 11 diversity jurisdiction pursuant to 28 U.S.C. § 1332 . (Doc. 1.) Ms. Whitcomb now moves 12 to remand the case back to state court for lack of subject-matter jurisdiction. She has 13 attached, as an exhibit to her motion, a “proposed amended complaint” to be filed in state 14 court. It adds new allegations and a new defendant, Andrew Brand, an Arizona resident, 15 whose participation would nullify diversity jurisdiction. The motion is now fully briefed. 16 (Docs. 6, 9, 12.) 17 II. LEGAL STANDARD 18 A defendant may remove to federal court “any civil action brought in a State court 19 of which the district courts ... have original jurisdiction.” 28 U.S.C. § 1441 (a). Removal is 20 proper only when a case originally filed in state court presents a federal question or is 21 between citizens of different states and involves an amount in controversy that exceeds 22 $75,000. See 28 U.S.C. §§ 1331 , 1332(a). The removal statute is “strictly construed against 23 removal jurisdiction.” Provincal Gov’t of Marinduque v. Placer Dome, Inc., 582 F.3d 24 1083, 1087 (9th Cir. 2009) (citations omitted). The defendant bears the burden to establish 25 that removal is proper. Id. When a plaintiff seeks to join a non-diverse defendant in an 26 action removed on the basis of diversity, a federal court may either “deny joinder, or permit 27 joinder and remand to the State court.” 28 U.S.C. § 1447 (e). 28 2 The original and proposed amended complaints also name “ABC Corporation and/or Partnerships, I-X” as fictitious defendants. (Docs. 1-2; 6-1.) 1 III. DISCUSSION 2 Ms. Whitcomb moves to remand the case because the original complaint 3 “inadvertently excluded” an “additional, indispensable party” whose presence would 4 destroy diversity jurisdiction. (Doc. 6 at 2.) Specifically, she seeks to add Mr. Brand, an 5 insurance adjuster, as a defendant in this case. (Doc. 6-1.) Ms. Whitcomb states that Mr. 6 Brand is, like her, a resident of Arizona for diversity jurisdiction purposes. (Id. at 2.) Twin 7 City does not dispute this fact. Ms. Whitcomb seeks to add claims of aiding and abetting 8 and tortious interference with contract against Mr. Brand.3 9 Twin City responds that Ms. Whitcomb has not shown good cause for her failure to 10 include Mr. Brand in the original complaint, that Mr. Brand’s presence in the case would 11 amount to a fraudulent joinder, and that Mr. Brand is not an indispensable party. The Court 12 addresses these arguments in turn. 13 A. Good Cause 14 Plaintiff states that Mr. Brand was “inadvertently left out of the initial complaint 15 because at the time the complaint was drafted and then filed, counsel undersigned’s office 16 was separated because of the Covid-19 pandemic and the attorneys and staff were working 17 remotely.” (Doc. 6 at 2.) Accordingly, as “the initial draft of the original complaint 18 circulated, there was some confusion between counsel and staff such that the complaint 19 that was filed did not have allegations against Andrew Brand.”4 (Id.) 20 Twin City argues that Ms. Whitcomb has not shown good cause for failing to 21 include Mr. Brand in the original complaint. It states that “[b]ecause modern technology [22] 3 The proposed amended complaint also asserts a new claim, for negligent training and 23 supervision, against Twin City. (Doc. 6-1 at 17.) Because this claim is not relevant to the motion to remand, the Court will not address it here. 24 4 There is a “conflict of authorities” as to whether Rule 15 of the Federal Rules of Civil Procedure, as opposed to 28 U.S.C. § 1447 (e), governs whether to permit joinder of a new 25 defendant when leave is not required to file an amended complaint. Palestini v. Gen. Dynamics Corp., 193 F.R.D. 654, 657 (S.D. Cal. 2000). Although Plaintiff filed the 26 “proposed amended complaint” within 21 days of the Answer, which would not have required leave pursuant to Fed. R. Civ. P. 15(a)(1)(B), Plaintiff does not invoke Rule 15. 27 Nonetheless, as described herein, the Court finds that the joinder of Mr. Brand to the case, and therefore remand, is appropriate even under the more exacting standard of 28 28 U.S.C. § 1447 (e). 1 allows for absolute, instant, and uninterrupted connectivity of sophisticated individuals and 2 entities, the omission can hardly be attributed to the Covid-19 pandemic.” (Doc. 9 at 2.) 3 The Court agrees that Ms. Whitcomb’s justification for omitting Mr. Brand from the initial 4 complaint is not inspiring. Nonetheless, Twin City has provided no authorities indicating 5 that this, in itself, is a proper basis on which to deny remand. Further, as described below, 6 the Court finds that Mr. Brand was not added to the case through “fraudulent joinder,” as 7 the term is defined in relevant case law, and that he is an indispensable party. 8 In connection with this argument, Twin City invokes the Supreme Court’s holding 9 that “[d]iversity jurisdiction, once established, is not defeated by the addition of a 10 nondiverse party to the action.” Freeport-McMoRan, Inc. v. K N Energy, Inc., 498 U.S. 11 426, 428 (1991). That case arose in the context of substituting parties under Rule 25, as 12 opposed to remand, however. And as the Ninth Circuit has recognized, following Freeport13 McMcMoRan, Inc., a “plaintiff to add nondiverse defendants to a diversity action still 14 destroys diversity.” Kerman v. H&L Realty & Mgmt. Co., 41 F.3d 1513, at *1 (9th Cir. 15 1994). See also Lac Vieux Desert Band of Lake Superior Chippewa Indians Holdings 16 Mexico, LLC v. Atlico USA, LLC, No. CV-08-1067-PHX-ROS, 2009 WL 411560 , at *2 17 (D. Ariz. Feb. 17, 2009) (“The Court will adopt the holding of a number of circuits 18 construing Freeport narrowly, as it pertains to substitution of parties under Federal Rule 19 of Civil Procedure 25.”). The Court will not deny the motion for Ms. Whitcomb’s failure 20 to show “good cause” or on the basis of Freeport-McMoRan, Inc., Inc., 498 U.S. 426 . 21 B. Fraudulent Joinder 22 Defendant also argues that Mr. Brand’s joinder to the case is fraudulent. “In 23 determining whether there is complete diversity, district courts may disregard the 24 citizenship of a non-diverse defendant who has been fraudulently joined.” Grancare, LLC 25 v. Thrower, 889 F.3d 543, 548 (9th Cir. 2018) (citation omitted). There are two ways to 26 establish fraudulent joinder: “(1) actual fraud in the pleading of jurisdictional facts, or (2) 27 inability of the plaintiff to establish a cause of action against the non-diverse party in state 28 court.” Hunter v. Philip Morris USA, 582 F.3d 1039, 1044 (9th Cir. 2009) (citation 1 omitted). Twin City does not argue the first option.5 Fraudulent joinder is established under 2 the second option if a defendant shows that an “individual[ ] joined in the action cannot be 3 liable on any theory.” Grancare, LLC, 889 F.3d at 548 (citation omitted). See also Weeping 4 Hollow Ave. Trust v. Spencer, 831 F.3d 1110, 1113 (9th Cir. 2016) (The term “fraudulent 5 joinder” is somewhat of a “misnomer,” as the focus is on whether the plaintiff can “state a 6 reasonable or colorable claim for relief under the applicable substantive law against the 7 party whose presence in the action would destroy the district court’s subject matter 8 jurisdiction.”) (citation omitted). If “there is a possibility that a state court would find that 9 the complaint states a cause of action against any of the resident defendants, the federal 10 court must find that the joinder was proper and remand the case to the state court.” 11 Grancare, LLC, 889 F.3d at 548 (citing Hunter, 582 F.3d at 1046 ) (emphasis in original). 12 Plaintiff argues that the proposed amended complaint states a claim against Mr. 13 Brand for aiding and abetting Twin City’s breach of contract, breach of the covenant of 14 good faith and fair dealing, and bad faith. (Doc. 6 at 2.) Under Arizona law,6 the elements 15 of an aiding and abetting claim are: [16] (1) the primary tortfeasor must commit a tort that causes injury 17 to the plaintiff; 18 (2) the defendant must know that the primary tortfeasor’s conduct constitutes a breach of duty; and [19] 20 (3) the defendant must substantially assist or encourage the primary tortfeasor in the achievement of the breach. [21] 22 Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension 23 Trust Fund, 201 Ariz. 474 , 485 ¶ 34 (2002); see also Restatement (Second) Torts § 876(b) 24 (adopted by the Arizona Supreme Court in Wells Fargo Bank, supra). Where “an insurer 25 delegates its claim handling responsibilities to an administrator and its adjuster, the ‘agent’, [26] 5 The Court does not interpret Twin City’s argument that Plaintiff has failed to show good 27 cause for omitting Mr. Brand from the original complaint to be an argument of actual fraud in the jurisdictional facts. 28 6 “[F]ederal courts sitting in diversity jurisdiction apply state substantive law and federal procedural law.” Freund v. Nycomed Amersham, 347 F.3d 752, 761 (9th Cir. 2003). 1 i.e., the adjuster, ‘can be held liable for aiding and abetting an insurer’s violation of the 2 duty of good faith and fair dealing.’” Gastelo v. Wesco Ins. Co., No. CV-18-02659-PHX3 MTL, 2020 WL 1285912 , at *3 (D. Ariz. Mar. 18, 2020) (citing Temple v. Hartford Ins. 4 Co. of Midwest, 40 F. Supp. 3d. 1156, 1170 (D. Ariz. 2014)). “Numerous cases in this 5 District” confirm that for an aiding and abetting claim against an insurance adjuster to 6 survive, the plaintiff “must allege some action” taken “separate and apart from the facts 7 giving rise” to a claim against the insurer. Centeno v. Am. Liberty Ins. Co., No. CV-188 01059-PHX-SMB, 2019 WL 568926 , at *3 (D. Ariz. Feb. 12, 2019), appeal dismissed, No. 9 19-16150, 2019 WL 6521666 (9th Cir. Oct. 31, 2019). 10 Ms. Whitcomb has shown a possibility of recovery against Mr. Brand for aiding and 11 abetting. She asserts that Twin City “breached its contract with Plaintiff and in doing so 12 breached the implied covenant of good faith and fair dealing when it failed to fairly 13 compensate Plaintiff for her injuries and damages and to give Plaintiff’s claim equal 14 consideration under the terms of the Policy.” (Doc. 6-1 ¶ 83.) She also alleges that Mr. 15 Brand had “actual knowledge and a general awareness” that his actions would lead Twin 16 City to breach the insurance policy and the implied covenant of good faith and fair dealing. 17 (Id. ¶ 84.) Ms. Whitcomb also alleges that Mr. Brand made the “independent decisions to 18 hire a law firm, retain a defense oriented medical doctor and failure to pay the undisputed 19 amount due under the policy.” (Id. ¶ 85.) Further, Mr. Brand provided “substantial 20 assistance or encouragement” of Twin City’s breach of contract and breach of the duty of 21 good faith and fair dealing. (Id. ¶ 86.) 22 Twin City argues that Ms. Whitcomb cannot state a claim for aiding and abetting 23 because the acts that she alleges Mr. Brand to have taken “separate and apart” from it are, 24 in fact, “a common and usual exercise of Mr. Brand’s duties [as] a Twin City employee.” 25 (Doc. 9 at 4.) Further, it states that “Mr. Brand performed his job according to Twin City’s 26 Authorization, customary practices, and the insurance policy terms.” (Id.) The Court notes 27 that courts in this district have expressed skepticism about the viability of aiding and 28 abetting claims against insurance adjusters. “Although federal courts in this district have 1 consistently held that Arizona law would permit a claim against an adjuster for aiding and 2 abetting her employer’s bad faith, no conclusive Arizona case law exists.” Lambert v. 3 Liberty Mut. Fire Ins. Co., No. 2:14-CV-00521-JWS, 2014 WL 5432154 , at *3 (D. Ariz. 4 Oct. 24, 2014). Further, when faced with motions to dismiss aiding and abetting claims 5 against claims adjusters, courts have “found the facts were sufficient to state a claim for 6 aiding and abetting only about half the time.” Chukly v. Am. Family Mut. Ins. Co., No. CV7 17-0088-TUC-RCC-LCK, 2017 WL 5952759 , at *3 (D. Ariz. June 7, 2017), report and 8 recommendation adopted (D. Ariz. Aug. 1, 2017). 9 Nonetheless, the Court need not conclude that Ms. Whitcomb has stated a claim for 10 aiding and abetting against Mr. Brand at this juncture. The tests for fraudulent joinder and 11 failure to state a claim under Rule 12(b)(6) share “some similarities” but are “not 12 equivalent.” Grancare LLC, 889 F.3d at 549 . A claim “against a defendant may fail under 13 Rule 12(b)(6), but that defendant has not necessarily been fraudulently joined.” Id. See also 14 Weeping Hollow Ave. Trust, 831 F.3d at 1113 (fraudulent joinder requires a “heavy burden 15 of showing that [plaintiff] obviously failed to state a cause of action”). Here, the Court 16 finds that Ms. Whitcomb has sufficiently raised the possibility of an aiding and abetting 17 claim such that removal is proper. See Ward v. Travelers Pers. Ins. Co., No. CV-20-0107918 PHX-SPL, 2020 WL 4732153 , at *2 (D. Ariz. Aug. 14, 2020) (granting a motion to remand 19 where “it remains unclear whether Plaintiff has sufficiently stated a claim for aiding and 20 abetting”). 21 Because the Court finds that Ms. Whitcomb has plausibly stated a claim for aiding 22 and abetting against Mr. Brand, it need not reach Twin City’s arguments regarding Ms. 23 Whitcomb’s other claims.7 See Grancare, LLC, 889 F.3d at 548 (a federal court “must” 24 remand the case “if there is a possibility that a state court would find that the complaint 25 states a cause of action against any of the resident defendants.”). 26 C. Indispensable Party 27 Twin City also argues that the Court should deny the motion to remand because Mr. 28 7 Indeed, the motion to remand focuses on the aiding and abetting claim and mentions the tortious interference claim only in passing. (Doc. 6 at 7.) 1 Brand is not an indispensable party. (Doc. 9 at 7.) Rule 21 of the Federal Rules of Civil 2 Procedure authorizes a court to “at any time, on just terms, add or drop a party.” Fed. R. 3 Civ. P. 21. Further, a district court is within its discretion to “drop[] a nondiverse party, 4 provided it is not indispensable under Rule 19.” Sams v. Beech Aircraft Corp., 625 F.2d 5 273, 277–78 (9th Cir. 1980). A party is indispensable under Rule 19 if the court “cannot 6 accord complete relief” without the party, or the party “claims an interest relating to the 7 subject of the action” in certain circumstances. Fed. R. Civ. P. 19(a)(1). If a party is 8 indispensable, and joinder of that party will destroy diversity, then the case must be 9 remanded to the state court. See Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1068 (9th 10 Cir. 2001). 11 Twin City argues that Mr. Brand is not an indispensable party because “Plaintiff 12 may fully recover her damages from Twin City alone, if she can prove her allegations.” 13 (Doc. 9 at 7.) But the Court could not provide complete relief on Plaintiff’s aiding and 14 abetting or tortious interference claims without Mr. Brand in the case. See Gorczyca v. Am. 15 Family Mut. Ins. Co., No. CV 09-412-PHX-SRB, 2009 WL 10673446 , at *5 (D. Ariz. May 16 20, 2009) (“The Court concludes that if [the insurance adjuster] is not joined in this case, 17 Plaintiff might not be able to recover all the damages to which he is entitled under the law 18 without filing a parallel suit in state court.”). 19 Twin City also briefly states that, upon a remand, it “will be prejudiced by having 20 to litigate in state court.” (Id.) It does not provide any justification or authority for this 21 argument. The Court is aware that Twin City is a Minnesota company. (Doc. 1-2 ¶ 2.) The 22 Court is also aware that “[r]emoval based on diversity jurisdiction is intended to protect 23 out-of-state defendants from possible prejudices in state court.” Lively v. Wild Oats Mkts., 24 Inc., 456 F.3d 933, 940 (9th Cir. 2006). Nonetheless, the Court is not convinced that this 25 consideration is sufficient here, particularly given that a district court is permitted to allow 26 joinder of a non-diverse defendant and “remand to the State court.” 28 U.S.C. § 1447 (e). 27 Lastly, Twin City argues that Mr. Brand is not indispensable because “all of Mr. 28 Brand’s actions were performed to further Twin City’s purpose and within Twin City’s 1 control.” (Doc. 9 at 7.) This argument would be more appropriately assessed during the 2 merits of this case. As noted above, for purposes of a remand motion, a plaintiff need only 3 show a “possibility” that she has stated a claim against the non-diverse defendant. 4 Grancare, LLC, 889 F.3d at 548 . 5 In sum, the Court finds that Mr. Brand was not fraudulently joined to this lawsuit 6 and, as an indispensable party, he will not be dropped from the case at this stage. The 7 parties therefore do not have complete diversity of citizenship. Thus, the Court lacks 8 subject-matter jurisdiction over this dispute. 9 D. Amended Complaint 10 As noted, Ms. Whitcomb filed a “proposed” amended complaint—with a state court 11 caption—as an exhibit to the motion to remand.8 (Doc. 6-2.) For clarity of the record, the 12 Court will require Plaintiff to file a copy of the Amended Complaint in this case before the 13 case will be remanded. To the extent that leave is required pursuant to Rule 15(a), it is so 14 granted. 15 IV. CONCLUSION 16 Accordingly, 17 IT IS ORDERED that Plaintiff’s Motion to Remand (Doc. 6) is granted. 18 IT IS FURTHER ORDERED that Plaintiff shall file an Amended Complaint on 19 the docket in this case within seven (7) days of the date of this Order. Upon the filing of 20 the Amended Complaint, the Clerk of the Court shall remand this matter to the Arizona 21 Superior Court in Maricopa County and close this case. 22 IT IS FINALLY ORDERED that the Scheduling Conference set for November 23 19, 2020, is hereby vacated. 24 / / 25 / / 26 / / 27 8 Twin City does not argue that Ms. Whitcomb’s submission of the “proposed amended complaint” was procedurally improper, or that the Court should not consider the proposed 28 amended complaint as the operative complaint for purposes of assessing the motion to remand. 1 Dated this 13th day of November, 2020. Wichal T. dhurdle Michael T. Liburdi 4 United States District Judge [10] 1] [28] -10-