IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
November 20, 2009
No. 08-30515 Charles R. Fulbruge III
Clerk
EARL BORDEN
Plaintiff-Appellant
v.
ALLSTATE INSURANCE COMPANY; GREG RUIZ
Defendants-Appellees
Appeal from the United States District Court
for the Eastern District of Louisiana
Before JONES, Chief Judge, and GARZA and STEWART, Circuit Judges.
EDITH H. JONES, Chief Judge:
Plaintiff Earl Borden (“Borden”) appeals a grant of summary judgment in
favor of Defendants Allstate Insurance Company (“Allstate”) and insurance
agent Greg Ruiz (“Ruiz”) denying coverage for his Hurricane Katrina flood loss.
Borden argues that the district court lacked subject matter jurisdiction and,
alternatively, that material fact issues precluded summary judgment. We hold
that the district court possessed federal question jurisdiction and correctly
entered judgment in favor of Ruiz, but it overlooked Borden’s affidavit in
opposition to Allstate’s summary judgment motion. The judgment is
No. 08-30515
AFFIRMED IN PART, VACATED IN PART, and the case is REMANDED for
further proceedings.
I. Background
Borden owned a Standard Flood Insurance Policy (“SFIP”) issued by
Allstate as a Write-Your-Own carrier participating in the National Flood
Insurance Program (“NFIP”). On August 29, 2005, Borden’s home suffered flood
damage from Hurricane Katrina. When he attempted to file a claim under the
flood insurance policy a week and a half later, Allstate informed him that the
policy had expired on July 8, 2005, because of his failure to pay the renewal
premium. Borden asserts that he never received the annual renewal notice.
Borden, a Louisiana citizen, sued Allstate in state court, alleging that
Allstate negligently failed to issue a flood insurance policy and negligently
represented that Borden had flood insurance coverage. Allstate, an Illinois
citizen, removed the case to federal court on the basis of 28 U.S.C. § 1332
diversity jurisdiction. Borden subsequently joined Allstate’s agent Ruiz, also a
Louisiana citizen, as a defendant. Allstate did not object to the joinder. Shortly
afterward, Allstate filed a motion for summary judgment and also moved for the
court to “clarify” its subject matter jurisdiction or, in the alternative, disallow
joinder of the non-diverse party. The district court granted Allstate’s motion for
summary judgment and dismissed the claims against both defendants without
addressing Allstate’s other motions. The court later denied Borden’s motion to
set aside the judgment, which was filed simultaneously with this appeal.
II. Standard of Review
We review questions of subject matter jurisdiction de novo. In re Bissonnet
Invs. LLC, 320 F.3d 520, 522 (5th Cir. 2003). We also review a grant of
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No. 08-30515
summary judgment de novo. Croft v. Governor of Tex., 562 F.3d 735, 742 (5th
Cir. 2009) (citation omitted). Summary judgment is appropriate when “the
record demonstrates that ‘there is no genuine issue as to any material fact and
that the movant is entitled to judgment as a matter of law.’” Id. (citation
omitted).
III. Discussion
A. Jurisdiction
“The basic statutory grants of federal-court subject-matter jurisdiction are
contained in 28 U.S.C. §§ 1331 and 1332.” Arbaugh v. Y&H Corp., 546 U.S. 500,
513, 126 S. Ct. 1235, 1244 (2006). Borden contends that the district court lacked
subject matter jurisdiction, but Allstate argues that jurisdiction is proper on
both § 1331 federal question and § 1332 diversity of citizenship grounds. We
hold that only federal question jurisdiction is present here.
Diversity jurisdiction does not exist because both Borden and defendant
Ruiz are Louisiana citizens. Allstate argues, however, that because Borden’s
claims against Ruiz were perempted under Louisiana law when he was joined,
the joinder was fraudulent and should have been ignored for purposes of
determining subject matter jurisdiction. Allstate knows better.
The fraudulent joinder doctrine ensures that the presence of an improperly
joined, non-diverse defendant does not defeat federal removal jurisdiction
premised on diversity. Salazar v. Allstate Tex. Lloyds, Inc., 455 F.3d 571, 574
(5th Cir. 2006). One way in which a diverse defendant may establish improper
joinder is by showing “the inability of the plaintiff to establish a cause of action
against the non-diverse party in state court.” Smallwood v. Ill. Cent. R.R. Co.,
385 F.3d 568, 573 (5th Cir. 2004) (quoting Travis v. Irby, 326 F.3d 644, 646–47
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No. 08-30515
(5th Cir. 2003)). Allstate contends that it established fraudulent joinder because
Borden named Ruiz as a defendant in June 2007, almost two years after Borden
discovered that no flood insurance coverage was in effect. Louisiana law
provides a peremptive period of only one year for tort actions against an
insurance agent arising from insurance services. L A. R EV. S TAT. A NN .
§ 9:5606(A).
Contrary to Allstate’s position, the fraudulent joinder doctrine is
inapplicable. In Cobb v. Delta Exports, Inc., 186 F.3d 675 (5th Cir. 1999), this
court held that “[t]he fraudulent joinder doctrine does not apply to joinders that
occur after an action is removed.” Id. at 677 (emphasis in original). Instead, the
doctrine permits courts to ignore “only those non-diverse parties on the record
in state court at the time of removal.” Id. The Cobb court reasoned that, when
a non-diverse defendant is named in an original state court action to prevent
removal, the diverse defendant has no opportunity to contest joinder before it
occurs and must rely upon the fraudulent joinder doctrine. Id. at 678. In
contrast, a diverse defendant can argue that a post-removal joinder is improper
before the court grants the plaintiff leave to amend. Id. Thus, once a court
permits post-removal joinder of a non-diverse defendant, the fraudulent joinder
doctrine is not thereafter available, “[t]he court [loses] subject matter
jurisdiction,” and remand is required pursuant to 28 U.S.C. § 1447(e).1 Id.
Allstate even cited Cobb to the district court in its motion to “clarify” juris-
diction.
1
28 U.S.C. § 1447(e) provides: “If after removal the plaintiff seeks to join additional
defendants whose joinder would destroy subject matter jurisdiction, the court may deny
joinder, or permit joinder and remand the action to the State court.”
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No. 08-30515
As in Cobb, the district court granted Borden’s unopposed motion to amend
his complaint to add claims against Ruiz after Allstate removed the case. The
district court then lost subject matter jurisdiction, and Allstate may not now
assert fraudulent joinder in an effort to reinstate complete diversity. Cobb
seems to create a trap for the unwary diverse defendant, or a device exploitable
by a clever plaintiff. But the district court, properly apprised of Cobb, could have
either denied Ruiz’s joinder to begin with, or it could have vacated its order of
joinder. Allstate neither timely apprised the court nor sought vacatur.
Nevertheless, the district court had federal question jurisdiction. Though
unskillfully pled, Borden’s claim for relief may only be characterized as “arising
under” federal law for purposes of federal question jurisdiction. Federal question
jurisdiction exists when “a well-pleaded complaint establishes either that federal
law creates the cause of action or that the plaintiff’s right to relief necessarily
depends on resolution of a substantial question of federal law.” Franchise Tax
Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 27-28, 103 S. Ct. 2481, 2856
(1983). In West v. Harris, 573 F.2d 873 (5th Cir. 1978), this court held that
federal law applies to a dispute under a policy issued pursuant to the NFIP,
which is a federal program effectuating federal policies and paid for by the
federal fisc. Id. at 881. Thus, as our sister circuits have held, an action for
breach of an SFIP, a policy issued pursuant to the NFIP, satisfies § 1331 by
raising a substantial question of federal law. See Studio Frames Ltd. v.
Standard Fire Ins. Co. 369 F.3d 376, 379-80 (4th Cir. 2004); Downey v. State
Farm Fire & Cas. Co., 266 F.3d 675, 681–82 (7th Cir. 2001) (predicating
jurisdiction on the doctrine of Clearfield Trust Co. v. United States, 318 U.S. 363,
63 S. Ct. 573 (1943), which “establishe[d] that, when the duties or rights of the
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No. 08-30515
United States are at stake under a federal program, that federal interest
requires the application . . . of federal law”); Newton v. Capital Assur. Co.,
209 F.3d 1302, 1304-05 (11th Cir. 2000); Van Holt v. Liberty Mut. Fire Ins. Co.,
163 F.3d 161, 167 (3d Cir. 1998). That state law may control some aspects of the
relation between the policyholder and insurance company, see, e.g., Campo v.
Allstate Ins. Co., 562 F.3d 751 (5th Cir. 2009), does not eliminate federal jurisdic-
tion, which promotes uniformity in the interpretation of policies backed by the
federal fisc. See Clearfield Trust, supra, 63 S. Ct. at 575.
Borden’s claim is one for continued insurance coverage due to Allstate’s
breach of the provisions of the SFIP. Borden’s SFIP, which is codified in the
federal regulations, provides:
1. This policy will expire at 12:01 a.m on the last day of the
policy term.
2. We must receive payment of the appropriate renewal
premium within 30 days of the expiration date.
3. If we find, however, that we did not place your renewal notice
into the U.S. Postal Service, or if we did mail it, we made a
mistake, e.g., we used an incorrect, incomplete, or illegible
address, which delayed its delivery to you before the due date
of the renewal premium, then we will follow these procedures:
a. If you or your agent notified us, not later than one year
after the date on which the payment of the renewal
premium was due, of non-receipt of a renewal notice
before the due date for the renewal premium, and we
determine that the circumstances in the preceding
paragraph apply, we will mail a second bill providing
a revised due date, which will be 30 days after the date
on which the bill is mailed.
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No. 08-30515
b. If we do not receive the premium requested in the
second bill by the revised due date, then we will not
renew the policy. In that case, the policy will remain an
expired policy as of the expiration date shown on the
Declarations Page.
44 C.F.R. pt. 61, app. (A)(1), art. VII(H) (2009) (emphasis added).
Borden attested that he informed Allstate of his non-receipt of a renewal
notice approximately a week and a half after August 29, 2005, when Hurricane
Katrina damaged his home. The one-year time period for Borden to notify
Allstate of non-receipt of a renewal notice began to run from the due date of his
renewal premium, 30 days after his policy’s July 8, 2005, expiration date.
Borden’s notice of non-receipt in September 2005 was timely with respect to the
one-year deadline. According to the SFIP, Borden would be entitled to a second
renewal notice and an opportunity to continue his coverage if Allstate made a
mailing mistake. Borden’s right to relief thus turns upon the application of
federal law to this SFIP dispute, and the district court had jurisdiction under
§ 1331.
B. Summary Judgment
The district court correctly noted that Borden was required to complain of
the non-receipt of a renewal notice within one year from the due date of his
renewal premium. The court, however, overlooked Borden’s affidavit averring
the timeliness of his notice to Allstate. Because this admissible evidence sets the
stage for further inquiry under the SFIP regulations,2 the district court must on
2
Cf. Campo v. Allstate Ins. Co., 562 F.3d 751 (5th Cir. 2009) (holding that federal law
did not preempt state law policy procurement-based claims, unlike claims handling disputes
governed, as here, by federal regulations).
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No. 08-30515
remand proceed to adjudicate Borden’s claim. We vacate the summary judgment
in favor of Allstate.
Borden’s claim against agent Greg Ruiz, however, was properly subject to
summary judgment based on Louisiana’s one year peremption statute for actions
against insurance agents. L A. R EV. S TAT. A NN. § 9:5606(A). This defense was
fully briefed in the trial court. The claimant’s right accrues when the underlying
act is discovered. Campbell v. Stone Ins., Inc., 509 F.3d 665, 669 n.2 (5th Cir.
2007). Although Borden timely filed suit against Allstate in 2006, he did not join
Ruiz until June 2007, more than eighteen months after his flood damage claim
had been denied. Borden’s claim was perempted as a matter of law.
Conclusion
For the foregoing reasons, we AFFIRM IN PART, VACATE IN PART and
REMAND for further proceedings in accordance herewith.
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