United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
September 10, 2004
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 03-10938
PAULA R. HORNBUCKLE,
Plaintiff-Appellee,
versus
STATE FARM LLOYDS; MATT KIRKPATRICK,
Defendants-Appellants.
Appeal from the United States District Court
for the Northern District of Texas
Before GARWOOD, HIGGINBOTHAM, and SMITH, Circuit Judges.
GARWOOD, Circuit Judge:
Defendants-appellants State Farm Lloyds (State Farm) and Matt
Kirkpatrick (Kirkpatrick) appeal the district court’s order
awarding attorney fees to plaintiff-appellee, Paula Hornbuckle
(Hornbuckle), after granting plaintiff’s motion to remand. We
reverse.
Facts and Proceedings Below
On April 24, 2000, Hornbuckle filed a claim with her insurer,
State Farm, to repair foundation damage that occurred at her home.
She gave the date of loss as February 1, 2000. State Farm assigned
Claims Specialist Kirkpatrick to adjust the claim. Baker Brothers
Rotovision, retained by State Farm to conduct plumbing tests, sent
a report to State Farm on May 3, 2000, informing it that sewer line
leaks existed in Hornbuckle’s house, but that no pressurized supply
line leaks existed. After performing a personal inspection,
Kirkpatrick employed Perdue and Associates (Perdue) to perform an
analysis of the cause of the damage to Hornbuckle’s foundation.1
After hiring Perdue, State Farm sent a “reservation of rights”
letter to Hornbuckle, alerting her that they were reserving their
right to deny her coverage pending Perdue’s report. While
Hornbuckle’s policy does cover foundation damage that is caused by
or results from water leaks, and State Farm did in fact fix and pay
for the water leaks, and the damage that they caused, in the
reservation of rights letter, State Farm pointed out that
Hornbuckle’s policy does “not cover loss caused by . . . wear and
tear, deterioration or loss caused by any quality in property that
causes it to damage or destroy itself. . . . settling, cracking,
1
Kirkpatrick noted that Hornbuckle reported to him that
many of the cracks had existed for years, but many more had
appeared after the water damage, and the pre-existing cracks were
worsening.
2
bulging, shrinkage, or expansion of foundations, walls, [or] floors
. . . . earthquake, landslide or earth movement.”
Perdue inspected Hornbuckle’s residence on July 19, 2000, and
prepared an engineering report on August 18, 2000 which was then
sent to State Farm. In the report, Perdue found that the
foundation damage originated not from the water leaks, but from
fluctuating moisture levels in the soil. A copy of this report was
sent to Hornbuckle August 23, and in a letter dated September 7,
2000, State Farm delivered its decision that the foundation damage
to Hornbuckle’s home was not covered under her policy, and
therefore it would not pay to repair the foundation damage itself.
In response, Hornbuckle’s now husband Don Hipp (Hipp),
identified by Hornbuckle as an engineer, but of a different type
from Perdue, prepared a letter which Hornbuckle sent to State Farm
September 24 raising questions about and criticizing the Perdue
report. The letter was not received by State Farm until November
17. State Farm delivered the Hipp letter to Perdue for review, and
Perdue responded to the points made by Hipp and determined that it
did not require a change in its opinion. Kirkpatrick presented
this second Perdue report to Hornbuckle on December 14, 2000. This
was the last significant contact that adjuster Kirkpatrick had with
Hornbuckle or her claim. She was informed that, though State Farm
was not going to pay the foundation claim, if she decided to pursue
the claim and obtained a report from another engineer, it would
3
take a look at it.
In January 2002, Hornbuckle retained engineer Mike Cooper
(Cooper) to examine the foundation damage. He submitted a report
which was forwarded by Hipp to State Farm on February 6, 2002. The
Cooper report stated that the house was outside of construction
tolerances and required 31 piers for repair. State Farm
transferred the Cooper report to Perdue, who then re-inspected
Hornbuckle’s home for reevaluation purposes on March 18, 2002.
Perdue concluded that the foundation problems were not due to the
earlier repaired leaks, and delivered a report stating such on
April 26, 2002 to State Farm, which then promptly notified
Hornbuckle that its opinion remained unchanged and it still would
not pay the claim. Hornbuckle then submitted to State Farm a
foundation repair proposal prepared by Longhorn Foundation Repair,
Inc., dated September 29, 2001, for 39 piers in the amount of
$13,250.
On August 23, 2002, Hornbuckle filed suit against Kirkpatrick
and State Farm in Texas state court. Her complaint alleged that
State Farm breached its contract, violated the duty of good faith
and fair dealing, violated the Texas Insurance Code, and violated
the Texas Deceptive Trade Practices Act. It sought “[a]ctual,
economic, additional, and exemplary damages” and “reasonable
attorneys’ fees” in unspecified amounts. Kirkpatrick and
Hornbuckle are both Texas citizens, while State Farm is a citizen
4
of Illinois.
As part of the discovery process, Hornbuckle was deposed.
Based upon answers provided in the deposition, on May 6, 2003,
State Farm and Kirkpatrick removed the case to federal court,
contending that Hornbuckle fraudulently joined Kirkpatrick to
destroy diversity. On May 23, 2003, Hornbuckle filed her motion to
remand and for costs and attorney fees, to which State Farm filed
its response on June 13, 2003.
The district court in its August 14, 2003 order rejected State
Farm’s contentions, holding that “[i]n light of Plaintiff’s
allegations and deposition testimony, and resolving all contested
issues of fact in favor of the Plaintiff, the Court cannot conclude
that there is no reasonable possibility that Plaintiff can recover
against Kirkpatrick in state court.” The district court, noting
the motion to remand’s contention that “State Farm removed this
case despite the numerous cases involving similar allegations
against State Farm and its adjusters wherein removal has been found
improper,” went on to hold that, because plaintiff had “numerous
factual allegations supporting her claims in both her petition and
deposition and the repeated admonitions of numerous Texas federal
courts in similar cases, State Farm could not have had an
objectively reasonable basis for believing that Plaintiff
fraudulently joined Defendant Kirkpatrick.” Therefore, the court
ordered State Farm to pay the $750 attorney’s fees associated with
5
the removal petition.2 State Farm now appeals the district court’s
award of attorney fees, asserting that Hornbuckle’s deposition
testimony, combined with her inability to articulate specific
factual allegations of wrongdoing on the part of Kirkpatrick,
provided State Farm and Kirkpatrick with an objectively reasonable
basis to remove the cause of action, and therefore the district
court erred in awarding attorney fees. We agree.
Discussion
1. Standard of Review
Although this Court may not review a district court’s remand
for lack of subject matter jurisdiction,3 we may review the
district court’s award of attorney fees. Miranti v. Lee, 3 F.3d
925, 927-28 (5th Cir. 1993) (“Guided by . . . authorities which
favor appellate review of a sanctions order (even if the remand
2
The motion to remand asserted that removal was improper
on two bases, namely that Kirkpatrick was not fraudulently joined
and that, in any event, the removal was not timely. The district
court found that the removal was timely. Hornbuckle does not
question that determination, which appears to be supported by the
record. The parties proceed before us on the basis – which
appears to be adequately supported by the record and constitutes
the basis of the district court’s rulings (including its here
challenged attorneys’ fees award) – that the amount in
controversy and citizenship of the parties were adequately
established so that if Kirkpatrick’s joinder was fraudulent
removal would have been proper but that otherwise it would not
have been. As noted below, we do not review the remand order,
but only the award of attorney fees.
3
“An order remanding a case to the State court from which
it was removed is not reviewable on appeal or otherwise . . .” 28
U.S.C. § 1447(d).
6
order itself is not reviewable), we hold that § 1447(d) does not
prohibit review by this court of the order of costs and fees.”);
see also Garcia v. Amfels, Inc., 254 F.3d 585, 587 (5th Cir. 2001).
We review a district court’s section 1447(c)4 order for
attorney fees under an abuse of discretion standard. Garcia, 254
F.3d at 587 (citing Valdes v. Wal-Mart Stores, Inc., 199 F.3d 290,
292 (5th Cir. 2000)). While we may not review the decision to
remand itself, we must, as part of our examination of the award of
fees, consider the objective validity of the removing party’s
efforts, at the time that party attempted to remove the case.
Valdes, 199 F.3d at 293 (“We evaluate the objective merits of
removal at the time of removal, irrespective of the fact that it
might ultimately be determined that removal was improper.”). Fees
should only be awarded if the removing defendant lacked
“objectively reasonable grounds to believe the removal was legally
proper.” Id.5
4
“An order remanding the case may require payment of just
costs and any actual expenses, including attorney fees, incurred
as a result of the removal.” 28 U.S.C. § 1447(c).
5
We note that with respect to an award under § 1447(c) of
“costs” (at least in the sense of costs under Fed. R. Civ. P.
54(d)(1)) the remanding court’s discretion is much broader, and
the standard of review correspondingly narrower, than with
respect to an attorney’s fees award by the remanding court under
§ 1447(c). Even if removal is ultimately determined to have been
erroneous, the latter is permissible “only if it was improper for
the defendant to remove,” Miranti at 929, and such a fee award is
precluded if “the defendant had objectively reasonable grounds to
believe the removal was legally proper.” Valdes at 293. By
contrast, there is “no such restriction on a court’s discretion
7
2. Fraudulent joinder
As this case came to us, it is undisputed that the removal
would have been proper if Kirkpatrick’s joinder was fraudulent (see
note 2 supra). It has long been settled in this circuit that this
depends on “‘whether there is arguably a reasonable basis for
predicting that the state law might impose liability [on the
resident defendant] on the facts involved,’” Badon v. RJR Nabisco
Inc., 236 F.3d 282, 286 (5th Cir. 2001) (quoting Bobby Jones Garden
Apartments, Inc. v. Suleski, 391 F.2d 172, 176-77 (5th Cir. 1968),
or “‘whether there was a reasonable basis in law and fact’” for the
claim against the resident defendant. Badon, 236 F.3d at 286
(quoting Parks v. New York Times Co., 308 F.2d 474, 479 (5th Cir.
1962)). See also, e.g., Jernigan v. Ashland Oil, 989 F.2d 812, 816
(5th Cir. 1993); Fields v. Pool Offshore Inc., 182 F.3d 353, 357
(5th Cir. 1999). Merely pleading a valid state law claim, or one
whose validity is reasonably arguable, against the resident
defendant does not mean that the joinder of the resident defendant
is not fraudulent, for as we held in LeJeune v. Shell Oil Co., 950
F.2d 267, 271 (5th Cir. 1992):
“In this circuit, a removing party’s claim of fraudulent
to award costs” (at least in the Rule 54(d)(1) sense) under §
1447(c). Miranti at 929. Even as to such “costs,” however,
discretion is not unlimited. See W. H. Avitis v. Amoco
Production Co., 111 F.3d 30, 32, 33 (5th Cir. 1997). Here,
appellants complain on appeal only of the award of attorney’s
fees, not ordinary court costs.
8
joinder to destroy diversity is viewed as similar to a
motion for summary judgment. . . . A court is to pierce
the pleadings to determine whether, under controlling
state law, the non-removing party has a valid claim
against the non-diverse parties.”
See also, e.g., Keating v. Shell Chemical Co., 610 F.2d 328, 333
(5th Cir. 1980) (to resolve fraudulent joinder claim remand
appropriate to determine not by “a full dress trial on the merits”
but “[b]y summary judgment or otherwise” whether local defendant
was in fact within scope of employment and hence immune from tort
liability under local law); Jernigan v. Ashland Oil, 989 F.2d at
816 (in determining propriety of fraudulent joinder based removal,
“[a]s with a summary judgment motion, in determining diversity the
mere assertion of ‘metaphysical doubt as to the material facts’ is
insufficient to create an issue if there is no basis for such
facts,” citing Matsushita v. Zenith Radio Corp., 106 S.Ct. 1348,
1356 (1986)), and 817 (as with a summary judgment proceeding
“conclusory allegation” is insufficient to preclude fraudulent
joinder removal).6 In Badon v. RJR Nabisco, 224 F.3d 382, 393-94
(5th Cir. 2000), we again noted the propriety of employing a
summary judgment type procedure to resolve fraudulent joinder
claims and held that conspiracy allegations against the local
6
See also, e.g., Carriere v. Sears Roebuck, 893 F.2d 98,
100 (5th Cir. 1990); Burchett v. Cargill, 48 F.3d 173, 175-76
(5th Cir. 1995); Burden v. General Dynamics, 60 F.3d 213, 217 &
n.18 (5th Cir. 1995); Griggs v. State Farm Lloyds, 181 F.3d 694,
700-01 (5th Cir. 1999); Fields v. Pool Offshore, 182 F.3d 353,
356-57 (5th Cir. 1999).
9
defendants were properly disregarded where unsupported by any
summary judgment type evidence.
Whether an award of attorneys’ fees against appellants was
proper thus depends on whether they had objectively reasonable
grounds to believe that there was no arguably reasonable basis to
conclude that Hornbuckle’s claim against Kirkpatrick was valid in
fact and law.
3. Hornbuckle’s Deposition
Hornbuckle’s deposition was taken March 25, 2003, and signed
by her April 17, 2003, when this case was still in state court. It
appears that though she was asked specifically what Kirkpatrick did
to warrant being personally sued, she could give no meaningful
answers.
The following excerpts from Hornbuckle’s deposition are
illustrative of this, viz:
“Q Okay. During any time that Mr. Kirkpatrick was
working on your claim, do you have any specific issue
with anything that he did that you can – that you can
describe to us?
A Not that I remember at this moment.
Q Okay. You understand, of course, that Mr. Kirkpatrick
is a defendant in this lawsuit, do you?
A I do.
Q Do you – could you explain specifically why you are
suing him in his personal capacity?
A You need to ask my attorney that question.
. . .
Q Okay. So you don’t know why you’re suing Mr.
Kirkpatrick?
A Because he was involved initially and he has knowledge
of the situation. Again, you need to get more
information from my attorney.”
10
. . .
“Q Okay. What could Mr. Kirkpatrick have done
differently in – in adjusting your claim?
A I’m sure that Mr. Kirkpatrick was working on the
guidance that he was given within State Farm, but I still
believe that the upheaval in the slab or the separation
was due to that water leak that ran along that line that
was directly underneath where the – where the slab is
separating.
I don’t feel like – I felt like that Jeff – that
Matt Kirkpatrick was representing me – where that was his
job to represent me. Maybe that was my perception that
was incorrect, but I don’t feel like he went to bat for
me. I don’t feel like he – he told me that he would show
my case to a panel or to a group of individuals and they
would make the decision. I don’t think he went to bat
for me. I don’t think he defended my case. So I think
that he could have – I felt that he should be on my side
more than what he was or that he should be more
objective, and I don’t feel like he was objective at all.
Q To your knowledge, is it Mr. Kirkpatrick’s job to go
to bat for you or to represent you? Is he your – is he
your agent?
A At the time I thought he was to – because he was my
investigator, I thought he was to be on – to take in the
whole picture and to be more on neutral ground. And no,
he’s not my agent. I have not spoken with my agent.
Q Okay. Specifically, through the course of Mr.
Kirkpatrick’s relationship or connection to this case,
what, if anything, should he have done differently, in
your estimation?
A I think he should have been more neutral and maybe –
maybe this is my perception that was incorrect, but I
thought that he was to take all the information and look
at it, review it on an unbiased level, and I don’t think
that happened. I think it was totally biased.
Q And is that why you’re suing him personally?
A I think that’s why – partly why his name would have
been included.
Q What would another reason be?
A Like I said, his name was included per the instruction
of my attorney, and I’m sure it’s more for legal purposes
that I have no knowledge – not as much knowledge of the
legal jargon.”7
7
Similarly, Hornbuckle testified that, although her
complaint alleged that Kirkpatrick breached the duty of good
11
The closest that Hornbuckle ever came to specifying anything
Kirkpatrick did for which he was being sued was in her testimony
that
“. . . He sent people to me, that being Mr. Perdue and
other people who came into my home, who he led me to
believe or represented that were people who would work
with me, be honest and who were knowledgeable in their
jobs. And I have since learned that that is not the
case.”
However, Hornbuckle admitted she was not “aware of any specific
facts” supporting the allegation that Perdue was incompetent or
dishonest or wrote result oriented reports, but that this was
merely “my perception.” The record, however, contains no proper
summary judgment type evidence that Perdue was incompetent,
dishonest, biased or “result oriented,” nor that any such
characteristic of Perdue was or should have been known to
Kirkpatrick; nor does Hornbuckle point us to anything in the record
faith and fair dealing by failing to reasonably investigate for
“toxic mold contamination,” she was not aware of the existence of
toxic mold in her home, that she had not made any claim to State
Farm that there was any form of toxic mold in her house, that she
was not aware of any reason State Farm should be conducting a
toxic mold contamination investigation of her house, that it was
never “indicated to or communicated to” Kirkpatrick that there
was toxic mold in the house, and that she was aware of no
communication to Kirkpatrick that he could or should have relied
on with respect to toxic mold in the house.
Along the same lines, as to complaints of delay, Hornbuckle
was unable to identify anything other than waiting for the Perdue
reports, as to which she acknowledged that “the holdup was
getting it from George Perdue, not getting it from State Farm to
me.” Respecting complaints of non-responsiveness, she was unable
to recall any instance “where you asked somebody a question and
you were not given an answer.”
12
which she contends constitutes any such evidence.8
4. Removal and the Motion to Remand
In her motion to remand, Hornbuckle fails to bring forward any
substantial evidence to support a claim against Kirkpatrick.
Contrastingly, with their notice of removal and in their response
to the motion to remand, appellants attach, among other things, the
entire Hornbuckle deposition and other summary judgment type
evidence, and assert that removal was proper because Kirkpatrick
was fraudulently joined in that there was no arguably reasonable
basis for predicting Hornbuckle could recover against him, and
that in any event, removal was objectively reasonable.
The Texas Supreme Court has held that an insurance company
employee who in the course of his employment engages in the
business of insurance is a “person” whose conduct is regulated by
Article 21.21 of the Texas Insurance Code and who is subject to
liability thereunder for his violations thereof. Liberty Mutual
Ins. Co. v. Garrison Contractors, 966 S.W.2d 482 (1998).9 However,
8
Similarly, there is no summary judgment type evidence of
“bias” on the part of Kirkpatrick.
9
The Liberty Mutual court noted that “an employee who has
no responsibility for the sale or servicing of insurance policies
and no special insurance expertise, such as a clerical worker or
janitor, does not engage in the insurance business.” 996 S.W.2d
at 486. Liberty Mutual notes that § 2(a) of Article 21.21
defines “person” as including “adjusters.” 966 S.W.2d at 484.
We conclude it is reasonably arguable that a claims specialist,
who is an employee of an insurance company and is acting in the
course of his employment as such, is a “person” within Article
21.21.
13
we conclude that there is no reasonable possibility that Texas
would allow recovery under Article 21.21 (or the Texas Deceptive
Trade Practices Act (DPTA)) against an insurance company employee,
who in the course of his employment engages in business of
insurance, in the absence of evidence sufficient to sustain a
finding that that employee himself committed a violation of Article
21.21 (or the DPTA) (and that such violation was a cause of damage
or legally recognized harm to the plaintiff).
In both her motion to remand and on appeal Hornbuckle cites
numerous district court orders (almost all unreported) remanding
cases removed by State Farm on the theory that its instate employee
co-defendant had been fraudulently joined. However, nearly all of
these cases are ones in which removal was on the basis that the
pleadings did not state a claim against the local defendant or in
which there was no discovery and no relevant summary judgment type
evidence. As noted, these cases were alluded to by the district
court here in awarding attorneys’ fees to Hornbuckle. However, as
State Farm pointed out in its opposition to the motion for remand
“[T]his Removal, unlike the litany of cases cited by
Plaintiff in support of her Motion, is not based upon
whether Plaintiff has pleaded causes of action that meet
the threshold of stating a claim upon which the Courts
have determined relief may theoretically be granted
against a non-diverse State Farm Claim Representative,
but rather upon whether Plaintiff has any evidence at all
that would support any of her claims.”
The record clearly contains no summary judgment type evidence
sufficient to sustain a finding that Kirkpatrick violated Article
14
21.21 (or the DPTA) or other legal duty owed by him to Hornbuckle.
Hornbuckle at no time attempted to explain to the district court
the absence of such evidence and did not point to any specific
evidence which it could and would produce or assert any need for
further discovery or the like. At the time the motion to remand
was filed nine months had elapsed since the institution of the
suit. That being the case, and given that Hornbuckle’s deposition
was taken some three years after the alleged loss and after the
suit had been on file for some seven months and strongly indicated
the absence of any minimally sufficient evidence of wrongdoing on
Kirkpatrick’s part, we hold that appellants had objectively
reasonable grounds to believe the removal was legally proper.10
Conclusion
For removal purposes, a local defendant is deemed fraudulently
joined not only when there is no arguably reasonable basis for
predicting that the local law would recognize the cause of action
pled against that defendant, but also when, as shown by piercing
the pleadings in a summary judgment type procedure, there is no
arguably reasonable basis for predicting that the plaintiff would
produce sufficient evidence to sustain a finding necessary to
10
Moreover, to postpone removal after Hornbuckle’s
deposition until there was further discovery would have run the
considerable danger of rendering the removal untimely. It was
challenged on this basis in the district court, but the court
ruled that the removal was timely since it was within 30 days of
State Farm’s receipt of Hornbuckle’s transcribed and signed
deposition.
15
recover against that defendant. Were this not the rule, the
removal rights of out-of-state defendants would largely be
theoretical and practically meaningless.
We do not pass on the ultimate validity of the instant
removal. We do hold, however, that appellants had objectively
reasonable grounds for believing that the removal was proper in
that there was no arguably reasonable possibility Hornbuckle could
produce sufficient evidence to sustain a finding of actionable
wrongdoing on Kirkpatrick’s part. That being the case, the
district court abused its discretion in awarding attorneys’ fees to
Hornbuckle.
The district court’s award of attorneys’ fees to Hornbuckle is
accordingly
REVERSED.
16