Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-4_12-cv-00661/USCOURTS-azd-4_12-cv-00661-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition for Removal- Breach of Contract

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UNITED STATES DISTRICT COURT

DISTRICT OF ARIZONA

IDS Property Casualty Insurance Company, )) Plaintiff, )) vs. ))

)

Frank and Bettina Gambrell, et al., ) 2:12-cv-01227 JWS (Lead Case) ) 4:12-cv-00661 JWS Defendants. )) ORDER AND OPINION )

) Frank and Bettina Gambrell, ) [Re: Motions at dockets ) 5 and 7 in 4:12-cv-00661] Plaintiffs, )) vs. )) IDS Property Casualty Insurance Company; )

Stacey Harrish, )) Defendants. ) )

I. MOTIONS PRESENTED

Defendant Stacey Harrish (“Harrish”) filed a motion to dismiss pursuant to

Rule 12(b)(6) of the Federal Rules of Civil Procedure at docket 5 in Tucson Case

No. 4:12-cv-00661 (“Tucson Case”), which Harrish and Defendant IDS Property

Casualty Insurance Company (“IDS”; collectively “Defendants”) removed from Pima

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County Superior Court. In the motion to dismiss, Harrish argues that she was an

improperly named party against whom no cause of action can lie. 

About two weeks after Harrish filed her motion to dismiss, plaintiffs Frank and

Bettina Gambrell (“Gambrells” or “plaintiffs”)1 filed a motion at docket 7 to remand the

Tucson Case back to Pima County Superior Court pursuant to 28 U.S.C. § 1447(c),

arguing that there is not complete diversity because Harrish is a resident of Arizona. 

Defendants filed an opposition at docket 11 in the Tucson Case. While they

acknowledge that Harrish is a resident of Arizona, they assert that she was “fraudulently

joined” to the case while it was in state court, meaning they believe plaintiffs have no

valid cause of action against Harrish, and thus, her inclusion was designed to block

federal diversity jurisdiction. 

The Gambrells asked the court to stay the briefing on Harrish’s motion to dismiss

until the court resolved the jurisdictional issues in the motion to remand,2

 but the court

denied the request, opting to consider the motions together, given the similarity of the

issue at stake in both motions – i.e., whether a claim of bad faith against Harrish exists

under Arizona law.3

The court consolidated the Tucson Case with Phoenix case 2:12-cv-01227

(“Lead Case”), which is IDS’s related declaratory judgment action against the

Gambrells. After consolidation, the Gambrells subsequently filed their opposition to

Harrish’s motion to dismiss at docket 22 in the Lead Case and filed their reply to the

motion to remand at docket 20. Harrish filed her reply to her motion to dismiss at

docket 23 in the Lead Case. Both parties requested oral argument, but this court

1

The Gambrells are the defendants in the Lead Case (2:12-cv-01227), but because the

motions at docket 5 and docket 7 were filed in the Tucson Case, the court refers to them as the

plaintiffs.

2

Doc. 8.

3

Doc. 21.

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concludes that the briefing for the two motions is extensive and thorough and oral

argument is not necessary.

II. BACKGROUND

The two cases involving the Gambrells and IDS arise out of an automobile

accident that occurred March 4, 2011, in which Frank Gambrell sustained personal

injuries after another car crossed the center line and collided with the truck Gambrell

was driving. The truck was owned by Frank Gambrell’s employer. His medical

expenses totaled over $87,000, and his loss of earnings totaled over $6,000. The

Gambrells settled with the tort feasor’s insurance carrier for the $15,000 liability limit. 

He then pursued a claim under the insurance policy that Gambrell’s employer

maintained on the truck involved in the accident. That policy had underinsured motorist

coverage in the amount of $100,000, and Gambrell collected the full amount under that

policy. But, because the amount Gambrell collected from the tort feasor’s policy and his

employer’s policy was allegedly inadequate to compensate Gambrell, he filed a claim for

$100,000 under his personal auto insurance policy that he maintained with IDS. IDS

assigned Harrish to adjust the claim. They denied Gambrell’s claim. Gambrells asked

defendants to reconsider their denial and pointed out reasons why they thought the

denial was improper, but defendants maintained their denial.4

On June 8, 2012, after the parties were unable to settle the claim, IDS initiated a

declaratory relief action in federal court by filing the complaint in the Lead Case. In the

complaint, IDS asks the court to judicially determine the parties’ dispute over coverage. 

On July 25, 2012, plaintiffs filed the underlying complaint in the Tucson Case in state

court. The complaint originally alleged a breach of contract and bad faith claim against

IDS.5

 On August 3, 2012, shortly after defendants declined plaintiffs’ request to

4

The background facts are taken from the First Amended Complaint, which is filed at

doc. 1-3 at p. 20 in the Tucson Case.

5

Doc. 1-3 at p. 12.

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stipulate to a remand in the Lead Case, plaintiffs filed an amended complaint in state

court, adding Harrish as a defendant and alleging that Harrish was assigned to adjust

the claim and that both defendants owed a duty of good faith and fair dealing to

plaintiffs, which they breached when they refused without reasonable basis to provide

benefits under the policy.6 On September 4, 2012, defendants filed their notice of

removal.7 As noted above, after the motions to dismiss and remand were filed, the

court consolidated the two cases, and all filings have since been lodged in the Lead

Case. 

III. STANDARD OF REVIEW

A. Motion to dismiss

A motion to dismiss for failure to state a claim pursuant to Federal Rule of Civil

Procedure 12(b)(6) tests the legal sufficiency of a plaintiff’s claims. In reviewing such a

motion, “[a]ll allegations of material fact in the complaint are taken as true and

construed in the light most favorable to the nonmoving party.”8 Dismissal for failure to

state a claim can be based on either “the lack of a cognizable legal theory or the

absence of sufficient facts alleged under a cognizable legal theory.”9 Dismissal is not

“confine[d] . . . to claims of law which are obviously insupportable.”10 Instead, a claim

must be dismissed “without regard to whether it is based on an outlandish legal theory

6

See doc. 1-3 at pp. 17-25.

7

Doc. 1.

8

Vignolo v. Miller, 120 F.3d 1075, 1077 (9th Cir. 1997).

9

Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990).

10Neitzke v. Williams, 490 U.S. 319, 326-27 (1989). 

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or on a close but ultimately unavailing one.”11 “Conclusory allegations of law . . . are

insufficient to defeat a motion to dismiss.”12 

To avoid dismissal, a plaintiff must plead facts sufficient to “state a claim to relief

that is plausible on its face.”13 “A claim has facial plausibility when the plaintiff pleads

factual content that allows the court to draw the reasonable inference that the defendant

is liable for the misconduct alleged.”14 “The plausibility standard is not akin to a

‘probability requirement’ but it asks for more than a sheer possibility that a defendant

has acted unlawfully.”15 “Where a complaint pleads facts that are ‘merely consistent’

with a defendant’s liability, it ‘stops short of the line between possibility and plausibility of

entitlement to relief.’”16 “In sum, for a complaint to survive a motion to dismiss, the nonconclusory ‘factual content,’ and reasonable inferences from that content, must be

plausibly suggestive of a claim entitling the plaintiff to relief.”17

B. Fraudulent joinder

Defendants removed the Tucson Case from state court to federal court pursuant

to 28 U.S.C. § 1441(a) based on the court’s diversity jurisdiction. Although defendants

acknowledge that Harrish’s presence in the lawsuit destroys complete diversity because

she is a resident of Arizona, they maintain that her presence is based on fraudulent

joinder and, thus, can be ignored for purposes of diversity jurisdiction.18 Plaintiffs filed

11Id.

12Lee v. City of Los Angeles, 250 F.3d 668, 679 (9th Cir. 2001).

13Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

14Id.

15Id. (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007)).

16Id. (quoting Twombly, 550 U.S. at 557).

17Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009).

18Doc. 1 at p. 3.

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the motion to remand arguing that there is no fraudulent joinder issue and, thus, the

case must be remanded pursuant to 28 U.S.C. § 1447(c).

Fraudulent joinder is a term of art.19 A plaintiff’s subjective intent does not play a

role in the analysis.20 Instead, fraudulent joinder exists, and the non-diverse defendant

is ignored for purposes of determining diversity of the parties, if the plaintiff “fails to state

a cause of action against a resident defendant, and the failure is obvious according to

the settled rules of the state.”21 “In borderline situations, where it is doubtful whether the

complaint states a cause of action against the resident defendant, the doubt is ordinarily

resolved in favor of the retention of the cause in the state court.”22 It is only where a

plaintiff has no possibility of bringing a cause of action against a resident defendant, and

therefore has no reasonable grounds to believe he has such an action, that the court

can conclude that the resident defendant has been joined to evade jurisdiction in federal

court.23 

Because there is a presumption against removal, the defendant has the burden

of establishing that removal is proper and thus that fraudulent joinder exists.24 

19McCabe v. Gen. Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987).

20See Albi v. St. & Smith Publ’ns, 140 F.2d 310, 312 (9th Cir. 1944) (stating that “it is

universally thought that the motive for joining [a non-diverse] defendant is immaterial); Selman

v. Pfizer, Inc., No. 11-CV-1400, 2011 WL 6655354, at *10 (D. Or. Dec. 16, 2011) (rejecting an

intent test for fraudulent joinder).

21McCabe, 811 F.2d at 1339.

22Albi, 140 F.2d at 312.

23Id.; see also Gottlieb v. Westin Hotel Co., 990 F.2d 323, 327 (7th Cir. 1993) (finding of

fraudulent joinder appropriate only if there is no possibility that a claim can be stated); Filla v.

Norfolk S. Ry. Co., 336 F.3d 806, 810 (8th Cir. 2003) (if there is a “colorable” cause of action,

joinder is not fraudulent and remand is mandatory). 

24Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992).

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IV. DISCUSSION

The court is confronted with two motions presenting the same issue but with

different standards of review. Because the standard for proving fraudulent joinder is

more exacting than that for dismissing a claim for failure to state a claim—a merely

possible claim against a defendant is not enough to survive a 12(b)(6) motion, but it is

sufficient to defeat an assertion of fraudulent joinder and prevent removal—the court will

address the motion to remand first.

Defendants argue that the duty of good faith and fair dealing stems from a

contract and because she is not a party to the insurance contract, Harrish cannot have

acted in bad faith. Indeed, Arizona courts have held that there is no cause of action

when a third-party claimant who was not a party to the insurance contract tries to sue

the tortfeasor’s insurance company for bad faith in failing to settle his claims.25 Arizona

courts have also held that an insured or his assignee may not sue his insurer for

negligent handling of claims that is separate and distinct from the claim of breach of

contract or bad faith.26 Similarly, the Arizona courts have held that an insurance

company’s adjuster did not owe a duty to the insured in the context of a negligence

claim.27 However, in the context of a bad faith claim brought by an insured against the

insurance claims adjuster, there is no Arizona case law directly on point to support

defendants’ argument. Instead, as plaintiffs point out, in Farr v. Transamerica

Occidental Life Insurance Co. of California,

28 the Arizona Court of Appeals found that

both the insurer and the insurer’s agent owed a common duty to the insured to act in

good faith despite the agent’s lack of contractual privity. It reasoned that the insurer

25Leal v. Allstate Ins. Co., 17 P.3d 95, 98-99 (Ariz. Ct. App. 2000). 

26Miel v. State Farm Mut. Auto. Ins. Co., 912 P.2d 1333, 1340 (Ariz. Ct. App. 1995).

27Meineke v. GAB Bus. Serv. Inc., 991 P.2d 267, 271 (Ariz. Ct. App. 1999).

28 699 P.2d 376 (Ariz. Ct. App. 1984)

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and its agent were engaged in a joint venture, even if some of the classical elements of

a joint venture, such as profit and loss sharing or joint right to control, were lacking.29 

While the holding in Farr could certainly be distinguished in this case because,

unlike the adjuster in Farr, Harrish is an in-house employee and not a third-party entity

hired to administer claims,30 Arizona courts have not specifically addressed the issue. 

Harrish cites to Walter v. Simmons31 to argue that the state courts have, in fact,

resolved the issue. In Walter, the Arizona court held that the plaintiff’s voluntary

dismissal of the bad faith claim against the adjuster did not require dismissal of that

same claim against the insurer. The dismissal of the adjuster and the reason for his

dismissal were not at issue in the appeal, but the court nonetheless stated that the

independent adjuster “was dismissed from the bad faith claim because he owed no

contractual duty to act in good faith or deal fairly with [the insured].”32 That statement

was not necessary to the holding, was not expressly deemed a guide for future conduct,

and does not provide reasoned consideration of the issue; thus, it is merely dicta.33 

While the court is not bound by other decisions in this district on the issue, judges

have repeatedly concluded that the law surrounding the viability of a bad faith claim

against an insurance adjuster is unsettled in Arizona. In both Ballesteros v. American

29Id. at 386.

30It is undisputed that Harrish is an employee of IDS. See docket 7, pp. 6-7, n.3.

31818 P.2d 214 (Ariz. Ct. App. 1991)

32Id. at 222.

33 See Phelps Dodge Corp. v. Ariz. Dept. of Water Res., 118 P.3d 1110, 1116 n.9 (Ariz.

Ct. App. 2005) (discussing what should be considered judicial dictum and thus should be

followed absent a cogent reason for departing from it and obiter dictum that does not have

precedential value but can be persuasive); McOmie-Gray v. Bank of Am. Home Loans, 667 F.3d

1325, 1329 (9th Cir. 2012).

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Standard Insurance Co. of Wisconsin34 and Allo v. American Family Mutual Insurance

Co.,

35 the district courts concluded that it is unclear in Arizona whether an

adjuster employed by an insurance company could be held liable for bad faith. The

magistrate judge in Wapniarski v. Allstate Insurance Co.36 also addressed this issue

and found the reasoning in Ballesteros persuasive and remanded the case back to state

court. 

Defendants cite to two other District of Arizona cases, Huffman v. American

Family Mutual Insurance Co.37 and Didyoung v. Allstate,

38 to support their position. But

those two cases are inapposite. Huffman presented a different issue altogether:

whether the plaintiff could amend her complaint to add a non-diverse defendant after

the case had been removed to federal court. In determining whether the plaintiff could

amend to add a non-diverse defendant, the court looked at the strength of her bad faith

claim against that defendant and found that it was weak because the covenant of good

faith and fair dealing is inherent in a contract, and there was no contract between the

proposed defendant and the plaintiff. But, the court in Huffman was applying different

standards altogether and furthermore, the court agreed that “Arizona courts have not

squarely rejected [the plaintiff’s] proposed theory.”39 

34436 F. Supp. 2d 1070 (D. Ariz. 2006).

35No. CV-08-0961, 2008 WL 4217675 (D. Ariz. Sept. 12, 2008).

36No. CV-10-0823, 2010 WL 2534167 (D. Ariz. June 18, 2010).

37No. CV-10-2809, 2011 WL 814957 (D. Ariz. Mar. 4, 2011).

38No. CV-12-348, 2012 WL 1983779 (D. Ariz. June 4, 2012).

392011 WL 814957, at *3 (D. Ariz. Mar. 4, 2011).

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Didyoung was considering the issue of fraudulent joinder, but the claim was not a

bad faith claim but rather a negligence claim,40 and under Arizona law, as discussed

above, it is clear that an insurance adjuster is not liable for negligent claim handling.

Given the holding in Farr, that the claims administrator was engaged in a type of

joint venture with the insurer and thus could be jointly and severally liable with the

insurer, the court must concur with the prior decisions in this district and conclude that

Arizona law is not fully settled as to whether an insured can bring a bad faith claim

against an in-house insurance adjuster. The court acknowledges Harrish’s argument

that an employee and employer cannot form a joint venture, but, as noted above, Farr

did not require a finding that all elements of joint venture be present in the insurance

context. Although the court is not persuaded that the reasoning in Farr would be

applicable to an in-house employee, there is no state case directly on point, and the

court must resolve any ambiguities in favor of the plaintiff. 

Furthermore, when looking at the issue of fraudulent joinder, the court has to

consider whether the plaintiffs have at least a reasonable ground to believe such a

claim could go forward.41 Given the district court decisions in Ballesteros and Allo that

found the issue unsettled, there is, in fact, a reasonable basis for the Gambrells to move

forward with the bad faith claim against Harrish. While it is a close call, as noted above,

ambiguity in the law must favor the plaintiff, and the prior district court cases persuade

the court to conclude that Arizona law has not yet closed the matter. 

Because this court finds that there is no fraudulent joinder, it cannot ignore

Harrish’s presence in the suit. As such, complete diversity does not exist, and the court

402012 WL 1983779 at *4 (“[T]he legal theory asserted against [the adjuster] sounds

neither in breach of contract nor in bad faith. Rather, . . . the claim against [the adjuster] is

limited to a claim sounding in negligence.”). 

41While the defendant notes that the procedural history of this case suggests Harrish

was only added to destroy diversity, the plaintiffs’ actual motive is not part of the analysis. 

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must remand pursuant to 28 U.S.C. § 1447(c). Given that the case has been

remanded, the motion to dismiss Harrish for failure to state a claim is now moot. 

V. CONCLUSION

Based on the foregoing analysis, plaintiffs’ motion to remand at docket 7 in Case

No. 4:12-cv-00661 is GRANTED. Defendant Harrish’s motion to dismiss at docket 5 in

Case No. 4:12-cv-00661 is DENIED AS MOOT. Case No. 4:12-cv-00661 is hereby

severed from Case No. 2:12-cv-01227 and remanded to Pima County Superior Court,

and the Clerk of Court shall enter judgment and close the file in Case No. 4:12-cv00661. Case No. 2:12-cv-01227 shall remain on this court’s docket for disposition in

due course.

DATED this 21st day of December 2012.

 /s/ 

JOHN W. SEDWICK

UNITED STATES DISTRICT JUDGE

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