Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_11-cv-02569/USCOURTS-azd-2_11-cv-02569-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1441 Petition for Removal- Breach of Contract

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 For the purpose of this Motion to Remand, the Court sets out the facts as alleged in

Plaintiff’s Complaint. 

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Wayne C. Arnett, 

Plaintiff, 

vs.

USAA Casualty Insurance Company, 

Defendant. 

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No. CV 11-2569-PHX-JAT

ORDER

Pending before the Court is Plaintiff Wayne C. Arnett’s Motion to Remand to

Superior Court. Doc. 7. The Court now rules on the motion.

I. BACKGROUND1

On August 17, 2009, Plaintiff’s 1998 Volvo automobile was severely damaged in a

collision. Doc. 1-1 at 3. At the time of the collision, Plaintiff was insured by USAA

Casualty Insurance Company (“USAA CIC”). Id. The parties agreed that the vehicle was

a total loss. Id. at 4. The dispute in this case arises from the parties’ disagreement regarding

the valuation of the damaged vehicle. Id. at 4–7. 

Plaintiff, an Arizona citizen, brought suit in the Maricopa County Superior Court

(“Superior Court”) against United Services Automobile Association (“USAA”), and USAA

CIC, which is a wholly-owned subsidiary of USAA. Id. at 1. USAA is a “reciprocal interCase 2:11-cv-02569-JAT Document 18 Filed 03/23/12 Page 1 of 7
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insurance exchange with members who are residents of Arizona.” Id. at 3; Doc. 1 at 2.

USAA CIC is a “Texas corporation with its principal place of business in San Antonio,

Texas.” Doc. 1 at 2. Plaintiff’s Complaint did not specify a dollar amount of damages;

rather, Plaintiff sought contract damages, general damages, punitive damages, attorneys’

fees, and costs. Doc. 1-1 at 10. There is no dispute that, at the time Plaintiff filed suit, there

was not complete diversity given that Plaintiff and Defendant USAA are both citizens of

Arizona. Id. at 2. 

During the course of the state-court litigation, USAA filed a Motion to Dismiss. Doc.

1-2 at 21. Plaintiff opposed the motion. Doc. 1-2 at 29. In a minute entry dated December

16, 2011, Judge Ditsworth of the Superior Court granted USAA’s Motion to Dismiss, leaving

USAA CIC as the only remaining defendant. Doc. 1-4 at 56. With the only non-diverse

defendant dismissed, USAA CIC removed the case to federal court pursuant to 28 U.S.C. §

1441(b), alleging that the action is removable “because it is a civil action between parties

with complete diversity of citizenship and Plaintiff seeks damages which exceed the

jurisdictional minimum of $75,000” under 28 U.S.C. § 1332. Doc. 1 at 1. 

Plaintiff opposes removal and has filed the instant motion, seeking remand to state

court. Doc. 7. The issue has been fully briefed, and neither party has requested oral

argument. For the reasons stated below, the Court will grant the motion. 

II. LEGAL STANDARD

Pursuant to 28 U.S.C. § 1332, “district courts shall have original jurisdiction of all

civil actions where the matter in controversy exceeds the sum or value of $75,000,

exclusive of interests and costs, and is between . . . citizens of different States.”

28 U.S.C. § 1332(a)(1) (2006).

The removal statute, 28 U.S.C. § 1441, provides, in pertinent part: “[A]ny civil action

brought in a State court of which the district courts of the United States have original

jurisdiction, may be removed by the defendant . . . to the district court of the United States

for the district and division embracing the place where such action is pending.” 28 U.S.C.

§ 1441(a) (2006). Courts strictly construe the removal statute against removal jurisdiction.

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 Plaintiff’s reply also raises the new argument that removal was not timely. Doc. 15

at 3. The Court does not consider arguments first raised in the reply because it denies the

Court the benefit of full briefing. Sogeti USA LLC v. Scariano, 606 F. Supp. 2d. 1080, 1086

(D. Ariz. 2009). Furthermore, the minute entry dismissing USAA is dated December 16,

2011, and USAA CIC removed on December 27, 2011. Without the benefit of full briefing,

the Court is unsure whether this fact renders USAA CIC’s removal timely, and it would be

unjust to find in Plaintiff’s favor on this new argument without providing USAA CIC a

chance to respond to it. Thus, the Court will not address Plaintiff’s timeliness argument.

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See Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108–09 (1941); Gaus v. Miles, Inc.,

980 F.2d 564, 566 (9th Cir. 1992) (citations omitted). “The ‘strong presumption’ against

removal jurisdiction means that the defendant always has the burden of establishing that

removal is proper.” Gaus, 980 F.2d at 566 (citing Nishimoto v. Federman-Bachrach &

Assocs., 903 F.2d 709, 712 n.3 (9th Cir. 1990); Emrich v. Touche Ross & Co., 846 F.2d 1190,

1195 (9th Cir. 1988)). Thus, a defendant’s burden when removing under § 1332 is to show

that there is complete diversity and that the amount in controversy exceeds $75,000. See 28

U.S.C. § 1332. 

III. ANALYSIS

Plaintiff presents three arguments for why removal was improper: (1) there is not

complete diversity because Plaintiff did not voluntarily dismiss USAA; (2) removal was

premature because the state court never entered a formal written judgment dismissing USAA;

and (3) USAA CIC has failed to sufficiently demonstrate that the amount in controversy

exceeds $75,000.2

 Doc. 7. Because the Court finds that there is not complete diversity, the

Court need not reach Plaintiff’s other arguments. 

A. Complete Diversity, the Voluntary-Involuntary Rule, and the Fraudulent

Joinder Exception

Plaintiff argues that removal is improper because there was not complete diversity at

the time the suit was filed. Even though there is now complete diversity between USAA CIC

and Plaintiff, Plaintiff argues that removal is not appropriate if the Court applies the

voluntary-involuntary rule. In response, USAA CIC argues that Plaintiff fraudulently joined

USAA as a way to defeat diversity, and that the fraudulent joinder exception makes removal

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in this case appropriate. 

The voluntary-involuntary rule is an exception to the general rule that when a case is

removed pursuant to § 1332, “diversity must exist both when the state [action] is filed and

when the petition for removal is filed.” Ryan v. Schneider Nat’l Carriers, 263 F.3d 816, 819

(8th Cir. 2001) (citations omitted); see also Dole Food Co. v. Patrickson, 538 U.S. 468, 478

(2003) (“It is well settled . . . that federal-diversity jurisdiction depends on the citizenship of

the parties at the time the suit is filed.”) (citation omitted). “[T]he ‘voluntary-involuntary’

rule . . . requires that a suit remain in state court unless a [plaintiff’s] ‘voluntary’ act . . .

brings about a change that renders the case removable.” Self v. Gen. Motors Corp., 588 F.2d

655, 657 (9th Cir. 1978). 

USAA CIC does not disagree with the application of the voluntary-involuntary rule

in this case. Rather, USAA CIC relies on an exception to the voluntary-involuntary rule that

exists when a plaintiff fraudulently joins a defendant. The term “fraudulent joinder” does

not necessarily mean that a party acts nefariously; rather, it “is a ‘term of art.’” Morris v.

Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001) (quoting McCabe v. Gen. Foods

Corp., 811 F.2d 1336, 1339 (9th Cir. 1987)). “Joinder of a non-diverse defendant is deemed

fraudulent, and the defendant’s presence in the lawsuit is ignored for purposes of determining

diversity, 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.” Id. (citation omitted) (internal

quotation marks omitted). Thus, there are two elements to a finding of fraudulent joinder:

(1) a plaintiff fails to state a cause of action against the defendant; and (2) the failure is

obvious under the settled rules of the state.

In Morris, the Ninth Circuit Court of Appeals found that a plaintiff had fraudulently

joined a defendant. Id. at 1068. There, a Texas plaintiff sued a Texas travel agency and a

non-Texas cruise line in a Texas state court regarding events that happened on a cruise. Id.

at 1064. The claim against the non-diverse travel agency was for negligent

misrepresentation; the plaintiff claimed that the travel agency made misrepresentations about

the care and safety the cruise line provided. Id. at 1067. The defendants removed to a Texas

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federal court under § 1332 diversity jurisdiction, and the plaintiff filed a Motion to Remand,

arguing that the travel agency’s presence in the suit made removal inappropriate for lack of

complete diversity. Id. at 1066–67. The district court in Texas denied the plaintiff’s Motion

to Remand, finding that the travel agency was fraudulently joined, and the case was then

transferred to a California district court pursuant to a forum selection clause. Id. The district

court in California dismissed the travel agency and granted the remaining defendant’s Motion

for Summary Judgment on all of the plaintiff’s claims. Id. at 1067. The plaintiff

subsequently appealed to the Ninth Circuit. Id.

 In determining whether the federal courts had removal jurisdiction, the Ninth Circuit

reviewed the law in Texas regarding negligent misrepresentation, and considered an affidavit

of the plaintiff. Id. at 1067–68. The plaintiff had admitted in her affidavit that she never

discussed the care or safety of the cruise line with the travel agency, which was the

underlying basis of her negligent misrepresentation claim. Id. at 1068. Because of this

admission, the Ninth Circuit found that it was “abundantly obvious that [the plaintiff] could

not possibly prevail on her negligent misrepresentation claim” against the non-diverse travel

agency. Id. Consequently, the Ninth Circuit found that the plaintiff had fraudulently joined

the non-diverse travel agency because the plaintiff both failed to state a claim against the

travel agency, and the failure was obvious under the settled rules of Texas negligent

misrepresentation law. See id. Thus, the Ninth Circuit held that removal was proper and that

the district court correctly ignored the travel agency’s joinder as a defendant when

determining jurisdiction. Id.

Here, there is no question that the Superior Court has ruled that Plaintiff failed to state

a claim against USAA—the non-diverse defendant. The only remaining question is whether

that failure was obvious according to the settled rules of Arizona law. USAA CIC argues

that because the state court granted its Motion to Dismiss, it has met its burden in proving

fraudulent joinder. Doc. 13 at 4. USAA CIC concludes that a finding of a failure to state a

claim under Rule 12(b)(6) means that “as a matter of law, . . . there was no possibility

Plaintiff could state a valid cause of action against USAA.” Id. This is only partially correct.

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While true that failure to state a claim under Rule 12(b)(6) means that a plaintiff could not

possibly state a cause of action against a defendant, in the context of fraudulent joinder, such

a finding is only half the battle: the failure must also be obvious under settled rules of

Arizona law. Thus, Plaintiff is correct that the Court must look at Plaintiff’s claims against

USAA and determine whether the failure to state a claim was obvious under Arizona law.

The Court need not look at every claim contained in the Complaint. So long as the

failure to state one of the claims was not obvious under Arizona law, USAA was not

fraudulently joined. Plaintiff argues that his claim that USAA aided and abetted USAA CIC

in breaching the parties’ insurance contract is evidence that USAA was not fraudulently

joined because USAA conceded in its Motion to Dismiss that Arizona law was unsettled on

the aiding and abetting claim. Doc. 15 at 4. Under Arizona law, a prima facie case of aiding

and abetting includes three elements: “(1) the primary tortfeasor must commit a tort that

causes injury to the plaintiff; (2) the defendant must know that the primary tortfeasor’s

conduct constitutes a breach of duty; and (3) the defendant must substantially assist or

encourage the primary tortfeasor in the achievement of the breach.” Wells Fargo Bank v.

Ariz. Laborers, Teamsters, and Cement Masons Local No. 395 Pension Trust Fund, 38 P.2d

12, 23 (Ariz. 2002) (citation omitted). 

In its Superior Court Motion to Dismiss, USAA correctly stated that when analyzing

a claim of aiding and abetting, the relationship between the primary tortfeasor (here USAA

CIC) and the defendant allegedly aiding and abetting the primary tortfeasor (here USAA)

must be considered. Doc. 1-2 at 24 (citing Restatement (Second) of Torts § 876(b) cmt. d

(1979)). USAA’s motion goes on to note that “Arizona has not directly addressed the issue”

of whether the relationship between the primary tortfeasor and the defendant allegedly aiding

and abetting must be “disparate and unrelated.” Id. Thus, Plaintiff’s joining USAA cannot

be fraudulent, because the law in Arizona is not well-settled such that Plaintiff should have

known he had no claim against USAA. See Hunter v. Phillip Morris USA, 582 F.3d 1039,

1046 (9th Cir. 2009) (quoting Tillman v. R.J. Reynold Tobacco, 340 F.3d 1277, 1279 (11th

Cir. 2003)) (“‘[I]f there is a possibility that a state court [could] find that the complaint states

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3

 USAA CIC cites several cases in which plaintiffs were found to have fraudulently

joined USAA when suing USAA Life, which is also a separate insuring entity like USAA

CIC. Doc. 13 at 5. Plaintiff argues that those cases are easily distinguishable from this case.

The Court agrees. The first case, Salkin, involved a plaintiff who joined USAA on a theory

that USAA was either the same entity as USAA Life, or that USAA Life was an alter ego of

USAA, or that USAA Life was the agent-in-fact of USAA. Salkin v. United Serv. Auto.

Ass’n, 767 F. Supp. 2d. 1062, 1065 (C.D. Cal. 2011). The court found that, under well

settled principles of California law, it was obvious that all of the plaintiff’s theories were

untenable. Id. at 1068–69. Here, Plaintiff acknowledged that USAA and USAA CIC are

separate entities, and alleged that USAA aided and abetted USAA CIC. As discussed above,

it was unclear under Arizona law whether Plaintiff could prevail on such a claim. The

second case that USAA CIC cites, Keszenheimer, is similarly distinguishable. See

Keszenheimer v. United Serv. Auto. Ass’n, 78 F. App’x 333, 334, 2003 WL 22348923, at *1

(5th Cir. 2003) (finding that the plaintiff fraudulently joined USAA to its claim against

USAA Life where the plaintiff only joined USAA because the plaintiff alleged that the

companies were “inextricably intertwined and interested entities”).

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a cause of action against any of the resident defendants, the federal court must find that the

joinder was proper and remand the case to state court.’”).3

Because Plaintiff did not voluntarily dismiss USAA, and because USAA CIC has

failed to meet its burden in showing fraudulent joinder, this case must be remanded due to

lack of complete diversity under § 1332. 

IV. CONCLUSION

Based on the foregoing, 

IT IS ORDERED that Plaintiff’s Motion to Remand to Superior Court (Doc. 7) is

GRANTED. The Clerk of the Court shall remand this action to Maricopa County Superior

Court.

DATED this 22nd day of March, 2012.

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