Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_10-cv-00823/USCOURTS-azd-2_10-cv-00823-0/pdf.json

Nature of Suit Code: 350
Nature of Suit: Motor Vehicle Personal Injury
Cause of Action: 28:1332 Diversity-Breach of Contract

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Kristy Wapniarski, 

Plaintiff, 

vs.

Allstate Insurance Company; Jeffrey

Grossinger and Jane Doe Grossinger,

husband and wife,

Defendants. 

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No. CV-10-0823-PHX-LOA

ORDER

Pending for ruling are Defendants Jeffrey Grossinger’s and Jane Doe Grossinger’s (collectively “Grossinger”) Motion to Dismiss for Failure to State a Claim, docket

# 4, and Plaintiff Kristy Wapniarski’s (“Plaintiff”) Motion to Remand, docket # 17.

Grossinger seeks dismissal on two grounds: 1) improper or “fraudulent” joinder because

Plaintiff named Jeffrey Grossinger, an Arizona resident and claims’ adjuster, as a party to

allegedly preclude complete diversity and removal to federal court, and 2) the Complaint

fails to state claims against Grossinger for breach of contract and the tort of bad faith.

Plaintiff also moves to remand this case to the Maricopa County Superior Court, State of

Arizona as erroneously removed.

After reviewing relevant case law and briefing, the Court finds that this

District Court lacks complete diversity jurisdiction to adjudicate this case and remand to

State court is mandated by federal law. Therefore, the Court will grant Plaintiff’s Motion to

Remand, will deny Grossinger’s Motion to Dismiss alleging fraudulent joinder, and will

Case 2:10-cv-00823-LOA Document 19 Filed 06/18/10 Page 1 of 9
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1

 The Federal Rules of Civil Procedure govern the procedural aspects of actions only

after removal. Rule 81(c)(1), Fed.R.Civ.P. (emphasis added); Lane v. Fontaine, 2010 WL

186160, * 1 (D.Nev. 2010) (citing Lee v. City of Beaumont, 12 F.3d 933, 936-37 (9th Cir.

1993) (“The issue of the sufficiency of service of process prior to removal is strictly a state

law issue. . . .”), overruled on a different ground, California Dept. of Water Resources v.

Powerex Corp., 533 F.3d 1087, 1091 (9th Cir. 2008); Norsyn, Inc. v. Desai, 351 F.3d 825,

829 n. 4 (8th Cir. 2003); contra, Braden v. Tornier, Inc., 2009 WL 3188075, * (W.D.Wash.

2009). 

Because this case will be remanded, it is unnecessary to resolve the question whether

a complaint, filed in an Arizona court before removal, must comply with the sufficiency

pleading requirements of the Arizona Rules of Civil Procedure or the Federal Rules of Civil

Procedure. Federal courts follow Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S.Ct.

1955, 1960 (2007) and Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949 (2009), holding

a plaintiff must state a claim that is “plausible” not merely conceivable. Twombly, 127 S.Ct.

at 1974. The Arizona Supreme Court, however, has rejected the Twombly standard for

determining whether a complaint states a claim upon which relief can be granted. Cullen v.

Auto-Owners Ins. Co., 218 Ariz. 417, 189 P.3d 344 (Ariz. 2008). It appears Arizona follows

a notice-pleading standard, a standard more restrictive than that adopted by Conley v. Gibson,

355 U.S. 41, 45-46 (1957), but not as high as Twombly. Id. at 419, 346.

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deny Grossinger’s Motion to Dismiss for Failure to State a Claim pursuant to Rule 12(b)(6),

Arizona Rule of Civil Procedure.1

BACKGROUND

The relevant facts at this early stage of this litigation are undisputed. On

April 6, 2010, Plaintiff filed this action in the Maricopa County Superior Court against

Defendants Allstate Insurance Company (“Allstate”) and Grossinger, alleging a breach of

Plaintiff’s underinsured motorists’ (“UIM”) insurance contract and a first-party breach of the

covenant of good faith and fair dealing (“bad faith”) claim. (Complaint, docket # 1-3, Exhibit

(“Exh”) C at 7-10) Plaintiff asserts she was insured by an Allstate automobile insurance

policy when she sustained serious bodily injury as a result of a motor vehicle collision on

November 15, 2006. (Id. at 8-9) Plaintiff contends she was wrongfully denied UIM benefits

by Jeffrey Grossinger, an Allstate employee who “managed and adjusted” Plaintiff’s claim,

“by failing to reasonably adjust Plaintiff’s [UIM] claim and provide a reasonable payment

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2

 The Arizona Department of Insurance’s website (http://app.az.gov/id/lookup/

insurersearch) indicates Allstate Insurance Company is a property and casualty insurer,

domiciled in the State of Illinois, with a business address of 3075 Sanders Road, Suite H1A,

Northbrook, Illinois 60062-7127.

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. . . within a reasonable time frame.” (Id. at 9) Admitting that Grossinger was employed by

Allstate at all relevant times, Allstate “denies it has committed breach of contract, or that its

conduct herein arises to a level of bad faith . . . .” (docket # 2 at 2)

On April 14, 2010, Defendants Allstate and Grossinger removed this action to

this District Court based on diversity of citizenship pursuant to 28 U.S.C. § 1332(a)(1), 28

U.S.C. §§ 1441(a) and 1446. (docket # 1) Defendants allege 1) “[c]omplete diversity exists

under 28 U.S.C. § 1332(a)(1) because Plaintiff is a citizen of Arizona and Defendants are a

foreign corporation licensed outside of the state of Arizona[,]”2

 and 2) “Plaintiff alleges an

unstated amount of damages for general and special damages which are believed to be in

excess of $75,000 under an underinsured motorist coverage policy.” (Id. at 2, ¶¶ 5-6) The

parties agree, however, that Plaintiff and Grossinger are residents of, and domiciled in,

Arizona. On April 14, 2010, Grossinger also filed a Motion to Dismiss for Failure to State

a Claim. (docket # 4) On May 14, 2010, Plaintiff filed her Response to Grossinger’s Motion

to Dismiss and Motion to Remand. (docket # 17) All parties have expressly consented in

writing to magistrate-judge jurisdiction pursuant to 28 U.S.C. 636(c). (docket ## 11, 13)

The Motions are ripe for ruling.

Plaintiff concedes that if Grossinger is dismissed from the lawsuit, diversity

jurisdiction would be complete and this District Court would have subject matter jurisdiction

to properly adjudicate Plaintiff’s claims. (docket # 17 at 2) Plaintiff argues, however, that

if Grossinger is not dismissed, this case must be remanded to State court for all further

proceedings as complete diversity would be lacking under 28 U.S.C. § 1332. Plaintiff

contends that because Arizona law “is not clear . . . that an adjuster does not bear personal

responsibility for his bad faith actions[,]” citing Allo v. American Family Mutual Insurance,

Case 2:10-cv-00823-LOA Document 19 Filed 06/18/10 Page 3 of 9
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2008 WL 4217675 (D.Ariz 2008) and Ballesteros v. American Family Mutual Insurance

Company of Wisconsin, 436 F.Supp.2d 1070 (D.Ariz. 2006), Grossinger’s joinder was not

improper or fraudulent and remand is required. (Id. 2-3) Significantly, in Ballesteros and

Allo, different Arizona District Judges addressed the same legal issue presented in this case:

whether an insurance adjuster was fraudulently joined to an insured’s bad faith lawsuit to

defeat diversity jurisdiction, and both reached the same conclusion. Ballesteros, 436

F.Supp.2d at 1077; Allo, 2008 WL 4217675 at 3. Each District Judge concluded that Arizona

law regarding a claim of bad faith brought against an insurance adjuster is ambiguous or

unsettled, and any ambiguity must be resolved in the plaintiff’s favor by remanding each

action to the Arizona courts. Id.

On the issue of more primary importance, fraudulent joinder, Grossinger’s

Reply to his Motion to Dismiss and Response to Plaintiff’s Motion to Remand argues that

“Plaintiff cannot maintain an insurance bad faith claim against Defendants Grossinger since

she completely neglected to assert any facts tending to indicate that Mr. Grossinger breached

the covenant of good faith and fair dealings.” (docket # 18 at 3) This argument addresses

only the sufficiency of the Complaint’s factual allegations. While Plaintiff may be granted

leave to amend her Complaint to allege more facts to allow a court to draw the reasonable

inference that Grossinger is liable for bad faith, Grossinger’s Reply does not squarely

address the critical issue of whether under Arizona law an insurance adjuster may be liable

in tort to the insured for his bad faith mishandling of a UIM claim. Grossinger has not

provided this Court with any more recent Arizona authority on adjuster liability for first-party

bad faith than those thoroughly analyzed and rejected in Ballesteros and Allo. Adjuster

liability for first-party bad faith in Arizona remains, at least, unsettled. Therefore, remand to

Maricopa County Superior Court is required.

FEDERAL COURT’S JURISDICTION

“Federal courts being courts of limited jurisdiction, the presumption is that it

is without jurisdiction unless the contrary affirmatively appears.” Fifty Associates v.

Prudential Ins. Co., 446 F.2d 1187, 1190 (9th Cir. 1970) (citing Grace v. American Central

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Ins. Co., 109 U.S. 278 (1883); Ibarra v. Protective Life Ins. Co., 2009 WL 1651292, * 1

(D.Ariz. 2009) (citing U.S. Const., Art. III.). “It is fundamental to our system of government

that a court of the United States may not grant relief absent a constitutional or valid statutory

grant of jurisdiction.” Lacombe v. Bullhead City Hosp. Corp., 2007 WL 2702005, * 4

(D.Ariz. 2007) (quoting A-Z Intern. v. Phillips, 323 F.3d 1141, 1145 (9th Cir. 2003)); Steel

Company v. Citizens for a Better Environment, 523 U.S. 83, 94 (1998) (“Without jurisdiction

the court cannot proceed at all in any cause.”). Thus, this Court must first ascertain whether

it has subject matter jurisdiction to adjudicate this case before it can reach Grossinger’s Rule

12(b)(6) argument that the Complaint fails to state a claim upon which relief may be granted.

A. Diversity Jurisdiction

 Civil actions not involving a federal question are removable to a federal

district court only if there is complete diversity of citizenship between the parties and the

threshold amount in controversy is exceeded. Federal courts have original jurisdiction over

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

there is complete diversity of citizenship between the parties opposed in interest. 28 U.S.C.

§ 1332(a); Hunter v. Philip Morris USA, 582 F.3d 1039, 1043 (9th Cir. 2009). For an

individual person, citizenship for diversity purposes requires that the person (a) be a citizen

of the United States, and (b) be domiciled in a state of the United States. Lew v. Moss, 797

F.2d 747, 749 (9th Cir. 1986). “A person’s domicile is her permanent home, where she

resides with the intention to remain or to which she intends to return.” Von Kennel Gaudin

v. Remis, 379 F.3d 631, 636 (9th Cir. 2004). 

B. State Law

It is well-settled “[u]nder the Erie doctrine, federal courts sitting in diversity

apply state substantive law and federal procedural law.” Gasperini v. Center for Humanities,

Inc., 518 U.S. 415, 426 (1996); Feldman v. Allstate Ins. Co., 322 F.3d 660, 666 (9th Cir.

2003). It is basic Arizona law that every “[p]erson is charged with responsibility for his own

torts[,]” Higgins v. Assmann Electronics, Inc., 217 Ariz. 289, 294, 173 P.3d 453, 458

(Az.Ct.App. 2007), and “[a]n employer is vicariously liable for the negligent or tortious acts

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of its employee acting within the scope and course of employment.” McCloud v. Kimbro, 224

Ariz. 121, 228 P.3d 113, 115 (Az.Ct.App. 2010) (citations omitted). In Arizona, insurance

contracts include an implied covenant of “good faith and fair dealing,” whereby each party

is “bound to refrain from any action which would impair the benefits which the other had the

right to expect from the contract or the contractual relationship.” Rawlings v. Apodaca, 151

Ariz. 149, 154, 726 P.2d 565, 570 (Ariz. 1986). Since 1981, Arizona has recognized

first-party, bad-faith tort actions. Noble v. National Am. Life Ins. Co., 128 Ariz. 188, 189, 624

P.2d 866, 867 (Ariz. 1981). 

C. Removal

Under 28 U.S.C. § 1441, a defendant may remove an action filed in state

court to federal court if the federal court would have original subject matter jurisdiction over

the action. Moore-Thomas v. Alaska Airlines, Inc., 553 F.3d 1241, 1243 (9th Cir. 2009). In

determining whether removal jurisdiction exists, district courts construe their jurisdiction

narrowly against removal. Peralta v. Countrywide Home Loans, Inc., 2009 WL 3837235, *

2 (N.D.Cal. 2009) (citing Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09

(1941)); McCaa v. Massachusetts Mut. Life Ins. Co., 330 F.Supp.2d 1143, 1146 (D.Nev.

2004). “For removal purposes, diversity ‘is determined (and must exist) as of the time the

complaint is filed and removal is effected.’” Monroe v. Gagan, 2008 WL 4418155, * 9

(D.Ariz. 2008) (quoting Stroter Corp. v. Air Transport Ass’n. of America, 300 F.3d 1129,

1131 (9th Cir. 2002)) (citations omitted).

As the removing parties, Defendants Allstate and Grossinger bear the burden

of demonstrating that removal jurisdiction is proper, and “[f]ederal jurisdiction must be

rejected if there is any doubt as to the right of removal in the first instance.” Peralta, 2009

WL 3837235 at 2 (quoting Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992)) (creating

a “strong presumption against removal jurisdiction”) (citations omitted). Thus, a district

court must resolve any ambiguity in favor of remand to state court. Id. Because the parties

agree that both Plaintiff and Grossinger are residents of Arizona, complete diversity is absent

and removal was improper unless Grossinger was fraudulently joined as a defendant.

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D. Fraudulent Joinder

In the Ninth Circuit, a defendant is fraudulently joined, for purposes of

diversity jurisdiction, when a “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 . . . .” McCabe

v. General Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987). In determining the existence

of removal jurisdiction, a district court may ignore a fraudulently joined defendant. Morris

v. Princess Cruise Lines, 236 F.3d 1061, 1067-68 (9th Cir. 2001). District Judge Jorgenson

in Ballesteros clearly explained fraudulent joinder in the context of federal diversity

jurisdiction:

 Fraudulent joinder is a term of art and a defendant’s presence will be

ignored for purposes of diversity pursuant to this doctrine only 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.” Morris v. Princess

Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001)(internal quotes and citations

omitted)(emphasis in original); Ritchey v. Upjohn Drug Co., 139 F.3d 1313,

1318 (9th Cir. 1998)(same). “In evaluating fraudulent joinder claims, [the

court] must initially resolve . . . all ambiguities in the controlling state law

in favor of the non-removing party. [The court] then determine[s] whether

that party has any possibility of recovery against the party whose joinder is

questioned.” Dodson v. Spiliada Maritime Corp., 951 F.2d 40, 42 (5th Cir.

1992) (emphasis in original). “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 case in state

court.” Albi v. Street & Smith Publications, 140 F.2d 310, 312 (9th Cir. 1944);

see also Gaus, 980 F.2d at 566; Morris, 236 F.3d at 1067; Ritchey, 139 F.3d

at 1318. Indeed, a “merely defective statement of the plaintiff’s action does not

warrant removal . . . It is only where the plaintiff has not, in fact, a cause of

action against the resident defendant, and has no reasonable ground for

supposing he has, and yet joins him in order to evade the jurisdiction of the

federal court, that the joinder can be said to be fraudulent . . . .” Id. 

Ballesteros, 436 F.Supp.2d at 1072-73. Ballesteros, Allo, and the Ninth Circuit’s fraudulent

joinder cases upon which they rely remain valid authorities. Hunter, 582 F3d at 1043

(“Joinder is fraudulent [i]f 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.” ) (internal 

/ / /

/ / /

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quotation marks and citations omitted); County of Hawai’i v. Univev, LLC, 2010 WL 520696,

* 4 (D.Hawai’i, 2010) (citing Hunter).

DISCUSSION

Grossinger has not provided, and the Court’s independent research has not

discovered, any recent Arizona authority resolving the unsettled issue under Arizona law

whether an insurance adjuster may be liable in tort to the insured for the adjuster’s bad faith

mishandling of an insured’s claim. Neither Farr v. Transamerica Occidental Life Ins. Co., 145

Ariz. 1, 11, 699 P.2d 376, 386 (AzCtApp. 1984) nor Sparks v. Republic National Life

Insurance Co., 132 Ariz. 529, 647 P.2d 1127 (Ariz. 1982) have been vacated or distinguished

regarding an insurance adjuster’s liability in tort for an adjuster’s bad faith mishandling of a

first-party claim. The Farr court opined that the Arizona Supreme Court settled the issue

whether an insurance agent or claims’ administrator may be liable for bad faith: “Sparks turns

upon the idea that the insurer and its agent are engaged in a joint venture so that each is jointly

and severally liable with the other for a bad faith refusal to pay. . . In Sparks the court found

that a company that issued certificates of coverage, billed and collected premiums, handled

the investigation and payment of claims, and distributed brochures to induce the purchase of

policies was engaged in a joint venture with the insurer so that both owed a common duty to

the insureds to act in good faith.” 699 P.2d at 386 (citing Sparks, 132 Ariz. at 540, 647 P.2d

at 1138). By reasonable analogy, this Court is also persuaded, as were the District Judges in

Ballesteros and Allo, that Arizona law may authorize a bad faith action against an insurance

adjuster and the insurance carrier, at least, on a joint-venture theory pursuant to Sparks.

CONCLUSION

The Court concludes that given the strong presumption against removal and the

fact that Grossinger has failed to demonstrate that under Arizona law an insurance adjuster

may not be held liable for the tort of bad faith, complete diversity is lacking and this Federal

Court does not have subject matter jurisdiction over this case.

Accordingly,

IT IS ORDERED that Defendant Grossinger’s Motion to Dismiss for Failure

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to State a Claim, docket # 4, is DENIED without prejudice to the right of Grossinger to renew

the motion to dismiss in the Superior Court.

IT IS FURTHER ORDERED that Plaintiff Kristy Wapniarski’s Motion to

Remand, docket # 17, is GRANTED. The Clerk is kindly directed to remand this case to the

Maricopa County Superior Court, State of Arizona and terminate this federal case.

Dated this 17th day of June, 2010.

Case 2:10-cv-00823-LOA Document 19 Filed 06/18/10 Page 9 of 9