United States Court of Appeals

Fifth Circuit



## FILED

September 10, 2004

Charles R. Fulbruge III

Clerk IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

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.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 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

f or 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,3

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 fr om 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 no t 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 cri ticizing 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 would4

take a look at it.

In J anuary 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 cons truction

tolerances and required 31 piers for repair. State Farm

transferred the Cooper report to Pe rdue, 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 t he 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

attorne ys’ fees” in unspecified amounts. Kirkpatrick and

Hornbuckle are both Texas citizens, while State Farm is a citizen5

of Illinois.

As p art of the discovery process, Hornbuckle was deposed.

Based upon answers provided in the deposition, on May 6, 2003,

State Farm and Kirkpatrick removed the cas e 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 cour t.” The district court, noting

the motion to remand’s contention that “Stat e Farm removed this

case despite the numerous cases i n volving 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 with2 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 the removal petition. 2 State Farm now appeals the district court’s

a ward of attorney fees, asserting that Hornbuckle’s deposition

testimony, combined with her inability to articulate speci f ic

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

fo r lack of subject matter jurisdiction, 3 we may review the

district court’s award of atto rney fees. M iranti 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 remand4 “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 order itself is not reviewable), we hold that § 1447(d) does not

prohibit review by this court of the orde r 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, irres pective 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

. 5to 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 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. B adon

, 236 F.3d at 286

(quoting Parks v. New York Times Co. , 308 F.2d 474, 479 (5th Cir.

1962)). S ee also, e.g., Jernigan v. Ashland Oil

, 989 F.2d 812, 816

(5th Cir. 1993); Field s 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 th e 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 fraudulent6 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 joinder to destroy diversity is v iewed 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 Ci r. 1980) (to resolve fraudulent joinder claim remand

appropriate to determine not by “a full dress trial on the merits”

b ut “[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 B adon v. RJR Nabisco

, 224 F.3d 382, 393-94

(5th Cir. 2000), we again noted the propriety of employing a

summary j u dgment type procedure to resolve fraudulent joinder

claims and held that conspiracy allegations against the local10

defendants were properly disr e garded where unsupported by any

summary judgment type evidence.

Whether an award of attorneys’ fees aga inst appellants was

proper thus depends on whet her 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

wo rking on your claim, do you have any specific issue

wi th 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.”7 Similarly, Hornbuckle testified that, although her

complaint alleged that Kirkpatrick breached the duty of good

11 . . . “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

w as directly underneath where the

– where the s lab 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 dec ision. 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 –

m aybe 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.” 7faith 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 The closest that Hornbuckle ever came to specifying anything

Kirkpatrick did for which he was being su ed 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 th at were people who would work

with me, be honest and w ho were knowledgeable in their

jobs. And I have since learned that that is not the

case.”

Howev er, Hornbuckle admitted she was not “aware of any specific

facts” supporting the allegation that Perdue was incompetent or

dishonest or wr ote result oriented reports, but that this was

merely “my perception.” The record, however, contains no proper

summary judgment type evidence that Perdu e was incompetent,

dishonest, biased or “result oriented,” nor that any such

characteristic of Perdue w as or should have been known to

Kirkpatrick; nor does Hornbuckle point us to anything in the record8 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 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

subst antial 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 depos ition 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 again st him, and

that in any event, removal was objectively reasonable.

The Texas Supre me 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. L iberty Mutual

Ins. Co. v. Garrison Contractors

, 966 S.W.2d 482 (1998). 9 However,14

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

numer ous 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

e vidence. 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 Rem oval, unlike the litany of cases cited by

Plaint iff in support of her Motion, is not based upon

whether Plaintiff has pleaded causes of action that meet

the th reshold 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 Article10 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 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 poin t 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

w as taken some three years after the alleged loss and afte r 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 to16

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 th at the removal was proper in

that there was no arguably reasonable possibility Hornbuckle could

produce sufficien t 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.