Court Opinion

ID: 2654034
Source: CourtListenerOpinion
Date Created: 2014-02-21 18:36:23.440478+00
Date Added: 2024-06-11T12:55:12.128079
License: Public Domain

Case: 13-20174      Document: 00512539470         Page: 1    Date Filed: 02/20/2014

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                        United States Court of Appeals
                                                                                 Fifth Circuit

                                                                               FILED
                                    No. 13-20174                        February 20, 2014
                                  Summary Calendar
                                                                          Lyle W. Cayce
                                                                               Clerk
VADA DE JONGH,

                                                 Plaintiff - Appellant
v.

STATE FARM LLOYDS; DWIGHT JOHNSON,

                                                 Defendants - Appellees

                   Appeal from the United States District Court
                        for the Southern District of Texas
                             USDC. No. 4:12-CV-3703

Before WIENER, OWEN, and HAYNES, Circuit Judges.
PER CURIAM:*
       Vada de Jongh (“Jongh”) appeals the district court’s take-nothing
judgment in favor of State Farm Lloyds (“State Farm”) and Dwight Johnson
(“Johnson”) on her Texas state law claims. We VACATE the final judgment
and REMAND with instruction to remand to state court.

       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
     Case: 13-20174       Document: 00512539470         Page: 2     Date Filed: 02/20/2014

                                         No. 13-20174
                                    I.    Background
       Jongh, a Texas resident, filed an original petition in the 149th Judicial
District Court of Brazoria County, Texas, against State Farm Lloyds, Inc.
(“Lloyds”), a Texas resident, and Johnson, also a Texas resident. Jongh sought
damages for breach of contract, breach of the duty of good faith and fair
dealing, and violations of the Texas Insurance Code and the Texas Deceptive
Trade Practices Act. In her original petition, Jongh alleged that her home and
property were damaged in a storm and that, thereafter, she filed a claim on
her property insurance policy issued by Lloyds for the damages sustained. She
further alleged that Johnson, who was assigned as an individual adjuster on
her claim, conducted a substandard investigation and inspection, prepared an
incomplete report that omitted certain damages, and undervalued other
damages. Jongh asserted that, as the result of Johnson’s investigation, she
was underpaid on her claim.              She also claimed that Lloyds and Johnson
performed an “outcome-oriented investigation” of her claim, which resulted in
an inaccurate evaluation of her losses.
       State Farm filed an answer, asserting that it had been “incorrectly
named” as Lloyds. 1        However, State Farm did not move to intervene or
otherwise request that the state court substitute it as the proper party in
interest. One week later, State Farm removed the case to federal court on the
basis of diversity of citizenship pursuant to 28 U.S.C. §§ 1332(a) & 1441(a). In
its notice of removal, it alleged that: (a) Jongh had improperly named Lloyds,
instead of State Farm, as a defendant; (b) State Farm was a citizen of Illinois,

       1 State Farm and Lloyds are distinct legal entities. State Farm sells insurance under
a so-called “Lloyd’s plan,” which consists of a group of underwriters who combine to issue
insurance through an attorney in fact—in this case, Lloyds. See Tex. Ins. Code Ann.
§ 941.001. “[T]he attorney in fact acts as an agent for the Lloyd’s group.” Royal Ins. Co. of
Am. v. Quinn-L Capital Corp., 3 F.3d 877, 882 (5th Cir. 1993) (emphasis omitted). The
attorney in fact does not bear risks and has no contractual relationship with the insured. Id.
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                                 No. 13-20174
Florida, and Pennsylvania; (c) Johnson had been improperly joined for the
purpose of destroying federal diversity jurisdiction; and (d) complete diversity
existed among the real parties in interest, namely State Farm and Jongh, and
the amount in controversy exceeded $75,000 exclusive of interest and costs.
      Although Jongh did not move to remand, the district court never
dismissed Lloyds or Johnson. After a one-day bench trial, the district court
entered a take-nothing judgment in favor of Johnson and State Farm; the final
judgment did not address Lloyds. Jongh timely appealed.
                          II.   Standard of Review
      We review all questions of subject matter jurisdiction de novo. See Gasch
v. Hartford Acc. & Indem. Co., 491 F.3d 278, 281 (5th Cir. 2007). We may
consider subject matter jurisdiction sua sponte, as “subject-matter delineations
must be policed by the courts on their own initiative.”         Ruhrgas AG v.
Marathon Oil Co., 526 U.S. 574, 583 (1999).
      Under 28 U.S.C. § 1441(a), any civil action brought in state court over
which the federal courts have subject matter jurisdiction may be removed by a
defendant to federal court. However, when, as in this case, subject matter
jurisdiction is based on diversity of citizenship pursuant to 28 U.S.C. § 1332, a
defendant may not remove a civil action from state court “if any of the parties
in interest properly joined and served as defendants is a citizen of the State in
which [the] action is brought.” 28 U.S.C. § 1441(b)(2). The removing party
bears the burden of showing that federal jurisdiction exists and that removal
was proper. See Manguno v. Prudential Prop. & Cas. Ins. Co., 276 F.3d 720,
723 (5th Cir. 2002). To determine whether jurisdiction is present for removal,
we consider the claims in Jongh’s original petition as they existed at the time
of removal. See id. Any doubts regarding whether removal jurisdiction is
proper should be resolved against federal jurisdiction. See Acuna v. Brown &
Root Inc., 200 F.3d 335, 339 (5th Cir. 2000).
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                                      No. 13-20174
                                   III.    Discussion
       Jongh asserts that the district court lacked subject matter jurisdiction
for two related reasons. 2 First, State Farm was not a party and, therefore,
lacked the authority to remove this action to federal court. Second, all of the
actual parties in this action—Jongh, Lloyds, and Johnson—were Texas
residents.
       Under 28 U.S.C. § 1441(a), only a defendant may remove a civil action
from state court to federal court. A non-party, even one that claims to be a real
party in interest, lacks the authority to institute removal proceedings. See
Salazar v. Allstate Tex. Lloyd’s, Inc., 455 F.3d 571, 575 (5th Cir. 2006)
(“[W]here an entity has not properly been made a party in state court, removal
jurisdiction cannot be premised on its presence in the action.”); Hous. Auth. of
City of Atlanta, Ga. v. Millwood, 472 F.2d 268, 272 (5th Cir. 1973) (holding
that, where removal is initiated by a non-party, the district court is without
subject matter jurisdiction).
       Here, State Farm never became a party in this action. Jongh did not
name State Farm as a defendant in her original petition; although it asserted
in its answer and notice of removal that Jongh incorrectly named Lloyds as a
defendant, State Farm did not move to intervene or otherwise request that the
district court substitute it as the proper party in interest. Consequently, it
lacked the authority to remove this action to federal court. See Salazar, 455
F.3d at 575; Millwood, 472 F.2d at 272.
       State Farm asserts that Jongh’s identification of Lloyds in her original
petition was analogous to a misnomer and that it is the correct defendant in

       2   In her initial brief, Jongh focused on the question of whether Johnson was
fraudulently joined. It was not until her reply brief that she raised these points. However,
subject matter jurisdiction cannot be waived. State Farm was permitted to file a
supplemental brief addressing these arguments.
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                                       No. 13-20174
this action, as it issued Jongh’s insurance policy and adjusted her claim. 3 See
Chilkewitz v. Hyson, 22 S.W.3d 825, 828 (Tex. 1999) (“Misnomer arises when
a plaintiff sues the correct entity but misnames it.”). 4 Jongh disputes this
characterization; she served notice of her original petition on Lloyds and
continues to assert that her claim lies against Lloyds, not State Farm. It is
axiomatic that Jongh “is the master of [her] complaint.” Elam v. Kansas City
S. Ry. Co., 635 F.3d 796, 803 (5th Cir. 2011). Generally, federal courts permit

       3   State Farm asserts that Lloyds and Johnson are fraudulently joined defendants
because Lloyds did not issue Jongh’s insurance policy or adjust her claim and Johnson was,
in fact, not the adjuster on Jongh’s claim. However, fraudulent joinder does not apply here
because Jongh did not sue even one diverse defendant. See Salazar, 455 F.3d at 574 (holding
fraudulent joinder analysis inapplicable where plaintiff sued only a non-diverse defendant,
because the plaintiff was not attempting to force any diverse defendants to remain in state
court). “[A] meritless claim against an in-state defendant is not the equivalent of improper
joinder.” Gasch, 491 F.3d at 284; Smallwood v. Ill. Cent. R. Co., 385 F.3d 568, 574–75 (5th
Cir. 2004). Assuming arguendo that State Farm is correct about the merit of Jongh’s claims
against Lloyds and Johnson, this simply means that Jongh’s claims will not succeed; it does
not mean that Lloyds and Johnson are fraudulently joined defendants and that State Farm
is, in fact, the true defendant to the action. See Salazar, 455 F.3d at 573–75; Gasch, 491 F.3d
at 282–84; Smallwood, 385 F.3d at 574–75.

       4 The misnomer/misidentification dichotomy usually arises in cases involving whether
the statute of limitations was tolled by filing suit against a party that is defectively named
in some way. With a misnomer, the correct party, although misnamed, is served with notice
of the suit; in that situation, limitations is tolled. See Reddy P’ship/5900 N. Freeway LP v.
Harris Cnty. Appraisal Dist., 370 S.W.3d 373, 376 (Tex. 2012). This is in contrast to a
misidentification, which “arises when two separate legal entities actually exist and a plaintiff
mistakenly sues the entity with a name similar to that of the correct entity.” Chilkewitz, 22
S.W.3d at 828. A misidentification, unlike a misnomer, does not toll the statute of
limitations. See id. at 830. However, an exception to this rule in the limitations context
exists where “there are two separate but related entities that use a similar trade name and
the correct entity had notice of the suit and was not misled or disadvantaged by the mistake.”
Id. Here, Jongh served Lloyds, not State Farm, with notice of the suit, so the rules regarding
misidentification appear applicable. Because State Farm and Lloyds are separate but related
entities that use a similar trade name and State Farm had notice of the suit and was not
misled or disadvantaged by the mistake, one could argue that this case falls within the
“misidentification exception” line of cases. However, critical to this analysis is the fact that
Jongh—the author of the petition—disputes State Farm’s assertion that she named Lloyds
as a defendant in her original petition in error. Additionally, we are not here dealing with
the issue of statute of limitations under state law but the question of whether State Farm
was a party to the case who could remove the action under federal law.

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                                       No. 13-20174
plaintiffs to craft their complaints to avoid federal jurisdiction. See id. (“A
plaintiff . . . may allege only state law causes of action, even when federal
remedies might also exist.”); Standard Fire Ins. Co. v. Knowles, 133 S. Ct. 1345,
1350 (2013) (“[F]ederal courts permit individual plaintiffs, who are the masters
of their complaints, to avoid removal to federal court, and to obtain remand to
state court, by stipulating to amounts at issue that fall below the federal
jurisdictional requirement.”). This includes a plaintiff’s decision as to which
parties to sue. See Lincoln Prop. Co. v. Roche, 546 U.S. 81, 91 (2005) (“In
general, the plaintiff is the master of the complaint and has the option of
naming only those parties the plaintiff chooses to sue, subject only to the rules
of joinder [of] necessary parties.”) (citation and quotations omitted) (alteration
in original). The district court lacked the authority to disregard Jongh’s choice
to sue Lloyds, not State Farm, and assert diversity jurisdiction. See Salazar,
455 F.3d at 575. In Salazar, we held, under facts nearly identical to those here,
that a district court cannot “create removal jurisdiction based on diversity by
substituting parties.” Id. at 573.
       State Farm never properly became a defendant and therefore lacked the
authority to remove this action to federal court; moreover, the district court
lacked subject matter jurisdiction because each of the proper parties in this
action—Jongh, Lloyds, and Johnson—are Texas residents. 5
       Jongh requests that we make an award of costs and attorney’s fees in
her favor pursuant to 28 U.S.C. § 1447(c), which provides in relevant part: “An

       5 State Farm contends that, to the extent it erred in improperly removing the case to
federal court as a non-party, such error is, at worst, a “procedural defect” that Jongh waived
when she failed to move for remand within thirty days of removal. See 28 U.S.C. § 1447(c).
We disagree. State Farm’s removal of this case did not transform it into a party to the case.
Thus, even if we overlook the impropriety of State Farm removing, when we analyze the
parties to the case for diversity, we find all Texas citizens, such that we lack diversity
jurisdiction.
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                                 No. 13-20174
order remanding the case may require payment of just costs and any actual
expenses, including attorney fees, incurred as a result of the removal.” Id.
(emphasis added). An award under this section is limited “to fees and costs
incurred in federal court that would not have been incurred had the case
remained in state court.” Avitts v. Amoco Prod. Co., 111 F.3d 30, 32 (5th Cir.
1997). The costs of opposing removal, seeking remand, or other expenses
incurred as the result of the improper removal may be awarded, but not
ordinary litigation expenses that would have been incurred had the action
remained in state because such expenses are not incurred “as a result of the
removal.” 28 U.S.C. § 1447(c); see Avitts, 111 F.3d at 32. Here, Jongh did not
oppose removal or move to remand; she has also not offered any evidence that
she incurred costs or expenses as a result of State Farm’s improper removal.
Therefore, we decline to make such an award.
      Because the district court lacked subject matter jurisdiction ab initio, we
VACATE the final judgment in favor of State Farm and Johnson and
REMAND to the district court with instructions to remand to state court.

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