Court Opinion

ID: 5135642
Source: CourtListenerOpinion
Date Created: 2021-12-16 19:00:44.518398+00
Date Added: 2024-06-11T08:23:50.267190
License: Public Domain

Case: 21-10108     Document: 00516134030        Page: 1    Date Filed: 12/16/2021

           United States Court of Appeals
                for the Fifth Circuit
                                                                    United States Court of Appeals
                                                                             Fifth Circuit

                                                                           FILED
                                                                   December 16, 2021
                                 No. 21-10108                         Lyle W. Cayce
                                                                           Clerk

   Mark A. Ticer, doing business as Law Office of Mark A. Ticer,

                                                          Plaintiff—Appellant,

                                     versus

   Imperium Insurance Company, Ironshore Indemnity
   Incorporated

                                                       Defendants—Appellees.

                  Appeal from the United States District Court
                      for the Northern District of Texas
                            USDC No. 3:19-CV-481

   Before Higginbotham, Stewart, and Wilson, Circuit Judges.
   Patrick E. Higginbotham, Circuit Judge:
         This case addresses whether a non-diverse defendant, Imperium
   Insurance Company (Imperium), was improperly joined in an insurance
   coverage dispute. The district court properly considered the Imperium
   insurance policy in a summary inquiry. Because there is no reasonable cause
   of action against Imperium, we affirm the district court. However, the Law
   Office of Mark A. Ticer’s (Ticer) claims against Imperium should not have
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                                           No. 21-10108

   been dismissed with prejudice. 1 We vacate the district court’s dismissal and
   remand for dismissal without prejudice.
                                                 I.
           The convoluted procedural history of this case must be detangled to
   understand this appeal. To begin, the Law Office of Mark A. Ticer was sued
   twice by its former clients, Kenneth L. Reed, Reed Migraine Centers of
   Texas, PLLC and Neuro Stim Technologies, LLC. The first lawsuit was in
   2014; the second one was in 2018. Both suits stem from the same underlying
   fee dispute.
           In 2018, Ticer sued Ironshore Indemnity, Inc. (Ironshore), an
   insurance company, in Texas state court for defense and breach of contract
   regarding the second Reed suit. Ironshore is a Minnesota corporation with its
   principal place of business in New York. Ironshore subsequently removed the
   suit to federal court. The suit was dismissed for Ticer’s failure to pursue
   mediation before filing suit as required by the insurance policy.
           Then, in 2019, Ticer again sued Ironshore in Texas state court
   regarding the same insurance coverage dispute and demanded defense and
   indemnity for the fee dispute allegations. This time, Ticer also sued
   Imperium, a Texas-based insurance company, for failing to defend and
   indemnify it in the 2018 lawsuit. Ironshore again removed the lawsuit to
   federal court, alleging that Imperium was improperly joined and the federal
   court therefore properly had diversity jurisdiction. 2 Ticer timely filed for
   remand to state court, asserting that there was no misjoinder. After briefing

           1
             While Appellant in his briefing refers to his firm as “LOMAT,” throughout all of
   its various orders, the district court has used “Ticer.” We will continue to refer to “Ticer”
   in our opinion.
           2
               The amount in controversy has never been at issue in this case.

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   on this issue, Ironshore sought leave to file a copy of the Imperium Insurance
   Policy. The district court granted Ironshore leave to file the Imperium policy
   and to rebrief its response to Ticer’s motion for remand. On January 15,
   2020, the district court denied Ticer’s motion for remand, concluding that
   Ticer had procedurally misjoined Imperium. 3 The district court severed
   Ticer’s claims against Imperium and remanded them back to state court.
           In response, Ticer filed an expedited motion for reconsideration,
   arguing that there was no procedural misjoinder and that the district court
   erred in relying on an improper joinder analysis. The district court granted
   Ticer’s motion in part and vacated its denial of Ticer’s motion to remand.
   The district court then concluded that although its prior order had rested on
   procedural misjoinder, the proper ground for deciding improper joinder in
   this case was “fraudulent joinder.” 4 As such, the district court determined
   that it was necessary to “pierce the pleadings and conduct a summary
   inquiry.” The district court requested that the parties provide a joint report
   detailing discovery needed.
           In response, Ticer objected to the district court’s new order and
   opinion, arguing that any summary inquiry on the Imperium insurance policy
   would amount to pre-trying the merits of the case. 5 Ticer again objected to
   summary inquiry in the joint status report. On November 23, 2020, the
   district court ordered an exchange of documents identified by Ironshore and

           3
              The district court held, “Ticer’s alleged right to relief against Ironshore and
   alleged right to relief against Imperium do not – as Texas requires for proper joinder – arise
   out of the same transaction, occurrence, or series of transactions or occurrences.”
           4
               Fraudulent joinder is typically referred to as improper joinder in this circuit.
           5
            Ticer followed this objection with an appeal to this Court. We denied his appeal
   for want of appellate jurisdiction.

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   Imperium in the joint status report, including the 2017 Imperium insurance
   policy.
             On February 4, 2021, the district court issued its order without a
   hearing, denying Ticer’s motion to strike and motion for remand. The
   district court found that due to an exclusion in the Imperium policy, Ticer’s
   claims against Imperium were barred and Ticer would not be able to establish
   a cause of action against Imperium in state court. The district court dismissed
   Ticer’s claims against Imperium with prejudice. Ticer timely appealed to this
   Court.
                                               II.
             “We review de novo the district court’s ‘determination that a party is
   improperly joined and [its] denial of a motion for remand.’” 6
                                              III.
             It is undisputed that Ticer and Imperium are not diverse, while Ticer
   and Ironshore are diverse. Therefore, removal jurisdiction is only proper if
   Imperium was improperly joined to the suit. 28 U.S.C. § 1441(a) authorizes
   the removal of “any civil action brought in a State court of which the district
   courts of the United States have original jurisdiction,” but subsection (b)
   specifies that suits not arising under federal law are removable “only if none
   of the parties in interest properly joined and served as defendants is a citizen
   of the State in which such action is brought.” 7 Removal statutes “are to be

             6
            Davidson v. Georgia-Pacific, LLC,819 F.3d 758, 765 (5th Cir. 2016) (quoting Kling
   Realty Co. v. Chevron USA, Inc., 575 F.3d 510, 513 (5th Cir. 2009)).
             7
           Smallwood v. Ill. Cent. R. Co., 385 F.3d 568, 572 (5th Cir. 2004) (en banc) (quoting
   28 U.S.C § 1441(b)) (emphasis in original).

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   construed strictly against removal and for remand” to state court. 8 The
   “focus of the inquiry must be on the joinder, not the merits of the plaintiff’s
   case.” 9 The burden of proving that complete diversity exists rests on the
   party invoking the court’s diversity jurisdiction; the defendant thus has the
   “heavy burden” of establishing that removal was proper. 10 Here, the burden
   is on Ironshore.
             This case concerns two potential types of misjoinder: procedural
   misjoinder and improper joinder. Procedural misjoinder is the joining of two
   or more defendants or plaintiffs or claims in a lawsuit where there is no
   common transaction, occurrence, or series of transactions or occurrences
   and no question of law or fact common to all of them that will arise in the
   lawsuit which was removed. 11 Improper joinder can be established in two
   ways: “(1) actual fraud in the pleading of jurisdictional facts, or (2) inability
   of the plaintiff to establish a cause of action against the non-diverse party in
   state court.” 12 Only the latter is at issue here. We first ask whether it was
   improper for the district court to consider improper joinder and whether the

             8
             Hicks, 12 F.4th at 515 (quoting Eastus v. Blue Bell Creameries, L.P., 97 F.3d 100,
   106 (5th Cir. 1996)).
             9
            Id. (quoting Smallwood, 385 F.3d at 573); see also McDonal v. Abbott Labs, 408 F.3d
   177, 183–84 (5th Cir. 2005).
             10
            Getty Oil Corp. v. Insurance Co. of N. Am., 841 F.2d 1254, 1259 (5th Cir. 1988);
   Smallwood, 385 F.3d at 574.
             11
               This circuit has recently declined to adopt procedural misjoinder (also called
   fraudulent misjoinder) as adopted by the Eleventh Circuit in Tapscott. Williams v. Homeland
   Ins. Co. of New York, No. 20-30196, 2021 WL 5577020, at *6 (5th Cir. Nov. 30, 2021); see
   Tapscott v. MS Dealer Serv. Corp., 77 F.3d 1353, 1360 (11th Cir. 1996), abrogated on other
   grounds, Cohen v. Office Depot, Inc., 204 F.3d 1069 (11th Cir. 2000).
             12
                  Smallwood, 385 F.3d at 573 (quoting Travis v. Irby, 326 F.3d 644, 646–47 (5th Cir.
   2003)).

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   district court abused its discretion in holding a summary inquiry and then
   turn to the district court’s finding that Imperium was improperly joined.
                                                  A.
           Ticer contends that the district court abused its discretion in finding
   improper rather than procedural misjoinder. However, this Court has
   foreclosed procedural misjoinder. “Our court has gone en banc twice on
   precisely what is needed to remove a case from state to federal court on the
   basis of diversity jurisdiction notwithstanding a lack of complete diversity
   between the parties. . . . Our case law emphasizes substantive viability—not
   procedural questions like party joinder.” 13 And 28 U.S.C. §1446(a) requires
   that the notice of removal provide a “short and plain statement of the
   grounds for removal,” which “shall be so construed as to do substantial
   justice.” 14 Generally, a defendant must adequately inform the plaintiff of the
   grounds for removal, but a “detailed grounds setting forth basis for removal”
   is not necessary. 15 Ironshore raised both procedural misjoinder and improper
   joinder in its notice of removal. Ironshore cited Delphis, L.P. v. NFLP
   Holdings, Ltd., which addressed both procedural misjoinder and improper
   joinder. 16 This was sufficient notice that it was alleging both procedural
   misjoinder and improper joinder. The district court did not abuse its
   discretion in reviewing the notice of removal for improper joinder.
           Although it was unusual for the district court to first rule on
   procedural misjoinder then substitute that finding with one based on

           13
                Williams, 2021 WL 5577020, at *7.
           14
                Rachel v. Georgia, 342 F.2d 336, 340 (5th Cir. 1965); see also FED. R. CIV. P. 8(e).
           15
             Rachel, 342 F.2d at 340; see Grynberg Production Corp. v. British Gas, P.L.C., 817
   F. Supp. 1338, 1354 (E.D. Tex. 1993).
           16
                No. 3:10-cv-01583-F, 2010 WL 11561744, at *2–3 (N.D. Tex. Nov. 5, 2010).

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   improper joinder, the district court did not err in doing so. It was Ticer who
   requested that the district court vacate its initial January 15, 2020 order.
   Upon receiving Ticer’s motion, the district court did just that, noting that it
   had applied the procedural misjoinder standard and that the correct standard
   was improper joinder. Throughout these proceedings, Imperium remained in
   federal court, and the district court continued to have jurisdiction. 17 The
   district court did not abuse its discretion in reconsidering the issue of
   misjoinder after vacating its initial order. 18
                                                  B.
           Having determined that it was proper for the district court to consider
   improper joinder, we next consider whether the district court abused its
   discretion in holding a summary inquiry.
           Improper joinder occurs when a plaintiff is unable “to establish a
   cause of action against the non-diverse party in state court.” 19 The test is
   whether there is “no possibility of recovery by the plaintiff against an in-state
   defendant” or “no reasonable basis for [predicting recovery] against an in-
   state defendant.” 20 To determine if there was improper joinder, the district
   court may conduct a Rule 12(b)(6)-type analysis, “looking initially at the
   allegations of the complaint to determine whether the complaint states a
   claim under state law against the in-state defendant. Ordinarily, if a plaintiff

           17
                See Bronson v. Schulten, 104 U.S. 410, 415 (1881).
           18
              “Contrary to Plaintiff’s protestations, the Court has properly had jurisdiction
   over all Plaintiff’s claims ever since the Court vacated its earlier order. The Fifth Circuit
   recognized as much by dismissing Plaintiff’s appeal for lack of jurisdiction.”
           19
                Smallwood, 385 F.3d at 572 (quoting Travis, 326 F.3d at 646–47).
           20
                Id. at 573 (quoting Travis, 326 F.3d at 646–47).

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   can survive a Rule 12(b)(6) challenge, there is no improper joinder.” 21
   However, this is not the only way to establish improper joinder. The leading
   case in this circuit, Smallwood, “indicated that in a relatively small number of
   cases, the plaintiff has stated a claim, but has misstated or omitted discrete
   facts that would determine the propriety of joinder. In such cases, the district
   court may, in its discretion, pierce the pleadings and conduct a summary
   inquiry.” 22 However, a summary inquiry “is appropriate only to identify the
   presence of discrete and undisputed facts that would preclude plaintiff's
   recovery against the in-state defendant.” 23
          Here, the district court pierced the pleadings and examined
   Imperium’s insurance policy, submitted by Imperium and Ironshore. As
   Ticer had not included the Imperium insurance policy in its pleadings, the
   district court was unable to consider the policy in a 12(b)(6) analysis.
   However, in a summary inquiry, the district court may consider additional
   evidence to determine whether the plaintiff “truly has a reasonable
   possibility of recovery in state court.” 24 We have cautioned that “any
   piercing of the pleadings should not entail substantial hearings” and that any
   discovery by the parties should be kept on a “tight judicial tether, sharply
   tailored to the question at hand, and only after a showing of its necessity.” 25
   Here, Ironshore and Imperium made the district court aware of the insurance
   policy. As the insurance policy is consistent with the types of evidence that
   courts have considered when conducting a summary inquiry, the district

          21
               Id.
          22
               Hicks, 12 F.4th at 515 (citing Smallwood, 385 F.3d at 573).
          23
               Smallwood, 385 F.3d at 573–74.
          24
               Gray ex rel. Rudd v. Beverly Enters.-Miss., Inc., 390 F.3d 400, 405 (5th Cir. 2004).
          25
               Smallwood, 985 F.3d at 574.

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   court did not abuse its discretion in deciding to pierce the pleadings and
   conduct a summary inquiry in order to analyze the relevance and meaning of
   the insurance policy. 26
                                                    C.
            Having determined that holding a summary inquiry was not an abuse
   of discretion, we next review the district court’s interpretation of the
   insurance policy. A summary inquiry by the district court must be a
   “summary process” decided “by a simple and quick exposure of the chances
   of the claim against the in-state defendant alleged to be improperly joined.” 27
   Here the district court analyzed only the insurance policy at issue and
   properly concluded that Ticer could not establish any cause of action against
   Imperium in state court and denied the motion for remand.
            Texas follows the eight corners rule in determining if an insurer has a
   duty to defend. 28 “Under that rule, courts look to the facts alleged within the
   four corners of the pleadings, measure them against the language within the
   four corners of the insurance policy, and determine if the facts alleged present
   a matter that could potentially be covered by the insurance policy.” 29 The
   insured party has the initial burden to establish coverage under the policy; if

            26
               See Alviar v. Lillard, 854 F.3d 286, 291 n.2 (5th Cir. 2017) (an email in which the
   plaintiff admitted to work-performance issues); Kemp v. CTL Distribution, 440 F. App’x.
   240, 245 (5th Cir. 2011) (per curiam) (a passage from a CTL driver orientation manual);
   see also Hicks, 12 F.4th at 516 (holding that evidence developed during merits discovery is
   too far afield to consider).
            27
                 Smallwood, 385 F.3d at 574.
            28
                 Gore Design Completions, Ltd. v. Hartford Fire Ins. Co., 538 F.3d 365, 368 (5th Cir.
   2008).
            29
                 Ewing Const. Co. v. Amerisure Ins. Co., 420 S.W.3d 30, 33 (Tex. 2014).

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   it does so, the burden shifts to the insurer to prove that a policy exclusion
   applies. 30
            The interpretation of an insurance policy, in the absence of any
   ambiguity, is a question of law for the court to determine. 31 “Insurance
   policies are generally controlled by the rules of construction and
   interpretation applicable to contracts.” 32 All parts of the policy are read
   together to ascertain the true intent of the parties. 33 Like other contracts, an
   insurance policy is unambiguous if it can be given a “definite or certain legal
   meaning.” 34 If the policy, including any exclusion, is unambiguous it will be
   given its plain meaning. 35 A policy is not ambiguous just because the parties
   offer different interpretations of the contract; “[a] contract is ambiguous
   only if it is subject to two or more reasonable interpretations after applying
   the pertinent canons of construction.” 36 However, if it is unambiguous, it
   “must be strictly construed in favor of the insured to avoid the exclusion.” 37
            Here, the insurance policy included an Incident Exclusion which
   states that the “policy does not apply to any claim arising out of the facts and
   circumstances of the following incident: . . . Reed Migraine Centers of

            30
                 Id.
            31
                 Am. Int’l Specialty Lines Ins. Co. v. Rentech Steel, LLC, 620 F.3d 558, 562 (5th Cir.
   2010).
            32
                 Lincoln Gen. Ins. Co. v. Aisha’s Learning Ctr., 468 F.3d 857, 858 (5th Cir. 2006).
            33
                 Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994).
            34
             WBCMT 2007 C33 OFFICE 9720, L.L.C. v. NNN Realty Advisors, Inc., 844 F.3d
   473, 478 (5th Cir. 2016) (quoting McLane Foodservice, Inc. v. Table Rock Restaurants, L.L.C.,
   736 F.3d 375, 377 (5th Cir. 2013)).
            35
                 McLane Foodservice, 736 F.3d at 377.
            36
                 Id. at 377–78.
            37
                 Lincoln Gen. Ins. Co., 468 F.3d at 859.

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   Texas.” Ticer’s arguments that this exclusion is ambiguous are spurious.
   There is no reasonable interpretation of the language in this policy exclusion
   that would provide coverage for Ticer’s underlying suits with his clients.
          Ticer is seeking defense and indemnity from Imperium for the Reed
   Parties’ claims against it. It is undisputed that these claims arise out of
   Ticer’s 2014 lawsuit against them to collect attorney’s fees. Ticer
   acknowledged that the second lawsuit in 2018 for insurance coverage was
   related to the first suit with the “same or similar facts, matter, parties, claims,
   causes of action, issues, transactions and occurrences made the basis of the
   [2014] lawsuit.”
          Ticer’s argument fails for three reasons. First, the Imperium policy’s
   insuring agreement only covers “claims first made against the insured during
   the policy period.” The 2014 suit against Ticer was made before the
   Imperium policy began in 2015. As Ticer has explained that the 2014 Reed
   suit is “directly related and connected to” the 2018 Reed suit for which he
   seeks defense and indemnity from Imperium, the 2018 allegations against
   him were not first made against him during the policy period.
          Second, the Imperium policy’s incident exclusion states that the
   policy does not apply to “any claim arising out of the facts or circumstances
   of the following incident: Reed Migraine Centers of Texas.” Ticer argues
   that this exclusion is ambiguous because the “incident” referenced in the
   exclusion is an entity named “Reed Migraine Centers of Texas,” while the
   parties who sued him in 2018 are Neuro Stim Technologies LLC and Reed
   Migraine Center of Texas, PLLC. However, the policy uses the word
   “incident” rather than “suit” or “parties”—nothing requires that all of the
   parties associated with an incident be listed for coverage to be precluded.
   Incident is not defined in the insurance policy, therefore we look to the
   word’s plain meaning. “Incident” is defined by Merriam-Webster as “an

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   occurrence of an action or situation that is a separate unit of experience” or
   a “happening.” 38 The incident, or happening, is broader than any one suit;
   the incident is the underlying fee dispute between the Reed parties and Ticer.
           Finally, the Imperium policy states that it does not apply to “any claim
   arising out of any wrongful act occurring prior to the effective date of this
   policy if: 1. the matter had previously been reported to any insurance
   company.” Ticer’s 2015 application for insurance noted that a claim brought
   by Dr. Kenneth Reed, Neuro-Stim Technologies and Reed Migraine Centers
   of TX PLLC in September 2014 was pending. In light of Ticer’s admissions
   that the 2014 and 2018 actions by the Reed Parties are the same, the incident
   exclusion applies to the 2018 lawsuit. Furthermore, Ticer has provided no
   evidence that there is a different Imperium insurance policy that the court
   should be considering.
           The Imperium policy is unambiguous: the policy does not provide
   coverage for suits arising from the underlying fee dispute with the Reed
   parties. Therefore, Ticer has no plausible claim against Imperium for a failure
   to defend and indemnify it in the second Reed lawsuit. Where there is no
   plausible state cause of action against the joined defendant, joinder is
   improper. 39 The district court was correct to hold that Imperium was
   improperly joined and to deny Ticer’s motion for remand.

           38
            “Incident,”     Merriam-Webster         Dictionary,        https://www.merriam-
   webster.com/dictionary/incident (last visited Nov. 18, 2021).
           39
             McDonal, 408 F.3d at 183 (“If no reasonable basis of recovery exists, a conclusion
   can be drawn that the plaintiff’s decision to join the local defendant was indeed
   fraudulent.”); Guillory v. PPG Indus., Inc., 434 F.3d 303, 308–09 (5th Cir. 2005) (“We do
   not determine whether the plaintiff will actually or even probably prevail on the merits of
   the claim, but look only for a possibility that the plaintiff might do so.”); Smallwood, 385
   F.3d at 573.

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                                              IV.
           “In considering whether a nondiverse party was improperly joined
   under Smallwood, the court is only considering jurisdiction.” 40 After holding
   that Imperium had been improperly joined, the district court dismissed
   Ticer’s claims against Imperium with prejudice. When a district court
   “determines that a nondiverse party has been improperly joined to defeat
   diversity, that party must be dismissed without prejudice.” 41 Thus, the
   dismissal of Ticer’s claims against Imperium should have been without
   prejudice.
                                              V.
           We AFFIRM the district court’s determination that Imperium was
   improperly joined and its denial of the motion for remand. We VACATE
   the district court’s dismissal with prejudice and REMAND for dismissal
   without prejudice.

           40
             Int’l Energy Ventures, 818 F.3d at 210 (“[T]he Smallwood inquiry—including its
   Rule 12(b)(6)-type analysis—is used to resolve the issue of jurisdiction, not merits.”);
   United States v. Ruiz, 536 U.S. 622, 627 (2005).
           41
              Probasco v. Wal-Mart Stores Texas, L.L.C., 766 F. App’x. 34, 36 (5th Cir. 2019),
   reh’g. denied (Apr. 24, 2019) (quoting Int’ Energy Ventures, 818 F.3d at 209) (emphasis in
   the original).

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