Court Opinion

ID: 4572757
Source: CourtListenerOpinion
Date Created: 2020-10-03 00:00:30.121154+00
Date Added: 2024-06-11T08:47:11.659887
License: Public Domain

Case: 20-20193     Document: 00515587908         Page: 1    Date Filed: 10/02/2020

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

                                                                            FILED
                                                                      October 2, 2020
                                  No. 20-20193
                                                                       Lyle W. Cayce
                                                                            Clerk
   Perfecto Valencia,

                                                           Plaintiff—Appellant,

                                      versus

   Allstate Texas Lloyd's,

                                                           Defendant—Appellee.

                  Appeals from the United States District Court
                       for the Southern District of Texas
                            USDC No. 4:19-cv-4595

   Before Wiener, Southwick, and Duncan, Circuit Judges.
   Per Curiam:

          This interlocutory appeal stems from the district court’s denial of
   Plaintiff-Appellant Perfecto Valencia’s motion to remand. We reverse and
   remand with instruction to remand to state court.
                                  I. BACKGROUND
         Valencia, a Texas resident, filed suit against Allstate Texas Lloyd’s,
   Inc. (“Allstate Texas”), a Texas entity, in the 125th Judicial District Court
   of Harris County, Texas. Valencia alleged that Allstate Texas had issued a
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                                         No. 20-20193

   homeowner’s insurance policy to him covering real property located in
   Houston, Texas, and that the property sustained covered property damage
   in April 2015. Although the damage was reported and an insurance claim
   made, Allstate Texas allegedly failed to pay for the repairs for more than two
   years, during which time the property continued to suffer leaks that caused
   the growth of mold in the home. In October 2017, the property sustained
   further damage, the claim for which was denied in its entirety. Based on the
   foregoing factual allegations, Valencia sought damages for breach of contract
   and violations of the Texas Deceptive Trade Practices Act, the Texas
   Insurance Code, the Texas Business and Commerce Code, and the Texas
   Civil Practice and Remedies Code.
           Allstate Texas Lloyds (“Allstate Illinois”), 1 rather than Allstate
   Texas, answered the petition and removed the case to federal court on the
   basis of diversity jurisdiction under 28 U.S.C. §§ 1332(a) and 1441(b).
   Allstate Illinois alleged that it was a citizen of Illinois for jurisdictional
   purposes and that the amount in controversy exceeded $75,000.
           Valencia filed a motion to remand the matter to state court,
   contending that removal was improperly effectuated by a non-party to the
   case. Valencia explained that Allstate Illinois never claimed that it was
   misnamed or misidentified as Allstate Texas and never sought to join the case
   as a defendant, but rather unilaterally “changed the case caption without

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             This case involves two distinct business entities with remarkably similar names:
   Allstate Texas Lloyds, Inc., and Allstate Texas Lloyds. To avoid confusion, this opinion
   refers to these parties with reference to their states of citizenship for jurisdictional
   purposes. Allstate Texas Lloyds, Inc., a Texas corporation, is referred to herein as
   “Allstate Texas.” Allstate Texas Lloyds (without an “Inc.”), an unincorporated
   association of individual underwriters who are all residents of Illinois, is referred to as
   “Allstate Illinois.”

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   notifying the parties or the court” of its intention to defend the case.
   Valencia also stressed that diversity jurisdiction was lacking because the case,
   as originally filed, involved a plaintiff and a defendant with a common state
   of citizenship, viz., Texas. The motion was denied by the district court with
   little analysis. The district court subsequently denied Valencia’s motion for
   reconsideration but certified the issue for interlocutory appeal under 28
   U.S.C. § 1292(b). Valencia timely appealed.
                             II. STANDARD OF REVIEW
          Questions of subject matter jurisdiction are reviewed de novo. See
   Gasch v. Hartford Acc. & Indem. Co., 491 F.3d 278, 281 (5th Cir. 2007). “The
   burden of establishing subject matter jurisdiction in federal court rests on the
   party seeking to invoke it.” St. Paul Reinsurance Co., Ltd. v. Greenberg, 134
F.3d 1250, 1253 (5th Cir. 1998).
          Under 28 U.S.C. § 1441(a), a civil action brought in state court over
   which the federal courts have subject matter jurisdiction may be removed to
   federal court by a defendant. When, as here, the federal court’s subject
   matter jurisdiction is based on diversity of citizenship under 28 U.S.C. §
   1332, removal is inappropriate “if any of the parties in interest properly
   joined and served as defendants is a citizen of the State in which such action
   is brought.” 28 U.S.C. § 1441(b)(2). Additionally, diversity of citizenship
   must exist at the time of removal. Texas Beef Grp. v. Winfrey, 201 F.3d 680,
   686 (5th Cir. 2000). “Because removal raises significant federalism
   concerns, the removal statute is strictly construed ‘and any doubt as to the
   propriety of removal should be resolved in favor of remand.’” Gutierrez v.
   Flores, 543 F.3d 248, 251 (5th Cir. 2008) (quoting In re Hot–Hed, Inc., 477
F.3d 320, 323 (5th Cir. 2007)).

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                                     III. ANALYSIS
          Valencia contends that the district court lacked subject matter
   jurisdiction because (1) Allstate Illinois was not a party to the case and
   therefore lacked authority to remove it to federal court, and (2) the actual
   parties—Valencia and Allstate Texas—are both Texas citizens. In contrast,
   Allstate Illinois maintains that it had authority to remove the case to federal
   court because it was a proper party in interest but had merely been misnamed
   or misidentified as Allstate Texas in Valencia’s petition.
          The operative question is whether Allstate Illinois had the authority
   to remove this case to federal court. It did not: The law is clear that a case
   filed in state court may be removed to federal court only by “the defendant
   or the defendants.” 28 U.S.C. § 1441(a). A non-party, even one that claims
   to be the proper party in interest, is not a defendant and accordingly lacks the
   authority to remove a case. 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.”); F.D.I.C. v. Loyd, 955 F.2d 316, 326 (5th Cir. 1992)
   (“Common sense and the practicalities of pleading dictate that no non-party
   to a state court proceeding has a mature right to remove that proceeding to
   federal court.”); Hous. Auth. of City of Atlanta, Ga. v. Millwood, 472 F.2d 268,
   272 (5th Cir. 1973) (holding that district court lacked subject matter
   jurisdiction over a matter removed by a non-party).
          At the time of removal, the only defendant in the case was Allstate
   Texas. Allstate Illinois never sought to intervene in the case or to be joined
   as a defendant. Neither did Allstate Texas ever contend that it had been
   erroneously named in the matter. As a non-party, Allstate Illinois did not

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   have the right to remove the case to federal court; diversity jurisdiction
   cannot be premised on its actions.
          This is not the first time this court has addressed whether diversity
   jurisdiction can be created by the substitution of parties. In Salazar v. Allstate
   Texas Lloyd’s, Inc., a Texas resident filed suit against Allstate Texas Lloyd’s,
   Inc. 455 F.3d at 572. Despite sharing a state of citizenship with the plaintiff,
   Allstate Texas Lloyd’s, Inc., removed to federal court on the basis of
   diversity jurisdiction, claiming that the proper party in interest was Allstate
   Texas Lloyds (without an “Inc.”), an Illinois citizen. Id. In federal court,
   Allstate Texas Lloyd’s, Inc., filed motions to join Allstate Texas Lloyds as a
   defendant and dismiss the claims against Allstate Texas Lloyds, Inc. The
   district court granted these motions, leaving Allstate Texas Lloyds as the sole
   defendant in the case. Id.
           On appeal, this court held that the district court lacked subject matter
   jurisdiction because “the suit, as removed, was between two nondiverse
   parties,” id. at 575, and because a district court cannot “create removal
   jurisdiction based on diversity by substituting parties,” id. at 573. The district
   court thus erred in dismissing the originally-named Allstate Texas Lloyd’s,
   Inc., “a nondiverse in-state defendant[,] and replacing it with a diverse
   foreign defendant, where the nondiverse in-state defendant was the only
   named defendant in the action when the suit was removed.” Id. at 573.
           Although unpublished, our decision in De Jongh v. State Farm Lloyds
   is even more on point. 2 In De Jongh, the plaintiff sued the non-diverse State
   Farm Lloyds, Inc., but State Farm Lloyds (without an “Inc.”) answered the

          2
              Allstate Illinois makes no attempt to distinguish De Jongh and instead merely
   stresses that the case is unpublished and non-precedential.

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                                     No. 20-20193

   complaint, alleging that it had been incorrectly named as State Farm Lloyds,
   Inc., and removed the matter to federal court. 555 F. App'x 435, 436 (5th Cir.
   2014). The plaintiff never sought remand but appealed the final judgment on
   the grounds that the district court lacked subject matter jurisdiction. Id.
   Recognizing that a plaintiff is “the master of [her] complaint,” this court held
   that State Farm Lloyds lacked the authority to remove the case because it
   never sought to intervene or otherwise be substituted as the defendant and
   that the district court was not authorized to disregard plaintiff’s decision to
   sue State Farm Lloyds, Inc. rather than State Farm Lloyds. Id. at 437
   (alteration in original) (quoting Elam v. Kansas City S. Ry. Co., 635 F.3d 796,
   803 (5th Cir. 2011)). Because State Farm Lloyds lacked removal authority
   and the proper parties to the action were all Texas residents, this court
   remanded the matter to the district court with instructions to remand to state
   court for lack of subject matter jurisdiction. Id. at 439.
          To avoid the same conclusion here, Allstate Illinois argues that it was
   a proper party to the action as originally filed because it had been misnamed
   or alternatively misidentified as Allstate Texas in Valencia’s state court
   petition. Specifically, Allstate Illinois contends that it issued the policy and
   adjusted and investigated Valencia’s claim.
          These arguments are unavailing. A misnomer exists when a plaintiff
   sues the correct entity under a mistaken name; a misidentification “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.” See Chilkewitz v.
   Hyson, 22 S.W.3d 825, 828 (Tex. 1999). Here, Valencia named Allstate
   Texas in his petition and served Allstate Texas through its registered agent
   as confirmed by the Texas Secretary of State’s records. It is Allstate Texas,
   not Allstate Illinois, that Valencia maintains he intended to sue and from
   which to seek recovery. A misnomer does not exist under these facts.

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   Moreover, even if Valencia had misidentified Allstate Texas Lloyds, Inc., such
   misidentification would not justify Allstate Illinois’ unilateral action in this
   case. There are circumstances in which a misidentification may be
   overlooked, e.g., when “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. at 830. But such circumstances
   concern questions about the statute of limitations that are not relevant here. 3
   More importantly, Valencia vigorously disputes the assertion that he meant
   to sue Allstate Illinois. As the “master of his complaint,” Elam, 635 F.3d at
   803, Valencia was free to craft his lawsuit in a manner that avoids federal
   jurisdiction and to live with the consequences of that decision.
            Allstate Illinois was not a defendant in this case as originally filed and
   did not become a defendant through proper means. It therefore lacked the
   authority to remove the suit to federal court. Neither did the district court
   have subject matter jurisdiction over the case when it denied Valencia’s
   motion to remand because the only parties to the case at the time of
   removal—Valencia and Allstate Texas Lloyds, Inc.—were both Texas
   residents.
            We REVERSE the denial of Valencia’s motion to remand and
   REMAND this action to the district court with instruction to remand to state
   court.

            3
            Allegations of misnomers and misidentifications typically arise in the context of
   the statute of limitations because a misnomer tolls the statute of limitations while a
   misidentification generally does not. See Chilkewitz, 22 S.W.3d at 830.

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