Filed: Nov. 06, 2013
Latest Update: Mar. 02, 2020
Summary: Case: 13-50321 Document: 00512432571 Page: 1 Date Filed: 11/06/2013 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT No. 13-50321 Summary Calendar United States Court of Appeals Fifth Circuit FILED November 6, 2013 WAYNE MICHELS; MARIE MICHELS, Lyle W. Cayce Clerk Plaintiffs–Appellants v. SAFECO INSURANCE COMPANY OF INDIANA; JASON CHRISTOPHER WOMACK, Defendants–Appellees - SAFECO INSURANCE COMPANY OF INDIANA, Plaintiff—Appellee v. WAYNE MICHELS; MARIE MICHELS, Defendants—Appellants Ap
Summary: Case: 13-50321 Document: 00512432571 Page: 1 Date Filed: 11/06/2013 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT No. 13-50321 Summary Calendar United States Court of Appeals Fifth Circuit FILED November 6, 2013 WAYNE MICHELS; MARIE MICHELS, Lyle W. Cayce Clerk Plaintiffs–Appellants v. SAFECO INSURANCE COMPANY OF INDIANA; JASON CHRISTOPHER WOMACK, Defendants–Appellees - SAFECO INSURANCE COMPANY OF INDIANA, Plaintiff—Appellee v. WAYNE MICHELS; MARIE MICHELS, Defendants—Appellants App..
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Case: 13-50321 Document: 00512432571 Page: 1 Date Filed: 11/06/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 13-50321
Summary Calendar
United States Court of Appeals
Fifth Circuit
FILED
November 6, 2013
WAYNE MICHELS; MARIE MICHELS,
Lyle W. Cayce
Clerk
Plaintiffs–Appellants
v.
SAFECO INSURANCE COMPANY OF INDIANA; JASON CHRISTOPHER
WOMACK,
Defendants–Appellees
--------------------------------------------------------------------------------------------
SAFECO INSURANCE COMPANY OF INDIANA,
Plaintiff—Appellee
v.
WAYNE MICHELS; MARIE MICHELS,
Defendants—Appellants
Appeals from the United States District Court
for the Western District of Texas
USDC No. 1:12-CV-511
Before REAVLEY, JONES, and PRADO, Circuit Judges.
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No. 13-50321
PER CURIAM:*
This case arises out of an insurance coverage dispute relating to smoke
damage to the plaintiffs’ home. The plaintiffs appeal the district court’s
dismissal of a nondiverse defendant as being improperly joined, the grant of
the remaining defendant’s motion to compel appraisal, the denial of their
motion to vacate the appraisal award, and the grant of summary judgment in
favor of defendants. We AFFIRM.
I. FACTUAL AND PROCEDURAL BACKGROUND
The home of Plaintiffs–Appellants Wayne and Marie Michels
(collectively “the Michelses”) was damaged by smoke from the September 2011
Bastrop, Texas wildfires. The Michelses filed a claim with their homeowner’s
insurance carrier, Safeco Insurance Company of Indiana (“Safeco”). Safeco
assigned an adjuster, Daniel Etzel, to investigate the damage to the house and
report his findings back to Safeco. After Etzel’s inspection found no visible
damage, Safeco hired ServPro to clean the Michelses’ home. In total, before
suit or appraisal, Safeco paid $12,005.19 to the Michelses for general cleaning
and attic insulation replacement.
Safeco adjuster Kevin Glassel was assigned to coordinate the continuing
investigation and adjustment of the Michelses’ claim. Glassel notified the
Michelses via mail that Safeco was having a man named Jason Womack come
to their home to complete an inspection. After receiving Womack’s report,
Safeco informed the Michelses that no additional payments would be made.
The Michelses sought an appraisal, and the two appraisers selected an
umpire, as outlined by the policy. Later, the Michelses rescinded their
* 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.
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appraisal demand, and Safeco then made its own demand for appraisal. When
the parties’ designated appraisers were unable to agree on an umpire, Safeco
filed suit in the district court, asking the court to appoint an umpire in
accordance with the policy. Shortly after Safeco filed its federal suit, the
Michelses filed suit in state court against Safeco and Womack for damages
exceeding $72,700. Safeco and Womack removed the Michelses’ state court
suit to the federal district court, which consolidated the two suits after
dismissing Womack and denying the Michelses’ motion to remand. The
Michelses and Jason Womack are citizens of Texas. Safeco is a citizen of
Indiana.
The district court appointed an umpire, who issued an award that was
agreed to by Safeco’s appraiser. The award set the replacement cost value of
the loss at $17,600, the recoverable depreciation at $100, and the actual cash
value of the loss at $17,500. Safeco issued payment to the Michelses in the
amount of $3,928.41—the difference between the replacement cost value and
Safeco’s prior payments and the policy deductible.
After paying the appraisal award, Safeco filed a motion for summary
judgment as to all the Michelses’ remaining claims. The Michelses filed a
response and a motion to set aside the award. The district court denied the
Michelses’ motion to set aside the appraisal award, granted Safeco’s motion for
summary judgment, and signed a final, take-nothing judgment in favor of
Safeco.
On appeal, the Michels raise four points of error. Specifically, they argue
the district court erred in: (1) finding that Womack was improperly joined and
in dismissing him; (2) granting Safeco’s Motion to Compel Appraisal; (3)
denying the Michelses’ Motion to Set Aside or Vacate Umpire Award; and (4)
granting summary judgment in favor of Safeco. We address each in turn.
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II. JURISDICTION
The Michelses seek review of a final judgment of the district court.
Accordingly, this Court has jurisdiction pursuant to 28 U.S.C. § 1291. The
district court’s jurisdiction under 28 U.S.C. § 1332 is discussed below.
III. STANDARDS OF REVIEW
This Court reviews de novo a district court’s denial of a motion to
remand. Guillory v. PPG Indus., Inc., 434 F.3d 303, 308 (5th Cir. 2005). The
party seeking to remove bears the burden of showing that federal jurisdiction
exists and that removal was proper. Manguno v. Prudential Prop. & Cas. Ins.
Co.,
276 F.3d 720, 723 (5th Cir. 2002). A trial court’s decision to “pierce the
pleadings” to determine whether a plaintiff has a reasonable basis of recovery
against a particular nondiverse defendant under state law is reviewed for an
abuse of discretion. Smallwood v. Ill. Cent. R.R. Co.,
385 F.3d 568, 573 (5th
Cir. 2004) (en banc). The district court’s dismissal is subject to de novo review.
Causey v. Sewell Cadillac–Chevrolet, Inc.
394 F.3d 285, 288 (5th Cir. 2004).
The district court’s grant of a motion for summary judgment and denial
of a motion to set aside or vacate an appraisal award as a defense to the motion
for summary judgment are subject to de novo review. See Federated Mut. Ins.
Co. v. Grapevine Excavation, Inc., 197 F.3d 720, 723 (5th Cir. 2000).
IV. DISCUSSION
The Michelses contend the district court made four errors. We address
each in turn, affirming the district court on each one.
1) Improper Joinder and Dismissal of Womack
As discussed above, the district court dismissed Womack as having been
improperly joined. 1 The district court found that there was no reasonable basis
1 The Fifth Circuit adopted the terminology “improper joinder,” Smallwood, 385 F.3d
at 571 n.1, instead of the terminology “fraudulent joinder,” which is “a term of art” used in
other circuits to describe the doctrine that ignores a lack of complete diversity where the
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of recovery against Womack because he was not a “person” engaged in the
business of insurance as defined by the Texas Insurance Code. “Because all
the claims the Michels bring against Womack are predicated on their belief he
was (1) somehow acting within the auspices of the Insurance Code, or (2) in
privity with them, when, in fact, he was neither, there is no possibility they
could recover from him under their Original Petition.” Thus, the district court
found that Womack was improperly joined and that therefore his citizenship
status would be disregarded for jurisdiction purposes. Once Womack was
dismissed from the action, complete diversity existed between the parties.
As the Michelses concede, the district court correctly stated that it first
had to examine whether the Michelses sufficiently pleaded a cause of action
under the Texas fair notice pleading standard. See Smallwood, 385 F.3d at
573. Then, the district court erred, the Michelses contend, by viewing and
considering evidence beyond the Michelses’ state court pre-removal pleading.
The Michelses submit that a motion to remand is analyzed with reference to
only the complaint. According to the Michelses, the district court erred by
looking beyond the pleadings to determine whether Womack met the definition
of a “person” engaged in the business of insurance as defined by the Texas
Insurance Code.
A district court’s improper joinder decision is subject to de novo review.
McDonal v. Abbott Labs., 408 F.3d 177, 182 (5th Cir. 2005) (citing Great Plains
Trust Co. v. Morgan Stanley Dean Witter & Co.,
313 F.3d 305, 311 (5th Cir.
2002)). “[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.” McKee v. Kan.
plaintiff joins a nondiverse defendant to avoid federal jurisdiction. E.g., Morris v. Princess
Cruises, Inc.,
236 F.3d 1061, 1067 (9th Cir. 2001).
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City S. Ry. Co., 358 F.3d 329, 333 (5th Cir. 2004) (quoting Travis v. Irby,
326
F.3d 644, 647 (5th Cir. 2003)). This Court has stated that the second way of
establishing improper joinder “stated differently means that there is no
reasonable basis for the district court to predict that the plaintiff might be able
to recover against an in-state defendant.”
Smallwood, 385 F.3d at 573.
This Court’s en banc opinion in Smallwood sets out a procedure for
determining whether a nondiverse defendant was improperly joined. First, the
court should focus on the complaint: “Ordinarily, if a plaintiff can survive a
Rule 12(b)(6) challenge, there is no improper joinder.” Id. at 573. However,
where a complaint states a claim that satisfies 12(b)(6), but has “misstated or
omitted discrete facts that would determine the propriety of joinder . . . the
district court may, in its discretion, pierce the pleadings and conduct a
summary inquiry.”
Id. (citing Badon v. RJR Nabisco, Inc.,
224 F.3d 382, 389
n.10 (5th Cir. 2000)). If a district court pierces the pleadings, and the
defendant has produced evidence supporting improper joinder, the plaintiff
must produce at least some controverting evidence.
Badon, 224 F.3d at 393
(“We agree with the district court that, considering defendants’ affidavits ‘in
light of the plaintiffs’ lack of evidence,’ there is no reasonable basis for
predicting that plaintiffs might establish liability in their conspiracy claim
against the in-state defendants.”). There must be a “reasonable possibility of
recovery” against the nondiverse defendant, “not merely a theoretical one.”
Ross v. Citifinancial, Inc.,
344 F.3d 458, 462 (5th Cir. 2003).
The district court did not abuse its discretion in looking beyond the
Michelses’ pleadings. 2 In assessing whether joinder was improper, the district
2The Michelses’ brief does not address the district court’s actions as “piercing the
pleadings.” But because the district court, in conducting a summary inquiry, looked at
evidence beyond the pleadings, we consider the court to have pierced the pleadings. The
Michelses did not reply to Safeco’s briefed argument that the district court’s consideration of
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court acted within its discretion to “pierce the pleadings” and conduct a brief
inquiry. The district entered its order that Womack was improperly joined
only thirty-two days after the Michelses moved to remand. No depositions were
taken, and Womack did not propound any new discovery.
After conducting its summary inquiry, the district court correctly
determined that the Michelses has no “reasonable basis of recovery against”
Womack. See Guillory, 434 F.3d at 311. Because, as the district court correctly
noted, the claims the Michelses brought against Womack were based on the
idea that he was acting under the Insurance Code or in privity with them, it
was critical to determine whether Womack was a “person” under the Insurance
Code such that he could be held liable. According to the Code, “‘Person’ means
an individual, corporation, association, partnership, reciprocal or
interinsurance exchange, Lloyd’s plan, fraternal benefit society, or other legal
entity engaged in the business of insurance.” Tex. Ins. Code Ann. § 541.002(2).
The Michelses seem to concede that Womack’s role as an appraiser after
they made their appraisal demand does not subject Womack to any liability.
Rather, the Michelses argue that the district court failed to acknowledge their
argument that Womack was an adjuster before he was an appraiser, and that
his role as an adjuster gives the Michelses a “reasonable basis of recovery”
against him.
The summary inquiry confirms that Womack was improperly joined.
Womack’s undisputed affidavit testimony was that he (1) was hired only to
determine the cause and extent of damages to the Michelses’ home; (2) was a
registered professional engineer in Texas at all times during the Michels
assignment; (3) did not know what coverage the policy provided and never
evidence beyond the pleadings was permitted because of the allowance for “piercing the
pleadings.”
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spoke to the Michelses about policy coverage; and (4) made no decisions with
respect to insurance coverage and at all times was acting pursuant to a
contract for professional services with Safeco. The district court also knew that
Womack was employed by Rimkus Consulting, not Safeco, and that a Safeco
adjuster, Gressel, handled the adjustment of the Michelses’ loss. Moreover,
the Safeco insurance policy specifies that the results of the appraisal process
are not an adjustment. The Michelses did not object to Womack’s affidavit or
submit controverting evidence. The Michelses relied exclusively on the
allegations within their petition.
On appeal, the Michelses state that Womack provided an adjustment of
their claim. However, the document they cite from the record is not an
adjustment. Instead, it is a letter from Safeco’s adjuster, Kevin Glassel, stating
that based on Womack’s report from his inspection of the house, Safeco had
determined that no additional payments would be made. Beyond the
Michelses’ assertion that Womack was an adjuster or de facto adjuster, there
is no evidence that he was, and substantial evidence that was not. Womack is
an engineer employed by a third-party company to inspect damaged properties.
He is not a licensed adjuster and does not provide insurance or adjusting
services. In sum, Womack was not an adjuster.
Although adjusters can be liable under Texas law, Texas courts have
held that engineers who investigate and consult with insurance companies in
the adjustment of a claim are not “persons” engaged in the business of
insurance. An independent engineering firm hired by an insurer to investigate
a claim is not “engaged in the business of insurance” under the Insurance Code.
Dagley v. Haag Eng’g Co., 18 S.W.3d 787, 793 (Tex App.—Hous. [14th Dist.]
2000, no pet.); Medistar Twelve Oaks Partners, Ltd. v. Am. Econ. Ins. Co.,
2010
WL 1996596, slip op. at *8, *10 (S.D. Tex. May 17, 2010); see also Castillo v.
Prof’l Serv. Indus. Inc.,
1999 WL 155833, slip op. at *1–2 (Tex. App.—San
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Antonio March 24, 1999, no pet.). In fact, the Insurance Code explicitly
exempts engineers from getting licensed as adjusters, despite the technical
assistance they provide to adjusters. See Tex. Ins. Code § 4101.002(3)(B).
Because the district court correctly dismissed Womack as improperly
joined, complete diversity existed between the proper parties—the Michelses
and Safeco.
2) District Court Granted Safeco’s Motion to Compel Appraisal
The district court denied the Michelses’ opposition to the Motion to
Compel Appraisal. The Michelses argue on appeal that the district court
abused its discretion by ordering the parties to appraisal. Specifically, the
Michelses contend that because Safeco breached its contract with the
Michelses with respect to adjusting the property damage claim, Safeco should
not have been permitted to invoke the benefits of the contract. The Michelses
insist that they were not seeking an order denying the appraisal process, but
instead a remedy that would “prevent[] Safeco from essentially picking and
choosing which provisions of the contract it would honor.”
Under Texas law, appraisal is an enforceable, contractually agreed upon
method of determining the amount of loss. In re Universal Underwriters of
Tex. Ins. Co., 345 S.W.3d 404, 407 (Tex. 2011); State Farm Lloyds v. Johnson,
290 S.W.3d 886, 888–89 (Tex. 2009). The district court did not order the
appraisal until after it had denied the Michelses’ motion to remand and
dismissed Womack. Every Texas court to consider the “anticipatory breach”
argument the Michelses raise has rejected it as being incompatible with the
mandatory contractual remedy and the strong public policy favoring appraisal
clauses. See, e.g., In re State Farm Lloyds, Inc.,
170 S.W.3d 629, 634–35 (Tex.
App.—El Paso 2005, no pet.); see also
Johnson, 290 S.W.3d at 894 (holding that
appraisals should go forward as a preliminary matter because “[a]llowing
litigation about the scope of appraisal before the appraisal takes place would
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mark a dramatic change in Texas insurance practice, and surely encourage
much more of the same”). Thus, the district court did not abuse its discretion
by denying the Michelses’ request to delay the appraisal.
3) District Court Denied Michelses’ Motion to Set Aside or Vacate
Umpire Award
The umpire issued what he called an “Umpire Appraisal Award” of the
total lump sum of $17,500. 3 The district court, finding that the award
substantially complied with the terms of the policy, held that there was no
basis for vacating or setting aside the umpire’s appraisal award, and thus
denied the Michelses’ motion to vacate the award.
The Michelses argue that the process by which the Umpire Appraisal
Award was reached was flawed, and that the appraisal award does not comply
with the requirements of the insurance policy. 4 As such, the Michelses assert
that the district court should have vacated the appraisal award. The
“Appraisal” section of the insurance policy reads, in full:
8. Appraisal. If you and we do not agree on the amount of the loss,
including the amount of actual cash value or replacement cost,
then, on the written demand of either, each shall select a
competent and disinterested appraiser and notify the other of the
appraiser selected within 20 days of such demand. The appraisers
shall first select a competent and disinterested umpire; and failing
for 15 days to agree upon such umpire, then, on request of you or
the company, such umpire shall be selected by a judge of a court of
record in the state in which the property covered is located. The
appraisers shall then resolve the issues surrounding the loss,
appraise the loss, stating separately the actual cash value or
replacement cost of each item, and, failing to agree, shall submit
3 The Michelses state “the umpire issued what he called a ‘Final Ruling’ on [sic] in the
total lump sum of $17,500.00 (R. 592).” However, page 592 of the record is titled “Umpire
Appraisal Award.” A search of the record does not reveal a “Final Ruling” from the umpire.
4 Specifically, the Michelses contend that the umpire failed to consider all available
information, to require the appraisers to submit their “differences only” as required by the
policy, and to assess actual costs related to the claims.
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their differences, only, to the umpire. An award in writing, so
itemized, of any two of these three, when filed with the company
shall determine the amount of loss.
Each party will:
a. pay its own appraiser; and
b. bear the other expenses of the appraisal and umpire equally.
As both the Michelses and Safeco point out, in Texas, appraisal awards
“are binding and enforceable, and every reasonable presumption will be
indulged to sustain an appraisal award.” Franco v. Slavonic Mut. Fire Ins.
Ass’n, 154 S.W.3d 777, 786 (Tex. App.—Hous. [14th Dist.] 2004, no pet.).
“Because every reasonable presumption is indulged in favor of the award, the
burden of proof is on the party seeking to avoid the award.”
Id. (citing Barnes
v. W. Alliance Ins. Co.,
844 S.W.2d 264, 267 (Tex. App.—Fort Worth, 1992, writ
dism’d by agr.)). An award made in substantial compliance with the policy is
presumptively valid; minor discrepancies in the appraisal process or award do
not invalidate the award. See Providence Lloyds Ins. Co. v. Crystal City Indep.
Sch. Dist.,
877 S.W.2d 872, 875 (Tex. App.—San Antonio 1994, no writ). The
results of an otherwise binding appraisal may be disregarded when the
appraisal award is not in compliance with the requirements of the policy.
Franco, 154 S.W.3d at 876.
The Michelses mainly complain that the appraisal award was not in
compliance because the umpire’s award was not fully itemized, as the
insurance policy required. This argument is estopped, as the district court
pointed out, because the appraiser the Michelses appointed requested that the
umpire use a non-itemized, lump sum form.
Even assuming that the Michelses’ contention about the non-compliance
of the appraisal award could be brought, the Michelses offer no citation in
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support of their position that even small variances from the appraisal process
as outlined by the insurance policy require setting aside the appraisal award.
The appraisal award substantially complied with the policy. It identified
the Actual Cash Value and Replacement Cost Value of the loss, as the policy
required. The appraisers prepared itemized estimates, met to discuss them,
and then submitted the disputes to the umpire. Further, the record before the
district court demonstrates that the umpire performed his own inspection of
the property in addition to considering the evidence and arguments of the
appraisers. 5 Because the award indicates the umpire considered the evidence
from both sides to arrive at an award and substantially complied with the
procedures outlined by the insurance policy, the district court is entitled to
uphold that award, notwithstanding the non-itemized award form.
4) District Court Granted Safeco’s Motion for Summary Judgment
After Safeco tendered the appraisal award amount to the Michelses, the
trial court granted summary judgment in favor of Safeco and entered a take
nothing judgment based on Safeco’s tender of the appraisal award amount to
the Michelses. The Michelses contend that Safeco was not entitled to summary
judgment as a matter of law. The Michelses’ claim that summary judgment
was not appropriate hangs, for the most part, on their earlier arguments,
namely that the district lacked jurisdiction because the parties were not
diverse, that the appraisal process should have been stayed pending resolution
of other contract issues, and that the appraisal award did not comply with the
insurance policy. We have affirmed, above, the district court’s disposition of
those issues.
5 The Umpire asserted the following in his signed award: “I have held a total 6 hours
of hearings on October 12, 2012, and November 19, 2012, read numerous exhibits and reports,
and inspected the property on November 2, 2012. I have twice allowed each side to
supplement the record based on my questions and requests for further information.”
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On appeal, a district court’s grant or denial of summary judgment is
reviewed de novo. Dunn–McCampell Royalty Interest, Inc. v. Nat’l Park Serv.,
630 F.3d 431, 435 (5th Cir. 2011). Summary judgment shall be rendered when
the pleadings, the discovery and disclosure materials on file, and any affidavits
show that there is no genuine dispute as to any material fact and that the
moving party is entitled to judgment as a matter of law. Fed R. Civ. P. 56(a);
Celotex Corp. v. Catrett,
477 U.S. 317, 323–25 (1986). A dispute regarding a
material fact is “genuine” if the evidence is such that a reasonable jury could
return a verdict in favor of the nonmoving party. Anderson v. Liberty Lobby,
Inc.,
477 U.S. 242, 248, (1986). When ruling on a motion for summary
judgment, the court is required to view all inferences drawn from the factual
record in the light most favorable to the nonmoving party. Matsushita Elec.
Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587 (1986).
The district court did not err in granting Safeco summary judgment. The
Michelses’ argument on the issue of summary judgment is that “once the
district court erred in finding improper joinder and overruled the Michels’
motion to remand, all subsequent rulings, including the summary judgment,
were tainted by the initial error.” The Michelses insist that, assuming
arguendo that the case was not remanded and that the breach of contract
claims were negated once Safeco paid the Michelses the balance on the
appraisal award, they should nonetheless have been entitled to continue their
state court claims. Despite this assertion, the Michelses’ brief goes on to only
restate their concern about the joinder and remand issue tainting the rest of
the court’s determination. Above, we affirmed the district court’s resolution of
those issues.
V. CONCLUSION
For the foregoing reasons, we AFFIRM the district court.
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