February 27, 2018

This past week, the United States District Court for the Western District of Texas addressed the jurisdictional issue of diversity when a plaintiff joined a non-diverse adjuster as a defendant in Nelson v. State Farm Lloyds, Case. No. A-17-CA-962-SS, 2018 WL 992049 (W.D. Tex. Feb. 20, 2018) (slip op.).  The suit arose out of alleged damage caused to Plaintiff Melvin Nelson’s Leander, Texas home on April 20, 2016. Nelson filed a claim with his insurer, State Farm Lloyds, who assigned defendant Shane Fordham to adjust the claim. After adjustment, Nelson proceeded to file suit in state court alleging Fordham violated Texas Insurance Code Section 541.060 by improperly evaluating the property and failing to include the true cost of repair in the adjustment. Nelson further alleged State Farm failed to review the adjustment and improperly denied coverage thereby breaching the insurance contract, breaching the duty of good faith and fair dealing and violating multiple sections of the Texas Insurance Code. State Farm removed the case to Federal court on the basis of diversity jurisdiction and alleged Fordham was improperly joined as there was no reasonable basis for recovery against him. Nelson subsequently filed a motion to remove the case back to state court.

Under 28 U.S.C. § 1332(a) Federal Courts have diversity jurisdiction over civil actions between citizens of different states when the amount in controversy exceeds $75,000.00. This section requires “complete diversity” of the parties meaning citizenship of every plaintiff must be different from that of every defendant. However, the parties must be real and substantial parties to the controversy and the court must disregard nominal or formal parties for jurisdiction, relying on the citizenship of the real parties to the controversy.

The primary issue addressed was whether Fordham was properly joined; if not, the Court would possess subject matter jurisdiction. In considering whether joinder was proper, the Court applied a 12(b)(6) analysis—the same analysis applied in considering a motion to dismiss in which the court accepts as true all factual allegations in the complaint. Applying the analysis to the insured’s allegations against Fordham, the Court determined Fordham was properly joined. The court noted that insurance adjusters may be liable for Texas Insurance Code violations and the insured’s allegations that  Fordham conducted substandard investigations, misrepresented the size of the roof, failed to include the true cost to repair interior damage, among others in violation of Insurance Code § 541.060, stated a plausible claim for relief. Accordingly, Fordham, a Texas citizen, was properly joined and diversity jurisdiction was destroyed which required the Court to remand the case to the Texas State Court.