Jonnada v. Liberty Mutual Insurance Company

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF OKLAHOMA

SRIKANT JONNADA, )

)

Plaintiff, )

)

v. ) Case No. CIV-19-456-D

)

LIBERTY INSURANCE CORPORATION, )

and )

ENGINEERING, INC., )

)

Defendants. )

ORDER

Before the Court is Plaintiff’s Motion to Remand [Doc. No. 7], in which Plaintiff

argues that diversity jurisdiction is lacking. Defendant Liberty Insurance Corporation

(“Liberty”) has timely opposed the motion [Doc. No. 8].1 The matter is fully briefed and

at issue.

BACKGROUND

On March 21, 2019, Plaintiff filed breach of contract and bad faith claims against

Liberty Mutual Insurance Company (“Liberty Mutual”) in state court. [Doc. No. 1-2].

Liberty Mutual removed the case to this Court on May 20, 2019, based on diversity of

citizenship under 28 U.S.C. § 1332. [Doc. No. 1]. Following removal, Liberty Mutual

moved to dismiss Plaintiff’s Petition [Doc. No. 5], arguing that Liberty was the proper

defendant in this action. During the pendency of that motion, Plaintiff filed an Amended

1 Liberty has not been served with a copy of the Amended Complaint; thus, Liberty appears

for the sole purpose of responding to Plaintiff’s Motion to Remand.

Complaint [Doc. No. 6], naming Liberty and Engineering, Inc. (“Engineering”) as

defendants. Plaintiff asserts that Engineering, like Plaintiff, is a citizen of Oklahoma; thus,

the parties to the Amended Complaint lack complete diversity of citizenship. Liberty

asserts that diversity jurisdiction does exist because Engineering has been fraudulently

joined, and Plaintiff has no possibility of recovery against Engineering.

STANDARD OF REVIEW

Subject matter jurisdiction over this case turns on the doctrine of fraudulent joinder.

“To establish fraudulent joinder, the removing party must demonstrate either: 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.” Dutcher v. Matheson, 733

F.3d 980, 988 (10th Cir. 2013) (internal quotation omitted). Liberty relies on the second

basis. Liberty bears the burden to establish that its removal of Plaintiff’s case to federal

court was proper. See Huffman v. Saul Holdings Ltd. P’ship, 194 F.3d 1072, 1079 (10th

Cir. 1999).

DISCUSSION

“The defendant seeking removal bears a heavy burden of proving fraudulent joinder,

and all factual and legal issues must be resolved in favor of the plaintiff.” Dutcher, 733

F.3d at 988 (internal quotation omitted). Under the circumstances of this case, Liberty

must show there is no possibility that Plaintiff would be able to establish a cause of action

against the resident defendant, Engineering. The non-liability of the defendant alleged to

be fraudulently joined must be established with “complete certainty.” Smoot v. Chicago,

Rock Island & Pac. R.R. Co., 378 F.2d 879, 882 (10th Cir. 1967); Dodd v. Fawcett Publ’n,

Inc., 329 F.2d 82, 85 (10th Cir. 1964). “But upon specific allegations of fraudulent joinder

the court may pierce the pleadings, consider the entire record, and determine the basis of

joinder by any means available.” Smoot, 378 F.2d at 882 (internal citations omitted).

Plaintiff asserts claims of breach of contract, bad faith, negligence, and fraud against

Engineering. Plaintiff alleges that Engineering is an agent of Liberty, and that Liberty

issued Plaintiff an insurance policy in March 2013 for homeowners’ insurance coverage.

On April 4, 2017, Plaintiff allegedly discovered severe wind and hail damage to his roof

and accompanying water intrusion. Plaintiff alleges that the policy was in effect at the

time, all premiums had been paid, and all conditions precedent for coverage had been met

by Plaintiff.

Plaintiff informed Liberty of the alleged damage and requested that Liberty evaluate

Plaintiff’s losses and pay the claim. Plaintiff alleges that Liberty denied the claim without

conducting a meaningful investigation. After Plaintiff disputed the claim, Liberty retained

Engineering to investigate and evaluate the damage to Plaintiff’s home. Plaintiff alleges

that Liberty and Engineering conducted an unfair, incomplete, and inadequate

investigation, and as a result, Liberty incorrectly concluded that Plaintiff’s loss was not an

insured event.

Liberty contends that following receipt of Plaintiff’s claim, its employee inspected

the home and concluded that the roof damage was not storm-related and that the interior

damage did not exceed Plaintiff’s deductible. When Plaintiff disagreed with these

conclusions, Liberty retained a third-party consultant, Shawn Thompson with Engineering,

to re-inspect Plaintiff’s home. On May 31, 2017, Thompson issued a report, concurring

with Liberty that there was no storm damage to the home’s roof. Liberty shared

Thompson’s report with Plaintiff. On March 1, 2019, a second engineer with Engineering,

Robert Chynoweth, completed a report in which he concurred with Thompson’s prior

conclusions. On March 11, 2019, Liberty reiterated its partial denial in a letter to Plaintiff’s

counsel.

On March 21, 2019, Plaintiff sued Liberty Mutual in state court. [Doc. No. 1-2].

Plaintiff asserted claims against Liberty Mutual for breach of contract and bad faith. Id.

Plaintiff alleged that Liberty Mutual and its agents conducted an unfair and inadequate

investigation and evaluation of his claim. Id. Plaintiff did not name any other defendants

in his Petition.

On May 20, 2019, Liberty Mutual removed the action to this Court based on

diversity jurisdiction, and filed a motion to dismiss on May 28, 2019, alleging that Plaintiff

had sued the wrong entity. [Doc. Nos. 1, 5]. Liberty Mutual alleged that Liberty issued

the policy, not Liberty Mutual. Plaintiff subsequently filed an Amended Complaint,

naming Liberty and Engineering as defendants. [Doc. No. 6]. Plaintiff asserts in his

motion to remand, that upon receiving Liberty Mutual’s motion to dismiss, Plaintiff “was

forced to reevaluate his potential claims against [Liberty Mutual] and other parties,

including [Liberty].” [Doc. No. 7 at 1-2].

Liberty asserts that Plaintiff added Engineering as a defendant, following Liberty

Mutual’s removal of the case, solely to defeat diversity jurisdiction. Further, Liberty

asserts that Plaintiff has been in possession of the facts underlying his alleged claims

against Engineering for more than two years. Moreover, Liberty asserts that Plaintiff’s

claims against Engineering fail to state a claim upon which relief can be granted because

Engineering never had a contractual relationship with Plaintiff.

A. Breach of contract claim against Engineering

To establish breach of contract under Oklahoma law, Plaintiff must prove: “1)

formation of a contract; 2) breach of the contract; and 3) damages as a direct result of the

breach.” Digital Design Group, Inc. v. Info. Builders, Inc., 24 P.3d 834, 843 (Okla. 2001).

Plaintiff does not allege in his Amended Complaint that he had a contract with Engineering.

Plaintiff does assert that Liberty’s contract with Engineering “was for the primary benefit

of [Plaintiff as Liberty’s] insured.” [Doc. No. 6 at 5].

Pursuant to OKLA. STAT. tit. 15, § 29, “[a] contract, made expressly for the benefit

of a third person, may be enforced by him at any time before the parties thereto rescind it.”

“[T]he phrase ‘a contract, made expressly for the benefit of a third person[,]’ refers to a

promise made directly for the third party’s benefit.” Oil Capital Racing Ass’n, Inc. v. Tulsa

Speedway, Inc., 628 P.2d 1176, 1179 (Okla. Civ. App. 1981). “The benefit cannot be

enforced if it has to be implied from the terms of the contract or results incidentally from

its performance.” Id. “A third-party beneficiary’s rights depend upon, and are measured

by, the terms of the contract between the promissor and promisee.” May v. Mid-Century

Ins. Co., 151 P.3d 132, 141 (Okla. 2006). “One to whom, by the express terms of a

contract, no obligation is due from its promissor, cannot qualify for the status of an intended

or implied third-party beneficiary.” Id.

Plaintiff does not assert any obligation that Engineering owed him because of its

contract with Liberty. Nor does Plaintiff assert how Engineering breached its contract with

Liberty. Thus, Plaintiff has failed to state a claim against Engineering for breach of

contract.

B. Bad faith claim against Engineering

To recover on a bad faith claim against Engineering, Plaintiff would have to

establish that Engineering breached its contract. See, e.g., Sims v. Great Am. Life Ins. Co.,

207 Fed. Appx. 908, 910 (10th Cir. Dec. 5, 2006) (unpublished);2 Quail Creek Petroleum

Mgmt. Corp. v. XL Specialty Ins. Co., 129 Fed. Appx. 466, 471 (10th Cir. April 28, 2005)

(unpublished)3 (“We note that a bad-faith action is inextricably intertwined with a breach-

of-contract claim; indeed, the breach must be established as an essential element of the

bad-faith claim.”). Again, Plaintiff has not alleged that he had a contract with Engineering.

He has not alleged that Engineering owed him any obligation because of its contract with

Liberty, nor does Plaintiff assert how Engineering breached its contract with Liberty. Thus,

Plaintiff’s bad faith claim against Engineering also fails.

C. Negligence claim against Engineering

“The elements of negligence are: ‘(1) the existence of a duty on part of defendant to

protect plaintiff from injury; (2) a violation of that duty; and (3) injury proximately

resulting therefrom.’” Prince v. B.F. Ascher Co., Inc., 90 P.3d 1020, 1027 (Okla. Civ. App.

2004) (quoting Brigance v. Velvet Dove Restaurant, Inc., 725 P.2d 300, 302 (Okla. 1986)).

“The existence of a duty is an essential element of a negligence claim; without it the claim

2 Unpublished opinion cited pursuant to FED. R. APP. P. 32.1(a) and 10TH CIR. R. 32.1.

3 Unpublished opinion cited pursuant to FED. R. APP. P. 32.1(a) and 10TH CIR. R. 32.1.

must fail.” Henry v. Merck and Co., Inc., 877 F.2d 1489, 1492 (10th Cir. 1989) (citing

Oklahoma law). “Duty is clearly the threshold question in any negligence action.”

Copeland v. Admiral Pest Control Co., 933 P.2d 937, 939 (Okla. Civ. App. 1996). Duty

of care is a question of law for the Court. Id; see also Trinity Baptist Church v. Brotherhood

Mut. Ins. Serv., LLC, 341 P.3d 75, 82 (Okla. 2014). Whether a duty exists depends on the

relationship between the parties. Copeland, 933 P.2d at 939. “[T]he essential question is

whether the plaintiff’s interests are entitled to protection against the defendant’s conduct.”

Morales v. City of Okla. City ex rel. Okla. City Police Dep’t, 230 P.3d 869, 878 (Okla.

2010) (internal quotation omitted). One of the most important considerations is the

foreseeability of injury to the plaintiff. Id.

In Trinity Baptist Church, the Oklahoma Supreme Court held, as a matter of first

impression, that an independent adjustor hired by the insurance company owed no duty of

care to the insured. Trinity Baptist Church, 341 P.3d at 85-86. The court pointed out that

if the independent agent or contractor “fails to adequately perform the functions, the insurer

is liable, not under the doctrine of respondeat superior, but because of its own failure to

comply with its non-delegable duty of good faith.” Id. at 86 (internal quotation omitted).

Further, the court stated that although harm to the insured through an adjustor’s negligence

may be foreseeable, “from a policy standpoint it makes little sense to hold that the adjustor

has an independent duty when the insurer itself is subject to liability for the adjustor’s

mishandling of claims in actions alleging breach of contract and bad faith.” Id. The court

opined that the existence of a separate legal duty on the adjustor’s part would potentially

allow for double recovery because the insured could recover from the insurer and from the

adjustor for the same conduct. Id.

Although Engineering was a party to a contract with Liberty for engineering

services, Engineering had no contract with Plaintiff. Plaintiff has presented no legal

authority that would support a negligence claim against Engineering under Oklahoma law

consistent with the allegations of his pleading. Further, there is no allegation that

Engineering breached its contract with Liberty or performed the contract negligently.

Based on the record, the Court finds that Liberty has clearly shown that Plaintiff cannot

establish any negligence claim against Engineering.

D. Fraud claim against Engineering

Liberty contends that Plaintiff has failed to plead fraud with particularity as required

by FED. R. CIV. P. 9(b). Plaintiff alleges that Engineering refused to conduct a complete

and accurate investigation and, by fraud, submitted a grossly inaccurate report of the

damage to Plaintiff’s home, and that Plaintiff relied on the report to his detriment and

suffered significant damages.

Allegations of fraud are governed by the heightened pleading requirements of Rule

9(b), which provides:

In alleging fraud or mistake, a party must state with particularity the

circumstances constituting fraud or mistake. Malice, intent, knowledge, and

other conditions of a person’s mind may be alleged generally.

FED. R. CIV. P. 9(b). “At a minimum, Rule 9(b) requires that a plaintiff set forth the ‘who,

what, when, where and how’ of the alleged fraud, and must set forth the time, place, and

contents of the false representation, the identity of the party making the false statements

and the consequences thereof.” United States ex rel. Sikkenga v. Regence Bluecross

Blueshield of Utah, 472 F.3d 702, 726-727 (10th Cir. 2006) (internal quotations omitted),

abrogated on other grounds by Cochise Consultancy, Inc. v. United States ex rel. Hunt,

139 S.Ct. 1507 (2019); see Tal v. Hogan, 453 F.3d 1244, 1263 (10th Cir. 2006). To

determine if factual allegations satisfy Rule 9(b), the Court reviews only the text of the

complaint and does not consider matters outside the pleading. See Sikkenga, 472 F.3d at

726; Tal, 453 F.3d at 1263. However, a document that is central to the plaintiff’s claim

and referred to in the complaint may properly be considered. See Pace v. Swerdlow, 519

F.3d 1067, 1072 (10th Cir. 2008); Tal, 453 F.3d at 1265. The Court accepts “as true all

well-pleaded facts, as distinguished from conclusory allegations, and view[s] those facts in

the light most favorable to the non-moving party.” Sikkenga, 472 F.3d at 726.

The inadequacy of Plaintiff’s fraud claim against Engineering is obvious when

examined under the Rule 9(b) standard. It is unclear from Plaintiff’s factual allegations

whether he is alleging a false statement or an omission in Engineering’s report. Plaintiff

does not describe how the report is inaccurate, nor does Plaintiff describe the report in any

detail so as to know its contents, who made it, and where and when it was made.

Liberty also contends that Plaintiff has failed to state a claim for fraud under Rule

12(b)(6). The elements of fraud are: “(1) That defendant made a material

misrepresentation; (2) that it was false; (3) that he made it when he knew it was false, or

made it recklessly, without any knowledge of its truth and as a positive assertion; (4) that

he made it with the intention that it should be acted upon by plaintiff; (5) that plaintiff acted

in reliance upon it; and (6) that he thereby suffered injury.” State ex rel. Southwestern Bell

Tel. Co. v. Brown, 519 P.2d 491, 495 (Okla. 1974). Plaintiff broadly contends that

Engineering prepared a “grossly inaccurate report,” but never alleges any specific

misrepresentation that Engineering made, that the purported representation was material,

or that it was false. [Doc. No. 6 at 4]. Further, Plaintiff does not allege that any specific

individual with Engineering knew that a representation was false or that a specific

individual made such a representation recklessly without knowledge of its truth.

Plaintiff does not explain how he relied on the report to his detriment. Indeed,

Plaintiff’s other allegations in his Amended Complaint and the evidence of record suggests

that Plaintiff did not rely on the report from Engineering, but rather Plaintiff has disagreed

with Liberty and Engineering as to whether there was storm damage to his roof. Plaintiff

has failed to plead his fraud claim with particularity and has failed to state a claim for fraud.

CONCLUSION

For these reasons, the Court finds that Liberty’s allegation of fraudulent joinder has

been established, and the nondiverse defendant, Engineering, should be disregarded. Thus,

there is complete diversity of citizenship between the parties and subject matter jurisdiction

exists. Plaintiff’s action against Engineering will be dismissed without prejudice.4

Plaintiff’s Motion to Remand [Doc. No. 7] is DENIED. Further, Liberty Mutual is no

longer a party to this action, as Plaintiff’s Amended Complaint supersedes Plaintiff’s

4 If a defendant is fraudulently joined and is disregarded as a party, the Court has no

jurisdiction to resolve the merits of claims against him, and he must be dismissed without

prejudice. See Albert v. Smith’s Food & Drug Centers, Inc., 356 F.3d 1242, 1249 (10th Cir.

2004); see also Brereton v. Bountiful City Corp., 434 F.3d 1213, 1218 (10th Cir. 2006) (if

the district court lacks jurisdiction, it is incapable of reaching a disposition on the merits,

and dismissal must be without prejudice).

Petition and renders it of no legal effect. [Doc. No. 9]. The Court directs the Clerk to

terminate Liberty Mutual Insurance Company and Engineering, Inc., as parties to this

action.

Pursuant to FED. R. CIv. P. 4(m), Plaintiff is directed to show cause not later than

December 6, 2019, why this action should not be dismissed without prejudice as to Liberty

Insurance Corporation for failure to effect service of process within 90 days after filing the

Amended Complaint. In the absence of such a showing, this action may be dismissed

without prejudice as to Liberty Insurance Corporation without further notice to Plaintiff.

IT IS SO ORDERED this 18" day of November 2019.

Ab, QQ

ts a) :

i,

TIMOTHY D. DeGIUSTI

Chief United States District Judge

1]