Oliver v. State Farm Fire and Casualty Company

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF OKLAHOMA

JAMES PATRICK OLIVER and )

AMANDA OLIVER, )

)

Plaintiffs, )

)

v. ) Case No. CIV-24-789-SLP

)

STATE FARM FIRE AND CASUALTY ) (District Court of Oklahoma

COMPANY; TIM CUSTER INSURANCE ) County, Case No. CJ-2024-3861)

AGENCY, INC. and TIM CUSTER, )

)

Defendants. )

O R D E R

Before the Court is Plaintiffs’ Motion to Remand [Doc. No. 9]. Defendant State

Farm Fire and Casualty Company (State Farm) has filed a Response [Doc. No. 10] and

Plaintiffs have filed a Reply [Doc. No. 11].1 The matter is at issue. For the reasons that

follow, Plaintiffs’ Motion is GRANTED.

I. Introduction

This action, arises out of State Farm’s denial of an insurance claim for wind and/or

hail damage to Plaintiffs’ roof during a storm. Plaintiffs purchased the policy of insurance

covering the claim through State Farm’s agents, Defendants Tim Custer and Tim Custer

Insurance Agency, Inc. (collectively the Custers).

Plaintiffs filed this action in the District Court of Oklahoma County, State of

Oklahoma. State Farm removed the action on the basis of diversity jurisdiction under 28

1 Citations to the parties’ briefing submissions reference the Court’s ECF pagination.

U.S.C. § 1332. State Farm acknowledges that the Custers are non-diverse defendants, see

Notice of Removal [Doc. No. 1], ¶ 5, but contends the Custers have been fraudulently

joined in this action. Plaintiffs contest State Farm’s assertion of fraudulent joinder and

move to remand the action to state court.

II. Governing Standard

Federal courts are courts of limited jurisdiction, and the party seeking to invoke

federal jurisdiction bears the burden of proving the exercise of such jurisdiction is proper.

Becker v. Ute Indian Tribe of the Uintah and Ouray Reservation, 770 F.3d 944, 946-47

(10th Cir. 2014). A defendant may remove a civil action from state court to federal court

when the federal court has original jurisdiction over the action. 28 U.S.C. § 1441(a).

Original jurisdiction based on diversity exists where no plaintiff and no defendant are

citizens of the same state and the amount in controversy exceeds $75,000 (exclusive of

interest and costs). See 28 U.S.C. §§ 1332(a), 1441(b)(1); Middleton v. Stephenson, 749

F.3d 1197, 1200 (10th Cir. 2014).

If a plaintiff joins a nondiverse party fraudulently to defeat federal jurisdiction under

§ 1332, such fraudulent joinder does not prevent removal. In such cases, the fraudulently

joined defendant is ignored for the purpose of assessing complete diversity. Dutcher v.

Matheson, 733 F.3d 980, 988 (10th Cir. 2013) (citing Smoot v. Chicago, Rock Island &

Pac. R.R. Co., 378 F.2d 879, 881-82 (10th Cir. 1967)); see also Brazell v. Waite, 525 F.

App’x 878, 881 (10th Cir. 2013) (“When [fraudulent joinder] occurs, the district court

disregards the fraudulently joined non-diverse party for removal purposes.”).

The removing defendant faces a heavy burden of proving fraudulent joinder and all

factual and legal issues are resolved in the plaintiff’s favor. Dutcher, 733 F.3d at 988. To

establish fraudulent joinder, the removing party must demonstrate either: (1) actual fraud

in the pleading of jurisdictional facts; or (2) the plaintiff’s inability to establish a cause of

action against the non-diverse defendant in state court. Id.2

Under the “actual fraud” prong, a defendant must basically show that plaintiff “lied

in the pleadings.” Sanelli v. Farmers Ins. Co., No. CIV-23-263-SLP, 2023 WL 3775177

at *2 (W.D. Okla. June 2, 2023) (quotation omitted). Under the “inability to establish a

cause of action” prong, the defendant must show that there is “no possibility that plaintiff

would be able to establish a cause of action against the joined party in state court.”

Montano v. Allstate Indem., No. 99-2225, 2000 WL 525592 at *1 (10th Cir. Apr. 14, 2000)

(cleaned up). “This standard is more exacting than that for dismissing a claim under Fed.

R. Civ. P. 12(b)(6); indeed, the latter entails the kind of merits determination that, absent

fraudulent joinder, should be left to the state court where the action was commenced.” Id.

at * 2; see also Dutcher, 733 F.3d at 988 (the question of fraudulent joinder is not to be

confused with whether “plaintiffs have stated a valid claim” against the allegedly

fraudulently joined defendants); Nerad v. AstraZeneca Pharms., Inc., 203 F. App’x 911,

913 (10th Cir. 2006) (If there is “a reasonable basis to believe the plaintiff might succeed

in at least one claim against the non-diverse defendant” then the case must be remanded.).

2State Farm argues that it has established fraudulent joinder under each of these prongs.

III. Plaintiffs’ Allegations

On June 17, 2023, Plaintiffs’ home was damaged by a wind and/or hail event. Am.

Compl., ¶ 16.3 Plaintiffs timely reported the loss and subsequent damage to State Farm

and submitted a claim. Id., ¶¶ 17-18. State Farm’s adjusters identified damage to

Plaintiffs’ property and prepared an estimate using Xactimate, an estimating platform

designed by Xactware, Inc. The estimate reflected only a portion of the covered damage

and was “unreasonably low.” Id., ¶ 23. The true cost of repairing Plaintiffs’ damaged roof

is $25,729.00. Id., ¶ 24. State Farm ignored obvious wind and/or hail damage and refused

to make payment to Plaintiffs on their claim. Id., ¶ 25.

State Farm has instituted statewide programs, including the Hail Focus program, to

reduce the amount it pays on valid claims. Id., ¶ 28. State Farm has also reengaged HAAG

Engineering training for its adjusters “despite State Farm’s moratorium on the use of

HAAG Engineering following a series of rulings, verdicts, and findings reflecting HAAG’s

bias toward State Farm.” Id., ¶ 29. By implementing these programs. “State Farm

systematically underpaid Plaintiffs’ claim [and] “has underpaid numerous claims

submitted by its other insureds.” Id., ¶ 30.

State Farm agents and adjusters, including the Custers, knew or should have known

about these programs and State Farm’s “outcome-based Scheme to wrongfully lower

indemnity payments owed to insureds on covered claims, specifically, total roof

3 Although Plaintiffs initiated this action with the filing of a Petition and Amended Petition in state

court, consistent with federal nomenclature and the Federal Rules of Civil Procedure, the Court

refers to the operative Amended Petition in this case as the Amended Complaint.

replacements.” Id., ¶¶ 59-60, 62. Yet, the Custers suppressed the information and never

disclosed this scheme to Plaintiffs upon renewal of their policy each year. Id., ¶¶ 63-64.

Additionally, the Custers advised Plaintiffs they would be covered in the event of wind

and/or hail loss to their roof. Id., ¶ 65. The Custers represented to Plaintiffs “that their

property met State Farm’s underwriting requirements for coverage bound.” Id., ¶ 13.

Based on these allegations, Plaintiffs bring state-law claims against State Farm for

breach of contract and breach of the duty of good faith and fair dealing. See Am. Compl.

at ¶¶ 33-55 (Counts I and II). Plaintiffs further allege a claim against the Custers for

negligence and deceit. Id., ¶¶ 56-66 (Count III).

IV. Discussion

A. Inability to Establish a Cause of Action

Under Oklahoma law, an insurance agent has a duty to “use reasonable care, skill

and diligence in the procurement of insurance and an agent is liable to the insured if by the

agent’s fault, insurance is not procured as promised and the insured suffers a loss.” Swickey

v. Silvey Cos., 979 P.2d 266, 269 (Okla. Civ. App. 1999). In keeping with that duty, an

agent must “offer coverage mandated by law and for needs that are disclosed by the

insureds. . . .” Rotan v. Farmers Ins. Grp. of Cos., Inc., 83 P.3d 894, 895 (Okla. 2003).

In support of their claim, Plaintiffs allege that the Custers inspected or should have

inspected their property at the time the policy was issued or renewed. Plaintiffs further

allege that the Custers represented to Plaintiffs that their property met State Farm’s

underwriting requirements. And Plaintiffs allege the Custers knew or should have known

that State Farm had implemented the Hail Claim Focus Initiative which was designed to

wrongfully lower indemnity payments owed to insureds on covered claims and specifically

total roof replacements. According to Plaintiffs, notwithstanding knowledge of this

Initiative, the Custers advised Plaintiffs that they would be covered in the event of wind

and/or hail loss to their roof.

In their Motion to Remand, Plaintiffs supplement their allegations, stating that the

Custers represented to them that they would have full replacement coverage in the event of

hail or other damage to their roof. Pls.’ Mot. at 6. Plaintiffs state that the Custers served

as State Farm’s “first line of underwriting” and based on the representation of full

replacement coverage, the Custers were required to “conduct an inspection of the property

to be insured including the roof and independently verify its condition both for State Farm

to provide coverage, and for [their] representation to the Plaintiffs that the policy w[ould]

cover roof damage and the roof w[ould] be replaced if damaged.” Id. Plaintiffs further

state that “[i]f the roof was found to have damage – whether as a result of defective

construction, deterioration, inadequate workmanship, age or otherwise – [the Custers] had

an independent duty to report the damage to both State Farm and Plaintiffs.” Id. at 6-7.

Instead of doing so, the Custers “represented the roof was free from damage and eligible

for replacement cost coverage in the event of a loss.” Id. at 7. The Custers “did not advise

Plaintiffs that their roof was ineligible for replacement if hail damaged as it was here.” Id.

As to the Hail Claim Focus Initiative, Plaintiffs state that this Initiative was “well

known” to the Custers and was “designed to prevent full coverage for hail claims.” Id.

Thus, Plaintiffs claim the Custers had a duty to disclose the existence of the Initiative. Id.

State Farm asks the Court to reject consideration of any supplementation of

Plaintiffs’ claims with matters set forth in Plaintiffs’ Motion because Plaintiffs “have not

sought leave to amend their Complaint.” Resp. at 27-28. The Court, however, deems it

proper to consider the supplemental allegations. As the Tenth Circuit has explained:

“[u]pon 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.”

Dodd v. Fawcett Publ’ns Inc., 329 F.2d 82, 85 (10th Cir. 1964) (citations omitted). And

district courts within the Tenth Circuit have considered allegations included in a motion to

remand under similar circumstances. See, e.g., Jackson v. State Farm Fire & Cas. Co., 647

F. Supp.3d 1195, 1200-01 (W.D. Okla. 2022) (by arguing that the plaintiffs should be

faulted for “supplying different or additional facts” to the motion to remand, the defendant

“overlook[ed] the standard of decision”; “[t]here is no requirement that the [c]ourt’s

inquiry must be limited to the allegations of a plaintiff’s complaint” and “no rule

prohibiting a plaintiff from supplying additional factual details after fraudulent joinder is

asserted”); Rodgers v. United Air Lines, Inc., No. 13-CV-00218-CMA-MEH, 2013 WL

1951673 at *2 (D. Colo. May 9, 2013) (rejecting the defendant’s argument that factual

allegations in the plaintiff’s motion to remand that were not alleged in the complaint could

not be considered by the court). The fact that Plaintiffs have not yet amended their

complaint is inconsequential. See Nerad, 203 F. App’x at 914 (condoning district court’s

consideration of “future amendments” that would supplement claim existing at time of

removal for purposes of determining whether there was a “possibility that the non-diverse

party could be liable to the plaintiff in state court” – a jurisdictional inquiry supporting

remand).

Upon review of the totality of Plaintiffs’ allegations, the Court cannot say with

complete certainty that Plaintiffs have failed to state a claim against the Custers. Plaintiffs

have sufficiently alleged a breach of the Custers’ duty. Plaintiffs allege State Farm’s denial

was contrary to the Custers’ representations that all underwriting requirements had been

met and that there were no preexisting issues with the roof that would limit or restrict

coverage. Additionally, Plaintiffs have sufficiently alleged they suffered damages as a

result of the breach as Plaintiffs purchased the policy from the Custers, but the policy did

not provide the coverage as expected or requested.

Moreover, under Oklahoma law, a duty to speak may arise from a partial disclosure.

Thrifty Rent-A-Car Sys., Inc. v. Brown Flight Rental One Corp., 24 F.3d 1190, 1195 (10th

Cir. 1994) (the law imposes a duty to speak from a partial disclosure because “the speaker

is under a duty to say nothing or to tell the whole truth” (citation and internal quotation

marks omitted)); Uptegraft v. Dome Petroleum Corp., 764 P.2d 1350,1353-54 (Okla. 1988)

(“Although a party may keep absolute silence and violate no rule of equity, yet, if he

volunteers to speak and to convey information which may influence the conduct of the

other party, he is bound to disclose the whole truth.”). Plaintiffs’ allegations regarding the

Hail Claim Focus Initiative support a duty to speak by the Custers.

B. Actual Fraud

State Farm argues that “new representations” set forth in Plaintiffs’ Motion “are

completely false and fraudulently asserted.” Resp. 28. State Farm points to the Declaration

of Tim Custer to show that Plaintiffs’ representations are false. Id. citing Custer Decl.

[Doc. No. 10-9]. The Court finds the Declaration is insufficient to demonstrate actual

fraud. The Declaration in large part challenges the veracity of the supplemental allegations

made by Plaintiffs in their Motion. Cf. Sallee v. Ready, No. 12-CV-116-TCK-PJC, 2012

WL 3061493 at *3 (N.D. Okla. July 26, 2012) (unpublished op.) (it is not permissible for

the court to assess evidence and weigh credibility in the context of a fraudulent joinder

analysis); Kyger v. State Farm Fire & Cas. Co., 649 F. Supp. 3d 1200, 1203 (W.D. Okla.

2022) (it would be improper for the court to “prejudge the credibility of Plaintiff’s

allegations” when determining whether remand on grounds of fraudulent joinder were

proper).

Although a district court is not “compelled to believe whatever the plaintiff says in

his complaint” nor is the court’s objective to “pre-try the merits of the plaintiff’s claims.”

Brazell, 525 F. App’x at 881. Here, disputed assertions of representations made (or not

made) to Plaintiffs are at play. And, as previously set forth, the Court must resolve all

factual and legal issues in Plaintiffs’ favor. Accordingly, the Court finds State Farm has

insufficiently demonstrated actual fraud in pleading jurisdictional facts.

In sum, having reviewed the record and in light of the heavy burden faced by State

Farm, the Court concludes State Farm has failed to show fraudulent joinder under either

prong of the analysis. Although (in rather conclusory fashion), State Farm seeks “a short

period of jurisdictional discovery” should the Court find the evidence “insufficient to deny

remand” the Court denies such a request. Resp. at 29. State Farm specifically asks to

“immediately depose each Plaintiff.” Id. at 29-30. But State Farm does not limit the

request for discovery to any particular issue. Instead, State Farm appears to seek broad

discovery that would entail the merits of the claims to include the nature and scope of

representations at issue. Such discovery wades too far into pre-trying the merits.

V. Plaintiffs’ Request for Attorney Fees

Plaintiffs request an award of attorney fees. When a case is remanded to state court

under 28 U.S.C. § 1447(c), the nonremoving party may recover its “just costs and any

actual expenses, including attorney fees, incurred as a result of the removal.” Id. However,

“absent unusual circumstances, attorney[] fees should not be awarded when the removing

party has an objectively reasonable basis for removal.” Martin v. Franklin Capital Corp.,

546 U.S. 132, 136 (2005). The Court finds, under this standard, Plaintiffs are not entitled

to an award of attorney fees. Although State Farm did not meet its high burden to

demonstrate fraudulent joinder, an objectively reasonable basis for removal exists on the

record presented. Moreover, Plaintiffs have failed to demonstrate that any “unusual

circumstances” warrant an award of attorney fees.

VI. Conclusion

For the reasons set forth, the citizenship of the Custers cannot be ignored for

purposes of assessing complete diversity and a remand is proper under 28 U.S.C. § 1447(c)

because the Court lacks subject matter jurisdiction.

IT IS THEREFORE ORDERED that Plaintiffs’ Motion to Remand [Doc. No. 9] is

GRANTED. This action is remanded to the District Court of Oklahoma County, State of

Oklahoma. The Clerk of Court is directed to take all actions necessary to effect the remand.

IT IS SO ORDERED this 11th day of February, 2025.

SCOTT L. PALK

UNITED STATES DISTRICT JUDGE

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