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Western District of Texas Court Summaries
FEDERAL COURT UPDATE
By Soledad Valenciano, Melanie Fry, and Jeffrie Lewis
If you are aware of a Western District of Texas order that you believe would be of interest to the local bar and should be summarized in this column, please contact Soledad Valenciano (svalenciano@svtxlaw.com, 210–787–4654) or Melanie Fry (mfry@dykema.com, 210–554–5500) with the style and cause number of the case, and the entry date and docket number of the order.
Remand; Snap-removal
Cheyanne Adams, et al v. Zachry Industrial, Inc., No. SA-23-CV-01437-XR (Rodriguez, X., Jan. 16, 2024)
The plaintiffs (Louisiana residents) sued the defendant (a Texas corporation) in state court in Bexar County. Prior to being properly joined and served, the defendant “snap removed” the matter to federal court on diversity grounds. The plaintiff filed a motion to remand, arguing the defendant had improperly removed the case and the removal was contrary to the forum-defendant rule of 28 U.S.C. § 1441(b)(2). The plaintiffs contended that allowing a forum defendant to remove a state court case in this posture is improper; “would violate the purpose and congressional intent underpinning the forum defendant rule”; and would yield “an absurd result.” The court disagreed. The Fifth Circuit in Tex. Brine Co., L.L.C. v. Am. Arb. Ass’n, Inc., 955 F.3d 482, 487 (5th Cir. 2020), explained that the forum-defendant rule was a procedural rule, not a jurisdictional one. The court concluded that the plain language of § 1441(b)(2) permits snap removal by a forum defendant prior to service of the state petition and while there are district court decisions limiting snap remove to non-forum defendants, the great weight of authority holds that the reasoning of the Fifth Circuit in Tex. Brine Co., L.L.C. permits snap removal by forum defendants. The court denied the motion to remand.
Improper Joinder
Castilleja v. United of Omaha Life Ins. Co., No. SA-23-CV-01308-XR (Rodriguez, X, March 7, 2024)
The plaintiff, while her son was hospitalized, contacted the defendant, an insurance agent, to secure a life insurance policy for her son. The plaintiff alleged that the defendant filled out the life insurance application and signed the application on behalf of the plaintiff’s son. When the plaintiff’s son passed away a few years later, the plaintiff filed a claim under her son’s policy, which the insurance company denied. The plaintiff sued the agent and insurance company in state court, and the insurance company removed the action based on diversity jurisdiction despite a lack of complete diversity, alleging the plaintiff improperly joined the agent to avoid removal. To establish improper joinder, a removing party must show an “inability of the plaintiff to establish a cause of action against the non-diverse party in state court.” The court conducted a Rule 12(b)(6) analysis, concluding that allegations that the agent forged the policy application signature did not allege a misrepresentation to the plaintiff; rather, it demonstrated a misrepresentation toward the insurance company. The court also noted that the petition failed to specify which section(s) of the Texas Insurance Code were at play, and thus the petition offers no reasonable basis for the court to predict that the plaintiff might recover against the agent/non-diverse defendant. The court thereafter dismissed the plaintiff’s claims against the agent without prejudice.
Insurance; Bad Faith; Breach of Contract; Prompt Payment of Claims
Thomison v. Meridian Sec. Ins. Co., No. SA-23CV-00411-JKP (Pulliam, J., April 9, 2024)
The plaintiff insureds sued the defendant insurer over a coverage dispute arising under a homeowner’s policy effective between July 27, 2020, and July 27, 2021. The policy included coverage for hail, but excluded cosmetic-only damage caused by hail. In May of 2021, the plaintiffs began experiencing a water leak through the ceiling after an alleged hail storm. One year after the plaintiffs unsuccessfully attempted to repair the leak themselves, the plaintiffs reported a claim with the defendant insurer for the persisting leak, with a date of loss occurring within the 2020-2021 policy, despite reporting the loss during the 2021-2022 policy period. The defendant investigated and covered some of the damage, but the plaintiffs disagreed with the defendant’s coverage decision, and brought claims for breach of contract, Texas Insurance Code and Deceptive Trade Practices Act (DTPA) violations, and bad faith. The defendant filed a motion for summary judgment on all causes of action. The court denied summary judgment on the breach of contract claim because, in its motion, the defendant argued that the plaintiffs were unable to distinguish damages occurring within the 2021-2022 policy period from those occurring outside of the policy period in question. However, the plaintiffs clarified that they were not claiming damages under the 20212022 policy period as the defendant argued, but rather they brought their claims under the 20202021 policy. With regard to the bad faith claim, the court found that the plaintiffs’ undisputed one-year delay in reporting their claim “impliedly created…a reasonable need to inspect and determine the cause and timing of any alleged property damage.” Further, it was undisputed that, once notified, the defendant adjusted the claim within 3.5 months. Therefore, the court concluded that defendant promptly investigated the claim and had a reasonable basis for delaying payment, and granted summary judgment in favor of the defendant on the plaintiffs’ bad faith claim. The court also granted summary judgment in favor of the defendant on the plaintiffs’ Texas Insurance Code and DTPA claims, noting that they share the same predicate as a bad faith claim. Thus, because the plaintiffs’ bad faith claims failed, so too did their claims arising under the DTPA and the Texas Insurance Code, as a matter of law. Finally, despite moving for summary judgment on all causes of action asserted by the plaintiffs, the defendant failed to argue in support of summary judgment on the plaintiffs’ claim for violation of the Texas Prompt Payment Act. Therefore, summary judgment was denied on this cause of action.
Motion to Certify Interlocutory Appeal
Guilbeau v. Schlumberger Tech. Corp., No. SA-21-CV-0142-JKP-ESC (Pulliam, J., April 16, 2024)
Following an order accepting the recommendation of the magistrate judge to grant summary judgment in favor of the plaintiff, the defendant filed a Motion to Certify an Interlocutory Appeal. The court stayed and administratively closed the action pending the resolution of defendant’s motion. Under 28 U.S.C. § 1292(b), the court must find (1) a controlling question of law is involved, (2) there is substantial ground for difference of opinion about the question of law, and (3) that immediate appeal will materially advance the ultimate termination of the litigation. The court held that the defendant failed to demonstrate the statutory requirements warrant certification, holding that the order sought to be certified does not concern a simple or pure question of law, but rather was a denial of summary judgment because the defendant had not carried its burden to show the plaintiffs were exempt as a matter of law. The court further noted each district in Texas has recognized that judges have unfettered discretion to deny certification, even when the statutory criteria are present. Under these circumstances, the court held it would still decline to exercise its discretion to certify the prior order for interlocutory appeal because many of the arguments asserted in the motion for certification simply questioned the court’s summary judgment rulings. The court further noted that the defendant had previously failed at two attempts to convince the court of the merits of its position in its summary judgment motion, which was ruled on by the magistrate judge and for which the district court reviewed the defendant’s objections de novo.
Foreclosure; Wrongful Foreclosure; Breach of Contract
Alvarado v. PennyMac Loan Servs., LLC, No. SA-24-CV-00150-XR (Rodriguez, X., April 18, 2024)
The plaintiff homeowner sued the defendant mortgage servicer in state court to prevent foreclosure of his home after defaulting on his mortgage loan, alleging breach of contract, wrongful attempt to foreclose, and injunctive and declaratory relief. The state court granted an ex parte
temporary injunction preventing the foreclosure sale. The defendant timely removed to federal court and moved for summary judgment on all claims. Although the plaintiff failed to respond, the court evaluated the case on the merits, citing John v. State of La. (Bd. of Trs. for State Colls. &Univs.), 757 F.2d 698, 709 (5th Cir. 1985). The court noted that to assert a claim for breach of contract in a wrongful foreclosure case, the claimant must specify which contract provision was breached. See Innova Hosp. San Antonio, L.P. v. Blue Cross & Blue Shield of Ga., Inc., 995 F. Supp. 2d 587, 602 (N.D. Tex. Feb. 3, 2014). Here, the plaintiff did not cite to a specific contract provision, but rather cited to improper notice, generally. The defendant argued that the plaintiff’s claim for breach of contract failed because the plaintiff, himself, was in breach of the contract. The court rejected this argument, citing to an exception to this general rule recognized by the Fifth Circuit, which applies to terms governing a lender’s notice obligations in the context of a default on a deed of trust. The court explained that an interpretation to the contrary would render notice requirements meaningless, given that notice requirements only apply in the event of a breach. The plaintiff claimed that he did not receive notice from the defendant, which the court rejected because the defendant had proof that it sent appropriate notice, noting that notice requirements do not require that the borrower actually receive the notice. See Martins v. BAC Home Loans Servicing, 722 F.3d 249, 256 (5th Cir. 2013). The court went on to explain that even if the defendant failed to meet the notice requirements, the defendant did not foreclose on the plaintiff’s home, and Texas does not recognize a cause of action for attempted wrongful foreclosure. Finally, the court denied injunctive and declaratory relief due to no underlying cause of action. Therefore, the court granted summary judgment in favor of the defendant, and dismissed the plaintiff’s claims with prejudice.
Jurisdiction; Forum Selection Clause; Closely Related Doctrine
Alamo Intermediate II Holdings, LLC v. Birmingham Alamo Movies, LLC, No. SA-23CV-01531-JKP (Pulliam, J, April 25, 2024).
The defendant moved to dismiss the action due to lack of personal jurisdiction. The court examined whether the defendant, a non-signatory individual, was bound by the terms of a franchise agreement containing a forum selection clause and a waiver of jurisdictional challenge. The defendant argued he is not a “party” to the franchise agreement, and he did not sign the franchise agreement in an individual capacity. The court examined Texas contract law, which holds that a defendant shall be interpreted as a “party” if he otherwise indicated his consent to be bound, which the defendant here did in paragraph 6.3 of the franchise agreement, among other others. The court held that even if cited excerpts are insufficient, the defendant would still be bound by the forum selection clause in the franchise agreement under the “closely related” doctrine. This doctrine provides that a non-signatory can be bound to a forum selection clause if the non-signatory is so closely related to the dispute such that it becomes foreseeable that the non-signatory would be bound. A “closely related signatory,” or one who is “allegedly engaged in the conduct ‘closely related to the contractual relationship,’” will be bound by the internal forum selection clause. A non-signatory who is “inextricably intertwined” with the signatories will have the forum-selection clause enforced against him, assuming that outcome is foreseeable based on the Franklink factors. The court found the defendant, the “Controlling and Operating Principal’ of each signatory entity, to be inextricably intertwined with these entities such that he should be held subject to the forum selection clause. Accordingly, the motion to dismiss was denied.
Endnotes can be found on pages 26-27 of the flipbook.
