Cavallini v. State Farm Mut. Auto Ins. Co.

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 94-50112
_____________________
ADRIAN CAVALLINI, ET AL.,
Plaintiffs-Appellants,
versus
STATE FARM MUTUAL AUTO INSURANCE CO., ET AL.,
Defendants-Appellees.
_________________________________________________________________
Appeal from the United States District Court
for the Western District of Texas
_________________________________________________________________
(January 26, 1995)
Before WHITE, Associate Justice (Ret.);1 BARKSDALE, and PARKER,
Circuit Judges.
RHESA HAWKINS BARKSDALE, Circuit Judge:
The appeal in this removed diversity action concerns
fraudulent joinder and enforcement of a settlement agreement, with
the critical issue being whether, in order to defeat removal based
on fraudulent joinder, the state court complaint in issue here can
be expanded by post-removal affidavits or amendment to state a
cause of action against the nondiverse defendant. If removal
stands, we must determine whether correspondence between the
parties constitutes an enforceable settlement under Texas Rule of
Civil Procedure 11 (settlement of action not enforceable unless "in
1
The Honorable Byron R. White, Associate Justice of the United
States Supreme Court, (Ret.), sitting by designation, pursuant to
28 U.S.C. § 294(a).
writing, signed and filed ... [in] the record, or ... made in open
court and entered of record").
The Cavallinis challenge the dismissal with prejudice of Larry
Cunningham (the nondiverse defendant), an agent for State Farm
Mutual Automobile Insurance Company, contending that he was not
fraudulently joined; and the summary judgment for State Farm,
contending that the action had not been settled. We AFFIRM.
I.
Adrian Cavallini purchased a hospitalization insurance policy
from State Farm, through Cunningham, in July 1990; his wife, Debra
Cavallini, was insured through her employer, The Olsten
Corporation. On August 21, 1991, their son was born with serious
birth defects.2 He was added as an insured under the State Farm
policy, but State Farm took the position that the Olsten policy
provided primary coverage for the son's medical expenses. In
November 1991, State Farm gave notice that its policy would be
cancelled effective January 1992.
On January 29, 1992, the Cavallinis (Texas citizens) filed
suit in Texas state court against State Farm (an Illinois
corporation) and Cunningham (a Texas citizen), asserting claims for
breaches of contract and of the duty of good faith and fair
dealing. State Farm and Cunningham removed the action to federal
court on March 2, claiming that Cunningham's joinder was
2
The Cavallinis' son was born with tetra-phocomelia (absence of
arms and legs) and a diaphragmatic hernia; was hospitalized 20 days
to repair the hernia; and will require continuous attachment,
detachment, and modification of prosthetic devices for his missing
limbs.
- 2 -
fraudulent. That same day, they filed a third-party complaint
against Olsten's health benefit plan, seeking contribution and/or
indemnity.3
On March 30, the Cavallinis moved to remand.4 And, five and
one-half months later, in mid-September 1992, they moved for leave
to amend their complaint, "to clarify those facts which support a
cause of action against" Cunningham, but did not attach the
proposed amendment.5 On October 1, noting that the parties had
announced that they were in the process of finalizing settlement,
the district court denied all pending motions, to include that for
remand, subject to renewal absent settlement.
3
The third-party complaint and notice of removal claimed
federal question jurisdiction over the third-party claim, and
asserted that it was separate and independent, and therefore
removable pursuant to 28 U.S.C. § 1441(c). On January 11, 1994,
approximately ten days before it ruled in favor of State Farm and
Cunningham, the district court granted the Olsten Plan's motion for
summary judgment. State Farm and Cunningham state that their
appeal from that judgment is being held in abeyance pending
resolution of this appeal.
4
The Cavallinis asserted (1) that Cunningham would be a proper
defendant under the Texas Deceptive Trade Practices Act (DTPA), but
that the claim could not be asserted until 60 days after notice was
given; and (2) that the allegation that the amount in controversy
exceeded $50,000 was unsupported (they have not pursued this
contention on appeal).
5
The Cavallinis asserted that Cunningham, as State Farm's agent
and representative, "committed various acts of misrepresentation
and deception" and "encouraged Plaintiffs to file a groundless
lawsuit against a third party and offered to falsify insurance
documents in order for ... State Farm ... to escape its liability".
These charges are developed more fully in their September 1993
affidavits in opposition to summary judgment, discussed infra.
- 3 -
The Cavallinis re-urged their motion to remand on October 26,
stating that the parties had been unable to settle.6 A month
later, they did the same for leave to amend, but again failed to
attach the proposed amendment. In late July 1993, the district
court denied the motion to remand, stating only that it "lack[ed]
merit".
A month later, State Farm and Cunningham moved for summary
judgment, asserting, inter alia, that the case had been settled.
The Cavallinis responded that there were material fact issues
concerning both the settlement, and whether State Farm breached the
contract (policy) and acted in bad faith in denying benefits; in
addition, they submitted affidavits regarding Cunningham. One week
after State Farm and Cunningham moved for summary judgment (and a
month after denial of their re-urged remand motion), the Cavallinis
filed a third motion for leave to amend, attaching the proposed
amendment for the first time.7
The court conducted, on December 21, an evidentiary hearing on
settlement. In mid-January 1994, after the court granted summary
judgment for Olsten, see note 3, supra, the Cavaillinis re-urged
their motion to remand. Shortly thereafter, the court dismissed
the claims against Cunningham with prejudice, holding that he had
been fraudulently joined, and granted summary judgment for State
6
As also discussed infra, the exchange of settlement
correspondence was from mid-August to late October 1992.
7
The court had not ruled on their second motion for leave to
amend, filed in November 1992.
- 4 -
Farm, holding that the parties had made an enforceable settlement
agreement.
The district court denied the Cavallinis' motion for
reconsideration. Among other things, they asserted that the court,
in ruling on remand, should have considered their affidavits filed
in opposition to summary judgment.
II.
Needless to say, the Cavallinis challenge the remand and
settlement rulings.
A.
"The burden of proving a fraudulent joinder is a heavy one.
The removing party must prove that there is absolutely no
possibility that the plaintiff will be able to establish a cause of
action against the in-state defendant in state court, or that there
has been outright fraud in the plaintiff's pleading of
jurisdictional facts." Green v. Amerada Hess Corp., 707 F.2d 201,
205 (5th Cir. 1983), cert. denied, 464 U.S. 1039 (1984). Because
no one disputes that the Cavallinis and Cunningham are Texas
residents, "[o]ur sole concern is whether there is a possibility
that [the Cavallinis] ha[ve] set forth a valid cause of action"
against Cunningham. Id. We "evaluate all of the factual
allegations in the plaintiff's state court pleadings in the light
most favorable to the plaintiff, resolving all contested issues of
substantive fact in favor of the plaintiff", id., and "then examine
relevant state law and resolve all uncertainties in favor of the
nonremoving party." Id. at 206.
- 5 -
The district court held that, as of removal, the Cavallinis'
state court petition (complaint) "did not allege a cause of action
against ... Cunningham".8 The Cavallinis counter that the
8
In its comprehensive opinion holding that the action had been
settled, the district court discussed also why it had denied remand
and was dismissing Cunningham:
State Farm removed this case on the grounds
that Plaintiffs' joinder of ... Cunningham, a San
Antonio based State Farm agent, was fraudulent and
was done solely to defeat diversity. The Court
agrees. A party that removes a case to federal
court on the grounds that a non-diverse party was
fraudulently joined must show that the plaintiff
has no possibility of recovery against the non-
diverse party. In removal cases, jurisdiction is
determined by examining the plaintiff's complaint
at the time of removal.
At the time this case was removed, Plaintiffs'
state court petition did not allege a cause of
action against ... Cunningham. The petition
alleges causes of action for breach of contract and
breach of the duty of good faith and fair dealing.
Assuming that Cunningham could be liable to
Plaintiffs under either of these theories, the
petition simply does not allege any facts against
... Cunningham. Other than listing his name and
address for purposes of service, the petition does
not specifically mention ... Cunningham at all.
The petition does contain a prayer for exemplary
damages for "the gross misrepresentations made by
the Defendants." Absent any factual allegations
however, the prayer standing alone cannot support a
cause of action against Cunningham. Even if
Plaintiffs' amended petition, for which the Court
has not yet granted leave to file, does state a
cause of action against Cunningham, it is well
established that an amended petition cannot operate
to defeat jurisdiction of a case that was properly
removed.
The Court denied Plaintiffs' motion re-urging
their motion to remand on July 23, 1993. That
order did not elaborate on the basis for the
decision nor did it dismiss ... Cunningham from the
lawsuit. Hopefully, the discussion here clarifies
the jurisdiction issue. The Court will formally
- 6 -
complaint states a claim against Cunningham for breach of the duty
of good faith and fair dealing; that, together with their
affidavits, it states a claim against Cunningham for
misrepresentation under the DTPA; and, that their motion to amend
should have been granted, and the amended complaint considered in
ruling on the fraudulent joinder/remand issue.9
1.
dismiss ... Cunningham from the lawsuit in this
order.
(Citations omitted.)
9
In their opening brief, the Cavallinis did not raise whether
the complaint states a claim against Cunningham for breach of
contract. Their reply brief contains only the bald assertions that
"Larry Cunningham is liable for breach of contract", and that their
affidavits establish his possible liability for breach of contract.
Needless to say, we do not consider issues raised for the first
time in a reply brief. See Stephens v. C.I.T. Group/Equipment
Financing, Inc., 955 F.2d 1023, 1026 (5th Cir. 1992). Moreover,
the failure to provide any legal or factual analysis of an issue
results in waiver of that issue. See United States v. Green, 964
F.2d 365, 371 (5th Cir. 1992), cert. denied, ___ U.S. ___, 113 S.
Ct. 984 (1993); Fed. R. App. P. 28(a)(6).
In addition, the Cavallinis contend, again for the first time
in their reply brief, that their affidavits establish Cunningham's
possible liability under two additional theories: violation of the
Texas Insurance Code and common law fraud. Also for the first time
in that brief, they contend, without citation to authority, that
they are third-party beneficiaries of the contract between State
Farm and Cunningham, that Cunningham breached that contract, and
that this breach somehow supports a claim by them against
Cunningham for a breach of the duty of good faith and fair dealing.
Because the Cavallinis raised these new issues in their reply
brief, State Farm and Cunningham requested and received permission
to file a supplemental brief. That we allowed them to do so does
not alter our rule of not considering issues raised in a reply
brief. Furthermore, we have serious doubts about whether the
common law fraud and third-party beneficiary issues were raised in
district court.
- 7 -
We agree with the district court that the complaint does not
contain allegations which could support a claim under Texas law
against Cunningham. He is named as a defendant in the caption and
introductory paragraph, and listed as such in paragraph I, which
provides addresses for service of process. Paragraph II claims,
without supporting allegations, a "failure of the Defendants" to
exercise a duty of good faith.
Paragraph III states claims for breaches of contract and of
the duty of good faith and fair dealing, but makes no mention of
Cunningham. As to the breach of contract claim, it alleges only
that "Defendant State Farm ... has failed to perform a proper
investigation and has attempted to mislead Plaintiffs into
rescinding their claim or in the alternative to accept an
inadequate amount for the claims submitted and by failing to renew
the policy". And, in claiming a "breach of the duty of good faith
and fair dealing owed by an insurer to its insured", it alleges
only that "Defendant State Farm ... breached this duty for the
reason there was and is no reasonable basis for denying Plaintiffs'
claims and by failing to renew the policy". (Emphasis added.)
Paragraph V seeks damages, again without mentioning
Cunningham, for physical pain, mental anguish, loss of income, and
attorney's fees, but only "as a result of the failure of the
Defendants State Farm Insurance Companies and State Farm Mutual
Automobile Insurance Company" to pay policy benefits; VI seeks
exemplary damages "[b]ecause of the gross misrepresentations made
by the Defendants, and their respective failure to deal in good
- 8 -
faith"; and the concluding paragraph prays for judgment against the
"Defendants, jointly and severally".10
No more need be said. As reflected above, the complaint fails
to state a claim against Cunningham.
2.
Alternatively, even if the complaint could be construed as
stating a claim against Cunningham for breach of the duty of good
faith and fair dealing, there is no possibility that the Cavallinis
could recover against him on that basis.11 The Cavallinis rely on
Taylor v. Bonilla, 801 S.W.2d 553 (Tex. App.--Austin 1990, writ
denied), and GAB Business Services, Inc. v. Moore, 829 S.W.2d 345
(Tex. App.--Texarkana 1992, no writ).12 In Taylor, damages were
10
The Cavallinis' reliance on Jones v. Louisiana Bd. of Trustees
for State Colleges & Universities, 764 F.2d 1183, 1185 (5th Cir.
1985), is misplaced. Jones did not concern removal and remand;
instead, whether the plaintiffs had named a state official as a
defendant in order to avoid dismissal on Eleventh Amendment
grounds. Although the official was identified in the caption, and
referred to throughout the body of the complaint, the defendants
contended that he was not a party because he was not listed in the
paragraph specifying the defendants. Id. at 1184-85 & n.1.
Applying the rule that a complaint will not be dismissed for
technical pleading defects, our court held that the complaint was
sufficient to confer party status on the official, and stated that
the plaintiffs could seek to amend to cure any ambiguity. Id. at
1185, 1186.
11
As quoted above, the paragraph in the complaint presenting the
good faith and fair dealing claim contains allegations only as to
State Farm. Moreover, as emphasized, the paragraph speaks only of
the duty "owed by an insurer to its insured".
12
The Cavallinis also cite Union Bankers Ins. Co. v. Shelton,
___ S.W.2d ___, 1994 WL 278131, concurring op. withdrawn &
superseded by 1994 WL 657867 (Tex. 1994), and Celtic Life Ins. Co.
v. Coats, 885 S.W.2d 96 (Tex. 1994). Those cases have no bearing
on whether the Cavallinis have a possibility of recovering from
Cunningham for a breach of the duty of good faith and fair dealing;
instead, both deal with the liability of an insurer for acts of its
- 9 -
sought from New York Life Insurance Company and its agent, Bonilla,
for, inter alia, breaches of contract, fiduciary duty, and the duty
of good faith and fair dealing. 801 S.W.2d at 555. Partial
summary judgment and a directed verdict were granted on the two
contract claims, and the jury returned a verdict for the defendants
on the remaining claims. Id. Primarily at issue on appeal were
the contract claims. Id. at 556-60. The court briefly addressed
the contention that the jury verdict was against the great weight
of the evidence, and affirmed because there was conflicting
evidence "as to whether Bonilla acted in a manner consistent with
the degree of care required of a fiduciary, [or] whether he ...
breached the duty of good faith and fair dealing". Id. at 561.
Although the court seems to have assumed, implicitly, that
Bonilla owed the insured a duty of good faith and fair dealing, it
does not so hold, because the issue was not presented. Moreover,
it apparently was established, or undisputed, that Bonilla was a
fiduciary, and thus had a special relationship with the insured
that would give rise to a duty of good faith and fair dealing. Id.
Here, there are no allegations that Cunningham was a fiduciary, nor
do the Cavallinis allege any facts (only their conclusory statement
in their reply brief) to establish the existence of a special
relationship that would give rise to such a duty.
GAB provides even less support for the Cavallinis. GAB, an
insurance adjusting firm specializing in workers' compensation
claims, contracted to handle all claims brought against 850 cities
agents.
- 10 -
self-insured through an intergovernmental risk pool. 829 S.W.2d at
347-48. The court affirmed the jury's finding that GAB breached
the duty of good faith and fair dealing. Id. at 348. It
apparently viewed GAB as a workers' compensation carrier, not an
insurance agent. See id. ("Workers' compensation carriers have a
duty to deal fairly and in good faith with injured employees.")
Moreover, unlike Cunningham, GAB had the authority to authorize
payment of medical expenses and deny benefits. Id.
In any event, even if Taylor and GAB could be read as implying
that an insurance agent, such as Cunningham, has an independent
duty to the insured of good faith and fair dealing, they would be
inconsistent with the Texas Supreme Court's jurisprudence. In
Arnold v. National County Mut. Fire Ins. Co., 725 S.W.2d 165 (Tex.
1987), modified in part on other grounds, Murray v. San Jacinto
Agency, Inc., 800 S.W.2d 826 (Tex. 1990), the Texas Supreme Court
first held that an insurer owes its insured a common-law duty of
good faith and fair dealing. Such a duty "may arise as a result of
a special relationship between the parties governed or created by
a contract." Id. at 167. The court explained:
In the insurance context a special
relationship arises out of the parties' unequal
bargaining power and the nature of insurance
contracts which would allow unscrupulous insurers
to take advantage of their insureds' misfortunes in
bargaining for settlement or resolution of claims.
In addition, without such a cause of action
insurers can arbitrarily deny coverage and delay
payment of a claim with no more penalty than
interest on the amount owed. An insurance company
has exclusive control over the evaluation,
processing and denial of claims.
- 11 -
Id. To state a cause of action for breach of the duty of good
faith and fair dealing, the plaintiff must allege "that there is no
reasonable basis for denial of a claim or delay in payment or a
failure on the part of the insurer to determine whether there is
any reasonable basis for the denial or delay." Id.
Most important, in a recent case, Natividad v. Alexsis, Inc.,
875 S.W.2d 695 (Tex. 1994), the Texas Supreme Court was asked to
extend the duty of good faith and fair dealing "to bind entities
and individuals in the insurance industry[, such as Cunningham,]
that are not in contractual privity with the claimant." Id. at
697. It declined to do so, "[b]ecause the existence of a contract,
vesting the insurer with exclusive control over the evaluation,
processing, and denial of claims, that gives rise to a special
relationship is a necessary element of the duty of good faith and
fair dealing." Id. (internal quotation marks and citations
omitted). The court explained that
[t]he non-delegable duty of good faith and fair
dealing is owed by an insurance carrier to its
insureds due to the nature of the contract between
them giving rise to a "special relationship." An
insurance carrier, not its agents and contractors
providing claims handling services, is liable to
the insured for actions by the agents or
contractors that breach the duty of good faith and
fair dealing owed by the carrier to the insured.
Id. at 696.
The Cavallinis attempt to distinguish Natividad on the basis
that it dealt with agents who had contracted with insurers to
provide claims handling services. But, the Texas Supreme Court
made clear that the existence of a contract, giving rise to a
- 12 -
special relationship, "is a necessary element of the duty of good
faith and fair dealing." Id. at 697. Because there is none
between the Cavallinis and Cunningham, there is no basis under
Texas law for imposing upon him a duty of good faith and fair
dealing, and thus no possibility that he could be found liable for
breach of that duty.13
3.
The complaint does not contain any allegations underlying a
claim of misrepresentation in violation of the DTPA. As noted, the
word "misrepresentation" appears only once, in the exemplary
damages paragraph; moreover, the DTPA is never mentioned, much less
a violation of it. The Cavallinis contend, however, that the
district court should have considered their affidavits to determine
the possibility of recovery against Cunningham on that claim.
13
As noted, at the time of removal, the Texas Supreme Court had
not addressed specifically whether an insurance agent has a duty of
good faith and fair dealing to an insured. Even assuming that
Taylor and GAB can be read possibly to presume that duty, they
still do not constitute an "`arguably ... reasonable basis for
predicting that the state law might impose liability on the facts
involved'". See Jernigan v. Ashland Oil Inc., 989 F.2d 812, 816
(5th Cir.) (quoting Bobby Jones Garden Apts. v. Suleski, 391 F.2d
172, 177 (5th Cir. 1968)), cert. denied, ___ U.S. ___, 114 S. Ct.
192 (1993). Because Natividad had not been decided as of removal,
the Cavallinis maintain that we cannot consider it; that the
applicable law is that extant as of removal. We need not reach
this issue; Natividad did not change Texas law. Indeed, the Texas
Supreme Court pointed out that, "[s]ince its inception, the duty of
good faith and fair dealing has only been applied to protect
parties who have a special relationship based on trust or unequal
bargaining power." 875 S.W.2d at 697. It noted further that "the
`special relationship' exists only because the insured and the
insurer are parties to a contract that is the result of unequal
bargaining power, and by its nature allows unscrupulous insurers to
take advantage of their insureds. Without such a contract there
would be no `special relationship' and hence, no duty of good faith
and fair dealing." Id. at 698.
- 13 -
a.
"While we have frequently cautioned the district courts
against pretrying a case to determine removal jurisdiction, we have
also endorsed a summary judgment-like procedure for disposing of
fraudulent joinder claims." Carriere v. Sears, Roebuck & Co., 893
F.2d 98, 100 (5th Cir.), cert. denied, 498 U.S. 817 (1990). As
stated in B., Inc. v. Miller Brewing Co., 663 F.2d 545, 551 (5th
Cir. 1981):
A district court need not and should not conduct a
full scale evidentiary hearing on questions of fact
affecting the ultimate issues of substantive
liability in a case in order to make a preliminary
determination as to the existence of subject matter
jurisdiction. The question of whether the
plaintiff has set forth a valid claim against the
in-state defendant(s) should be capable of summary
determination.
Therefore, our court recently noted that "fraudulent joinder
claims can be resolved by `piercing the pleadings' and considering
summary judgment-type evidence such as affidavits and deposition
testimony". Ford v. Elsbury, 32 F.3d 931, 935 (5th Cir. 1994)
(citing Carriere, 893 F.2d at 100).14 However, the Cavallinis did
14
Ford v. Elsbury does not support the Cavallinis' assertion
that post-removal affidavits can be used to defeat removal by
presenting new causes of action. There, suit was filed in
Louisiana state court against, inter alia, Arcadian Corporation and
its plant manager, Elsbury, as the result of a reactor exploding at
Arcadian's plant. 32 F.2d at 933. Removal was based on the claim
that Elsbury (and another not in issue on appeal) had been
fraudulently joined. Id. After noting the circumstances under
which Louisiana law held that a corporate officer or employee could
be held liable for injuries to third parties, our court stated that
Elsbury's liability turned on factual issues such as whether he or
others delegated with due care the responsibility of safe
maintenance and operation of the reactor, and whether he was aware,
or should have been aware, of a risk of harm and failed to respond
to that risk in the manner in which a reasonably prudent plant
- 14 -
not cite, nor have we found, any case in which such evidence has
been considered to determine whether a claim has been stated
against the nondiverse defendant under a legal theory not alleged
in the state court complaint. In short, the Cavallinis cannot rely
on their affidavits to state a DTPA claim against Cunningham.
b.
In any event, even if, through the affidavits, we were to
consider a DTPA claim, they do not support one. The affidavits
allege, essentially, that Cunningham: misrepresented that the
Olsten policy provided primary coverage; suggested that the State
Farm policy be cancelled effective the date of the son's birth;
suggested hiring an attorney to file a bad faith claim against the
Olsten Plan; represented to Adrian Cavallini that he was the agent
of State Farm; and assured Adrian Cavallini that "there would be no
problems" when the son was added as an insured under the policy.
"[O]ral representations ... can serve as the basis of a DTPA
action." Weitzel v. Barnes, 691 S.W.2d 598, 600 (Tex. 1985).
Although a consumer need not prove reliance on a misrepresentation
to recover under the DTPA, he must prove "a deceptive act or
practice ... which is a producing cause of the consumer's actual
damages." Id. The Cavallinis did not allege that they acted on
manager would respond in similar circumstances. Id. at 935-36. In
support of removal, the defendants submitted Elsbury's affidavit
that the responsibility for the safety, maintenance, and operation
of the plant was delegated to properly trained and qualified
supervisors, and that he had no personal knowledge that the reactor
posed a potential hazard or risk. Id. at 938. Those submitted by
the plaintiffs, unlike the Cavallinis', did not attempt to present
new causes of action against Elsbury, but instead contradicted the
factual assertions in his affidavit. Id. at 938-39.
- 15 -
the alleged misrepresentations or that the alleged
misrepresentations were a producing cause of their damages.
Accordingly, the affidavits do not establish any possibility of a
recovery against Cunningham under the DTPA.
4.
Finally, the Cavallinis assert that the district court erred
by both denying their motion to amend and failing to consider the
proposed amended complaint in determining whether a claim was
stated against Cunningham.15 As quoted earlier, see note 8, supra,
the district court held that it would have been futile to grant the
motion, because a complaint amended post-removal cannot divest a
federal court of jurisdiction. See, e.g., Pullman Co. v. Jenkins,
305 U.S. 534, 537 (1939) ("The second amended complaint should not
have been considered in determining the right to remove, which in
a case like the present one [removal based on diverse defendant's
claim that controversy as to it was separable from claims against
nondiverse defendants] was to be determined according to the
plaintiffs' pleading at the time of the petition for removal").
The rationale for determining removal jurisdiction on the
basis of claims in the state court complaint as it exists at the
15
As noted, the proposed amended complaint first appears in the
record as an attachment to the third motion to amend, filed on
August 30, 1993, over a month after the denial of the motion re-
urging the motion to remand. As discussed, this was the first time
the district court had addressed the remand motion on the merits;
it had been denied in October 1992 because of the settlement
possibility.
- 16 -
time of removal is obvious.16 Without such a rule, disposition of
the issue would never be final, but would instead have to be
revisited every time the plaintiff sought to amend the complaint to
assert a new cause of action against the nondiverse defendant, all
at considerable expense and delay to the parties and the state and
federal courts involved. Limiting the removal jurisdiction
question to the claims in the state court complaint avoids that
unacceptable result, and permits early resolution of which court
has jurisdiction, so that the parties and the court can proceed
with, and expeditiously conclude, the litigation.
The Cavallinis rely upon Asociacion Nacional de Pescadores a
Pequena Escala o Artesanales de Colombia (ANPAC) v. Dow Quimica de
16
It is also consistent with Congress' intent to resolve swiftly
removal issues, as reflected in the removal and remand statutes, 28
U.S.C. §§ 1446-1447. For a civil action, a notice of removal
generally must be filed within 30 days after service of the
complaint, but a case may not be removed on the basis of diversity
jurisdiction more than one year after commencement of the action.
See 28 U.S.C. § 1446(b).
Similarly, a remand motion based on a defect in removal
procedure must be made within 30 days after removal. 28 U.S.C. §
1447(c). See also In re Carter, 618 F.2d 1093, 1098-99 (5th Cir.
1980) (policy underlying 28 U.S.C. § 1447(d) (providing generally
that remand orders are unreviewable) "is the preclusion of delay in
litigating the merits of a controversy that would attend appellate
litigation of jurisdictional issues"), cert. denied, 450 U.S. 949
(1981). It is well-known that a motion to remand for lack of
subject matter jurisdiction, as is at issue here, is not subject to
the same time constraints. See 28 U.S.C. § 1447(c) ("If at any
time before final judgment it appears that the district court lacks
subject matter jurisdiction, the case shall be remanded."). But,
it is equally well-known that citizenship for purposes of diversity
jurisdiction is fixed as of when the action is filed. See
generally Hensgens v. Deere & Co., 833 F.2d 1179, 1180-81 (5th Cir.
1987); IMFC Professional Servs. v. Latin Amer. Home Health, Inc.,
676 F.2d 152, 157 (5th Cir. 1982). This is consistent with the
need for certainty, avoidance of delay, and finality in resolving
jurisdiction.
- 17 -
Colombia S.A., 988 F.2d 559 (5th Cir. 1993), cert. denied, ___ U.S.
___, 114 S. Ct. 685 (1994), in which our court held that
information submitted after removal may be considered in examining
the jurisdictional facts as of removal. Id. at 565. They assert
that their amended complaint would have clarified any
jurisdictional ambiguity in their state court complaint.
Dow offers no support for the Cavallinis. The Dow plaintiffs,
Columbian fishermen, sued Dow Chemical Company and its wholly-owned
subsidiary, Dow Quimica, a Columbian corporation, in Texas state
court. Id. at 562. Pursuant to Texas law, their complaint did not
plead a specific damages amount, but alleged only that "`[d]amages
far exceed the minimum jurisdictional limits of this court.'" Id.
(brackets in original). Dow Chemical removed the case, claiming
that Dow Quimica had been fraudulently joined to defeat diversity
jurisdiction. Id. At issue was whether the district court should
have considered an affidavit from the plaintiffs' attorney,
attached to their motion to remand, in which he stated that none of
the plaintiffs had suffered a loss greater than $50,000.
Our court noted that the injuries alleged by the plaintiffs
were not "facially likely to be over the jurisdictional amount",
but could not say that "the claims are necessarily outside of the
range that could confer federal jurisdiction." Id. at 565
(emphasis in original). Under those circumstances, it held that
the affidavit could be considered in deciding whether to remand.
Id. It recognized the well-settled principle that "a plaintiff may
not defeat removal by subsequently changing his damage request,
- 18 -
because post-removal events cannot deprive a court of jurisdiction
once it has attached," id. (emphasis in original) (citing St. Paul
Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 292 (1938)), but
distinguished the situation before it, pointing out that
in this case the affidavits clarify a petition that
previously left the jurisdictional question
ambiguous. Under those circumstances, the court is
still examining the jurisdictional facts as of the
time the case is removed, but the court is
considering information submitted after removal.
Id. (emphasis in original).17
Unlike Dow, which involved clarification of a state court
complaint that stated no amount in controversy, there is no need
for clarification of the Cavallinis' complaint; it does not contain
allegations against Cunningham that state a claim for relief under
either of the two legal theories pleaded. Moreover, as noted
above, Dow acknowledged that a plaintiff cannot defeat removal by
changing his damage request; it authorized the consideration of
information submitted after removal only in connection with an
examination of the jurisdictional facts as they existed at the time
of removal. The Cavallinis' proposed amended complaint does not
clarify the jurisdictional facts at the time of removal; it
attempts instead to amend away the basis for federal jurisdiction.
Dow is not contrary to the general rule that removal jurisdiction
should be determined on the basis of the state court complaint at
the time of removal, and that a plaintiff cannot defeat removal by
17
In holding that remand should have been granted, the Dow court
placed emphasis on "the defendants offer[ing] only a conclusory
statement in their notice of removal that was not based on direct
knowledge about the plaintiffs' claims". 988 F.2d at 566.
- 19 -
amending it.18 Restated, Dow does not stand for the proposition
that, after a fraudulent joinder removal, a plaintiff may amend the
complaint in order to state a claim against the nondiverse
defendant, and thus divest the federal court of jurisdiction.19
B.
Having confirmed the district court's jurisdiction, we turn to
the summary judgment that there was an enforceable settlement. Of
course, our review of a summary judgment, including the record upon
18
As discussed, Dow involved an affidavit, not an amended
complaint. It cited Robinson v. Quality Ins. Co., 633 F. Supp.
572, 577 (S.D. Ala. 1986), for the proposition that a court may
consider information submitted after removal when examining the
jurisdictional facts as of removal. Dow, 988 F.2d at 565. A
parenthetical describes Robinson as having granted a remand motion
based on the plaintiff's post-removal insertion of an ad damnum
clause into a previously indeterminate complaint. Id. The amended
complaint in Robinson was filed after removal, but prior to the
motion to remand. Robinson, 633 F. Supp. at 577. The Robinson
court noted that the plaintiff did not obtain leave of court prior
to filing the amended complaint, and expressly recognized that
"action by a plaintiff subsequent to removal cannot deprive this
Court of jurisdiction if the removal was proper when filed." Id.
It considered the amendment only "as evidence of the actual amount
in controversy, in the absence of further enlightenment from either
side." Id.
In addition, Dow noted that, if defendants wish to avoid
having a case remanded after the plaintiff comes forward with an
affidavit specifying his damages, other avenues are available for
clarifying an ambiguous complaint. Dow, 988 F.2d at 565 n.7. By
way of example, it cites a Texas procedural rule which provides
that, upon special exception by the defendant, a plaintiff may be
required to amend a complaint to specify the maximum amount of
damages claimed. Id. Needless to say, this reference does not
support the Cavallinis' assertion that a complaint amended after
removal should be considered in determining whether removal was
proper.
19
Because we hold that Cunningham's joinder was fraudulent, we
need not consider the appellees' alternative contentions that
jurisdiction was proper under 28 U.S.C. § 1331, because their
third-party complaint involved ERISA claims, or that the case was
removable under 28 U.S.C. § 1441(c).
- 20 -
which it is based, is de novo; and we view all facts, and the
inferences to be drawn from them, in the light most favorable to
the non-movant. E.g., LeJeune v. Shell Oil Co., 950 F.2d 267, 268
(5th Cir. 1992). Summary judgment "shall be rendered forthwith if
the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show that
there is no genuine issue as to any material fact and that the
moving party is entitled to a judgment as a matter of law." Fed.
R. Civ. P. 56(c).
"We apply Texas law to the enforcement of settlement
agreements in Texas diversity cases", Valley Ranch Dev. Co. v.
F.D.I.C., 960 F.2d 550, 553 (5th Cir. 1992); and it is undisputed
that Texas Rule of Civil Procedure 11 controls. That Rule provides
that "no agreement between attorneys or parties touching any suit
pending will be enforced unless it be in writing, signed and filed
with the papers as part of the record, or unless it be made in open
court and entered of record." Tex. R. Civ. P. 11. "Rule 11 is a
minimum requirement for enforcement of all agreements concerning
pending suits". Kennedy v. Hyde, 682 S.W.2d 525, 528 (Tex. 1984).
It "contemplates that something more is required for the
enforcement of such an agreement than that it be a valid contract.
That something more is its reduction to writing and signature, or
their substantial equivalents: dictation into the record of the
agreement's substance and assent to it on the record by all parties
sought to be bound." Anderegg v. High Standard, Inc., 825 F.2d 77,
- 21 -
80-81 (5th Cir. 1987) (emphasis in original), cert. denied, 484
U.S. 1073 (1988).20
After conducting an evidentiary hearing, the district court
concluded that the parties had reached an enforceable settlement,
based on an extensive exchange of detailed correspondence between
State Farm and the Cavallinis' counsel. It held that an offer was
made by State Farm's September 24, 1992, letter to the Cavallinis'
counsel;21 that they rejected that offer and made a counteroffer by
20
The Cavallinis rely on Padilla v. LaFrance, 875 S.W.2d 730
(Tex. App.--Houston [14th Dist.] 1994, error granted), for the
propositions that contract law cannot be applied to enforce an
agreement that does not comply with Rule 11; and that a party may
revoke consent to a settlement agreement at any time before
judgment is entered. As for the first proposition, contract law is
not being used here to enforce an agreement that does not comply
with Rule 11. As for the second, discussed infra, the Texas
Supreme Court granted a writ of error in Padilla on September 15,
1994, including the points that consent is not necessary for
enforcement of a settlement agreement, there is no requirement that
the agreement be filed before consent to it is withdrawn, and that
public policy supports enforcement of the agreement. See 37 Tex.
Sup. Ct. J. 1212 (Sept. 15, 1994).
21
By letter dated August 13, 1992, the Cavallinis' counsel
responded to a settlement offer by State Farm, stating that payment
of medical expenses was acceptable, requesting that the original
policy be reinstated to include all persons covered under it,
stating that a conversion policy would be unacceptable, and
requesting payment of $110,000, plus all court costs. In a
telephone conversation on September 24, State Farm and the
Cavallinis' counsel reached an oral settlement agreement. State
Farm's September 24 letter was written in confirmation of that
telephone conversation.
In the September 24 letter, State Farm offered to pay policy
benefits for the son from the date of his birth, without regard to
the policy's "other insurance" provision; to retroactively
reinstate the policy effective April 16, 1992, subject to an
assurance that no comparable coverage existed; to not refuse
renewal of the policy except in the event of overinsurance or
discontinuance of all policies in that class; to not raise premiums
due to claims by the Cavallinis; and to pay $110,000. Accordingly,
on September 29, State Farm delivered a check for $110,000, a
- 22 -
an October 8 letter;22 that State Farm accepted the counteroffer by
an October 13 letter;23 that an October 21 letter from the
Cavallinis' counsel was a request for modification of that
agreement,24 to which State Farm consented by letter of the same
proposed release, and a stipulation of dismissal to the Cavallinis'
counsel.
22
In his October 8 letter, the Cavallinis' counsel stated that
he could not approve the settlement until he received from State
Farm a breakdown of the amount of benefits to be paid, objected to
State Farm being allowed to consider the existence of other
insurance coverage, and objected to the proposed reinstatement
date, demanding that it be January 1, 1992.
23
In its October 13 letter, State Farm itemized the benefits it
intended to pay, stated that it would consider any additional
medical expenses under the terms of the policy, agreed to reinstate
the policy effective January 1, 1992, agreed not to refuse renewal
of the policy because of other insurance, but only "in the event of
discontinuation of all policies of the class in which this policy
falls", and forwarded a revised proposed release.
24
By his October 21 letter, the Cavallinis' counsel objected to
the second proposed release regarding the release of claims that
the Cavallinis "may have" in the future, its characterization of
the policy as a "group" policy, and its indemnity provisions,
stating that they were "in violation of" or "not part of" the
"settlement agreement". (Emphasis added.) He also questioned why
he was being asked to sign the release.
Interestingly, the release terms to which counsel objected
also appeared in the first proposed release sent to him on
September 29; but, he did not object to them in his October 8
letter. This is but one of several such instances, reflected in
the acerbic letters by the Cavallinis' counsel (as well as his
contentions in this appeal), which we find most troubling. They
reflect uncivil conduct that must be avoided. Sadly, such conduct
is of increasing concern. It serves no purpose worthy of the legal
profession, and results in delay in dispute resolution at greatly
increased costs not only to the parties, but to the public, both in
delaying resolution of other litigation and in increasing the costs
for running the federal courts. Dondi Properties Corp. v. Commerce
Sav. & Loan Ass'n, 121 F.R.D. 284 (N.D. Tex. 1988) (en banc)
(establishing standards of litigation conduct) states the problem
well:
With alarming frequency, we find that valuable
- 23 -
date (both October 21 letters were transmitted electronically);25
and that an October 23 letter from the Cavallinis' counsel was a
request for further modification,26 to which State Farm partially
agreed by an October 27 letter.27 Moreover, it held that the
judicial and attorney time is consumed in resolving
unnecessary contention and sharp practices between
lawyers. Judges and magistrates of this court are
required to devote substantial attention to
refereeing abusive litigation tactics that range
from benign incivility to outright obstruction.
Our system of justice can ill-afford to devote
scarce resources to supervising matters that do not
advance the resolution of the merits of a case; nor
can justice long remain available to deserving
litigants if the costs of litigation are fueled
unnecessarily to the point of being prohibitive.
As judges and former practitioners from varied
backgrounds and levels of experience, we judicially
know that litigation is conducted today in a manner
far different from years past. Whether the
increased size of the bar has decreased
collegiality, or the legal profession has become
only a business, or experienced lawyers have ceased
to teach new lawyers the standards to be observed,
or because of other factors not readily
categorized, we observe patterns of behavior that
forebode ill for our system of justice. We now
adopt standards designed to end such conduct.
Id. at 286 (footnote omitted).
25
In its responding October 21 letter, State Farm agreed to
delete the objectionable language from the release, and stated that
it would accept the release without counsel's signature; it
enclosed a third revised proposed release.
26
The Cavallinis' counsel objected, by letter of October 23, to
the third proposed release, on the ground that it was a "blanket"
release that would leave his clients without any recourse to pursue
future claims against State Farm, and demanded that State Farm
place the policy benefits of $1,000,000 in trust, to be
administered by a neutral third party.
27
In its October 27 letter, State Farm agreed to "dispense with
the Release and resolve this matter with a simple dismissal with
prejudice of the lawsuit".
- 24 -
agreement was enforceable under Tex. R. Civ. P. 11, because it had
been reduced to writing, the signed letters were on file with the
court, and their authenticity was uncontested at the evidentiary
hearing.28
As hereinafter discussed, and based upon our required de novo
review of the record, we agree with the district court. On the
other hand, the Cavallinis contend primarily that, even assuming
the existence of a valid Rule 11 agreement, they revoked their
consent to it prior to the entry of judgment, see note 20, supra;
that State Farm's October 13 letter did not constitute an
acceptance of their October 8 counteroffer; and that the summary
judgment order does not reflect accurately the settlement terms.
28
The Cavallinis assert that the district court erred by relying
on Borden v. Banacom Mfg. & Marketing, Inc., 698 F. Supp. 121 (N.D.
Tex. 1988), to supposedly extend state law, asserting that no Texas
case has gone as far as Borden to allow letters between counsel to
satisfy Rule 11's "writing" requirement. But, the court cited
Borden only for the proposition (with which the Cavallinis agree)
that Texas law controls the enforceability of the settlement
agreement. In any event, for applying state law, Erie R. Co. v.
Tompkins, 304 U.S. 64 (1938), does not require that there be a
Texas case directly on point; absent such case law construing Rule
11, we look to the elements of the rule. In so doing, we do not
suggest any expansion of Texas law.
The Cavallinis maintain also that Borden is distinguishable
because it held that Rule 11's signature requirement had been
satisfied by the parties' open court adoption of the correspondence
exchanged between them, and that such open court adoption did not
take place here. The settlement agreement in Borden consisted of
correspondence between counsel for one of the defendants and for
Borden. 628 F. Supp. at 122. Other defendants, who had not signed
the correspondence, sought to enforce the settlement. Id. The
district court held that the Rule was satisfied by those
defendants' adoption of the agreement in open court. Id. at 124.
Here, the Rule was satisfied by the signatures of the Cavallinis'
counsel and State Farm's representatives; open court adoption was
not necessary.
- 25 -
1.
The Cavallinis' revocation contention confuses Texas law on
consent judgments with that on enforceability of settlement
agreements. The cases relied on by the Cavallinis stand for the
proposition that, "notwithstanding a valid Rule 11 agreement,
consent must exist at the time an agreed judgment is rendered."
See Kennedy v. Hyde, 682 S.W.2d at 528.
[W]hile a party can enter into a valid and binding
settlement agreement pending disposition of the
case, a trial court cannot enter into a consent
judgment which incorporates the terms of that
agreement if one of the parties thereto withdraws
consent prior to entry of the judgment. This does
not render the settlement agreement or its
enforceability invalid--only a judgment entered in
the above manner.
Stewart v. Mathes, 528 S.W.2d 116, 118 (Tex. Civ. App.--Beaumont
1975, no writ) (emphasis in original). See also Quintero v. Jim
Walter Homes, Inc., 654 S.W.2d 442, 444 (Tex. 1983) (reversing
judgment entered on joint motion to dismiss because one of the
parties had withdrawn consent, "without prejudice to the rights [of
the other party] in its attempt to plead and prove an enforceable
settlement agreement under the release"); Burnaman v. Heaton, 150
Tex. 333, 240 S.W.2d 288, 292 (1951) ("the reversal of the
[consent] judgment should be without prejudice to the right of
defendants to plead the [settlement] agreement in bar of
plaintiff's suit").
Obviously, State Farm did not seek entry of an agreed judgment
or a consent judgment; instead, it sought summary judgment on the
basis that the parties had entered into an enforceable settlement
- 26 -
agreement. Although revocation of consent prior to entry of an
agreed judgment has the effect of voiding the judgment under Texas
law, it does not affect the enforceability of the underlying
settlement agreement. See, e.g., Quintero, 654 S.W.2d at 444.
Moreover, addressing a similar contention that a settlement
agreement ceased to be binding because the defendants had withdrawn
their consent before entry of judgment, our court stated that
[w]hether such withdrawal is or is not permissible
under Texas law ... is irrelevant. Unless the
defendants can demonstrate that the judgment
differs materially from their agreement, or that
their agreement was invalid under state law at the
time it was made, a federal court may hold them to
their word by incorporating the terms of their
agreement into a final judgment.
White Farm Equip. Co. v. Kupcho, 792 F.2d 526, 530 (5th Cir. 1986).
Accordingly, for purposes of determining whether the Cavallinis
entered into an enforceable settlement agreement, it is irrelevant
that they attempted to revoke their consent prior to entry of
judgment.
2.
In asserting that State Farm's October 13 letter was not an
acceptance of an October 8 counteroffer, the Cavallinis note that
their October 8 letter states that "State Farm issued an individual
policy which must stand on its own without regard to other coverage
now or in the future", but that State Farm's October 13 response
"added" a provision to which they never agreed, giving it the right
to refuse renewal "in the event of discontinuation of all policies
of the class in which this policy falls". This contention
overlooks the fact that the language in question was not a "new"
- 27 -
provision "added" to State Farm's October 13 response; the
identical language appeared in its September 24 offer and in the
first proposed release, delivered on September 29 for that offer.
See note 21, supra. And, as discussed in notes 22 and 24, supra,
the Cavallinis' counsel did not object in his October 8 letter to
that provision, but only to the language regarding refusal of
renewal based on the existence of other coverage. As is the case
with the other provisions of State Farm's September 24 offer not
rejected by the October 8 counteroffer (i.e., payment of $110,000),
this provision became part of the agreement.29
3.
29
Another basis urged by the Cavallinis for the settlement
agreement being unenforceable is that their counsel's October 8
letter stated he would not approve the settlement until he had an
opportunity to review the numbers calculated by State Farm, and
that he never confirmed that the amounts itemized in State Farm's
October 13 response were satisfactory. This contention borders on
being a misstatement of the record. As to the "numbers" involved
in the settlement, counsel's October 8 letter does not include a
condition that prevented State Farm's October 13 letter from
constituting an acceptance; rather, it was a request for
information necessary for a complete statement of the terms of the
agreement. Counsel's October 8 letter states merely that,
as to the remainder of the benefits payable, I have
not received anything from State Farm regarding the
amount that State Farm is going to pay. I can not
and will not on a carte blanche basis approve a
settlement when the actual numbers are not before
me.
State Farm supplied the requested information by its October 13
letter. The Cavallinis' counsel never expressed any objection to
the numbers provided, thus indicating that he viewed State Farm's
October 13 letter as complying with that portion of his October 8
counteroffer. In short, this contention is but another of several
troubling tactics by the Cavallinis' counsel. See note 24, supra.
- 28 -
In one respect, the Cavallinis are correct that the summary
judgment order does not reflect accurately the terms of the
settlement.30 State Farm agrees that the inclusion of language
allowing it to cancel the policy in the event of overinsurance is
a clerical error, and requests that the order be reformed
accordingly.
III.
For the foregoing reasons, the January 20, 1994, order is
modified by deleting the words "overinsurance or" in paragraph "3)"
at page 8; and, pursuant to that order as modified, the judgment is
AFFIRMED.
30
In their reply brief, the Cavallinis assert that the "judgment
relates to the reinstatement of policy number H4245741 5353, the
income policy, and is thus, void as to the hospitalization policy,
policy number H4245740 5353, which it attempts to reinstate." We
do not understand this contention. The judgment makes no mention
of the terms; it notes its order of the same date which, of course,
does state them. One of those terms is that
State Farm will retroactively reinstate the Limited
Benefit Hospital-Surgical Policy in question
effective 12:01 A.M 1/1/92 for all members of the
Cavallini family who were insured under the policy
at the time of termination without regard to
comparable other insurance.
The district court did not refer to the policy by number, but
merely restated one of the terms of the settlement agreement, as
established by the correspondence between State Farm and the
Cavallinis. We do not understand the Cavallinis to contend that
the correspondence refers to reinstatement of any policy other than
the hospitalization policy. Accordingly, there is no need for
modification or reformation of this provision of the order.
- 29 -