Finnswest LLC v. United States Liability Insurance Company, et al.

• Court: District Court, D. Arizona
• Decided: April 28, 2026
• Docket: 2:26-cv-00301
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Finnswest LLC, No. CV-26-00301-PHX-MTL

10 Plaintiff, ORDER

11 v.

12 United States Liability Insurance Company, et al., 13 Defendants. 14 15 Defendant United States Liability Insurance Company (“USLIC”), a Nebraska 16 corporation, removed this case from Arizona Superior Court in Maricopa County based on 17 diversity of citizenship jurisdiction under 28 U.S.C. § 1332. Plaintiff Finnswest LLC 18 (“Finnswest”) and Defendant Infinity Insurance Services LLC (“Infinity”) are both 19 Arizona residents, which almost always precludes diversity jurisdiction. But USLIC argues 20 in the Notice of Removal that Infinity was fraudulently joined to defeat federal jurisdiction. 21 Now pending before the Court are Finnswest’s motion to remand this removed 22 action to state court (Doc. 12) and Infinity’s motion to dismiss (Doc. 24). Finnswest’s 23 motion to remand will be granted and this action will be remanded to state court. Infinity’s 24 motion to dismiss will be left pending for the Superior Court to address in its discretion on 25 remand. 26 I. 27 This is a typical insurance bad faith case. In October 2024, a fire damaged 28 Finnswest’s restaurant, resulting “in a complete closure of [the] restaurant business 1 operations.” (Doc. 1-1 at 4-5.) Finnswest was insured under a USLIC policy. (Id. at 4.) 2 USLIC in turn “engaged Defendant Infinity to handle the adjustment” of Finnswest’s claim 3 under the USLIC policy. (Id. at 5.) As part of the claim adjustment process, Infinity 4 inspected the property and “prepared estimates for the loss.” (Id.) Finnswest alleges that 5 Infinity “significantly undervalu[ed] the damage.” (Id.) 6 Finnswest claims that Defendants “failed to promptly and fairly evaluate and pay 7 the full amounts due under the Policy for the covered loss,” including property damage and 8 business income loss. (Id.) Although Finnswest alleges that the business income loss 9 totaled over $430,000 between November 2024 and June 2025, “Defendants calculated a 10 loss of only $36,079.00 through April 2025.” (Id. at 6.) Finnswest also alleges that 11 Defendants “delayed payment of advances necessary for [Finnswest] to resume business 12 operations,” “utilized third-party reviewers who never inspected the Property to dispute 13 and reduce amounts claimed by [Finnswest’s] contractors and vendors,” and “failed to 14 timely pay undisputed amounts under the Policy, forcing [Finnswest] to repeatedly demand 15 payment and explanations for denials and reductions.” (Id.) Finnswest alleges it was 16 “forced to cease operations of the business in November 2025” and incurred “adjuster fees, 17 accounting fees, appraisal fees, attorneys’ fees, [and] litigation costs.” (Id.) 18 In November 2025, Finnswest brought this suit in Arizona Superior Court, asserting 19 claims against USLIC for breach of contract and breach of the duty of good faith and fair 20 dealing and a claim against Infinity for aiding and abetting USLIC’s breach of the duty of 21 good faith and fair dealing. (See id. at 3, 7-10.) 22 In January 2026, USLIC removed the suit to this Court. (Doc. 1.) USLIC asserted 23 that this Court has subject matter jurisdiction pursuant to diversity jurisdiction under 28 24 U.S.C. § 1332(a). (See id. at 3.) USLIC alleges that the amount-in-controversy requirement 25 is met and that for purposes of diversity jurisdiction, it is a citizen of Nebraska, Finnswest 26 is a citizen of Arizona, and although Infinity is a citizen of Arizona, “its citizenship should 27 be disregarded for purposes of this removal as [Infinity] has been fraudulently joined as a 28 defendant.” (Id. at 2-3.) 1 Finnswest filed a motion to remand, arguing that this Court lacks subject matter 2 jurisdiction over this action because complete diversity does not exist between the parties 3 and because USLIC “cannot show that [Infinity] was fraudulently joined in this matter to 4 defeat diversity jurisdiction.” (Doc. 12 at 1.) Finnswest requests attorneys’ fees and costs 5 for what it argues was an improper removal. (Id. at 7-8.) This motion is fully briefed. (Docs. 6 19, 25.) 7 Infinity separately filed a motion to dismiss, arguing that Finnswest failed to state a 8 claim against it for aiding and abetting. (Doc. 24.) This motion is also fully briefed. (Docs. 9 28, 31.) 10 II. 11 It is undisputed that complete diversity between the parties is not present if Infinity 12 was properly joined because Finnswest and Infinity are both citizens of Arizona. (See Doc. 13 1 at 2-3; Doc. 12 at 2-3; Doc. 19 at 1.) This Court thus has subject matter jurisdiction over 14 this action only if Infinity was fraudulently joined. For the following reasons, the Court 15 finds that Infinity was not fraudulently joined, so the Court lacks subject matter jurisdiction 16 over this action, and it will be remanded to state court. The Court thus need not address 17 Infinity’s motion to dismiss and leaves its resolution to the state court on remand. 18 A. 19 Pursuant to 28 U.S.C. § 1441(a), a defendant may remove an action filed in state 20 court to federal court if the case could have been filed there in the first instance. When 21 removing based on diversity, there must be “complete diversity, meaning that each plaintiff 22 must be of a different citizenship from each defendant.” Grancare, LLC v. Thrower, 889 23 F.3d 543, 548 (9th Cir. 2018). Although complete diversity between the parties is required, 24 “district courts may disregard the citizenship of a non-diverse defendant who has been 25 fraudulently joined.” Id. “There are two ways to establish fraudulent joinder: (1) actual 26 fraud in the pleading of jurisdictional facts, or (2) inability of the plaintiff to establish a 27 cause of action against the non-diverse party in state court.” Id. (quotation marks omitted). 28 As for the second option, a defendant can establish fraudulent joinder “if a defendant shows 1 that an individual joined in the action cannot be liable on any theory,” but “if there is a 2 possibility that a state court would find that the complaint states a cause of action against 3 any of the resident defendants, the federal court must find that the joinder was proper and 4 remand the case to the state court.” Id. (citation modified). This analysis “shares some 5 similarities with the analysis under Rule 12(b)(6),” but a defendant “has not necessarily 6 been fraudulently joined” even if a “claim against a defendant may fail under Rule 7 12(b)(6).” Id. at 549. Thus, “the standard is similar to the ‘wholly insubstantial and 8 frivolous’ standard for dismissing claims under Rule 12(b)(1) for lack of federal question 9 jurisdiction.” Id. (citation omitted). Accordingly, “[i]f a plaintiff’s complaint can withstand 10 a Rule 12(b)(6) motion with respect to a particular defendant, it necessarily follows that 11 the defendant has not been fraudulently joined,” but “the reverse is not true” because a 12 court “must consider . . . whether a deficiency in the complaint can possibly be cured by 13 granting the plaintiff leave to amend.” Id. at 550. 14 Ultimately, a defendant invoking fraudulent joinder as a basis to remove to federal 15 court “bears a heavy burden.” Id. at 548 (quotation marks omitted). Federal courts “strictly 16 construe the removal statute against removal jurisdiction,” such that “[f]ederal jurisdiction 17 must be rejected if there is any doubt as to the right of removal in the first instance.” Gaus 18 v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992) (per curiam). This “strong presumption 19 against removal jurisdiction means that the defendant always has the burden of establishing 20 that removal is proper.” Id. (quotation marks omitted). 21 B. 22 USLIC relies on the second option for establishing fraudulent joinder (Doc. 1 at 2- 23 3), i.e., that Infinity “cannot be liable on any theory,” Grancare, 889 F.3d at 548 (citation 24 omitted). Specifically, USLIC argued in its notice of removal that aiding-and-abetting 25 claims under Arizona law, if allowed against an adjuster, require separate conduct by the 26 adjuster, and Finnswest has not alleged any such conduct by Infinity. (See Doc. 1 at 2-3.) 27 As the party advancing federal court jurisdiction, USLIC has the burden of demonstrating 28 that Infinity is fraudulently joined. See Grancare, 889 F.3d at 548. 1 In the motion to remand, Finnswest argues that claims adjusters can be liable for 2 aiding and abetting an insurer’s violation of the duty of good faith and fair dealing, which 3 is the claim asserted against Infinity. (Doc. 12 at 4.) Finnswest also argues that it has 4 alleged sufficient conduct by Infinity to state a claim, including that Infinity “directed the 5 investigation, prepared biased and deficient estimates, communicated coverage positions 6 to [Finnswest], and made substantive decisions regarding coverage – knowing [USLIC] 7 would rely on those determinations.” (Id. at 5-7.) 8 In response, USLIC acknowledges that “courts have reached varying results as to 9 whether an independent adjuster, the agent of the insurer, can be liable for aiding and 10 abetting.” (Doc. 19 at 3.) USLIC argues, however, that “the adjuster can only be held liable 11 for aiding and abetting an insurer’s breach of the duty of good faith and fair dealing if the 12 plaintiff alleges some action” that is different from that taken by the insurer. (Id.) USLIC 13 maintains that Finnswest has not done so because all of Infinity’s actions alleged in the 14 complaint were “done for and on [USLIC’s] behalf,” and there is “no separate conduct that 15 is different than the conduct alleged with regard to [USLIC] itself.” (Id. at 4.) USLIC notes 16 that the complaint refers to the defendants collectively when describing the actions taken 17 that supposedly were done by Infinity alone. (See id. at 4-5.) Thus, USLIC argues, “there 18 is no possibility of a separate aiding and abetting claim under existing Arizona law” 19 because the “alleged bad faith claim is based on the same conduct as the aiding and abetting 20 claim.” (Id. at 5.) 21 Considering the high standard for establishing fraudulent joinder, the Court agrees 22 with Finnswest that USLIC has not met its burden of establishing that Finnswest’s claim 23 against Infinity is “wholly insubstantial and frivolous.” Grancare, 889 F.3d at 549 (citation 24 omitted). USLIC itself states that Arizona law is not clear as to whether an insurance 25 adjuster can be held liable under an aiding-and-abetting claim (Doc. 19 at 3), so there is a 26 “possibility that a state court would find that the complaint states a cause of action” against 27 Infinity. See Grancare, 889 F.3d at 548 (citation omitted); see also Aguado v. XL Ins. Am., 28 721 F. Supp. 3d 811, 815 (D. Ariz. 2024) (“Although courts in this District often have held 1 that Arizona law would permit a claim against an adjuster . . . for aiding and abetting the 2 insurer’s bad faith conduct, no conclusive case law exists. Thus, whether Arizona law 3 would recognize such a tort remains unclear.”). 4 USLIC may be correct that Finnswest has not alleged separate conduct taken by 5 Infinity that is “separate and apart from the facts giving rise to a claim against the insurer” 6 (assuming that Arizona law would require such allegations). Aguado, 721 F. Supp. 3d at 7 816 (citation omitted). Finnswest admits that there is “some overlap in alleged conduct” 8 (Doc. 25 at 2), and the actions supporting the bad faith claim against USLIC are largely 9 based on the same conduct supporting the aiding-and-abetting claim against Infinity. 10 According to the complaint, some of the following conduct forms the basis of the bad faith 11 claim against USLIC: (1) failing to properly investigate Finnswest’s claim, 12 (2) “[l]owballing claims,” and (3) engaging third-party reviewers to dispute claimed 13 amounts that never inspected the property. (Doc. 1-1 at 8-9.) But these allegations appear 14 in large part based on Infinity’s actions, some of the same actions that Finnswest argues 15 are separate conduct. (See Doc. 12 at 5 (citing Infinity’s inspection, undervalued estimates, 16 direction of the claim investigation, and communication with Finnwest); Doc. 25 at 2.) 17 Indeed, the complaint refers to the defendants collectively when describing the “inadequate 18 estimates,” “Defendants’ investigation,” and engagement of third-party reviewers, which 19 implies collective conduct rather than separate conduct by Infinity. (See Doc. 1-1 at 5-6); 20 Aguado, 721 F. Supp. 3d at 816-17 (“[T]he complaint’s ubiquitous use of the collective 21 term ‘Defendants’ undermines Plaintiff’s contention that Intercare committed separate acts 22 that aided and abetted actions taken by XL Insurance.”). 23 Despite these deficiencies, the Court cannot conclude that Finnswest could never 24 state an aiding-and-abetting claim against Infinity, particularly considering that Finnswest 25 could be given leave to amend its claim. See Grancare, 889 F.3d at 550 (stating that “the 26 district court must consider . . . whether a deficiency in the complaint can possibly be cured 27 by granting the plaintiff leave to amend”); Owen v. Super. Ct., 133 Ariz. 75, 79 (1982) 28 (“Leave to amend is discretionary, but amendments will be liberally allowed; trial on the 1 merits of the claim is favored, and amendment will be permitted unless there has been 2 undue delay, dilatory action or undue prejudice.”). First, Finnswest alleges that Infinity 3 made coverage decisions for the claim after its alleged faulty inspection. (Doc. 1-1 at 5, 4 10.) This might be sufficient separate conduct for Finnswest to state a claim. See Miller v. 5 York Risk Servs. Grp., No. 2:13-cv-1419 JWS, 2013 WL 6442764, at *5 (D. Ariz. Dec. 9, 6 2013) (finding a plaintiff likely stated an aiding-and-abetting claim where the plaintiff 7 alleged “the absence of a reasonable basis for denying the claim[] and . . . the [primary 8 tortfeasor] either participated in or approved of Defendant’s actions”); Inman v. Wesco Ins. 9 Co., No. CV-12-02518-PHX-GMS, 2013 WL 2635603, at *2 (D. Ariz. June 12, 2013) 10 (finding a plaintiff stated an aiding-and-abetting claim against an adjuster that “had 11 evidence before her that demonstrated [the plaintiff’s] entitlement to certain benefits, but 12 she nevertheless denied portions of his claim”). 13 Second, even if Finnswest failed to state a claim in the complaint’s current iteration, 14 this would not establish fraudulent joinder because, if Finnswest were given leave to 15 amend, it would be able to correct the deficiencies in grouping USLIC’s and Infinity’s 16 actions together. See Grancare, 889 F.3d at 552 (“GranCare argues that the heirs erred in 17 ‘lumping’ [the alleged fraudulently joined defendant] with other defendants by alleging 18 misconduct against all defendants collectively . . . and that the heirs did not sufficiently 19 allege negligence. Because these arguments go to the sufficiency of the complaint, rather 20 than to the possible viability of the heirs’ claims against [the alleged fraudulently joined 21 defendant], they do not establish fraudulent joinder.”). Considering some allegations in the 22 complaint, it is possible that Finnswest might be able to state a claim upon amendment. 23 (See Doc. 1-1 at 5 (stating the Infinity prepared estimates that undervalued property 24 damage); id. at 10 (alleging that Infinity was “biased in its interpretation of the Policy”)); 25 Morrow v. Boston Mut. Life Ins. Co., No. CIV 06-2635-PHX-SMM, 2007 WL 3287585, 26 at *5 (D. Ariz. Nov. 5, 2007) (finding the plaintiff stated an aiding-and-abetting claim 27 where the plaintiff alleged the defendant “provid[ed] a biased and unsubstantiated 28 opinion”). 1 The claim against Infinity is ultimately colorable, especially if Finnswest were given 2 leave to amend. See Grancare, 889 F.3d at 551 (finding that because the plaintiffs alleged 3 a “colorable” claim, the defendant had not “demonstrated that there [was] no possibility 4 that [they] could prevail”). Cases in similar circumstances have also been remanded. See 5 Hoffman v. Cincinnati Ins. Co., No. CV-21-00106-TUC-JCH, 2021 WL 4962648, at *4 6 (D. Ariz. Oct. 26, 2021) (granting motion to remand because the “state court could possibly 7 find that Plaintiffs have sufficiently stated an aiding and abetting claim against [the 8 defendant] based upon her alleged acts of ignoring important information and causing 9 error, exercising independent judgement, or acting in furtherance of [the insurer’s] failure 10 to investigate the claim”). Indeed, this Court has noted that it “need not conclude that [the 11 plaintiff] has stated a claim for aiding and abetting . . . at this juncture,” but rather that the 12 plaintiff “sufficiently raised the possibility of an aiding and abetting claim such that 13 removal” is improper. Whitcomb v. Twin City Ins. Co., No. CV-20-01770-PHX-MTL, 2020 14 WL 6699499, at *4 (D. Ariz. Nov. 13, 2020). The same is true here. USLIC has not met its 15 heavy burden of establishing fraudulent joinder, so Finnswest’s motion to remand will be 16 granted. 17 III. 18 Finnswest requests an award of attorneys’ fees and costs, arguing that USLIC’s 19 removal was “objectively unreasonable.” (Doc. 12 at 7-8.) USLIC opposes an award of 20 fees. (Doc. 19 at 5-7.) In its discretion, the Court will not award fees. 21 “An order remanding the case may require payment of just costs and any actual 22 expenses, including attorney fees, incurred as a result of the removal.” 28 U.S.C. § 1447(c). 23 “Costs and attorney’s fees may be awarded . . . if [the removing party’s] decision to remove 24 was objectively unreasonable.” Grancare, 889 F.3d at 552. “Removal is not objectively 25 unreasonable solely because the removing party’s arguments lack merit, or else attorney’s 26 fees would always be awarded whenever remand is granted.” Id. (quotation marks omitted). 27 “The appropriate test for awarding fees under § 1447(c) should recognize the desire to deter 28 removals sought for the purpose of prolonging litigation and imposing costs on the 1 opposing party, while not undermining Congress’ basic decision to afford defendants a 2 right to remove as a general matter, when the statutory criteria are satisfied.” Martin v. 3 Franklin Cap. Corp., 546 U.S. 132, 140 (2005). 4 In Gardner v. UICI, the Ninth Circuit held that the district court abused its discretion 5 in awarding fees under § 1447(c) where it was not obvious under the settled rules of state 6 law that the plaintiff failed to state a claim. 508 F.3d 559, 562-63 (9th Cir. 2007). The court 7 held that “a reasonable litigant . . . could have concluded that federal court was the proper 8 forum in which to litigate [the plaintiff’s] claims because the [complaint] failed to state a 9 claim against . . . the only resident defendant.” Id. at 562. Here, it is not settled under 10 Arizona law whether an aiding-and-abetting claim may be asserted against an insurance 11 adjuster and, consequently, what standard applies to evaluating whether the plaintiff’s 12 allegations state a claim. See Aguado, 721 F. Supp. 3d at 815-16.* A reasonable litigant in 13 USLIC’s position could therefore have concluded that removal to federal court was proper. 14 See Gardner, 508 F.3d at 562. The Court will not award fees to Finnswest under § 1447(c). 15 See Ibarra v. Kennedy Funding, Inc., No. CV 13-2371-TUC-JAS-LAB, 2014 WL 16 4803170, at *1, 3 (D. Ariz. Sep. 26, 2014) (accepting report and recommendation denying 17 fees under § 1447(c) because the removal arguments were “at least colorable given the 18 current state of the caselaw”). 19 . . . . 20 * The Court rejects Finnswest’s argument that a recent Arizona Court of Appeals decision 21 rendered removal objectively unreasonable. (See Doc. 12 at 7-8; Doc. 25 at 5.) In Iglesia de Jesucristo Ministerios A Los Pies del Maestro v. Brotherhood Mutual Insurance Co., 22 the Court of Appeals affirmed dismissal of an aiding-and-abetting claim against an inspector, and the decision turned on whether the plaintiff sufficiently alleged knowledge 23 of the primary tort. No. 1 CA-CV 21-0358, 2022 WL 4350936, at *2-3 (Ariz. Ct. App. Sep. 20, 2022). The dissent argued that the majority opinion improperly applied a summary 24 judgment standard of knowledge rather than the less-demanding standard applicable to motions to dismiss. See id. at *7 (Gass, J., dissenting). The Arizona Supreme Court vacated 25 the Court of Appeals’ decision without reasoning and remanded to the “superior court to permit the case to proceed.” See Iglesia v. Augspurger Komm Eng’g Inc., No. CV-22-0248- 26 PR (16), 2023 WL 2418048, at *1 (Ariz. Feb. 28, 2023). The Court agrees with USLIC that this decision did not render removal objectively unreasonable. (Doc. 19 at 6-7.) Iglesia 27 is an unpublished decision, the reasoning in it is not on all fours with USLIC’s arguments in this case, and the Arizona Supreme Court vacated the decision without reasoning. See 28 Ariz. R. Sup. Ct. 111(c) (stating that “[m]emorandum decisions of Arizona state courts are not precedential” and a “party has no duty to cite a memorandum decision”). IV. 2 Accordingly, 3 IT IS ORDERED that the motion to remand (Doc. 12) is granted. The Clerk of 4|| Court is directed to remand this case to the Arizona Superior Court in Maricopa County || for lack of subject matter jurisdiction and close this case. 6 IT IS FURTHER ORDERED that the motion to dismiss (Doc. 24) will remain || pending for the state court to address in its discretion on remand. 8 IT IS FINALLY ORDERED that the Motion Hearing set for May 6, 2026 is 9|| vacated. 10 Dated this 27th day of April, 2026. 11

1 Michael T. Liburdi 14 United States District Judge 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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