THE HONORABLE JOHN C. COUGHENOUR 1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 WESTERN DISTRICT OF WASHINGTON 8 AT SEATTLE 9 J. DAN FIORITO JR., and BARBARA J. CASE NO. C19-1760-JCC FIORITO, husband and wife and the marital 10 community comprised thereof, ORDER 11 Plaintiffs, 12 v. 13 BANKERS STANDARD INSURANCE COMPANY et al., 14 15 Defendants. 16 This matter comes before the Court on Defendants’ objections (Dkt. No. 47) to the report 17 and recommendation (Dkt. No. 46) of the Honorable J. Richard Creatura, United States 18 Magistrate Judge. Having considered the parties’ briefing and the relevant record, the Court 19 hereby OVERRULES Defendants’ objections, APPROVES and ADOPTS Judge Creatura’s 20 report and recommendation, and REMANDS this case for the reasons explained herein. 21 I. BACKGROUND 22 On December 9, 2015, Plaintiffs’ home was seriously damaged when a water tank on the 23 third floor failed. (Dkt. No. 1-1 at 4.) Plaintiffs filed a claim for the damage with their insurer, 24 Defendant Bankers Standard Insurance Company, and hired contractors to repair the home. (Dkt. 25 No. 1-1 at 4–5.) Allegedly, Bankers Standard never questioned the repairs as they were 26 1 proceeding. (See id. at 5.) But once the repairs were complete, Bankers Standard purportedly 2 hired Defendants David Northall and Madsen, Kneppers & Associates, Inc. “for the purpose of a 3 low-balled adjustment of the repair expenses.” (Id. at 6.) According to Plaintiffs, neither Madsen 4 nor Northall were qualified or licensed to act as adjusters. (Id. at 6.) Yet Northall allegedly 5 created a document that was “designed to underpay [Plaintiffs’] insurance claim,” and Bankers 6 Standard allegedly used that document to refuse to pay the claim. (See id. at 5–6.) 7 On September 17, 2019, Plaintiffs filed suit in King County Superior Court against 8 Bankers Standard, Madsen, and Northall. (Id. at 1.) Plaintiffs’ complaint alleged six state law 9 causes of action against Madsen and Northall: “A. Insurance bad faith; B. Acting as an adjuster 10 without a license and with no proper training in violation of [Wash. Rev. Code] § 48.17.380 and 11 [Wash. Admin. Code § 284-17-123]; C. Negligent claims handling; D. Violation of the 12 Consumer Protection Act [(“CPA”)], [Wash Rev. Code ch.] 19.86; E. Constructive Fraud; and F. 13 Negligent misrepresentation.” (Id. at 10.) 14 On October 30, 2019, Bankers Standard removed the lawsuit based on diversity 15 jurisdiction. (Dkt. No. 1 at 1.) In its notice of removal, Bankers Standard asserted that Plaintiffs 16 are citizens of Idaho who own real property in Washington; Bankers Standard is a citizen of 17 Pennsylvania; Madsen is a citizen of Colorado and California; and Northall is a citizen of 18 Washington. (See id. at 2–3.) Bankers Standard also asserted that even if Plaintiffs are citizens of 19 Washington, diversity jurisdiction still existed because Plaintiffs had fraudulently joined 20 Northall. (See id.) 21 For unknown reasons, Plaintiffs never contested Bankers Standard’s assertions that they 22 were citizens of Idaho or that they had fraudulently joined Northall. But when Bankers Standard 23 moved for summary judgment on Plaintiffs’ claims against Northall, Plaintiffs responded that 24 those claims were viable. (See Dkt. No. 31 at 15–18.) Judge Creatura astutely recognized that if 25 those claims were viable, then the Court might lack diversity jurisdiction. Accordingly, Judge 26 Creatura sua sponte ordered all parties to show cause why the case should not be remanded for 1 lack of jurisdiction. (Dkt. No. 38.) 2 In response to Judge Creatura’s order, Plaintiffs said that they are citizens of Washington 3 and reiterated that their claims against Northall are viable. (See Dkt. No. 41 at 1–2.) Defendants 4 did not dispute that Plaintiffs were citizens of Washington but insisted that Washington law 5 precludes their claims against Northall. (See Dkt. No. 39 at 1–3.) After carefully surveilling 6 Washington law, Judge Creatura found that Washington courts might allow a common law claim 7 of insurance bad faith against Northall. (See Dkt. No. 46 at 7–10.) Accordingly, Judge Creatura 8 recommends that the Court remand this case for lack of subject matter jurisdiction. (Id. at 10.) 9 Defendants object. (Dkt. No. 47.) 10 II. DISCUSSION 11 The test for fraudulent joinder is strict: “if there is a ‘possibility that a state court would 12 find that the complaint states a cause of action against any one of the [non-diverse] defendants,’” 13 the district court must remand the case. Grancare, LLC v. Thrower by & through Mills, 889 F.3d 14 543, 549 (9th Cir. 2018) (emphasis in original) (quoting Hunter v. Philip Morris USA, 582 F.3d 15 1039, 1046 (9th Cir. 2009)). This strict test stems from “the presumption against removal.” See 16 id. at 549–50. The test is also meant to balance a plaintiff’s right to choose where and whom they 17 sue with a defendant’s right to remove. See 14C Charles Alan Wright & Arthur R. Miller, 18 Federal Practice and Procedure § 3723.1 (4th ed. 2020). 19 Judge Creatura concludes that the strict test for fraudulent joinder is not met here because 20 there is a possibility that a Washington court might allow a common law claim of insurance bad 21 faith against Northall. (See Dkt. No. 46 at 7–10.) Judge Creatura bases his conclusion on the 22 following: (1) in Merriman v. American Guarantee & Liability Insurance Co., 396 P.3d 351 23 (Wash. Ct. App. 2017), the Washington Court of Appeals held that an insured could assert a 24 common law claim of bad faith against an insurance adjuster; (2) the Washington Supreme Court 25 declined to explicitly overrule Merriman when given the chance in Keodalah v. Allstate 26 Insurance Co., 449 P.3d 1040 (Wash. 2019); (3) no other Washington Supreme Court case 1 expressly bars common law bad faith claims against insurance adjusters; (4) there are at least 2 some Washington Supreme Court cases that could be read to impose a common law duty of good 3 faith on insurance adjusters; and (5) Judge Ronald B. Leighton recently came to the same 4 conclusion in Leonard v. First American Property & Casualty Insurance Co., Case No. C19- 5 6089-RBL, Dkt. No. 18 (W.D. Wash. 2020). (See Dkt. No. 46 at 7–10.) 6 Defendants object to Judge Creatura’s conclusion on three main grounds. First, 7 Defendants argue that Merriman was actually a statutory interpretation case that the Washington 8 Supreme Court overruled in Keodalah. (Dkt. No. 47 at 2–3.) Second, Defendants claim that 9 Judge Creatura’s reading of Koedalah is “unduly narrow” because it does not give proper weight 10 to Keodalah’s statement that the Washington Supreme Court “has limited bad-faith tort claims to 11 the context of the insurer-insured relationship.” (See id. at 1, 3–5) (quoting Keodalah, 449 P.3d 12 at 1047). Finally, Defendants discuss how the Washington Supreme Court described the insurer- 13 insured relationship and the source of the duty of good faith in cases prior to Keodalah. (See id. 14 at 3–11.) Those cases, Defendants argue, are best read as precluding insureds from bringing 15 common law bad faith claims against insurance adjusters. (Id.) 16 Defendants’ first objection ignores half of Meeriman’s reasoning. While the Washington 17 Court of Appeals held that Wash. Rev. Code § 48.01.030 imposes a duty of good faith on 18 insurance adjusters, the court also held that “judicial decisions” and “case law” imposed that 19 duty as well. See Meeriman, 396 P.3d 359–60 (“‘The duty of good faith has been imposed on the 20 insurance industry in this state by a long line of judicial decisions.
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THE HONORABLE JOHN C. COUGHENOUR 1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 WESTERN DISTRICT OF WASHINGTON 8 AT SEATTLE 9 J. DAN FIORITO JR., and BARBARA J. CASE NO. C19-1760-JCC FIORITO, husband and wife and the marital 10 community comprised thereof, ORDER 11 Plaintiffs, 12 v. 13 BANKERS STANDARD INSURANCE COMPANY et al., 14 15 Defendants. 16 This matter comes before the Court on Defendants’ objections (Dkt. No. 47) to the report 17 and recommendation (Dkt. No. 46) of the Honorable J. Richard Creatura, United States 18 Magistrate Judge. Having considered the parties’ briefing and the relevant record, the Court 19 hereby OVERRULES Defendants’ objections, APPROVES and ADOPTS Judge Creatura’s 20 report and recommendation, and REMANDS this case for the reasons explained herein. 21 I. BACKGROUND 22 On December 9, 2015, Plaintiffs’ home was seriously damaged when a water tank on the 23 third floor failed. (Dkt. No. 1-1 at 4.) Plaintiffs filed a claim for the damage with their insurer, 24 Defendant Bankers Standard Insurance Company, and hired contractors to repair the home. (Dkt. 25 No. 1-1 at 4–5.) Allegedly, Bankers Standard never questioned the repairs as they were 26 1 proceeding. (See id. at 5.) But once the repairs were complete, Bankers Standard purportedly 2 hired Defendants David Northall and Madsen, Kneppers & Associates, Inc. “for the purpose of a 3 low-balled adjustment of the repair expenses.” (Id. at 6.) According to Plaintiffs, neither Madsen 4 nor Northall were qualified or licensed to act as adjusters. (Id. at 6.) Yet Northall allegedly 5 created a document that was “designed to underpay [Plaintiffs’] insurance claim,” and Bankers 6 Standard allegedly used that document to refuse to pay the claim. (See id. at 5–6.) 7 On September 17, 2019, Plaintiffs filed suit in King County Superior Court against 8 Bankers Standard, Madsen, and Northall. (Id. at 1.) Plaintiffs’ complaint alleged six state law 9 causes of action against Madsen and Northall: “A. Insurance bad faith; B. Acting as an adjuster 10 without a license and with no proper training in violation of [Wash. Rev. Code] § 48.17.380 and 11 [Wash. Admin. Code § 284-17-123]; C. Negligent claims handling; D. Violation of the 12 Consumer Protection Act [(“CPA”)], [Wash Rev. Code ch.] 19.86; E. Constructive Fraud; and F. 13 Negligent misrepresentation.” (Id. at 10.) 14 On October 30, 2019, Bankers Standard removed the lawsuit based on diversity 15 jurisdiction. (Dkt. No. 1 at 1.) In its notice of removal, Bankers Standard asserted that Plaintiffs 16 are citizens of Idaho who own real property in Washington; Bankers Standard is a citizen of 17 Pennsylvania; Madsen is a citizen of Colorado and California; and Northall is a citizen of 18 Washington. (See id. at 2–3.) Bankers Standard also asserted that even if Plaintiffs are citizens of 19 Washington, diversity jurisdiction still existed because Plaintiffs had fraudulently joined 20 Northall. (See id.) 21 For unknown reasons, Plaintiffs never contested Bankers Standard’s assertions that they 22 were citizens of Idaho or that they had fraudulently joined Northall. But when Bankers Standard 23 moved for summary judgment on Plaintiffs’ claims against Northall, Plaintiffs responded that 24 those claims were viable. (See Dkt. No. 31 at 15–18.) Judge Creatura astutely recognized that if 25 those claims were viable, then the Court might lack diversity jurisdiction. Accordingly, Judge 26 Creatura sua sponte ordered all parties to show cause why the case should not be remanded for 1 lack of jurisdiction. (Dkt. No. 38.) 2 In response to Judge Creatura’s order, Plaintiffs said that they are citizens of Washington 3 and reiterated that their claims against Northall are viable. (See Dkt. No. 41 at 1–2.) Defendants 4 did not dispute that Plaintiffs were citizens of Washington but insisted that Washington law 5 precludes their claims against Northall. (See Dkt. No. 39 at 1–3.) After carefully surveilling 6 Washington law, Judge Creatura found that Washington courts might allow a common law claim 7 of insurance bad faith against Northall. (See Dkt. No. 46 at 7–10.) Accordingly, Judge Creatura 8 recommends that the Court remand this case for lack of subject matter jurisdiction. (Id. at 10.) 9 Defendants object. (Dkt. No. 47.) 10 II. DISCUSSION 11 The test for fraudulent joinder is strict: “if there is a ‘possibility that a state court would 12 find that the complaint states a cause of action against any one of the [non-diverse] defendants,’” 13 the district court must remand the case. Grancare, LLC v. Thrower by & through Mills, 889 F.3d 14 543, 549 (9th Cir. 2018) (emphasis in original) (quoting Hunter v. Philip Morris USA, 582 F.3d 15 1039, 1046 (9th Cir. 2009)). This strict test stems from “the presumption against removal.” See 16 id. at 549–50. The test is also meant to balance a plaintiff’s right to choose where and whom they 17 sue with a defendant’s right to remove. See 14C Charles Alan Wright & Arthur R. Miller, 18 Federal Practice and Procedure § 3723.1 (4th ed. 2020). 19 Judge Creatura concludes that the strict test for fraudulent joinder is not met here because 20 there is a possibility that a Washington court might allow a common law claim of insurance bad 21 faith against Northall. (See Dkt. No. 46 at 7–10.) Judge Creatura bases his conclusion on the 22 following: (1) in Merriman v. American Guarantee & Liability Insurance Co., 396 P.3d 351 23 (Wash. Ct. App. 2017), the Washington Court of Appeals held that an insured could assert a 24 common law claim of bad faith against an insurance adjuster; (2) the Washington Supreme Court 25 declined to explicitly overrule Merriman when given the chance in Keodalah v. Allstate 26 Insurance Co., 449 P.3d 1040 (Wash. 2019); (3) no other Washington Supreme Court case 1 expressly bars common law bad faith claims against insurance adjusters; (4) there are at least 2 some Washington Supreme Court cases that could be read to impose a common law duty of good 3 faith on insurance adjusters; and (5) Judge Ronald B. Leighton recently came to the same 4 conclusion in Leonard v. First American Property & Casualty Insurance Co., Case No. C19- 5 6089-RBL, Dkt. No. 18 (W.D. Wash. 2020). (See Dkt. No. 46 at 7–10.) 6 Defendants object to Judge Creatura’s conclusion on three main grounds. First, 7 Defendants argue that Merriman was actually a statutory interpretation case that the Washington 8 Supreme Court overruled in Keodalah. (Dkt. No. 47 at 2–3.) Second, Defendants claim that 9 Judge Creatura’s reading of Koedalah is “unduly narrow” because it does not give proper weight 10 to Keodalah’s statement that the Washington Supreme Court “has limited bad-faith tort claims to 11 the context of the insurer-insured relationship.” (See id. at 1, 3–5) (quoting Keodalah, 449 P.3d 12 at 1047). Finally, Defendants discuss how the Washington Supreme Court described the insurer- 13 insured relationship and the source of the duty of good faith in cases prior to Keodalah. (See id. 14 at 3–11.) Those cases, Defendants argue, are best read as precluding insureds from bringing 15 common law bad faith claims against insurance adjusters. (Id.) 16 Defendants’ first objection ignores half of Meeriman’s reasoning. While the Washington 17 Court of Appeals held that Wash. Rev. Code § 48.01.030 imposes a duty of good faith on 18 insurance adjusters, the court also held that “judicial decisions” and “case law” imposed that 19 duty as well. See Meeriman, 396 P.3d 359–60 (“‘The duty of good faith has been imposed on the 20 insurance industry in this state by a long line of judicial decisions. The legislature has imposed 21 this duty as well, having adopted [Wash Rev. Code] § 48.01.030 in 1947.”) (citations omitted) 22 (emphasis in original) (quoting Tank v. State Farm Fire & Cas. Co., 715 P.2d 1133, 1136 (Wash. 23 1986)). These references to “judicial decisions” and “case law” make Meeriman’s holding 24 unambiguous: insurance adjusters have a common law duty of good faith that exists 25 independently of Wash. Rev. Code § 48.01.030, and an insured can sue to enforce that duty. See 26 id. 1 Defendants’ second objection ignores the high bar for fraudulent joinder. Defendants are 2 correct that Keodalah used fairly absolute language. See 449 P.3d at 1047 (“[J]ust as this court 3 has limited bad-faith tort claims to the context of the insurer-insured relationship, so has it 4 limited CPA claims based on breach of the statutory duty of good faith.”). And that language 5 could be read to mean that common law bad faith claims can be brought only against insurers. 6 But that reading would be dictum because Keodalah did not address common law bad faith 7 claims, as the dissent pointed out. See id. at 1049 (Yu, J., dissenting). Moreover, there is at least 8 a possibility that such dictum will be rejected by Washington courts. The four dissenting justices 9 in Keodalah did just that—as did the Washington Court of Appeals in Merriman. See Keodalah, 10 449 P.3d at 1050–53; Meeriman, 396 P.3d at 360 (concluding that Tank v. State Farm Fire & 11 Casualty Co., 715 P.2d 1133 (1986), “does not signal any retreat from case law imposing the 12 duty of good faith ‘on the insurance industry.’”). 13 Defendants’ final objection suffers from the same flaw. It is possible that the Washington 14 Supreme Court will survey its prior case law; conclude that the duty of good faith stems from the 15 contractual, quasi-fiduciary relationship between an insurer and its insured; and hold that 16 insurance adjusters sit outside of that relationship because they are not themselves a party to the 17 contract between an insurer and its insured. However, it is also possible that the Washington 18 Supreme Court will go the other way. Perhaps the Washington Supreme Court will conclude, 19 like the dissent in Keodalah and the Court of Appeals in Meeriman, that prior cases impose the 20 duty of good faith on the insurance industry as a whole. See Keodalah, 449 P.3d at 1050–53; 21 Meeriman, 396 P.3d at 360. This might not be the best reading of those cases, but it is a possible 22 one—as evidenced by Meeriman and the Keodalah dissent. See Leonard, Case No. C19-6089- 23 RBL, Dkt. No. 18 at 4–5. And given that this reading is possible, Plaintiff did not fraudulently 24 join Northall. See Grancare, LLC, 889 F.3d at 549. 25 III. CONCLUSION 26 For the foregoing reasons, the Court OVERRULES Defendants’ objections (Dkt. No. 1 47), APPROVES and ADOPTS Judge Creatura’s report and recommendation (Dkt. No. 46), and 2 REMANDS this case to the King County Superior Court. The Court ORDERS the Clerk to send 3 a copy of this order to Judge Creatura and the parties. 4 DATED this 28th day of July 2020. A 5 6 7 John C. Coughenour 8 UNITED STATES DISTRICT JUDGE
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