JYC Enterprise Inc. v. Allied Property & Casualty Insurance

Citations: 230 F. Supp. 3d 734; 2017 WL 319041Docket: Civil Action No. H-16-2437

Court: District Court, S.D. Texas; January 10, 2017; Federal District Court

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Plaintiffs' Motion to Remand is denied, and claims against Bay Area Fire Safety Inc. are to be severed and remanded. The case involves fire damage to JYC Enterprise Inc.’s commercial property in Houston, Texas, arising from a fire that started in a commercial fryer on August 18, 2014. JYC, a Texas citizen, has received substantial insurance payments from Allied Property and Casualty Insurance Company (Allied), an Ohio citizen, but disputes the adequacy of payments for Business Income losses. David Craig Heller, an adjuster for Allied and a Kansas citizen, is named in the suit but has not been served. Bay Area Fire, a Texas citizen, was responsible for maintaining the fire suppression system and is accused of negligence related to its inspection prior to the fire.

On June 17, 2016, JYC filed suit against Allied, Heller, and Bay Area Fire in state court, asserting claims regarding the sufficiency of the insurance payment and negligence, respectively. Allied removed the case to federal court, claiming Bay Area Fire was fraudulently misjoined to establish diversity jurisdiction. JYC sought remand, arguing a common basis for claims against all parties due to their involvement in the fire damage.

The court discusses fraudulent misjoinder, which occurs when parties are improperly joined under state rules, and clarifies that misjoinder is considered fraudulent when claims against the defendants are factually and legally unrelated. Under Texas Rule of Civil Procedure 40, parties may be joined if they share a common set of facts or legal questions arising from the same transaction or occurrence. The court ultimately supports the position that the claims against Bay Area Fire are sufficiently unrelated to warrant severance and remand.

Claims against Allied and Bay Area Fire are distinct, as they do not arise from the same transaction or occurrence, nor do they share any legal or factual questions. The dispute with Allied centers on the reimbursement amount for Business Income losses under JYC's insurance policy, triggered by a fire but not questioning the fire's occurrence or Allied's liability. In contrast, the claims against Bay Area Fire hinge on allegations of negligence causing the fire and related losses. There is no basis for Allied to seek reimbursement from Bay Area Fire, nor does JYC's coverage under the Allied policy depend on pursuing claims against Bay Area Fire. Consequently, the claims against both defendants are factually and legally separate, leading to a finding of fraudulent misjoinder for Bay Area Fire. The Court denies JYC's motion to remand, severs the claims against Bay Area Fire, and remands them to state court while retaining jurisdiction over the claims against Allied and Heller due to diversity jurisdiction. The Court orders the severed claims against Bay Area Fire to be remanded to the 127th Judicial District, Harris County, Texas. Additionally, Allied contends that claims against it and Heller should be evaluated together, but it only disputes the joinder of Bay Area Fire. The Fifth Circuit has referenced the Tapscott analysis favorably, though it has not formally adopted it.