Hornbuckle v. State Farm Lloyds, Fifth Circuit No. 03-10938 (5th Cir. Sept. 10, 2004).

Award of attorneys’ fees to Plaintiff for filing motion to remand not proper when Defendant had objectively reasonable grounds for believing that the removal was proper.

In April 2000, Hornbuckle filed a claim against her insurer, State Farm, to repair foundation damage to her home. State Farm assigned Kirkpatrick as a claims specialist to adjust the claim. Kirkpatrick then retained several inspectors who conducted inspections to the cause of Hornbuckle’s foundation problems. State Farm ultimately determined the foundation problems were not a covered loss and denied Hornbuckle’s claim.

In August 2002, Hornbuckle, a Texas citizen, filed suit against State Farm, an Illinois resident, and Kirkpatrick, a Texas citizen, in Texas state court for breach of contract, violation of duty of good faith and fair dealing, violation of the Texas Insurance Code, and violation of the Texas DTPA. During Hornbuckle’s March 2003 deposition, she was asked why Kirkpatrick was added as a defendant to the lawsuit to which she stated, “You need to ask my attorney that question.” She was also asked whether there was anything specifically she could remember Kirkpatrick did wrong while working on her claim, and she stated, “Not that I remember at this moment.”

In May 2003, State Farm and Kirkpatrick removed the case to the Northern District of Texas contending that Hornbuckle fraudulently joined Kirkpatrick to destroy diversity. Thereafter, Hornbuckle filed her motion to remand and for attorney’s fees.

The District Court agreed with Hornbuckle and remanded the matter to state court. The District Court also awarded $750.00 attorney’s fees since it could not “conclude that there is no reasonable possibility that Plaintiff can recover against Kirkpatrick in state court.” State Farm and Kirkpatrick appealed the District Court’s award of attorney’s fees based on Hornbuckle’s deposition testimony and her inability to articulate specific factual allegations of wrongdoing on Kirkpatrick’s part. In short, State Farm and Kirkpatrick argued that these facts provided them with an objectively reasonable basis to remove the lawsuit and, therefore, the District Court’s award of attorney’s fees was improper.

The Fifth Circuit agreed with State Farm and Kirkpatrick and reversed the award of attorney’s fees. The Fifth Circuit’s decision is instructive on fraudulent joinder actions. The court noted that Hornbuckle failed to bring forward any substantial evidence to support her claim against Kirkpatrick, the non-diverse defendant. The court noted that the Texas Insurance Code allows a cause of action against employees of insurance companies who engage in the business of insurance. See Article 21.21 of the Texas Insurance Code. Nevertheless, the court felt the removal was not based upon whether Hornbuckle had pled causes of action which met the threshold of stating a claim upon which the court can determine relief may theoretically be granted against a non-diverse State Farm employee, but rather upon whether Hornbuckle had any evidence at all which would support her claim.

The Fifth Circuit concluded, “Hornbuckle at no time attempted to explain to the district court the absence of such evidence and did not point to any specific evidence which it could and would produce or assert any need for further discovery or the like. At the time the motion to remand was filed, nine months had elapsed since the institution of the suit. That being the case, and given that Hornbuckle’s deposition was taken some three years after the alleged loss and after the suit had been on file for some seven months and strongly indicated the absence of any minimally sufficient evidence of wrongdoing on Kirkpatrick’s part, we hold the [Defendants] had objectively reasonable grounds to believe the removal was legally proper.”

Thus, the following rule was provided the court, “For removal purposes, a local defendant is deemed fraudulently joined not only when there is no arguably reasonable basis for predicting that the local law would recognize the cause of action pled against that defendant, but also when, as shown by piercing the pleadings in a summary judgment type procedure, there is no arguably reasonable basis for predicting that the plaintiff would produce sufficient evidence to sustain a finding necessary to recover against that defendant. Were this not the rule, the removal rights of out-of-state defendants would largely be theoretical and practically meaningless.”