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Stroman v. State Farm Fire and Casualty Co.

United States District Court, W.D. Washington, Seattle

April 22, 2019

EDWARD STROMAN and ANNETTE STROMAN, wife and husband, and the marital community comprised thereof, Plaintiffs,
v.
STATE FARM FIRE AND CASUALTY COMPANY, et al., Defendants.

          ORDER

          THE HONORABLE RICHARD A. JONES UNITED STATES DISTRICT JUDGE

         This matter comes before the Court on Plaintiff's Motion to Remand and For Attorney Fees (“Motion to Remand”), and Defendant State Farm Fire and Casualty Company's (“State Farm”) Motion to Compel. Dkt. ## 13, 15. Both motions are opposed, and both parties have filed replies. Dkt. ## 20, 22, 24, 26, 32. For the reasons that follow, the Court RESERVES RULING on Plaintiffs' Motion to Remand, and GRANTS IN PART AND DENIES IN PART State Farm's Motion to Compel. Dkt. ## 13, 15.

         I. BACKGROUND

         On February 14, 2017, Plaintiffs, who are Washington residents, allegedly discovered a water loss at their Mill Creek, Washington home, and reported the loss to their homeowners' insurance carrier, State Farm. Dkt # 1-1, ¶¶ 1.3, 3.1-3.3. Plaintiffs contend through State Farm's referral, a remediation company responded to the loss to dry the home, JC Services Inc. d/b/a ServiceMaster of King County (“JC Services”), a Washington corporation. Id. at ¶¶ 1.3, 3.3-3.6. Plaintiffs, State Farm, and JC Services disputed the extent of the water damage, the cost to repair, the extent of the necessary drying, and whether mold developed as a result of allegedly insufficient and improper drying. Id. at 3.8, 3.11, 3.18, 3.19, 3.21.

         Plaintiffs filed an action against State Farm and JC Services in King County Superior Court on August 14, 2017. Dkt. # 1, ¶ 1. In the original complaint, Plaintiffs asserted several claims against State Farm, as well as claims against JC Services, alleging that JC Services “negligently damaged the plaintiffs' house and other property” and “failed to properly dry out the water damage, leading to mold growth in the Stromans' home.” Dkt. # 8, Ex. 1, at ¶¶ 14.1, 14.2. Specifically, Plaintiffs asserted claims against JC Services for breach of contract, violation of the CPA, aiding and abetting insurance bad faith, negligence, and negligent misrepresentation. Id. Plaintiffs later filed an Amended Complaint on March 30, 2018, and a Second Amended Complaint of May 18, 2018, which added another Defendant (ServiceMaster Company LLC). Dkt. # 1 at ¶ 1.

         Plaintiffs later settled with Defendant JC Services. Plaintiffs contend that part of the settlement concerned an inspection of Plaintiffs' personal property stored at JC Services' warehouse, which was initially scheduled for late June 2018 but extended to July 27, 2018. Dkt. # 16, ¶ 4. Plaintiffs contend that a “dispute also arose over additional storage charges that had been incurred while the parties negotiated the damage claims, ” which led to the alleged withholding of certain settlement funds for Plaintiffs. Dkt. # 17, ¶ 3. Plaintiffs also claim the “settlement checks” were exchanged on August 7, 2018 and were given to Plaintiffs' counsel's accounting department for disbursement on that date. Id. at ¶¶ 3-5. Plaintiffs further contend that on August 16, 2018, once the settlement check cleared and the funds were available for disbursal, Plaintiffs signed a stipulation and dismissal order for JC Services, served the order on State Farm's counsel, and filed it, dismissing its claims against JC Services. Id. at ¶ 5, Ex. A.

         On August 31, 2018, State Farm removed this matter to this Court, claiming that Plaintiffs acted in bad faith to prevent State Farm from removing within one year of the suit's commencement. Dkt. # 1. Plaintiffs moved to remand, and State Farm moved to compel production of Plaintiffs' settlement agreement and certain communications with JC Services. Dkt. ## 13, 15. Both motions are now before this Court.

         II. DISCUSSION

         “Federal courts are courts of limited jurisdiction.” Heacock v. Rolling Frito-Lay Sales, LP, No. C16-0829-JCC, 2016 WL 4009849, at *1 (W.D. Wash. July 27, 2016); see 28 U.S.C. §§ 1331-1332. District courts have “original jurisdiction” for causes of action that exceed an amount in controversy of $75, 000.00 and where there is complete diversity between the parties. 28 U.S.C. § 1332(a)(1). An individual is a citizen of the state in which he is domiciled, not his state of residence. Kanter v. Warner-Lambert Co., 265 F.3d 853, 857 (9th Cir. 2001). A “corporation is a citizen of any state where it is incorporated and of the state where it has its principal place of business.” Heacock, 2016 WL 4009849, at *1 (quoting Indus. Tectonics, Inc. v. Aero Alloy, 912 F.2d 1090, 1092 (9th Cir. 1990)).

         A case originally filed in state court, over which a federal court would have jurisdiction, may be removed to federal court. 28 U.S.C. § 1441(a). A case that lacks complete diversity when it was filed in state court, but which subsequently becomes diverse, may be removed within one year of the case being filed in state court, unless the Court finds that “the plaintiff has acted in bad faith in order to prevent [removal].” 28 U.S.C. § 1446(c).

         It is well-settled that “settlement with a non-diverse party does not establish diversity jurisdiction unless and until that party is dismissed from the action.” Bishop v. Ride the Ducks Int'l, LLC, C18-1319-JCC, 2018 WL 5046050, at *2 (W.D. Wash. Oct. 17, 2018) (citing Dunkin v. A.W. Chesterton Co., No. C10-458-SBA, 2010 WL 1038200, slip op. at *2 (N.D. Cal. March 19, 2010). There is no dispute that JC Services was not dismissed until after one year from the date of filing. State Farm also admits that it removed the case more than one year after it commenced in state court. Dkt. # 1. Thus, even if the settlement agreement was negotiated prior to the one-year cutoff date, diversity jurisdiction would not be established until JC Services was actually dismissed.

         This Court must therefore remand this matter unless State Farm can prove that Plaintiffs acted in bad faith to prevent removal. 28 U.S.C. § 1446(c). The Ninth Circuit has yet to establish a standard for evaluating bad-faith attempts to prevent removal, but other courts in this District have previously held that it is “a high burden.” Heacock, 2016 WL 4009849, at *3. For example, bad faith is shown when a plaintiff names non-diverse defendants, but then “fail[s] to actively litigate a claim against [those defendants] in any capacity, ” and then dismisses them after the one-year deadline. Id. (emphasis in original).

         The Court finds that the current record does not indicate the level of “bad faith” necessary to justify removal. First, the record shows that Plaintiffs did not act in bad faith in naming JC Services as a Defendant or fail to litigate their case against them - a concession State Farm readily makes. Dkt. # 26 at 7 (“State Farm does not claim JC Services was added to the suit for the sole purpose to avoid removal.”). Indeed, Plaintiffs brought several cognizable claims against JC Services for its role in the damage and repair efforts of Plaintiffs' home. Plaintiffs served written discovery on JC Services, responses to which JC Services provided on October 13, 2017, and produced documents. Dkt. # 16, Ex. A. JC Services has also participated in at least two site visits to plaintiffs' home since this litigation commenced. Dkt. # 16, ¶ 3. Plaintiffs have taken one deposition, a state-court Rule 30(b)(6) deposition of State Farm. Id. at ¶ 7, Ex. B. Plaintiffs also demonstrate that they sought additional information about JC Services through indirect discovery, such as in a Rule 30(b)(6) deposition of State Farm. Dkt. # 16, Exs. B-E. Although the Ninth Circuit has not yet explicitly adopted an “active litigation” test, here Plaintiffs' active litigation against JC Services indicates that they did not act in bad faith in naming JC Services as a Defendant. See Weber v. Ritz-Carlton Hotel Co., L.L.C., 4:18-CV-03351-KAW, 2018 WL 4491210, at *4 (N.D. Cal. Sept. 19, 2018) (“Accordingly, because the Court finds that Plaintiff actively litigated against [defendant], good faith is presumed.”). This weighs against an overall finding of bad faith.9

         State Farm instead argues that even if Plaintiffs initially litigated in good faith against JC Services, Plaintiffs acted in bad faith when they settled with JC Services prior to the one-year cutoff, but intentionally delayed executing and filing the joint stipulation of dismissal with JC Services to prevent removal. Dkt. # 26 at 7-10. State Farm notes the suspicious one year and two days' timing of the filing of the stipulation and dismissal of JC Services. Id. Generally, in the timing for naming a non-diverse defendant, the timing of dismissal and the explanation given for that dismissal are relevant issues to the bad faith inquiry. Heacock, 2016 WL 4009849, at *3. Suspicious timing by itself, however, is not sufficient to demonstrate bad faith. Courts in this District have previously found that a dismissal of a non-diverse defendant approximately one and one-half months after a state court action's filing did not indicate bad faith. Bishop v. Ride the Ducks Int'l, LLC, C18-1319-JCC, 2018 WL 5046050, at *2 (W.D. Wash. Oct. 17, 2018). Other courts have also found that the dismissal of a non-diverse defendant thirteen days after the commencement of the action insufficient to signify that the plaintiff acted in bad faith. See Weber ...


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