Case: 21-10108 Document: 00516134030 Page: 1 Date Filed: 12/16/2021
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
FILED
December 16, 2021
No. 21-10108 Lyle W. Cayce
Clerk
Mark A. Ticer, doing business as Law Office of Mark A. Ticer,
Plaintiff—Appellant,
versus
Imperium Insurance Company, Ironshore Indemnity
Incorporated
Defendants—Appellees.
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:19-CV-481
Before Higginbotham, Stewart, and Wilson, Circuit Judges.
Patrick E. Higginbotham, Circuit Judge:
This case addresses whether a non-diverse defendant, Imperium
Insurance Company (Imperium), was improperly joined in an insurance
coverage dispute. The district court properly considered the Imperium
insurance policy in a summary inquiry. Because there is no reasonable cause
of action against Imperium, we affirm the district court. However, the Law
Office of Mark A. Ticer’s (Ticer) claims against Imperium should not have
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No. 21-10108
been dismissed with prejudice. 1 We vacate the district court’s dismissal and
remand for dismissal without prejudice.
I.
The convoluted procedural history of this case must be detangled to
understand this appeal. To begin, the Law Office of Mark A. Ticer was sued
twice by its former clients, Kenneth L. Reed, Reed Migraine Centers of
Texas, PLLC and Neuro Stim Technologies, LLC. The first lawsuit was in
2014; the second one was in 2018. Both suits stem from the same underlying
fee dispute.
In 2018, Ticer sued Ironshore Indemnity, Inc. (Ironshore), an
insurance company, in Texas state court for defense and breach of contract
regarding the second Reed suit. Ironshore is a Minnesota corporation with its
principal place of business in New York. Ironshore subsequently removed the
suit to federal court. The suit was dismissed for Ticer’s failure to pursue
mediation before filing suit as required by the insurance policy.
Then, in 2019, Ticer again sued Ironshore in Texas state court
regarding the same insurance coverage dispute and demanded defense and
indemnity for the fee dispute allegations. This time, Ticer also sued
Imperium, a Texas-based insurance company, for failing to defend and
indemnify it in the 2018 lawsuit. Ironshore again removed the lawsuit to
federal court, alleging that Imperium was improperly joined and the federal
court therefore properly had diversity jurisdiction. 2 Ticer timely filed for
remand to state court, asserting that there was no misjoinder. After briefing
1
While Appellant in his briefing refers to his firm as “LOMAT,” throughout all of
its various orders, the district court has used “Ticer.” We will continue to refer to “Ticer”
in our opinion.
2
The amount in controversy has never been at issue in this case.
2
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on this issue, Ironshore sought leave to file a copy of the Imperium Insurance
Policy. The district court granted Ironshore leave to file the Imperium policy
and to rebrief its response to Ticer’s motion for remand. On January 15,
2020, the district court denied Ticer’s motion for remand, concluding that
Ticer had procedurally misjoined Imperium. 3 The district court severed
Ticer’s claims against Imperium and remanded them back to state court.
In response, Ticer filed an expedited motion for reconsideration,
arguing that there was no procedural misjoinder and that the district court
erred in relying on an improper joinder analysis. The district court granted
Ticer’s motion in part and vacated its denial of Ticer’s motion to remand.
The district court then concluded that although its prior order had rested on
procedural misjoinder, the proper ground for deciding improper joinder in
this case was “fraudulent joinder.” 4 As such, the district court determined
that it was necessary to “pierce the pleadings and conduct a summary
inquiry.” The district court requested that the parties provide a joint report
detailing discovery needed.
In response, Ticer objected to the district court’s new order and
opinion, arguing that any summary inquiry on the Imperium insurance policy
would amount to pre-trying the merits of the case. 5 Ticer again objected to
summary inquiry in the joint status report. On November 23, 2020, the
district court ordered an exchange of documents identified by Ironshore and
3
The district court held, “Ticer’s alleged right to relief against Ironshore and
alleged right to relief against Imperium do not – as Texas requires for proper joinder – arise
out of the same transaction, occurrence, or series of transactions or occurrences.”
4
Fraudulent joinder is typically referred to as improper joinder in this circuit.
5
Ticer followed this objection with an appeal to this Court. We denied his appeal
for want of appellate jurisdiction.
3
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Imperium in the joint status report, including the 2017 Imperium insurance
policy.
On February 4, 2021, the district court issued its order without a
hearing, denying Ticer’s motion to strike and motion for remand. The
district court found that due to an exclusion in the Imperium policy, Ticer’s
claims against Imperium were barred and Ticer would not be able to establish
a cause of action against Imperium in state court. The district court dismissed
Ticer’s claims against Imperium with prejudice. Ticer timely appealed to this
Court.
II.
“We review de novo the district court’s ‘determination that a party is
improperly joined and [its] denial of a motion for remand.’” 6
III.
It is undisputed that Ticer and Imperium are not diverse, while Ticer
and Ironshore are diverse. Therefore, removal jurisdiction is only proper if
Imperium was improperly joined to the suit. 28 U.S.C. § 1441(a) authorizes
the removal of “any civil action brought in a State court of which the district
courts of the United States have original jurisdiction,” but subsection (b)
specifies that suits not arising under federal law are removable “only if none
of the parties in interest properly joined and served as defendants is a citizen
of the State in which such action is brought.” 7 Removal statutes “are to be
6
Davidson v. Georgia-Pacific, LLC,819 F.3d 758, 765 (5th Cir. 2016) (quoting Kling
Realty Co. v. Chevron USA, Inc.,
575 F.3d 510, 513 (5th Cir. 2009)).
7
Smallwood v. Ill. Cent. R. Co., 385 F.3d 568, 572 (5th Cir. 2004) (en banc) (quoting
28 U.S.C § 1441(b)) (emphasis in original).
4
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construed strictly against removal and for remand” to state court. 8 The
“focus of the inquiry must be on the joinder, not the merits of the plaintiff’s
case.” 9 The burden of proving that complete diversity exists rests on the
party invoking the court’s diversity jurisdiction; the defendant thus has the
“heavy burden” of establishing that removal was proper. 10 Here, the burden
is on Ironshore.
This case concerns two potential types of misjoinder: procedural
misjoinder and improper joinder. Procedural misjoinder is the joining of two
or more defendants or plaintiffs or claims in a lawsuit where there is no
common transaction, occurrence, or series of transactions or occurrences
and no question of law or fact common to all of them that will arise in the
lawsuit which was removed. 11 Improper joinder can be established in two
ways: “(1) actual fraud in the pleading of jurisdictional facts, or (2) inability
of the plaintiff to establish a cause of action against the non-diverse party in
state court.” 12 Only the latter is at issue here. We first ask whether it was
improper for the district court to consider improper joinder and whether the
8
Hicks, 12 F.4th at 515 (quoting Eastus v. Blue Bell Creameries, L.P., 97 F.3d 100,
106 (5th Cir. 1996)).
9
Id. (quoting Smallwood,
385 F.3d at 573); see also McDonal v. Abbott Labs,
408 F.3d
177, 183–84 (5th Cir. 2005).
10
Getty Oil Corp. v. Insurance Co. of N. Am., 841 F.2d 1254, 1259 (5th Cir. 1988);
Smallwood,
385 F.3d at 574.
11
This circuit has recently declined to adopt procedural misjoinder (also called
fraudulent misjoinder) as adopted by the Eleventh Circuit in Tapscott. Williams v. Homeland
Ins. Co. of New York, No. 20-30196, 2021 WL 5577020, at *6 (5th Cir. Nov. 30, 2021); see
Tapscott v. MS Dealer Serv. Corp.,
77 F.3d 1353, 1360 (11th Cir. 1996), abrogated on other
grounds, Cohen v. Office Depot, Inc.,
204 F.3d 1069 (11th Cir. 2000).
12
Smallwood, 385 F.3d at 573 (quoting Travis v. Irby,
326 F.3d 644, 646–47 (5th Cir.
2003)).
5
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district court abused its discretion in holding a summary inquiry and then
turn to the district court’s finding that Imperium was improperly joined.
A.
Ticer contends that the district court abused its discretion in finding
improper rather than procedural misjoinder. However, this Court has
foreclosed procedural misjoinder. “Our court has gone en banc twice on
precisely what is needed to remove a case from state to federal court on the
basis of diversity jurisdiction notwithstanding a lack of complete diversity
between the parties. . . . Our case law emphasizes substantive viability—not
procedural questions like party joinder.” 13 And 28 U.S.C. §1446(a) requires
that the notice of removal provide a “short and plain statement of the
grounds for removal,” which “shall be so construed as to do substantial
justice.” 14 Generally, a defendant must adequately inform the plaintiff of the
grounds for removal, but a “detailed grounds setting forth basis for removal”
is not necessary. 15 Ironshore raised both procedural misjoinder and improper
joinder in its notice of removal. Ironshore cited Delphis, L.P. v. NFLP
Holdings, Ltd., which addressed both procedural misjoinder and improper
joinder. 16 This was sufficient notice that it was alleging both procedural
misjoinder and improper joinder. The district court did not abuse its
discretion in reviewing the notice of removal for improper joinder.
Although it was unusual for the district court to first rule on
procedural misjoinder then substitute that finding with one based on
13
Williams, 2021 WL 5577020, at *7.
14
Rachel v. Georgia, 342 F.2d 336, 340 (5th Cir. 1965); see also FED. R. CIV. P. 8(e).
15
Rachel, 342 F.2d at 340; see Grynberg Production Corp. v. British Gas, P.L.C.,
817
F. Supp. 1338, 1354 (E.D. Tex. 1993).
16
No. 3:10-cv-01583-F, 2010 WL 11561744, at *2–3 (N.D. Tex. Nov. 5, 2010).
6
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improper joinder, the district court did not err in doing so. It was Ticer who
requested that the district court vacate its initial January 15, 2020 order.
Upon receiving Ticer’s motion, the district court did just that, noting that it
had applied the procedural misjoinder standard and that the correct standard
was improper joinder. Throughout these proceedings, Imperium remained in
federal court, and the district court continued to have jurisdiction. 17 The
district court did not abuse its discretion in reconsidering the issue of
misjoinder after vacating its initial order. 18
B.
Having determined that it was proper for the district court to consider
improper joinder, we next consider whether the district court abused its
discretion in holding a summary inquiry.
Improper joinder occurs when a plaintiff is unable “to establish a
cause of action against the non-diverse party in state court.” 19 The test is
whether there is “no possibility of recovery by the plaintiff against an in-state
defendant” or “no reasonable basis for [predicting recovery] against an in-state defendant.” 20 To determine if there was improper joinder, the district
court may conduct a Rule 12(b)(6)-type analysis, “looking initially at the
allegations of the complaint to determine whether the complaint states a
claim under state law against the in-state defendant. Ordinarily, if a plaintiff
17
See Bronson v. Schulten, 104 U.S. 410, 415 (1881).
18
“Contrary to Plaintiff’s protestations, the Court has properly had jurisdiction
over all Plaintiff’s claims ever since the Court vacated its earlier order. The Fifth Circuit
recognized as much by dismissing Plaintiff’s appeal for lack of jurisdiction.”
19
Smallwood, 385 F.3d at 572 (quoting Travis, 326 F.3d at 646–47).
20
Id. at 573 (quoting Travis, 326 F.3d at 646–47).
7
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can survive a Rule 12(b)(6) challenge, there is no improper joinder.” 21
However, this is not the only way to establish improper joinder. The leading
case in this circuit, Smallwood, “indicated that in a relatively small number of
cases, the plaintiff has stated a claim, but has misstated or omitted discrete
facts that would determine the propriety of joinder. In such cases, the district
court may, in its discretion, pierce the pleadings and conduct a summary
inquiry.” 22 However, a summary inquiry “is appropriate only to identify the
presence of discrete and undisputed facts that would preclude plaintiff's
recovery against the in-state defendant.” 23
Here, the district court pierced the pleadings and examined
Imperium’s insurance policy, submitted by Imperium and Ironshore. As
Ticer had not included the Imperium insurance policy in its pleadings, the
district court was unable to consider the policy in a 12(b)(6) analysis.
However, in a summary inquiry, the district court may consider additional
evidence to determine whether the plaintiff “truly has a reasonable
possibility of recovery in state court.” 24 We have cautioned that “any
piercing of the pleadings should not entail substantial hearings” and that any
discovery by the parties should be kept on a “tight judicial tether, sharply
tailored to the question at hand, and only after a showing of its necessity.” 25
Here, Ironshore and Imperium made the district court aware of the insurance
policy. As the insurance policy is consistent with the types of evidence that
courts have considered when conducting a summary inquiry, the district
21
Id.
22
Hicks, 12 F.4th at 515 (citing Smallwood, 385 F.3d at 573).
23
Smallwood, 385 F.3d at 573–74.
24
Gray ex rel. Rudd v. Beverly Enters.-Miss., Inc., 390 F.3d 400, 405 (5th Cir. 2004).
25
Smallwood, 985 F.3d at 574.
8
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court did not abuse its discretion in deciding to pierce the pleadings and
conduct a summary inquiry in order to analyze the relevance and meaning of
the insurance policy. 26
C.
Having determined that holding a summary inquiry was not an abuse
of discretion, we next review the district court’s interpretation of the
insurance policy. A summary inquiry by the district court must be a
“summary process” decided “by a simple and quick exposure of the chances
of the claim against the in-state defendant alleged to be improperly joined.” 27
Here the district court analyzed only the insurance policy at issue and
properly concluded that Ticer could not establish any cause of action against
Imperium in state court and denied the motion for remand.
Texas follows the eight corners rule in determining if an insurer has a
duty to defend. 28 “Under that rule, courts look to the facts alleged within the
four corners of the pleadings, measure them against the language within the
four corners of the insurance policy, and determine if the facts alleged present
a matter that could potentially be covered by the insurance policy.” 29 The
insured party has the initial burden to establish coverage under the policy; if
26
See Alviar v. Lillard, 854 F.3d 286, 291 n.2 (5th Cir. 2017) (an email in which the
plaintiff admitted to work-performance issues); Kemp v. CTL Distribution, 440 F. App’x.
240, 245 (5th Cir. 2011) (per curiam) (a passage from a CTL driver orientation manual);
see also Hicks, 12 F.4th at 516 (holding that evidence developed during merits discovery is
too far afield to consider).
27
Smallwood, 385 F.3d at 574.
28
Gore Design Completions, Ltd. v. Hartford Fire Ins. Co., 538 F.3d 365, 368 (5th Cir.
2008).
29
Ewing Const. Co. v. Amerisure Ins. Co., 420 S.W.3d 30, 33 (Tex. 2014).
9
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it does so, the burden shifts to the insurer to prove that a policy exclusion
applies. 30
The interpretation of an insurance policy, in the absence of any
ambiguity, is a question of law for the court to determine. 31 “Insurance
policies are generally controlled by the rules of construction and
interpretation applicable to contracts.” 32 All parts of the policy are read
together to ascertain the true intent of the parties. 33 Like other contracts, an
insurance policy is unambiguous if it can be given a “definite or certain legal
meaning.” 34 If the policy, including any exclusion, is unambiguous it will be
given its plain meaning. 35 A policy is not ambiguous just because the parties
offer different interpretations of the contract; “[a] contract is ambiguous
only if it is subject to two or more reasonable interpretations after applying
the pertinent canons of construction.” 36 However, if it is unambiguous, it
“must be strictly construed in favor of the insured to avoid the exclusion.” 37
Here, the insurance policy included an Incident Exclusion which
states that the “policy does not apply to any claim arising out of the facts and
circumstances of the following incident: . . . Reed Migraine Centers of
30
Id.
31
Am. Int’l Specialty Lines Ins. Co. v. Rentech Steel, LLC, 620 F.3d 558, 562 (5th Cir.
2010).
32
Lincoln Gen. Ins. Co. v. Aisha’s Learning Ctr., 468 F.3d 857, 858 (5th Cir. 2006).
33
Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994).
34
WBCMT 2007 C33 OFFICE 9720, L.L.C. v. NNN Realty Advisors, Inc., 844 F.3d
473, 478 (5th Cir. 2016) (quoting McLane Foodservice, Inc. v. Table Rock Restaurants, L.L.C.,
736 F.3d 375, 377 (5th Cir. 2013)).
35
McLane Foodservice, 736 F.3d at 377.
36
Id. at 377–78.
37
Lincoln Gen. Ins. Co., 468 F.3d at 859.
10
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Texas.” Ticer’s arguments that this exclusion is ambiguous are spurious.
There is no reasonable interpretation of the language in this policy exclusion
that would provide coverage for Ticer’s underlying suits with his clients.
Ticer is seeking defense and indemnity from Imperium for the Reed
Parties’ claims against it. It is undisputed that these claims arise out of
Ticer’s 2014 lawsuit against them to collect attorney’s fees. Ticer
acknowledged that the second lawsuit in 2018 for insurance coverage was
related to the first suit with the “same or similar facts, matter, parties, claims,
causes of action, issues, transactions and occurrences made the basis of the
[2014] lawsuit.”
Ticer’s argument fails for three reasons. First, the Imperium policy’s
insuring agreement only covers “claims first made against the insured during
the policy period.” The 2014 suit against Ticer was made before the
Imperium policy began in 2015. As Ticer has explained that the 2014 Reed
suit is “directly related and connected to” the 2018 Reed suit for which he
seeks defense and indemnity from Imperium, the 2018 allegations against
him were not first made against him during the policy period.
Second, the Imperium policy’s incident exclusion states that the
policy does not apply to “any claim arising out of the facts or circumstances
of the following incident: Reed Migraine Centers of Texas.” Ticer argues
that this exclusion is ambiguous because the “incident” referenced in the
exclusion is an entity named “Reed Migraine Centers of Texas,” while the
parties who sued him in 2018 are Neuro Stim Technologies LLC and Reed
Migraine Center of Texas, PLLC. However, the policy uses the word
“incident” rather than “suit” or “parties”—nothing requires that all of the
parties associated with an incident be listed for coverage to be precluded.
Incident is not defined in the insurance policy, therefore we look to the
word’s plain meaning. “Incident” is defined by Merriam-Webster as “an
11
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occurrence of an action or situation that is a separate unit of experience” or
a “happening.” 38 The incident, or happening, is broader than any one suit;
the incident is the underlying fee dispute between the Reed parties and Ticer.
Finally, the Imperium policy states that it does not apply to “any claim
arising out of any wrongful act occurring prior to the effective date of this
policy if: 1. the matter had previously been reported to any insurance
company.” Ticer’s 2015 application for insurance noted that a claim brought
by Dr. Kenneth Reed, Neuro-Stim Technologies and Reed Migraine Centers
of TX PLLC in September 2014 was pending. In light of Ticer’s admissions
that the 2014 and 2018 actions by the Reed Parties are the same, the incident
exclusion applies to the 2018 lawsuit. Furthermore, Ticer has provided no
evidence that there is a different Imperium insurance policy that the court
should be considering.
The Imperium policy is unambiguous: the policy does not provide
coverage for suits arising from the underlying fee dispute with the Reed
parties. Therefore, Ticer has no plausible claim against Imperium for a failure
to defend and indemnify it in the second Reed lawsuit. Where there is no
plausible state cause of action against the joined defendant, joinder is
improper. 39 The district court was correct to hold that Imperium was
improperly joined and to deny Ticer’s motion for remand.
38
“Incident,” Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/incident (last visited Nov. 18, 2021).
39
McDonal, 408 F.3d at 183 (“If no reasonable basis of recovery exists, a conclusion
can be drawn that the plaintiff’s decision to join the local defendant was indeed
fraudulent.”); Guillory v. PPG Indus., Inc.,
434 F.3d 303, 308–09 (5th Cir. 2005) (“We do
not determine whether the plaintiff will actually or even probably prevail on the merits of
the claim, but look only for a possibility that the plaintiff might do so.”); Smallwood,
385
F.3d at 573.
12
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IV.
“In considering whether a nondiverse party was improperly joined
under Smallwood, the court is only considering jurisdiction.” 40 After holding
that Imperium had been improperly joined, the district court dismissed
Ticer’s claims against Imperium with prejudice. When a district court
“determines that a nondiverse party has been improperly joined to defeat
diversity, that party must be dismissed without prejudice.” 41 Thus, the
dismissal of Ticer’s claims against Imperium should have been without
prejudice.
V.
We AFFIRM the district court’s determination that Imperium was
improperly joined and its denial of the motion for remand. We VACATE
the district court’s dismissal with prejudice and REMAND for dismissal
without prejudice.
40
Int’l Energy Ventures, 818 F.3d at 210 (“[T]he Smallwood inquiry—including its
Rule 12(b)(6)-type analysis—is used to resolve the issue of jurisdiction, not merits.”);
United States v. Ruiz, 536 U.S. 622, 627 (2005).
41
Probasco v. Wal-Mart Stores Texas, L.L.C., 766 F. App’x. 34, 36 (5th Cir. 2019),
reh’g. denied (Apr. 24, 2019) (quoting Int’ Energy Ventures, 818 F.3d at 209) (emphasis in
the original).
13
