Cavallini v. State, 44 F.3d 256 (5th Cir. 1995)

The Cavallinis' son was bom with tetra-pho-comelia (absence of arms and legs) and a diaphragmatic hernia; was hospitalized 20 days to repair the hernia; and will require continuous attachment, detachment, and modification of prosthetic devices for his missing limbs.

The third-party complaint and notice of removal claimed federal question jurisdiction over the third-party claim, and asserted that it was separate and independent, and therefore removable pursuant to 28 U.S.C. § 1441(c). On January 11, 1994, approximately ten days before it ruled in favor of State Farm and Cunningham, the district court granted the Olsten Plan's motion for summary judgment. State Farm and Cunningham state that their appeal from that judgment is being held in abeyance pending resolution of this appeal.

.The Cavallinis asserted (1) that Cunningham would be a proper defendant under the Texas Deceptive Trade Practices Act (DTPA), but that the claim could not be asserted until 60 days after notice was given; and (2) that the allegation that the amount in controversy exceeded $50,000 was unsupported (they have not pursued this contention on appeal).

The Cavallinis asserted that Cunningham, as State Farm's agent and representative, “committed various acts of misrepresentation and deception” and "encouraged Plaintiffs to ñle a groundless lawsuit against a third party and offered to falsify insurance documents in order for ... State Farm ... to escape its liability". These charges are developed more fully in their September 1993 affidavits in opposition to summary judgment, discussed infra.

As also discussed infra, the exchange of settlement correspondence was from mid-August to late October 1992.

The court had not ruled on their second motion for leave to amend, filed in November 1992.

In its comprehensive opinion holding that the action had been settled, the district court discussed also why it had denied remand and was dismissing Cunningham:

In their opening brief, the Cavallinis did not raise whether the complaint states a claim against Cunningham for breach of contract. Their reply brief contains only the bald assertions that “Larry Cunningham is liable for breach of contract”, and that their affidavits establish his possible liability for breach of contract. Needless to say, we do not consider issues raised for the first time in a reply brief. See Stephens v. C.I.T. Group/Equipment Financing, Inc., 955 F.2d 1023, 1026 (5th Cir.1992). Moreover, the failure to provide any legal or factual analysis of an .issue results in waiver of that issue. See United States v. Green, 964 F.2d 365, 371 (5th Cir.1992), cert. denied, - U.S. -, 113 S.Ct. 984, 122 L.Ed.2d 137 (1993); Fed.R.App.P. 28(a)(6). In addition, the Cavallinis contend, again for the first time in their reply brief, that their affidavits establish Cunningham's possible liability under two additional theories: violation of the Texas Insurance Code and common law fraud. Also for the first time in that brief, they contend, without citation to authority, that they are third-party beneficiaries of the contract between State Farm and Cunningham, that Cunningham breached that contract, and that this breach somehow supports a claim by them against Cunningham for a breach of the duty of good faith and fair dealing. Because the Cavallinis raised these new issues in their reply brief, State Farm and Cunningham requested and received permission to file a supplemental brief. That we allowed them to do so does not alter our rule of not considering issues raised in a reply brief. Furthermore, we have serious doubts about whether the common law fraud and third-party beneficiary issues were raised in district court.

.The Cavallinis' reliance on Jones v. Louisiana Bd. of Trustees for State Colleges & Universities, 764 F.2d 1183, 1185 (5th Cir.1985), is misplaced. Jones did not concern removal and remand; instead, whether the plaintiffs had named a state official as a defendant in order to avoid dismissal on Eleventh Amendment grounds. Although the official was identified in the caption, and referred to throughout the body of the complaint, the defendants contended that he was not a party because he was not listed in the paragraph specifying the defendants. Id. at 1184-85 & n. 1. Applying the rule that a complaint will not be dismissed for technical pleading defects, our court held that the complaint was sufficient to confer party status on the official, and stated that the plaintiffs could seek to amend to cure any ambiguity. Id. at 1185, 1186.

As quoted above, the paragraph in the complaint presenting the good faith and fair dealing claim contains allegations only as to State Farm. Moreover, as emphasized, the paragraph speaks only of the duty "owed by an insurer to its insured”.

The Cavallinis also cite Union Bankers Ins. Co. v. Shelton, 889 S.W.2d 278 (Tex.1994), and Celtic Life Ins. Co. v. Coats, 885 S.W.2d 96 (Tex.1994). Those cases have no bearing on whether the Cavallinis have a possibility of recovering from Cunningham for a breach of the duty of good faith and fair dealing; instead, both deal with the liability of an insurer for acts of its agents.

As noted, at the time of removal, the Texas Supreme Court had not addressed specifically whether an insurance agent has a duty of good faith and fair dealing to an insured. Even assuming that Taylor and GAB can be read possibly to presume that duty, they still do not constitute an " ‘arguably ... reasonable basis for predicting that the state law might impose liability on the facts involved’". See Jernigan v. Ashland Oil Inc., 989 F.2d 812, 816 (5th Cir.) (quoting Bobby Jones Garden Apts. v. Suleski, 391 F.2d 172, 177 (5th Cir.1968)), cert. denied, -U.S. --, 114 S.Ct. 192, 126 L.Ed.2d 150 (1993). Because Natividad had not been decided as of removal, the Cavallinis maintain that we cannot consider it; that the applicable' law is that extant as of removal. We need not reach this issue; Nativi-dad did not change Texas law. Indeed, the Texas Supreme Court pointed out that, “[s]ince its inception, the duty of good faith and fair dealing has only been applied to protect parties who have a special relationship based on trust or unequal bargaining power.” 875 S.W.2d at 697. It noted further that “the special relationship’ exists only because the insured and the insurer *263are parties to a contract that is the result of unequal bargaining power, and by its nature allows unscrupulous insurers to take advantage of their insureds. Without such a contract there would be no 'special relationship' and hence, no duty of good faith and fair dealing.” Id. at 698.

. Ford v. Elsbury does not support the Cavallin-is’ assertion that post-removal affidavits can be used to defeat removal by presenting new causes of action. There, suit was filed in Louisiana state court against, inter alia, Arcadian Corporation and its plant manager, Elsbury, as the result of a reactor exploding at Arcadian's plant. 32 F.3d at 933. Removal was based on the claim that Elsbury (and another not in issue on appeal) had been fraudulently joined. Id. After noting the circumstances under which Louisiana law held that a corporate officer or employee could be held liable for injuries to third parties, our court stated that Elsbury's liability turned on factual issues such as whether he or others delegated with due care the responsibility of safe maintenance and operation of the reactor, and whether he was aware, or should have been aware, of a risk of harm and failed to respond to that risk in the manner in which a reasonably prudent plant manager would respond in similar circumstances. Id. at 935-36. In support of removal, the defendants submitted Elsbury’s affidavit that the responsibility for the safety, maintenance, and operation of the plant was delegated to properly trained and qualified supervisors, and that he had no personal knowledge that the reactor posed a potential hazard or risk. Id. at 938. Those submitted by the plaintiffs, unlike the Ca-vallinis’, did not attempt to present new causes of action against Elsbury, but instead contradicted the factual assertions in his affidavit. Id. at 938-39.

As noted, the proposed amended complaint first appears in the record as an attachment to the third motion to amend, filed on August 30, 1993, over a month after the denial of the motion reurging the motion to remand. As discussed, this was the first time the district court had addressed the remand motion on the merits; it had been denied in October 1992 because of the settlement possibility.

It is also consistent with Congress’ intent to resolve swiftly removal issues, as reflected in the removal and remand statutes, *28 U.S.C. §§ 1446-1447. For a civil action, a notice of removal generally must be filed within 30 days after service of the complaint, but a case may not be removed on the basis of diversity jurisdiction more than one year after commencement of the action. See 28 U.S.C. § 1446(b). Similarly, a remand motion based on a defect in removal procedure must be made within 30 days after removal. 28 U.S.C. § 1447(c). See also In re Carter, 618 F.2d 1093, 1098-99 (5th Cir.1980) (policy underlying 28 U.S.C. § 1447(d) (providing generally that remand orders are un-reviewable) "is the preclusion of delay in litigating the merits of a controversy that would attend appellate litigation of jurisdictional issues”), cert, denied, 450 U.S. 949, 101 S.Ct. 1410, 67 L.Ed.2d 378 (1981). It is well-known that a motion to remand for lack of subject matter jurisdiction, as is at issue here, is not subject to the same time constraints. See 28 U.S.C. § 1447(c) (“If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.”). But, it is equally well-known that citizenship for purposes of diversity jurisdiction is fixed as of when the action is filed. See generally Hensgens v. Deere & Co., 833 F.2d 1179, 1180-81 (5th Cir.1987); IMFC Professional Servs. v. Latin Amer. Home Health, Inc.,* 676 F.2d 152, 157 (5th Cir.1982). This is consistent with the need for certainty, avoidance of delay, and finalily in resolving jurisdiction.

In holding that remand should have been granted, the Dow court placed emphasis on "the defendants offerfing] only a conclusoiy statement in their notice of removal that was not based on direct knowledge about the plaintiffs' claims”. 988 F.2d at 566.

As discussed, Dow involved an affidavit, not an amended complaint. It cited Robinson v. Quality Ins. Co., 633 F.Supp. 572, 577 (S.D.Ala.1986), for the proposition that a court may consider information submitted after removal when examining the jurisdictional facts as of removal. Dow, 988 F.2d at 565. A parenthetical describes Robinson as having granted a remand motion based on the plaintiff's post-removal insertion of an ad damnum clause into a previously indeterminate complaint. Id. The amended complaint in Robinson was filed after removal, but prior to the motion to remand. Robinson, 633 F.Supp. at 577. The Robinson court noted that the plaintiff did not obtain leave of court prior to filing the amended complaint, and expressly recognized that “action by a plaintiff subsequent to removal cannot deprive this Court of jurisdiction if the removal was proper when filed." Id. It considered the amendment only "as evidence of the actual amount in controversy, in the absence of further enlightenment from either side." Id. In addition, Dow noted that, if defendants wish to avoid having a case remanded after the plaintiff comes forward With an affidavit specifying his damages, other avenues are available for clarifying an ambiguous complaint. Dow, 988 F.2d at 565 n. 7. By way of example, it cites a Texas procedural rule which provides that, upon special exception by the defendant, a plaintiff may be required to amend a complaint to specify the maximum amount of damages claimed. Id. Needless to say, this reference does not support the Cavallinis' assertion that a complaint amended after removal should be considered in determining whether removal was proper.

.Because we hold that Cunningham's joinder was fraudulent, we need not consider the appel-lees’ alternative contentions that jurisdiction was proper under 28 U.S.C. § 1331, because their third-party complaint involved ERISA claims, or *266that the case was removable under 28 U.S.C. § 1441(c).

The Cavallinis rely on Padilla v. LaFrance, 875 S.W.2d 730 (Tex.App.—Houston [14th Dist.] 1994, error granted), for the propositions that contract law cannot be applied to enforce an agreement that does not comply with Rule 11; and that a party may revoke consent to a settlement agreement at any time before judgment is entered. As for the first proposition, contract law is not being used here to enforce an agreement that does not comply with Rule 11. As for the second, discussed infra, the Texas Supreme Court granted a writ of error in Padilla on September 15, 1994, including the points that consent is not necessary for enforcement of a settlement agreement, there is no requirement that the agreement be filed before consent to it is withdrawn, and that public policy supports enforcement of the agreement. See 37 Tex.Sup.Ct.J. 1212 (Sept. 15, 1994).

By letter dated August 13, 1992, the Cavallin-is' counsel responded to a setdement offer by State Farm, stating that payment of medical expenses was acceptable, requesting that the original policy be reinstated to include all persons covered under it, stating that a conversion policy would be unacceptable, and requesting payment of $110,000, plus all court costs. In a telephone conversation on September 24, State Farm and the Cavallinis’ counsel reached an oral settlement agreement. State Farm's September 24 letter was written in confirmation of that telephone conversation. In the September 24 letter. State Farm offered to pay policy benefits for the son from the date of his birth, without regard to the policy’s "other insurance” provision; to retroactively reinstate the policy effective April 16, 1992, subject to an assurance that no comparable coverage existed; to not refuse renewal of the policy except in the event of overinsurance or discontinuance of all policies in that class; to not raise premiums due to claims by the Cavallinis; and to pay $110,000. Accordingly, on September 29, State Farm delivered a check for $110,000, a proposed release, and a stipulation of dismissal to the Cavallinis’ counsel.

.In his October 8 letter, the Cavallinis' counsel stated that he could not approve the settlement until he received from State Farm a breakdown of the amount of benefits to be paid, objected to State Farm being allowed to consider the existence of other insurance coverage, and objected to the proposed reinstatement date, demanding that it be January 1, 1992.

In its October 13 letter, State Farm itemized the benefits it intended to pay, stated that it would consider any additional medical expenses under the terms of the policy, agreed to reinstate the policy effective January 1, 1992, agreed not to refuse renewal of the policy because of other insurance, but only "in the event of discontinuation of all policies of the class in which this policy falls”, and forwarded a revised proposed release.

By his October 21 letter, the Cavallinis’ counsel objected to the second proposed release regarding the release of claims that the Cavallinis “may have” in the future, its characterization of the policy as a "group” policy, and its indemnity provisions, stating that they were "in violation of” or “not part of” the "settlement agreement". (Emphasis added.) He also questioned why he was being asked to sign the release. Interestingly, the release terms to which counsel objected also appeared in the first proposed release sent to him on September 29; but, he did not object to them in his October 8 letter. This is but one of several such instances, reflected in the acerbic letters by the Cavallinis’ counsel (as well as his contentions in this appeal), which we find most troubling. They reflect uncivil conduct that must be avoided. Sadly, such conduct is of increasing concern. It serves no purpose worthy of the legal profession, and results in delay in dispute resolution at greatly increased costs not only to the parties, but to the public, both in delaying resolution of other litigation and in increasing the costs for running the federal courts. Dondi Properties Corp. v. Commerce Sav. & Loan Ass’n, 121 F.R.D. 284 (N.D.Tex.1988) (en banc) (establishing standards of litigation conduct) states the problem well: Id. at 286 (footnote omitted).

In its responding October 21 letter, State Farm agreed to delete the objectionable language from the release, and stated that it would accept the release without counsel’s signature; it enclosed a third revised proposed release.

The Cavallinis’ counsel objected, by letter of October 23, to the third proposed release, on the ground that it was a "blanket” release that would leave his clients without any recourse to pursue future claims against State Farm, and demanded that State Farm place the policy benefits of $1,000,000 in trust, to be administered by a neutral third party.

In its October 27 letter, State Farm agreed to "dispense with the Release and resolve this matter with a simple dismissal with prejudice of the lawsuit".

The Cavallinis assert that the district court erred by relying on Borden v. Banacom Mfg. & Marketing, Inc., 698 F.Supp. 121 (N.D.Tex.1988), to supposedly extend state law, asserting that no Texas case has gone as far as Borden to allow letters between counsel to satisfy Rule 1 l’s "writing” requirement. But, the court cited Borden only for the proposition (with which the Cavallin-is agree) that Texas law controls the enforceability of the settlement agreement. In any event, for applying state law, Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct 817, 82 L.Ed. 1188 (1938), does not require that there be a Texas case directly on point; absent such case law construing Rule 11, we look to the elements of the rule. In so doing, we do not suggest any expansion of Texas law. The Cavallinis maintain also that Borden is distinguishable because it held that Rule ll’s signature requirement had been satisfied by the parties' open court adoption of the correspondence exchanged between them, and that such open court adoption did not take place here. The settlement agreement in Borden consisted of correspondence between counsel for one of the defendants and for Borden. 698 F.Supp. at 122. *268Other defendants, who had not signed the correspondence, sought to enforce the settlement. Id. The district court held that the Ride was satisfied by those defendants’ adoption of the agreement in open court. Id. at 124. Here, the Rule was satisfied by the signatures of the Cavallinis’ counsel and State Farm’s representatives; open court adoption was not necessary.

Another basis urged by the Cavallinis for the settlement agreement being unenforceable is that their counsel's October 8 letter stated he would not approve the settlement until he had an opportunity to review the numbers calculated by State Farm, and that he never confirmed that the amounts itemized in State Farm's October 13 response were satisfactory. This contention borders on being a misstatement of the record. As to the "numbers" involved in the settlement, counsel’s October 8 letter does not include a condition that prevented State Farm's October 13 letter from constituting an acceptance; rather, it was a request for information necessary for a complete statement of the terms of the agreement. Counsel’s October 8 letter states merely that, State Farm supplied the requested information by its October 13 letter. The Cavallinis’ counsel never expressed any objection to the numbers provided, thus indicating that he viewed State Farm's October 13 letter as complying with that portion of his October 8 counteroffer. In short, this contention is but another of several troubling tactics by the Cavallinis’ counsel. See note 24, supra.

In their reply brief, the Cavallinis assert that the "judgment relates to the reinstatement of policy number H4245741 5353, the income policy, and is thus, void as to the hospitalization policy, policy number H4245740 5353, which it attempts to reinstate.” We do not understand this contention. The judgment makes no mention of the terms; it notes its order of the same date which, of course, does state them. One of those terms is that The district court did not refer to the policy by number, but merely restated one of the terms of the settlement agreement, as established by the correspondence between State Farm and the Ca-vallinis. We do not understand the Cavallinis to contend that the correspondence refers to reinstatement of any policy other than the hospitalization policy. Accordingly, there is no need for modification or reformation of this provision of the order.

The Honorable Byron R. White, Associate Justice of the United States Supreme Court, (Ret.), sitting by designation, pursuant to 28 U.S.C. § 294(a).