Fairwinds Estate Winery, LLC v. Kinsale Insurance Company

Background

Fairwinds owns and operates a winery in Calistoga, California, which was damaged by the Glass Fire. It sued Kinsale Insurance Company, Malloy Imrie & Vasconi Insurance Services, LLC, CRC Insurance Services, and CRC Commercial Solutions in California state court. Fairwinds alleged that Kinsale breached an excess property-insurance policy by denying coverage and that Malloy was professionally negligent in procuring the policy.

Kinsale removed the case to federal court based on diversity jurisdiction, which generally requires an amount in controversy exceeding $75,000 and complete diversity of citizenship between the parties. Fairwinds moved to remand, arguing that federal subject-matter jurisdiction was lacking and that the removal procedure was defective. Fairwinds also requested attorney’s fees incurred because of the removal.

Remand

The court first considered whether Malloy should be “realigned” as a plaintiff for jurisdictional purposes. Realignment means placing a party on the side that reflects its actual interests in the dispute rather than relying solely on the caption. Kinsale argued that Malloy’s interests aligned with Fairwinds because both could seek recovery from Kinsale.

The court rejected that argument. It held that the lawsuit’s primary purpose was to determine what, if anything, was owed by the insurer and broker for Fairwinds’s losses. Malloy’s overriding interest was avoiding liability, and its interests were therefore opposed to Fairwinds’s. The court also noted that possible conflicts between Malloy and Kinsale did not change the predominant adversarial relationship between Fairwinds and each defendant.

The court then held that complete diversity was absent. The opinion states that Fairwinds and Malloy were both California citizens, and Malloy properly remained a defendant. Kinsale argued that Malloy had been fraudulently joined. Fraudulent joinder is a jurisdictional doctrine that can disregard a nondiverse defendant only when the plaintiff has no possible valid claim against that defendant under state law or has committed actual fraud in pleading jurisdictional facts.

The court found that Malloy was not fraudulently joined. Kinsale acknowledged that California law recognizes professional-negligence claims against insurance brokers. Although Kinsale argued that Fairwinds’s claim was not yet ripe because coverage had not been finally determined, the court concluded that the claim appeared to have accrued when Kinsale denied coverage on July 7, 2021. The court therefore could not say that the claim was clearly precluded under California law.

Because the parties were not completely diverse, the court held that it lacked diversity jurisdiction and granted Fairwinds’s motion to remand. The case was remanded to the Superior Court of California, County of Napa.

Attorney’s Fees

The court denied Fairwinds’s request for attorney’s fees under 28 U.S.C. § 1447(c). Fees may be awarded when removal lacked an objectively reasonable basis, but the court found that Kinsale’s removal was not objectively unreasonable. The court described the realignment issue as close and noted that Kinsale’s argument was not frivolous. It also found that a split among district courts concerning consent to removal gave Kinsale an objectively reasonable basis for filing the removal notice.

Disposition

The case was REMANDED to the Superior Court of California, County of Napa. Fairwinds’s request for attorney’s fees was denied.