Nead v. State Farm Mutual Automobile Insurance Company

Background

Tina Nead and Jeffrey Nead alleged that they were injured in a June 26, 2021, car crash in Napa County, California. The complaint alleged that the underinsured motorist who caused the crash was driving under the influence of alcohol and was completely responsible for the collision.

The Neads were insured under a State Farm policy providing underinsured-motorist coverage of $250,000 per person and $500,000 per accident. They settled their claims against the underinsured motorist for $25,000. The Neads later demanded payment from State Farm under the policy and demanded arbitration. They alleged that State Farm did not pay as required and ignored the arbitration demand.

The Neads sued State Farm for breach of contract and breach of the implied covenant of good faith. They sued State Farm adjusters Anita Harrell and Marge Wilson for negligent adjusting of a first-party claim.

Motions and Jurisdiction

State Farm removed the case to federal court based on diversity jurisdiction. Diversity jurisdiction generally requires every plaintiff to be a citizen of a different state from every defendant. The complaint identified the Neads and the adjusters as California residents and State Farm as an Illinois corporation. Because the Neads and the adjusters were both California residents, complete diversity was absent unless the adjusters had been fraudulently joined.

State Farm moved under Federal Rule of Civil Procedure 12(b)(6) to drop and dismiss Harrell and Wilson, arguing that they were sham defendants against whom the Neads could not state a claim. The Neads moved to remand, meaning to return the case to state court.

The court explained that a defendant asserting fraudulent joinder has a heavy burden. The court must remand if there is any possibility that a state court could find that the complaint states a claim against a nondiverse defendant. The fraudulent-joinder inquiry is not the same as deciding whether a claim ultimately satisfies Rule 12(b)(6).

Court’s Analysis

The Neads argued that they intended to pursue negligent misrepresentation against the adjusters. The court noted, however, that the complaint labeled their claim as negligent adjusting rather than negligent misrepresentation. The court also found that the complaint did not adequately identify material misrepresentations, reasonable reliance, or other facts needed to plausibly plead negligent misrepresentation. The complaint’s statement that the adjusters made “numerous false statements of fact” was conclusory.

Even so, the court held that the adjusters were not fraudulently joined for jurisdictional purposes. State Farm had not met its heavy burden of showing that there was no possibility the Neads could amend their complaint to state a negligent-misrepresentation claim. The court stated that State Farm could seek removal again if a state court later dismissed the claims against the nondiverse adjusters.

Disposition

The court granted the Neads’ motion to remand. It denied State Farm’s motion to drop and dismiss as moot. The order did not decide whether the Neads ultimately could prevail on their insurance or adjuster-related claims.