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Beaumont Independent School District v. Employers Reinsurance Corporation
May 25, 2010
Unpublished Opinion

Beaumont Independent School District v. Employers Reinsurance Corporation

United States District Court, E.D. Texas.






Signed 05/25/2010

Attorneys & Firms

John Emerson Galloway, Galloway Johnson Tompkins Burr & Smith, New Orleans, LA, Melody G. Chappell, Wells Peyton Greenberg & Hunt, Beaumont, TX, James Terry Bailey, Leslie Dean Pickett, Galloway Johnson Tompkins Burr & Smith, Houston, TX, for Plaintiff.

Rick Lee Oldenettel, Oldenettel & McCabe, P.C., Houston, TX, for Defendant.



*1 Pending before the court is Plaintiff Beaumont Independent School District’s (“BISD”) Motion to Remand (#4). BISD seeks remand to state court of its action against Defendant Employers Reinsurance Corporation (“ERC”), contending that this lawsuit arises under the workers’ compensation statutes and laws of Texas and may not be removed to federal court pursuant to 28 U.S.C. § 1445(c). Having reviewed the pending motion, the submissions of the parties, the pleadings, and the applicable law, the court is of the opinion that remand is not warranted.

I. Background

BISD is a taxpayer-funded, governmental entity that governs and oversees the management of the public schools within Beaumont, Texas. BISD is a self-insured employer under the Texas Workers’ Compensation Act, subject to a self-insured retention (“SIR”) of $300,000. Effective April 1, 1993, BISD obtained an excess workers’ compensation policy from ERC to cover claims exceeding its SIR. Under the terms of the Specific Excess and Aggregate Excess Workers Compensation and Employers Liability Indemnity Policy No. C-43012 (“the Policy”), ERC agreed to indemnify BISD for its loss in excess of BISD’s SIR of $300,000.

In October 1993, a former BISD employee, Norma Mitchell (“Mitchell”), suffered a work-related injury in connection with her employment and filed a workers’ compensation claim against BISD. Subsequently, BISD, through its third-party administrator, began paying benefits to and on behalf of Mitchell. BISD alleges that, in March 2004, it notified ERC that the workers’ compensation benefits paid to or on behalf of Mitchell had reached the Policy’s reporting threshold. BISD asserts that, in August 2007, BISD sought indemnification from ERC for the amounts paid in excess of $300,000 for Mitchell’s claim in accordance with the terms of the Policy. BISD contends that, in September 2007, ERC notified BISD of its intention to assess a 40% penalty on the reimbursement claim due to BISD’s alleged violation of the Policy’s reporting provision.

Following ERC’s refusal to withdraw the penalty assessment, on November 25, 2009, BISD filed its Original Petition in the 58th Judicial District Court of Jefferson County, Texas, asserting claims against ERC for breach of contract, breach of the duty of good faith and fair dealing, and violation of Section 541.060 of the Texas Insurance Code. In its petition, BISD seeks a judgment ordering ERC to indemnify BISD fully for all amounts paid to or on behalf of Mitchell in excess of $300,000 and to reimburse BISD fully for all future benefits paid to or on behalf of Mitchell.

On January 8, 2010, ERC removed the case to federal court on the basis of diversity jurisdiction, alleging that complete diversity of citizenship exists among the real parties in interest and that the amount in controversy exceeds $75,000.00, exclusive of interest and costs. It is undisputed that BISD is a citizen of the State of Texas and that ERC is a foreign corporation, with its principal place of business in the State of Missouri. Despite the presence of diverse parties and the requisite amount in controversy, BISD alleges that this action should be remanded because it is founded on and arises wholly under the workers’ compensation statutes of Texas and, thus, may not be removed to federal court. Accordingly, on February 6, 2010, BISD filed a motion to remand the case to state court, asserting that federal jurisdiction is lacking.

II. Analysis

*2 “ ‘Federal courts are courts of limited jurisdiction.’ ” Rasul v. Bush, 542 U.S. 466, 489 (2004) (quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) ); accord Johnson v. United States, 460 F.3d 616, 621 n.6 (5th Cir. 2006); McKee v. Kansas City S. Ry. Co., 358 F.3d 329, 337 (5th Cir. 2004); Howery v. Allstate Ins. Co., 243 F.3d 912, 916 (5th Cir.), cert. denied, 534 U.S. 993 (2001). “ ‘They possess only that power authorized by Constitution and statute, which is not to be expanded by judicial decree.’ ” Rasul, 542 U.S. at 489 (quoting Kokkonen, 511 U.S. at 377 (citations omitted) ). The court “must presume that a suit lies outside this limited jurisdiction, and the burden of establishing federal jurisdiction rests on the party seeking the federal forum.” Howery, 243 F.3d at 916 (citing Kokkonen, 511 U.S. at 377); see also Boone v. Citigroup, Inc., 416 F.3d 382, 388 (5th Cir. 2005). In an action that has been removed to federal court, a district court is required to remand the case to state court if, at any time before final judgment, it determines that it lacks subject matter jurisdiction. 28 U.S.C. § 1447(c); Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 571 (2004); McDonal v. Abbott Labs., 408 F.3d 177, 182 (5th Cir. 2005).

When considering a motion to remand, “[t]he removing party bears the burden of showing that federal jurisdiction exists and that removal was proper.” Manguno v. Prudential Prop. & Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002); accord DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 342 n.3 (2006); Gutierrez v. Flores, 543 F.3d 248, 251 (5th Cir. 2008); In re Hot-Hed Inc., 477 F.3d 320, 323 (5th Cir. 2007); Guillory v. PPG Indus., Inc., 434 F.3d 303, 308 (5th Cir. 2005); Boone, 416 F.3d at 388; Garcia v. Koch Oil Co. of Tex. Inc., 351 F.3d 636, 638 (5th Cir. 2003). “This extends not only to demonstrating a jurisdictional basis for removal, but also necessary compliance with the requirements of the removal statute.” Albonetti v. GAF Corp. Chem. Group, 520 F. Supp. 825, 827 (S.D. Tex. 1981); accord Crossroads of Tex., L.L.C. v. Great-West Life & Annuity Ins. Co., 467 F. Supp. 2d 705, 708 (S.D. Tex. 2006); Smith v. Baker Hughes Int’l Branches, Inc., 131 F. Supp. 2d 920, 921 (S.D. Tex. 2001). “Only state-court actions that originally could have been filed in federal court may be removed to federal court by the defendant.” Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987) (citing 28 U.S.C. § 1441(a) ); see Aetna Health Inc. v. Davila, 542 U.S. 200, 207 (2004). “The removal statute ties the propriety of removal to the original jurisdiction of the federal district courts.” Frank v. Bear Stearns & Co., 128 F.3d 919, 922 (5th Cir. 1997); see 28 U.S.C. § 1441(a). Because removal raises significant federalism concerns, the removal statutes are strictly and narrowly construed, with any doubt resolved against removal and in favor of remand. See Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09 (1941); Gutierrez, 543 F.3d at 251; Gasch v. Hartford Accident & Indem. Co., Removal under 28 U.S.C. § 1445(c)

“To restrict diversity jurisdiction and to stop the removal of compensation cases which were increasing the already overburdened docket of federal courts, Congress enacted section 1445(c) of Title 28 of the United States Code.” Jones v. Roadway Express, Inc., Sherrod v. American Airlines, Inc., Meeks v. Swift Transp., Inc., No. EP-09-CV-298-KC, 2009 WL 4878629, at *2 (W.D. Tex. Dec. 11, 2009). The United States Court of Appeals for the Fifth Circuit has construed this provision broadly. See, e.g., Jones, 931 F.2d at 1092. “The policy of nonremovability embodied in 28 U.S.C. § 1445(c) ‘represents a concern for the states’ interest in administering their own worker’s compensation laws and limiting the flow of these essentially local disputes into the federal courts.’ ” Trevino v. Ramos, 77 F.3d 782, 787-89 (5th Cir. 1996); Jones, 931 F.2d at 1092. “On the other hand, if the claim is not expressly provided for in the state’s statutory workers’ compensation scheme, but rather is fashioned by the courts from a state’s common law, the claim does not ‘arise under’ the state’s workers’ compensation laws and therefore can be removed.” Hanna, 900 F. Supp. at 1118.

*4 In the instant case, the court finds that BISD’s claims do not “arise under” the workers’ compensation laws of Texas. Instead, this lawsuit arises out of a contract dispute between BISD and ERC, stemming from conflicting interpretations of an excess insurance policy. It is only tangentially related to the injury that forms the basis of Mitchell’s worker’s compensation claim against BISD, and, contrary to BISD’s assertions, has no effect on Mitchell’s right or ability to continue receiving benefits. BISD’s state court petition alleges causes of action against ERC for breach of contract, breach of the duty of good faith and fair dealing, and violations of the Texas Insurance Code. With regard to its breach of contract claim, BISD asserts that “ERC materially breached the excess policy by failing to indemnify BISD for amounts it paid in excess of $300,000.00 for the subject claim.” BISD contends that ERC breached its duty of good faith and fair dealing by unreasonably rejecting BISD’s demand for indemnification. Lastly, BISD maintains that ERC violated the Texas Insurance Code by failing to bring about a “prompt, fair, and equitable resolution of a reasonably clear demand for indemnity,” and failing within a reasonable time to affirm or deny coverage of BISD’s reimbursement claim.

In Patin, the Fifth Circuit held that “a covered employee’s claims and the claims of those asserting rights through the employee against the employer’s workers’ compensation insurance carrier for breach of the duty of good faith and fair dealing are not immunized against removal to federal court by the provisions of 28 U.S.C. § 1445(c).” 77 F.3d at 784 (emphasis in original) (noting that “the most that can be said about Plaintiff’s breach of good faith and fair dealing claim is that it is related to his claim for workers’ compensation”); see Harp v. Liberty Mut. Ins. Co., No. SA-08-CV-0655-FB, 2008 WL 4200312, at *1 & n.6 (W.D. Tex. Sept. 11, 2008); Climer v. Twin City Fire Ins. Co., No. 3:04-CV-552-G, 2004 WL 1531796, at *5 (N.D. Tex. July 8, 2004); Miller v. American Int’l Group, Inc., No. 3:02-CV-0553P, 2002 WL 1285202, at *2 (N.D. Tex. June 5, 2002). Furthermore, claims for breach of contract and violations of the Texas Insurance Code “are only incidental to the Texas workers’ compensation statutes.” Climer, 2004 WL 1531796, at *5 (finding that causes of action for violations of the Deceptive Trade Practices Act, negligence, tortious interference, and intentional infliction of emotional distress are also incidental to the workers’ compensation statutes). Thus, as the Texas workers’ compensation statutes do not create causes of action for breach of contract, breach of the duty of good faith and fair dealing, or violations of the Texas Insurance Code, they do not fall within the ambit of the non-removability provision of Section 1445(c). See id. Accordingly, BISD has raised claims that are subject to removal, and this court has subject matter jurisdiction over this action.

III. Conclusion

Based on the foregoing analysis, the court finds that BISD’s action arises under Texas common law, not the Texas Workers’ Compensation Act. Therefore, because this case was properly removed, BISD’s motion to remand is DENIED.

End of Document