Richmond v. Nat'l Gypsum Servs. Co.
Opinion of the Court
Before the Court is the plaintiffs' motion to remand. For the following reasons, the motion is DENIED, and Louisiana Citizens is DISMISSED without prejudice.
Background
This lawsuit arises out of the purchase and installation of alleged Chinese drywall in a residence located in New Orleans, Louisiana following Hurricane Katrina.
In October of 2006, Cedric and Raquel Richmond purchased a residence located at 7021 Cove Drive in New Orleans that had sustained water damage during the storm. At the time of the purchase, the water-damaged drywall had been removed, but new drywall had not yet been installed. The following year, the property underwent renovations, including the installation of new drywall. Cedric Richmond, acting as general contractor, purchased approximately 180-190 sheets of drywall from Lowe's stores located in New Orleans. During the renovation process, Mr. Richmond secured a Builder's Risk insurance policy from Louisiana Citizens Property Insurance Corporation, which expired in 2007.
About ten years later, when the Richmonds attempted to sell the property, a home inspector alerted them to the possibility that it contained "Chinese drywall." In response, they retained Driskill Environmental Consultants, LLC to conduct another inspection. On June 14, 2017, Driskill inspected the residence and issued a report stating that there was "extensive, advanced corrosion to copper ground wiring, copper pipe water supply lines, and the A/C evaporator coils." The report concluded that a majority of the drywall installed in the property was defective and that removal was required. At the time this report was issued, the property was insured by a Homeowners' Policy issued by Louisiana Citizens. The Richmonds later *535determined that National Gypsum Services Company had manufactured the drywall.
On June 14, 2018, the Richmonds, who are citizens of Louisiana, sued National Gypsum Services Company; Lowe's Home Center, Inc.; and Louisiana Citizens Property Insurance Corporation in the Civil District Court for the Parish of Orleans, asserting redhibition and negligence claims against National Gypsum and Lowes's, a products liability claim against National Gypsum, and insurance coverage claims against Louisiana Citizens. In particular, the Richmonds' petition seeks compensation for the "significant damages" that the property has sustained and alleges that the defendants are liable for:
sums paid ... by the Petitioners for the remediation of the subject Property; all expenses occasioned by the remediation of the subject Property; all expenses incurred by Petitioners with respect to maintenance, repair, and preservation of the subject Property since purchase of the drywall; interest on all payments made in connection with remediation of the subject Property; general and special damages arising out of the defective drywall; diminution in value of the subject Property due to the Chinese drywall; and all of Petitioners' attorney's fees incurred with respect to the investigation and pursuit of this action.
The petition contains neither a prayer for a specific amount of monetary relief, nor a general allegation that the amount in controversy is below the threshold for federal jurisdiction.
National Gypsum timely removed the lawsuit to this Court on August 6, 2018; Lowe's consented, but Louisiana Citizens, a citizen of Louisiana, did not. The plaintiffs now move to remand the case on the ground that this Court lacks subject matter jurisdiction because the jurisdictional amount in controversy requirement is not satisfied and they share Louisiana citizenship with Louisiana Citizens.
The plaintiffs reveal in their motion to remand that they had entered into a contract to sell the property for $190,000 in April of 2017, which fell through after the discovery of the alleged defective drywall. They further relate that they eventually sold the property to another buyer in June of 2018 for $127,000.
I.
Although the plaintiff challenges removal in this case, the removing defendant carries the burden of showing the propriety of this Court's removal jurisdiction. See Manguno v. Prudential Prop. & Cas. Ins. Co.,
*536Federal Courts are courts of limited jurisdiction, possessing only the authority granted by the United States Constitution and conferred by the United States Congress. Howery v. Allstate Ins. Co.,
II.
The Court first considers whether the jurisdictional amount in controversy requirement is satisfied. Louisiana law requires that a plaintiff include "no specific amount of damages" in his prayer for relief. La. Code Civ. Proc. art. 893. However, it also provides that "if a specific amount of damages is necessary to establish ... the lack of jurisdiction of federal courts due to insufficiency of damages ... a general allegation that the claim exceeds or is less than the requisite amount is required." Id."Petitions that do not explicitly declare that the federal amount in controversy requirements are not met create a strong presumption in favor of federal jurisdiction." Lewis v. Valero Refining-New Orleans, No. 16-16590,
*537Asociación Nacional de Pescadores a Pequeña Escala o Artesanales de Colombia (ANPAC) v. Dow Química de Colombia,
If the removing party satisfies its burden, the plaintiff can only defeat removal by showing that it is "legally certain that his recovery will not exceed the amount stated in the state complaint." De Aguilar,
In this case, the plaintiffs seek compensation for damages caused by the alleged presence of Chinese Drywall in their property. Their state court petition describes those damages as "significant" and claims that there was "extensive, advanced corrosion to copper ground wiring, copper pipe water supply lines, and the A/C evaporator coils." The petition further alleges that the defendants are liable for:
all sums paid to date by the [plaintiffs] for the remediation of the subject Property; all expenses occasioned by the remediation of the subject Property; all expenses incurred by [plaintiffs] with respect to maintenance, repair, and preservation of the subject Property since purchase of the drywall; interest on all payments made in connection with remediation of the subject Property; general and special damages arising out of the defective drywall; diminution in value of the subject Property due to the Chinese drywall; and all of [plaintiffs'] attorney's fees incurred with respect to the investigation and pursuit of this action.
National Gypsum declares in its Notice of Removal that it is "readily apparent from the face of the Petition that the amount in controversy exceeds $75,000." The plaintiffs contend that this statement is too "conclusory." And, they submit, because National Gypsum did not file an affidavit or present any other evidence regarding the amount in controversy, it failed to establish by a preponderance of the evidence that the amount in controversy exceeds $75,000.
Notably, defendants are not required to come forward with "summary judgment type evidence" to satisfy their removal burden where it is facially apparent from the petition "that the plaintiff's claims likely exceed $75,000." See Luckett,
Moreover, where, as here, there is no ambiguity on the face of the petition as to the amount in controversy, "post-removal affidavits, stipulations, and amendments ... do not deprive the district court of jurisdiction." Gebbia,
III.
The Court next considers whether the complete diversity requirement is met. It is undisputed that the plaintiffs and Louisiana Citizens share Louisiana citizenship. However, National Gypsum and Lowe's urge the Court to disregard the citizenship of Louisiana Citizens because it was improperly joined, or in the alternative, because the claims against it were egregiously "misjoined."
A.
Pursuant to the doctrine of "improper joinder," a state court action may be removed despite the presence of a non-diverse defendant, where the joinder of such defendant was improper. Smallwood v. Illinois Central R. Co.,
Because Louisiana Citizens is non-diverse, to establish subject matter jurisdiction in this Court based upon the improper joinder doctrine, National Gypsum and Lowe's have the burden of establishing that the plaintiffs have failed to state a claim against Louisiana Citizens. See Int'l Energy Ventures Mgmt., LLC,
*539In doing so, the defendants must demonstrate "that there is no possibility of recovery by the plaintiff against an in-state defendant, which stated differently means that there is no reasonable basis for the district court to predict that the plaintiff might be able to recover against an in-state defendant."
B.
The diverse defendants submit that the plaintiffs have "no reasonable basis" of obtaining insurance coverage from Louisiana Citizens under either the Builder's Risk Policy or the Homeowners' Policy.
Louisiana law declares that an insurance policy is like any other contract and should be construed according to the general rules of contract interpretation set forth in the Civil Code. See Cadwallader v. Allstate Ins. Co.,
As to the Builder's Risk Policy, National Gypsum and Lowe's contend that the plaintiffs have no possibility of recovery because (1) loss caused by defective drywall is not a "covered peril" and (2) there was no "occurrence" during the policy period. The Court agrees.
The Builder's Risk Policy provides:
[W]e insure for direct physical loss to the property covered caused by: 1A. Fire or lightning. 1B. Internal Explosion ... 2. Windstorm or hail ... 3. Explosion ... 4. Riot or civil commotion ... 5. Aircraft ... 6. Vehicles ... 7. Smoke ... 8. Volcanic Eruption ... 9. Vandalism or malicious mischief....
Because this Policy only provides coverage for damage caused by an enumerated peril, and defective drywall does not fall within any of the specified categories, the plaintiffs have no possibility of recovering under this Policy.
Even if one of the nine enumerated perils were to encompass defective drywall, the plaintiffs' recovery under this Policy would still be foreclosed because the alleged damage occurred outside of the policy period. Notably, the Builder's Risk Policy stipulates:
This policy applies only to loss which occurs during the policy period.
The Policy further sets forth a policy period dating from "10/06/2006" to *540"10/06/2007." Moreover, the damage caused by the allegedly defective drywall "occurred" during the spring of 2017 when the plaintiffs were first alerted to the presence of Chinese drywall in their property.
The Court next considers whether the removing defendants have satisfied their burden of proving that the plaintiffs have no possibility of recovering under the Homeowners' Policy. With respect to this Policy, National Gypsum and Lowe's urge that coverage for damages caused by defective drywall is unambiguously barred by four coverage exclusions: (1) "faulty, inadequate or defective materials;" (2) "latent defect;" (3) "corrosion;" and (4) "pollution." To support this contention, the diverse defendants submit that, another Section of this Court, in In re Chinese Manufactured Drywall Products Liability Litigation, determined that "claims for losses related to Chinese drywall [were] excluded by the faulty materials exclusion and the corrosion exclusion" under several homeowners' policies similar to the one presented in this case.
(1) Faulty, Inadequate or Defective Materials
The removing defendants first contend that coverage for damage caused by defective drywall is barred by the "faulty, inadequate or defective materials" exclusion. The Homeowners' Policy states:
We do not insure for loss to property described in Coverages A and B caused by any of the following.
...
3. Faulty, inadequate or defective:...
c. materials used in repair, construction, renovation or remodeling...
of part or all of any property whether on or off the "residence premises."
In interpreting the "faulty materials" exclusion contained in several homeowners' policies similar to the one at issue here, another Section of this Court, in In re Chinese Manufactured Drywall Prods. Liab. Litig., determined that Chinese-manufactured drywall that damaged electrical devices, appliances, and wiring constituted *541"faulty materials" within the meaning of the policy, such that the resulting loss was excluded from coverage.
(2) Latent Defect
The removing defendants next contend that the plaintiffs' defective drywall related claims are also barred by the "latent defect" exclusion, which provides:
We do not insure, however, for loss: ... Caused by...
(6) Any of the following:
(b) Mechanical breakdown, latent defect, inherent vice, or any quality in property that causes it to damage or destroy itself.
Although the Court in In re Chinese Manufactured Drywall Prods. Liab. Litig. was "unable to make a definitive determination as to whether the damage caused by Chinese drywall in the Plaintiffs' homes constitute[d] a latent defect," the Louisiana Fifth Circuit in Ross definitively held the following year that damage caused by Chinese drywall was excluded from coverage under the latent defect exclusion in the Louisiana Citizens homeowners' policy.
(3) Corrosion
National Gypsum and Lowe's next submit that the plaintiffs' defective drywall related claims are also excluded under the "corrosion" exclusion, which provides:
We do not insure, however, for loss: ... Caused by...
(6) Any of the following:
(c) Smog, rust or other corrosion, or dry rot.
In interpreting this provision, both the Court in In re Chinese Manufactured Drywall Prods. Liab. Litig., and the Louisiana Fifth Circuit in Ross, held that corrosion-related loss caused by defective Chinese drywall was excluded under the corrosion exclusion.
(4) Pollution
Finally, the diverse defendants contend that coverage for the plaintiffs' drywall-related claims is also excluded under the "pollution" exclusion. This provision provides:
We do not insure, however, for loss: ... Caused by...
(6) Any of the following:
(e) Discharge, dispersal, seepage, migration, release or escape of pollutants unless the discharge, dispersal, seepage, migration, release or escape is itself caused by a Peril Insured Against named under Coverage C.
Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.
In re Chinese Manufactured Drywall Prods. Liab. Litig. determined that the pollution exclusion did not apply to bar coverage for damage caused by defective drywall.
The plaintiffs aver that their lawsuit should be remanded because the diverse defendants, in their Notice of Removal, overlook two-on-point cases from the Civil District Court for the Parish of Orleans. According to the plaintiffs, these Louisiana state court decisions stand for the proposition that exclusions in homeowners' policies do not bar claims relating to Chinese drywall. For example, in Finger v. Audubon Insurance Co., the Civil District Court for the Parish of Orleans determined that the "faulty or defective materials," "latent defect," "corrosion," and "pollution" exclusions within a homeowners' policy did not foreclose the possibility of coverage for damages resulting from the installation of high sulfur content drywall. No. 09-8071,
The plaintiffs emphasize that, because the Civil District Court for the Parish of Orleans (the court in which they filed their state court petition) is under the "purview" of the Louisiana Fourth Circuit Court of Appeals, it is not bound to follow Ross (a Louisiana Fifth Circuit decision) or In re Chinese Manufactured Drywall Prods. Liab. Litig. (a federal district court decision). Moreover, the plaintiffs contend that the removing defendants cite no "binding" authority establishing that the plaintiffs are barred from recovering based on coverage exclusions in a homeowners' policy. The removing defendants counter that the plaintiffs' reliance on Finger and Burns is misplaced. The Court agrees and notes that decisions of a state trial court provide no precedential guidance to this Court.
First, this Court, sitting in diversity, must interpret Louisiana law as would the Louisiana Supreme Court if faced with the same issue -- not as would a Louisiana trial court. See In re Chinese Manufactured Drywall Prods. Liab. Litig.,
Second, in applying Louisiana law in In re Chinese Manufactured Drywall Prods. Liab. Litig., that Court declined to follow the Finger court's holdings as to the "faulty materials" exclusion and the "corrosion" exclusion.
Finally, as noted above, although this Court recognizes that the Civil District Court for the Parish of Orleans, in Burns, denied a homeowners' insurance company's motion for summary judgment in a Chinese drywall coverage dispute, it also finds that, in the absence of reasoning, the *544Burns judgment provides little guidance. Moreover, the Court notes that the Louisiana Fourth Circuit's subsequent denial of this insurance company's writ application informs no precedential value. See Nabors Offshore Corp. v. Caterpillar Inc., 2016-0003 (La. App. 4 Cir. 11/30/16),
In the face of on-point case law from another Section of this Court, as subsequently reinforced by the Louisiana Fifth Circuit, and in the absence of contradictory case law from the Louisiana Fourth Circuit, this Court finds that the removing defendants have satisfied their burden of proving that the plaintiffs have "no reasonable basis" of recovering under the Homeowners' Policy for damages caused by defective drywall. In reaching this conclusion, the Court emphasizes that the possibility of recovery must be "reasonable," not merely theoretical. See Smallwood,
Accordingly, IT IS ORDERED: that the plaintiffs' motion to remand is DENIED and that Louisiana Citizens is hereby DISMISSED without prejudice.
In their opposition papers, National Gypsum and Lowe's note that, according to the Act of Cash Sale dated April 23, 2018 between Cedric Richmond and Pack LLC, the property was sold for the sum of $117,500 - not $127,000, as represented in Mr. Richmond's affidavit.
Presumably, if, as the plaintiffs suggest, this action is worth less than $75,000, they would accept some amount less in a possible settlement.
Louisiana courts apply the "manifestation theory" to determine when damage "occurs" for purposes of triggering coverage under insurance policies. See Rubi v. Sunrise Homes, Inc., 94-CA-473 (La. App. 5 Cir. 3/15/95);
By failing to address in their motion to remand the possibility of their recovery under the Builder's Risk Policy, the plaintiffs appear to concede that coverage under this Policy is foreclosed.
In light of the Court's determination that Louisiana Citizens was improperly joined, the Court need not reach the removing defendants' alternative rationale for disregarding the citizenship of this non-diverse defendant -- namely, Tapscott misjoinder.
Reference
- Full Case Name
- Cedric RICHMOND and Raquel Richmond v. NATIONAL GYPSUM SERVICES COMPANY
- Cited By
- 1 case
- Status
- Published