Unreported / Non-Citable
Background
Mario and Norma Davila owned property in Mission, Texas, insured by State Farm Lloyds. In May 2022, lightning struck their solar electricity generating system, causing damage. State Farm inspected the property, confirmed the lightning damage, but then closed the claim and refused to pay, allegedly violating the policy terms. On July 29, 2024, the Davilas sued State Farm in Texas state court asserting a breach-of-contract claim. They also named two other non-diverse State Farm entities as defendants.
Service of process was delayed substantially—the state court threatened dismissal for want of prosecution before the Davilas served defendants on December 23, 2024, nearly five months after filing suit. On March 24, 2025, the Davilas’ attorney sent a demand letter to State Farm outlining additional claims under the Texas Deceptive Trade Practices Act (DTPA) and Texas Insurance Code, claiming over $63,000 in damages plus treble damages. However, the Davilas did not actually amend their petition to add these claims until December 8, 2025—more than eight months later and just before the state court’s amendment deadline. State Farm removed the case to federal court on December 16, 2025, prompting the Davilas to move for remand.
The Court’s Holding
The court denied the motion to remand and upheld federal jurisdiction. The central question was when diversity jurisdiction first existed. Although the Fifth Circuit has held that a demand letter can constitute an “other paper” under 28 U.S.C. §1446(b) for removal purposes, the court found that the March 2025 demand letter did not make it “unequivocally clear and certain” that the amount in controversy exceeded $75,000. The letter, while specifying claimed damages, was qualified by statements that the Davilas were “open to settlement discussions” and only “intend” to amend their petition. Because those claims remained contingent and hypothetical until actually alleged in the amended petition, diversity jurisdiction did not exist until December 8, 2025.
Although State Farm’s December 16, 2025 removal fell outside the standard one-year removal deadline under 28 U.S.C. §1446(c), the court found that the Davilas engaged in bad-faith conduct to prevent removal. The court identified four factors: (1) delaying service nearly five months after filing suit, only after state court threatened dismissal; (2) keeping non-diverse defendants as parties without meaningfully pursuing claims against them; (3) waiting over eight months after first signaling intent to add DTPA and Insurance Code claims; and (4) timing the amendment to just before the one-year removal deadline. The court concluded this pattern reflected a transparent attempt to manipulate the removal statute and prevent federal jurisdiction. Accordingly, the bad-faith exception under §1446(c)(1) applied, making removal timely and proper.
Key Takeaways
- A demand letter can be an “other paper” triggering the removal clock under §1446(b), but only if it makes removability “unequivocally clear and certain”—conditional or contingent statements about damages undermine that clarity.
- Bad faith manipulation of the removal statute—including delay in service, delay in amending pleadings, and maintenance of non-diverse defendants without genuine prosecution—can override the one-year removal deadline.
- Plaintiffs cannot avoid federal jurisdiction by slow-walking procedural steps in state court; courts will examine whether litigation conduct is designed to prevent removal.
- The removal statute is strictly construed in favor of remand, but that protection does not extend to plaintiffs acting in transparent bad faith.
Why It Matters
This decision reinforces that Federal Rule 1446(c) bad-faith exception is a real constraint on timing games in removal disputes. Practitioners cannot simply delay service, withhold amendments, or carry dead-weight defendants to run out the removal clock—courts will examine the totality of conduct for signs of intentional obstruction. The decision is particularly relevant for insurance disputes where plaintiffs initially understate claims to keep cases in state court, then later add statutory claims (like DTPA in this case) that would trigger removability.
The ruling also clarifies the demand-letter doctrine: such letters can start the removal clock, but only if they convey firm commitment to specific damages, not tentative intent conditioned on settlement negotiations. This gives insurers and other defendants guidance on how to evaluate whether a pre-suit demand actually signals a removable case or remains speculative positioning.