By Daphne Zhang

Law360 (August 19, 2020, 2:53 PM EDT) -- A Texas federal judge has granted insurance broker Swingle Collins & Associates' bid to escape a suit accusing it of misrepresentation in a COVID-19-related business loss dispute, saying a Dallas restaurant group failed to allege any wrongdoing on the broker's part.  

In an order filed Tuesday, U.S. District Judge Sidney Allen Fitzwater said that Vandelay Hospitality Group LP failed to identify any misrepresentations Swingle Collins or its agents made about the scope of the group's policy with Cincinnati Insurance Co. 

Judge Fitzwater also refused the restaurant group's bid to remand the case back to state court, saying Vandelay was seeking damages not recoverable under a negligent misrepresentation claim. There is "no reasonable basis on which the court can conclude that Vandelay could recover on this claim as pleaded in state court," the judge wrote.

The eatery group, which owns three restaurant brands with multiple locations, sued Cincinnati and its registered agent Baron Cass of Swingle Collins in April, asking a Texas state court to rule that its business interruption policy should cover the more than $1 million in damages it experienced from government closures due to COVID-19. Vandelay alleged that Swingle Collins negligently misrepresented that the policy would cover its pandemic loss.

Vandelay submitted a coverage claim to Cincinnati through Cass in early March and heard back from Cincinnati a few weeks later that the pandemic is not covered. Cincinnati moved the case to a Texas federal court in May. The insurer and its broker have argued that Vandelay "fraudulently" joined Swingle Collins to move the case back to state court, saying that the coverage dispute is entirely between Cincinnati and the eatery group.

In Tuesday's order, Judge Fitzwater said that Vandelay has failed to demonstrate any wrongdoing "for which Cass could be held liable in a Texas court," and there is "no reasonable basis" for recovery against Swingle Collins and Cass. The damages that the restaurant group seeks are not available as a matter of law, the judge added.

"Coverage measures Vandelay's 'benefit-of-the bargain' damages, not anything paid 'out-of-pocket' in reliance on Swingle Collins' alleged misrepresentations," Judge Fitzwater wrote. "To the extent Vandelay seeks to recoup damages that are recoverable, it has failed to 'at least attempt to differentiate the damages sought,' which is required 'at the pleading stage' for a negligent misrepresentation claim."

The judge denied the group's request to send the case back to state court, saying that Cincinnati and its broker sufficiently showed that Vandelay has no reason to believe it would get a declaratory judgment in state court.

"Cass's presence, essentially as a nominal defendant against whom no cause of action has been asserted, cannot defeat diversity jurisdiction," Judge Fiztwater said. "If declaratory relief were to be granted in this case against Cass, it will be because of the underlying conduct of Cincinnati and based on a cause of action asserted against it, not Cass."

Jason H. Friedman, an attorney representing Vandelay, said in a statement Wednesday that "Vandelay intends to bring its authorities on the issue to the attention of the court and to seek reconsideration of the denial of the motion to remand." 

The federal court allowed Cincinnati to amend its removal June 9, well past the 30-day deadline, said Shauna Izadi, another attorney representing Vandelay, adding that Cincinnati failed to mention Swingle Collins as being a party to the suit in the amended removal. The case was filed April 23 in state court. 

"While we acknowledge that there are instances in which a party may amend its notice of removal after the 30 days have expired, we respectfully disagree that the omission of the then-current pleading and an existing party at the time of the removal from the notice of removal is such an instance," Friedman said. 

Counsel for Swingle Collins declined to comment. 

Swingle Collins is represented by Robert A. Bragalone and Nathan D. Pearman of Gordon & Rees LLP.

Cincinnati is represented by Susan Jan Hueber of Litchfield Cavo LLP.

Vandelay is represented by Shauna A. Izadi, Jason H. Friedman and Kaitlyn M. Beaman of Friedman & Feiger LLP.

The case is Vandelay Hospitality Group v. The Cincinnati Insurance Co. et al., case number 3:20-cv-01348, in the U.S. District Court for the Northern District of Texas.

--Editing by Abbie Sarfo.

Update: This story has been updated to include comments from the plaintiff's counsel.

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