Federal Court – Trying To Stay Out

Dallas insurance lawyers would want to be aware of this recent case out of the United States Southern District Court, McAllen Division. The style is Samuel Gacia, et al, v. Geovera Specialty Insurance Company.
Insurance companies prefer to have cases in Federal Court. Attorneys suing insurance companies prefer to be in State Court. The reasons will not be discussed here. But this case discusses how a Federal Court looks at which Court a case should be in.
Here is some of the relevant information:
Garcia filed suit in state court, asserting that Geovera had violated the terms of a property insurance policy with regard to a hailstorm claim. Geovera filed its answer and removed the case to Federal Court asserting subject matter jurisdiction pursuant to 28 U.S.C. §§ 1332 and 1446. Garcia filed a motion to remand, asserting that the requirements of diversity jurisdiction were not satisfied due to an insufficient amount in controversy. Geovera expounded upon its removal position, specifically that the amount in controversy exceeded the jurisdictional threshold.
DISCUSSION Section 1332 of Title 28 of the United States Code provides that the Court has original jurisdiction of an action where “the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between (1) citizens of different states . . . .” Neither party disputes that the diversity-of-citizenship requirement is met. Instead, Garcia challenged the sufficiency of the amount in controversy.
A Court strictly construes the removal statute and “any doubt as to the propriety of removal should be resolved in favor of remand.”
Garcia does not include a specific damages amount and instead states that “plaintiffs seek damages, inclusive of attorney fees, in an amount not exceeding $75,000.” Garcia relies upon this representation. Under § 1446(c)(2), where removal is sought on the basis of diversity under §1332, “the sum demanded in good faith in the initial pleading shall be deemed to be the amount in controversy . . . .” The amount-in- controversy inquiry does not end merely because the Garcia alleges damages below the threshold. In addition to the good-faith requirement, the statute also provides that the demand in the pleading will not control if “the State practice . . . does not permit demand for a specific sum . . . .” Notably, while § 1446 speaks to the violation of a specific-damages prohibition as an exception, but is largely silent about the determination of bad faith,
these new rules prohibiting plaintiffs from pleading for specific amounts in cases of unliquidated damages have created the potential for abusive manipulation by plaintiffs, who may plead for damages below the jurisdictional amount in state court with the knowledge that the claim is actually worth more, but also with the knowledge that they may be able to evade federal jurisdiction by virtue of the pleading. Such manipulation is characterized as bad faith.
The Court found that the amount demanded in the complaint does not control the analysis.
Defendant’s Showing of Damages In the event that the initial pleading does not control, § 1446(c)(2)(B) provides that removal is proper where a sufficient amount in controversy is supported by a preponderance of the evidence. The test is whether it is more likely than not that the amount of the claim will exceed the jurisdictional threshold. The Court began its analysis by considering whether Defendant’s evidence supported a finding that the amount in controversy will “more likely than not” exceed the jurisdictional threshold.
As support for removal, Defendant provided the following evidence: (1) policy limits and (2) discovery documentation attached to the petition.
Policy Limits. In determining the amount in controversy relative to coverage under an insurance policy, the Fifth Circuit defined the “object of the litigation” as the “value of the right to be protected.” Geovera first directs the Court’s attention to the monetary limits of the policy under which Garcia is bringing the action. Those limits comprise $132,000.00 in dwelling coverage, $13,200.00 in other-structures coverage, and $66,000.00 in personal-property coverage, and $26,400.00 in loss-of-use coverage; a combined total of $237,600.00. As a result, the insurance policy implicates an amount in controversy well-above the jurisdictional threshold, and this policy forms the contractual basis for Garcias’ breach of contract claim.
The amount in controversy is more accurately reflected by the value of the claim. On this basis, Garcia argues that their single, breach-of-contract claim indicates a lower amount in controversy. This argument fails for two reasons. First, absent any limitation by Garcia, the breach-of-contract claim facially implicates the limits of the policy which forms the basis of the claim. Second, this nominal assertion of a breach-of-contract claim is belied by two aspects of Garcias’ petition: (1) Plaintiffs’ selection of a discovery control plan which indicates both a larger amount in controversy and a complexity beyond a mere contract dispute, consistent with Garcias’ representation that this case involves complex issues and will involve extensive discovery; and (2) Garcias’ discovery requests, incorporated into the petition, for extra-contractual information about Geovera’s operational policies since 2007. As a result, while the breach-of-contract claim alone implicates an amount above the jurisdictional threshold, Garcias’ pleading further implicates additional, extra-contractual claims.
Garcia also attempts to establish a lower amount in controversy by citing to Geovera’s estimate of damages. The estimate is based on an inspection conducted two months prior to the filing of the original petition; this removal in time diminishes its evidentiary value regarding the amount in controversy “at the time of removal.” Moreover, Garcia reinforces the Court’s concern about the estimate’s accuracy, expressly alleging in the petition that “Defendant’s adjuster and Defendant failed to properly adjust the claims and Defendant has denied at least a portion of the claims without an adequate investigation.” Garcias’ disagreement with the estimate further reveals that their argument misapprehends the concept of “amount in controversy.” At most, the Defendant’s estimate only sets the lower limit of any potential amount in controversy because, presumably, no controversy would exist if Garcia agreed with the Defendant’s estimate. Therefore, the amount in controversy is book-ended by the Defendant’s estimate of $5,395.57 and the policy limits of $237,600.00, a range of fully $232,204.43.
At this point, the Court emphasizeed the glaring absence of any damages-estimate by Garcia. In determining where the amount in controversy falls within the above range, the Court notes that neither party has submitted a demand letter or an estimate by Garcia. Combined with Garcias’ vague, jurisdictionally-sensitive pleading of damages in their state-court petition, this apparent avoidance of any affirmative statement of damages reeks of the “abusive manipulation”, a hide-the-ball chicanery that is the type of “tactical manipulation” which the Fifth Circuit previously cautioned “cannot . . . be condoned.”
In light of the ambiguous pleading, the policy limits of $237,600.00, the claim directly asserted in the petition and those implied by both the state-court discovery level and the attached discovery requests, the Court found that Geovera has shown it is more likely than not that the amount in controversy is in excess of $75,000.
CONCLUSION Plaintiffs’ motion to remand was DENIED.