Richardson et al v. Cherokee National Life Insurance Company

Filing 20

MEMORANDUM OPINION AND ORDER as follows: (1) The 10 Motion to Remand is GRANTED; (2) This case is REMANDED to the Circuit Court of Barbour County, AL; and (3) The Clerk is DIRECTED to take appropriate steps to immediately effect the remand. Signed by Hon. Chief Judge Mark E. Fuller on 6/26/2009. (cb, ) Modified on 6/26/2009 to notate that a copy of the Memorandum Opinion and Order mailed to Circuit Court Barbour County, AL. (cb, ).

IN THE UNITED STATES DISTRICT COURT F O R THE MIDDLE DISTRICT OF ALABAMA N O R T H E R N DIVISION J O E RICHARDSON, et al., P L A IN T IF F S , v. C H E R O K E E NATIONAL LIFE IN S U R A N C E COMPANY, et al., D EFEN D A N TS. ) ) ) ) ) C A S E NO.: 2:09-cv-177-MEF ) ) ) (WO) ) )

M E M O R A N D U M OPINION AND ORDER T h is breach of contract action is before the Court on a motion to remand challenging th is Court's subject matter jurisdiction over the action. At issue in this case is the application o f 28 U.S.C. § 1332(d), which provides for diversity jurisdiction in certain class actions in w h ic h the amount in controversy exceeds $5,000,000. Congress enacted this provision and its corresponding removal provision, 28 U.S.C. § 1446, pursuant to the Class Action Fairness A c t of 2005 ("CAFA). The Court has carefully considered the arguments offered in support o f and in opposition to the motion to remand, as well as the pertinent statutes and cases. For th e reasons set forth below, the Court finds that the motion to remand is due to be G RA N TED . BACKGROUND J o e and Elizabeth Richardson ("Plaintiffs") are residents of Alabama. On four o c c a s io n s between May 11, 2001 and June 25, 2003, Plaintiffs applied for and received loans f ro m Credit Plan, Inc., a lending entity in Eufaula, Alabama. In connection with the first

three loan transactions, Plaintiffs purchased joint credit life insurance from Cherokee N a tio n a l Life Insurance Company ("Cherokee"), a Georgia corporation. In connection with th e last loan transaction, Joe Richardson purchased credit life insurance from Cherokee. The c re d it life insurance policies were designed to pay off the outstanding loan balance if P la in tif f s died while a loan was outstanding. Each credit life insurance policy was paid for w ith a single premium payment at the time the loan was secured. Plaintiffs allege that the la w requires insurance coverage under such policies to stop if the loan is paid off early and th a t policyholders would be entitled to a refund of the unearned premium.1 Plaintiffs paid th e ir four loans in full prior to the maturation date of the loans and prior to the expiration date o f the credit life insurance coverage, but did not receive a refund from Cherokee for the p o rtio n of the up-front premium payments which were "unearned." On January 28, 2009. Plaintiffs filed suit against Cherokee and unnamed fictitious d e f e n d a n ts in the Circuit Court of Barbour County Alabama. Plaintiffs bring their action as a class action pursuant to Alabama Rule of Civil Procedure 23 and seek to represent a class c o n s is tin g of all persons or entities throughout the United States of America that are former o w n e rs of a Cherokee credit life policy whose insured debt was paid off before the scheduled e x p ira tio n date of coverage, but who have not received a refund of unearned premiums. While Plaintiffs allege that this class is comprised of more than fifty people, they allege that

The unearned premium is that portion of the premium which would pay for the in s u ra n c e coverage during the period between the date of the payoff of the loan and the te rm in a l payment on the loan if the loan had not been repaid early. 2

1

they do not know the exact number and identity of the class members. Plaintiffs claims a g a in s t Cherokee are for breach of contract for failing to refund unearned premiums in a c c o rd a n c e with the terms of the contracts of credit life insurance. They seek economic d a m a g e s , attorneys' fees for class counsel, costs, and expenses. O n February 2, 2009, Cherokee's agent for service of process received a copy of the C o m p la in t. On March 4, 2009, Cherokee timely filed a notice of removal asserting that this C o u rt has original jurisdiction over this action pursuant to 28 U.S.C. § 1332(d)(2) because th is action presents a dispute in which the matter in controversy exceeds the sum or value of $ 5 ,0 0 0 ,0 0 0 , exclusive of costs and interest. Cherokee appended several exhibits to its notice o f removal including a declaration from its Vice President of Administration 2 and a d e c la ra tio n from a consulting actuary.3 On April 2, 2009, Plaintiffs filed the instant motion to remand. By this motion, Plaintiffs contend that Cherokee has failed to satisfy its burden o f proving the amount in controversy exceeds the required sum.

This declaration sets forth the total number of credit life insurance policies C h e ro k e e has issued from 2003 to the present to borrowers in Alabama, Arkansas, Florida, G e o rg ia , Louisiana, Missouri, Mississippi, North Carolina, South Carolina, and Tennessee. Additionally, it provides the total gross premium on these policies: $106,906.807. The d e c la ra tio n goes on to state that during this same period approximately 588,786 policies is su e d to borrowers were canceled prior to their scheduled expiration date and that Cherokee p ro v id e d refunds of unearned premiums in the amount of $35,352,149 to those individuals. The actuary was apparently asked to provide an expert opinion as to the percentage o f consumer installment loans insured by a credit life insurance product which are terminated b y prepayment or refinancing prior to the scheduled maturity date. In his opinion at least 6 0 % of all consumer installment loans insured by a credit life insurance product are te rm in a te d by prepayment or refinancing prior to the scheduled maturity date. 3
3

2

DISCUSSION F e d e ra l courts are courts of limited jurisdiction. Kokkonen v. Guardian Life Ins. Co. o f Am., 511 U.S. 375 (1994); Burns v. Windsor Ins. Co., 31 F.3d 1092, 1095 (11th Cir. 1994); W y m b s v. Republican State Executive Comm., 719 F.2d 1072, 1076 (11th Cir. 1983). As s u c h , federal courts only have the power to hear cases that they have been authorized to hear b y the Constitution or the Congress of the United States. Kokkonen, 511 U.S. at 377. Under C A F A ,4 federal courts have original jurisdiction over class actions "in which the original a m o u n t in controversy exceeds $5,000,000 and there is minimal diversity (at least one p la in tif f and one defendant are from different states)." Miedema v. Maytag Corp., 450 F.3d 1 3 2 2 , 1327 (11th Cir. 2006); 28 U.S.C. § 1332(d)(2), (6). In addition, the number of m e m b e rs of all proposed plaintiffs in the class must exceed one hundred. 28 U.S.C. § 1 3 3 2 (d )(5 )(B ). A class action may be removed to federal court in accordance with 28 U.S.C. § 1446 if the federal court has original jurisdiction over the action. 28 U.S.C. § 1453(a), (b). In the Eleventh Circuit, removal statutes are to be interpreted narrowly, with any d o u b ts construed against removal. See Williams v. AFC Enter., Inc., 380 F.3d 1185, 1189 (1 1 th Cir. 2004). Accord, Burns, 31 F.3d at 1095. (Because removal jurisdiction raises s i g n if ic a n t federalism concerns, "removal statutes are construed narrowly; where plaintiff a n d defendant clash about jurisdiction, uncertainties are resolved in favor of remand.") Thus,

Congress enacted CAFA to address inequitable state court treatment of class a c tio n s. Congress expanded federal subject matter jurisdiction by amending the diversity ju ris d ic tio n statute. 4

4

the non-moving party may move for remand, which will be granted if "it appears that the d is tric t court lacks subject matter jurisdiction." See 28 U.S.C. § 1447(c). When a district court is presented with a motion to remand, it must keep in mind that th e defendant who removed the case, and not the movant, bears the burden of demonstrating f e d e ra l subject matter jurisdiction. See Friedman v. New York Life Ins. Co., 410 F.3d 1350, 1 3 5 3 (11th Cir. 2005); Pacheco de Perez v. AT&T Co., 139 F.3d 1368, 1373 (11th Cir. 1 9 9 8 ). Accord, Lowery v. Alabama Power Co., 483 F.3d 1184, 1207 (11th Cir. 2007), cert. d e n ie d , 128 S. Ct. 2877 (2008) ("the party seeking a federal venue must establish the venue's j u r is d ic tio n a l requirements" and therefore removing defendants bear that burden in the c o n te x t of a motion to remand). In Lowery, the Eleventh Circuit Court of Appeals reiterated that in cases, such as this o n e , where the complaint does not specify the amount of damages sought, "the removing p a rty bears burden of establishing the jurisdictional amount by a preponderance of the e v id e n c e ." 483 F.3d at 1208-09, 1210. The Court cautioned, however, that "[i]f the ju ris d ic tio n a l amount is either stated clearly on the face of the documents before the court, o r readily deducible from them, then the court has jurisdiction. If not, the court must remand. Under this approach, jurisdiction is either evident from the removing documents or remand is appropriate." Id. at 1211. Importantly, the Lowery court stated that it is highly questionable whether a defendant could ever file a notice of removal on d iv e rs ity grounds in a case such as the one before us - where the defendant, the p a rty with the burden of proof, has only bare pleadings containing unspecified d a m a g e s on which to base its notice- without seriously testing the limits of 5

compliance with Rule 11. Unlike the typical plaintiff who originally brings a d iv e rs ity action in federal court, the removing defendant generally will have n o direct knowledge of the value of plaintiff's claims. To the extent that the d e f e n d a n t does obtain knowledge of the claims' value, it will generally come f ro m the plaintiff herself in the form of information in an "other paper." Id. at 1213 n.63 (internal citations omitted). The absence of "other paper" from the plaintiff in a case in which the complaint is silent about the amount in controversy leaves the court w ith little to assess other than "the defendant's appraisal of the amount in controversy" which " m a y be purely speculative and will ordinarily not provide grounds for his counsel to sign a notice of removal in good faith." Id. Indeed, "in assessing the propriety of removal, the court considers the documents re c e iv e d by the defendant from the plaintiff - be it the initial complaint or a later received p a p e r- and determines whether that document and the notice of removal unambiguously e s ta b lis h federal jurisdiction." Id. at 1213.5 In making that assessment, the court

Pursuant to 28 U.S.C. § 1446, a defendant must either remove the case on the basis o f the initial pleading, usually a complaint, or after receiving "a copy of an amended p le a d in g , motion , order, or other paper." In the second category of cases, the definition of " o th e r paper" has been developed judicially. Lowery, 483 F.3d at 1212-13. It has long been re c o g n i z e d in this circuit that "other paper" must be created through a voluntary act of the p la in tif f . See, e.g., Lowery, 483 F.3d at 1213 n.63 (explaining that when removal is under th e other paper provision of the second paragraph of § 1446(b), the defendant must hasve re c e iv e d from the other paper from the plaintiff); Insinga v. LaBella, 845 F.2d 249, 252 (11th C ir . 1988) (recognizing that "section 1446(b), as amended in 1949, has been widely in te rp re te d as preserving the voluntary-involuntary rule"); Weems v. Louis Dreyfus Corp., 3 8 0 F.2d 545, 549 (5th Cir. 1967) (holding that the 1949 amendment to § 1446(b) preserved th e voluntary-involuntary rule under which a case may only become removable as a result o f a voluntary act by a plaintiff); Gaitor v. Pennisular & Occidental S.S. Co., 287 F.2d 252, 2 5 4 (5th Cir. 1961); Merritt v. Mazda Motor of Am., Inc., 103 F. Supp. 2d 1305,1309 (M.D. A la . 2000). 6

5

has before it only the limited universe of evidence available when the motion to remand is filed- i.e., the notice of removal and accompanying documents. If that evidence is insufficient to establish that removal was proper or that ju ris d ic tio n is present, neither the defendant nor the court may speculate in an a tte m p t to make up for the notice's failings. The absence of factual allegations p e rtin e n t to the existence of jurisdiction is dispositive and, in such absence, the e x is te n c e of jurisdiction should not be divined by looking to the stars. Id . at 1214-15 (internal citation omitted). Lowery, itself was a tort claim in which the a p p lic a b le law provided no rule for the calculation of damages. The Eleventh Circuit did a c k n o w le d g e that [t]here are some exceptions to the rule that the court is limited to considering t h e removing documents. A defendant would be free to introduce evidence re g a rd in g damages arising from a source such as a contract provision whether o r not the defendant received the contract from the plaintiff. In such s itu a tio n s , the underlying substantive law provides a rule that allows the court to determine the amount of damages. For example in contract law, the default m e a s u re of damages is the expectation damages; a court may look to the c o n tra c t and determine what those damages would be. Id . at1214 n.66. However, the Eleventh Circuit went on to recognized that [w]here the law gives no rule, the demand of the plaintiff must furnish one. When a plaintiff seeks unliquidated damages and does not make a specific d e m a n d , therefore, the factual information establishing the jurisdictional a m o u n t must come from the plaintiff. Id . at1214 n.66 (internal citation and quotation omitted). Here, it is undisputed that the removal was timely and lacking in procedural defects. It is also undisputed that minimal diversity exists. It is also undisputed that Cherokee in itia te d this removal after receiving the Complaint without the benefit of receiving any

7

"other paper" from Plaintiffs and that the face of the Complaint does not specify the total a m o u n t of damages sought for the breach of contract claims of the class. The dispute, here, c e n te rs on whether Cherokee has relied on appropriate types of evidence in its attempt to s a tis f y its burden and whether Cherokee has sufficiently shown that the amount in c o n tro v e rsy exceeds $5,000,000. Plaintiffs ignore the dicta in Lowery which sets forth an exception to the limited scope o f materials a court may consider in determining whether Cherokee has established that s u b je c t matter jurisdiction is appropriate. Relying on that dicta, Cherokee asserts that the b re a c h of contract claim set forth in the Complaint makes the damages readily deducible f ro m Plaintiffs' allegations. Indeed, the Lowery dicta does say that in breach of contract case w h e r e the default measure of damages is expectation damages, a court may look to the c o n tra c t and determine what those damages would be. 483 F.3d at 1214 n.66. While the c la im before the Court is a breach of contract claim, Cherokee does not offer the contract at is su e and a calculation of the actual damages at issue assume the Plaintiffs were to prevail a s the Lowery case contemplates. Instead, Cherokee offers two declarations on which they c o n te n d the applicable law entitle them to rely. Given the dearth of binding post-Lowery p re c e d e n t clarifying the exception recognized in Lowery, it is not clear to the Court if the d e c la ra tio n s Cherokee submitted with its notice of removal are the type that the Eleventh C irc u it has condoned. Nevertheless, in this case, it is unnecessary for the Court to decide this q u e s tio n because even if the declarations are considered the evidence is insufficient to satisfy

8

Cherokee's burden of establishing jurisdiction. Based on the record before the Court neither th e amount of damages per class member nor the number of potential class members is clear. Plaintiffs' allegations do not establish either of these factors and the declarations proffered b y Cherokee are simply insufficient to allow the Court to deduce this information. Indeed, th e declarations of are such a nature as to invite the Court to speculate as to the damages, w h i c h is clearly not permissible.6 The Court declines to look to the stars to divine the e x is te n c e of jurisdiction. The Court concludes that there is great uncertainty regarding the a m o u n t in controversy and that uncertainty must be resolved in favor of remand. The Court th e re f o re finds that Cherokee has not established, by a preponderance of the evidence, that th e amount in controversy exceeds $5,000,000.

The mathematical calculation in the Notice of Removal is predicated on a s s u m p tio n s , predictions, or averages. Cherokee takes the number of total policies issued a n d using the estimate of the number of loans that the actuary believes, on average, would h a v e terminated before maturity (60%) and calculates an estimate of the number of policies w h e re unearned premiums should have been rebated. Next, Cherokee takes the number of p o lic y holders to which it rebated premiums because Cherokee somehow knew of the early te rm in a tio n and arrives at an estimate of the number of members of Plaintiffs' class: 162,259. Next, Cherokee estimates an average amount per refund of unearned premium rebate by ta k in g the total amount of rebated given and dividing it by the number of policies which they k n o w terminated early. This average refund amount is then multiplied by the total number p o lic ie s estimated to comprise the class. There is no attempt to calculate the actual unearned p re m iu m to Plaintiffs or any unnamed class members. The amount of unearned premium per p o lic y could vary widely. A borrower might unexpectedly win the lottery or inherit money d a ys after taking out a consumer loan and immediately pay it off, thereby creating a very la rg e unearned premium. On the other hand, a borrower may pay off a loan closer to the lo a n 's maturity date, with a very small unearned premium resulting. 9

6

CONCLUSION F o r the foregoing reasons, it is hereby ORDERED as follows: 1. 2. 3. re m a n d . D O N E this the 26th day of June, 2009. /s/ Mark E. Fuller CHIEF UNITED STATES DISTRICT JUDGE T h e Plaintiffs' Motion to Remand (Doc. # 10) is GRANTED. T h is case is REMANDED to the Circuit Court of Barbour County, Alabama. T h e Clerk is DIRECTED to take appropriate steps to immediately effect the

10