Tuskegee University v. National Union Fire Insurance Company of Pittsburg, PA et al (JOINT ASSIGN)(MAG2)
Filing
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MEMORANDUM OPINION AND ORDER: it is ORDERED that the 26 Recommendation of the Magistrate Judge is ADOPTED in part and MODIFIED in part; further ORDERED as follows: 1) National Union's 27 objection to the Magistrate Judge's Recommenda tion is OVERRULED; 2) Tuskegee's 16 motion to remand is GRANTED; 3) This action is REMANDED to the Circuit Court of Macon County, Alabama; DIRECTING the Clerk to take appropriate steps to effectuate the remand. Signed by Chief Judge William Keith Watkins on 8/15/2018. (Certified copies of Memorandum Opinion & Order and Docket Sheet mailed to Macon County Circuit Court) (alm, )
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
EASTERN DIVISION
TUSKEGEE UNIVERSITY,
Plaintiff,
v.
NATIONAL UNION FIRE
INSURANCE COMPANY OF
PITTSBURGH, PA, AMERICAN
INTERNATIONAL GROUP,
INC., THOMPSON FACILITIES
SERVICES, LLC, LEXIS
COLLINS, CANDICE HERRING,
KAELA NELSON, and
SHANNON SPIRES,
Defendants.
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CASE NO. 3:18-CV-34-WKW
[WO]
MEMORANDUM OPINION AND ORDER
Before the court is the Recommendation of the Magistrate Judge. (Doc.
# 26).
The Magistrate Judge recommends remanding this action because
Defendant National Union Fire Insurance Company of Pittsburgh failed to show
that it is more likely than not that more than $75,000 was in controversy at the time
it removed this action from Alabama state court. (Doc. # 26.) National Union has
timely objected, contending that the Magistrate Judge failed to count all that should
have been counted in determining how much money was in dispute. Upon an
independent review of the record and a de novo determination of those portions of
the Recommendation to which National Union has objected, the court concludes
that the objection is due to be overruled and the Recommendation adopted in part
and modified in part. See 28 U.S.C. § 636(b).
I. DISCUSSION
This case began when Plaintiff Tuskegee University was sued in Alabama
state court by some of its former students for negligence in handling mold found in
the students’ dormitory rooms. Tuskegee hired Defendant Thompson Facilities
Services to maintain and repair the buildings on campus; Thompson was also a
defendant in one of the underlying actions. (See Doc. # 1-1, at 5.) Per the contract
with Tuskegee, National Union designated Tuskegee as an additional insured on its
insurance policy insuring Thompson. (Doc. # 1-1, at 5–6.) After being sued,
Tuskegee filed a declaratory judgment action in state court seeking a declaration
that “it is an additional insured pursuant to Thompson’s insurance contract with
National Union and that National Union has a duty to defend and indemnify
Tuskegee.” (Doc. # 1-1, at 7.) National Union removed the action to this court;
Tuskegee sought remand; and the Magistrate Judge entered a Recommendation
that the motion be granted because the amount-in-controversy requirement had not
been met. (See Docs. # 1, 16, & 26.)
National Union claims this was error. It argues that the Magistrate Judge
ignored the value of the underlying suits and failed to make reasonable, logical
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deductions in determining what it might cost to defend the suits. (Doc. # 27.) And
it contends that the Magistrate Judge’s error concerning the potential cost of
indemnification was categorical — that the Magistrate Judge wrongly concluded
that the indemnification claim simply could not be counted toward the amount in
controversy, when in fact it could and should.
A.
What counts?
There is indeed a difference between saying that the potential cost of the
indemnification claim cannot be counted at all and finding that the value of that
claim has not been shown to exceed a certain amount. In alternative rulings, the
Magistrate Judge did both. In the first, the Magistrate Judge “conclude[d] that
where, as in this case, a duty to indemnify claim is brought prior to the resolution
of the underlying lawsuits, the value of the underlying plaintiffs’ damages is
unknown and purely speculative because the duty to indemnify claim is not ripe for
adjudication until the underlying lawsuits are concluded.” (Doc. # 26, at 8.) In
other words, because “the duty to indemnify claim is not ripe, and it would be
subject to dismissal without prejudice if it remained before this court due to a lack
of subject matter jurisdiction,” it would be inappropriate — advisory — to consider
what that claim might be worth. (Doc. # 26, at 9.)
National Union is correct that this conclusion does not fully account for the
posture of the case.
Regardless of whether there would be subject matter
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jurisdiction over a stand-alone indemnification claim brought prior to judgment, it
is clear that the jurisdictional ripeness requirements are met when a party seeks a
declaratory judgment regarding both the insurer’s duty to indemnify and its duty to
defend. See Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273–74 (1941);
Edwards v. Sharkey, 747 F.2d 684, 686–87 (11th Cir. 1984). This is because the
duty to defend is more extensive than the duty to indemnify. See Hartford Cas.
Ins. Co. v. Merchants & Farmers Bank, 928 So. 2d 1006, 1011 (Ala. 2005). Thus,
a ruling that National Union owes no duty to defend means that it need not
indemnify either. Were this to happen, National Union “would have prevailed on
defense and indemnity at a stroke. No more is needed to show that the value of
indemnity was ‘in controversy’ on the date this federal case began.” Meridian Sec.
Ins. Co. v. Sadowski, 441 F.3d 536, 539 (7th Cir. 2006); see id. at 538–39
(“Although a plaintiff’s asserted injury may depend on so many future events that a
judicial opinion would be advice about remote contingencies — and this aspect of
ripeness is part of the case-or-controversy requirement — these parties’
disagreement about potential indemnity is part of a larger controversy that is
neither conjectural nor speculative.” (citations omitted)).
In other words, the focus remains on what is at stake. And the Eleventh
Circuit has made it clear that “the value of declaratory relief is the monetary value
of the benefit that would flow to the plaintiff if the relief he is seeking were
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granted.” S. Fla. Wellness, Inc. v. Allstate Ins. Co., 745 F.3d 1312, 1316 (11th Cir.
2014) (internal quotation marks, alteration, and citation omitted). Thus, “when an
insurer seeks a judgment declaring the absence of liability under a policy, the value
of the declaratory relief to the plaintiff-insurer is the amount of potential liability
under its policy.” First Mercury Ins. Co. v. Excellent Computing Distribs., Inc.,
648 F. App’x 861, 865 (11th Cir. 2015) (citation omitted). That Tuskegee and not
the insurer is the plaintiff here makes no difference; the value of relief is the same
because it is the potential cost of the defense and judgment that Tuskegee would
pay from its own pockets if the court does not declare that National Union is on the
hook.
The former Fifth Circuit’s decision in Stonewall Insurance Co. v. Lopez is
instructive on this point. 544 F.2d 198 (5th Cir. 1976).1 There, a liability insurer
brought a declaratory judgment action against its insured, claiming that coverage
was obtained only after the car accident at issue took place. Id. at 198. Though
there had yet to be an underlying finding of liability in the state-court proceeding,
the district court granted relief, and the insured appealed on jurisdictional grounds.
At the time, the diversity statute required the amount in controversy to exceed
$10,000, and the insured argued that the amount in dispute was $10,000 flat — the
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Decisions of the former Fifth Circuit rendered prior to close of business on September
30, 1981, are binding on this court. See Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th
Cir. 1981) (en banc).
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limit of coverage under the insurance policy. Id. at 199. The Fifth Circuit rejected
this argument, explaining that the controversy “involve[d] not only [the insurer’s]
potential liability for $10,000, but also [the insurer’s] obligation to defend the
state-court action.” Id. (emphasis added). Though in some ways the factual
inverse of this case, the court’s opinion in Stonewall Insurance nevertheless
confirms that the potential amount of indemnification may be combined with the
cost to defend in determining the amount in controversy. See id.; see also First
Mercury Ins. Co., 648 F. App’x at 865 (finding amount in controversy was met
prior to underlying determination of liability because “if [insurer] loses its
declaratory judgment action, it may face $1,000,000 or more in coverage liability”
(emphasis added)); Meridian Sec. Ins. Co. 441 F.3d at 539 (collecting cases in
which courts have “count[ed] the potential outlay for indemnity toward the amount
in controversy, whether or not adjudication about indemnity should be deferred
until the state case is over”).
B.
What is the value?
Fortunately, the Magistrate Judge’s alternative ruling is on surer ground.
“[A]ssuming, arguendo, that the potential value of the underlying lawsuits may
properly be considered,” the Magistrate Judge still recommended remand because
“the[] prayers for damages are too speculative to support a finding that the amount
in controversy is met.” (Doc. # 26, at 9–10.) Of course, National Union objects to
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this line of reasoning as well, and as evidence of the concreteness of the value of
the underlying claims points out that each of the “underlying plaintiffs allege
serious physical injury for which they seek recompense,” that they “seek mental
anguish damages for their inability to continue their college careers and pursue
their various dreams,” and that “[e]ach of the underlying plaintiffs claim Tuskegee
knowingly or intentionally concealed the presence of mold in the dorms and seek
punitive damages.” (Doc. # 27, at 6–7.) “[W]hen the value of all three underlying
cases is considered,” National Union asserts, “the amount in controversy is
established by the preponderance of the evidence.” (Doc. # 27, at 7.)
The court has heard and rejected similar arguments once before. See Nelson
v. Tuskegee Univ., No. 3:17-cv-512-WKW, 2018 WL 1719715 (M.D. Ala. Apr. 9,
2018). When two of the same underlying plaintiffs sought to remand their suit
against Tuskegee and Thompson, the two defendants — like National Union here
— cited the state-court plaintiffs’ health problems, mental anguish, future earnings,
and potential for recovering punitive damages as evidence that the amount in
controversy was met. The court was not persuaded:
In reality, the court has no idea from the Complaint or from
Thompson’s submissions how much scholarship money Ms. Nelson
was awarded and had to forfeit; no idea how much student loan debt
Ms. Spires took on; no idea how much Ms. Nelson’s medical costs
were; and no idea of the effect on Ms. Nelson’s future that the mold
exposure had. While the court is permitted to make “reasonable
deductions, reasonable inferences, or other reasonable extrapolations”
from the pleadings, it cannot “suspend reality or shelve common
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sense” in determining the amount in controversy. Roe [v. Michelin N.
Am., Inc.], 613 F.3d [1058,] 1061–62 [(11th Cir. 2010)] (internal
quotation marks and citations omitted).
The numbers that Thompson offers are just numbers, guesses at
how much money is actually at issue. Perhaps Thompson is correct
that Ms. Nelson’s medical expenses were great, or that the costs of
forfeiting the scholarships at Tuskegee and transferring to a different
school added up to more than $75,000, or that Ms. Nelson is claiming
all the future earnings she would have made had she become an
architect. But perhaps not. Based on the evidence before it, the court
really has no way of knowing. On this record, “[t]he absence of
factual allegations pertinent to the existence of jurisdiction is
dispositive and, in such absence, the existence of jurisdiction should
not be divined by looking to the stars.” Pretka [v. Kolter City Plaza
II, Inc.], 608 F.3d [744,] 752 [(11th Cir. 2010)] (quoting Lowery v.
Ala. Power Co., 483 F.3d 1184, 1215 (11th Cir. 2007)). “[N]either
the defendants nor the court may speculate in an attempt to make up
for the notice’s failings.” Id. (quoting Lowery, 483 F.3d at 1214–15).
Nelson, 2018 WL 1719715, at *2–3.
Save for the two additional complaints from the two additional state-court
plaintiffs, National Union does not present any different or additional evidence
than did Tuskegee and Thompson. (Doc. # 1-1, at 48, 55.) And those complaints
are no more specific than were Ms. Spires’s and Ms. Nelson’s, and they provide no
more evidence about what the amount in controversy might be.
The only other difference is the cost of defending the three suits. But here
again National Union submits no additional evidence about what those costs
actually have been or are projected to be. Instead, it simply cites a 2004 law
review article for the proposition that the cost to insurers “to defend claims in
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which suit was filed averaged $35,000 per claim,” and notes that the median hourly
rate charged by attorneys in 2014 ranged from $175 to $199. (Doc. # 27, at 9.)
When the court must resolve all doubts in favor of remand, see Burns v. Windsor
Ins. Co., 31 F.3d 1092, 1095 (11th Cir. 1994), this is an insufficient basis for it to
agree that “the costs of defense incurred in these three matters already more than
likely exceeds the jurisdictional minimum” (Doc. # 27, at 9) — or even that it is
more than likely to exceed that number in the future.
II. CONCLUSION
Accordingly, it is ORDERED that the Recommendation of the Magistrate
Judge is ADOPTED in part and MODIFIED in part. It is further ORDERED as
follows:
1.
National
Union’s
objection
to
the
Magistrate
Judge’s
Recommendation (Doc. # 27) is OVERRULED.
2.
Tuskegee’s motion to remand (Doc. # 16) is GRANTED.
3.
This action is REMANDED to the Circuit Court of Macon County,
Alabama. The Clerk of the Court is DIRECTED to take appropriate steps to
effectuate the remand.
DONE this 15th day of August, 2018.
/s/ W. Keith Watkins
CHIEF UNITED STATES DISTRICT JUDGE
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