Palomino v. Safeway Insurance Company

Filing 12

ORDER that this action is remanded to Maricopa County Superior Court. Signed by Judge Neil V Wake on 8/5/11. (Attachments: # 1 Letter of Remand)(TLJ)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Plaintiff,
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vs.
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Safeway Insurance Company, an Illinois)
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corporation,
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Defendant.
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Julian Palomino, a single man,

No. CV-11-01305-PHX-NVW
ORDER

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Before the Court is Defendant’s Response (Doc. 11) to the Court’s order to show

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cause why the case should not be remanded for lack of subject matter jurisdiction (Doc. 10).

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I.

Background

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Plaintiff filed his Complaint against Defendant Safeway Insurance Company in

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Maricopa County Superior Court on May 27, 2011 (Doc. 1-1), claiming Defendant failed to

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sufficiently pay for repairs to Plaintiff’s vehicle for damage resulting from a hail storm.

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Plaintiff alleges breaches of contract and the duty of good faith and fair dealing related to

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Plaintiff’s insurance policy with Defendant, and seeks actual damages under the insurance

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contract, general damages, punitive damages, and attorneys’ fees and costs. Plaintiff also

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certified that the case was not subject to compulsory arbitration under the Arizona Rules of

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Civil Procedure, meaning the amount in controversy, exclusive of costs, fees, and interest,

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exceeds $50,000. Although the amount in controversy is not evident from the face of the

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complaint, underlying Plaintiff’s action is the allegation that Defendant only paid $5,172.29

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on a submitted claim of $18,400.

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On the basis of diversity jurisdiction, Defendant removed the case to this Court on

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June 30, 2011 (Doc. 1). Defendant alleged that the amount in controversy was satisfied

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because Plaintiff certified in his complaint that the amount in controversy exceeds $50,000

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and Plaintiff seeks punitive damages and attorneys’ fees. Because Defendant’s notice of

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removal did not satisfactorily establish subject matter jurisdiction over this matter, the Court

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issued an Order to Show Cause why the case should not be remanded on July 15, 2011 (Doc.

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10). Defendant responded to the Order on July 29, 2011 (Doc. 11).

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II.

Legal Standard

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A case may only be removed to federal court if jurisdiction existed over the suit as

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originally brought by the plaintiff. 28 U.S.C. § 1441(a). Because there is a “strong

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presumption against removal jurisdiction,” Geographic Expeditions, Inc. v. Estate of Lhotka

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ex rel. Lhotka, 599 F.3d 1102, 1107 (9th Cir. 2010) (quoting Gaus v. Miles, Inc., 980 F.2d

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564, 566 (9th Cir. 1992)), the removing party has the burden of establishing federal subject

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matter jurisdiction. Id. If at any time before final judgment it appears that the district court

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lacks subject matter jurisdiction over a case removed from state court, the case must be

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remanded. 28 U.S.C. § 1447(c).

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District courts have diversity jurisdiction over civil actions between citizens of

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different states where the amount in controversy exceeds $75,000. 28 U.S.C. § 1332. In the

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removal context, the inquiry into the amount in controversy is not confined to the face of the

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complaint. See Valdez v. Allstate Ins. Co., 372 F.3d 1115, 1117 (9th Cir. 2004). The Court

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may also consider facts presented in the removal petition and “summary-judgment-type

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evidence relevant to the amount in controversy at the time of removal.” Id. The removing

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party must prove by a preponderance of the evidence that the amount in controversy exceeds

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the jurisdictional threshold where the amount is not evident on the face of the complaint.

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Matheson v. Progressive Specialty Ins. Co., 319 F.3d 1089, 1090 (9th Cir. 2003).

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III.

Analysis

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In this case, the amount in controversy is not established on the face of the complaint.

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Defendant states that it has established the jurisdictional amount by a preponderance of the

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evidence because Plaintiff seeks an award of at least $50,000, and that if such an award were

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coupled with an award of attorneys’ fees, the total amount in controversy would likely

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exceed $75,000. Defendant cites two insurance cases where attorneys’ fees in excess of

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$50,000 were awarded, and surmises that $25,000 of attorney’s fees would likely be reached

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in this matter because such an award would “only represent 100 hours of work [by Plaintiff’s

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counsel] at a reasonable hourly rate of $250 per hour.” (Doc. 11.) Defendant also notes that

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Plaintiff will “undoubtedly” claim costs and interest “at the conclusion of this action,”

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presumably indicating that such amounts should be included in the Court’s calculation of the

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amount in controversy.

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Any contention that the amount in controversy includes costs and interest is in

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contrary to the plain language of the diversity jurisdiction statute. See 28 U.S.C. 1332(a)

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(“The district courts shall have original jurisdiction of all civil actions where the matter in

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controversy exceeds the sum or value of $75,000, exclusive of interest and costs . . . .”)

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However, in determining the amount in controversy, attorneys’ fees may be included,

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provided that “an underlying statute authorizes an award of attorneys’ fees[.]” Lowdermilk

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v. United States Bank Nat’l Ass’n, 479 F.3d 994, 1000 (9th Cir. 2007). Plaintiff here seeks

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an award of attorneys’ fees pursuant to A.R.S. § 12-341.01, which authorizes a court to

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award attorneys’ fees to the prevailing party in an action “arising out of a contract . . . .”

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Because a bad faith tort claim in an insurance case arises out of the insurance contract,

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A.R.S. § 12-341.01(A) authorizes attorneys’ fees for both the breach of contract and bad faith

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claims. See Sparks v. Republic Nat’l Life Ins. Co., 132 Ariz. 529, 544, 647 P.2d 1127, 1142

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(1982). Accordingly, Plaintiff’s attorneys’ fees can be included in the amount in controversy

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calculation.

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There is, however, disagreement within this circuit as to “whether attorneys’ fees

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incurred after the date of removal are properly included in the amount in controversy.” Burk
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v. Med. Sav. Ins. Co., 348 F. Supp. 2d 1063, 1068 (D. Ariz. 2004) (comparing Faulkner v.

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Astro-Med, Inc., No. C 99-2562 SI, 1999 WL 820198, at *4 (N.D. Cal. Oct. 4, 1999) (only

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considering fees incurred prior to removal in calculating amount in controversy) and Conrad

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Assocs. v. Hartford Accident & Indem. Co., 994 F. Supp. 1196, 1200 (N.D. Cal. 1998) (same)

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with Brady v. Mercedes-Benz USA, Inc., 243 F. Supp. 2d 1004, 1010-11 (N.D. Cal. 2002)

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(including potential future attorneys’ in calculating amount in controversy) and Simmons v.

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PCR Tech., 209 F. Supp. 2d 1029, 1034-35 (N.D. Cal. 2002) (same)); see also Giordano v.

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Park Ave. Life Ins. Co., No. CV 09-01405 SJO (FMOx), 2009 WL 1474945, at *3 (C.D. Cal.

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Apr. 7, 2009). The Seventh Circuit, in considering this issue, has held that attorneys’ fees

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not yet incurred are not included in calculating the amount in controversy. See Hart v.

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Schering-Plough Corp., 253 F.3d 272, 274 (7th Cir. 2001) (noting “jurisdiction depends on

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events that exist on or before the date of filing [the notice of removal] . . . if the defendant

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can extinguish the plaintiff's entire claim by tendering $75,000 or less at [the time the case

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is removed], then the amount ‘in controversy’ does not exceed $75,000”). This Court agrees

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with the Seventh Circuit and concludes that the better view is that attorneys’ fees incurred

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after the date of removal are not properly included in calculating the jurisdictional amount.

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Rather, the amount in controversy is to be determined as of the date of removal, exclusive

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of any potential future attorneys’ fees which are entirely speculative, may be avoided, and

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therefore not “in controversy” at the time of removal.

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In light of the foregoing, Defendant has not established by a preponderance of the

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evidence that the amount in controversy is satisfied here. Even if attorneys’ fees incurred

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after removal are properly included in calculating the amount in controversy, Defendant has

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only speculated about the possible amount of any potential future award. The two insurance

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cases cited by Defendant to show that substantial attorneys’ fees have been awarded in some

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insurance cases do not indicate a similar award would result with the facts of this case, which

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is less complex than the cited cases. See Sparks, supra (additional causes of action and

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denial of health insurance benefits in excess of $1,000,000 for four insureds); Elgin v. Great-

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West Life. Assur. Co., 163 Ariz. 176, 786 P.2d 1027 (Ct. App. 1989) (determining questions
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of ERISA preemption related to employee health insurance benefit plans).

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Defendant has merely speculated about Plaintiff’s possible attorneys’ fee award; it has not

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presented any affidavit of Plaintiff’s current or future attorneys’ fees or billing rates.

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Defendant’s speculative assertions that Plaintiff’s future fees will likely exceed $25,000 is

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accordingly insufficient to establish the amount in controversy.

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Further,

IT IS THEREFORE ORDERED that this action is remanded to Maricopa County
Superior Court.
DATED this 5th day of August, 2011.

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