Grady et al v. USAA Casualty Insurance Company

Filing 22

ORDER: IT IS ORDERED that this action is dismissed for lack of subject matter jurisdiction. Signed by Judge David G Campbell on 9/22/2016. (REK)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Michael P. Grady, et al.,
Plaintiffs,

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No. CV16-00785-PHX-DGC
ORDER

vs.
USAA Casualty Insurance Company,
Defendant.

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The Court has subject matter jurisdiction over cases in which the parties are

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diverse and the amount in controversy exceeds $75,000. 28 U.S.C. § 1332. Plaintiffs

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allege generally that the amount in controversy requirement is satisfied in this case

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(Doc. 1, ¶ 3), but the Court does not agree.

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“Federal courts are courts of limited jurisdiction. They possess only that power

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authorized by Constitution and statute[.]” Kokkonen v. Guardian Life Ins. Co. of Am.,

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511 U.S. 375, 377 (1994). “The party asserting jurisdiction has the burden of proving all

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jurisdictional facts.” Indus. Tectonics, Inc. v. Aero Alloy, 912 F.2d 1090, 1092 (9th Cir.

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1990) (citing McNutt v. Gen. Motors Acceptance Corp., 298 U.S. 178, 189 (1936)); see

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Fenton v. Freedman, 748 F.2d 1358, 1359, n.1 (9th Cir. 1984). Courts must presume a

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lack of jurisdiction until the plaintiff proves otherwise. Kokkonen, 511 U.S. at 377.

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Defendant insured Plaintiffs’ home, which suffered water damage in 2011. The

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loss was calculated at an amount of $44,829.77 – an amount Plaintiffs do not dispute.

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Because Plaintiffs’ home was subject to a security interest held by a mortgage lender, and

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the insurance policy provided that payments could be made to such lenders, Defendant

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issued the water-damage check jointly to Plaintiffs and the lender on several different

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occasions. Plaintiffs and the lender did not cash the checks.

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Eventually, Plaintiffs’ home was sold in a trustee’s sale and the lender acquired

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the home by making a credit bid. In June 2014, Judge Teilborg of this Court ruled that

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the lender was foreclosed by the credit bid from collecting any additional amount on the

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debt. Plaintiffs’ counsel conceded during a hearing before this Court on September 21,

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2016, that the ruling by Judge Teilborg said nothing about the lender’s rights to the

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insurance proceeds because that issue was not before him. Plaintiffs nonetheless claim

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that the ruling foreclosed the insurer’s rights under the insurance policy and Defendant

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therefore should have reissued the water-loss check solely to them. They assert that

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Defendant engaged in bad faith when it failed to do so.

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Plaintiffs filed for bankruptcy in July 2015.

During that proceeding, the

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bankruptcy trustee accepted full payment of the $44,829.77 from Defendant, with the

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knowledge and consent of Plaintiffs, and applied the funds to Plaintiffs’ benefit in the

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bankruptcy proceeding. Plaintiffs nonetheless have sued Defendant in this case for

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breach of contract. Plaintiffs’ counsel explained during the hearing that they do not seek

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to recover the $44,829.77 owed under the policy because that amount has already been

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paid. Plaintiffs instead seek to recover other damages they suffered by being denied

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payment of the $44,829.77 after Judge Teilborg’s ruling.

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The Court noted during the hearing that lost use of the money from June 2014 to

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the present would likely amount to only a few thousand dollars at today’s investment

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rates. Plaintiffs’ counsel agreed, but said there may be other lost opportunity costs that

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he could not identify. He admitted that such costs were “debatable.”

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Nor have Plaintiffs identified the amount of bad faith damages they allegedly

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incurred after Defendant failed to read Judge Teilborg’s ruling as foreclosing the

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insurance company’s claim on the insurance proceeds. Plaintiffs’ complaint includes a

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claim for punitive damages, but those appear to be as speculative as Plaintiffs’ other

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categories of damages. Finally, Plaintiffs seek $14,364 in attorneys’ fees. Doc. 1, ¶ 28.

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Even if one could conclude that Defendant – which has attempted to pay the

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undisputed amount of the water loss for years – breached its contract or engaged in bad

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faith by failing to read Judge Teilborg’s order to resolve issues it did not address, the

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amount of damages to Plaintiffs appears to be minimal, particularly since Defendant paid

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the full amount of the water-loss damages to Plaintiffs’ bankruptcy trustee. In any event,

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the damages are speculative.

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jurisdiction until Plaintiffs prove otherwise, and Plaintiffs have failed to provide any

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colorable basis for damages exceeding $75,000 in this case.

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As noted above, the Court must presume a lack of

IT IS ORDERED that this action is dismissed for lack of subject matter
jurisdiction.
Dated this 22nd day of September, 2016.

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