Smith v. American Bankers Insurance Company of Florida

Filing 29

MEMORANDUM OPINION AND ORDER granting 18 Motion to Remand and case is remanded to State Court ***Civil Case and Motions terminated 18 . Signed by Honorable P. K. Holmes, III on December 7, 2011. (sh)

IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
FORT SMITH DIVISION

EDWARD F. SMITH, individually and as class
representative on behalf of all similarly situated persons,
v.

PLAINTIFF

No. 2:11-cv-02113

AMERICAN BANKERS INSURANCE COMPANY
OF FLORIDA

DEFENDANT

MEMORANDUM OPINION AND ORDER
Currently before the Court are Plaintiff’s Motion to Remand and supporting Memorandum
of Law (Docs. 18-19), Defendant’s Response in Opposition (Doc. 22), and Plaintiff’s Reply (Doc.
26). Plaintiff disputes the existence of diversity jurisdiction in this case, as he contends that the total
amount in controversy does not exceed the sum or value of $5,000,000, pursuant to the jurisdictional
requirements described in the Class Action Fairness Act of 2005 (“CAFA”), 28 U.S.C. § 1332 (d).
For the reasons reflected herein, Plaintiff’s Motion to Remand (Doc. 18) is GRANTED, and this
case is remanded to the Circuit Court of Crawford County, Arkansas.
I. Background
On May 6, 2011, Plaintiff Edward F. Smith filed a putative class action complaint in the
Circuit Court of Crawford County, Arkansas, against Defendant American Bankers Insurance
Company of Florida, alleging breach of contract due to Defendant’s underpayment of claims for loss
or damage to real property made pursuant to certain homeowners insurance policies. See Doc. 2, ¶¶
1-4. Plaintiff’s home was damaged by hail on or about April 9, 2008, and thereafter, Plaintiff
requested payment from Defendant for this damage. Plaintiff alleges that under the homeowners
policy of insurance issued by Defendant, Plaintiff and others similarly situated were entitled to be

fully reimbursed for such loss or damage but were not fully reimbursed. Specifically, Plaintiff
asserts that Defendant failed to pay for charges reasonably associated with retaining the services of
a general contractor to repair or replace damaged property. These charges, known as general
contractors’ overhead and profit (“GCOP”), comprise an extra 20% fee routinely assessed by
contractors when repairing damaged property. Id. at ¶¶ 19-22. According to Plaintiff, Defendant
fraudulently concealed its obligation to pay GCOP charges and forced Plaintiff to bear this cost and
suffer the ensuing damage. Id. at ¶ 32. The purported class of persons injured by Defendant’s
alleged breach of contract for failure to pay GCOP on homeowners insurance contracts includes
“hundreds, and possibly thousands, of individuals geographically dispersed across Arkansas. . .” Id.
at ¶ 25.
Defendant removed this case to federal court on June 21, 2011, arguing that Plaintiff lacked
the authority to place a limit on recovery that would bind the other class members. Defendant also
asserted that the actual amount in controversy exceeded the $5 million jurisdictional limitation and
that Plaintiff’s signed stipulation limiting his and the purported class’s recovery did not effectively
cap damages and was therefore unenforceable. Further, Defendant argued that even though Plaintiff
specifically disclaimed any entitlement to punitive damages and did not plead bad faith as a cause
of action, because the facts as stated constituted claims for both punitive damages and bad faith, the
Court should assume those claims were pled and include damages for those claims in calculating the
amount in controversy. Defendant maintained that if the amount in controversy included claims for
punitive damages and bad faith, this would certainly result in a total award in excess of the
jurisdictional maximum allowed for state court.
On July 21, 2011, Plaintiff moved to remand the case back to state court, citing in support
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of the motion his binding stipulation executed prior to removal, which expressly limited his and the
class’s recovery to within state jurisdictional limits. Plaintiff also asserted that as master of his
Complaint, he had the right to limit his claims so as to bring this action in the forum of his choice.
See Doc. 19, pp. 5-6.
II. Legal Standard
When analyzing the propriety of removal of a case to federal court, the removing party has
the burden of showing that jurisdiction in the federal courts is proper and the requisite amount in
controversy has been met. Hatridge v. Aetna Cas. & Sur. Co., 415 F.2d 809, 814 (8th Cir. 1969).
Federal courts must strictly construe the federal removal statute and resolve any ambiguities about
federal jurisdiction in favor of remand. Transit Casualty Co. v. Certain Underwriters at Lloyd’s of
London, 119 F.3d 619, 625 (8th Cir. 1997).
CAFA operates to grant federal district courts original jurisdiction over class actions where
there is diversity of citizenship between the plaintiff and defendant and when “the matter in
controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs.”

28 U.S.C.

§ 1332 (d)(2). The claims of the potential class members must be aggregated to determine whether
the jurisdictional minimum has been met. 28 U.S.C. § 1332 (d)(6). The guiding principle courts
follow in establishing whether or not removal is proper is that the plaintiff is the master of his
complaint, even in class action cases. Bell v. Hershey Co., 557 F.3d 953, 956 (8th Cir. 2009).
Therefore, in determining the amount in controversy, a court looks first to the complaint. “If [a
plaintiff] does not desire to try his case in the federal court, he may resort to the expedient of suing
for less than the jurisdictional amount, and though he would be justly entitled to more, the defendant
cannot remove.” St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 294 (1938).
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Generally, “the sum claimed by the plaintiff controls if the claim is apparently made in good
faith.” Id. at 289. Although Plaintiff in the instant case does not claim to be owed a specific dollar
amount in damages, he does impose a limitation on the amount he and the purported class may
recover. In his Complaint, Plaintiff states that “neither Plaintiff’s nor any individual Class Member’s
claim is equal to or greater than seventy-five thousand dollars ($75,000), inclusive of costs and
attorneys fees, individually or on behalf of any Class Member. . . Moreover, the total aggregate
damages of the Plaintiff and all Class Members, inclusive of costs and attorneys’ fees, are less than
five million dollars ($5,000,000), and the Plaintiff and Class stipulate they will seek to recover total
aggregate damages of less than five million dollars ($5,000,000).” Doc. 2, ¶11.
Attached to the Complaint is a “Sworn and Binding Stipulation,” signed by Plaintiff,
affirming that he will not at any time during the pendency of the case “seek damages for myself or
any other individual class member in excess of $75,000 (inclusive of costs and attorneys’ fees) or
seek damages for the class as alleged in the complaint to which this stipulation is attached in excess
of $5,000,000 in the aggregate (inclusive of costs and attorneys’ fees).” Id. at p. 15.
To defeat remand, a defendant has the burden of showing by a preponderance of the evidence
that the amount in controversy exceeds the federal court’s minimum threshold for jurisdiction, which
is $5 million in the aggregate. In re Minn. Mut. Life Ins. Co. Sales Practices Litig., 346 F.3d 830,
834 (8th Cir. 2003). The Court must engage in a “fact intensive” inquiry to determine whether the
preponderance of the evidence standard has been met. Bell, 557 F.3d at 959. Mere speculation or
conjecture on the part of the defendant as to the amount in controversy will not be sufficient to meet
the preponderance standard. See, e.g., Thomas v. Southern Pioneer Life Ins. Co., 2009 WL 4894695,
*2 (E.D. Ark. Dec. 11, 2009); Nowak v. Innovative Aftermarket Sys., 2007 WL 2454118 (E.D. Mo.
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Aug. 23, 2007).
Once the preponderance standard is met and the defendant establishes enough detail to meet
the jurisdictional requirement for the amount in controversy, the court turns its attention to the
plaintiff, who must establish “to a legal certainty” that his claim is actually under the $5 million
threshold. Bell, 557 F.3d at 956 (citing St. Paul Mercury, 303 U.S. at 290). Any doubt as to federal
jurisdiction must be resolved in favor of remand. In re Prempro Prods. Liab. Litig., 591 F.3d 613,
620 (8th Cir. 2010).
III. Discussion
A. Defendant’s Legal Burden: Preponderance of the Evidence
Defendant proposes that Plaintiff’s Complaint presents an actual amount in controversy of
over $5 million (see Doc. 1, p. 10). However, Defendant can only arrive at that figure by adding into
the Complaint claims not specifically pled by Plaintiff, and indeed claims specifically disclaimed by
Plaintiff. Defendant concedes that the Complaint, as pled, places $2,013,677 in compensatory
damages in controversy, plus a 12% statutory penalty of $241,641, for a total award of $2,255,318.
This is well below the $5 million threshold allowable for federal court jurisdiction. Even if the Court
were to add a presumed attorneys’ fee award of 40% of the total recovery to the total above, the
award would be $3,157,445. But Defendant argues in itsNotice of Removal that according to the
allegations Plaintiff sets forth in the Complaint, “Arkansas law also affords a claim for common law
bad faith” in the case at bar. Doc. 1, p. 8. Defendant reasons that if the law affords a claim for bad
faith and the accompanying possibility of an award of punitive damages for bad faith, this Court
should include those potential claims in the damages calculus and boost the purported amount in
controversy accordingly.
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Plaintiff, however, has expressly stated in his Complaint that he “specifically disclaims any
actual or potential entitlement to punitive damages” on behalf of himself or the class members.
Doc. 2, ¶ 11. Moreover, Plaintiff is “asserting no cause of action that would support a punitive
damage award.” Id. It is the Court’s view that only claims actually put into controversy by Plaintiff
shall be included in calculating the amount in controversy for jurisdictional purposes.
As the master of his complaint, a plaintiff can choose what claims to bring or what claims
to leave out. “[A] removing defendant can’t make the plaintiff’s claim for him; as master of the
case, the plaintiff may limit his claims (either substantive or financial) to keep the amount in
controversy below the threshold.” Brill v. Countrywide Home Loans, Inc., 427 F.3d 446, 449 (7th
Cir. 2005). See also Holcombe v. Smithkline Beecham Corp., 272 F.Supp.2d 792, 793 (E.D. Wis.
2003) (“The fact that a plaintiff seeks to represent a class does not make the plaintiff any less the
master of [his] own complaint. Like other plaintiffs, class action plaintiffs should be able to make
strategic decisions concerning how to plead a case”).
In the instant case, Plaintiff has gone beyond simply leaving out claims and has expressly
disclaimed any award of punitive damages and refused to plead any cause of action that would
support an award of punitive damage, which includes a claim for bad faith. Defendant has not cited
any case law which would persuade the Court that a plaintiff who expressly disclaims seeking
punitive damages would nonetheless be forced to seek them in an Arkansas court. Therefore, the
Court cannot and does not find that an Arkansas court would force a plaintiff to seek punitive
damages in a case where the plaintiff has expressly disclaimed any desire or intention to do so. To
hold otherwise would be illogical and would take any force out of the axiom that a plaintiff is the
master of his complaint. Cf. Quebe v. Ford Motor Co., 908 F.Supp. 446, 453 (W.D. Tex. 1995)
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(“. . . Defendants request that this Court ‘force’ the Plaintiffs to amend their complaint and include
a request for punitive damages. . . Defendants fail to cite any case law that actually supports this
novel proposition”).
Defendant also cites to Ark. R. Civ. P. 54(c), which provides that “every final judgment shall
grant the relief to which the party in whose favor it is rendered is entitled, even if the party has not
demanded such relief in his pleadings.” Again, the omission of a claim must, logically, be
considered differently than the express renouncement of a claim. Here, Plaintiff acknowledges that
he may be entitled to punitive damages, but nonetheless makes the conscious choice not to bring that
claim. This is a far cry from a plaintiff who inadvertently, or for whatever reason, simply omits a
claim for punitive damages or a cause of action that affords punitive damages in the first place.
Therefore the Court cannot and will not consider punitive damages or a claim for bad faith as part
of the amount in controversy. Absent inclusion of these claims, Defendant has failed to show by a
preponderance of the evidence that the amount in controversy is greater than $5 million. Indeed, by
Defendant’s own admission, the amount in controversy described by the face of Plaintiff’s
Complaint falls well short of the $5 million jurisdictional minimum required for removal to federal
court.
B. Plaintiff’s Legal Burden: Legal Certainty
Even if Defendant had met its burden of proof and demonstrated that more than $5 million
were in controversy, remand is proper in the case at bar because Plaintiff proved to a legal certainty
that his claim is for less than the requisite amount required for federal court jurisdiction. Plaintiff
met his burden of proof by stipulating at the time the Complaint was filed that he would not seek
more than the federal jurisdictional minimum for himself and the putative class. Even though the
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Eighth Circuit in the case of Bell v. Hershey Co., 557 F.3d 953 (8th Cir. 2009), did not specifically
reference the plaintiff’s legal certainty burden, it did conclude that a clear stipulation would meet the
requirements for defeating removal. It follows, therefore, that if a stipulation is legally binding and
made in good faith, it can satisfy the plaintiff’s legal burden and defeat removal. Id. at 956; see also
Tuberville v. New Balance Athletic Shoe, Inc., 2011 WL 1527716, *3 (W.D. Ark., April 21, 2011).
1. Plaintiff’s Stipulation
The law in this circuit is clear that a binding stipulation sworn by a plaintiff in a purported
class action will bar removal from state court if the stipulation limits damages to the state
jurisdictional minimum. Bell, 557 F.3d at 958, citing De Aguilar v. Boeing Co., 47 F.3d 1404, 1412
(5th Cir. 1995) (“In order to ensure that any attempt to remove would have been unsuccessful,
[plaintiff] Bell could have included a binding stipulation with his petition stating that he would not
seek damages greater than the jurisdictional minimum upon remand”). Various federal courts in
Arkansas, including this one, have remanded several purported class actions to state court using the
guideline set forth in Bell regarding the effect of a plaintiff’s binding stipulation. See, e.g.,
Thompson v. Apple, Inc., 2011 WL 2671312 (W.D. Ark. July 8, 2011); Tomlinson v. Skechers
U.S.A., Inc., Case No. 5:11-CV-05042-JLH (W.D. Ark. May 25, 2011); Murphy v. Reebok Int’l, Ltd.,
2011 WL 1559234 (E.D. Ark. April 22, 2011); Tuberville v. New Balance Athletic Shoe, Inc., 2011
WL 1527716 (W.D. Ark. April 21, 2011).
Defendant contends that the wording of the stipulation attached to the instant Complaint
telegraphs Plaintiff’s desire to circumvent CAFA and receive an award in excess of the $5 million
threshold. Plaintiff’s sworn stipulation states that he “will not. . . seek” damages in excess of $5
million in the aggregate. Doc. 2, p. 15. According to Defendant, this language does not adequately
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bind Plaintiff because he has not “refused to accept” a damage award in excess of the maximum.
Defendant fears that Plaintiff’s choice of the word “seek” is intentionally made in order to leave open
the door for a larger award than the maximum allowed in state court. Defendant cites no authority
to support its view that Plaintiff’s promise not to “seek” an award over jurisdictional limits is
unenforceable, but “refusing to accept” such an award would be binding. Magic words are not
required in order to make a sworn stipulation binding. Accordingly, the Court finds Plaintiff’s sworn
stipulation is sufficient and meets the standard suggested by the Eighth Circuit in Bell to effectively
bar removal.
The overarching argument Defendant submits is that the Court should completely disregard
Plaintiff’s self-imposed limitations in his Complaint and attached stipulation, and instead calculate
the amount in controversy based on the possibility that after remand, the state court could award
Plaintiff more than he seeks or consider a cause of action that Plaintiff has not pled. Defendant also
worries that perhaps Plaintiff could amend his Complaint in the future to increase the amount of
recovery sought. Speculation as to a state court’s future acts or Plaintiff’s future acts cannot vest this
Court with jurisdiction where it otherwise has none at the time of removal. If a court could base its
jurisdiction solely upon the possibility of a future award by a court or a future amendment by a
plaintiff, any case filed in state court would be susceptible to removal no matter how the plaintiff
stated his claims.
Arkansas law permits Plaintiff to plead his damages specifically. Rule 8(a) of the Arkansas
Rules of Civil Procedure provides that:
[i]n claims for unliquidated damage, a demand containing no
specified amount of money shall limit recovery to an amount less than
required for federal court jurisdiction in diversity of citizenship cases,
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unless language of the demand indicates that the recovery sought is
in excess of such amount.
Despite the clear language of this provision, the Supreme Court of Arkansas held in Interstate
Oil & Supply Co. v. Troutman Oil Co., that Rule 8(a) must be read in conjunction with Rule 15(b),
“which provides that, when issues not raised by the pleadings are tried by the express or implied
consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings.”
334 Ark. 1, 5 (1998)(emphasis added). The Arkansas Supreme Court then concluded that a plaintiff
whose complaint contained a demand for unspecified unliquidated damages could recover more than
the federal jurisdictional amount. Id. at 5-6.
Since Troutman, however, the Arkansas legislature has amended the state’s procedural law
in, what seems to the Court, to be an effort to mend the gap identified by the Arkansas Supreme
Court in Troutman. In March of 2011, the Arkansas legislature amended the Arkansas Code, adding
A.C.A. § 16-63-221, which states as follows:
(a) A plaintiff who files a complaint in circuit or district court
praying for an award of damages may, but is not required to, state an
amount in controversy for the purposes of establishing subject-matter
jurisdiction and determining if the amount sought is within the
jurisdictional limits of the court.
(b) A declaration allowed by subsection (a) of this section is binding
on the plaintiff with respect to the amount in controversy unless the
plaintiff subsequently amends the complaint to pray for damages in
an amount that exceeds the jurisdictional limits of the court, at which
time the amendment is governed by the Arkansas Rules of Civil
Procedure.
(emphasis added).
A fair reading of A.C.A. § 16-63-221 reveals that although complaints may be subject to

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amendment under Rule 15, plaintiffs are nonetheless bound to the statements in their complaints
unless an amendment is made. This new law adds important context to the interplay between Ark.
R. Civ. P. 8(a) and 15. The fact that a plaintiff may later amend his complaint to raise the amount
in controversy does not change the fact that he is bound to his originally stated amount unless he
chooses to amend. Further, the Court disagrees with Defendant that this statute does not apply to
class actions: such a limitation cannot be assumed by the plain language of the statute. Rather, the
Court finds that the statute merely reinforces the intent of the Eighth Circuit in the Bell case, making
clear that a binding stipulation made by a plaintiff places an upper limit on the amount in controversy
for purposes of subject matter jurisdiction analysis.
If Plaintiff were to amend his Complaint after remand, disclaiming his sworn stipulation and
seeking instead an amount in excess of the jurisdictional maximum, it follows that Defendant would
have the right to remove again, should removal be justified. It is no longer the rule that CAFA cases
must be removed within a year. Now they may be removed at any time, assuming they are
removable. 28 U.S.C. § 1453 (b); see e.g. Bartnikowski v. NVR Inc., 307 Fed. Appx 730, 739 (4th
Cir. 2009) (“a CAFA defendant who cannot meet his burden for removal at the early stages of
litigation may still have recourse to the federal courts later, as Congress has eliminated the one-year
time limit on CAFA removal actions”); Lowdermilk v. U.S. Bank Nat'l Assoc., 479 F.3d 994, 100203 (9th Cir. 2007) (“CAFA mitigates some of the potential for abuse [by plaintiffs] by eliminating
the one-year removal limitation”).
Moreover, if in the future it is evident that Plaintiff has moved to amend his Complaint postremand solely to thwart federal and state procedural rules and the ruling of the district court, such
an attempt would obviously be in bad faith and, under Arkansas law, could be either stricken under
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Rule 15 or prohibited under the doctrine of judicial estoppel. Under Ark. R. Civ. P. 15(a), a plaintiff
may amend her pleadings at any time without leave of court. However, upon motion by an opposing
party, a court may strike any amended pleading where the court determines that prejudice would
result because of the filing of the amendment. Ark. R. Civ. P. 15(a). Furthermore, judicial estoppel
may apply when a party assumes a position clearly inconsistent with a position taken in the same
case. Dupwe v. Wallace, 355 Ark. 521, 525 (Ark. 2004); see also Tuberville, 2011 WL 1527716 at
*4, and Thompson, 2011 WL 2671312 at *3 (“[w]hile the Court believes that this stipulation alone
is sufficient to limit damages, the Plaintiffs would also be judicially estopped from asserting a claim
in state court for punitive damages or in any other way attempting to recover more than the amount
contemplated in the stipulations”). Here, there is enough evidence to conclude, as a matter of law,
that Plaintiff would be prohibited from recovering in excess of the amount alleged in Arkansas courts
barring any subsequent, good-faith amendment of the Complaint.
2. Due Process Concerns for the Class
Defendant maintains Plaintiff has exhibited bad faith in seeking to limit the as-yet-unknown
class members to a cap in damages. As the master of his complaint, Plaintiff may choose what
claims to bring and what claims to leave out. Defendant cites to the case of Bass v. Carmax Auto
Superstores, Inc., 2008 WL 441962 (W.D. Mo., Feb. 14, 2008), for the proposition that a class
plaintiff has no right to limit recovery for a class without court approval. However, the Bass case
was decided before Bell, and the holding in Bass contradicts both the plain language and the spirit
of the Eighth Circuit’s holding in Bell. Furthermore, putative class members may simply opt out of
the class and pursue their own remedies if they feel that the limitations placed on the class by
Plaintiff are too restrictive. See Murphy, 2011 WL 1559234 at *3 (“. . . the plaintiffs in state court
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who choose not to opt out of the class must live with it,” quoting Morgan v. Gay, 471 F.3d 469, 47778 (3rd Cir. 2006), cert. denied, 128 S. Ct. 66 (2007)).
III. Conclusion
The Court finds that Defendants have not shown by a preponderance of the evidence that
Plaintiff has put more than $5,000,000 in the aggregate in controversy.

Additionally and

alternatively, the Court finds that Plaintiff has shown to a legal certainty that the aggregate damages
claimed on behalf of the putative class shall in good faith not exceed the state court’s jurisdictional
limitation of $5,000,000.

Accordingly, Plaintiff’s Motion to Remand (Doc. 18) is hereby

GRANTED. This case shall be remanded forthwith to the Circuit Court of Crawford County,
Arkansas.

IT IS SO ORDERED this 7th day of December, 2011.

/s/P. K. Holmes, III
P.K. HOLMES, III
UNITED STATES DISTRICT JUDGE

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