Walker v. Old Reliable Casualty Company

Filing 39

ORDER denying 17 Motion to Remand. Signed by Honorable Susan O. Hickey on December 4, 2014. (mll)

IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
TEXARKANA DIVISION

JAMES R. WALKER, Individually and
on behalf of all others similarly situated
v.

PLAINTIFFS

Case No. 4:13-cv-04122

OLD RELIABLE CASUALTY COMPANY

DEFENDANT

ORDER

Before the Court is the Motion to Remand filed on behalf of Plaintiff James R. Walker
(“Walker”). (ECF No. 17). Defendant Old Reliable Casualty Company (“Old Reliable”) has
responded. (ECF No. 24). The Court finds this matter ripe for its consideration.
Walker filed his class action complaint in the Circuit Court of Miller County, Arkansas on
November 26, 2013. On December 20, 2013, Old Reliable filed a Notice of Removal in this Court,
asserting that the Court has jurisdiction under the Class Action Fairness Act (“CAFA”), 28 U.S.C.
§ 1332(d). Walker argues in his Motion to Remand that this Court does not have jurisdiction over
this action because Old Reliable has failed to meet its burden of proving that the amount in
controversy exceeds the $5 million minimum required under CAFA.
I. Discussion
A federal district court has jurisdiction under CAFA if, among other things, the matter in
controversy exceeds the sum or value of $5,000.000, exclusive of interest and costs, the parties are
minimally diverse, and the number of class members exceeds 100. 28 U.S.C. §1332(d). “[A] party
seeking to remove under CAFA must establish the amount in controversy by a preponderance of the
evidence regardless of whether the complaint alleges an amount below the jurisdictional minimum.”

Bell v. Hershey Co., 557 F.3d 953, 958 (8th Cir. 2009). “Under the preponderance standard, ‘[t]he
jurisdictional fact . . . is not whether the damages are greater than the requisite amount, but whether
a fact finder might legally conclude that they are . . . .’” Id. at 959 (quoting Kopp v. Kopp, 280 F.3d
883, 885 (8th Cir. 2002)) (alteration in original). If a defendant meets its burden, then a plaintiff
seeking remand must establish to a legal certainty that the amount in controversy is less than the
statute requires. Bell, 557 F.3d at 956. The legal-certainty standard is not met if even a possibility
exists of recovering more than the statutory minimum. Back Doctors Ltd. v. Metro. Prop. & Cas.
Ins. Co., 637 F.3d 827, 831 (7th Cir. 2011).
A. Compensatory Damages
In its Notice of Removal, Old Reliable asserts that Walker has put into controversy a total
of $7.5 million. Old Reliable also alleges that, based on its own calculations, $1.6 million or more
was depreciated in connection with claims for which it made “actual cash value” payments. Walker
argues that, based on the evidence presented by Old Reliable, the $1.6 million is not an accurate
portrayal of the compensatory damages alleged because that number takes into account the
depreciation of both labor and material costs. Because Walker is not seeking to recover the
depreciation of material costs, Walker claims that this figure used as a calculation is clearly
erroneous.
Old Reliable submitted the affidavit of Greg Warnock, Assistant Vice President over
Property Claims for Old Reliable. He asserted that Old Reliable paid out more than $7.9 million on
claims on an “actual cash value” basis, which was the replacement value of the property at the time
of the loss, less depreciation. Warnock indicated that, historically, the percentage of depreciation
was 22.4%. Applying the percentage to the total amount paid, Warnock calculated that Old Reliable
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had depreciated “$1.6 million or more” in connection with actual cash value payments since
November 26, 2003. Warnock then asserts that “the total amount placed at issue in this case for
plaintiff’s and the putative class’ claims exceeds $7,500,000.00.”
Walker argues that Old Reliable has not met its burden of proof because the affidavit does
not contain facts from which the amount in controversy can be determined for jurisdictional
purposes. Therefore, there is no factual basis upon which the Court can conclude that it has
jurisdiction. However, the Eighth Circuit has made clear that, “when determining the amount in
controversy, the question is not whether the damages are greater than the requisite amount, but
whether a fact finder might legally conclude that they are.” Raskas v. Johnson & Johnson, 719 F.3d
884, 887 (8th Cir. 2013) (internal quotation marks omitted).
Old Reliable argues that the amount in controversy is $7.5 million, which is the total amount
of the relevant transactions during the relevant time period. However, even if the lesser and more
exact $1.6 million is used to calculate the amount, the Court finds that the amount in controversy is
satisfied.1 In Raskas, the Eighth Circuit held that each defendant’s affidavits detailing the total sales
of their medications should be used to meet the amount in controversy, when the total sale amounts
were not at issue, but rather a more narrow category of sales. Id. Similarly, here, the total amount
of depreciation can be used to calculate the amount in controversy.
Even if ultimately this estimate proves to be overly inclusive, Old Reliable has appropriately
estimated the damages at this stage in the proceedings. See id. at 886-87.

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When combined with the statutory penalty, attorneys fees, and punitive damages, the
amount in controversy is satisfied with a compensatory damages award of $1.6 million.
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B. Statutory Damages
The Complaint also asks for statutory penalties of 12% of the depreciated labor costs
recovered. Arkansas law provides for a 12% penalty to insurers in cases where an insured brings
suit and recovers “twenty percent (20%) of the amount demanded or which is sought in the suit.”
Ark. Code Ann. § 23-79-208(d). Assuming that the Plaintiff class is able to recover at least 20% of
the damages they seek in this action, they will be entitled to recover a 12% penalty against
Defendants. Accordingly, if the Plaintiff class recovers the total amount of their compensatory
damages estimate, $1.6 million, the 12% penalty would amount to $192,000.
C. Punitive Damages
The parties dispute the availability of punitive damages. Walker argues that his Complaint
does not allege facts that would support the recovery of punitive damages under Arkansas law. Old
Reliable responds that the allegations in the Complaint are sufficient that a jury could legally
conclude that punitive damages are available.
Federal courts applying Arkansas law have held that punitive damages are “assumed to be
legally recoverable even [where a] plaintiff’s complaint [does] not include a prayer for punitive
damages or allege that the defendant acted wantonly or maliciously.” Knowles v. Std. Fire Ins. Co.,
4:11-CV-04044, 2013 WL 3968490, at *10 (W.D. Ark. Aug. 2, 2013); see also Bowles v. Osmose
Utilities Servs., Inc., 443 F.3d 671, 675 (8th Cir. 2006); Thatcher v. Hanover Ins. Grp., Inc.,
4:10–CV–4172, 2012 WL 1933079, at *6 (W.D. Ark. May 29, 2012) (“[T]here have been cases in
which punitive damages have been properly awarded when merited even in the absence of their
being sought after or prayed for by a party.”). The fact that fraud was not pled in a separate count
and that there is no prayer for punitive damages does not preclude Walker from eventually
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recovering punitive damages. See Basham, 979 F. Supp. 2d at 889.
Thus, the relevant question here is whether the allegations in the Complaint constitute the
type of conduct that could potentially support an award of punitive damages. As a court sitting in
diversity, the court looks to Arkansas law when determining whether punitive damages are available.
Punitive damages are not ordinarily recoverable for breach of contract under Arkansas law.
McClellan v. Brown, 632 S.W.2d 406, 407 (Ark. 1982). In adhering to that principle, the Arkansas
courts have stated: “To support a claim for punitive damages there would have to be a willful or
malicious act in connection with a contract. A bare allegation of fraud which results in a monetary
loss would not justify punitive damages . . .” Id. Walker alleges that Old Reliable “failed to
disclose” information, “acted in a manner designed to conceal” information, and that these actions
amounted to “fraudulent concealment.” (ECF No. 3). These allegations could be construed as
stating a claim for either bad faith in the insurance context or common law fraud, and at this stage,
they create at least the possibility that punitive damages could be awarded in tort. See Knowles,
4:11-CV-04044, 2013 WL 3968490 (noting Plaintiff made similar allegations and finding that
defendant had established by a preponderance of the evidence that punitive damages were possible);
see also Columbia Nat’l Ins. Co. v. Freeman, 64 S.W.3d 720, 723 (Ark. 2002) (punitive damages
for bad faith potentially available when insurer “affirmatively engages in dishonest, malicious, or
oppressive conduct in order to avoid a just obligation to its insured”); Curtis Lumber Co. v. La. Pac.
Corp., 618 F.3d 762, 785 (8th Cir. 2010) (punitive damages for fraud possible if defendant knew or
ought to have known that his conduct would result in injury or damage, justifying an inference of
malice).
The question therefore is how much the plaintiff class may potentially recover in punitive
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damages. Courts have found punitive damage multipliers of up to six to be acceptable when
considering the availability of punitive damages in the CAFA amount-in-controversy context. See
Basham v. Am. Nat. Cnty. Mut. Ins. Co., 979 F. Supp. 2d 883, 890 (W.D. Ark. 2013) (collecting
cases). Because the Court finds Old Reliable has adequately proven that a fact-finder might legally
conclude that the compensatory damage award could be $1.6 million, punitive damages awarded on
that amount with a multiplier of 2, when combined with statutory damages and attorney’s fees,2
would support CAFA jurisdiction. See Kerr v. Ace Cash Experts, Inc., 4:10 CV 1645 DDN, 2010
WL 5177977, at *2 (E.D. Mo. Dec. 14, 2010) (holding that a compensatory damages award of only
$594,000 could “satisfy the amount in controversy requirement because of the potential for punitive
damages and attorneys fees”). For the purposes of the amount in controversy calculations, the Court
notes that a potential punitive-to-compensatory damages ratio of up to 6:1 is acceptable. Thus,
employing less than that, a 2:1 ratio, when combined with the other damage amounts, meets the
amount in controversy requirement.
Old Reliable has established by a preponderance of the evidence that a punitive damages
award is legally possible in this case and should be included when calculating the amount in
controversy. Walker has failed to meet his burden of proving to a legal certainty that an award of
punitive damages could not occur. The Court finds that Old Reliable has met its burden to show that
a fact finder could conclude that Walker is entitled to punitive damages with a 2:1 ratio. See Back
Doctors Ltd. v. Metropolitan Property & Casualty Ins. Co., 637 F.3d 827, 831 (7th Cir. 2011)
(noting that the legal-certainty standard is not met if even a possibility exists of recovering more than
the statutory minimum). Accordingly, the Court will assume a punitive damages award of $3.2
2

Discussed infra, see II.D for discussion of attorneys fees.
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million is recoverable.
D. Attorneys Fees
Walker agrees that class counsel could recover 35% of the amount of the class recovery.
When determining whether a party seeking removal has satisfied the amount in controversy burden,
“only statutory attorney fees count toward the jurisdictional minimum calculation.” Rasmussen v.
State Farm Mut. Auto. Ins. Co., 410 F.3d 1029, 1031 (8th Cir. 2005) (emphasis added). Reasonable
attorneys fees are awarded by statute in Arkansas and may be added when determining whether the
amount in controversy is sufficient for federal jurisdiction under CAFA in this case. The Court finds
that Old Reliable has shown it is reasonable to use a 35% multiplier to estimate attorneys fees for
the amount in controversy. Attorneys fees may be estimated, therefore, at $1,680,000.
III. Conclusion
Accordingly, the Court concludes that Old Reliable has proven that a fact finder might legally
conclude that the amount in controversy exceeds $5 million. Therefore, Walker’s Motion to Remand
is DENIED.
IT IS SO ORDERED, this 4th day of December, 2014.

/s/ Susan O. Hickey
Susan O. Hickey
United States District Judge

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