Doss et al v. American Family Home Insurance Company
ORDER denying #24 Motion to Remand. Signed by Honorable Susan O. Hickey on September 19, 2014. (mll)
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
LEE ANN DOSS, et al.
Case No. 4:14-cv-04007
HOME INSURANCE COMPANY
Currently before the Court is Plaintiffs’ Motion to Remand. (ECF No. 24). Defendant
American Family Home Insurance Company has responded. (ECF No. 36). Plaintiffs filed a reply
to Defendant’s response. (ECF No. 43). The Court finds this matter ripe for consideration. Plaintiff
argues that this Court does not have jurisdiction over this lawsuit because Defendant has not shown
that the amount in controversy exceeds the $5 million minimum for federal court jurisdiction under
the Class Action Fairness Act. For reasons reflected herein, Plaintiff’s Motion to Remand (ECF No.
24) is DENIED.
Plaintiffs filed an amended putative class action complaint in state court in Miller County,
Arkansas on December 3, 2013. (ECF No. 5). On January 6, 2014, Defendant removed the case to
this Court. (ECF No. 1). Defendant filed a Motion for Judgment on the Pleadings on February 17,
2014. (ECF No. 20). On March 18, 2014, Plaintiff filed a Motion to Remand. The Court will
resolve the pending Motion to Remand first because it concerns a question of federal jurisdiction,
a threshold matter. See Counts v. Cedarville Sch. Dist., 295 F. Supp. 2d 996, 998 (2003).
The named Plaintiffs, Lee Ann Doss and B.G. Peavy (“Doss and Peavy”), were under a
homeowner’s insurance policy issued by the Defendants American Family Home Insurance
Company (“American Family”). (ECF No. 1). Doss and Peavy suffered a covered loss to their
insured property on August 13, 2008. On October 17, 2008, American Family estimated the cost to
repair the property at $5,330.95, a total that included the cost of labor and materials. American
Family paid Doss and Peavy the “actual cash value” of their loss, which was $4,620.77 after
subtracting depreciation and the amount of the deductible. The depreciated amount included both
the cost of labor and materials. Doss and Peavy, in their Complaint, argue that Arkansas law
prohibits an insurance company from depreciating the cost of labor. Therefore, by depreciating this
cost, Plaintiffs claim that American Family (1) breached their contract with Plaintiffs and (2) were
American Family has removed this case to federal court, asserting that jurisdiction is proper
under the Class Action Fairness Act (“CAFA”), 28 U.S.C. § 1332(d). For a federal court to have
jurisdiction under CAFA, the removing party must demonstrate that there is (1) a proposed plaintiff
class of 100 or more members, (2) minimal diversity, and (3) more than $5 million in controversy,
exclusive of interest and costs. 28 U.S.C. § 1332(d). The parties only dispute is whether the
aggregate amount in controversy exceeds $5 million.
“[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
To support their claim that the amount in controversy exceeded the jurisdictional minimum,
American Family submitted the affidavit of Denise Rice, Claims Data Specialist for American
Family. (ECF No. 1, Ex. 3). She gathered information from American Family’s records to identify
the “approximate number of insureds of American Family who received payment for loss or damage
under a policy providing insurance coverage for a dwelling or other structure located in the State of
Arkansas [from May 2004 to December 3, 2013].” (ECF No. 1, Ex. 3 ¶ 6-7). The records indicated
that American Family paid out approximately $27,000,000 in indemnity payments on 8,838 claims
for property damage during that time.
The Complaint asserts damages only for the allegedly unlawful depreciation of labor costs.
Because American Family’s Adjuster Summary does not separately itemize material and labor for
every item of work, it is difficult to reach an exact amount of damages. Thus, American Family has
utilized four different methods of calculating approximate compensatory damage amounts to aid in
determining the amount in controversy for CAFA jurisdiction.
The first two calculations were based on sales tax. Because sales tax in Arkansas is not
added to labor costs, but only to material costs, the first estimation was reached by multiplying the
total sales tax on Doss and Peavy’s Adjuster Summary by the tax rate in Arkansas. This calculation
yielded the approximate amount of the total actual value allocated to materials. That number was
used to determine the percentage of the total allocated to both labor and materials. American Family
applied those percentages to the total depreciation to estimate the amount of depreciation for labor
costs on Doss and Peavy’s claim. When applying the same percentages to the total of indemnity
payments paid out by American Family, $27,000,000, the first estimated depreciation deduction for
labor charges for the class was approximately $1,566,000. Using the same percentages, and
assuming that Doss and Peavy’s claims were typical of the class, American Family also estimated
the damages for the class by multiplying Doss and Peavy’s estimated labor depreciation deductions
by the total amount of claims in Arkansas for the relevant time period, 8,838, yielding an estimated
$2,668,369 total compensatory damages.
The next two calculations were based on the percentage of payment allocated to labor on the
specific projects where labor and materials were separately itemized in the Adjuster’s Summary.
American Family, using the project with the lowest percentage attributable to labor, multiplied the
percentage attributed to labor by the total replacement cost to reach a total amount of payment
allocated to labor. American Family then applied the percentage to the depreciation deductions to
determine the approximate amount of depreciation deduction attributed to labor. By multiplying this
percentage by the total amount of money paid out on claims in Arkansas, the estimation was
$759,780 in compensatory damages for the class. Also using these percentages, and assuming Doss
and Peavy’s claims are typical of the class, the estimated depreciation for labor on their Adjuster’s
Summary was multiplied by the total number of claims in Arkansas, yielding an estimated
$1,288,051 in compensatory damages for the class.
Doss and Peavy argue that the sample is flawed because it includes data for some persons
who are not class members. Specifically, they argue that the data American Family used to calculate
the amount in controversy includes some claims where the cost of labor was depreciated and some
where it was not. They also argue that, by using only Doss and Peavy’s data to calculate an
estimation of damages, American Family is using a statistically insignificant sample size.
The Court finds Plaintiffs’ arguments unavailing. Plaintiffs seek to recover damages on
behalf of an alleged class of policyholders who “received ‘actual cash value’ payments, directly or
indirectly, from American Family Home for loss or damage to a dwelling or other structure located
in the State of Arkansas, . . . within the ten years preceding the date of filing of this Class Action
Complaint, where the cost of labor was depreciated.” (ECF No. 5, ¶ 6). Doss and Peavy allege that
their claims “are typical of the claims of all Class Members, as they are all similarly affected . . .”
and that class members’ “claims arise from the same underlying facts . . .” (ECF No. 5 ¶ 25). They
also allege it was “Defendant’s custom and practice” to depreciate labor at “all times relevant
hereto,” (ECF No. 5 ¶¶ 13-14) and that all class members have been “similarly affected by
Defendant’s custom and practice of unlawful and unjust conduct,” (ECF No. 5 ¶ 25).
Using the named Plaintiffs as “typical” class members and multiplying their claims by the
number of persons estimated in a class is precisely how courts generally determine the estimated
amount in controversy. Otherwise, the amount of evidence required to answer this preliminary
pleading question could be astronomical and would in fact be a demand for proof, when at this stage,
demonstrating the amount in controversy is a pleading requirement. Hartis v. Chicago Title Ins. Co.,
694 F.3d 935, 944-45 (8th Cir. 2012). Because this number is an estimate, it is understood by the
Court that some individual claims of class members may have a depreciation for labor and some may
not. It is also understood that each claim may also contain a different amount of depreciation, some
with more and some with less damage than Doss and Peavy. Without wading through the almost
9,000 claims, these proposed calculations are the best way to get an accurate approximation of the
amount in controversy. Even if ultimately this estimate proves to be overly inclusive, the Defendant
has appropriately estimated the damages at this stage in the proceedings. See Raskas v. Johnson &
Johnson, 719 F.3d 884, 886-87 (8th Cir. 2013).
The Court finds that a reasonable fact finder could conclude that any of these four methods
of calculations is a fair and accurate estimation of the damages, and that Defendant’s approximation
satisfies their evidentiary burden now at the pleading stage. Because the Court finds a fact finder
could legally conclude that the Plaintiff class has compensatory damages of as much as $2,668,396,
for CAFA purposes, we will assume an estimated $2,668,369 in total compensatory damages for the
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, $2,668,396, the 12% penalty would amount to $320,207.52.
C. Punitive Damages
The parties dispute the availability of punitive damages. Doss and Peavy argue that their
Complaint does not allege facts that would support the recovery of punitive damages under Arkansas
law. American Family 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 the Plaintiffs from eventually
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. Doss and Peavy allege that American Family
“failed to disclose” information, “acted in a manner designed to conceal” information, and that these
actions amounted to “fraudulent concealment.” (ECF No. 5). 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). Doss and Peavy have failed to show to a legal certainty that American Family has not
alleged fraud in Arkansas.
The question therefore is how much the plaintiff class may potentially recover in punitive
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 American Family has adequately proven that a fact-finder might
legally conclude that the compensatory damage award would be $2,668,369, punitive damages
awarded on that amount with a multiplier of less than 0.5%, when combined with statutory damages
and attorney’s fees,1 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
Discussed infra, see II.D for discussion of attorneys fees.
controversy calculations, the Court notes that a potential punitive-to-compensatory damages ratio
of 1:1 is “well within the acceptable range.” Moore v. Am. Family Mut. Ins. Co., 576 F.3d 781, 791
(8th Cir. 2009).
Defendant 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.
Plaintiff 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 American Family has met its burden to show that a
fact finder could conclude that Plaintiffs are entitled to punitive damages within the “acceptable
range” of a 1:1 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 $2,668,369.
D. Attorneys Fees
Doss and Peavy argue that attorneys fees should not be included in the amount in controversy
because they have not yet been incurred and when the amount in controversy is speculative.
American Family argues that this Court’s precedent supports both an award of fees not incurred and
an award of up to 40%.2
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
The calculation of compensatory damages, stautory damages, and punitive damages
analyzed have exceeded the $5 million minimum for amount in controversy. The discussion
herein causes the amount to well exceed the minimum required for jurisdiction.
added); Knowles, 4:11–CV–04044, 2013 WL 3968490, at *10 (holding that attorney’s fees not yet
incurred at the time of removal may still be included in calculating the amount in controversy); see
also Crawford v. F. Hoffman–La Roche Ltd., 267 F.3d 760, 766 (8th Cir. 2001) (“Statutory attorney
fees do count toward the jurisdictional minimum for diversity jurisdiction.”). Under Arkansas law,
an insurance policy holder may be entitled to collect “reasonable attorney’s fees” expended in
prosecuting an action where an insurance company has failed to pay what is owed pursuant to the
insurance policy. Ark. Code Ann. § 23-79-208(a)(1) (“In all cases in which the loss occurs ... the
[company] shall be liable to pay the holder of the policy or his or her assigns, in addition to the
amount of the loss, . . . all reasonable attorney’s fees for the prosecution and collection of the loss.”).
Therefore, 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
Under Arkansas law, an award of fees is determined by taking into account the factors
described in Chrisco v. Sun Industries, Inc., 304 Ark. 227, 229 (1990), including the experience and
ability of the attorney; the time and labor required to perform the legal service properly; the amount
involved in the case and the results obtained; the novelty and difficulty of the issues involved; the
fee customarily charged in the locality for similar legal services; whether the fee is fixed or
contingent; the time limitations imposed upon the client or by the circumstances; and the likelihood,
if apparent to the client, that accepting the case precluded the attorney from accepting other
employment. For purposes of calculating a reasonable estimate of fees to be awarded at the
conclusion of a case, a fact-intensive, prospective analysis of the Chrisco factors is neither necessary
nor appropriate early in the litigation. Raskas, 2013 WL 3198177 at *3.
Thus, we look to other similar cases. A 40% rate of attorneys fees has been approved by the
Court and others. Knowles, 2013 WL 3968490, at *9; Basham, 979 F. Supp. 2d at 890. The
defendant is obligated to provide proof showing that a fact finder “might legally conclude” that the
fees it proposes are possible. Because American Family has adequately demonstrated that similar
fees have been used for calculating attorney’s fees in similar cases, the Court finds that American
Family has shown it is reasonable to use a 40% multiplier to estimate attorneys fees for the amount
in controversy. Attorneys fees may be estimated, therefore, at $1,067,358.40.3
Accordingly, the Court concludes that American Family has proven that a fact finder might
legally conclude that the amount in controversy exceeds $5 million. Therefore, Plaintiff’s Motion
to Remand is DENIED.
IT IS SO ORDERED, this 19th day of September, 2014.
/s/ Susan O. Hickey
Susan O. Hickey
United States District Judge
The Court notes that, alternatively, because the Complaint has alleged that American
Family committed actions which could give rise to punitive damages, and courts have used
multipliers of 4-6 when calculating punitive damages, that a calculation of attorneys fees would
be unnecessary for American Family to support their burden of demonstrating that the amount in
controversy exceeds $5 million.
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