State Farm Fire and Casualty Company v. Podoll et al
Filing
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ORDER DENYING DEFENDANTS' MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION 8 . Signed by JUDGE DAVID ALAN EZRA on 12/2/2011. [Order follows hearing held 12/2/2011 on M/Dismiss (doc 8). Minutes of hearing: doc no. 14 ] (afc) CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
STATE FARM FIRE AND
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CASUALTY COMPANY, an Illinois )
corporation,
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Plaintiff,
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vs.
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ALANE T. PODOLL AND
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MATTHEW M. MURASAKO,
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Defendants.
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_____________________________ )
CV. NO. 11-00486 DAE-KSC
ORDER DENYING DEFENDANTS’ MOTION TO DISMISS FOR LACK OF
SUBJECT MATTER JURISDICTION
On December 2, 2011, the Court heard Defendants’ Motion to
Dismiss for Lack of Subject Matter Jurisdiction. Richard B. Miller, Esq., appeared
at the hearing on behalf of Plaintiff; Brian R. Jenkins, Esq., appeared at the hearing
on behalf of Defendants. After reviewing the motion and the supporting and
opposing memoranda, the Court DENIES Defendants’ Motion to Dismiss. (Doc.
# 8.)
BACKGROUND
Defendants Alane T. Podoll and Matthew M. Murasako (collectively,
“Defendants” or “Insureds”) purchased a residential property on Maui from Patrick
and Rosineli Curell (collectively, “Curells”). (Doc. # 1 ¶ 9.) On or about March
15, 2011, the Insureds initiated a lawsuit against the Curells in state court alleging
that the Curells made material false representations in connection with the sale of
the property to the Insureds. (Id. ¶ 8; Doc. # 8 at 3.)
On July 12, 2011, the Curells filed a counterclaim against the
Insureds. (Doc. # 8-3.) In their counterclaim, the Curells allege that they own and
reside on the property adjacent to the Insureds’ property and that the two lots share
a common boundary with a fence. (Id. ¶¶ 1–2.) According to the Curells, in the
summer of 2007, the Insureds began placing debris against, over, and through the
fence between their respective properties and that this debris has damaged and
impaired the enjoyment of their property. (Id. ¶ 9.) They contend that this debris,
which included pipe, wire, fence posts, and building materials piled in with green
waste, blocked the natural drainage reserve area, created pest-related problems,
raised health and safety issues, and greatly impaired the exclusive use and
occupancy of their property. (Id. ¶¶ 9, 13, 24, 26.) They also contend that the
Insureds have intentionally harassed the Curells by accusing them of making noise,
making unfounded complaints about them to the Maui Police Department, making
invalid complaints regarding alleged fire hazards to the County of Maui Fire
Department, and improperly adding Rosineli Curell to a Temporary Restraining
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Order without basis. (Id. ¶¶ 28–29.) Based on these contentions, the Curells allege
the following causes of action:
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Count I: Nuisance & Negligence (Id. ¶¶ 9–16.)
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Count II: Breach of Covenants, Conditions and Restrictions (Id. ¶¶ 17–19.)
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Count III: Injunctive Relief (Id. ¶¶ 20–24.)
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Count IV: Harassment & Intentional Infliction of Emotional Distress (Id.
¶¶ 25–31.)
In their counterclaim, the Curells pray for an injunction, special damages, general
damages, attorneys’ fees and costs of suit, and any further relief that the court
deems just and proper. (Id. at 8.) In accord with Hawaii Revised Statute § 6631.3(a), the state court counterclaim does not specify the amount of damages sought.
The Insureds tendered the defense of the counterclaim to their
insurance carrier, State Farm Fire and Casualty Company (“Plaintiff” or “State
Farm”). (Doc. # 8 at 4.) State Farm issued a homeowners policy to the Insureds.
(Doc. # 12 at 3.) That policy, according to State Farm, includes liability coverage
for third-party claims with a liability limit of $1 million. (Id.) State Farm also
issued a personal umbrella liability policy to the Insureds. (Id.) According to the
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Insureds, State Farm accepted the defense of the counterclaim subject to a
reservation of rights. (Id. at 4.)
On August 9, 2011, State Farm brought this declaratory judgment
action against the Insureds seeking a determination that it has no duty to defend or
indemnify the Insureds against the underlying counterclaim brought by the Curells.
(“Compl.,” Doc. # 1.) In the Complaint, State Farm alleges that this Court has
jurisdiction pursuant to 28 U.S.C. § 1332 because “[t]here is complete diversity of
citizenship between the parties, and the amount in controversy herein exceeds
$75,000.” (Id. ¶¶ 3–4.)
On September 6, 2011, Defendants filed the instant Motion to Dismiss
for Lack of Subject Matter Jurisdiction. (“Mot.,” Doc. # 8.) On October 31, 2011,
Plaintiff filed a Memorandum in Opposition to the Motion. (“Opp’n.,” Doc. # 12.)
On November 7, 2011, Defendants filed a Reply in support of their Motion.
(“Reply,” Doc. # 13.)
STANDARD OF REVIEW
Pursuant to Federal Rule of Civil Procedure (“Rule”) 12(b)(1), a
defendant may move to dismiss a complaint for lack of subject matter jurisdiction.
In a motion to dismiss for lack of subject matter jurisdiction, the plaintiff bears the
initial burden of proving that subject matter jurisdiction exists. Robinson v. United
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States, 586 F.3d 683, 685 (9th Cir. 2009); Rattlesnake Coalition v. U.S. Env’t Prot.
Agency, 509 F.3d 1095, 1102 n. 1 (9th Cir. 2007). “In considering the jurisdiction
questions, it should be remembered that ‘it is a fundamental principle that federal
courts are courts of limited jurisdiction.’” Stock West, Inc. v. Confederated Tribes
of the Colville Reservation, 873 F.2d 1221, 1225 (9th Cir. 1989) (quoting Owen
Equip. & Erection Co. v. Kroger, 437 U.S. 365, 374 (1978)). Upon a motion to
dismiss, a party may make a jurisdictional attack that is either facial or factual.
Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). A facial
attack occurs when the movant “asserts that the allegations contained in a
complaint are insufficient on their face to invoke federal jurisdiction.” Id. By
contrast, a factual attack occurs when the movant “disputes the truth of the
allegations, that by themselves, would otherwise invoke federal jurisdiction.” Id.
When a defendant challenges jurisdiction “facially,” all material
allegations in the complaint are assumed true, and the question for the court is
whether the lack of federal jurisdiction appears from the face of the pleading itself.
See Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004); see also Meyer, 373
F.3d at 1039. “Unlike a Rule 12(b)(6) motion, however, the court will not
reasonably infer allegations sufficient to support federal subject matter jurisdiction
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because a plaintiff must affirmatively allege such jurisdiction.” Mason, 260 F.
Supp. 2d at 815.
DISCUSSION
Defendants contend that State Farm has failed to establish subject
matter jurisdiction. Specifically, based on the allegations in the underlying
counterclaim, Defendants assert that the amount in controversy does not exceed
$75,000 and therefore this Court does not have diversity jurisdiction over this
action.
Diversity jurisdiction extends to civil actions between citizens of
different States where the amount in controversy exceeds $75,000 exclusive of
interest and costs.1 28 U.S.C. § 1332(a)(1). In cases where the amount in
controversy is in doubt, “the Supreme Court has drawn a sharp distinction between
original jurisdiction and removal jurisdiction.” Gaus v. Miles, Inc., 980 F.2d 564,
566 (9th Cir. 1992) (citing St. Paul Mercury Indemnity Co. v. Red Cab Co., 303
U.S. 283, 288–90 (1938)). “Where the plaintiff originally files in federal court,
‘the amount in controversy is determined from the face of the pleadings.’”
Geographic Expeditions, Inc. v. Estate of Lhotka ex rel. Lhotka, 599 F.3d 1102,
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Defendants do not dispute that there is diversity of citizenship between the
parties.
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1106 (9th Cir. 2010) (quoting Crum v. Circus Circus Enterprises, 231 F.3d 1129,
1131 (9th Cir. 2000)). The amount in controversy alleged by the proponent of
federal jurisdiction–typically the plaintiff in the substantive dispute–controls so
long as the claim is made in good faith. Id. To justify dismissal in these cases, “it
must appear to a legal certainty that the claim is really for less than the
jurisdictional amount.” Id. (quoting Crum, 231 F.3d at 1131). Under the legal
certainty standard, “a federal court has subject matter jurisdiction unless ‘upon the
face of the complaint, it is obvious that the suit cannot involve the necessary
amount.’” Id. (quoting St. Paul Mercury, 303 U.S. at 292.
On the other hand, where a case that has been removed from state
court to federal court under 28 U.S.C. § 1441 on the basis of diversity jurisdiction,
the proponent of federal jurisdiction–typically the defendant in the substantive
dispute–has the burden to prove by a preponderance of the evidence, that removal
is proper. Id. at 1106–07. The preponderance of the evidence standard applies in
removal cases because “removal jurisdiction ousts state-court jurisdiction
and ‘must be rejected if there is any doubt as to the right of removal in the first
instance.’” Id. at 1107 (quoting Gaus, 980 F.2d at 566). However, the Ninth
Circuit has declined to extend the preponderance standard beyond the removal
context, even where the proponent of federal jurisdiction is the defendant in an
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underlying parallel state court proceeding. See, e.g., id. at 1107 (“Because a
parallel action to compel arbitration commenced in federal court does not oust state
court jurisdiction, the presumption against removal jurisdiction and attendant
preponderance of the evidence standard, found in removal cases, do not apply.”).
Here, State Farm commenced this action in federal court while the
underlying state court action was proceeding. However, unlike cases removed to
federal court, this declaratory judgment action does not completely preclude the
state court from adjudicating the underlying controversy. In short, it is “much less
intrusive on state court jurisdiction.” Id. Accordingly, the legal certainty standard
applies here.
In actions seeking declaratory or injunctive relief, “it is well
established that the amount in controversy is measured by the value of the object of
the litigation.” Chapman v. Deutsche Bank Nat. Trust Co., 651 F.3d 1039, 1045
n.2 (9th Cir. 2011) (quoting Hunt v. Wash. State Apple Adver. Comm’n, 432 U.S.
333, 347 (1977). In a declaratory relief action where “the applicability of []
liability coverage to a particular occurrence is at issue, the amount in controversy is
the value of the underlying potential tort action.” Budget Rent-A-Car, Inc. v.
Higashiguchi, 109 F.3d 1471, 1473 (9th Cir. 1997); accord Hartford Ins. Group v.
Lou-Con Inc., 293 F.3d 908, 911 (5th Cir. 2002) (“[I]n declaratory judgment cases
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that involve the applicability of an insurance policy to a particular occurrence, the
jurisdictional amount in controversy is measured by the value of the underlying
claim.”) (citation and internal quotation marks omitted).
As a general rule, attorneys’ fees are not included in determining the
amount in controversy for purposes of diversity jurisdiction because, normally, the
successful party does not collect attorneys’ fees in addition to or as part of the
judgment. Gald G/S v. JSS Scandinavia, 142 F.3d 1150, 1155 (9th Cir. 1998)
(internal quotation and citation omitted). However, there are “two logical
exceptions to this rule: one where the fees are provided for by contract, and two,
where a statute mandates or allows the payment of such fees.” Id. (internal
quotation and citation omitted).
In the context of a declaratory judgment action, whether the value of
an insurance company’s obligation to defend an underlying suit should be figured
into the amount in controversy calculation appears to be an open question in the
Ninth Circuit. However, several other circuits have held that such costs are
jurisdictionally relevant. See, e.g., Advance Watch Co., Ltd. v. Kemper Nat. Ins.
Co., 99 F.3d 795, 798 (6th Cir. 1996); Farmers Ins. Co. v. McClain, 603 F.2d 821,
823 (10th Cir. 1979) (stating that insurer’s potential losses can include the value of
its obligation to defend its insured in an underlying suit); Stonewall Ins. Co. v.
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Lopez, 544 F.2d 198, 199 (5th Cir. 1976) (concluding that the amount in
controversy in an action for declaratory relief included the “pecuniary value of the
obligation to defend a separate lawsuit”). District courts that have addressed the
issue are in accord. See, e.g., SUA Ins. Co. v. Classic Home Builders, LLC, 751 F.
Supp. 2d 1245, 1251 (S.D. Ala. 2010); Grange Mut. Cas. Co. v. Safeco Ins. Co. of
America, 565 F. Supp. 2d 779, 784 (E.D. Ky. 2008); RWN Development Group,
LLC v. Travelers Indem. Co. of Conn., 540 F. Supp. 2d 83, 89 (D.D.C. 2008).
The Court agrees with State Farm, and the other courts to have
addressed the issue, that the value of the insurance company’s obligation to defend
an insured in an underlying suit is relevant for purposes of measuring the amount
in controversy in an action for declaratory relief. To be sure, if State Farm were to
obtain a declaration from this Court stating that it has no duty to defend or
indemnify the Insureds, then it would be spared the expense of litigating the state
court action, and presumably, could recoup the litigation expenses it has already
absorbed. In sum, the Court is persuaded that State Farm’s defense obligation is at
issue in this litigation and thus the value of that obligation should be figured into
the amount-in-controversy calculus.
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“Under the legal certainty standard, the good faith allegations in [State
Farm’s Complaint] as to the amount in controversy suffice to establish the
jurisdictional amount unless it appears legally certain that the amount in dispute is
$75,000 or less.” Geographic Expeditions, 599 F.3d at 1107. State Farm’s
Complaint alleges that the amount in controversy exceeds $75,000. According to
State Farm, this allegation is based on the fact that the Currell’s counterclaim
seeks: (1) damages resulting from the alleged acts of negligence and nuisance, (2)
damages resulting from the alleged harassment and intentional infliction of
emotional distress, and (3) attorneys’ fees and costs in connection with their claim
for breach of the Hibiscus Acres Declaration of Covenants, Conditions and
Restrictions.2 State Farm has also taken into account the costs of defending the
Insureds through trial. Given the potential liability in the underlying lawsuit and
the potential costs of defending that action, it does not “appear to a legal certainty”
that the amount in controversy requirement is not satisfied.
In reaching this conclusion, the Court does not rely on Defendants’
contentions regarding the merits of the underlying counterclaims, including the
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The Court observes that, pursuant to Hawaii Revised Statute § 663-1.3, the
state counterclaim does not specify the amount of damages sought. However, this
does not preclude the application of the legal certainty test. See Geographic
Expeditions, 599 F.3d at 1107.
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applicability of any affirmative defenses. The amount in controversy is not the
same as the amount ultimately recovered. See Theis Research, Inc. v. Brown &
Bain, 400 F.3d 659, 664 (9th Cir. 2005) (“‘It is the amount in controversy which
determines jurisdiction, not the amount of the award.’”) (quoting American
Guaranty Co. v. Caldwell, 72 F.2d 209, 211 (9th Cir.1934)); Scherer v. The
Equitable Life Assurance Soc’y of the United States, 347 F.3d 394, 397–98 (2d
Cir. 2003) (“affirmative defenses asserted on the merits may not be used to whittle
down the amount in controversy”) (internal quotation and citation omitted); 14B
Charles A. Wright, Arther R. Miller, and Edward H. Cooper, Federal Practice and
Procedure § 3702 at 74 (3d ed. 1998) (“Even when the complaint discloses a valid
defense to the plaintiff’s action, the sum claimed by the plaintiff controls, since the
defendant may not assert that defense or may not ultimately prevail on it.”). In
short, Defendants’ arguments regarding various affirmative defenses do not inform
this Court’s determination as to the amount in controversy.
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CONCLUSION
Accordingly, for the reasons stated above, the Court DENIES
Defendants’ Motion to Dismiss for lack of subject matter jurisdiction. (Doc. # 8.)
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, December 2, 2011.
_____________________________
David Alan Ezra
United States District Judge
State Farm Fire and Casualty Co. v. Podoll, et al., CV No. 11-00486 DAE-KSC;
ORDER DENYING DEFENDANTS’ MOTION TO DISMISS FOR LACK OF
SUBJECT MATTER JURISDICTION
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