Prime Insurance Company v. XXXV Club et al

Filing 16

MEMORANDUM DECISION AND ORDER TO SHOW CAUSE: Alana must submit the documents and evidence requested in this Order no later than April 4, 2025. Otherwise, the court will remand the case to state court. Signed by Judge Jill N. Parrish on 3/5/25. (dle)

Case 2:25-cv-00021-JNP

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH

PRIME INSURANCE CO.,
Plaintiff,

MEMORANDUM DECISION AND
ORDER TO SHOW CAUSE

v.
Case No. 2:25-cv-00021-JNP
XXXV CLUB and ALANA, INC.,
District Judge Jill N. Parrish
Defendants.

Defendant Alana, Inc., operates a gentlemen’s club (Defendant XXXV Club) in New
Jersey and received commercial liability and assault and battery insurance coverage from Plaintiff
Prime Insurance Company. During the coverage period, a patron at the Club was allegedly
assaulted, and Prime Insurance was notified that the patron had filed a claim against Alana in New
Jersey state court. Prime Insurance, which is currently providing a defense to Alana in that
underlying action, brought suit in Utah state court seeking a declaration that Alana’s insurance
policy does not cover the patron’s claim, and that Prime Insurance accordingly has no obligation
to indemnify Alana and may withdraw from its ongoing defense in the New Jersey case. Alana
timely filed a notice of removal under 28 U.S.C. §§ 1332, 1441, and 1446.
As explained below, the court cannot discern whether it has diversity jurisdiction over this
action. Accordingly, the court ORDERS Alana to allege its corporate form, principal place of
business (as applicable), and the identity and citizenship of every individual or entity whose
citizenship may be attributed to it (as applicable), and further ORDERS Alana to prove by a
preponderance of the evidence that the amount in controversy is greater than $75,000.

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ANALYSIS
Although Prime Insurance has not filed a motion to remand, the court “must, sua sponte,
satisfy itself of its power to adjudicate in every case and at every stage of the proceedings.” State
Farm Mut. Auto. Ins. Co. v. Narvaez, 149 F.3d 1269, 1270–71 (10th Cir. 1998). Here, Alana
invokes the court’s diversity jurisdiction. Diversity jurisdiction requires complete diversity of
citizenship and an amount in controversy greater than $75,000. 28 U.S.C. § 1332(a). The court is
not satisfied that either requirement is met here.
As to the first requirement, Alana has not alleged facts sufficient to discern its own
citizenship. According to Prime Insurance’s complaint, Alana is a limited liability company with
its principial place of business in New Jersey; according to the allegations in Alana’s notice of
removal, it is a New Jersey corporation owned entirely by New Jersey residents. The court orders
Alana to clarify its business structure. If it is a corporation, then it must allege its principal place
of business. (Presumably, it is New Jersey, but it still must be alleged.) See Daimler AG v. Bauman,
571 U.S. 117, 137 (2014) (explaining that a corporation is domiciled in its place of incorporation
and principal place of business). If instead Alana is an LLC, it must allege the identity and domicile
of every member because an LLC is domiciled in every state in which its members are domiciled.
Siloam Springs Hotel, L.L.C. v. Century Sur. Co., 781 F.3d 1233, 1234 (10th Cir. 2015). If Alana’s
members turn out to be LLCs or other unincorporated entities, Alana must allege the identity and
citizenship of each member or partner of each of the Alana members.
As to the amount-in-controversy requirement, since Prime Insurance’s complaint does not
disclose the amount in controversy, Alana must prove by a preponderance of the evidence that the
amount in controversy exceeds $75,000. McPhail v. Deere & Co., 529 F.3d 947, 953 (10th Cir.
2008). The most Alana offers is its counsel’s statement in the notice of removal, “[I]t is my
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understanding and belief that the damages being demanded far exceed the jurisdictional threshold
of this court.” ECF No. 5, at 2. This statement does not prove by a preponderance that over $75,000
is in controversy.
The court is sympathetic to the quandary in which defendants like Alana may find
themselves. To explain, 28 U.S.C. § 1446(b)(1) gives the defendant in a state proceeding 30 days
from receiving the plaintiff’s initial pleading to remove the action to federal court as of right if the
action is one that could have been originally brought in federal court (e.g., under federal-question
jurisdiction or diversity jurisdiction). When the defendant seeks to remove the case and invokes
the federal court’s diversity jurisdiction, the defendant must prove by a preponderance of the
evidence that the amount in controversy exceeds $75,000. McPhail, 529 F.3d at 953. However,
state rules sometimes either allow the plaintiff to omit an amount of damages in the pleadings or
prohibit the plaintiff from specifying an amount of damages altogether. In such cases, the amount
in controversy may not be evident from the face of the complaint, making it difficult for the
defendant to determine whether the federal court would have diversity jurisdiction over the action
and therefore making it difficult for the defendant to choose how to proceed.
On the one hand, if the defendant promptly removes the case, he runs the risk that the
plaintiff may assert an amount just under the jurisdictional threshold to force the case back to state
court or that the plaintiff may move for sanctions under Rule 11 of the Federal Rules of Civil
Procedure. On the other hand, if the defendant uses discovery in state court to ascertain the amount
of damages before filing a notice of removal, he risks the expiration of his 30-day removal period.
Granted, § 1446(b)(3) provides a safe harbor in those cases where the action as originally filed is
not removable but the defendant later learns through an amended pleading or other document that
the case is removable; in those situations, the defendant has 30 days from when he could have first
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ascertained that the action is removable to file his notice of removal. But a defendant who relies
on § 1446(b)(3) runs the risk that the federal court may determine that the action as originally filed
contained enough facts for the defendant to prove the amount in controversy by a preponderance
of the evidence, in which case the court would remand the case to state court. See, e.g., McCraw
v. Lyons, 863 F. Supp. 430, 435 (W.D. Ky. 1994).
Defendants caught in this quagmire would do well to read carefully the Tenth Circuit’s
opinion in McPhail v. Deere & Co., 529 F.3d 947, 952–57, and the district judge’s opinion in
McCraw v. Lyons, 863 F. Supp. 430. Those carefully reasoned decisions provide helpful guidance
on how a defendant can prove the amount in controversy (and thereby determine whether the action
as originally filed is removable). The court summarizes their guidance here.
First, the burden to prove that the jurisdictional threshold is satisfied by a preponderance
of the evidence is only “moderate”—that is, it is “not a heavy burden.” McCraw, 863 F. Supp. at
434–35. So, a defendant’s good-faith efforts to show that the jurisdictional threshold is satisfied
will rarely be met with sanctions. Further, the defendant has a variety of options to satisfy his
burden. The defendant may “rely on an estimate of the potential damages from the allegations in
the complaint.” McPhail, 529 F.3d at 955. For example, he may reasonably estimate that the tort
recovery for “alleged damages for property, travel expenses, an emergency ambulance trip, a six
day stay in the hospital, pain and suffering, humiliation, and [a] temporary inability to do
housework” will exceed $75,000. Id. at 956 (quoting Luckett v. Delta Airlines, Inc., 171 F.3d 295,
298 (5th Cir. 1999)). Or the defendant may rely on documents like affidavits or other evidence
probative of how much it would cost to satisfy the plaintiff’s demands. The defendant may also
point to “documents that demonstrate [the] plaintiff’s own estimation of [his] claim,” such as a
proposed settlement by the plaintiff. Id.
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This list is not exhaustive; it simply enumerates several of the most common ways a
defendant may satisfy his burden of proving the amount in controversy when faced with a silent
complaint. But in any event, the defendant must do more than submit an unsworn statement from
his attorney that in his estimation the damages sought exceed the jurisdictional threshold.
CONCLUSION AND ORDER
For the foregoing reasons, the court ORDERS Alana to file a document with the court
alleging its business form and depending on its business form, alleging its principal place of
business (if it is a corporation) or the identity and citizenship of every individual or entity whose
citizenship may be ascribed to it (if it is an LLC). The court also ORDERS Alana to submit
evidence sufficient for the court to find by a preponderance of the evidence that the amount in
controversy exceeds $75,000. Alana must submit the document and evidence no later than April
4, 2025. Otherwise, the court will remand the case to state court.

Signed March 5, 2025.
BY THE COURT

______________________________
Jill N. Parrish
United States District Court Judge

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