Republic Vanguard Ins. Co. v. Russell

REPUBLIC VANGUARD INSURANCE COMPANY, Plaintiff, v. JAMEY RUSSELL, et al., Defendants.

Case No.: 2:20-CV-1317-RDP

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ALABAMA SOUTHERN DIVISION

March 2, 2021

MEMORANDUM OPINION

Plaintiff Republic Vanguard Insurance Company ("Vanguard Insurance") filed this declaratory judgment action against Defendants Jamey Russell d/b/a Atrium Inspection Services ("Atrium Inspection"), Michael Henderson, and Rachel Henderson. (Doc. # 1). Plaintiff seeks a declaration that the policy it issued to Atrium Inspection provides no coverage for the claims asserted by Michael and Rachel Henderson ("the Hendersons") against Atrium Inspection in the parallel matter Henderson v. Russell d/b/a Atrium Inspection Services, No. 01-CV-2020-902252 (Ala. Jefferson Cty. Ct.). After careful review, the court concludes that this case is due to be dismissed because, as described below, the amount-in-controversy is less than $75,000 and, in the alterative, the court declines to exercise its jurisdiction under statute to hear this matter.

I. Factual and Procedural Background

This federal case evolved from a state case filed by the Hendersons against Atrium Inspection in the Circuit Court of Jefferson County, Alabama. (Doc. # 1-2). In that case, the Hendersons alleged that in March 2019 they hired Atrium Inspection to perform a pre-purchase inspection of a Craftsman-style house located in Jefferson County. (Doc. # 1-2 ¶¶ 7-9). Although Atrium Inspection provided the Hendersons with an inspection report, the Hendersons claim that the inspection report failed to identify defects and building code violations in the house related to, among other things, water intrusion and rotten wood. (Doc. # 1-2 ¶ 10). Unaware of these defects and building code violations, the Hendersons purchased the house in April 2019 and allege that they discovered the defects and building code violations only upon moving into the house. (Doc. # 1-2 ¶ 11). The Hendersons maintain that the cost of repairing the house to correct the various defects and building code violations will exceed $50,000. (Doc. # 1-2 ¶ 14). In their state suit against Atrium Inspection, the Hendersons alleged, among other claims, counts of breach of contract and fraudulent misrepresentation. (Doc. # 1-2 ¶¶ 28-35, 42-48).

After the Hendersons filed suit in state court, Atrium Inspection requested that Vanguard Insurance defend and indemnify it in the state suit pursuant to an insurance policy it had entered into with Vanguard Insurance. (Doc. # 1 ¶ 32).¹ Vanguard Insurance then filed this declaratory action to "determine the rights, duties, status, and legal rights under the insurance policy." (Doc. # 1 ¶ 1). Before this court, Vanguard Insurance maintains that it is not obligated to defend or indemnify Atrium Inspection because the insurance policy provides coverage only for inspections conducted pursuant to valid inspection agreements. (Doc. # 1 ¶ 39). And, according to Vanguard Insurance, Atrium Inspection did not enter into a valid inspection agreement with the Hendersons because Atrium Inspection left blank a number of lines on the inspection agreement including the address of the property to be inspected, the services desired, and the fee to be paid for those services. (Doc. # 1 ¶ 16).

On January 14, 2021, the court held an in-person hearing with the parties to discuss settling the case. At that hearing, the court was up front with the parties. It cautioned them that there were serious questions about whether the amount-in-controversy requirement was met in this case and, further, in any event, under the Declaratory Judgment Act ("the Act") there were reasons why the court should exercise its discretion to dismiss this federal action. In the event the parties failed to resolve the case through settlement discussions, the court informed the parties it would undertake that analysis. The parties were unable to agree on a resolution of the matters, so the court ordered the parties to brief (1) whether Vanguard Insurance's federal suit satisfies the amount-in-controversy requirement and (2) whether the court should use its discretion under the Act to dismiss the case. (Doc. # 16). On February 11, 2021, the parties filed briefing on these issues. (Docs. # 17, 18, 19).

II. Jurisdictional Analysis

Federal courts are courts of limited rather than general jurisdiction. Aldinger v. Howard, 427 U.S. 1, 15 (1976). "A federal district court is under a mandatory duty to dismiss a suit over which it has no jurisdiction." Se. Bank, N.A. v. Gold Coast Graphics Grp. Partners, 149 F.R.D. 681, 683 (S.D. Fla. 1993) (citing Stanley v. Cent. Intelligence Agency, 639 F.2d 1146, 1157 (5th Cir. 1981); Marshall v. Gibson's Prods., Inc. of Plano, 584 F.2d 668, 671-72 (5th Cir. 1978)). While it is true that a district court may rely on "reasonable deductions, reasonable inferences, or other reasonable extrapolations" in determining whether a complaint meets the amount-in-controversy requirement, such deductions and inferences must be based on actual evidence as opposed to pure conjecture. Pretka v. Kolter City Plaza II, Inc., 608 F.3d 744, 754 (11th Cir. 2010). And, it is a plaintiff's burden to prove the amount-in-controversy requirement has been satisfied. Federated Mut. Ins. v. McKinnon Motors, 329 F.3d 805, 807 (11th Cir. 2003).

"The [Act] does not, of itself, confer jurisdiction upon the federal courts. Rather, a suit brought under the Act must state some independent source of jurisdiction." FEC v. Reform Party of U.S., 479 F.3d 1302, 1307 n.5 (11th Cir. 2007) (per curiam) (citing Borden v. Katzman, 881 F.2d 1035, 1037 (11th Cir. 1989)). Republic Vanguard asserts that jurisdiction in this case is provided by 28 U.S.C § 1332(a), which bestows on federal courts jurisdiction over parties who are completely diverse in citizenship to one another and whose claims exceed the statutorily prescribed amount in controversy of $75,000, exclusive of interest and costs. (Doc. # 1 ¶ 16). The parties in the federal case are completely diverse. And, according to Vanguard Insurance, the amount-in-controversy requirement is met in the federal case by aggregating the duties to defend and indemnify (which Vanguard Insurance estimates at $33,000 and $50,000 respectively). (Doc. # 17 at 3-4). Atrium Inspection and the Hendersons assert, however, that Vanguard Insurance has not satisfied the amount-in-controversy requirement because, in evaluating the amount in controversy, this court should exclude the duty to indemnify because that claim is not yet ripe. (Docs. # 18 at 4-5, 19 at 2-4).

"Ordinarily, a plaintiff need only plead an amount sufficient to satisfy the amount-in-controversy requirement in good faith[,]" and that amount "will be second guessed only if it 'appear[s] to a legal certainty that the claim is really for less than the jurisdictional amount.'" Fastcase, Inc. v. Lawriter, LLC, 907 F.3d 1335, 1342 (11th Cir. 2018) (alteration in original) (citations omitted). See St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288 (1938) ("It must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal."). "However, where jurisdiction is based on a claim for indeterminate damages, the Red Cab Co. 'legal certainty' test gives way, and the party seeking to invoke federal jurisdiction bears the burden of proving by a preponderance of the evidence that the claim on which it is basing jurisdiction meets the jurisdictional minimum." Federated Mut. Ins. Co., 329 F.3d at 807 (citing Tapscott v. MS Dealer Serv. Corp., 77 F.3d 1353, 1356-57 (11th Cir. 1996), abrogated on other grounds by Cohen v. Office Depot, Inc., 204 F.3d 1069, 1072-77 (11th Cir. 2000)). A claim for damages is indeterminate when the complaint does not allege a specific amount of damages. Id. at 808 (citing St. Paul Reinsurance Co. v. Greenberg, 134 F.3d 1250, 1253 (5th Cir. 1998)).

Here, applying the preponderance-of-the-evidence standard is appropriate. Vanguard Insurance's Complaint estimates the damages sought in the underlying state suit and its anticipated costs in defending that suit. (Doc. # 1 ¶ 9). As such, Vanguard Insurance has not alleged a specific amount of damages that would invoke the legal certainty standard. See SUA Ins. Co. v. Classic Home Builders, LLC, 751 F. Supp. 2d 1245, 1248 (S.D. Ala. 2010) (citation omitted) (concluding the "preponderance-of-the-evidence standard applies to declaratory judgment actions brought in federal court by an insurer" because "a declaratory judgment plaintiff does not seek damages at all and thus does not seek a determinate amount of damages").

As this is an action for declaratory relief, "[t]he value of ... [the] declaratory relief for amount in controversy purposes is the monetary value of the object of the litigation that would flow to the plaintiffs if the [relief] were granted." Leonard v. Enterprise Rent a Car, 279 F.3d 967, 973 (11th Cir. 2002) (citing Ericsson GE Mobile Communications v. Motorola Communications & Elecs., 120 F.3d 216, 218 (11th Cir. 1997)). Where, as here, "the plaintiff seeks a judgment declaring the absence of a duty to defend or indemnify, the amount in controversy is generally measured by the insurer's potential liability to indemnify under the policy plus the insured's cost to defend the underlying action." New Hampshire Indem. Co. v. Scott, No. 8:11-cv-943-T-23MAP, 2012 WL 6537098, *1 (M.D. Fla. Dec. 14, 2012) (citing Stonewall Ins. v. Lopez, 544 F.2d 198, 199 (5th Cir. 1976)).

However, in calculating the amount in controversy, courts may not consider damages sought resulting from unripe causes of action.² How the amount in controversy is calculated is of particular relevance here because the duties to defend and indemnify are treated differently for purposes of ripeness.

An insurance company's "duty to defend is ... broader than the duty to pay, arises well before any duty to pay is...