Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_08-cv-00745/USCOURTS-azd-2_08-cv-00745-0/pdf.json

Parties Involved:
American Family Mutual Insurance Company
Defendant
Audrie Reilly
Plaintiff

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Audrie Reilly,

Plaintiff, 

vs.

American Family Mutual Insurance

Company,

Defendant. 

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No. CV 08-0745-PHX-JAT

ORDER

Pending before the Court is Plaintiff Audrie Reilly’s Motion to Remand (Doc. #7).

Defendant American Family Mutual Insurance Company has filed a Response in Opposition

(Doc. #9), and Plaintiff filed a Reply (Doc. #12). Defendant then filed a Motion for Leave

to File Sur-Reply (Doc. #13). The Court now rules on these motions. 

I. Background

On August 27, 2005 at approximately 12:00 AM, Plaintiff was driving down U.S. 60

in Mesa Arizona when she collided with an unlit car that had been abandoned by a thief. She

sustained significant injuries as a result. At the time of the accident, Plaintiff was insured by

Defendant under a policy that provided uninsured motorist (“UM”) coverage. Plaintiff

requested the full policy limit of $50,000 for her injuries. Defendant offered to settle all

claims for $10,000 and made a payment to Plaintiff in this amount. Plaintiff contended that

her damages were far in excess of even the $50,000 policy limit, and on July 11, 2007 she

filed a Complaint in Maricopa County Superior Court alleging contract damages and breach

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of the covenant of good faith and fair dealing. 

The parties opted to bifurcate the claim and stay the bad faith proceedings while

conducting binding arbitration on the contract claim. Plaintiff stipulated that any

compensatory damages awarded by the arbitrators would be capped at the policy limit of

$50,000. The arbitration panel heard the contract case on February 21, 2008, and entered a

total compensatory award for Plaintiff of $290,000 after apportionment of fault. $100,000

had already been paid to Plaintiff through another insurance policy, so the remaining award

was for $190,000. The judgment against Defendant was then capped at the policy limit of

$50,000 less the $10,000 already disbursed.

Following payment of the judgment by Defendant, Plaintiff filed a Motion to Lift Stay

so that she could pursue her remaining bad faith claim. Defendant then filed its Notice of

Removal to the United States District Court. Plaintiff filed the present Motion to Remand

contending that the United States District Court has no diversity jurisdiction over this claim,

as Defendant has failed to prove that the amount in controversy exceeds $75,000.

II. Legal Standards

Pursuant to 28 U.S.C. § 1332, “district courts shall have original jurisdiction of all

civil actions where the matter in controversy exceeds the sum or value of $75,000,

exclusive of interests and costs, and is between . . . citizens of different States[.]”

28 U.S.C. § 1332(a)(1).

The removal statute, 28 U.S.C. § 1441, provides in pertinent part: “[A]ny civil action

brought in a State court of which the district courts of the United States have original

jurisdiction, may be removed by the defendant . . . to the district court of the United States

for the district and division embracing the place where such action is pending.” 28 U.S.C.

§ 1441(a); see Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 (1987) (“Only . . . actions that

originally could have been filed in federal court may be removed to federal court by the

defendant.”). Courts strictly construe the removal statute against removal jurisdiction. See

Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09 (1941); Gaus v. Miles, Inc., 980

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F.2d 564, 566 (9th Cir. 1992). There is a “strong presumption” against removal, and

“[f]ederal jurisdiction must be rejected if there is any doubt as to the right of removal in the

first instance.” Gaus, 980 F.2d at 566 (citing Libhart v. Santa Monica Dairy Co., 592 F.2d

1062, 1064 (9th Cir. 1979). 

“The ‘strong presumption’ against removal jurisdiction means that the defendant

always has the burden of establishing that removal is proper.” Id. “In a removed case, . . .

the plaintiff chose a state rather than federal forum. Because the plaintiff instituted the case

in state court, ‘there is a strong presumption that the plaintiff has not claimed a large amount

in order to confer jurisdiction on a federal court[.]’” Singer v. State Farm Mut. Auto. Ins. Co.,

116 F.3d 373, 375 (9th Cir. 1997) (quoting St. Paul Mercury Indem. Co. v. Red Cab Co., 303

U.S. 283, 290 (1938)). 

“Where the complaint does not demand a dollar amount, the removing defendant bears

the burden of proving by a preponderance of the evidence that the amount in controversy

exceeds [$75,000].” Id. at 376 (citing Sanchez v. Monumental Life Ins. Co., 102 F.3d 398,

404 (9th Cir. 1996). “Under this burden, the defendant must provide evidence establishing

that it is ‘more likely than not’ that the amount in controversy exceeds [$75,000].” Sanchez,

102 F.3d at 404. “[R]emoval ‘cannot be based simply upon conclusory allegations’ where

the [complaint] is silent” as to the dollar amount of damages the plaintiff seeks. Singer, 116

F.3d at 377 (citing Allen v. R&H Oil & Gas Co., 63 F.3d 1326, 1335 (5th Cir. 1995)). “If at

any time before final judgment it appears that the district court lacks subject matter

jurisdiction, the case shall be remanded.” 28 U.S.C. § 1447(c). 

III. Discussion

A. Motion to Remand

“Arizona’s rules of civil procedure bar plaintiffs from stating a ‘dollar amount or

figure for damages’ when ‘pursuing a claim other than for a sum certain or for a sum which

can by computation be made certain.’” Valdez v. Allstate Ins. Co., 372 F.3d 1115, 1117 (9th

Cir. 2004) (quoting Ariz. R. Civ. P. 8(g)). Thus, Plaintiff’s Complaint cannot and does not

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specify an amount of damages on its face. Defendant is therefore required to “prove, by a

preponderance of the evidence, that the amount in controversy meets the jurisdictional

threshold.” Matheson v. Progressive Specialty Ins. Co., 319 F.3d 1089, 1090 (9th Cir 2003)

(internal citations omitted). The amount in controversy can include general damages, special

damages, punitive damages, and attorney’s fees. Gibson v. Chrysler Corp., 261 F.3d 927,

945 (9th Cir. 2001); Galt G/S v. JSS Scandinavian, 1421 F.3d 1150, 1156 (9th Cir. 1998).

Evidence considered in the evaluation of damages can include facts in the removal

petition and any “summary-judgment-type evidence relevant to the amount in controversy

at the time of the removal.” Matheson, 319 F.3d at 1090 (internal citations and quotations

omitted). A court may also consider jury verdicts in similar cases. Burk v. Med. Sav. Ins.

Co., 348 F. Supp. 2d 1063, 1069 (D. Ariz. 2004). Since here the issue of compensatory

damages has already been resolved via the binding arbitration, Defendant must prove by a

preponderance of the evidence that the remaining bad faith damages together with the

requested attorney’s fees would exceed $75,000 if awarded.

Defendant claims that Plaintiff is seeking the recovery of the unpaid portion of the

arbitration award in the amount of $140,000. (Notice of Removal at ¶ 2.) Plaintiff counters

that she cannot possibly be seeking this amount since she already stipulated that recovery of

the arbitration award would be capped at the insurance policy limits. (Pl.’s Mot. to Remand

at 2.) The evidence that Defendant offers to meet its burden of proof consists of: (1) a quote

from Plaintiff’s Motion to Lift Stay; and (2) an alleged settlement offer from Plaintiff.

In its Notice of Removal, Defendant offers the following quote from Plaintiff’s

Motion to Lift Stay in support of its contention that the amount in controversy is met: “‘Even

after allowing American Family an offset for the $100,000 in UM benefits previously paid

by another insurer, American Family’s responsibility is $190,000.00, . . . !’” (Notice of

Removal at 2.) Although this excerpt from Plaintiff’s Motion does appear at first glance to

be a demand for the full arbitration amount, this conclusion is far from obvious once the

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The relevant portion of Plaintiff’s Motion to Lift Stay reads:

On February 21, 2007, the arbitration panel rendered a decision in favor of Plaintiff

finding her full damages, before the apportionment of fault, to be $386,667.00. The

arbitrators found Plaintiff’s degree of fault to be 25% and therefore awarded Plaintiff

a total of $290,000.00. (Exhibit 1). This amount is 29 times American Family’s offer

of $10,000. Even after allowing American Family an offset for the $100,000.00 in

UM benefits previously paid by another insurer, American Family’s responsibility is

$190,000.00, 19 times greater than its top offer! Plaintiff had a $50,000.00 UM

policy with American Family, of which American Family tendered $10,000.00.

Plaintiff submitted a form of Judgment for the UM claim, which this court signed

April 1, 2008.

Now that Plaintiff has set the value of her claim through an arbitration panel, and

proved that American Family’s offer was an [sic] low-ball offer similar to the conduct

of State Farm in Zilisch v. State Farm, Plaintiff requests that the Court enter its order

lifting the Stay so that Plaintiff may proceed with her bad faith claim.

(Pl.’s Mot. to Lift Stay at 2-3.)

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quote is read within the full context of the Motion.1

 

Indeed, Plaintiff contends that this assertion was not a reflection of what she believed

the value of her claim to be. Rather, the statement was included to lend support to the overall

legitimacy of her bad faith claim. The comment was included in her Motion to Lift Stay,

which suggests that Plaintiff was simply using it as support for the position that the Superior

Court should “lift the stay” on her bad faith claim. The disparity between the arbitration

award and the initial settlement offer by Defendant may be evidence that Defendant acted

in bad faith and that Plaintiff’s claim is not frivolous. However, the award is not necessarily

indicative of what the jury would determine the amount of damages to be if they found in

Plaintiff’s favor. The arbitration award was for compensatory damages only, and these

damages were capped at the policy limit as stated above. It will be for the jury to determine

the amount of bad faith damages, if any. Presently these damages are still speculative, and

the arbitration award does not alone show that they are more likely than not to exceed

$75,000.

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Defendant also alleges that Plaintiff made a settlement offer for the full amount of the

arbitration award. “A settlement letter is relevant evidence of the amount in controversy if

it appears to reflect a reasonable estimate of the plaintiff’s claim.” Cohn v. Petsmart, Inc.,

281 F.3d 837, 840 (9th Cir. 2002) (citing Chase v. Shop ‘N Save Warehouse Foods, Inc., 110

F.3d 424, 428-30 (7th Cir. 1997)). However, Plaintiff’s alleged offer is not a settlement

“letter” since it does not appear that it was ever put in writing. The sole evidence that this

offer was even made is an affidavit from one of Defendant’s own attorneys, Lynn Allen.

This affidavit relates Ms. Allen’s interpretation of a telephone conversation that she had with

Plaintiff’s attorney. Ms. Allen states that she “unequivocally understood the phone call . .

. to have been a settlement/demand offer in the amount of $140,000.” (Allen Aff. at ¶ 9.)

Plaintiff claims that this story “departs so drastically from the actual conversation” that it

must be “a concocted story in an attempt to achieve federal jurisdiction.” (Pl.’s Reply

Supporting Mot. to Remand at 3.)

Thus, the only remaining evidence that the amount in controversy is likely to exceed

$75,000 is an affidavit whose factual basis is disputed. Defendant has not offered any further

evidence, such as verdicts in analogous jury cases to show that the amount in controversy

comes close to this figure. Therefore, Defendant has failed to establish by a preponderance

of the evidence that the amount of controversy in the present case exceeds $75,000.

B. Plaintiff's Request for Attorney’s Fees

Finally, Plaintiff requests attorney’s fees on the grounds that Defendant lacked an

“objectively reasonable basis” to remove the case. “Absent unusual circumstances, courts

may award attorney's fees under [28 U.S.C.] § 1447(c) only where the removing party lacked

an objectively reasonable basis for seeking removal. Conversely, when an objectively

reasonable basis exists, fees should be denied.” Martin v. Franklin Capital Corp., 546 U.S.

132, 141 (2005). “The appropriate test for awarding fees under § 1447(c) should recognize

the desire to deter removals sought for the purpose of prolonging litigation and imposing

costs on the opposing party, while not undermining Congress’ basic decision to afford

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defendants a right to remove.” Id. at 140. 

While Defendant may have failed to meet its burden of proof, the Court does not find

that Defendant necessarily lacked an objectively reasonable basis for removal. If Defendant

did indeed interpret its telephone exchange with Plaintiff as a settlement offer in the amount

of $140,000 it is entirely possible that Defendant assumed that its representation of the phone

call would not be contested by Plaintiff. 

Further, there is no evidence that Defendant has used removal as a delay or costimposing tactic. Certainly, time is of the essence in a bad faith insurance claim where

excessive delay may already have been imposed. However, awarding costs for what could

have been a simple misunderstanding of a party’s intent may over-deter an out of state party

from obtaining the protection of the federal forum to which he is entitled. Accordingly,

Plaintiff’s request for attorney’s fees is denied. 

For the foregoing reasons,

IT IS ORDERED that Plaintiff’s Motion to Remand (Doc. # 7) is GRANTED in part

and DENIED in part consistent with this Order;

IT IS FURTHER ORDERED that this case be remanded to the Maricopa County

Superior Court.

IT IS FURTHER ORDERED that Defendant’s Motion for Leave to File Sur-Reply

(Doc. #13) is DENIED as moot.

DATED this 21st day of July, 2008.

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