satisfy the requirements of diversity jurisdiction. See 28 U.S.C. § 1332. However, Republic
Franklin fails to plead the jurisdictional elements required for diversity jurisdiction. A
corporation is deemed a citizen of the state in which it is incorporated and the state where it has
its principal place of business. 28 U.S.C. § 1332(c)(1). The complaint contains no allegations of
the parties’ citizenship, nor does it allege the amount in controversy exceeds $75,000.

Republic Franklin did not invoke diversity jurisdiction until its motion for summary
judgment, but failed to satisfy the requirements of 28 U.S.C. § 1332. Jurisdiction cannot be
based on guesswork; a party must plead necessary jurisdictional facts such as citizenship and the
amount in dispute. See Ficke v. Johns, No. 95 C 939, 1996 WL 99424 at *8 (N.D.III. March 4,
1996); Boggs v. Adams, 45 F.3d 1056, 1059 n.7 (7th Cir. 1995) (“plaintiffs invoking diversity
jurisdiction must allege that the amount in controversy excceds ($75,000]”), Without
jurisdictional information, a determination that the parties are diverse is impossible. Republic
Franklin’s subsequent filings with the court cannot cure the complaint’s deficiencies. See
Perkins y, Silverstein, 939 F.2d 463, 470 n.6 (7th Cir. 1991) (responsive pleadings cannot amend
complaint to defeat a motion to dismiss), The motion for summary judgment fails to even
identify Republic Franklin’s principal place of business. See Ficke, 1996 WL 99424 at *8
(principal place of business must be alleged). In sum, Republic Franklin has failed to establish
there is federal jurisdiction over its claim.

2. Amount in Controversy

Federal jurisdiction is also precluded because the amount in controversy does not exceed

$75,000 as required by 28 U.S.C. § 1332. The court accepts Republic Franklin’s valuation

unless it “appears to a legal certainty that the claim is really for less than the jurisdictional



Republic Federal’s argues because federal jurisdiction was proper in Hudson’s underlying
case, a federal court may exercise jurisdiction over this declaratory judgment action. This
argument is flawed. Hudson’s suit arose under federal law, namely 28 U.S.C. § 1983, and was
not predicated on diversity jurisdiction. Republic Federal cannot invoke federal jurisdiction
simply because it claims its lawsuit is “ancillary or derivative” of Hudson’s original §1983
lawsuit. See Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 114 §.Ct. 1673 (1994) (action to
enforce settlement agreement requires independent basis for federal jurisdiction; the fact that
federal claims were settled and dismissed in the anteccdent litigation is insufficient). Courts may
assert ancillary jurisdiction when: (1) claims are factually interdependent, and (2) when the court
must exercise jurisdiction to vindicate its authority or manage its own proceedings. See id. at
377-79, 114 8.Ct. at 1674, see also 28 U.S.C, § 1367. The factual issues in Republic Federal’s
contract claim are strikingly different {rom the issues in Hudson’s § 1983 lawsuit, and this court
does not have jurisdiction over IIudson’s settlement agreement. Hudson’s case was dismissed
with prejudice. See id at 380-381, 114 S. Ct. al 1676-77 (dismissal pursuant to a settlement
agreement does not establish durable control). Absent continuing authority justifying the
invocation of ancillary jurisdiction, Republic Federal’s suit must have its own basis for federal
jurisdiction. Jd. at 377-79, 114 S.Ct. at 1674; see also Charles Alan Wright, Arthur R. Miller,
Edward H. Cooper, Federal Practice and Procedure, § 3523.1, (1984) (discussing the doctrine of
ancillary jurisdiction).

Republic Federal’s reliance on Board of Educ. of Comm. Consolidated School Dist. No.
168, Cook County, IL y. Republic Franklin Ins, Co., No. 02 C 5250, 2003 WL 22287384, *1

(N.D.II, Oct. 6, 2003), is misplaced. The fact that Republic Federal previously litigated a similar


expelling her son from school. Defendants incurred $6,120.00 in legal fees related to that
hearing. DeTella Aff. at 72, Defendants’ lawyers charged an additional $12,280.50 for
litigating the remainder of the case. Jd. at 93. Once the case settled, Hudson was required to
withdraw her claim. Accordingly, Hudson moved for voluntarily dismissal. The court granted
Iludson’s motion on June 9, 2003, dismissing the action with prejudice. See Defs’ Stat. of Add.
Facts, Ex. A.
DISCUSSION

This court has an independent obligation to ensure federal subject matter jurisdiction
exists in each case that comes before it. See St. Paul Mercury Indem, Co, v, Red Cab Co., 303
U.S, 283, 287 n.10, 58 8. Ct. 586 (1938). There are two obstacles to the exercise of federal
jurisdiction in this case. First, Republic Franklin failed to properly plead a basis for jurisdiction
in its complaint. Second, it is unclear whether the amount in controversy between Republic
Franklin and defendants exceeds $75,000 as required by 28 U.S.C. § 1332.
1, Failure to properly plead jurisdiction

Federal Rule of Civil Procedure 8(a)(1) requires Republic Franklin to submit “a short
plain statement of the grounds upon which the court's jurisdiction depends,” In the complaint,
Republic Federal asserts there is federal jurisdiction over this action pursuant to the Declaratory
Judgment Act, 28 U.S.C. § 2201. However, the Declaratory Judgment Act does not provide an
independent basis for federal jurisdiction and Republic Franklin’s suit does not otherwise arise
under federal law. See Hyatt International Corp., v. Coco, 302 F.3d 707, 711-12 (7th Cir. 2002);
Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure, §

2766, pp. 641-2 (3d ed. 1998). It is simply a state contract action. Thus, Republic Franklin must



amount.” St. Paul Mercury Indemnity Co., 303 U.S, at 289, 58 S. Ct. 586, However, defendants
challenge this allegation. Republic Franklin must therefore support its assertion of jurisdictional
amount with proof “establishing to a reasonable probability” jurisdiction exists. See Target
Market Publishing, Inc., v. ADVO, Inc., 136 F.3d 1139, 1141-42 (7th Cir. 1998); Smith v.
American General Life and Accident Insurance Company, Inc., 337 F.3d 888, 892-93 (7th Cir.
2003), citing St. Paul Mercury Indemnity Co., 303 U.S, 283, 289, 58 8. Ct. 586, 590 (1938).

To meet its burden, Republic Franklin must demonstrate the value of defendants’ claim
under the insurance policy exceeds $75,000. See id.; see also Chase v. Shop 'N’ Save
Wharehouse Foods, Inc., 110 F.3d 424, 427 (7th Cir. 1997), In a contract dispute, the general
rule is the amount in controversy is measured by the value of the contractual right that is the
subject matter of the suit. See Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal
Practice and Procedure, § 3702 p. 77 (3d ed, 1998). When an insurer seeks a declaration it is
not liable to the insured for coverage of an incident, it may include the value of the third party’s
claim, as well as the cost of defending the underlying suit, as part of the amount in controversy.
See Motorists Mut. Ins. Co, v. Simpson, 404 F.2d 511, 515 (7th Cir. 1968); American Std. Ins.
Co. of Wisconsin v, Rogers, 123 F. Supp.2d 461, 464 (S.D. Ind. 2000); Charles Alan Wright,
Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure, supra, § 3702
(approving inclusion of value of defense in the amount in controversy). However, Republic
Franklin’s case is distinguishable from the ordinary declaratory judgment action an insurer might
bring. The value of defendants’ claim was established before this case was filed. See American
Std. Ins. Co. of Wisconsin,, 123 F. Supp.2d at 465 (the amount in controversy was measured by

the value of judgment against insured party in underlying action); Gardynski-Leschuck v. Ford


claim in federal court does not confer federal jurisdiction over every suit for declaratory
judgment it files. Whether the amount in controversy is sufficient to warrant the exercise of
fedcral jurisdiction must be determined in each case. See Kokkonen, 511 US. at 379, 114 S.Ct.
1673. Morcover, Republic Franklin involved an insurance company’s duty to defend a claim in
an ongoing investigation by the Cook County Commission on Human Rights, as well as to
indemnify the policy holder for legal expenses incurred prior to notification of the insurance
company. The potential value of Republic Franklin’s defense was still in play. See 2003 WL
22287384 at *1. The underlying claim was settled before this case was filed. Even if Republic
Federal prevailed in this case, the value of its victory is no more than $43,360.50. This docs not
meet the requirements of 28 U.S.C. § 1332(a).

Republic Franklin argues dismissal would waste judicial resources. This argument
ignores a federal court’s duty to consider the limitations of its own jurisdiction. See Smith, 337
F.3d at 892-3 (court must raise subject matter jurisdiction deficiencies sua sponte); St. Paul
Mercury Indem. Co., 303 U.S. at 287 n.10, 58 S. Ct. 586.

CONCLUSION

Republic Franklin has failed to plead and prove essential jurisdictional facts.

Accordingly, the suit is dismissed for lack of subject matter jurisdiction. Hudson is dismissed

pursuant to Rule 4(m), Republic Franklin’s motion for summary judgment is moot.

December 5, 2003 ENTER:

Stepp  Gondin.

Suzarine Pf Conlon
United States District Judge



Minute Order Form (0697)

Art

United States District Court, Northern District of [linois

Name of Assigned Judge
or Magistrate Judge

Sitting Judge if Other

uzanne B, Conlon
8 eB, Co than Assigned Judge

CASE NUMBER 03 C 3439 DATE 12/5/2003
CASE REPUBLIC FRANKLIN INS. vs, COMMUNITY CONSOLIDATED SCHOOL
TITLE DIST. 168, et al.
[ln the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.)
DOCKET ENTRY:
(1) oO Filed motion of [ use listing in “Motion” box above.]
@) a Brief in support of motion due
(3) Oo Answer brief to motion due: Reply to answer brief due .
(4) Oo Ruling/Tearing on set for at
(5) a Status hearing[held/continued to] [set for/re-get for] on. _, Sot for at
(6) Oo Pretrial conference[held/continued to] [set for/re-set for] on set for at :
(7) o Trial[set for/re-set for] on at
(8) o [Bench/Jury trial] [Hearing] held/continued to at 7
(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to}
DOFRCP4(m) CLocal Rule 41.1 OOFRCP41(a)(1) OO FRCP41(a)(2).
ao) =f [Other docket entry] Defendant Carla Hudson is dismissed pursuant to Ped.R.Civ.P. 4(m). ‘The
case is dismissed without prejudice as to all remaining defendants. Plaintiff's motion for summary
judgment [10-1] is moot. ENTER MEMORANDUM OPINION AND ORDER.
peeps ia. Onder
al) ff [For further detail see order attached to the original minute order. |
No notices required, advised in open court,
No notices required. rumer of notices
wv | Notices mailed by judge’s staff. BEC 9 8 2003

Notified counsel by telephone.

Docketing to muil notices

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(25/2003

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Copy to judge/magistrute judge.

courtroom ta Ge O80 cu ate mailed puto
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Motor Co., 142 F.3d 955, 958 (7th Cir. 1998) (legal fees may count toward the amount in
controversy).

Republic Franklin has not established the cost of indemnifying defendants for their costs
in defending Hudson's case exceeds $75,000 to a “reasonable probability,” See Target Market
Publishing, Inc.,136 F.3d at 1139. Defendants argue the amount in controversy is only
$37,240.50. Hudson’s settlement agreement precludes future action against the insurer and
awards Hudson $25,000 for her claims. See Def’s Facts, Ex. A at 2 (settlement agreement);
Def’s Facts, Ex. B ($25,000 check made out to Hudson). The legal fees for defending Hudson’s
action were $12,240.50. DeTella Aff. at 13. Even with the addition of $6,120.00 in legal fees
incurred while defending ITudson’s request for a TRO, Republic Federal’s potential liability for
defendants’ underlying contract claim is only $42,360.50. See DeTella Aff, at 4 4; Defs’ Stat. of
Add. Facts, Ex. C. Thus, the value of defendants’ claim was liquidated for a sum far below the
required $75,000.01. Cf Barbers, Hairstyling for Men & Women, Inc., v, Bishop, 132 F.3d 1203,
1205 (7th Cir, 1998) (in the context of removal, when the amount a plaintiff may recover is hard-
capped at a value less than $75,000, the amount in controversy requirement is not satisfied).
Because the liquidated value of defendants’ claim for indemnification is only $42,360.50,
Republic Federal must point to some other potential injury that may increase the value of their
declaratory claim over the statulory threshold. Republic Franklin fails to cite to any provision in
the contract that may entitle defendants to damages exceeding the actual costs of Hudson’s suit.
Therefore, at the time this case was filed, the disputed amount did not meet the $75,000

jurisdictional requirement.



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

&.

SCHOOL DISTRICT 168, et al.,

Defendants.

REPUBLIC FRANKLIN INSURANCE, ) ANY

) &
Plaintiff, ) No, 03€ 3439 e°
)
v. 5) Suzanne B. Conlon, Judge

)

COMMUNITY CONSOLIDATED »)
)
)
)

MEMORANDUM OPINION AND ORDER

Republic Franklin Insurance (Republic Franklin) sues Community Consolidated School
District 168, Thomas E. Ryan, Rickover Junior High School, Rudy Williams, Michael
Mclaughlin, the Board of Education, and Louise Morales (collectively, “the defendants”), as
well as Carla Hudson as next friend of her son Michael Easton, to clarify its obligations under an
insurance contract. Republic Franklin seeks a declaration its insurance policy with defendants
does not obligate it to defend and/or indemnify defendants in a suit Mudson brought on her son’s
behalf, No, 02 C 1045, Hudson, et al., v. Comm. Cons. Dist. 168, et al, Republic Franklin moves
for summary judgment, arguing defendants’ failure to notify them of Hudson’s claim releases
them from performing on the contract, Republic Franklin did not file a return of service on
Hudson, nor has Hudson filed an appearance, Accordingly, Hudson is dismissed pursuant to

Fed.R.Civ.P. 4(mn).


BACKGROUND

In February 2002, Carla Hudson, as Michael Easton’s mother and next friend, sued
defendants for various violations of Easton’s constitutional rights. Anticipating defendants
would seek coverage under an insurance policy, Republic Franklin filed this suit for declaratory
judgment on May 22, 2003, seeking a determination it is not responsible for indemnifying
defendants for costs incurred while defending and settling Hudson’s lawsuit. See Defs’
36.1(B)(3)(A) Resp. at { 6; see also Wingenfeld Dep. at pg. 74-75 (explaining defendants sought
about $38,000 dollars for the costs of defending against Hudson’s claim). Hudson’s suit had
already settled on May 14, 2003 for $25,000. Def’ Stat. of Add. Facts, Ex. A.

At the time Hudson brought her claim, Republic Franklin was defendants’ insurer. Defs’
56.1()(3)(A) Resp. at ¢5. The insurance contract obligated Republic Franklin to defend and
indemnify defendants against third parties. Pl’s Motion for Summ. J., Ex, E, The agreement also
required defendants to provide Republic Franklin with notice of claims that might trigger
coverage as soon as it was practicable to do so. Jd, Defendants first notified Republic Franklin
of Hudson’s claim on November 27, 2002. Defs’ 56.1(b)(3)(A) Resp. at 13. Ina letter dated
January 20, 2003, Republic Franklin denied coverage for Hudson’s claim based on defendants’
failure to provide notice in accordance with the insurance policy’s requirements, Jd. at 7 14.

Defendants maintained their own defense until they settled Hudson’s claim. Defs’ Stat.
of Add. Facts, Ex. A; DeTella Aff. at 9] 1-4. The scttlement agreement precludes Hudson from
laking further action against defendants or their insurer. Jd. Prior to settlement, however,
defendants actively litigated the case. At the outset of their defense, defendants appeared at a

temporary restraining order hearing where Hudson successfully moved to enjoin defendants from