United States District Court, N.D. Illinois
April 19, 2004.
AMERICAN ECONOMY INSURANCE COMPNAY, INC., Plaintiff,
T.J. COPY PRODUCTS, INC., et al., Defendants
The opinion of the court was delivered by: BLANCHE MANNING, District Judge
MEMORANDUM AND ORDER
Plaintiff American Economy Insurance seeks a declaratory judgment
regarding its duty to indemnify and defend its insured, defendant T.J.
Copy Products, in two state court actions. Defendant Eclipse
Manufacturing, one of the plaintiff's in the state court actions and a
defendant in this action, seeks to dismiss the complaint, contending that
American Economy has failed to establish that the amount in controversy
exceeds $75,000. The court agrees and thus grants the motion to dismiss.
This court can exercise diversity jurisdiction over this declaratory
judgment action only if the opposing sides are citizens of different
states and the amount in controversy exceeds $75,000. See 28 U.S.C. § 1332.
Dismissal of a complaint based on failure to satisfy the amount in
controversy is proper only if it appears to a legal certainty that less
than $75,000 is at issue. See, e.g., Target Market Publishing, Inc. v.
Advo, Inc., 136 F.3d 1139, 1141 (7th Cir. 1998), citing St. Paul Mercury
Indemnity Co. v. Red Cab Co., 303 U.S. 283, 290 (1938). When a defendant
challenges the amount in controversy, the plaintiff must submit
"competent proof that the amount in controversy exceeds $75,000. See
Target Mkt. Publishing, Inc. v. ADVO, Inc., 136 F.3d at 1142. "Competent proof means proof to a reasonable
probability that jurisdiction exists." Rexford Rand Corp. v. Ancel,
58 F.3d 1215, 1218 (7th Cir. 1995).
Eclipse asserts that there is no reasonable probability that at least
$75,000 is at issue because: (1) American Economy's indemnification claim
is premature and thus does not count towards the amount in controversy;
and (2) there is no reasonable probability that American Economy's
attorneys' fees will exceed $75,000. Unsurprisingly, American Economy
disagrees. It also contends that the amount in controversy substantially
exceeds $75,000 because the underlying state court cases, which are
styled as class actions on behalf of over 1,000 members, seek at least
$500 per member.
With respect to its indemnification claim, American Economy takes issue
with this court's recent decision in Ohio Casualty Insurance Company v.
Lower Forty Gardens, Inc., No. 03 C 4726, 2003 WL 22849142 (N.D. Ill.
Dec. 1, 2003). According to American Economy, when a plaintiff seeks
declaratory relief, the amount in controversy is the value of the
litigation from either the plaintiff or the defendant's perspective.
See, e.g., International Gateway Communications, Inc. v. Communication
Telesystems International, Inc., 922 F. Supp. 122, 124-25 (N.D. Ill.
1996). This rule, however, is only applicable if the court is attempting
to assess how much an actual case or controversy is potentially worth. If
there is no case or controversy, there is nothing to value.
Thus, in Lower Forty Gardens, the court explained:
It is well established that "a declaratory judgment
seeking indemnification rights is not ripe for
adjudication until the underlying lawsuit has first
determined and defined liability." Lear Corp. v.
Johnson Electric Holdings, Ltd., No. 02 C 6704, 2003
WL 21254253 *3 (N.D. Ill. May 30, 2003) (collecting
cases). Here, the state court has not determined if
Lower Forty is liable. The indemnification claim is,
therefore, premature. See id. This means that it
cannot count towards the amount in controversy as it is not ripe, and may never
be ripe, for adjudication. See Solo Cup Co. v. Federal
Ins. Co., 619 F.2d 1178, 1189 (7th Cir. 1980) ("The
possibility that proceedings might be commenced
against an insured regarding an act of the insured's
as to which the insurer might contest coverage, is not
sufficient to create a controversy within the meaning
of either the Declaratory Judgment Act or Article III
of the Constitution").
This decision is in accord with numerous Seventh Circuit decisions
holding that a declaratory judgment seeking indemnification is premature
unless there has been a finding of liability in the underlying action.
Grinnell Mutual Reinsurance Co. v. Shierk, 121 F.3d 1114, 1116 (7th Cir.
1997) (amount in controversy requirement was satisfied where the insurer
filed a declaratory action seeking indemnification after the court in the
underlying action found that the insured was liable and the potential
damages exceeded $100,000); Nationwide insurance v. Zavalis, 52 F.3d 689,
693 (7th Cir. 1995) ("the duty to indemnify is not ripe for adjudication
until the insured is in fact held liable in the underlying suit");
Grinnell Mutual Reinsurance Co. v. Reinke, 43 F.3d 1152
, 1154 (7th Cir.
1995) ("the duty to indemnify [i]s unripe until the insured has been held
liable"); Travelers Ins. Cos. v. Penda Corp., 974 F.2d 823
, 833 (7th
Cir. 1992) ("the determination of whether [defendant] has a duty to
indemnify is not ripe until the underlying litigation is terminated").
The court thus declines to revisit its holding in Lower Forty Gardens and
adopt the position urged by American Economy.
American Economy can, however, remain in federal court if its
attorneys' fees are reasonably certain to exceed $75,000 since the total
cost of defense in the underlying action counts towards the
jurisdictional amount. See Grinnell Mutual Reinsurance Co. v. Shierk, 121
F.3d at 1117 n.2 (7th Cir. 1997) (the costs of defending the insured
should be taken into consideration when determining whether the amount in
controversy satisfies the jurisdictional minimum). As noted above, American Economy has the burden of pointing to
competent proof that the amount in controversy exceeds $75,000.
In its response to the motion to dismiss, American Economy attempts to
satisfy this burden by stating that "defense costs for class actions in
the emerging field of claims brought under the Telephone Consumer
Protection Act [which prohibits the sending of unwanted faxes] are likely
to be quite substantial" and that it will have to pay "some amount . . .
presumably a substantial amount . . . for the defense if [it] is found to
have a duty to defend." Response at 5-6.
This argument is unpersuasive because the assertions as to the amount
of attorneys' fees potentially at issue in the underlying action are
vague generalizations which are not supported by any specific facts.
Moreover, American Economy does not elucidate exactly what "substantial"
means or provide details about the scope of the underlying action so the
court can assess whether defense costs will satisfy the jurisdictional
minimum to a reasonable certainty. Simply put, this type of conclusory
assertion is not competent proof that the amount in controversy exceeds
$75,000 so the court is not required to accept American Economy's bald
statement that it might potentially be on the hook for a substantial
amount of money in an underlying action.
This brings the court to American Economy's final argument: that the
amount in controversy consists of the claims of the individual members of
the putative class aggregated together. American Economy cannot aggregate
actual damages suffered by the members of the putative class as at least
one plaintiff must satisfy the jurisdictional amount. See, e.g., The
Barbers Hair styling for Men & Women, Inc. v. Bishop, 132 F.3d 1203,
1205 (7th Cir. 1997). Thus, the fact that the underlying state court
cases are styled as class actions on behalf of over 1,000 members and seek at least $500 per member is irrelevant. Because no
individual member's claims meet the jurisdictional minimum, American
Economy has failed to satisfy the amount in controversy requirement.
For the above reasons, the court finds that American Economy has failed
to satisfy the amount in controversy requirement in 28 U.S.C. § 1332.
Accordingly, Eclipse's motion to dismiss is granted and this case is
dismissed for lack of jurisdiction.
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