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PRMConnect, Inc. v. Drumm

United States District Court, N.D. Illinois, Eastern Division

December 5, 2016

PRMCONNECT, INC., Plaintiff,


          Robert M. Dow, Jr. United States District Judge

         Before the Court is Defendants' motion to dismiss for lack of subject matter jurisdiction [24]. For the reasons set forth below, Defendants' motion [24] is denied. This case is set for further status on December 20, 2016, at 9:30 a.m. to discuss pre-trial scheduling and the possibility of settlement.

         I. Background

         This case involves an alleged negligent failure to procure adequate business insurance. In 2007, Plaintiff PRMConnect, Inc.-a software development company incorporated in Illinois and based in Las Vegas, Nevada-hired Defendants Jean Drumm and Drumm and Company (an Indiana-based accounting firm) to provide “accounting, consulting, and payroll services.” Plaintiff alleges that Defendant Drumm “undertook the responsibility to procure and maintain property insurance coverage” on Plaintiff's behalf from 2008 through 2014. [1, ¶ 9; 27, at 1-2.] In September 2012, Plaintiff relocated one of its Las Vegas offices from 7313 Mount Kearsarge to 7495 W. Azure Drive. No one updated Plaintiff's property insurance policy to reflect the change in address. On April 8, 2014, thieves broke into the Azure Drive office and stole computer equipment and accessories. Plaintiff submitted a claim to its property insurer (Travelers Insurance), which denied the claim because the policy was not updated to cover the Azure Drive location.

         On January 15, 2015, Plaintiff sued Defendants for negligence, invoking this Court's diversity jurisdiction. [1, ¶ 4.] On October 31, 2015, Defendants filed a motion for summary judgment [12], which the Court denied on May 26, 2016 [27]. Just before the Court issued its summary judgment order, Defendants filed a motion to dismiss for lack of subject matter jurisdiction [24]. Specifically, Defendants argue that Plaintiff cannot satisfy the $75, 000 amount in controversy requirement. At the Court's request, the parties submitted supplemental briefing on the proper measure of damages for Plaintiff's claims under Illinois law [see 35, 36, 37, 38].

         II. Legal Standard

         A Federal Rule of Civil Procedure (“Rule”) 12(b)(1) motion seeks dismissal of an action for lack of subject matter jurisdiction. Rule 12(b)(1) motions “are meant to test the sufficiency of the complaint, not to decide the merits of the case.” Ctr. for Dermatology & Skin Cancer, Ltd. v. Burwell, 770 F.3d 586, 588 (7th Cir. 2014). The Court accepts as true the plaintiff's well-pleaded allegations and draws all reasonable inferences in its favor. Long v. Shorebank Dev. Corp., 182 F.3d 548, 554 (7th Cir. 1999). Where the defendant raises a factual challenge to jurisdiction, however, the Court “may properly look beyond the jurisdictional allegations of the complaint and view whatever evidence has been submitted on the issue.” Id. (citation omitted); accord Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 444 (7th Cir. 2009) (describing the difference between facial and factual challenges to jurisdiction). In such instances, “the trial court is free to weigh the evidence and satisfy itself as to the existence of its power to hear the case.” Apex, 572 F.3d at 444 (citation omitted). A plaintiff facing a Rule 12(b)(1) motion bears the burden of establishing the jurisdictional requirements. Burwell, 770 F.3d. at 588-89.

         III. Analysis

         The sole question presented by Defendants' motion is whether Plaintiff can satisfy the amount in controversy requirement for purposes of federal diversity jurisdiction. Federal courts have jurisdiction over civil suits between citizens of different states “where the matter in controversy exceeds the sum or value of $75, 000, exclusive of interest and costs.” 28 U.S.C. § 1332(a). If the material factual allegations regarding amount in controversy are contested, the proponent of federal diversity jurisdiction must “prove those jurisdictional facts by a preponderance of the evidence.” Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d 536, 543 (7th Cir. 2006). “Once the facts have been established, uncertainty about whether the plaintiff can prove its substantive claim, and whether damages (if the plaintiff prevails on the merits) will exceed the threshold, does not justify dismissal.” Id. (citation omitted). “Whether damages will exceed $75, 000 is not a fact but a prediction.” Id. at 541. “Only if it is ‘legally certain' that the recovery (from plaintiff's perspective) * * * will be less than the jurisdictional floor may the case be dismissed.” Id. at 543.

         There are several ways in which the proponent of federal jurisdiction may establish the amount in controversy, including “contentions interrogatories or admissions in state court, ” “calculation from the complaint's allegations, ” “reference to the plaintiff's informal estimates or settlement demands, ” or “introducing evidence, in the form of affidavits * * * about how much it would cost to satisfy the plaintiff's demands.” Meridian, 441 F.3d at 541-42. This “list is not exclusive; any given proponent of federal jurisdiction may find a better way to establish what the controversy between the parties amounts to, and this demonstration may be made from either side's viewpoint, ” such as “what a judgment would be worth to the plaintiff.” Id. at 542. Once this estimate supported by “competent” proof is made, “the case stays in federal court unless it is legally certain that the controversy is worth less than the jurisdictional minimum.” Id.

         Although Plaintiff's negligence claims sound in tort, both parties agree that the proper measure of damages is the insurance policy that Plaintiff allegedly sought but Defendants failed to procure. [35, at 2; 36, at 1]; accord Bros. Future Holdings, LLC v. Indiana Ins. Co., 2015 IL App (1st) 141581, ¶ 49 (“The measure of such damages is determined based upon the terms of the policy which was sought by the insured but which the broker failed to procure”); Lake Cty. Grading Co. of Libertyville v. Great Lakes Agency, Inc., 226 Ill.App.3d 697, 701 (1992); Lazzara v. Howard A. Esser, Inc., 802 F.2d 260, 266-67 (7th Cir. 1986); Wheaton Nat. Bank v. Dudek, 59 Ill.App.3d 970, 973 (1978). As a result, whether the amount in controversy is satisfied depends on Plaintiff showing that its losses exceed $75, 000 and that those particular losses would have been covered by the insurance policy that it sought but did not receive.

         Plaintiff identifies two categories of damages that it claims clear the $75, 000 hurdle. First, it claims that the “replacement cost of the stolen business personal property” from the Azure Drive location totals $113, 005. [36, at 4.] To support this claim, Plaintiff attaches an itemized inventory of the lost equipment with prices that Plaintiff produced in response to one of Defendants' document requests.[1] [See 29-3.] Plaintiff also cites deposition testimony from a partner at PRMConnect who stated that the stolen equipment was “worth” “in excess of a hundred thousand dollars, ” but refused to elaborate further. [29-1, at 83:8-84:14.] Second, Plaintiff claims that it suffered $98, 000 in “lost revenue * * * due to cancelation of SAP business because of the lost and stolen equipment.” [29, at 3.] In support, Plaintiff cites its response to one of Defendants' discovery requests, which makes the same assertion.[2] [29-2, ¶ 14.]

         Defendants challenge each category of damages. With respect to the “replacement cost, ” Defendants argue that no contemporaneous documents show losses exceeding $75, 000, as required by 28 U.S.C. § 1332(a). Defendants point to (i) an April 8, 2014 Property Loss Notice that refers to a telephone call where Plaintiff describes the stolen equipment as valued at “approximately $75, 000” [24, Ex. D]; (ii) a letter from Plaintiff's insurance broker to Plaintiff stating that the equipment is “valued at $75, 000” [24, Ex. E]; (iii) a May 23, 2016 affidavit from Defendant Jean Drumm stating that he spoke with Plaintiff's corporate counsel in “late April or early May of 2014” and Plaintiff's counsel stated “approximately $30, 000 in equipment was stolen” [24, Ex. F, ¶¶ 4-5]; and (iv) Plaintiff's itemized tax returns from tax year 2014, which claim a $71, 002 cost basis for the stolen equipment [24, Exs. A & B; 24-1, at 6]. With respect to the “lost revenue, ” Defendants argue that Plaintiff's assertion of $98, 000 is unsubstantiated, was not declared on Plaintiff's tax returns, and was not reported with its insurance claim to Travelers.

         While these arguments may ultimately undermine Plaintiff's ability to recover damages exceeding $75, 000, they do not show that Plaintiff is “legally certain” not to recover such damages. First, regarding the replacement costs, both the Property Loss Notice and the insurance broker letter are rough approximations in the ballpark of the jurisdictional threshold. [24, Exs. D & E.] Neither generalization purports to be a definitive estimate of the stolen property's replacement cost or a stipulation that damages did not exceed $75, 000. Similarly, Defendant Drumm's recollection of a two-year-old telephone conversation is not dispositive. Plaintiff offers sworn testimony from one of its own principals that losses exceeded $100, 000, and this conflicting damages testimony shows that “an award over the threshold cannot be ruled out.” Rising-Moore v. Red Roof Inns, Inc., 435 F.3d 813, 816 (7th Cir. 2006). Likewise, Plaintiff's tax returns do not estop it from arguing that replacement costs are more accurately represented by the itemized inventory produced in discovery [see 29-3]. Plaintiff may have chosen not to declare all of its losses on its tax return, and Defendants identify no authority suggesting that losses declared on tax returns limit damages in negligence cases like this one. Defendants do not argue, for example, that the itemized inventory erroneously includes property that was not stolen. Rather, Defendants argue that the “best evidence of fair market value” is the tax returns. That is not the same as arguing that Plaintiff is “legally certain” to recover $75, 000 or less if it prevails. Ultimately, these arguments speak to ...

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