If you want to get an overview on the law of removal and remand in bad faith cases, this is the case for you.
Eastern District Judge Marston reviews three lines of U.S. Supreme Court and Third Circuit precedent in determining when, and whether, the burden of proof in establishing the jurisdictional minimum for removal purposes is “legal certainty” versus “preponderance of the evidence.” She concludes that in cases where the insured specifically pleads compensatory damages are less than $50,000, a “legal certainty” test still applies until the Third Circuit says otherwise. This is so even if the plaintiff additionally demands punitive damages, attorney’s fees and super-interest under the bad faith statute.
In this context, a removing defendant’s allegation that punitive damages and attorneys’ fees could result in overall damages exceeding $75,000, fails to meet the legal certainty test.
[Comment: The upshot appears to be that if a plaintiff specifically alleges compensatory damages will not exceed $75,000 (typically not to exceed $50,000 in Pennsylvania state pleadings), even while additionally seeking statutory punitive damages and attorney’s fees, removal is not going to be possible. Under Rule 11, the removing party would have difficulty averring to a certainty that punitive damages and attorney’s fees will be awarded to a legal certainty, and will use qualifying language such as “court be awarded” or “if awarded”. Moreover, it is unlikely a defendant insurer will want to establish legal certainty by making a detailed argument against itself as to why it should be encumbered with punitive damages for its own reckless or intentional conduct.
Among the questions that arise: Why is a bad faith claim for punitive damages any less a legal certainty than a contested claim for compensatory damages? Put another way, doesn’t a contested claim for punitive damages or attorney’s fees have as much reality as a contested claim for compensatory damages?
Bad faith claims only allow for three types of damages: super-interest, punitive damages, and attorney’s fees. There is no statutory bad faith claim for compensatory or incidental damages. Thus, to even plead a bad faith claim meeting Rule 11 standards, the plaintiff must believe that punitive damages, attorney’s fees, or super-interest are warranted, as this is the only possible form of relief provided under section 8371.
Just as a plaintiff believes and pleads it is entitled to $49,312.25 in compensatory damages — and this number is treated as an undisputed fact for jurisdictional purposes even if a defendant insurer completely rejects that sum — so too must the plaintiff believe that it is entitled to punitive damages, attorney’s fees and/or super-interest in bringing the bad faith claim. Yet this distinct damage claim, under a separate legal theory, may come to be treated as a nullity for purposes of calculating the jurisdictional minimum.
One possibility here could be the potential damages available under section 8371 are discretionary and not mandatory. Thus, it might be that the trier of fact may not award any of these damages at the end of the day, or may make a minimal award. It also might be the case, however, that the trier of fact will find at the end of the day that the same plaintiff’s compensatory damage claim is meritless or only a fraction of the sum requested. Yet, that number as pleaded is treated as truth.]
The Facts of the Case
Plaintiffs brought breach of contract and bad faith claims in this water damage case. Their contract claim’s ad damnum clause sought “judgment against Defendant in an amount not in excess of $50,000 together with interest and court costs.” In the bad faith count’s ad damnum clause, Plaintiffs requested “statutory damages including interest…, court costs, attorneys’ fees, punitive damages, and such other compensatory and/or consequential damages as are permitted by law.”
The carrier removed the case from Philadelphia’s Court of Common Pleas to federal court, and Plaintiffs moved to remand. The District Court remanded.
The court observed “’[i]t is now settled in this Court that the party asserting federal jurisdiction in a removal case bears the burden of showing, at all stages of the litigation, that the case is properly before the federal court.’” As set out above, the issue was whether the court should set the burden at “legal certainty” or “preponderance of the evidence.” After doing a lengthy and detailed historical analysis of each strand of case law, the court concluded that, in a case such as this where the insured specifically pleaded the compensatory damage claims were less than $50,000, the “legal certainty” test applied.
The court observed it could aggregate the demands against a single defendant in determining jurisdiction. Further, punitive damages could be considered, so long as the estimates were realistic, with all doubts construed in favor of remand. Such an analysis must be objective and not “pie-in-the-sky”.
The compensatory damages were a little over $24,000. The insurer argued that it was “not unreasonable to expect that a punitive damage award three or four times the amount in controversy, or beyond, could be rendered by the trier of fact.” It suggested, however, that the court should apply a 2-1 ratio ($48,000) and a measure of attorney’s fees at $30,000, as that “would not be unreasonable to expect that [fee sum] over the course of an approximate ten-month litigation…” This would place the claim at over $100,000, sufficient for jurisdiction. The court rejected the argument.
The court looked at earlier case law finding such arguments failed to reach the level of “legal certainty.” In those cases, the qualifying language presented the fatal flaw, e.g., “claims for punitive damages and attorney fees, amongst other relief…could exceed $75,000.”; “it is ‘certainly possible for the damages to meet or exceed the jurisdictional limit of $75,000.’” A “suggestion of possible future events,” however, is not enough.
In one case relied upon to support remand, the compensatory damages were $11,000 and the punitive damages needed to be six times that amount to obtain jurisdiction. The court remanded for two reasons: (1) there was no certainty the plaintiff would “recover punitive damages at all, as she has not alleged any particular facts suggesting bad faith on the part of [the insurance company], other than her assertion that she was entitled to benefits but has not received them.”; (2) the carrier “supplied no basis for the Court to find that [the plaintiff] will recover the necessary amount of punitive damages.”
[Comment: This analysis implies a number of considerations, akin to the comment above. In determining remand, the court is looking to the merits of the plaintiff’s case in evaluating whether defendant met its burden. The court basically determined on a motion to remand that the plaintiff’s bad faith claim, as pleaded, could not withstand a federal motion to dismiss. The court then put the burden on the defendant to make the case against itself as to why punitive damages should be awarded against it.]
Judge Marston found the instant case akin to these earlier cases. In the present case, the carrier only alleged “that it is not ‘unreasonable’ to find that punitive damages ‘could’ amount to three or four times the amount in controversy, and that it would ‘not be unreasonable’ to find that attorney’s fees ‘could’ approach $30,000.” This did not “satisfy [the defendant’s] burden by pointing to the mere possibility that the [insureds] ‘could’ be awarded punitive damages and attorney’s fees above the amount in controversy threshold.” “Moreover … [the insureds] are ‘not certain to recover punitive damages at all,’ because the complaint does not allege ‘any particular facts suggesting bad faith on the part of [the insurance company], other than [the] assertion that [they were] entitled to benefits but ha[ve] not received them.’”
The court held: “Without more, we cannot find that [the insurer] has carried its burden of showing to a legal certainty that the amount in controversy exceeds $75,000, and we must remand the case. However, if on remand, [the insurer] uncovers new evidence which shows that the amount in controversy exceeds $75,000, it may again seek removal to this Court.”