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Owners Insurance Co. v. McClung

United States District Court, N.D. Georgia
Dec 22, 2003
Civil No. 2:02-CV-168-WCO (N.D. Ga. Dec. 22, 2003)

Summary

holding that attorney's fees incurred in an underlying lawsuit already concluded should not be included in the amount in controversy

Summary of this case from Rowland v. Scottsdale Ins. Co.

Opinion

Civil No. 2:02-CV-168-WCO

December 22, 2003


ORDER


The captioned case is before the court for consideration of plaintiff's motion for summary judgment [27-1].

I. Facts

This case involves a dispute over an insurance contract. In November of 1996, defendant Donna McClung purchased a house from defendant Clearwater Construction Company of Georgia, Inc. ("Clearwater"), a corporation originally formed by defendant Ginny Powell. Clearwater Constr. Co. v. McClung, 261 Ga. App. 789, 789-90 (2003). A special stipulation to the sales contract required the "seller to furnish purchaser in writing a binding warranty covering any and all defects of structure for a period of one (1) year from date of closing." Id. at 790. After moving into her new home, McClung began noticing problems with the synthetic stucco that was used and applied during the construction of the house. Id. at 790-91. She notified Clearwater of the problem and requested that the stucco be removed and replaced. Id. at 791. Clearwater refused, and Ms. McClung brought suit in the State Court of Hall County, alleging breach of warranty against Clearwater and fraud and violation of the Georgia Fair Business Practices Act against Ben and Ginny Powell.Id. Following a bench trial, the court found for Ms. McClung on the breach of warranty claim and for the defendants on the fraud claim and the Fair Business Practices Act claim. Id. Ms. McClung was awarded $41,000 in damages and $26,000 in attorney's fees. Id. at 789. That award of attorney's fees was appealed to the Georgia Court of Appeals, which affirmed the trial court's ruling.

Plaintiff issued a commercial general liability insurance policy to Clearwater covering a period from May 2, 1997 to May 2, 1998. [Pl.'s Statement of Undisputed Material Facts at ¶ 8]. Plaintiff now seeks a declaratory judgment from this court holding that it is not liable to Clearwater for the amount of damages and attorney's fees awarded to Ms. McClung in the underlying state court action.

II. Subject Matter Jurisdiction

In its response to plaintiff's motion for summary judgment, defendants allege that this court lacks subject matter jurisdiction. Plaintiff brings this action pursuant to 28 U.S.C. § 1332(a)(1), which gives the court jurisdiction over matters where the amount in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and are between citizens of different states. 28 U.S.C. § 1332(a)(1). Per the complaint, plaintiff is a business incorporated in the state of Ohio with its principal place of business in Michigan, and each of the defendants are residents of the state of Georgia. Accordingly, there appears to be complete diversity between the parties. However, defendants argue that the amount in controversy does not exceed $75,000, given that the total award in the underlying lawsuit was only $67,000.

The court will use the term "defendants" to refer to Clearwater Construction Company of Georgia, Inc. and Ginny and Ben Powell.

"When a plaintiff seeks injunctive or declaratory relief, the amount in controversy is the monetary value of the object of the litigation from the plaintiff's perspective." Cohen v. Office Depot. Inc., 204 F.3d 1069, 1077 (11th Cir. 2000). Generally, "[i]t must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal." St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288 (1938). Plaintiff puts forth several reasons why the amount in controversy is greater than $75,000, each of which will be addressed in turn.

Defendants filed a counterclaim in this action seeking the amount of the verdict awarded in the state court with accrued interest, the amount of the attorney's fees awarded in the state court, and any and all other damages that naturally arise from the breaches of contract. Plaintiff maintains that the accrued interest and the "other damages" that defendants seek, when added to the $67,000, results in an amount in controversy greater than $75,000. Courts have held that when a defendant does not file a motion to dismiss for lack of subject matter jurisdiction, but instead files a compulsory counterclaim, the amount of that counterclaim may be considered in determining the amount in controversy. Spectacor Mgmt. Group v. Brown, 131 F.3d 120, 121 (3d Cir. 1997). See also Fenton v. Freedman, 748 F.2d 1358, 1359 (9th Cir. 1984) (counterclaim that exceeded the necessary amount in controversy sufficient to bring the entire case within the jurisdiction of the court). The Eleventh Circuit declined to reach this issue in Federated Mut. Ins. Co. v. McKinnon Motors, 329 F.3d 805 (11th Cir. 2003), but noted that support exists for the proposition that an amount sought in a counterclaim can be considered in determining the amount in controversy.Id. at 808 n. 3 (citing Horton v. Liberty Mut, Ins. Co., 367 U.S. 348 (1961)). However, even if the court considers the counterclaim, it does not raise the amount in controversy over $75,000.

The first two claims in the counterclaim are for the damages awarded by the state court, with interest, and the attorney's fees awarded by the state court. However, it is not appropriate to consider interest when determining an amount in controversy. 28 U.S.C. § 1332(a)(1). Interest is any amount that has come due because of delay in payment. Principal Mut. Life Ins. Co. v. Juntunen, 838 F.2d 942, 943 (7th Cir. 1988). Interest on unpaid insurance claims falls within that definition. State Farm Mut. Auto. Ins. Co. v. Narvaez, 149 F.3d 1269, 1271 (10th Cir. 1998). Accordingly, for amount in controversy purposes, the first two requests in the counterclaim are for $67,000, the amount of the state court judgment.

The third request in the counterclaim is for "any and all other damages that naturally arise from the breaches of contract." The court has no idea what those might be, and the parties have not provided anything more specific. Absent even some inkling of what those "other damages" might be, for the purpose of determining the amount in controversy, the court is unwilling to find that the counterclaim seeks damages any different than those that give rise to the complaint.

One thing that it cannot mean is punitive damages, which Georgia law does not permit for actions sounding in breach of contract. Towery v. Massey, 179 Ga. App. 61, 65 (1986).

Plaintiff next argues that the attorney's fees it incurred in defense of the underlying suit should be considered in determining the amount in controversy. Plaintiff directs the court to Stonewall Ins. Co. v. Lopez, 544 F.2d 198, 199 (5th Cir. 1976), and Progressive Cas. Ins. Co. v. Crone, 894 F. Supp. 383 (D. Kan. 1995). Both of those cases involve a situation where an insurance company was attempting to determine its responsibility to defend an insured in an underlying suit. The court can understand the rationale behind including the potential costs of future representation in the amount in controversy. However, because the underlying lawsuit in this case has been completed, the cost of that representation is no longer at issue. Plaintiff cites no law for the proposition that an insurance company may include the cost of previously provided legal representation in determining the amount in controversy in a subsequent declaratory judgment indemnification action, nor was the court able to find any through its own independent research. Accordingly, those attorney's fees are not included in the amount in controversy.

Finally, although not entirely clear, it is possible plaintiff is arguing that it should be able to include in the amount in controversy the attorney's fees it may generate in bringing this declaratory judgment action. Plaintiff cites Blank v. Preventive Health Programs. Inc., 504 F. Supp. 416, 421 (S.D. Ga. 1980), for the "well-established" principle that when recovery of attorney's fees is allowable under applicable state law, such fees are included in the determination of the amount in controversy. For the purpose of this discussion, the court does not agree with that proposition of law; it simply finds it inapplicable to the case at bar. The Blank case involved the rather common scenario where diversity plaintiffs brought a breach of contract action in federal court and requested attorney's fees. The court simply noted that because there was a Georgia statute that specifically permitted recovery of attorney's fees, the amount of those fees could be included in the amount in controversy. Id. at 421 (the court dismissed the case with leave to amend such that the plaintiffs could specify how much those attorney's fees might entail).

The case at bar is quite different. Plaintiff does not bring a state cause action; rather, it seeks declaratory judgment on an insurance contract that will be interpreted using state law. And, even if plaintiff had brought a state cause of action that might entitle it to attorney's fees, these would have been available only if plaintiff "specifically pleaded and ha[d] made prayer therefor." Ga. Code Ann. § 13-6-11. Although the complaint requests "costs" and "further relief as this Court may deem just and appropriate, [Compl. at ¶ 74], plaintiff has not specifically pled for attorney's fees as required by the statute. See Dep't of Transp. v. Georgia Television Co., 244 Ga. App. 750, 751 (2000) ("further relief as the Court deems just and proper" insufficient to satisfy the statute's pleading requirement). Furthermore, even if this case were to proceed in federal court and plaintiff attempted to claim attorney's fees based on some federal theory of recovery, that request would have to be based on litigation conduct undertaken by defendants or their counsel. The court is unaware of any case permitting attorney's fees that would have to be based on some future conduct to be included in the amount in controversy calculation.

In conclusion, the court finds that the amount in controversy in this case is limited to the amount of the judgment entered in the underlying state court action, $67,000. Accordingly, the case is hereby DISMISSED because the court lacks proper subject matter jurisdiction pursuant to 28 U.S.C. § 1332(a)(1).

IT IS SO ORDERED.


Summaries of

Owners Insurance Co. v. McClung

United States District Court, N.D. Georgia
Dec 22, 2003
Civil No. 2:02-CV-168-WCO (N.D. Ga. Dec. 22, 2003)

holding that attorney's fees incurred in an underlying lawsuit already concluded should not be included in the amount in controversy

Summary of this case from Rowland v. Scottsdale Ins. Co.
Case details for

Owners Insurance Co. v. McClung

Case Details

Full title:OWNERS INSURANCE COMPANY, Plaintiff, vs. DONNA McCLUNG, CLEAR WATER…

Court:United States District Court, N.D. Georgia

Date published: Dec 22, 2003

Citations

Civil No. 2:02-CV-168-WCO (N.D. Ga. Dec. 22, 2003)

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