United States District Court,

D. Maryland.

2315 ST. PAUL STREET, LLC, Plaintiff,

v.

HARTFORD FIRE INSURANCE COMPANY, Defendant.

 

Civil Action No. GLR–10–3641.

June 25, 2012.

 

Anthony Gene Gorski, Rich and Henderson PC, Annapolis, MD, Andrew M. Plunkett, Childress Duffy Ltd., Michael W. Duffy, Clausen Duffy Ltd., Chicago, IL, Mark F. Gabler, Rich and Henderson PC, Easton, MD, for Plaintiff.

 

Steven Michael Klepper, Mary Elizabeth Smith, Kramon and Graham PC, Baltimore, MD, for Defendant.

 

MEMORANDUM OPINION

GEORGE L. RUSSELL, III, District Judge.

This matter is before the Court on Defendant Hartford Fire Insurance Company’s (“Hartford”) Motion for Summary Judgment. (ECF No. 34). This case involves Hartford’s denial of coverage, under a builder’s risk policy, for Plaintiff 2315 St. Paul Street, LLC’s (“St.Paul”) loss of building fixtures, construction equipment, and other items stolen by a subcontractor during building renovations. The issue before the Court is whether Hartford’s denial of St. Paul’s insurance claim constitutes a breach of contract (Count I) and failure to act in good faith (Count II). The issues have been fully briefed and no hearing is necessary. See Local Rule 105.6 (D.Md.2011). The Court concludes Hartford’s denial of St. Paul’s claim does not constitute breach of contract, and therefore Hartford did not fail to act in good faith, because the Entrustment Exclusion in the insurance policy is applicable. Accordingly, the Court GRANTS Hartford’s Motion for Summary Judgment.

 

I. BACKGROUND

The record reflects the following undisputed facts. On May 24, 2007, Mohammed Farooq, sole owner of St. Paul, entered into a financing contract with Tremont New Funding I, LLC for the purpose of converting the Land Bank Building, located at 2315 St. Paul Street, Baltimore, Maryland, into a 63–unit multifamily apartment complex. At the time of contract creation, Mr. Farooq identified the borrower entity as “to be formed,” and the sponsor and guarantor of the loan as “Mohammed Farooq, Principal, Red Canyon Properties.” On or about August 1, 2007, St. Paul acquired a Commercial Inland Marine Insurance Policy from Hartford to cover the period of August 1, 2007, to August 10, 2008.  The named insured and mailing address on the policy reads “2315 St. Paul Street LLC, C/O Red Canyon Properties, 211 E. Lombard St., STE 280, Baltimore, MD 21202.”

 

The policy’s renovations coverage endorsement insures structures up to $1,500,000 for existing structures and $500,000 for new construction. The maximum limit is listed as $2,000,000.

 

St. Paul contracted with Red Canyon Properties, LLC (“Red Canyon”) to serve as general contractor of the renovation project. Ibrahim Sheikh is the Red Canyon employee responsible for oversight of the day-to-day operations of the project. Mr. Sheikh testified under oath that Mr. Farooq is a member of both St. Paul and Red Canyon. Mr. Sheikh also testified that he and Mr. Farooq have an ongoing business relationship that involves the acquisition and renovation of properties, whose addresses are converted into LLC names, and subsequent procurement of all contracts under Red Canyon. Mr. Sheikh’s sworn testimony regarding his business relationship with Mr. Farooq is supported by various documents in the record.

 

See, e.g., Affidavit of M. Ali Farooq acknowledging his authorization as a Red Canyon representative to resolve a mechanic’s lien issue that affected St. Paul. (Pl.’s Opp’n to Def.’s Mot. Summ. J. Ex. 1, at 6, ECF No. 39–1); Withdrawal letter from counsel representing Red Canyon in another matter, which lists Mr. Farooq and Mr. Sheikh as representatives for both St. Paul and Red Canyon. (Def.’s Mot. Summ. J. Ex. E, at 1, ECF No. 34–6); Tremont New Funding I, LLC loan document listing Mr. Farooq as a principal of Red Canyon. (Def.’s Mot. Summ. J. Ex. F, at 3, ECF No. 34–7).

 

Upon the referral of a colleague, Mr. Sheikh contracted with Basil Bradford (“Bradford”) on October 15, 2007, to complete demolition work to the property within thirty (30) days of the contract’s execution. The contract required Bradford to “[r]emove and cut all excess plumbing pipes, steam pipes, cooling tower on the roof, boilers in sub-basement and other items as instructed by the architect and owner” and to “take reasonable steps to secure the Property against casualty, loss and vandalism including, but not limited to, locking all external doors and closing and locking all windows when not physically present at the Property.” (Def.’s Mot. Summ. J. Ex. N, at P–00037, ECF No. 34–15) (emphasis added). Prior to the start of the demolition work, Mr. Sheikh and Bradford walked throughout the building, marking items that required removal. Bradford received a key to the property, was granted unfettered access, and often worked unsupervised with his employees. No other contractors were assigned to the property during the October 2007 to November 2007 time period.

 

During this period, Mr. Sheikh left the country on or about October 28, 2007, and returned the day after Thanksgiving. Mr. Sheikh delegated his managerial duties to Juan Osario, draftsman for the renovation project, in his absence. Upon his return, Mr. Sheikh found that Bradford failed to complete the demolition work and that valuable fixtures, construction equipment, and other items were taken from the property without the owner’s permission. Mr. Sheikh thereafter met with Bradford who assumed responsibility for the taken items.

 

Mr. Sheikh and Bradford entered into a second contract on December 20, 2007 (“Second Contract”), requiring Bradford to “fulfill the terms of his original contract” and also “correct and repair any damage and to replace any stolen or destroyed items at his own expense,” by January 4, 2008. (Def.’s Mot. Summ. J. Ex. N, at P–00039–40) (emphasis added). The Second Contract specifically states “Mr. Basil Bradford accepts [sole responsibility] for damage done to the property.” (Id. at P00039).

 

When Bradford failed to honor the Second Contract, Mr. Sheikh contacted law enforcement and filed an insurance claim with Hartford. Hartford’s investigation of the claim commenced March 7, 2008, and ended on or about August 22, 2008. Hartford’s investigation involved, inter alia, visits to the property, interviews with Bradford and his former employees, and examinations under oath. In a letter dated August 20, 2008, Hartford ultimately denied the claim, contending the policy’s Entrustment Exclusion precluded coverage because “the loss in question was caused exclusively by dishonest and criminal acts of a contractor to whom you entrust[ed] the property.” (Id. at P–00031). St. Paul subsequently filed this action alleging breach of contract (Count I) and failure to act in good faith (Count II). Discovery is complete and Hartford now seeks summary judgment on both counts.

 

II. STANDARD OF REVIEW

Summary judgment is only appropriate “if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 323–25, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In reviewing a motion for summary judgment, the Court views the facts in a light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

 

Once a motion for summary judgment is properly made and supported, the opposing party has the burden of showing that a genuine dispute exists.   Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586–87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). “[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson, 477 U.S. at 247–48. A “material fact” is a fact that might affect the outcome of a party’s case. Id. at 248; JKC Holding Co. v. Wash. Sports Ventures, Inc., 264 F.3d 459, 465 (4th Cir.2001). Whether a fact is considered to be “material” is determined by the substantive law, and “[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Anderson, 477 U.S. at 248; Hooven–Lewis v. Caldera, 249 F.3d 259, 265 (4th Cir.2001).

 

Rule 56(e) requires the nonmoving party to go beyond the pleadings and by its own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The nonmoving party may not, however, withstand summary judgment by offering a conclusory, self-serving affidavit that is without corroboration. See, e.g., National Enters. v. Barnes, 201 F.3d 331, 335 (4th Cir.2000) (“[Plaintiff’s] self-serving affidavit describing the content of the repurchase agreements is not enough to defeat [defendant’s] motion for summary judgment.”); Evans v. Techs. App. & Serv. Co., 80 F.3d 954, 962 (4th Cir.1996) (internal citation omitted) (“[S]ummary judgment affidavits cannot be conclusory.”).

 

Maryland substantive law governs this diversity action. See 28 U.S.C. § 1652; Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

 

III. DISCUSSION

Hartford moves for summary judgment on St. Paul’s claims of Breach of Contract (Count I) and Failure to Act in Good Faith (Count II), citing the application of the policy’s Entrustment Exclusion and proper denial of coverage as justifications. (Def.’s Mot. Summ. J. Ex. A, at HFIC000438–39). The Court finds no genuine issue of material fact exists as to either count.

 

Hartford alternatively pleads it is entitled to summary judgment on the basis of St. Paul’s alleged multiple breaches of conditions of coverage. In light of the Court’s ruling on the Enstrustment Exclusion, the Court need not address this argument.

 

A. Breach of Contract (Count I)

Under Maryland law, “[a]n insurance policy is interpreted in the same manner as any other contract.” French v. Assurance Co. of Am., 448 F.3d 693, 700 (4th Cir.2006) (citing Nationwide Ins. Co. v. Rhodes, 127 Md.App. 231, 732 A.2d 388, 390 (Md.Ct.Spec.App.1999)). Contract law, therefore, requires “that a contract be interpreted as a whole, in accordance with the objective law of contracts, to determine its character and purpose.” Anderson v. General Cas. Ins. Co., 402 Md. 236, 935 A.2d 746, 752 (Md.2007) (quoting United Servs. Auto Ass’n v. Riley, 393 Md. 55, 899 A.2d 819, 833 (2006)). The court analyzes the “plain language of the contract according words and phrases their ordinary and accepted meanings as defined by what a reasonably prudent lay person would understand them to mean.” Kendall v. Nationwide Ins. Co., 348 Md. 157, 702 A.2d 767, 772 (Md.1997). If contract terms are unambiguous, the court “may construe the insurance contract as a matter of law.” MAMSI Life & Health Ins. Co. v. Callaway, 375 Md. 261, 825 A.2d 995, 1005 (Md.2003). Conversely, ambiguities are to be construed against the insurer. Id. at 1006.

 

Hartford’s Commercial Inland Marine Insurance Policy provides coverage for “direct physical ‘loss’ to Covered Property caused by any of the Covered Causes of Loss” except “those causes of ‘loss’ listed in the Exclusions.” (Def.’s Mot. Summ. J. Ex. A, at HFIC000438–39). The policy’s Entrustment Exclusion removes coverage for “dishonest or criminal acts” by the insured “or anyone else to whom [the insured] entrust the property for any purpose.” (Id. at HFIC000442–43).

 

1. St. Paul Entrusted the Property to Bradford

Hartford’s Entrustment Exclusion applies because St. Paul entrusted its property to Bradford. Hartford argues that there is no genuine issue of material fact that St. Paul entrusted the property to Bradford because, as the insured’s agent, Red Canyon granted Bradford unfettered access to the property. (Def.’s Mot. Summ. J., at 14–15). Hartford further argues the undisputed facts reveal that St. Paul and Red Canyon did not engage in an arms-length contractual relationship, but that the two were interwoven business entities who engaged in practices regarding the acquisition and renovation of the property jointly with Red Canyon acting on St. Paul’s behalf as the general contractor. (Id. at 16–19, 825 A.2d 995). In support of this argument Hartford sets forth the following undisputed facts:

 

1) A copy of St. Paul’s insurance policy addressing the insured as “2315 St. Paul Street LLC, C/O Red Canyon Properties, 211 E. Lombard St., Ste 280, Baltimore, MD 21202.” (Def.’s Mot. Summ. J. Ex. A, at HFIC000415–17).

 

2) Mr. Sheikh’s sworn testimony that Mr. Farooq holds an ownership interest in both St. Paul and Red Canyon. (Id. Ex. B, at HFIC000310).

 

3) Mr. Sheikh’s sworn testimony that he has prior business dealings with Mr. Farooq and that all contracts related to building renovations “[go] under” Red Canyon. (Id. at HFIC000310–12).

 

4) A conditional waiver and release signed by Mr. Farooq as a Red Canyon representative. (Id. Ex. C).

 

5) A withdrawal letter from counsel representing St. Paul and Red Canyon in another matter, with Mr. Farooq and Mr. Sheikh signing as representatives for both entities. (Id. Ex. E).

 

6) Mr. Farooq’s loan documents for the St. Paul property representing himself as “Principal, Red Canyon Properties.” (Id . Ex. F, at 3).

 

7) Two of Mr. Sheikh’s affidavits, filed in other cases, contending he is an authorized representative of St. Paul. (Def.’s Mot. Summ. J. Exs. H, I).

 

8) Hartford’s denial letter addressed to Mr. Sheikh at “2315 St. Paul Street, LLC, c/o Red Canyon Properties” and the Developer Fee Agreement between St. Paul and Mr. Farooq, listing Red Canyon’s address for both entities. (Id. Ex. N, at P–00031, 70).

 

Conversely, St. Paul argues that it did not entrust the property to Bradford because it had no relationship with him, but rather delegated all supervisory and hiring authority to Red Canyon. (Pl.’s Opp’ n to Def.’s Mot. Summ. J., at 12–18, ECF No. 39). In the alternative, St. Paul argues that assuming, arguendo, an entrustment did occur, it was only between Red Canyon and Bradford. St. Paul further argues that neither St. Paul nor its sole member Mr. Farooq holds any interest in Red Canyon beyond a contractural relationship. In support of this argument, St. Paul sets forth Mr. Farooq’s affidavit which states:

 

St. Paul also argues that the Entrustment Exclusion does not apply because it cannot “entrust” fixtures or the other items at issue in this case. The plain language of the policy covers the entrustment of “the property” in general. There is no distinction between personal property and fixtures. Moreover, the policy’s coverage of “existing structures intended to become a permanent part of the completed project” suggests that these structures are a part of the “property” referenced in the language of the Entrustment Exclusion.

 

1) Mr. Farooq is not, and has never been, a member, employee, or owner of Red Canyon. (Id. Ex. 1, at ¶ 12).

 

2) St. Paul’s “only relationship to [Red Canyon] is via a contractual, arms-length transaction.” (Id. at ¶ 14, 825 A.2d 995).

 

3) Mr. Sheikh is not, and has never been, a member, employee, or authorized representative of St. Paul; and that his testimony regarding Mr. Farooq’s membership or ownership in Red Canyon is incorrect. (Id. at ¶ 15, 825 A.2d 995).

 

4) St. Paul “did not have an agency relationship with Ibrahim Sheikh.”   (Id. at ¶ 16, 825 A.2d 995).

 

5) In a previous case, Red Canyon designated Mr. Farooq an authorized representative for the limited purpose of resolving a mechanic’s lien issue that affected St. Paul. (Id. at ¶ 39, 825 A.2d 995).

 

Mr. Farooq’s affidavit also provides a counter explanation for each of the relationship documents provided by Hartford. This affidavit, however, failed to present evidence sufficient to create a genuine dispute concerning St. Paul’s entrustment of the property to Bradford.

 

In this case, the record is replete with undisputed evidence that St. Paul and Red Canyon are interwoven entities, thereby imputing the acts of Red Canyon to St. Paul. Perhaps most persuasive on this issue is the loan document listing Mr. Farooq as a principal of Red Canyon, the conditional waiver and release signed by Mr. Farooq as a representative of Red Canyon, the two affidavits in other matters attesting to Mr. Sheikh’s position as a representative of St. Paul, and the Developer Fee Agreement that utilizes Red Canyon’s address for both St. Paul and Mr. Farooq. St. Paul’s dispute regarding these documents is essentially that a limited agency relationship was created in these cases for the sole purpose of addressing the pending issues.

 

Viewing the aforementioned facts in a light most favorable to St. Paul, it is clear that St. Paul and Red Canyon share a relationship that reaches beyond the parameters of a “contractual, arms-length transaction.” Rather than supplement the record with documentation of Red Canyon’s ownership structure, St. Paul appends an affidavit to its opposition refuting the agency relationship. As previously noted, however, a non-moving party cannot create a genuine dispute simply by offering a conclusory, self-serving affidavit that is without corroboration. St. Paul’s affidavit contradicts itself and is an attempt to contradict the sworn statement of Mr. Sheikh and the other documentation mentioned above. As a matter of law, St. Paul’s affidavit is insufficient to create a genuine issue of material fact as to whether Red Canyon acted on behalf of St. Paul in entrusting the property to Bradford.

 

Having found Red Canyon acted on behalf of St. Paul, the Court now turns to the actual entrustment. Since the contract fails to define the term entrustment, this Court adopts the definition of “entrust” as “to confer trust upon; deliver something to (another) in trust. [T]o commit or surrender to another with a certain confidence regarding his care, use or disposal.” Webster’s Third Int’l Dictionary 759 (1993); see also Woldford v. Landmark Amer. Ins. Co., 196 W.Va. 528, 474 S.E.2d 458, 462 (W.Va.1996) (“ ‘[E]ntrust’ means ‘to commit or surrender to another with a certain confidence regarding his care, use, or disposal of.’ ”); Cougar Sport, Inc. v. Hartford Ins. Co. of Midwest, 190 Misc.2d 91, 737 N.Y.S.2d 770, 773 (N.Y.App.Div.2000) (“In using the word ‘entrust,’ the parties in this case ‘must be deemed to have entertained the idea of a surrender or delivery or transfer of possession with confidence that the property would be used for the purpose intended by the owner and as stated by the recipient.’ ”).

 

It is undisputed that access to the property was turned over to Bradford with confidence that he would care for the building and its contents. First, Mr. Sheikh testified under oath that prior to hiring Bradford, he sought the referral of a colleague because he wanted to hire a subcontractor he could trust. (Def.’s Mot. Summ. J. Ex. B, at HFIC000313–14). Second, Mr. Bradford received a set of keys to the property and often worked unsupervised. (Id. at HFIC000317). Third, within a few weeks of hiring Bradford, Mr. Sheikh traveled out of the country, leaving Bradford with the keys and unfettered access to the property. (Id.). Finally, the first contract Bradford signed required Bradford to take “reasonable steps to secure the Property against casualty, loss and vandalism including, but not limited to, locking all external doors and closing and locking all windows when not physically present at the Property.” (Def.’s Mot. Summ. J. Ex. N, at P–00037). Each of these actions illustrate that the property was surrendered to Bradford with confidence that he would complete the demolition work and secure the building. The Court, therefore, finds that it is undisputed that St. Paul, through Red Canyon, entrusted the property to Bradford. The Court now turns to the issue of who committed the theft.

 

2. Bradford Assumed Responsibility for the Removed Items

Hartford’s Entrustment Exclusion applies because St. Paul entrusted the property to Bradford, who subsequently assumed responsibility for the theft of St. Paul’s missing items. Hartford argues there is no genuine issue of material fact regarding the identification of the culpable individual. They argue, rather, that the undisputed facts reveal that Bradford accepted full responsibility for the theft. (Def.’s Mot. Summ. J., at 15). To support its argument Hartford relies upon the language of the Second Contract, which states “Mr. Basil Bradford accepts [sole responsibility] for damage done to the property.” (Def.’s Mot. Summ. J. Ex. N, at P–00039). Hartford also relies upon the sworn testimony of Mr. Sheikh, who confirms that Bradford not only assumed responsibility for the theft, but that law enforcement ceased its investigation into the theft upon a finding that Bradford identified himself as the culprit. (Id. at HFIC000320–24).

 

St. Paul argues Hartford failed to conclusively show Bradford committed the theft in question, citing the lack of a conviction or charge as a reason. (Pl.’s Opp’n to Def.’s Mot. Summ. J., at 23–26). St. Paul avers that Bradford’s assumption of responsibility in the Second Contract could be “merely an admission of … carelessness” or an “economic decision” reached to complete the project. (Id. at 25, 737 N.Y.S.2d 770). Moreover, St. Paul argues that Hartford’s claim notes are inconsistent and contradictory as to whether Bradford or one of his employees is responsible. (Id.). To support its argument, St. Paul again relies upon the affidavit of Mr. Farooq, which states that he was informed that Bradford believed one of his workers committed the theft and that he is unaware of the identity of the persons who stole the items from the property. (Id. Ex. 1, at ¶¶ 20, 29).

 

Based upon the sworn testimony of Mr. Sheikh and the language of the Second Contract, this Court finds that there is no genuine dispute of material fact that Bradford was responsible for the theft of the property. Contrary to St. Paul’s speculation regarding the meaning of Bradford’s admission, the Second Contract specifies the substance of the responsibility Bradford assumed. (See Def.’s Mot. Summ. J. Ex. N, at P–00039). For example, the plain language clearly states that Bradford “accepts [sole responsibility] for damage done to the Property. This damage, includes but is not limited to, the theft of wood trim from the board room … theft of the brass railings from the interior stairwell, [and] the theft of light fixtures from the interior stairwells,” among other things. (Id.). This language identifying the scope of Bradford’s admission is unambiguous. Furthermore, it is undisputed, based upon the testimony of Mr. Sheikh, that Bradford took the time to review the language of the Second Contract and asked questions prior to signing. (Def.’s Mot. Summ. J. Ex. B, at HFIC000323). Viewing these facts in a light most favorable to St. Paul, the Court finds it undisputed that Bradford is responsible for the theft of the property St. Paul entrusted to him. Hartford’s Motion for Summary Judgment as to Count I is therefore granted.

 

B. Failure to Act in Good Faith (Count II)

In evaluating a claim, Maryland law requires insurers to make “an informed decision based on honesty and diligence supported by evidence the insurer knew or should have known at the time the insurer made the decision on the claim.” Md.Code Ann., Cts. & Jud. Proc. § 3–1701(a)(4) (West 2012). A good faith determination under this statute requires the court to review the totality of the circumstances, which includes efforts of the insurer to resolve the dispute promptly and “the insurer’s diligence and thoroughness in investgating the facts specifically pertinent to coverage.” Cecilia Schwaber Trust Two v. Hartford Acc. and Indem. Co., 636 F.Supp.2d 481, 486–87 (D.Md.2009) (quoting State Farm Mut. Auto. Ins. Co. v. Laforet, 658 So.2d 55, 63 (Fla.1995)). However, the court cannot find that the insured failed to act in good faith without a finding that the insured breached the contract in question.

 

As previously noted, this Court finds that Hartford did not breach the insurance contract with St. Paul because Hartford properly denied coverage on the basis of the policy’s Entrustment Exclusion. Hartford’s Motion for Summary Judgment as to Count II is therefore granted.

 

IV. CONCLUSION

For the foregoing reasons, the Court concludes that Hartford’s denial of St. Paul’s insurance claim does not constitute a breach of contract or failure to act in good faith because the Entrustment Exclusion in the policy is applicable. Accordingly, it is hereby

 

ORDERED that Defendant Hartford’s Motion for Summary Judgment is GRANTED.

 

The Clerk is directed to ENTER JUDGMENT in favor of Defendant Hartford Fire Insurance Company and against Plaintiff 2315 St. Paul Street, LLC pursuant to Federal Rule of Civil Procedure 58. A separate Rule 58 Judgment Order will be entered with the Memorandum Opinion. The Clerk is directed to forward a copy of this Order to counsel of record.

United States District Court,

W.D. Louisiana,

Shreveport Division.

WRIGHT FAMILY INVESTMENTS, LLC

v.

JORDAN CARRIERS, INC., et al.

 

Civil Action No. 12–cv–0826.

June 25, 2012.

 

Kermit Lamar Walters, III, Michael L. Dubos, Breithaupt Dunn et al., Monroe, LA, for Plaintiff.

 

Sidney Earl Cook, Jr., C. Austin Holliday, Elizabeth M. Carmody, Cook Yancey et al., Shreveport, LA, Kristin L. Beckman, H. Minor Pipes, III, Barrasso Usdin et al., New Orleans, LA, for Defendants.

 

MEMORANDUM RULING

MARK L. HORNSBY, United States Magistrate Judge.

Introduction

Wright Family Investments, LLC (“Plaintiff”) filed suit in state court against a trucking company and its insurer for property damages. Plaintiff alleged that a tractor-trailer rig owned by the trucking company disregarded two signs, drove on the parking lot of Plaintiff’s Church’s Chicken restaurant in Arcadia, Louisiana, and caused damage. The insurer, Liberty Mutual Insurance Company, removed the case based on an assertion of diversity jurisdiction.

 

Plaintiff has filed a Motion to Remand (Doc. 7) in which it asserts that there is not a sufficient amount in controversy to permit removal. For the reasons that follow, the court finds that the defendants have not met their burden with respect to the amount in controversy. This case will be remanded to the Bienville Parish state court, and Liberty Mutual will be ordered to pay reasonable attorney fees incurred by Plaintiff as a result of the removal.

 

Amount in Controversy; Statutory Amendments

Diversity jurisdiction requires that “the amount in controversy exceeds the sum or value of $75,000, exclusive of interest and costs .” 28 U.S.C. § 1332(a). The state court petition was filed on February 10, 2012, which was after the January 6, 2012 effective date of amendments to 28 U.S.C. § 1446 made by the Federal Courts Jurisdiction and Venue Clarification Act of 2011.  Section 1446(c)(2) provides that the sum demanded in good faith in the initial pleading shall be deemed to be the amount in controversy, except that the notice of removal may assert the amount in controversy if the initial pleading seeks a money judgment, but the state practice does not permit demand for a specific sum. Louisiana Code of Civil Procedure article 893 provides that no specific monetary amount of damages shall be included in the allegations or prayer for relief of any demand. Plaintiff’s petition complied with that rule. It prayed for various categories of damages, plus statutory penalties and attorney fees, but it did not specify any amounts at issue.

 

The Act, which became effective on January 6, 2012, states that the amendments to Title I (which includes the amendments to Section 1446) “shall apply to any action or prosecution commenced on or after such effective date.” Public Law 112–63, § 105(a). It then adds in § 105(b) that “[f]or purposes of subsection (a), an action or prosecution commenced in State court and removed to Federal court shall be deemed to commence on the date the action or prosecution was commenced, within the meaning of State law, in State court.”

 

Section 1446(c)(2)(b) provides that removal of such an action is proper on the basis of an amount in controversy asserted in the notice of removal “if the district court finds, by the preponderance of the evidence, that the amount in controversy exceeds the amount specified in section 1332(a).” This new provision of Section 1446 is consistent with the approach long taken by the Fifth Circuit in similar cases. It has held that the removing defendant must prove by a preponderance of the evidence that the amount in controversy exceeds $75,000. The defendant may make this showing by: (1) demonstrating that it is “facially apparent” that the claims are likely above $75,000, or (2) setting forth the facts in controversy—in the notice of removal or an affidavit—that support a finding of the requisite amount. Luckett v. Delta Airlines, 171 F.3d 295, 298 (5th Cir.1999); Simon v. Wal–Mart Stores, Inc., 193 F.3d 848 (5th Cir.1999).

 

Analysis

The state court petition alleges that a driver for defendant Jordan Carriers, Inc. drove a tractor-trailer onto the paved parking lot of Plaintiff’s restaurant, despite two signs on the edge of the lot that clearly instructed that tractor-trailers were not allowed on the premises. Petition, ¶¶ 4–5. The tractor-trailer became trapped in the rear parking area. The driver did not have enough room to maneuver on the paved lot, and he drove across bare ground on the property, “causing deep ruts to the newly-landscaped grounds and knocking down the signs which instructed motorists that tractor-trailers were not allowed on the premises.” ¶ 6. This also “caused cracking and damage to the paved parking lot, the curbing and the sewer line running beneath the parking lot….” ¶ 7. Plaintiff lists six categories of damages, including property damage, loss of use of property during repairs, and cost to repair or replace damaged or destroyed property. ¶ 10.

 

Plaintiff alleges that it submitted sufficient proof of its damages to Liberty Mutual, which issued an auto liability policy that insured the tractor-trailer, but the insurer refused to tender payments. (Elsewhere in the record is a letter from Liberty Mutual in which it wrote that it was unable to honor the claim because it could not verify that its insured vehicle caused the damage at issue .) The refusal to pay the claim is alleged to have been arbitrary and capricious, entitling Plaintiff to recover reasonable attorney fees and a penalty pursuant to La.R.S. 22:1892(B)(1). ¶¶ 12–15.

 

Liberty Mutual acknowledges in its notice of removal that the petition is silent as to the amount in controversy and that the removing defendant has the burden of proving by a preponderance that the amount in controversy exceeds $75,000. Notice, ¶ 10. It then contends that it is “clear from the face of the Petition that plaintiff seeks an amount in excess of $75,000.” In support of this assertion, Liberty Mutual notes the various categories of damages mentioned in Paragraph 10 of the petition and that the limits of the policy at issue are $1,000,000. But the limits of a liability policy do not establish the amount in controversy. It is the amount of the underlying claim that controls. See Hartford Ins. Group v. Lou–Con, Inc., 293 F.3d 908 (5th Cir.2002). And removal “cannot be based simply upon conclusory allegations.” Felton v. Greyhound Lines, Inc., 324 F.3d 771, 774 (5th Cir.2003).

 

The petition and notice of removal provide no reasonable hint as to the dollar amount at issue. Any reasonable reader must have asked at least a half a dozen by times by now: What was the amount of the claim that Plaintiff submitted to Liberty Mutual?” That would certainly be among the very best evidence of the amount in controversy. That information was not provided until Plaintiff filed its motion to remand and attached a letter in which Plaintiff described the damage and demanded of the insurer a total of $7,958.28, which is less than 11% of the minimum amount in controversy for diversity jurisdiction.

 

Liberty Mutual responds that the amount at issue in the lawsuit is greater because Plaintiff’s pre-suit demand letter did not include the petition’s prayer for damages for “loss of use of property during repairs.” Liberty Mutual acknowledges that neither the demand letter nor the petition suggest an amount claimed for that category of damages. Accordingly, we know only that Plaintiff seeks some unspecified amount for loss of use that might not have been included in the scope of the original demand letter. The court may only guess at what reasonable amount might be associated with such a claim; there are no facts provided to assess its potential value. There is no suggestion that Plaintiff is claiming the loss of use of its entire business for any time. It appears that a portion of the parking lot may have been lost for some time, but the extent and duration of any such loss, and its impact on the business (if any), is completely speculative on the current record.

 

Liberty Mutual also states that the pre-suit demand did not include the petition’s prayer for damages for “costs to replace destroyed property.” The $7,958.28 demand letter did, however, include within that amount the expenses to “replace signs” and “replace landscaping and re-sod damaged area.” There is no factual basis for a contention that the lawsuit seeks damages for replacement of any other property. Perhaps Plaintiff has some additional items in mind, but there is no evidence of that in the record.

 

That the petition may include some categories of damages sought, without any facts to indicate the possible amounts at issue, is of little weight in determining the amount in controversy. The undersigned has explained before that almost every petition filed in this state will include a laundry list of damage categories, often boilerplate. The mere listing of such categories does not make it facially apparent or otherwise lend much support to a conclusion that more than $75,000 is in controversy. See Nordman v. Kansas City Southern Ry. Co., 2009 WL 976493,(W.D.La.2009). A stubbed toe petition filed in city court does not become a federal case just because the plaintiff’s attorney was creative enough to list several damage categories in the petition. Similarly, an $8,000 property damage claim does not become a federal case because the petition includes another category or two of damages that were not specifically mentioned in a pre-suit demand.

 

Liberty Mutual argues that Plaintiff not pleading that its damages are less than $75,000 means Liberty Mutual has met its burden. Louisiana Code of Civil Procedure article 893(A)(1), which generally prohibits a prayer for a specific monetary amount of damages, has an exception that allows such a prayer “if a specific amount of damages is necessary to establish … the lack of jurisdiction of federal courts due to insufficiency of damages….” Liberty Mutual argues that the absence of such an allegation in Plaintiff’s petition “operates as a concession that the jurisdictional minimum is met.”

 

The undersigned has previously rejected such arguments. If parties may not create subject-matter jurisdiction by express agreement or stipulation, which is well settled, then the mere inaction of the plaintiff (though perhaps in contradiction of a state procedural law) cannot give rise to presumptive federal jurisdiction or satisfy the removing defendant’s burden. There must be allegations of fact or other evidence in the record to support a determination of whether the amount in controversy requirement is met. Mere silence or inaction by the plaintiff, without facts to suggest the requisite amount in controversy, cannot satisfy the defendant’s burden. Lilly v. Big E Drilling Co., 2007 WL 2407254,(W.D.La.2007). Most Louisiana federal courts have stated that a plaintiff’s failure to include an Article 893 allegation, alone, is insufficient to establish the amount in controversy, but the omission is entitled to “some consideration” in the inquiry. See, e.g., Trahan v. Drury Hotels Co., LLC, 2011 WL 2470982,(E.D.La.2011); Ford v. State Farm, 2009 WL 790150,(M.D.La.2009); and Broussard v. Multi–Chem Group, LLC, 2012 WL 1492855,(W.D.La.2012).

 

Liberty Mutual also points to the claim for a statutory penalty and attorney fee, which are considered in determining the amount in controversy. See, e.g., Manguno v. Prudential Prop. & Cas. Ins. Co ., 276 F.3d 720, 723–24 (5th Cir.2002); St. Paul Reinsurance Co., Ltd. v. Greenberg, 134 F.3d 1250, 1253 (5th Cir.1998); and Stevenson v. State Farm Mut. Auto. Ins. Co., 2012 WL 1565312,(E.D.La.2012). The penalty statute cited by Plaintiff, La. R.S. 22:1892(B)(1), provides that if an insurer does not make a written offer to settle a property damage claim within 30 days after receipt of satisfactory proof of loss, when such failure is found to be arbitrary, capricious, or without probable cause, the insurer is subject to a penalty, in addition to the amount of loss, of 50% damages on the amount found to be due, or $1,000, whichever is greater. Thus the penalty could increase the amount in controversy from roughly $8,000 to $12,000. That is still a long way from $75,000.

 

As for the prayer for statutory attorney fees, the court may include no more than an estimated reasonable fee in assessing the amount in controversy.   House v. AGCO Corp., 2005 WL 3440834,(W.D.La.2005). If Plaintiff hit a home run on damages and penalties and won approximately $12,000, it would have to obtain more than $63,000 in attorney’s fees to exceed $75,000. It is possible $63,000 could be a reasonable fee for a $12,000 property damage litigation, but it is not very likely that such a large award would be made in a simple case of this kind. And it is Defendants’ burden to establish by a preponderance of the evidence—meaning it is more likely than not—that the amount in controversy exceeds $75,000. St. Paul Reinsurance Co., Ltd., 134 F.3d at 1253 n. 13 (“The test is whether it is more likely than not that the amount of the claim will exceed [$75,000].”). That the amount in controversy “may,” “might,” or “could well” exceed $75,000 is insufficient to satisfy that burden. Allen v. R & H Oil & Gas Co., 63 F.3d 1326, 1336 (5th Cir.1995). Liberty Mutual has not satisfied its burden, so Plaintiff is entitled to remand.

 

Attorney Fees

Plaintiff asks the court to award an unspecified amount of attorney fees and costs associated with filing its motion to remand. An order remanding a case “may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal.” 28 U.S.C. § 1447(c). There is no presumption in favor of awarding fees following a remand, and the use of the term “may” in the statute leaves the district court with discretion, with no heavy congressional thumb on either side of the scales. Martin v. Franklin Capital Corporation, 126 S.Ct. 704 (2005). That discretion is to be guided by the standard that: “Absent unusual circumstances, courts may award attorney’s fees under § 1447(c) only where the removing party lacked an objectively reasonable basis for seeking removal.” Id. at 711. “Conversely, when an objectively reasonable basis exists, fees should be denied.” Id. The district court also retains discretion to consider whether unusual circumstances warrant a departure from that rule in a given case. Id.

 

The undersigned rarely awards fees in connection with a successful motion to remand, because most removals have an objectively reasonable basis to support subject-matter jurisdiction. In this case, however, Liberty Mutual—with no backing evidence or articulated facts—has attempted to spin a property damage suit based on a rejected demand for less than $8,000 into a $75,000  federal case. It is unreasonable to suggest that the amount in controversy in such a case, even considering a possible 50% penalty and a reasonable attorney fee award, is more likely than not to exceed $75,000. No reasonable party would take that position. The removal has caused Plaintiff to incur wasted attorney fees, and the court’s attention to this case has come at the expense of cases for which there is an actual basis to exercise jurisdiction. Under these circumstances, an award of fees and costs is both warranted and deserved.

 

The court may award the “fees and costs incurred in federal court that would not have been incurred had the case remained in state court.” Avitts v. Amoco, 111 F.3d 30, 32 (5th Cir.1997). There were no conferences or activities in federal court other than the briefing of Plaintiff’s motion to remand. A review of the motion and supporting memorandum, and consideration of the research and drafting likely required for it, supports an award of $750. Liberty Mutual is ordered to pay that amount to Plaintiff, through its counsel of record, within 14 days of this ruling (unless an appeal is taken). Plaintiff’s Motion to Remand (Doc. 7) is granted and this case is remanded, subject to the stay set forth in the accompanying order, to the Second Judicial District Court, Bienville Parish, Louisiana, where the case was pending as No. 42–287.