Insurance lawyers and lawyers who practice law in Federal Court know the requirements for a case to be in Federal Court. Most of the time, lawyers representing clients who are suing an insurance company try to stay out of Federal Court.
Pursuant to 28 U.S.C., Section 1332(a), for an insurance company to have a case be tried in Federal Court it must be proven that the parties are citizens of different states and the amount in controversy exceeds $75,000, exclusive of interest and costs. When a case is removed premised upon diversity jurisdiction, courts determine the amount in controversy in light of “the claims in the state court petition as they existed at the time of removal.” As a general rule, the amount in controversy alleged in the State Court petition determines the amount in controversy so long as it was pled in good faith.
This issue arose in a case in the Southern District of Texas, Houston Division. The case is styled, Nicolas Martinez v. Liberty Insurance Corporation.
If a defendant shows that on the face of the state court petition or by a preponderance of the evidence the amount in controversy exceeds $75,000, the plaintiff may defeat removal by showing with legal certainty that the claims alleged are for less than $75,000. A Texas plaintiff who wishes to avoid removal by limiting their recovery to less than $75,000 as a matter of law must file a binding stipulation or affidavit with his original state petition.
Martinez argues the action should be remanded because ( 1) his state court petition alleges that he seeks a maximum of $74,000, (2) his pre-suit demand letter to Liberty shows that the amount in controversy was less than $75,000, and (3) Martinez has filed a binding stipulation that he and his attorney will not seek or recover more than $75,000.
In state court Texas Rule of Civil Procedure 47(c) requires plaintiffs to state in an original petition the range of monetary relief sought among five pre-defined ranges. The lowest range is “monetary relief of $100,000 or less, including damages of any kind, penalties, costs, expenses, pre-judgment interest, and attorney fees.” Accordingly, when a plaintiff alleges in his Texas state court petition that his claim does not exceed $75,000, his pleading contravenes Texas rules and is an attempt to circumvent federal diversity jurisdiction. Furthermore, alleged damages stated in a Texas state court petition cannot prove that the amount in controversy does not exceed that amount as a legal certainty because plaintiffs may supersede those allegations with amended pleadings.
Martinez’s Original Petition alleges that he seeks relief in Rule 47’s under-$100,000.00 range and further specifies that he seeks “a maximum amount of damages that does not exceed the sum or value of $74,000, exclusive of interest and costs.” The paragraph then states: “Removal would be improper because there is no federal question and the matter in controversy does not exceed the sum or value of $75,000.” This pleading contravenes Texas state court rules and would not have bound Martinez to recover less than $75,000; it serves solely to avoid federal jurisdiction. The alleged maximum of $74,000 was not made in good faith and therefore does not control the action’s amount in controversy.
Martinez argues that his pre-litigation demand letter shows that the true amount in controversy is less than $75,000. The demand letter sought $29,460.55 for damages, plus $3,850 for attorney’s fees and other expenses. It also threatened litigation under the Texas Deceptive Trade Practices Act where the damages would be subject to trebling, although Martinez stated he would not seek more than $75,000 if he sued. But that statement did not bind Martinez; a plaintiff must file a binding stipulation along with the complaint to conclusively establish the amount in controversy and avoid removal. Disregarding the letter’s non-binding promise, the letter includes a claim for treble damages plus attorney’s fees, which exceed $75,000. The demand letter accordingly shows the amount in controversy exceeds $75,000. Accordingly, the court has diversity jurisdiction over the action unless Martinez can show that it is a legal certainty he will not recover more than $75,000.