Treon v. Aetna Life Insurance Company

• Court: District Court, D. Arizona
• Decided: May 19, 2020
• Docket: 2:20-cv-00529
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Dennis M. Treon, et al., No. CV-20-00529-PHX-JJT

10 Plaintiffs, ORDER

11 v.

12 Aetna Life Insurance Company, et al.,

13 Defendants. 14 15 At issue is Plaintiffs’ Motion to Remand (Doc. 11, Mot.), to which Defendant Aetna 16 Life Insurance Company filed a Response (Doc. 12, Resp.) and Plaintiffs filed a Reply 17 (Doc. 15, Reply). For the following reasons, the Court denies Plaintiffs’ Motion. 18 I. BACKGROUND 19 Plaintiff Dennis Treon, a special needs teacher with the Washington Elementary 20 School District, was enrolled with the school district’s insurance policy program with 21 Defendant. (Doc. 1 Ex. B, Compl. ¶ 3.) On or around September 20, 2016, Dennis began 22 experiencing the onset of the medical condition Polymyalgia Rheumatica (PMR). Among 23 other things, Dennis experienced loss of strength and muscle, severe pain, and swelling 24 throughout his body. Activities of daily living, including walking and standing up, became 25 very difficult. (Compl. ¶¶ 4–5.) He began seeking medical attention for his condition in 26 October 2016. On November 10, Dennis’s physician sent a medical report to Defendant 27 indicating he did not expect to see improvement in Dennis until at least January 10, 2017— 28 a date that was later extended to January 18 following another appointment with Dennis. 1 (Compl. ¶ 8.) Dennis also met with a rheumatologist for the first time on November 29, 2 who prescribed him a schedule of medication. (Compl. ¶ 7.) 3 The Complaint alleges that as a result of the PMR, Dennis was rendered totally 4 disabled and, accordingly, filed for short-term disability benefits with Defendant. On 5 December 6, 2016, Defendant approved Dennis to receive benefits, but approved payments 6 only through November 30, after determining he should have been able to return to work 7 by November 30. (Compl. ¶ 8.) Thus, Defendant terminated Dennis’s short-term benefits 8 as of November 30. Over the ensuing months, Dennis’s doctors sent Defendant 9 documentation recommending Dennis not return to work until May 2017 by some 10 accounts, and September 2017 by others. (Compl. ¶¶ 11–12.) 11 Dennis made a claim to Defendant for reinstatement of his benefits and went 12 through a series of appeals, all of which were denied. Defendant issued its final decision 13 denying benefits on March 5, 2018. (Compl. ¶ 13.) 14 Dennis and his wife, Janie Treon, filed the present action in the Superior Court of 15 Maricopa County, alleging breach of contract and insurance bad faith claims against 16 Defendant. (Compl. ¶ 16.) The Complaint seeks contract damages in the amount of 17 $24,170.47, plus interest; tort damages for emotional distress, humiliation, inconvenience, 18 and anxiety; attorneys’ fees and costs and “other tort damages as allowed by law;” and 19 damages to Janie resulting from loss of consortium caused by Defendant’s tortious conduct. 20 (Compl. ¶ 17.) 21 Defendant removed the case to this court on diversity grounds. (Doc. 1 at 2.) 22 Plaintiffs’ present Motion to Remand followed. 23 II. LEGAL STANDARD 24 Federal courts may exercise removal jurisdiction over a case only if subject matter 25 jurisdiction exists. 28 U.S.C. § 1441(a); Valdez v. Allstate Ins. Co., 372 F.3d 1115, 1116 26 (9th Cir. 2004). Federal courts have diversity jurisdiction over actions between citizens of 27 different states where the amount in controversy exceeds $75,000, exclusive of interest and 28 costs. 28 U.S.C. § 1332(a). The Supreme Court has concluded that, under § 1446(a), a 1 “notice of removal need include only a plausible allegation that the amount in controversy 2 exceeds the jurisdictional threshold.” Dart Cherokee Basin Operating Co. v. Owens, 135 3 S. Ct. 547, 554 (2014). “Evidence establishing the amount is required by § 1446(c)(2)(B) 4 only when the plaintiff contests, or the court questions, the defendant’s allegation.” Id. 5 “[D]iversity jurisdiction is determined at the time the action commences, and a federal 6 court is not divested of jurisdiction . . . if the amount in controversy subsequently drops 7 below the minimum jurisdictional level.” Hill v. Blind Indus. & Servs of Md., 179 F.3d 8 754, 757 (9th Cir. 1999). 9 When a defendant’s assertion of the amount in controversy is challenged, then “both 10 sides submit proof and the court decides, by a preponderance of the evidence, whether the 11 amount-in-controversy requirement has been satisfied.” Dart Cherokee Basin, 135 S. Ct. 12 at 554; Sanchez v. Monumental Life Ins. Co., 102 F.3d 398, 404 (9th Cir.1996) (“[T]he 13 defendant must provide evidence establishing that it is ‘more likely than not’ that the 14 amount in controversy exceeds that amount.”). 15 The Ninth Circuit has noted that the Supreme Court did not decide the procedure 16 for each side to submit proof, leaving district courts to set such procedure. See Ibarra v. 17 Manheim Inv., 775 F.3d 1193, 1199–1200 (9th Cir. 2015) (citing Dart Cherokee Basin, 18 135 S. Ct. at 554). In assessing the amount in controversy, a court may consider allegations 19 in the complaint and in the notice of removal, as well as summary-judgment-type evidence 20 relevant to the amount in controversy. Chavez v. JPMorgan Chase & Co., 888 F.3d 413, 21 416 (9th Cir. 2018). And while a damages assessment may require “a chain of reasoning 22 that includes assumptions, . . . those assumptions cannot be pulled from thin air but need 23 some reasonable ground underlying them.” Ibarra v. Manheim Inv., 775 F.3d 1193, 1199– 24 1200 (9th Cir. 2015). Thus, a court may consider, inter alia, evidence of jury awards or 25 judgments in similarly situated cases, settlement letters, affidavits, and declarations. See, 26 e.g., Cohn v. Petsmart, Inc., 281 F.3d 837, 840 (9th Cir. 2002); Ansley v. Metro. Life Ins. 27 Co., 215 F.R.D. 575, 578 & n.4 (D. Ariz. 2003). 28 1 III. ANALYSIS 2 The parties do not dispute that complete diversity exists. (Mot. at 1; Resp. at 3–4.) 3 The issue presented is whether the amount in controversy exceeds $75,000, excluding 4 interest and costs. See § 1332(a). Defendant asserts it can get to over $75,000 a number of 5 different ways. The Court will address the kinds of damages and fees requested in the 6 Complaint in turn. 7 A. Contract Damages 8 Plaintiffs seek $24,170 for alleged breach of contract damages stemming from 9 Defendant’s denial of Dennis’s short-term disability benefits. This sum represents two- 10 thirds of the balance of his salary for the 2016-2017 school year, which was the contracted 11 rate of reimbursement of benefits under the policy. (Compl. ¶ 14.) Defendant does not 12 dispute the amount of $24,170 as the alleged breach of contract damages. Accordingly, the 13 Court accepts this figure for purposes of resolving the present Motion. 14 B. Tort Damages 15 Defendant makes several arguments regarding the amount of tort damages at stake 16 in this litigation. First, Defendant contends the tort damages alleged are at least $49,019. 17 The basis for this figure is a sentence in the body of Plaintiffs’ Complaint that states, “As 18 a result of his illness and Defendant’s breach of its contract, Dennis was not able to seek a 19 new contract for the school year 2017-2018 despite having been tendered a contract by the 20 Washington Elementary School District and therefore retired.” (Compl. ¶ 15.) Because 21 Dennis’s yearly contract was for a salary of $49,019, Defendant argues this amount can be 22 taken into account when assessing the amount in controversy. (Resp. at 11.) 23 Although the Court is not entirely clear at this juncture why Plaintiffs included that 24 sentence in the Complaint, it is satisfied that Plaintiffs are not seeking the value of Dennis’s 25 2017-2018 contract as tort damages. First, Plaintiffs expressly say so in their Motion and 26 Reply. (See Mot. at 5 n.1; Reply at 3 n.2.) Second, Plaintiffs did not list lost income in their 27 prayer for relief in the Complaint, nor allege a claim of tortious interference with business 28 relations against Defendant. Accordingly, the Court rejects Defendant’s argument that tort 1 damages of $49,019—representing the value of Dennis’s contract for the 2017-2018 school 2 year—can presumptively be added to the $24,170 contract damages. 3 Second, Defendant argues Plaintiffs are seeking at least $25,830 in tort damages— 4 or at least $50,000 in contract and tort damages combined—because Plaintiffs certified in 5 state court that the amount in controversy exceeds $50,000. More specifically, Plaintiffs 6 signed and filed a Certificate Re: Compulsory Arbitration in which they avowed they were 7 seeking an award of at least $50,000, excluding attorneys’ fees. (Doc. 1 Ex. B at 12.) See 8 also Ariz. R. Civ. P. 72(b); A.R.S. Super. Ct. Local Prac. Rules, Maricopa County, Rule 9 3.10. 10 Courts in this district consistently find for purposes of resolving a motion to remand 11 that a plaintiff’s certificate regarding compulsory arbitration sufficiently establishes an 12 amount in controversy of at least $50,000, exclusive of attorneys’ fees. See, e.g., Welsh v. 13 New Hampshire Ins. Co., 843 F. Supp. 2d 1006, 1009 (D. Ariz. 2012); Dukes v. Twin City 14 Fire Ins. Co., No. CV-09-2197-PHX-NVW, 2010 WL 94109, at *2 (D. Ariz. Jan. 6, 2010). 15 The Court likewise accepts this argument. However, this demonstrates only that the 16 contract and tort damages at stake are at least $50,000. Defendant must show by a 17 preponderance of the evidence that the remaining damages and fees exceed $25,000, 18 bringing the total amount in controversy to over $75,000. As articulated below, the Court 19 finds Defendant has met this burden. 20 Defendant next argues the tort damages at stake are likely significant because 21 “Arizona bad faith verdicts tend to exceed $75,000, even in cases where there are no policy 22 benefits at issue and cases where there is no physical injury at issue.” (Resp. at 11.) 23 Defendant cites insurance bad faith cases involving contract damages close to those at issue 24 here, but with large accompanying tort damage awards. For example, in McClure v. 25 Country Life Ins. Co., 326 F. Supp. 3d 934 (D. Ariz. 2018), a jury awarded the plaintiff 26 $23,469.35 in contract damages, representing the policy benefits, and $1,290,000 for 27 emotional distress, humiliation, inconvenience, and anxiety stemming from the insurer’s 28 bad faith. In Hunton v. Am. Zurich Ins. Co., No. 2:16-CV-00539-PHX-DLR (D. Ariz. Apr. 1 17, 2018), a bad faith insurance case in the workers’ compensation arena, a jury awarded 2 the plaintiff $250,000 for emotional distress, pain, discomfort, humiliation, inconvenience, 3 and anxiety. Like the McClure and Hunton plaintiffs, Plaintiffs here claim damages from 4 emotional distress, humiliation, inconvenience, and anxiety. (Compl. ¶ 17.) 5 Defendant lists several other bad faith cases in which the plaintiffs were ultimately 6 awarded tort damages that equaled many multiples of the underlying contract damages. 7 See, e.g., Leavey v. UnumProvident Corp., No. CV–02–2281–PHX–SMM, 2006 WL 8 1515999 (May 26, 2006) (jury awarded $809,028 in policy benefits and $4,000,000 in 9 mental, emotional, and physical pain and suffering compensatory damages). Here, a tort 10 damages award of just two times the alleged contract damages would push the amount in 11 controversy to approximately $72,500, excluding attorneys’ fees. In the Court’s 12 experience, an award of tort damages at least twice the amount of contract damages is a 13 reasonable estimate for determining the amount in controversy in an insurance bad faith 14 case. More importantly, however, is that Plaintiffs did not address or rebut Defendant’s 15 argument on this point. Nor did Plaintiffs show the unlikelihood of such a ratio of tort to 16 contract damages by, for example, citing to similar cases with more modest tort damage 17 awards. 18 Accordingly, the Court finds Defendant has met its burden to show the tort damages 19 at stake in this litigation, together with the contract damages, more likely than not exceed 20 $75,000. Any amount short of $75,000 would be easily made up by Plaintiffs’ attorneys’ 21 fees at stake, as described below. 22 C. Attorneys’ Fees 23 Attorneys’ fees are included in computing the amount in controversy where an 24 underlying statute or contract authorizes an award. Galt G/S v. JSS Scandinavia, 142 F.3d 25 1150, 1156 (9th Cir. 1998). The Ninth Circuit also recently held that the total amount of 26 attorneys’ fees at stake are included in the calculation. Fritsch v. Swift Transportation Co. 27 of Arizona, LLC, 899 F.3d 785, 794 (9th Cir. 2018). In other words, it is no longer true that 28 only those fees incurred at the time of removal are considered. All fees, including future 1 attorneys’ fees recoverable by statute or contract, are contemplated when assessing the 2 amount in controversy. Id. 3 Arizona law authorizes a discretionary award of reasonable attorneys’ fees in 4 contract actions and for related bad faith claims. A.R.S. § 12-341.01; Sparks v. Republic 5 Nat’l Life Ins. Co., 647 P.2d 1127, 1142 (Ariz. 1982). Courts typically use the lodestar 6 amount—the number of hours spent on a case times the attorney’s hourly rate—to 7 determine reasonable fees. See Lange v. Penn Mut. Life Ins. Co., 843 F.2d 1175, 1184 (9th 8 Cir. 1988). Here, Defendant submitted a declaration and detailed estimates of the range of 9 rates an attorney of Plaintiffs’ counsel’s experience and expertise charge in Phoenix in 10 insurance bad faith actions. (See Resp. 8–9.) In citing myriad cases involving similar 11 claims, Defendant estimates Plaintiff’s counsel’s hourly rate is approximately $375 to $425 12 per hour. Using those rates, Defendant projects Plaintiffs’ counsel would reach $25,000 in 13 fees with approximately 59 to 67 hours of work. 14 In reply, Plaintiffs’ counsel did not disclose his rates or take issue with the numerical 15 estimates provided by Defendants. Rather, he contends that such estimates are “ipse dixit 16 and not competent proof.” (Reply at 7.) However, in estimating future attorneys’ fees, 17 district courts “may rely on their own knowledge of customary rates and their experience 18 concerning reasonable and proper fees.” Fritsch, 899 F.3d at 795. Even utilizing a lower 19 hourly rate, the Court, in its experience, finds that the number of hours Plaintiffs’ counsel 20 will expend in litigating this case will more likely than not push the total amount in 21 controversy over $75,000, especially accounting for the alleged contract damages and the 22 tort damages described in the preceding sections. 23 In either event, Plaintiffs essentially concede that counsel had already incurred up 24 to $10,000 in fees by the time of removal. (Mot. at 3.) As the Court noted above, Defendant 25 met its burden in showing that collectively, the tort and contract damages are likely at least 26 $72,150 (representing the undisputed alleged contract damages and two times those for tort 27 damages). Adding in Plaintiffs’ counsel’s already incurred fees of $10,000 comfortably 28 pushes the amount in controversy over the jurisdictional threshold. 1 IT IS THEREFORE ORDERED denying Plaintiffs’ Motion to Remand 2\| (Doc. 11). 3 Dated this 19th day of May, 2020. CN 4 “wok: Unie State#District Judge 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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