Lacy v. Mid-Continent Casualty Co., Civ. A. No. 65-H-280.

• Decision Date: 17 November 1965
• Docket Number: Civ. A. No. 65-H-280.
• Citation: 247 F. Supp. 667
• Parties: Archie LACY, Plaintiff, v. MID-CONTINENT CASUALTY CO., Defendant.
• Court: U.S. District Court — Southern District of Texas

247 F. Supp. 667

Archie LACY, Plaintiff, v. MID-CONTINENT CASUALTY CO., Defendant.

Civ. A. No. 65-H-280.

United States District Court S. D. Texas, Houston Division.

November 17, 1965.

Patterson, McDaniel, Moore & Browder, Louis M. Moore, Houston, Tex., for plaintiff.

Barrow, Bland, Rehmet & Singleton, Vincent W. Rehmet, Houston, Tex., for defendant.

NOEL, District Judge.

This case was removed here from the 125th District Court of Harris County, Texas. Plaintiff in the removed cause of action is movant here, having filed herein his motion to remand his cause of action to the state court. No hearing has been had on the motion. The statements of fact made herein are based on the pleadings and briefs of the parties.

Plaintiff in the removed action, Archie Lacy, individually, and doing business as Lacy Truck Line, hereinafter also referred to as Lacy, alleges a cause of action under the Stowers doctrine,¹ as it is popularly known in Texas. In essence, the Stowers doctrine permits an assured to recover from his insurer the entire amount of a judgment rendered against him if, prior to judgment, the insurer negligently failed to accept a settlement offer within the liability limits of the insurance policy between them.²

In August of 1959, one of Lacy's employees collided with a car driven by H. H. Poole, hereinafter referred to as Poole. Poole sued Lacy for his injuries sustained as a result of the accident and prayed for $185,000 in damages. The defendant in this cause, Mid-Continent Casualty Company, hereinafter referred to as Mid-Continent, assumed defense of the trial under the obligation of an insurance contract it had entered into with Lacy. The policy limit was $100,000. Lacy alleges that (1) Poole's attorneys offered to settle the case several times; (2) the alleged offer that was advanced by Poole's attorneys prior to trial and during the trial was $93,000, an amount within policy limits; (3) before the final arguments and the submission of special issues to the jury, Poole made a firm settlement offer in writing of $92,500 to Mid-Continent, Lacy made written demand upon Mid-Continent to settle for that amount, and Mid-Continent refused to accept the settlement offer; and (4) at the conclusion of the jury arguments he made a second written demand upon Mid-Continent to settle, which Mid-Continent also refused. The jury returned a verdict against Lacy in the amount of $160,000, plus interest at 6% until paid.

Subsequent to the judgment, Mid-Continent tendered to Mr. Poole the policy limits of $100,000, plus interest on the whole judgment which had accrued through the date of tender, plus stipulated property damage of $432.32. Mr. Poole accepted the tender without prejudice to his right to collect the balance of $60,000 plus interest.

Thereafter, Lacy paid various additional sums in partial satisfaction of the judgment.³ Lacy alleges that under the Stowers doctrine, Mid-Continent became liable for the entire amount of the judgment rendered against him. Lacy filed his original petition February 6, 1962 with a prayer for damages of $5,000. He filed his First Amended Original Petition on August 21, 1963 with a prayer for damages of $10,000 and a further prayer for a "Declaratory Judgment pursuant to Article 2524-1 of the Revised Civil Statutes of Texas, declaring that all future payments upon the Judgment * * * shall be immediately reimbursable by Defendant, Mid-Continent * * *." Lacy filed his Second Amended Original Petition on May 7, 1965 with a prayer for damages of $31,500 and an identical request for declaratory relief.

On May 11, 1965 Mid-Continent filed a Petition for Removal with this Court. It alleges that Lacy, individually and doing business as Lacy Truck Line, is a citizen of Texas and that Mid-Continent itself is a foreign corporation, incorporated under the laws of Oklahoma and domiciled in Tulsa, Oklahoma, where it maintains and at all times has maintained its principal place of business. It also alleges that prior to the filing of Lacy's Second Amended Original Petition on May 7, 1965, the amount in controversy did not exceed the sum or value of $10,000, exclusive of interest and costs.

Lacy's Motion to Remand asserts that after he filed his First Amended Original Petition, the amount in controversy exceeded the sum or value of $10,000 and diversity existed, thus making the cause removable within twenty days after receipt by Mid-Continent of the First Amended Original Petition. According to Lacy, the removal by Mid-Continent was not timely under 28 U.S.C. § 1446 (b).⁴ Lacy's motion also denies that the matter in controversy did not exceed the sum or value of $10,000 prior to the filing of the Second Amended Original Petition.

The issue before the Court on the Motion to Remand may be stated thusly: When Lacy prayed for declaratory relief in his First Amended Original Petition filed August 21, 1963, did he allege a cause of action in excess of $10,000? The propriety of the removal to this Court turns upon the answer to this question.

Removal on the basis of diversity of citizenship generally conforms to the original jurisdictional grant in 28 U.S.C.A. § 1332, which requires an amount in controversy in excess of $10,000, exclusive of interest and costs. On removal, the defendant is the party seeking entrance into the federal court, and he has the burden of proving that the jurisdictional amount is present. 1 Moore, Federal Practice, para. .92 3-2 at 840 (2d ed. 1964). This motion, however, reverses the situation: Lacy seeks to prove the existence of the jurisdictional amount, and Mid-Continent denies it. Nonetheless, the defendant must prove that the case was not improperly removed when the amount in controversy or the timeliness is challenged by the plaintiff on a motion to remand. See John Hancock Mut. Life Ins. Co. v. United Office & Professional Workers of America, 93 F.Supp. 296 (D.N.J.1950) at 302: "It is likewise still the burden of the petitioner for removal to establish his right to remove which must be construed strictly and the petition should not be granted if there is doubt as to the right of removal in the first instance." (Emphasis supplied). See also, Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 61 S.Ct. 868, 85 L.Ed. 1214 (1941). If the action was originally removable, but was not removed, an amendment of the claim will not make the case again removable for purposes of the time limitation, unless the amendment gives rise to another basis for removal. Garden Homes, Inc. v. Mason, 143 F.Supp. 144 (D.Mass.1956). If the plaintiff's amendment provides the defendant the initial opportunity to remove, the date of service of the amended pleading controls for purposes of determining the time within which to remove.

In determining from the face of a pleading whether the amount in dispute is sufficient to confer jurisdiction upon a court of the United States, it is settled that if from the nature of the case as stated in the pleadings there could not legally be a judgment for an amount necessary to the jurisdiction, jurisdiction cannot attach even though the prayer includes damages at a larger sum. Vance v. W. A. Vandercook (No. 2), 170 U.S. 468, 18 S.Ct. 645, 42 L.Ed. 1111 (1898). In this diversity of citizenship case, the Court will look to the state rule to determine the jurisdictional amount. Erie R. R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).⁵

Mid-Continent asserts that, under Texas law, Lacy could not have recovered more than $10,000 on the basis of his First Amended Original Petition of August 21, 1963. It cites to the Court Parmelee v. Ackerman, 252 F.2d 721 (6th Cir. 1958), for the proposition that "In ascertaining the amount in controversy for jurisdictional purposes, `where the law gives the rule, the legal cause of action, and not the plaintiffs' demand for damages, must be regarded.'" Finally, as authority for the proposition that Texas law would not allow recovery, Mid-Continent cites Universal Auto. Ins. Co. v. Culberson, 126 Tex. 282, 86 S.W.2d 727, 87 S.W.2d 475 (1935).

The plaintiff cites as a guideline for his proposition the concurring opinion in Palmer v. Travelers Ins. Co., 319 F.2d 296 (5th Cir. 1963), which states that "Long before the expiration of the period in which to bring a damage suit for negligent failure to settle, the hapless, helpless assured would have a whole arsenal of effective weapons to bring the negligent insurer to the performance of its obligations. These would include declaratory judgments, third party complaints, or the like." 319 F.2d at 300. This language would be applicable in a diversity suit initiated in federal court under the federal declaratory judgment procedure, but it does not bear on the question of when, under state law, a cause of action existed that involved an amount in controversy in excess of $10,000. The concurring opinion did not cite any Texas case in support of its assertion that a declaratory judgment would lie.⁶

Although the Texas courts have recognized the Stowers doctrine for 36 years, they have not settled all of the problems that the original decision engendered. One unanswered question is before the Court on this motion to remand, and the consideration of this question requires a review of several aspects of the law of Texas.

"A suit in a Stowers fact situation actually involves both a cause of action in contract under the terms of the policy and a cause of action in tort for the amount of the judgment in excess of policy limits." Note, 18 Sw.L.J. 157, 160 (1964).⁷ Thus, the assured's right to recover from the insurer seemingly should be governed by the insurance contract up to the amount of policy limits, but it should not be governed by the contract as to the amount in excess of policy limits.

However, the cases and the writers who have dealt with this point seem to assume that the contract provisions also govern the right to recover for the tortious aspect of the...