Meridian Sec. Ins. Co. v. Sadowski

• Decision Date: 22 March 2006
• Docket Number: No. 05-2855.,05-2855.
• Citation: 441 F.3d 536
• Parties: MERIDIAN SECURITY INSURANCE CO., Plaintiff-Appellant, v. David L. SADOWSKI, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

441 F.3d 536

MERIDIAN SECURITY INSURANCE CO., Plaintiff-Appellant, v. David L. SADOWSKI, et al., Defendants-Appellees.

No. 05-2855.

United States Court of Appeals, Seventh Circuit.

Argued February 9, 2006.

Decided March 22, 2006.

Robert M. Chemers (argued), Pretzel & Stouffer, Chicago, IL, for Plaintiff-Appellant.

Steven A. Smith (argued), Anderson & Wanca, Rolling Meadows, IL, for Defendants-Appellees.

Before BAUER, EASTERBROOK, and WOOD, Circuit Judges.

EASTERBROOK, Circuit Judge.

Meridian Security Insurance filed this action under the diversity jurisdiction. 28 U.S.C. § 1332(a)(1). It asked the district court to issue a declaratory judgment that it need not defend or indemnify its insured, The Rose Depot of Arlington Heights, against a claim pending in state court. Kamal Haddad, who filed that suit on behalf of a class, sought damages on account of unsolicited advertising faxes that The Rose Depot had sent to prospective customers.

The Telephone Consumer Protection Act prohibits most unsolicited commercial solicitations by facsimile and permits the court to award $500 per fax, a sum that may be trebled if "the defendant willfully or knowingly violated this subsection or the regulations prescribed under this subsection". 47 U.S.C. § 227(b)(3). Haddad proposed to represent a class of "more than 50" recipients of fax ads, and Meridian calculated the stakes of its federal suit by multiplying $1,500 (the maximum award per fax) by 51 (the minimum size of the class), which yields $76,500, or $1,500 more than the minimum required for federal jurisdiction. See Brill v. Countrywide Home Loans, Inc., 427 F.3d 446 (7th Cir. 2005), which holds that $1,500 multiplied by the number of class members is the amount "in controversy" under the Telephone Consumer Protection Act. The expense of providing a legal defense against Haddad's suit also counts for purposes of § 1332, but Meridian did not try to estimate this, thinking that the indemnity alone suffices.

Without holding a hearing under Fed. R.Civ.P. 12(b)(1), the district court dismissed the complaint for want of jurisdiction. The district court started with the norm that a dispute about an insurer's duty to indemnify generally is not ripe for decision until the insured has been called on to pay — for until then the precise ground of liability, and thus the relation of the insured's liability to the policy's coverage and exclusions, is uncertain. See, e.g., Lear Corp. v. Johnson Electric Holdings Ltd., 353 F.3d 580 (7th Cir.2003); Nationwide Insurance v. Zavalis, 52 F.3d 689, 693 (7th Cir.1995); Travelers Insurance Cos. v. Penda Corp., 974 F.2d 823, 833 (7th Cir.1992). Then, relying exclusively on other decisions issued by judges in the Northern District of Illinois, the court held that the stakes of any portion of a dispute not ripe for federal adjudication never count toward the amount in controversy under § 1332.

Because Meridian has not alleged that attorneys' fees alone will exceed $75,000, the court dismissed the suit outright. This put Meridian in an awkward position, for Illinois (where Haddad's suit was pending) requires an insurer to defend its client on demand, no matter how clear the policy may be that there is no such duty, unless it prosecutes an action for a declaratory judgment that the claim is outside the policy's coverage. See State Farm Fire & Casualty Co. v. Martin, 186 Ill.2d 367, 371, 238 Ill.Dec. 126, 710 N.E.2d 1228, 1230-31 (1999). We have held that suits materially identical to Haddad's do not require either defense or indemnity under policies materially identical to Meridian's. See American States Insurance Co. v. Capital Associates of Jackson County, Inc., 392 F.3d 939 (7th Cir.2004) (Illinois law). Yet the district court's decision left Meridian without a pending declaratory-judgment action or any apparent way to secure a federal adjudication, and thus with a state-law duty to defend The Rose Depot notwithstanding the policy's limitations. (Illinois might have allowed Meridian to pursue a declaratory-judgment action in its own courts, despite the passage of time in which none was on file, but as an out-of-state corporation with deep pockets, Meridian was unenthusiastic about that option.)

While Meridian's appeal was pending, Haddad and The Rose Depot settled for $7,500; attorneys' fees for the defense came to about $14,000. So Meridian's total obligation if the policy covers Haddad's claims turns out to be about $21,500. But these developments do not affect jurisdiction, which depends on the amount that was in controversy when the federal suit began. See St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 293, 58 S.Ct. 586, 82 L.Ed. 845 (1938). Post-filing events may mean that Meridian cannot recover costs (and must pay defendants' costs) even if it prevails, see 28 U.S.C. § 1332(b), but do not terminate jurisdiction that was proper at the outset. Thus we must decide whether the controversy exceeded $75,000 before the underlying dispute was resolved.

The district court supposed that ripeness always is a jurisdictional doctrine. Yet "ripeness is peculiarly a question of timing" rather than a limit on subject-matter jurisdiction. Regional Rail Reorganization Act Cases, 419 U.S. 102, 140, 95 S.Ct. 335, 42 L.Ed.2d 320 (1974). See also, e.g., Buckley v. Valeo, 424 U.S. 1, 113-18, 96 S.Ct. 612, 46 L.Ed.2d 659 (1976). Although a plaintiff's asserted injury may depend on so many future events that a judicial opinion would be advice about remote contingencies — and this aspect of ripeness is part of the case-or-controversy requirement, see Reno v. Catholic Social Services, Inc., 509 U.S. 43, 57 n. 18, 113 S.Ct. 2485, 125 L.Ed.2d 38 (1993); Socialist Labor Party v. Gilligan, 406 U.S. 583, 92 S.Ct. 1716, 32 L.Ed.2d 317 (1972) — these parties' disagreement about potential indemnity is part of a larger controversy that is neither conjectural nor speculative. Meridian's potential obligation to indemnify The Rose Depot was in controversy from the moment this suit began and could have been resolved while the state suit was ongoing. Because the duty to defend extends to many suits in which there will be no duty to indemnify — for defense depends on what the plaintiff alleges, while indemnity is limited to what the plaintiff proves, see Lockwood International, B.V. v. Volm Bag Corp., 273 F.3d 741, 745-47 (7th Cir. 2001) — a declaratory judgment that the insurer need not defend means that it need not indemnify either, whether or not the plaintiff makes good on his contentions. Had the district court concluded, as Meridian maintained, that the insurance does not cover Haddad's allegations, it would have prevailed on defense and indemnity at a stroke. No more is needed to show that the value of indemnity was "in controversy" on the date this federal case began.

Many decisions in this and other circuits count the potential outlay for indemnity toward the amount in controversy, whether or not adjudication about indemnity should be deferred until the state case is over. See, e.g., Grinnell Mutual Reinsurance Co. v. Shierk, 121 F.3d 1114 (7th Cir.1997); Motorists Mutual Insurance Co. v. Simpson, 404 F.2d 511, 515 (7th Cir.1968); Maryland Casualty Corp. v. United Corp., 111 F.2d 443, 447 (1st Cir. 1940); U.S. Fidelity & Guaranty Co. v. Pierson, 97 F.2d 560, 562 (8th Cir.1938); Hartford Insurance Group v. Lou-Con, Inc., 293 F.3d 908, 911-12 (5th Cir.2002); Farmers Insurance Co. v. McClain, 603 F.2d 821, 823 (10th Cir.1979). The contrary argument has been made often enough that both of the principal treatises on federal practice cover the topic, and both conclude that the potential indemnity obligation counts toward the jurisdictional minimum. 12 Moore's Federal Practice-Civil § 57.22[8][b] (2005 rev.); Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, 14B Federal Practice & Procedure § 3710 at 262-70 (3d ed.1998). Wright, Miller, and Cooper add that the argument for the exclusion of the potential indemnity "never has been accepted by the federal courts." Id. at 268. This passage needs amendment, now that several judges in the Northern District of Illinois have swallowed the bait, but it could be revised in light of today's decision to say that the position "never has been accepted by any federal court of appeals."

Appellees offer additional arguments in defense of their judgment, as they are entitled to do. One is that, because none of the class members would be entitled to recover more than $1,500, the rule against aggregating multiple litigants' claims to reach the jurisdictional floor, see Snyder v. Harris, 394 U.S. 332, 89 S.Ct. 1053, 22 L.Ed.2d 319 (1969), prevents a federal court from exercising jurisdiction. Yet Meridian has not aggregated multiple parties' claims. From its perspective there is only one claim — by its insured, for the sum of defense and indemnity costs. Hunt v. Washington State Apple Advertising Commission, 432 U.S. 333, 347-48, 97 S.Ct. 2434, 53 L.Ed.2d 383 (1977), holds that the antiaggregation rule does not apply to a federal declaratory-judgment action between a single plaintiff and a single defendant, just because the unitary controversy between these parties reflects the sum of many smaller controversies. No more need be said on this subject.

Appellees' other contention — which echoes some language in the district court's opinion — is that Meridian did not "prove" a "reasonable probability that jurisdiction exists." The requirement of "proof" comes from McNutt v. General Motors Acceptance Corp., 298 U.S. 178 189, 56 S.Ct. 780, 80 L.Ed. 1135 (1936) (if plaintiff's "allegations of jurisdictional facts are challenged by his adversary in any appropriate manner, he must support them by competent proof."). The "reasonable probability" language comes from Shaw v. Dow Brands, Inc., 994 F.2d 364, 366 (7th Cir.1993), and has been repeated in six other decisions of this circuit plus more than 80 decisions of...