Owners Ins. Co. v. James

• Decision Date: 07 November 2003
• Docket Number: No. CIV.A. 1:03-CV-0016-CAP.,CIV.A. 1:03-CV-0016-CAP.
• Parties: OWNERS INSURANCE COMPANY, Plaintiff, v. Lucinda J. JAMES; Stephen P. Litras; Harry Johnson Builders, Inc.; Harry Johnson; and Precision Plastering, Inc., Defendants.
• Court: U.S. District Court — Northern District of Georgia

295 F.Supp.2d 1354

OWNERS INSURANCE COMPANY, Plaintiff, v. Lucinda J. JAMES; Stephen P. Litras; Harry Johnson Builders, Inc.; Harry Johnson; and Precision Plastering, Inc., Defendants.

No. CIV.A. 1:03-CV-0016-CAP.

United States District Court, N.D. Georgia, Atlanta Division.

November 7, 2003.

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Michael C. Kendall, Maureen Elizabeth Murphy, Conoscienti, Storm & Kendall, Decatur, GA, for plaintiff.

Charles Fermery Peebles, Office of Charles F. Peebles, Norcross, GA, for defendants.

ORDER

PANNELL, District Judge.

This matter is now before the court on defendants James and Litras' motion to dismiss [Doc. No. 14-1]; the plaintiff's motions for default judgment against Harry Johnson, Inc. [Doc. No. 20-1], Precision Plastering, Inc. [Doc. No. 21-1], and Harry Johnson [Doc. No. 22-1]; and the plaintiff's motion for summary judgment [Doc. No. 23-1].

For the reasons set forth below, defendants James and Litras' motion to dismiss is DENIED, the plaintiff's motions for default judgment are GRANTED, and the plaintiff's motion for summary judgment is GRANTED.

Factual Background

The plaintiff, Owners Insurance Company ("Owners Insurance"), filed this action for declaratory judgment pursuant to 28 U.S.C. § 2201 and Federal Rule of Civil Procedure 57. Essentially, Owners Insurance seeks a determination from this court that it has no duty to defend or indemnify Precision Plastering, Inc. ("Precision") for the claims asserted against it by Harry Johnson Builders, Inc. ("HJB") and its president, Harry Johnson, in a lawsuit pending in the Superior Court of Gwinnett County ("the underlying suit").

In May of 1996, Lucinda J. James and Stephen P. Litras ("the homeowners") purchased a newly-constructed residence located at 625 Dartington Way, Alpharetta, Georgia. The homeowners allege that subsequent to closing on the purchase of the residence, they discovered that it was improperly constructed with synthetic stucco cladding, commonly known as an Exterior Insulation and Finish System ("EIFS"). They further allege that water has penetrated behind the EIFS and caused other property damage, including deterioration of windows, breaking down of gypsum sheathing, wood rot, and elevated moisture within the wall cavities.

On June 21, 2002, the homeowners filed the underlying suit against their builders, HJB and Mr. Johnson ("the builders"). In that action, the homeowners seek recovery for, inter alia, damage caused by the improper and defective application of the EIFS under the theories of negligence and fraud. In response, the builders filed a third-party complaint against several parties, including Precision, which provided all of the labor and material for application of the EIFS to the residence. The builders seek indemnification, contribution, and other relief from Precision under the theories of breach of contract, breach of warranty, and negligence.

Owners Insurance issued successive commercial general liability ("CGL") insurance policies to Precision, policy numbers 03326654 and 934618-48326654, with collective policy periods from May 3, 1993 through May 3, 1996.¹ However, the final policy was canceled as of 12:01 a.m. on June 1, 1995. Upon receiving notice of the claims against Precision in the underlying suit, Owners Insurance issued a letter to Precision reserving its rights to contest coverage under the insurance policies.

Legal Analysis

I. Defendants James and Litras' motion to dismiss

The court first considers the motion to dismiss filed by defendants James and Litras. In this motion, the homeowners argue that the instant action is due to be dismissed because of (1) lack of subject matter jurisdiction and (2) failure to properly serve Mr. Litras.

A. Subject matter jurisdiction

The plaintiff contends that subject matter jurisdiction exists in this case pursuant to 28 U.S.C. § 1332, the diversity jurisdiction statute. Under that statute, a district court has jurisdiction over any civil action where (1) the parties are "citizens of different States" and (2) "the matter in controversy exceeds the sum or value of $75,000, exclusive of interests and costs." 28 U.S.C. § 1332(a). When a plaintiff seeks injunctive or declaratory relief, the amount in controversy is the monetary value of the object of the litigation from the plaintiff's perspective. Federated Mut. Ins. Co. v. McKinnon Motors, LLC, 329 F.3d 805, 807 (11th Cir.2003). A plaintiff satisfies the amount in controversy requirement by claiming a sufficient sum in good faith. Id.

In this instance, the homeowners maintain that the court lacks subject matter jurisdiction because the amount in controversy does not exceed $75,000. Dismissal of a case brought under 28 U.S.C. § 1332 is proper where the pleadings make it clear to a legal certainty that the claim is really for less than the jurisdictional amount. Leonard v. Enterprise Rent a Car, 279 F.3d 967, 972 (11th Cir. 2002). See also St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-89, 58 S.Ct. 586, 590, 82 L.Ed. 845 (1938) ("The rule governing dismissal for want of jurisdiction in cases brought in the federal court is that, unless the law gives a different rule, the sum claimed by the plaintiff controls if the claim is apparently made in good faith. It must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal. The inability of plaintiff to recover an amount adequate to give the court jurisdiction does not show his bad faith or oust the jurisdiction. Nor does the fact that the complaint discloses the existence of a valid defense to the claim. But if, from the face of the pleadings, it is apparent, to a legal certainty, that the plaintiff cannot recover the amount claimed or if, from the proofs, the court is satisfied to a like certainty that the plaintiff never was entitled to recover that amount, and that his claim was therefore colorable for the purpose of conferring jurisdiction, the suit will be dismissed.") (footnotes omitted).

Generally speaking, the judicially established legal-certainty test makes it very difficult for a defendant to secure a dismissal of a case on the ground that it does not appear to satisfy the statutory jurisdictional amount requirement. See 14B Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction and Related Matters 3d § 3702 (1998). Only three situations clearly meet the legal-certainty standard for purposes of defeating the court's subject matter jurisdiction: (1) when the terms of a contract limit the plaintiff's possible recovery; (2) when a specific rule of substantive law or measure of damages limits the amount of money recoverable by the plaintiff; and (3) when independent facts show that the amount of damages was claimed by the plaintiff merely to obtain federal court jurisdiction. Id. See also Federated Mut., 329 F.3d at 808 (holding that (1) the insurance policy underlying the action did not satisfy the jurisdictional amount standing by itself because it provided only $50,000 in coverage and (2) the insurer's potential liability for bad faith damages did not bring the action within the court's jurisdiction because the damages sought under the bad faith claim were indeterminate and the claimant represented that it did not seek and, more importantly, would not accept damages in excess of $74,000); Boyd v. Homes of Legend, Inc., 188 F.3d 1294, 1299-1300 (11th Cir.1999) (holding that the district court erred when it took punitive damages into account in determining whether the claims satisfied the amount-in-controversy requirement because punitive damages were not recoverable on the plaintiff's claims).

In this case, the limits of the plaintiff's insurance policy with Precision extend to $1 million; thus, the plaintiff could potentially face liability exceeding $75,000. Compare Federated Mut., 329 F.3d at 808. In fact, the homeowners' complaint in the underlying suit seeks "general damages in an amount in excess of $40,000" on each of their two counts, thereby allowing for a recovery of more than $75,000.² Moreover, the amount in controversy in this action must take into account not only the recovery sought in the underlying suit, but also (1) the attorneys' fees sought by the homeowners in that action, see Federated Mut., 329 F.3d at 808 n. 4, and (2) the plaintiff's obligation to defend its insured in that action, see Stonewall Ins. Co. v. Lopez, 544 F.2d 198, 199 (5th Cir.1976).³

Therefore, the court cannot conclude that the amount in controversy in this case fails to meet the jurisdictional amount to a legal certainty. Thus, dismissal is not warranted on the basis of lack of subject matter jurisdiction.

B. Service of process as to defendant Litras

In the motion to dismiss, defendant Litras also complains that the plaintiff failed to perfect service of process on him in accordance with Federal Rule of Civil Procedure 4. According to Mr. Litras, the plaintiff attempted to serve him through Ms. James at her residence. However, Mr. Litras maintains that he has not resided there since March of 2002 and that Ms. James was not authorized to accept service of process for him.

Mr. Litras attached an affidavit to the motion to dismiss in which he indicated his current address. The plaintiff served him at that address on March 17, 2003, which is less than 70 days after the complaint was filed. Thus, the plaintiff complied with the requirements of Rule 4, providing that service must be accomplished within 120 days of the filing of a complaint.

Accordingly, defendants James and Litras' motion to dismiss is DENIED.

II. The plaintiff's motions for default judgment

Next, the court considers the plaintiff's motions for default judgment against defendants HJB, Precision, and Mr. Johnson. The plaintiff filed the complaint in this action on January 6, 2003. Precision was served with the summons and complaint on January 10, 2003, and HJB and...