Manguno v. Prudential Property & Casualty Insurance

UNITED STATES COURT OF APPEALS

For the Fifth Circuit

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No. 01-30411

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MERLE MANGUNO, Individually and as a representative of all

persons similarly situated,

Plaintiff-Appellant,

VERSUS

PRUDENTIAL PROPERTY AND CASUALTY INSURANCE COMPANY,

Defendant-Appellee.

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Appeal from the United States District Court

for the Middle District of Louisiana

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January 8, 2002

Before JONES and DeMOSS, Circuit Judges, and FELDMAN, District

Judge.*

FELDMAN, District Judge:

In November, 1993, Merle Manguno's 1990 Lincoln Towncar

was damaged in an accident. Manguno's insurer, Prudential Property

and Casualty Insurance Company, paid her for the repair of the car,

but not for the difference between the car's pre-loss value and its

value after the repairs (its "diminished value"). Manguno's

*

District Judge for the Eastern District of Louisiana,

sitting by designation.

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insurance policy provides that Prudential's liability is limited to

the least of (1) the actual cash value of the damaged car, (2) the

amount necessary to repair or replace the car with one of like kind

and quality, or (3) the amount stated in certain declarations.

In September 1999, Manguno filed a putative class action in

Louisiana state court against Prudential, on behalf of herself and

other Prudential policyholders who were not compensated for the

post-repair diminished value of their damaged vehicles. Manguno's

complaint charged that because Prudential refused to compensate her

for the car's diminished value, it had knowingly, intentionally,

and deceitfully breached its contract with Manguno and others

similarly situated. Manguno's petition also asserted that

Prudential had hidden and concealed its obligations to its

insureds. The petition added that "the amount in controversy does

not exceed $75,000" and "plaintiffs are not seeking attorneys fees

under La.R.S. 22:658." Prudential removed the case to federal

court based on diversity jurisdiction. See 28 U.S.C. § 1332.

Prudential asserted that the amount in controversy likely exceeds

the $75,000 jurisdictional threshold because potential attorney's

fees for the entire class should be aggregated and assigned to the

class representative for purposes of determining diversity

jurisdiction. Prudential submitted an uncontradicted affidavit

stating that, if aggregated, the class attorney's fees would likely

exceed $75,000. Manguno moved to remand the case to state court.

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The motion was referred to a magistrate, who found that Manguno's

petition contained facts which, if proved, would require an award

of attorney's fees under Louisiana Revised Statute § 22:658.1 The

magistrate determined that the statutory attorney's fees should be

aggregated and attributed to Manguno as the class representative

under Louisiana Code of Civil Procedure article 595.2 The

magistrate disregarded Manguno's stated waiver of statutory fees

because Manguno had neither verified her petition nor submitted a

binding stipulation waiving a claim for such fees. Thus, the

magistrate denied Manguno's motion to remand. The district court

affirmed the magistrate's ruling and retained jurisdiction.

Prudential moved to dismiss, contending that Manguno's policy

1

Louisiana Rev. Stat. 22:658 provides:

A.(1) All insurers issuing any type of contract . . . shall

pay the amount of any claim due any insured within thirty days

after receipt of satisfactory proofs of loss from the insured

or any party of interest. . .

B.(1) Failure to make such payment within thirty days after

receipt of such satisfactory written proofs . . . when such

failure is found to be arbitrary, capricious, or without

probable cause, shall subject the insurer to a penalty, in

addition to the amount of loss, of ten percent damages on the

amount found to be due from the insurer to the insured, or one

thousand dollars, whichever is greater, together with all

reasonable attorney fees for the prosecution and collection of

such loss.

2

Louisiana Code of Civil Procedure Article 595 provides:

The court may allow the representative parties their

reasonable expenses of litigation, including attorney's fees,

when as a result of the class action a fund is made available,

or a recovery or compromise is had which is beneficial, to the

class.

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did not require Prudential to compensate her for the post-repair

diminished value of her car. This motion was also referred to the

magistrate, who found that the "repair or replace" language in the

"limitation of liability" provision of Manguno's policy limited

Prudential's obligation to compensating Manguno for the repairs to

her car, and did not require the company to pay for post-repair

diminished value. The magistrate recommended granting Prudential's

motion, and the district court adopted the recommendation and

dismissed the case. Manguno appeals the district court's failure

to remand and its dismissal of her case. We affirm.

I. Standard of Review

The district court's orders denying remand and dismissing

Manguno's complaint are both reviewed de novo. See, e.g., Gebbia

v. Wal-Mart Stores, Inc., 233 F.3d 880, 882 (5th Cir. 2000); St.

Paul Mercury Ins. Co. v. Williamson, 224 F.3d 425, 439-40 n.8 (5th

Cir. 2000).

II. Removal

A party may remove an action from state court to federal court

if the action is one over which the federal court possesses subject

matter jurisdiction. See 28 U.S.C. § 1441(a). The removing party

bears the burden of showing that federal jurisdiction exists and

that removal was proper. De Aguilar v. Boeing Co., 47 F.3d

1404, 1408 (5th Cir. 1995); Jernigan v. Ashland Oil Inc., 989 F.2d

812, 815 (5th Cir. 1993) (per curiam); Willy v. Coastal Corp., 855

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F.2d 1160, 1164 (5th Cir. 1988). To determine whether jurisdiction

is present for removal, we consider the claims in the state court

petition as they existed at the time of removal. Cavallini v.

State Farm Mut. Auto Ins. Co., 44 F.3d 256, 264 (5th Cir. 1995).

Any ambiguities are construed against removal because the removal

statute should be strictly construed in favor of remand. Acuna v.

Brown & Root, Inc., 200 F.3d 335, 339 (5th Cir. 2000).

In this case, Prudential asserted federal jurisdiction on the

basis of diversity jurisdiction, which, in a class action, requires

complete diversity of citizenship of the named parties and an

amount in controversy in excess of $75,000, exclusive of interest

and costs. 28 U.S.C. § 1332(a)(1). Both parties concede that

complete diversity exists, and that the jurisdictional issue this

appeal focuses on is whether the case meets the $75,000

requirement.

We ordinarily consult the state court petition to determine

the amount in controversy. St. Paul Reins. Co. Ltd. v. Greenberg,

134 F.3d 1250, 1253 (5th Cir. 1998). However, Louisiana prohibits

plaintiffs from petitioning for a specific monetary amount. See

La. Code Civ. P. art. 893(A)(1). Therefore, where, as here, the

petition does not include a specific monetary demand, Prudential

must establish by a preponderance of the evidence that the amount

in controversy exceeds $75,000. See De Aguilar, 47 F.3d at 1412

(5th Cir. 1995). This requirement is met if (1) it is apparent from

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the face of the petition that the claims are likely to exceed

$75,000, or, alternatively, (2) the defendant sets forth "summary

judgment type evidence" of facts in controversy that support a

finding of the requisite amount. See Simon v. Wal-Mart Stores,

Inc., 193 F.3d 848, 850 (5 th Cir. 1999); Allen v. R & H Oil & Gas

Co., 63 F.3d 1326, 1335 (5th Cir. 1995); see also Luckett v. Delta

Airlines, Inc., 171 F.3d 295, 298 (5th Cir. 1999). If a state

statute provides for attorney's fees, such fees are included as

part of the amount in controversy. Foret v. State Farm Bureau Life

Ins. Co., 918 F.2d 534, 537 (5th Cir. 1990); see also 14A C. Wright

& A. Miller, Federal Practice & Procedure § 3712, at 176 (2d ed.

1985).

For purposes of determining the amount in controversy in a

Louisiana class action, it has been the belief of some courts that

Louisiana Code of Civil Procedure article 595 allocates to the

class representative the aggregate attorney's fees sought for the

entire class if a separate statute provides for recovery of

attorney's fees as an element of damages. In re Abbott

Laboratories, 51 F.3d 524, 526-27 (5th Cir. 1995), aff'd in part by

an equally divided court, 120 S.Ct. 1578 (2000).3 If the class

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District courts after Abbott have disagreed on whether

article 595 can be the basis for aggregating attorney's fees

absent an additional statute allowing for the recovery of such

fees. See Grant v. Chevron Chemical Co., 2001 WL 839010, *2

(E.D.La. 2001) (explaining the split among district courts). Some

cases have interpreted Abbott to mean that attorney's fees may be

aggregated only if a separate statute allows recovery of

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representative's claims, including the aggregated attorney's fees,

exceeds the jurisdictional minimum, then the district court may

exercise supplemental jurisdiction over the claims of all class

members. Id. at 529.

Manguno's petition alleges facts that, if proven, would give

rise to a claim for attorney's fees under La.R.S. 22:658, which

requires that an insurer pay any claim due to an insured within

thirty days of receipt of proof of loss or face the possibility of

penalties and fees. Manguno's allegations that Prudential

knowingly, intentionally, and deceitfully failed to pay her

according to her policy state a claim under this statute. See

Louisiana Maintenance Services, Inc. v. Certain Underwriters at

Lloyd's of London, 616 So.2d 1250 (La.1993)(stating that

"arbitrary, capricious, or without probable cause" refers to

insurers acting in bad faith); Steadman v. Pearl Assur. Co., 167

attorney's fees as an element of damages. See, e.g., Cooper v.

Koch Pipeline, Inc., 1995 WL 931091 (E.D.La.1997) (Fallon, J.);

Vaughn v. Mitsubishi Acceptance Corp., 1999 WL 1277541

(E.D.La.1999) (Sear, J.). Others have held that article 595, by

its own force, allows for the aggregation of attorney's fees and

does not require the support of a separate authorizing statute.

See, e.g., Millet v. Marathon Oil Co., 1995 WL 396313

(E.D.La.1995) (Clement, J.); Kimball v. Modern Woodmen of

America, 939 F.Supp. 479 (M.D.La.1996) (Parker, J.); In re Gas

Water Heater Products Liability Litigation, 1996 WL 732525

(E.D.La.1996) (Duval, J.). This issue is pending on appeal,

Grant v. Chevron Chemical Co., 2001 WL 839010 (E.D.La. 2001),

appeal docketed, No. 01-30939 (5th Cir. August 13, 2001).

Because Manguno has pled facts sufficient to sustain a cause of

action under La.R.S. 22:658, which provides for an award of

attorney's fees, this Court need not reach the issue of whether

article 595 by itself supports the aggregation of potential fees.

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So.2d 527 (La.App.Ct.1964)(defining "arbitrary" and "capricious" as

without reasonable cause). Under Abbott, then, the district court

was correct in aggregating attorney's fees for determining the

jurisdictional amount as article 595 instructs.

Prudential carried its burden of proving the jurisdictional

amount by submitting an undisputed affidavit stating (based on the

number and value of claims submitted to Prudential during the

relevant period) that the aggregate attorney's fees for the

putative class would likely exceed $75,000. Thus, the case should

be remanded only if Manguno can prove to a legal certainty that her

recovery will fall below $75,000. Manguno may establish this by

identifying a statute, or by filing a binding stipulation, that so

limits her recovery. See De Aguilar, 47 F.3d at 1412.

Manguno's purported waiver of attorney's fees is ineffective.

Louisiana Code of Civil Procedure article 862 provides that state

courts will grant to a successful plaintiff the relief to which she

is entitled, even if she has not demanded such relief. Likewise,

in De Aguilar, state law did not limit the plaintiff's recovery to

the amount specified in the ad damnum clause. This Court has

expressed its concern about the possibility of "abusive

manipulation by plaintiffs, who may plead for damages below the

jurisdictional amount in state court with the knowledge that the

claim is actually worth more, but also with the knowledge that they

may be able to evade federal jurisdiction by virtue of the

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pleading." De Aguilar at 1410.

Moreover, it is improbable that Manguno can ethically

unilaterally waive the rights of the putative class members to

attorney's fees without their authorization. See De Aguilar, 47

F.3d at 1413 (holding that representative plaintiffs had no

authority to limit class members' recovery); see also Pendleton v.

Parke-Davis, 2000 WL 1808500, *5 (E.D.La. 2000). Thus, Manguno

failed to demonstrate to a legal certainty that the amount in

controversy did not exceed the jurisdictional amount. The district

court properly denied Manguno's motion to remand.

III. Dismissal

Federal Rule of Civil Procedure 12(b)(6) allows a party to

move for dismissal of a complaint for failure to state a claim upon

which relief can be granted. Such a motion "is viewed with

disfavor and is rarely granted." See Kaiser Aluminum & Chem. Sales

v. Avondale Shipyards, 677 F.2d 1045, 1050 (5th Cir. 1982), cert.

denied, 459 U.S. 1105 (1983). The complaint must be liberally

construed in the plaintiff’s favor, and all facts pleaded in the

complaint must be taken as true. See Campbell v. Wells Fargo Bank,

781 F.2d 440, 442 (5th Cir.), cert. denied, 476 U.S. 1159 (1986).

A complaint should be dismissed under Rule 12(b)(6) if "it appears

beyond doubt that the plaintiff can prove no set of facts in

support of his claim which would entitle him to relief." Lowrey v.

Texas A&M University System, 117 F.3d 242, 247 (5th Cir.

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1997)(quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).

Although the Louisiana Supreme Court has not yet ruled on the

issue of diminished value losses, two Louisiana appeals courts have

recently held that almost identical "repair or replace" policy

language does not require the insurer to pay for diminished value

losses. See Townsend v. State Farm Mut. Auto Ins. Co., 793 So.2d

473 (La.Ct.App. 2001); Campbell v. Markel Amer. Ins. Co., 2001 WL

1105312 (La.Ct.App. 2001). In Townsend, for example, the Louisiana

Court of Appeals for the Second Circuit pointedly said:

[W]here an insurer has paid for full and adequate

physical repair to a damaged vehicle when a first party

claim is made, its obligation under the policy is

satisfied and it is not required to pay for any reduction

in market value of the vehicle . . . The policy provision

requiring the insurer to pay the cost of repair or

replacement limits the insurer's liability to the cost of

restoring the vehicle to substantially the same physical

condition as before the accident so that it is as fit for

operation as it was prior to the occurrence of the

damage.

Townsend, 793 So.2d at 480. Townsend and Campbell guide this

Court's Erie guess that the Louisiana Supreme Court would also find

that the "repair or replace" language in Manguno's policy limits

Prudential's liability to the cost of the actual and appropriate

restoration of her car only, and it is not required to compensate

her for the car's diminished value. Thus, Manguno does not state

a claim under Louisiana law upon which relief can be granted, and

the district court's dismissal was proper.

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The district court's rulings are, in all respects,

AFFIRMED.

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