September 5, 2017
In Lighthouse Property Insurance Corp. v. Rogers, 2017 WL 3634593, the United States District Court for the District of South Carolina considered a motion to dismiss for lack of subject matter jurisdiction in an action founded on diversity jurisdiction. Briefly, an injured minor sued the insured defendant in state court for claims arising out of a dog bite to the minor’s face. Relying on a clear exclusion in the insured’s homeowner’s policy, Lighthouse denied coverage. Lighthouse then initiated a declaratory judgment action in the district court, against both the injured minor’s parents and the insured. The minor’s parent filed a motion to dismiss on two grounds: (1) the court lacked subject matter jurisdiction due to the insufficient amount in controversy, and (2) abstention principles.
Addressing her first argument, the minor’s parent claimed the district court lacked subject matter jurisdiction because the amount in controversy was less than $75,000. Pointing to the injured minor’s demand of less than $75,000, the minor’s parent argued such was a fortiori proof the amount in controversy was not met for diversity purposes. The court shrewdly noted the minor’s parent did not admit the amount of the demand or whether it had expired. In responding to the substance of the argument, the district court found that a settlement demand is not a stipulation for purposes of diversity jurisdiction. The district also held the minor’s parents could not, after initiation of the action in federal court, stipulate to the amount in controversy to defeat subject matter jurisdiction. The district continued, and referencing the underlying tort claim, determined the injured minor sought punitive damages against the insured, a fact “alone [which] makes it virtually impossible to say that the claim is for less than the jurisdictional amount.” See Woodward v. Newcourt Comm. Fin. Corp.
Turning to the second argument, the minor’s parent argued the district should abstain from exercising jurisdiction over this declaratory judgment action, citing the Nautilus factors. In Nautilus Insurance Company v. Winchester Homes, Inc., the Fourth Circuit ruled a district court’s discretion to decline to hear a declaratory judgment action should be guided by three factors:
(i) the strength of the state’s interest in having the issues raised in the federal
declaratory action decided in the state courts, (ii) whether the issues raised in
the federal action can more efficiently be resolved in the court in which the
state action is pending, (iii) whether permitting the federal action to go forward
would result in unnecessary ‘entanglement’ between the federal and state court
systems, because of the presence of “overlapping issues of fact or law.”
The district court summarily rejected the minor parent’s argument, holding the action “presents the straightforward question” of whether the insured’s homeowner’s insurance policy covers the dog bite injuries. Addressing each Nautilus factor, the district found the minor parent’s arguments “mere conclusory recitals of the Nautilus factors bereft of any application to the facts of this case.” In fact, she failed to “identify any uncertain issue of state law the present case implicates and [provided] no reason for the Court to suppose that this case will not be determined by well-established and straightforward contract and insurance law.”
This case demonstrates two immutable rules when arguing in the district courts of South Carolina:
(1) “don’t bite the hand that feeds you” – give the court sufficient factual argument to accompany the legal argument; and
(2) “don’t let sleeping dogs lie” – if you want to stipulate the amount in controversy, do it timely, not after the federal filing.
Bruce Wallace practices with Nexsen Pruet’s business and consumer litigation group in Charleston. He represents a variety of banking and financial institutions in real estate litigation, commercial litigation, and mortgage foreclosures. He also represents insurers and corporate clients in bad faith and coverage issues, professional liability, business litigation (including disputes involving partnerships, limited liability companies, and closely held companies), and probate litigation matters (including trusts and estates).