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Cornerstone National Insurance Co. v. Itule

United States District Court, Ninth Circuit

August 12, 2013

Cornerstone National Insurance Company, Plaintiff,
James Itule, Defendant.


G. MURRAY SNOW, District Judge.

Pending before the Court is Defendant's Motion to Dismiss, (Doc. 12). For reasons specified below, the Court denies the Motion.


On January 5, 2010, a collision occurred between Barbara Contreras and Defendant James Itule after Contreras allegedly failed to stop at a red light. (Doc. 22 at 2.) Plaintiff Cornerstone National Insurance Company ("Cornerstone") insured Contreras's vehicle with a policy that limits personal injury liability to $15, 000 per person. ( Id. ) Following the collision, Itule sent a conditional demand letter to Cornerstone demanding, inter alia, the bodily injury limits of $15, 000. (Doc. 12 at 1.) The letter further requested documents related to the policy as well as affidavits regarding the assets of the driver and nature of her travel. ( Id. at 2.) Cornerstone tendered the policy limits but did not send the other requested documents. ( Id. at 3.) On May 17, 2010, Itule filed suit against Contreras in Maricopa County Superior Court to recover damages beyond the $15, 000 tendered by Cornerstone. (Doc. 22 at 2.) Cornerstone filed an interpleader action stating that it had tendered the $15, 000 policy limits into the court. (Doc. 1 at 4.) It also requested the state court to find that Cornerstone did not act in bad faith towards Contreras. (Doc. 12 at 6.) The state court declined to rule on the request and consolidated the interpleader action with the underlying case on November 23, 2010. ( Id. at 4-5.) Cornerstone was dismissed without prejudice from the case after it deposited the $15, 000 policy limits with the clerk of the court. (Doc. 1 at 5.)

After initiation of the suit, Itule and Contreras entered into an Irrevocable Settlement Agreement (the "Agreement") on December 28, 2012, whereby Contreras withdrew her answer to Itule's state court complaint, allowed a default judgment in Itule's favor of $950, 000, and assigned any breach of contract or breach of good faith claims that Contreras may have against Cornerstone to Itule in exchange for Itule's agreement not to execute the state court judgment against Contreras. ( Id. at 3.) Cornerstone filed this declaratory judgment action against Itule on January 11, 2013. ( Id. ) Cornerstone requests the Court to declare that (1) Cornerstone met all its duties and obligations to Contreras under the policy and (2) Contreras breached the cooperation clause of the policy by confessing judgment and entering into the Agreement. ( Id. at 7-9.) Alternatively, Cornerstone requests a declaration that the stipulated amount of $950, 000 to settle the underlying injury claim was unreasonable. ( Id. at 7.) Cornerstone further requests attorneys' fees and costs. ( Id. ) Itule now moves to dismiss Cornerstone's Complaint for lack of jurisdiction.



A. Legal Standard

The Court may reach the merits of a dispute only if it has jurisdiction to do so. Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 93-95 (1998). Jurisdiction is limited to subject matter authorized by the Constitution or by statute. Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377 (1994). Federal courts also have diversity jurisdiction over cases where the amount in controversy exceeds $75, 000 and the parties are citizens of different states. See 28 U.S.C. § 1332(a).

Under Rule 12(b)(1), a defendant may challenge at any time a federal court's jurisdiction to hear a case. See Fed.R.Civ.P. 12(b)(1), 12(h)(3). In resolving a motion under Rule 12(b)(1), the Court is not limited to the allegations in the pleadings if the "jurisdictional issue is separable from the merits of the case." Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987). "The court may view evidence outside the record, and no presumptive truthfulness is due to the complaint's allegations that bear on the subject matter [jurisdiction] of the court." See Greene v. United States, 207 F.Supp.2d 1113, 1119 (E.D. Cal. 2002) (citing Augustine v. United States, 704 F.2d 1074, 1077 (9th Cir. 1983)). While lack of subject matter jurisdiction is an affirmative defense, "[t]he party asserting jurisdiction has the burden of proving all jurisdictional facts." Indus. Tectonics, Inc. v. Aero Alloy, 912 F.2d 1090, 1092 (9th Cir. 1990) (internal citation omitted).

B. Amount in Controversy

The Parties have stipulated to diversity of citizenship under 28 U.S.C. § 1332(a)(1). They dispute, however, whether Cornerstone's claim satisfies the amount in controversy requirement. The requirement is satisfied if a plaintiff makes a good faith claim that damages exceed $75, 000. Crum v. Circus Circus Enters., 231 F.3d 1129, 1131 (9th Cir. 2000). A good faith claim must be objectively reasonable-if it appears to a legal certainty that the claim is for less than the jurisdictional amount it must be dismissed. Geographic Expeditions, Inc. v. Estate of Lhotka, 599 F.3d 1102, 1106 (9th Cir. 2010) (citing St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 292 (1938)).

Cornerstone contends that it brings this action because the settlement amount of $950, 000 contained in the Agreement exposes it to liability above the jurisdictional requirement of $75, 000. In challenging jurisdiction, Itule asserts only that "plaintiff's declaratory judgment request asks the Court to limit its indemnification of Contreras to $15, 000, [so] the Court does not have subject matter jurisdiction." (Doc. 12 at 5.) But the amount in controversy is determined by "the value of the right to be protected or the extent of the injury to be prevented, " not by the value of the declaratory relief sought. Jackson v. Am. Bar Assoc., 538 F.2d 829, 831 (9th Cir. 1976). Cornerstone's claim arises from its potential liability to Itule based on the Agreement, and not from the $15, 000 limit on ...

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