Judge: 'Simple math' keeps insurer's case in federal court

PHILADELPHIA – A property company’s motion to dismiss a lawsuit it’s facing from an insurance provider on the basis of lack of proper jurisdiction was struck down in federal court on Thursday.

Frederick Mutual Insurance Company of Frederick, Md., brought suit in federal court against KP Construction (doing business as Mark Katona Roofing), Tepper Properties, Inc. and John Perna, all of Bala Cynwyd on Feb. 17, seeking a declaratory judgment to determine its rights and obligations under a policy it issued to Katona and Perna.

As the parties are based in different states, diversity of citizenship applies, and as the contested amount exceeds $75,000 according to plaintiff Frederick Mutual, federal court would be the proper venue to hear the case, a judge for the U.S. District Court for the Eastern District has ruled.

Underlying this legal proceeding is a civil action now pending in the Montgomery County Court of Common Pleas, filed by Tepper against Katona and Perna. In that lawsuit, Tepper initiated litigation against Katona and Perna in connection with a contract for roofing services related to the replacement of a roof on a multi-family dwelling owned by Tepper.

The state court complaint alleges damages in excess of $50,000. Tepper’s belief is prior to filing the instant action, Katona and Perna noticed Frederick Mutual of the “First-Filed State Action,” resulting in it seeking to disqualify coverage under the insurance policy.

Tepper filed a motion to dismiss the lawsuit from federal court on April 10, citing a lack of proper jurisdiction.

Senior Judge Robert F. Kelly made his ruling in this matter on May 21.

“Tepper asserts that Frederick Mutual has not established that the amount in controversy in this action exceeds $75,000. Tepper states there is no allegation that they themselves suffered any harm in excess of $75,000.00 and the only damages that plaintiff could be potentially liable for are those suffered by defendant Tepper in the underlying First-Filed State Action,” Kelly said.

“Tepper further argues that Frederick Mutual ‘offers no factual evidence, citation, or support to otherwise bolster its claim that the underlying First-Filed State Action somehow increased in value from ‘excess of $50,000.00’ as pleaded in defendant Tepper’s complaint to the plaintiff’s complaint stating the amount is now in excess of $75,000.00.’”

Kelly did not favor this argument.

“We disagree. Here, on the face of the state complaint, Tepper seeks a judgment against Katona and Perna in ‘an amount in excess of fifty thousand dollars ($50,000).’ However, we are of the opinion that the allegations and demands in the State Complaint itself establish that the amount in controversy exceeds $75,000,” Kelly said.

Kelly said “simple math” determined the amount Tepper was seeking had to exceed the federal court threshold level of $75,000.

“The state complaint avers causes of action for breach of contract, breach of express warranty, breach of implied warranty, and breach of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law. Under this Act, Tepper alleges entitlement to an award three times the amount of its actual damages. In addition, under this claim, Tepper specifically states that it ‘will have to spend an amount in excess of $50,000, plus costs and attorneys’ fees,’” Kelly wrote.

“Simple math indicates that trebling Tepper’s alleged damages, in addition to attorneys’ fees and costs, would amount to more than $150,000 in damages demanded. Furthermore, Tepper claims that it is entitled to punitive damages.

“Overall, we find that Tepper cannot make a convincing argument that the amount in controversy in this case is less than $75,000 when it has asked for treble damages in its state court action and punitive damages as well,” Kelly added.

Kelly said Frederick Mutual has asserted it will incur expenses from defending Katona in the amount of $38,000, with potentially more expenses to come later.

“Thus, assuming Frederick Mutual is unsuccessful in its declaratory action, it will be potentially obligated to indemnify Tepper for the damages awarded it in state court which could amount to more than $150,000, as well as incur its own costs and attorneys’ fees in defending Tepper,” Kelly said.

On that basis, Kelly ruled the requirements for federal oversight and venue were satisfied and struck down Tepper’s motion of lack of proper jurisdiction.

The plaintiff is represented by Michael F. Nerone of Pion Johnston Nerone Girman Clements & Smith, in Pittsburgh.

The defendants are represented by Eric C. Milby of Lundy Flitter Beldecos & Berger, in Narberth, and Gregory Creed Littman of Freundlich & Littman, in Philadelphia.

U.S. Eastern District Court of Pennsylvania case 2:15-cv-00764

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com