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Paros Properties LLC v. Colorado Casualty Insurance Co.

United States Court of Appeals, Tenth Circuit

August 29, 2016

PAROS PROPERTIES LLC, Plaintiff-Appellant,
v.
COLORADO CASUALTY INSURANCE COMPANY; OHIO SECURITY INSURANCE COMPANY, Defendants-Appellees.

         Appeal from the United States District Court for the District of Colorado (D.C. No. 1:14-CV-01190-MSK-NYW)

          Mark D. Changaris (Kathleen T. Alt and George V. Berg, Jr., with him on the brief), Berg Hill Greenleaf & Ruscitti, LLP, Boulder, Colorado, for Plaintiff-Appellant.

          Brian J. Spano (Lyndsay K. Arundel, with him on the brief), Lewis Roca Rothgerber LLP, Denver, Colorado, for Defendants-Appellees.

          Before TYMKOVICH, Chief Judge, HARTZ, and MORITZ, Circuit Judges.

          HARTZ, Circuit Judge.

         I. INTRODUCTION

         A mudslide destroyed a commercial building (the Building) in Boulder, Colorado, owned by Paros Properties LLC (the Owner) and insured under a policy (the Policy) issued by Colorado Casualty Insurance Company (the Insurer). The Owner filed an insurance claim but the Insurer denied payment because damage from mudslides is excluded from policy coverage. The Owner then filed a state-court suit seeking payment under the Policy and damages for bad-faith breach of the insurance contract. It argued that the mudslide caused the building to explode, bringing the incident within the scope of an explosion exception to the Policy's mudslide exclusion. The Insurer removed the action to federal court, which granted summary judgment to the Insurer. On appeal the Owner argues (1) that the district court lacked subject-matter jurisdiction because the Insurer's removal from state court was untimely and (2) that the district court erred on the merits in holding that there was no coverage. We have jurisdiction under 28 U.S.C. § 1291. We hold that the notice of removal was too late. But because the district court correctly ruled on the merits and the jurisdictional requirements were satisfied at that time, we affirm the judgment below rather than burden the state court and the parties by requiring relitigation.

         II. BACKGROUND

         Torrential rainfall hit Boulder in September 2013. On the night of September 12 a violent flow of water, mud, and debris thundered down a hillside into the Building, causing extensive damage. The Owner submitted an insurance claim but the Insurer denied it after a brief inspection. It explained in a letter: "The inspection revealed that there was a Mudslide that caused the damage to your buildings. Damages caused by Mudslides or Mudflows are specifically excluded under your policy." Aplt. App., Vol. 2 at 268.

         The Owner retained counsel to challenge the denial. Counsel hired an engineer, who inspected the Building on October 15, 2013, and (after a site inspection a year later) issued a report on his findings on November 3, 2014. According to the report, "The debris laden flow impacted the south elevation of the structure, causing a sudden reaction of the wall structure." Report of Edward L. Fronapfel, Supp. Aplee. App., Vol. 1 at 65. The impact caused the property to "split into two separate structures along a north-south wall line. The eastern portion laterally displaced to the northeast, while the western portion laterally displaced to the northwest. The roof structure collapsed where the building separation occurred due to the sudden loss of the bearing walls." Id. at 73. The Owner demolished the building on October 23, 2013.

         On October 24, 2013, counsel for the Owner sent a letter to the Insurer claiming wrongful denial of coverage. It stated that the "force of the mudslide caused [the Owner's] building, literally, to explode, " Aplt. App., Vol. 4 at 631, and that the resultant damage was therefore compensable under the explosion exception to the mudslide exclusion in the Policy. It also accused the Insurer of failing to conduct a full and reasonable investigation of the Owner's claim before denying coverage and, somewhat oddly given the building's demolition, requested that the Insurer "complete its investigation into the facts and circumstances surrounding the loss to the . . . Building." Id. at 634. On November 14, the Insurer, which had not been advised of the demolition, informed the Owner that it would continue to investigate the claim and had scheduled an engineer to inspect the site the next morning. When the engineer arrived, he saw that the Building had been demolished.

         On January 29, 2014, the Owner's attorney sent an email to the Insurer with "further explanation of the amounts of the losses suffered by our client." Aplt. App., Vol. 4 at 625. The email indicated that the Building loss exceeded $1.1 million. (The policy limit was $907, 600.) The record contains no indication that the Insurer responded to this email.

         On February 26, 2014, the Owner filed its suit in Colorado state court. The complaint alleged "catastrophic damage to the Property and its contents" and claimed damages relating to cleanup, reconstruction, and loss of income and use. Complaint, Aplt. App., Vol. 1 at 21 ¶ 19. It did not quantify the damages other than to say that "[t]he amount in dispute is more than $15, 000." Id. at 20 ¶ 6. It also referenced, but did not attach, correspondence sent "[o]n or about January 30, 2014." Id. at 23 ¶ 31. On appeal the Owner claims that this was a reference to its January 29 email tallying losses exceeding $1.1 million.

         On April 23, 2014, in its initial damages disclosures under Colorado Rule of Civil Procedure 26(a)(1)(C), the Owner claimed to be "in the process of calculating specific damage amounts" and listed the amount of all damages as "TBD." Aplt. App., Vol. 1 at 30. Two days later, the Owner served its first supplemental disclosures, enumerating damages exceeding $1.3 million. Id. at 32-33. Three days after that, the Insurer removed the case to the United States District Court for the District of Colorado. The Owner moved that court to remand, but the court denied the motion and later granted summary judgment to the Insurer.

         III. TIMELINESS OF REMOVAL

         A. General Principles

         The Insurer was served with the complaint on February 26, 2014, and filed its notice of removal on April 28, 2014. Under the federal removal statute the notice ordinarily must be filed "within 30 days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based." 28 U.S.C. § 1446(b)(1).[1] This deadline was clearly not met. The Insurer relies, however, on an escape hatch. Under another provision of the removal statute, "if the case stated by the initial pleading is not removable, a notice of removal may be filed within 30 days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable." Id. § 1446(b)(3).[2] Most courts, including this one, have consistently interpreted the term other paper broadly to include state-court filings and discovery. See, e.g., Huffman v. Saul Holdings Ltd. Partnership, 194 F.3d 1072, 1079 (10th Cir. 1999) (30-day clock triggered by deposition testimony); DeBry v. Transamerica Corp., 601 F.2d 480, 488-89 (10th Cir. 1979) (clock not triggered by ambiguous deposition testimony); 14C Charles Alan Wright and Arthur R. Miller, Federal Practice and Procedure § 3731, at 524 ("The federal courts have given the reference to 'other paper' an expansive construction and have included a wide array of documents within its scope.") And this position has now been codified in 28 U.S.C. § 1446(c)(3)(A).[3]

         The Insurer points out that it could not remove the case to federal court under diversity jurisdiction (it is not disputed that the Owner and the Insurer are citizens of different states) unless the amount in controversy was at least $75, 000, see 28 U.S.C. § 1332(a) (requirements for diversity jurisdiction); id. § 1441(a) (requirements for removal), and it contends that the initial complaint left in doubt whether the Owner's claim equaled or exceeded $75, 000. It says that it was not put on notice until April 25, when the Owner disclosed its damages computation of over $1.3 million.

         The question before us, then, is when could the Insurer "first . . . ascertain[] that the case [was] one which [was] or [had] become removable." Id. § 1446(b)(3). In particular, could the Insurer have ascertained removability from the complaint itself and, if not, could it have done so from some "other paper" it received before the Owner disclosed its damages computation?

         This circuit has been very strict in assessing whether the grounds for removal are ascertainable. We require a specific allegation that damages exceed the federal jurisdictional amount of $75, 000.[4] The 30-day clock does not begin to run until the plaintiff provides the defendant with "clear and unequivocal notice" that the suit is removable. Akin v. Ashland Chemical Co., 156 F.3d 1030, 1036 (10th Cir. 1998). In Akin federal jurisdiction hinged upon whether exposure to a toxic substance occurred within a federal enclave. See id. at 1034. The complaint alleged "injuries sustained 'while working at' Tinker Air Force Base." Id. at 1035. We held that this allegation "did not provide unequivocal notice of the right to remove" because the phrase while working at was ambiguous; it could have been a "geographical modifier" (meaning the exposure occurred on the base) or a "durational modifier" (exposure occurred during the time the plaintiffs were employed by the base). See id.

         Huffman, 194 F.3d 1072, is similar. The plaintiffs leased space to operate a retail furniture store, but the defendant landlord failed to fix a leaking roof for a number of months. See id. at 1075. The lessees filed a complaint containing numerous allegations from which the defendant might well have surmised that damages exceeded the jurisdictional floor: that the "constant problem with the roof leaking made it almost impossible to carry on a business, " that it "was impossible to avoid or prevent the moldy, damp, smelly atmosphere of the store, " and that "[c]ustomers complained and often left quickly without taking time to browse or really shop the furniture items because of these intolerable conditions." Id. (internal quotation marks omitted). Further, the complaint sought actual and punitive damages. Id. at 1077. But as to dollar amount the complaint said only that the plaintiffs sought "in excess of $10, 000." Id. at 1077 (internal quotation marks omitted). We ruled that based on the complaint, the defendant "could only guess as to whether the claim exceeded $75, 000" and that the complaint therefore failed to put the defendant on notice of removability. Id. The 30-day clock was not triggered until the store owner's deposition testimony that the plaintiffs sought more than $300, 000. See id. at 1079.

         DeBry, 601 F.2d 480, illustrates that our strict standard also applies to notice provided after the complaint. We considered whether the plaintiff's deposition testimony gave notice that he was a citizen of Utah (for purposes of establishing diversity of citizenship). The complaint alleged that he had been a citizen of Utah until June 1972. See id. at 481-82. He testified that after "mov[ing] to California [from Salt Lake City] the first part of July of 1972, " he had "returned [to Salt Lake City] in August of [1974] and purchased a unit." Id. at 495. We held that this testimony did not give notice. Because the plaintiff "did not say that he had permanently moved, " the defendant did not "learn with certainty" from the deposition that the plaintiff was a citizen of Utah. Id. at 488-89.

         Our strict rule is justified by important practical considerations. Litigation concerning when the defendant realized or should have realized the amount in controversy or the like can expend considerable resources of the court and the parties. And the expenditure is wholly unnecessary. Any time the plaintiff wishes to start the 30-day clock, it can provide the defendant with an unambiguous notice of what is being claimed. For similar reasons, other circuits have held that they will not inquire into a defendant's subjective knowledge or what the defendant should have inferred from an investigation or a review of its files. See, e.g., Moltner v. Starbucks Coffee Co., 624 F.3d 34, 38 (2d Cir. 2010) ("[T]he removal clock does not start to run until the plaintiff serves the defendant with a paper that explicitly specifies the amount of monetary damages sought . . . . Requiring a defendant to read the complaint and guess the amount of damages that the plaintiff seeks will create uncertainty and risks increasing the time and money spent on litigation."); Foster v. Mut. Fire, Marine & Inland Ins. Co., 986 F.2d 48, 54 (3d Cir. 1993), overruled on other grounds by Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc., 526 U.S. 344 (1999) ("[T]he relevant test is not what the defendants purportedly knew, but what [the plaintiff's] documents said."); Lovern v. Gen. Motors Corp., 121 F.3d 160, 162 (4th Cir. 1997) ("[W]e will not require courts to inquire into the subjective knowledge of the defendant, an inquiry that could degenerate into a mini-trial regarding who knew what and when . . . . [The grounds for removal must] be apparent within the four corners of the initial pleading or subsequent paper."); Mumfrey v. CVS Pharmacy, Inc., 719 F.3d 392, 399 (5th Cir. 2013) (seeking to "promote efficiency by preventing courts from expending copious time determining what a defendant should have known or have been able to ascertain at the time of the initial pleading" and to "avoid encouraging defendants to remove cases prematurely for fear of accidentally letting the thirty-day window to federal court close when it is unclear that the initial pleading satisfies the amount in controversy"); Graiser v. Visionworks of Am., Inc., 819 F.3d 277, 285 (6th Cir. 2016) ("[A] defendant is not required to search its own business records or perform an independent investigation into a plaintiff's indeterminate allegations to determine removability." (internal quotation marks omitted)); Walker v. Trailer Transit, Inc., 727 F.3d 819, 825 (7th Cir. 2013) (requiring "specific and unambiguous notice that the case satisfies federal jurisdictional requirements and therefore is removable. Assessing the timeliness of removal should not involve a fact-intensive inquiry about what the defendant subjectively knew or should have discovered through independent investigation."); In re Willis, 228 F.3d 896, 897 (8th Cir. 2000) (per curiam) ("[T]he thirty-day time limit of section 1446(b) begins running upon receipt of the initial complaint only when the complaint explicitly ...


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