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Sikirica v. Nationwide Insurance Co.

August 4, 2005

JEFFREY J. SIKIRICA, ESQ., AS TRUSTEE OF PITTSBURGH BEAUTY ACADEMY, INC.
v.
NATIONWIDE INSURANCE COMPANY JEFFREY J. SIKIRICA, APPELLANT



On Appeal from the United States District Court for the Western District of Pennsylvania. District Court No. 02-CV-1283. District Judge: The Honorable Joy F. Conti.

The opinion of the court was delivered by: Shapiro, District Judge.

PRECEDENTIAL

Argued January 11, 2005

Before: ROTH and CHERTOFF*fn1, Circuit Judges, and SHAPIRO*fn2, District Judge.

OPINION

Jeffrey Sikirica, Esq. ("Sikirica"), acting as bankruptcy trustee for the estate of the Pittsburgh Beauty Academy ("PBA"), brought this action against Nationwide Insurance Company ("Nationwide") for bad faith and breach of contract. Nationwide removed the action to federal court, and Sikirica moved for remand to state court. The District Court denied the motion to remand, and granted Nationwide's motion for judgment on the pleadings. Sikirica appeals.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

This litigation arose out of a class action in state court against PBA for fraud and consumer protection violations. Nationwide had previously issued PBA an insurance policy ("the Policy") under which Nationwide agreed to indemnify and defend PBA against various legal claims. Nationwide notified PBA that the Policy did not cover PBA for the class action allegations, and Nationwide refused to defend or indemnify PBA. Judgment was entered against PBA in the underlying class action. PBA filed for bankruptcy, and Sikirica, as trustee for PBA, sued Nationwide in state court for breach of contract and bad faith in failing to defend and indemnify PBA. Nationwide removed the action to federal court. The District Court denied Sikirica's motion to remand. Nationwide moved for judgment on the pleadings. The District Court, granting judgment in favor of Nationwide, held the bad faith claim was barred by the statute of limitations, and the policy did not cover intentional and fraudulent conduct. Sikirica now appeals.

The underlying events occurred in 1985, when Victoria Cinski ("Mrs. Cinski") went to PBA to have her hair colored by a PBA student. She signed a release purporting to absolve PBA of all liability in exchange for student-provided services at a reduced price. The Beauty Culture Act, 63 Pa. Cons. Stat. Ann. § 513 (1996), prohibits cosmetology schools from charging more than the cost of materials when students render the services. Mrs. Cinski was charged $9.15, but the cost of the materials was only $7.06. She also suffered serious injuries from the hair coloring.

Mrs. Cinski and her husband filed a state court action against PBA for fraudulent misrepresentation, negligence, personal injury, unjust enrichment, loss of consortium, and violations of the Unfair Trade Practices and Consumer Protection Law ("UTPCPL"), 73 Pa. Cons. Stat. Ann. §§ 201-1 to -9.3 (2005). Her complaint included class action allegations on behalf of all persons overcharged by PBA.

The trial court severed Mrs. Cinski's individual claims from the class action claims. Nationwide defended PBA in the individual action, but denied coverage and defense for the class action in a letter to PBA dated February 22, 1991:

Please be advised that Nationwide Insurance Company is denying coverage and any further defense cost pertaining to the class action allegations contained in the Complaint filed in the Court of Common Pleas of Allegheny County, Pennsylvania, by Victoria Lynn Cinski and Brian Cinski, her husband, individually and on behalf of others similarly situated, v. Pittsburgh Beauty Academy, Inc., No. GD87-14137. Our denial of coverage and further defense cost pertains only to the class action allegations beginning with Paragraph 55 and extending through Paragraph 61(h).

The class allegations cited would not fall within the insuring agreement for bodily injury or property coverage, nor would it fall within the coverage extended for personal or advertising injury. The insurance does not apply to advertising injury arising out of incorrect description or mistake in advertising of goods, products or services sold, offered for sale, or advertised.

Please be advised that the firm of Reale, Fossee and Ferry will continue to represent Pittsburgh Beauty Academy under the same reservation outlined in our letter of January 9, 1988 for the remaining allegations pertaining to the individual action of Victoria Lynn Cinski.

App. at 111.

The individual action went to trial in 1993. The trial court dismissed Mrs. Cinski's UTPCPL claim, but allowed the personal injury claims to go to trial; she prevailed. On appeal, the Pennsylvania Superior Court reinstated the UTPCPL claim because PBA overcharged Mrs. Cinski and deliberately misled her as to the reduced price. The Superior Court held that, "the trial court should have awarded appellant $100 under the Act for her direct damages from appellee's deliberate misrepresentation," but found no fraud, "as appellant has not shown proof of reliance or fraud, and the misrepresentation is de-minimus [sic]..." Cinski v. Pittsburgh Beauty Acad., Inc., 644 A.2d 802 (Pa. Super. Ct. 1994).

The class action subsequently proceeded to trial on three claims alleging fraudulent misrepresentation, unjust enrichment, and violations of the UTPCPL. A verdict was entered for the class, and the court awarded $100 to each class member with attorneys' fees and costs, a total judgment of approximately $290,000. Sikirica appealed to the Pennsylvania Superior Court. On March 27, 2001, the Superior Court affirmed because its prior ruling in Mrs. Cinski's individual action, "if not the law of the case, is at least res judicata or collateral estoppel as to PBA's issues" in the class action. Cinski v. Pittsburgh Beauty Acad., Inc., 777 A.2d 497 (Pa. Super. Ct. 2001).

On April 26, 2002, Sikirica, as Trustee, initiated a state court action against Nationwide by writ of summons for its failure to defend and indemnify PBA in the class action. The complaint, filed and served on July 8, 2002, set forth six claims. Count I alleged bad faith insurance practices under 42 Pa. Cons. Stat. Ann. § 8371 (1998)*fn3 for Nationwide's refusal to defend and indemnify PBA. Counts II through VI alleged breach of contract for failure to defend and indemnify under five sections of the Policy: 1) the Comprehensive General Liability section; 2) the Personal Injury and Advertising section; 3) the Professional Liability section; 4) the Contractual Liability section; and 5) the Comprehensive Crime Coverage section.

Nationwide removed to federal court on July 22, 2002. Sikirica, arguing there was no diversity jurisdiction and Nationwide did not timely remove, moved for remand to the state court. The District Court, ruling that Nationwide timely removed within the 30-day time period for removal that accrued when Sikirica filed the complaint, denied the motion.*fn4

Nationwide filed a motion for judgment on the pleadings under Fed. R. Civ. P. 12(c).*fn5 The District Court, adopting the magistrate judge's report and recommendation, granted the motion.*fn6 The court found the bad faith claim was barred by the statute of limitations. On the breach of contract claims, the court found Nationwide had no duty to defend because the class action complaint alleged only intentional conduct and the Policy did not cover intentional misconduct.

II. JURISDICTION AND STANDARD OF REVIEW

This court has jurisdiction over an appeal from a final decision of the District Court under 28 U.S.C. § 1291. There is subject matter jurisdiction under 28 U.S.C. § 1332.

The standard of review for subject matter jurisdiction is plenary. Samuel-Bassett v. KIA Motors Am., Inc., 357 F.3d 392, 396 (3d Cir. 2004). The party asserting jurisdiction bears the burden of showing the action is properly before the federal court. Id. The statute governing removal, 28 U.S.C. § 1441, must be strictly construed against removal. Id.

The standard of review for a motion for judgment on the pleadings is plenary. Jablonski v. Pan Am. World Airways, Inc., 863 F.2d 289, 290 (3d Cir. 1988). Judgment will not be granted unless the movant clearly establishes there are no material issues of fact, and he is entitled to judgment as a matter of law. Soc'y Hill Civic Ass'n v. Harris, 632 F.2d 1045, 1054 (3d Cir. 1980). We must view the facts presented in the pleadings and the inferences to be drawn therefrom in the light most favorable to the nonmoving party. Id.

Interpretation of an insurance policy is a question of law, and review is plenary. Westport Ins. Corp. v. Bayer, 284 F.3d 489, 496 (3d Cir. 2002). In construing the policy, if the words of the policy are clear and unambiguous, the court must give them their plain and ordinary meaning. Pac. Indem. Co. v. Linn, 766 F.2d 754, 760-61 (3d Cir. 1985). When a term is ambiguous, and the intention of the parties cannot be discerned from the policy, the court may look to extrinsic evidence of the purpose of the insurance, its subject matter, the situation of the parties, and the circumstances surrounding the making of the contract. Id. at 761. Ambiguous terms must be strictly construed against the insurer, but the policy language must not be tortured to create ambiguities where none exist. Id.

III. DISCUSSION

A. Sikirica's Motion to Remand for Untimely Removal

Sikirica contends Nationwide did not remove to federal court within 30 days of its receipt of service of process as required by 28 U.S.C. § 1446(b). This argument requires us to determine when the 30-day period for removal began.

Sikirica demanded $300,000 in a letter to Nationwide dated April 5, 2002. The writ of summons informing Nationwide of the parties' citizenship was served on Nationwide on April 29, 2002. Sikirica argues these two documents together constitute sufficient notice of diversity jurisdiction to trigger the 30-day period upon service of the writ of summons. If so, removal was untimely because Nationwide did not file a petition for removal until July 22, 2002, more than 30 days after the writ of summons was served.

The District Court, relying on Foster v. Mutual Fire, Marine & Inland Insurance Co., 986 F.2d 48 (3d Cir. 1993), held that the letter together with the writ of summons did not constitute notice of diversity jurisdiction. The District Court found Nationwide did not receive notice of diversity jurisdiction until the complaint was filed and served on July 8, 2002. Because the action was removed on July 22, ...


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