Rhythm of Life Corp v. The Hartford Financial Services Group Inc.

Background

Rhythm of Life Corp., doing business as Broadway Dance and Broadway Dance West 65th, and Broadway Dance West LLC operate two dance studios in Manhattan under common management. After New York’s Governor ordered non-essential businesses to close in-office personnel functions in March 2020, the plaintiffs alleged that they had to close their studios. They submitted insurance claims in June and August 2020, but Sentinel Insurance Company Ltd. denied both claims.

The plaintiffs then filed a New York Supreme Court action seeking a declaration that their losses and additional expenses caused by the closure orders were covered by their insurance policies. The defendants removed the action to the U.S. District Court for the Southern District of New York under 28 U.S.C. § 1441(a). The plaintiffs moved to remand, arguing that the amount-in-controversy requirement for federal jurisdiction had not been met.

Issue

The issue was whether the value of the insurance dispute plausibly exceeded $75,000, the amount required for federal jurisdiction under 28 U.S.C. § 1332(a). For a case seeking a declaration about insurance coverage, the court measured the amount in controversy by the value of the underlying insurance claim.

Reasoning

The court held that the defendants had to show, by a preponderance of the evidence, that the claim’s value exceeded $75,000. The defendants’ notice of removal alleged that the plaintiffs sought many months of lost business income and increased operating costs for two dance studios, making it plausible that the amount exceeded the jurisdictional threshold.

After the plaintiffs challenged the amount, the defendants submitted additional material. They relied on a corporate research firm’s estimate that Rhythm of Life’s annual revenue was approximately $4.3 million. Because the relevant losses covered about 30 weeks, or 57 percent of a year, the court stated that the underlying claim could potentially reach about $2.5 million. The defendants also relied on information from the plaintiffs’ website indicating that the studios offered more than 350 drop-in classes each week and that each class cost $22 per person before the pandemic. Even assuming only one attendee per class, the court calculated $7,700 in weekly revenue and $231,000 over 30 weeks from drop-in classes alone.

The court noted that the plaintiffs offered no contrary allegation or evidence, did not dispute the defendants’ supporting material, and declined an invitation to stipulate that the claim was worth less than $75,000. Based on the record, the court found that the defendants had shown by a preponderance of the evidence that the value of the underlying claim plausibly exceeded the required amount.

Disposition

Judge Alvin K. Hellerstein denied the plaintiffs’ motion to remand. The court stated that it would retain jurisdiction over the action, instructed the Clerk of Court to terminate the open motion, and canceled the oral argument scheduled for March 1, 2021.