Insurance Brokers West, Inc. v. Liquid Outcome, LLC
874 F.3d 294
| 1st Cir. | 2017Background
- IBW (California insurance agency) and Astonish (Delaware marketing firm, principal place in Rhode Island) entered a services agreement in Dec. 2010: $8,000 set-up fee + $2,695/month for 60 months.
- In Dec. 2014 the parties executed an unlabelled Amendment after disputes: Astonish agreed to redesign work, reduced monthly payments for remaining 18 months totaling $22,550, and the Amendment incorporated the original agreement.
- The Amendment included a broad Release: from its date forward IBW "will not sue for any reason" and forever releases Astonish from all claims known and unknown as of that date, except claims arising later from a material default in performance of the Amendment.
- 22 months after the Amendment, IBW sued for breach of contract for pre- and post-Amendment conduct and alleged damages exceeding $140,000 (based on payments made before and after the Amendment).
- Astonish moved to dismiss for lack of diversity jurisdiction under 28 U.S.C. § 1332, arguing the Release bars recovery for pre-Amendment claims and IBW’s post-Amendment claims cannot meet the $75,000 threshold.
- The district court found the Release unambiguous, barred pre-Amendment claims, limited recoverable damages to $22,550 (or less), and dismissed for failure to meet the amount-in-controversy; the First Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether amount-in-controversy exceeds $75,000 for diversity jurisdiction | IBW: breach entitles recovery of all damages (pre- and post-Amendment), so controversy exceeds $75,000 | Astonish: Release bars pre-Amendment claims; post-Amendment claims fall below $75,000 | Held: Release bars pre-Amendment claims; no legal chance of >$75,000 recovery, so jurisdiction lacking |
| Whether the Amendment’s Release was conditioned on Astonish’s performance | IBW: Release conditioned on performance of the Amendment (an accord/satisfaction) so pre-Amendment claims survive if performance failed | Astonish: Release is unconditional and effective from the Amendment date except for future defaults expressly carved out | Held: Release is clear and unambiguous; not conditioned on future performance except for expressly preserved future-default claims |
| Whether restitution or other remedies could recover surrendered pre-Amendment claims without rescission | IBW: could seek restitution (and thereby recover amounts including pre-Amendment value) | Astonish: restitution would require rescission of the Amendment (not pleaded) and is not shown to be available | Held: Restitution would effectively require rescission, which IBW did not plead or justify; absent rescission, restitution limited to $22,550 |
| Whether contractual damage limitations allow higher recovery | IBW: (implicit) various measures might yield >$75,000 | Astonish: Agreement caps liability to the monthly payment and excludes consequential damages | Held: Contractual limitations are enforceable and foreclose recovery exceeding the post-Amendment amount |
Key Cases Cited
- St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283 (establishes legal-certainty test for amount-in-controversy)
- Abdel-Aleem v. OPK Biotech LLC, 665 F.3d 38 (1st Cir. 2012) (applies St. Paul Mercury test to affirm dismissal for insufficient amount in controversy)
- Esquilín-Mendoza v. Don King Prods., Inc., 638 F.3d 1 (1st Cir. 2011) (discusses presumption of good-faith claim and legal-certainty inquiry)
- Salo Landscape & Constr. Co. v. Liberty Elec. Co., 376 A.2d 1379 (R.I. 1977) (treats substitute contracts as accord and satisfaction; substance over form)
- In re Newport Plaza Assocs., L.P., 985 F.2d 640 (1st Cir. 1993) (Rhode Island law focuses on contract substance and plain language interpretation)
- Weaver v. Am. Power Conversion Corp., 863 A.2d 193 (R.I. 2004) (Rhode Island courts overlook fine distinctions between types of compromise agreements)
- George v. George F. Berkander, Inc., 169 A.2d 370 (R.I. 1961) (sets expectation-damages rule for contract breach)
- McNulty v. Chip, 116 A.3d 173 (R.I. 2015) (rescission available for fraud-induced contracts; cited to show rescission was not pled)
- Spielman v. Genzyme Corp., 251 F.3d 1 (1st Cir. 2001) (duty to police federal jurisdictional boundaries)
- Stewart v. Tupperware Corp., 356 F.3d 335 (1st Cir. 2004) (standard of review: de novo for jurisdictional amount issues)