US Framing Int'l LLC v. Continental Building Co.US Framing Int'l LLC v. Continental Building Co.
Decided and Filed: April 7, 2025
COUNSEL
ON BRIEF: Daniel Bryan Thomas, Kyle Doiron, Timothy Alex Rodriguez, BRADLEY ARANT BOULT CUMMINGS LLP, Nashville, Tennessee, for Appellant. Richard Kalson, COZEN O‘CONNOR, New York, New York, W. Paul Whitt, LEWIS THOMASON, P.C., Knoxville, Tennessee, for Appellees.
OPINION
LARSEN, Circuit Judge. Continental Building Co., a general contractor, entered into a subcontract with US Framing International for framing services on two student-housing projects. After a disagreement arose between the parties, US Framing left the project, and
I.
Continental contracted with US Framing for framing work on two student-housing projects—one in Knoxville, Tennessee, the other in Ann Arbor, Michigan. US Framing began work on the projects in 2017. Things didn‘t go well. US Framing and Continental soon began fighting about delays on the Knoxville project; each party blamed the other. In December 2017, the parties amended the subcontract. They agreed to “wipe the slate clean” by abandoning all delay-related claims against one another. R. 1-2, Compl., PageID 17. That didn‘t quite solve things. The next month, the parties agreed that US Framing would leave the Knoxville project. The parties executed another “change order,” which provided that “[US Framing] will leave the job, and [Continental] will make no more payments, and these actions will suffice to complete the contract between the two parties with no recourse by either party.” Id. at 18.
In February 2018, Continental sent US Framing a notice of termination on the Knoxville projеct. Continental informed US Framing that it was terminating the subcontract because of US Framing‘s “failure to commence and satisfactorily continue correction of its previously noticed Subcontract defaults.” Id. at 47. Continental also stopped paying US Framing on the Ann Arbor project.
Several weeks later, Continental told its subguard insurer,1 Steadfast Insurance Co., that US Framing had defaulted on the Knoxville subcontract. Continental submitted a claim under its policy for around $2.8 million, which it later amended to allege over $6 million in damages. Steadfast paid Continental more than $3.1 million on the claim.
The dispute between US Framing and Continental gave rise to several lawsuits. US Framing first sued Continental in Michigan state court in 2018, seeking the remainder that Continental allegedly owed on the Ann Arbor subcontract. Eventually, the parties agreed to arbitrate claims relating to both the Ann Arbor and Knoxville projects. In May 2024, the arbitrator made a final determination, awarding US Framing more than $2.9 million.2 Second, in 2021, US Framing sued Continental in Tennessee state court, seeking a declaratory judgment that US Framing did not default on the Knoxville subcontract, that Continental‘s losses did not arise out of any alleged default by US
Finally, US Framing filed this action in Tennessee state court in 2023. US Framing sued Continental and six of its executives under a Tennessee statute banning fraudulent or unlawful insurance acts. See
II.
We begin with three non-merits issues: whether complete diversity exists; whether the forum-defendant rule bars removal in this case; and whether the complaint‘s allegations satisfy the amount-in-controversy requirement.
Complete diversity. A federal court may not exercise diversity jurisdiction unless the parties are completely diverse. See Akno 1010 Mkt. Street St. Louis Mo. LLC v. Pourtaghi, 43 F.4th 624, 626 (6th Cir. 2022). US Framing is a limited liability company, or “LLC,” and LLCs have the citizenship of each of their “members and sub-members.” Id. “Unlike a corporation, an LLC‘s state of organization does not establish its citizenship.” Id. (citing
Thе Federal Rules of Civil Procedure require parties to file a “disclosure statement” in cases based on diversity jurisdiction. The disclosure “must name—and identify the citizenship of every individual or entity whose citizenship is attributed to that party or intervenor when the action is filed or removed to federal court.”
Here, neither party fully complied with Rule 7.1. Below, the district court noted the defendants’ initial failure to file a disсlosure statement after removing the case to federal court. The defendants filed a statement in response, but that statement failed to plead plaintiff US Framing‘s citizenship. Perhaps the defendants didn‘t know it and couldn‘t find it. After all, the committee notes recognize that “[a] party suing an LLC may not have all the information it needs to plead the LLC‘s citizenship.” Id. The same logic holds for a defendant sued by an LLC, who seeks to remove a case to federal court. But as the party asserting diversity jurisdiction, the removing-party defendants bore the burden of establishing each party‘s citizenship. Akno, 43 F.4th at 627. They failed to do so. And although the defendants’ disclosure statement partially cured their initial error, US Framing never filed any disclosure statement or otherwise informed the court of its members’ citizenship. So the parties’ representations failed to assure us
We are now assured that complete diversity exists. The defendants are citizens of Ohio and Indiana (and possibly Tennessee, as we‘ll turn to in a moment). And both parties agree that US Framing‘s members are all citizens of Kentucky. That said, we urge the parties, in future cases, to take heed of both Rule 7.1‘s requirements and the interaction between the complete-diversity requirement and LLC citizenship.
The forum-defendant rule. In its supplemental briefing addressing the complete-diversity question, US Framing alleged what it believed to be a separate jurisdictional defect based on the home-state defendant rule. The federal removal statute forbids a home-state defendant from removing a case to federal court.
Amount in controversy. We address one last jurisdictional argument made by US Framing. US Framing argues that if, as Continental contends, it failed to plead any damages recoverable under §§ 56-53-102 or 103, then the amount-in-controversy requirement is not met, and subject-matter jurisdiction is lacking. See
Continental removed this case to federal court, so it has the burden of establishing federal jurisdiction. To meet this burden, Continental had to show “that the allegations in the complaint at the time of removal satisfy the amount-in-controversy requirement.” Northup Props., Inc. v. Chesapeake Appalachia, L.L.C., 567 F.3d 767, 769–70 (6th Cir. 2009). “If removal of a civil action is sought on the basis of [diversity] jurisdiction . . ., the sum demanded in good faith in the initial pleading shall be deemed to be the amount in controversy . . . .”
Here, Continental met its burden. In filing its notice of removal, Continental asserted that the amount in controversy exceeds $75,000. And Continental noted that the complaint‘s factual allegations clearly set forth an amount in controversy well above $75,000. Our independent review of the complaint‘s allegations confirms that the amount-in-controversy requirement was satisfied here. US Framing plainly alleged that Continental‘s fraud
For purposes of the amount-in-controversy requirement, that was sufficient. Any merits determination that US Framing cannot recover those damages—e.g., becаuse they did not “directly result[] from” Continental‘s fraud under
III.
Satisfied that jurisdiction exists, we turn to the merits. “To survive a motion to dismiss, a complaint must contain sufficient factual material, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks and citation omitted). Although we must accept factual allegations as true, we need not accept legal conclusions. Sturgill v. Am. Red Cross, 114 F.4th 803, 807 (6th Cir. 2024). We review de novo a district court‘s grant of a motion to dismiss for failure to state a claim. Id. at 808.
In 2001, the Tennessee legislature passed an Act prohibiting insurance fraud. See
US Framing alleges that it is entitled to several forms of relief: economic damages caused by Continental‘s alleged fraud; treble damages; attorney‘s fees and related legal expenses; and the statutory penalty. We address the availability of each form of relief in turn.
A.
We first consider whether US Framing has plausibly alleged that it suffered economic injury “directly resulting” from
1.
The Act provides for “economic damages directly resulting from” a fraudulent insurance act.
Fоllowing the district court‘s lead, the parties have pitched the interpretative question as a choice between two sides in a long-standing debate over how to interpret “direct” or “directly” in insurance contracts. See Tooling, Mfg., & Techs. Ass‘n v. Hartford Fire Ins. Co., 693 F.3d 665, 674 (6th Cir. 2012) (noting a split); Retail Ventures Inc. v. Nat‘l Fire Ins. Co. of Pittsburgh, 691 F.3d 821, 828 (6th Cir. 2012) (same). Continental advocates the “direct is direct” approach in which a harm results “directly” from a covered loss when it follows “immediately” or “without anything intervening.” Tooling, 693 F.3d at 673, 676–77 (concluding that Michigan would adopt the “direct is direct” approach to insurance contract interpretation). US Framing, by contrast, urges us to adopt an approach incorporating proximate-cause standards. See Retail Ventures, 691 F.3d at 831–32 (concluding that Ohio would adopt the “proximate cause” approach); see also Int‘l Paper Co. v. Beazley Ins. Co., 731 F. Supp. 3d 1013, 1041–42 (W.D. Tenn. 2024) (relying, in part, on Retail Ventures to conclude that Tennessee would adopt the “proximate cause” approach).
We decline to engage in this debate for several reasons. First, we are interpreting a statute, not an insurance contract. To be sure, contract and statutory interpretation often follow similar rules. See Mansell v. Bridgestone Firestone N. Am. Tire, LLC, 417 S.W.3d 393, 400 (Tenn. 2013) (explaining that Tennessee courts “apply the plain meaning” when statutory text is clear); Garrison v. Bickford, 377 S.W.3d 659, 664 (Tenn. 2012) (stating that insurance contracts should generally be interpreted in accordance with “their plain and ordinary meaning” (сitation omitted)). But the two are not identical. For example, in Tennessee, various pro-insured rules of construction guide the interpretation of insurance contracts. See Garrison, 377 S.W.3d at 644 (“[C]ontracts of insurance are strictly construed in favor of the insured, and if the disputed provision is susceptible to more than one plausible meaning, the meaning favorable to the insured controls.“). Where appropriate, those rules of construction have guided this court in predicting how state courts would define the term “direct” in insurance contracts. See Retail Ventures, 691 F.3d at 831. But those canons make the insurance-contract analogy a poor fit for predicting how the Tennessee Supreme Court would rule on this question of statutory interpretation. Whatever their effect in Tennessee insurance-contract interpretation, pro-insured canons certainly have no home in the interpretation of a statute designed to thwart fraud by the insured. See Steakhouse v. W. World Ins. Grp., 2023 WL 6131092, at *6 (W.D. Tenn. Sept. 19, 2023) (noting that the Act “applies only to insureds and their representations“).
Second, and more importantly, the choice between the “direct is direct” and the “proximate cause” approach does not affect the resolution of this case. That‘s because Continental‘s alleged insurance fraud is not even the factual cause оf some of US Framing‘s claimed items of damage. And the remainder fail even the test of proximate cause under the legal regime that most closely resembles the case at hand—Tennessee law pertaining to fraud.
2.
The precise question before us is whether US Framing‘s claimed damages “directly resulted” from Continental‘s alleged insurance fraud. We consider each alleged item of damage separately.
First, US Framing claims damages in the form of lost payments on the Ann Arbor project. US Framing alleges that Continental stopped paying it because the subguard policy required Continental to cease payment to the defaulting party (on any project) upon receipt of payment from the insurer.4 But we need not resort to any direct-proximate distinction to dismiss this theory of injury. US Framing did not suffer these damages as a direct or proximate result of
Continental‘s alleged fraud. The complaint alleges that Continental stopped paying US Framing on the Ann Arbor project before filing the subguard claim. So Continental‘s submission of allegedly false insurance claims, which ultimately triggered the stop-payment obligation, was not even a cause-in-fact of US Framing missing out on payments from Continental.
In its brief on appeal, US Framing suggests that we may reasonably “infer” that Continental ceased payment оn the Ann Arbor contract “with its Subguard scheme in mind.” Appellant Br. at 13. But US Framing did not advance this theory in the district court. And the complaint itself makes no such allegation. US Framing does not allege that Continental had a pre-existing plan to file false insurance claims regarding the Knoxville project and, as part of that plan, stopped payment on the Ann Arbor project even before any such obligation was triggered. In sum, US Framing cannot claim the lost Ann Arbor payments as “economic damages directly resulting from” Continental‘s alleged fraud on its insurer because that fraud was not even the factual cause of the loss.
Second, US Framing allegеs that Steadfast‘s payment on the subguard policy obligated Continental to pursue subrogation litigation against US Framing, resulting
not allege that this act was a part of the fraud. Given that the cause of the litigation predates the alleged fraud, it‘s hard to conceive of how the alleged fraud caused the litigation.
That said, perhaps Continental‘s alleged fraud was the but-for cause of some unknown portion of US Framing‘s litigation expenses. The district court suggested that “[t]he parties may have resolved the disputes more quickly and less expensively absent Continental‘s insurance proceeds [which] financed the litigation.” R. 22, D. Ct. Op. & Order, PageID 878. That could be true. Perhaps, but for Continental‘s recеipt of allegedly fraudulent insurance proceeds, Continental would have been more inclined to settle. On that theory, the fraud was a but-for cause of at least some of US Framing‘s expenses.
But even assuming but-for causation with respect to some of the litigation expenses, US Framing still cannot recover. US Framing‘s allegedly increased litigation expenses are entirely derivative of the harm caused to Continental‘s insurer—the primary victim of the alleged fraud. And as we read Tennessee law pertaining to fraud and misrepresentation, such harms are too remote, regardless of whether we use a “direct” or “proximate” сause standard.
“Direct” cause. Tennessee courts generally apply a statute‘s plain meaning. See, e.g., Mansell, 417 S.W.3d at 400; Abels ex rel. Hunt v. Genie Indus., Inc., 202 S.W.3d 99, 102 (Tenn. 2006); Eastman Chem. Co. v. Johnson, 151 S.W.3d 503, 507 (Tenn. 2004). And they often turn to dictionaries as a guide. See Garrison, 377 S.W.3d at 669–70; State v. Deberry, 651 S.W.3d 918, 927 (Tenn. 2022). Modern dictionaries typically define “directly” to mean “immediately” or “without anything intervening.” Tooling, 693 F.3d at 673 (quoting dictionaries); see also Directly, Black‘s Law Dictionary (12th ed. 2024) (defining “directly” as “[i]n a straightforward manner“; “[i]n a straight line or course“; “[i]mmediately“); Directly, Am. Heritage Coll. Dictionary (4th ed. 2007) (defining “directly” as “without anyone or anything intervening“).
Moreover, the Tennessee Supreme Court has interpreted “directly” in a similar fashion, albeit in a different statutory
If “directly” means “immediately” or “without the intervention of any person or thing,” then US Framing‘s increased litigation costs were not the “direct[] result[]” of Continental defrauding its insurer. That‘s because “there was an intermediate step between” Continental‘s alleged fraud on its insurer and US Framing‘s increased litigation costs. Tooling, 693 F.3d at 676.
“Proximate” cause. US Framing posits that “directly resulting,” as used in the Act, does not require that the harm be the immediate result of the fraud; instead, US Framing argues that the statute incorporates the concept of “proximate cause.” But even if this is so, US Framing cannot prevail under our understanding of Tennessee law.
US Framing contends that Tennessee courts would read “directly resulting” in an insurance contract to mean “proximately caused.” See Int‘l Paper Co., 731 F. Supp. 3d at 1041–42 (reading Tennessee law as likely to adopt the proximate-cause approach to interpreting “direct loss” in a commercial-crime insurance policy); Farmers Mut. Fire Ins. Co. v. McMillan, 395 S.W.2d 798, 799 (Tenn. 1965) (reading “direct loss by fire” in a fire insurance contract to be “synonymous with proximate cause“). That might be so, but we are not persuaded that it would matter here. The Act is not an insurance contract; it is a fraud statute. And although the Tennessee courts have not interpreted “direct[] result[]” as used in the Act, they have explained how proximate cause plays out in other statutory and common-law claims based on fraud and misrepresentation. See Steamfitters Loc. Union No. 614 Health & Welfare Fund v. Philip Morris, Inc., 2000 WL 1390171, at *3–7 (Tenn. Ct. App. Sept. 26, 2000); see also Tenn. Med. Ass‘n v. BlueCross BlueShield of Tenn., 229 S.W.3d 304, 308 (Tenn. Ct. App. 2007). We think these cases provide a better guide to how the Tennessee courts would rule in this case.
In Steamfitters, a Tennessee appellate court dismissed a complaint brought by union health and welfare funds against tobacco companies. 2000 WL 1390171, at *1. The complaint alleged common law “fraud and deceit, negligent misrepresentation, conspiracy, and violation of the TCPA,” that is, the Tennessee Consumer Protection Act.6 Id. at *3. The funds alleged that they had incurred additional healthcare costs because the tobacco manufacturers had defrauded the funds’ participants—not the funds themselves. Id. at *1. In other words, the state court explained, the funds’ injuries were “entirely derivative” of injuries the participants incurred “as a result of using tobacco products.” Id. at *6. Applying “the doctrine of
Given this caselaw, US Framing‘s claims fail. Even if US Framing is correct that, in the insurance-fraud context, “direct” means “proximate,” Tennessee law governing fraud claims holds that contingent injuries, like the one US Framing alleges here, are too remote to satisfy proximate cause.
One final note. We have previously stated that “federal courts must be cautious when making pronouncements about state law.” In re Darvocet, 756 F.3d at 937. So if we are confliсted between choosing a narrow interpretation of state law and a broader one that “greatly expands liability,” we should favor the narrower interpretation when exercising diversity jurisdiction. Id. (quoting Combs v. Int‘l Ins. Co., 354 F.3d 568, 577 (6th Cir. 2004)). That rule serves both judicial modesty and federalism. “Federal courts sitting in a diversity case are in a particularly poor position to endorse a fundamental policy innovation” in state law “absent some authoritative signal” favoring the innovation. Combs, 354 F.3d at 577–78 (cleaned up). Here, US Framing invites us to adopt a broad, liability-expanding interpretation of Tennessee law but
fails to present caselaw convincing us that the Tennessee Supremе Court would do so. Lacking that authoritative signal, “we are loath to expand Tennessee‘s substantive law.” Strayhorn v. Wyeth Pharms., Inc., 737 F.3d 378, 405 (6th Cir. 2013). Thus, we reject US Framing‘s invitation to adopt a reading of the statute that would permit recovery for derivative injuries.
In sum, US Framing has not plausibly alleged that it suffered any “economic damages directly resulting from” an alleged insurance-fraud violation.
B.
We turn now to whether US Framing has plausibly alleged that it may recover either attorney‘s fees and other legal expenses or a statutory pеnalty. US Framing cannot recover either.
First, the statutory penalty. An injured party may recover “[a] penalty of no less than one hundred dollars . . . and no greater than ten thousand dollars” for a criminal insurance-fraud violation.
Although we must reasonably construe the complaint in US Framing‘s favor, we cannot say that US Framing pleaded entitlement to the statutory penalty. On appeal, US Framing attеmpts to frame the statutory penalty as “statutory damages,” thus encompassing the penalty in its generalized claim for “damages.” Appellant Br. at 16. The parties cite no Tennessee
Once again, dictionaries help. Black‘s Law Dictionary defines “damages” as “[m]oney claimed by, or ordered to be paid to, a person as compensation for loss or injury.” Damages, Black‘s Law Dictionary (12th ed. 2024). And Blаck‘s defines a “penalty” as “[p]unishment imposed on a wrongdoer, usu[ally] in the form of imprisonment or fine; esp[ecially] a sum of money exacted as punishment for either a wrong to the state or a civil wrong (as distinguished from compensation for the injured party‘s loss).” Penalty, Black‘s Law Dictionary (12th ed. 2024) (emphasis added). Black‘s clearly draws a distinction between a penalty and damages, the latter generally being meant to compensate an injured party for his loss. And although damages can sometimes be punitive in nature, Tennessee courts have recognized that damages, including punitive damages, are distinct from statutory penalties. Sеe, e.g., Fred Simmons Trucking, Inc. v. U.S. Fid. & Guar. Co., 2004 WL 2709262, at *5 (Tenn. Ct. App. Nov. 29, 2004) (distinguishing between punitive damages and statutory penalties). Indeed, § 56-53-107(b)(1) refers to both “damages” and “penalt[ies],” and “a material variation in terms suggests a variation in meaning.” Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts § 25 (2012).
US Framing provides no reason to think that the Tennessee Supreme Court would interpret the term “penalty,” as used in § 56-53-107, contrary to its plain meaning. Because damages don‘t include a statutory penalty in this context, we conclude that US Framing failed to plead the statutory penalty as relief.
That leaves attorney‘s fees and other legal expenses. The Act provides that an injured рarty may recover “[r]easonable attorneys’ fees [and] related legal expenses, including internal legal expenses and court costs” for both civil and criminal violations.
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We AFFIRM.
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