7th Circuit dismisses case because dispute arose after lawsuit was filed

A man who claimed State Farm Insurance Co. owed him a higher rate of interest and attorney fees had his case dismissed because the controversy did not exist when the lawsuit began.

Troy Jonas filed suit against State Farm after the insurance company delayed paying him the proceeds of his ex-wife’s life insurance policy. He asked the District Court to award him the proceeds plus 18 percent interest and attorney fees.  

However, Jonas conceded there was no justiciable controversy when he filed this lawsuit. State Farm contested the payment of the proceeds to Jonas and said it had filed an interpleader under 28 U.S.C. 1335.  

Jonas acknowledged State Farm filed the suit before the 60-day deadline from when he filed his claim and, thus, before the rate of interest stepped up from 2 percent to 18 percent as provided by Texas law. (At the time of her death, the ex-wife had been living in Texas, Jonas and the children were living in Indiana and State Farm is incorporated in Illinois.)

Yet, Jonas argued that once the 60th day passed, the controversy arose concerning whether the insurance company was liable.

“The problem with that contention is that a case or controversy must exist when a suit begins – and on that date there was no live controversy,” Judge Frank Easterbrook wrote for the court. “If disputes about attorneys’ fees and interest during the litigation could create a justiciable controversy, then no case could be dismissed for lack of one, if only because the winner of every suit is presumptively entitled to costs under 28 U.S.C. 1920.”

The 7th Circuit pointed to rulings by the Supreme Court of the United States which held that awards of legal fees and other post-filing procedural events could not supply a case or controversy.

“When this litigation began, there was no justiciable controversy,” Easterbrook wrote. “The current disputes about the rate of interest and whether State Farm must pay the attorneys’ fees that Troy has incurred in his litigation do not retroactively create jurisdiction.”

The 7th Circuit Court of Appeals vacated the decision in State Farm Life Insurance Co. v. Troy Jonas et al., 14-1464. It also remanded the case with instructions to dismiss for lack of subject-matter jurisdiction.