Reported / Citable
Background
Edna Myrtle Holdings, LLC owned and operated a Houston fitness facility insured by Covington Specialty Insurance Company. After a July 2024 weather event allegedly caused roof leaks and water intrusion, Edna Myrtle submitted a property-damage claim. Covington denied coverage based on alleged pre-existing roof damage and did not participate in the appraisal process requested by Edna Myrtle.
Edna Myrtle sued in Texas state court for breach of contract, Texas Insurance Code and Deceptive Trade Practices Act violations, and breach of the duty of good faith and fair dealing. Covington removed the action based on diversity jurisdiction. Edna Myrtle moved to remand, relying on a stipulation purporting to limit its recovery, while Covington moved to dismiss because the Texas Secretary of State had forfeited Edna Myrtle’s charter before suit was filed.
The Court’s Holding
The court denied remand. Although Edna Myrtle’s stipulation limited recovery to $75,000 exclusive of interest and costs, it did not specifically disclaim the statutory recovery categories sought in the complaint, including treble damages and 18-percent statutory interest, and did not waive execution on any judgment above the jurisdictional threshold. Given those deficiencies and Edna Myrtle’s pre-suit valuation of the claim at $307,128.05, the stipulation did not establish to a legal certainty that recovery could not exceed $75,000.
The court granted Covington’s motion to dismiss for lack of capacity. Edna Myrtle’s charter had been forfeited on February 21, 2025, more than a year before it filed suit, so Texas law denied it the right to sue when the action began. The dismissal was without prejudice, allowing Edna Myrtle to revive its charter and refile. The court also dismissed Covington’s motion to limit fees without prejudice as moot.
Key Takeaways
- A damages stipulation intended to prevent diversity removal must irrevocably bind the plaintiff to recovery below the jurisdictional threshold.
- A stipulation may be inadequate if it does not expressly encompass statutory multipliers, statutory interest, fees, and other requested forms of recovery.
- A Texas entity whose charter was forfeited before filing suit lacks capacity to initiate the action, although dismissal without prejudice permits refiling after revival.
Why It Matters
The decision illustrates that a general damages cap may not defeat federal diversity jurisdiction when the complaint seeks statutory remedies that could push the recovery above $75,000. Plaintiffs seeking to remain in state court must use a binding limitation broad enough to cover every category of potential recovery.
It also distinguishes charter forfeiture occurring before suit from forfeiture occurring during litigation. A Texas business should confirm its active status before filing because pre-filing forfeiture can require dismissal and refiling after reinstatement.