Establishing the Amount in Controversy in Removed Actions Under 28 Usc Section 1332

Publication year2012
Pages83
CitationVol. 41 No. 8 Pg. 83
41 Colo.Law. 83
Colorado Bar Journal
2012.

2012, August, Pg. 83. Establishing the Amount in Controversy in Removed Actions Under 28 USC Section 1332

The Colorado Lawyer
August 2012
Vol. 41, No. 8 [Page83]

Articles The Civil Litigator

Establishing the Amount in Controversy in Removed Actions Under 28 USC § 1332

by Ian T. Hicks

The Civil Litigator articles address issues of importance and interest to litigators and trial lawyers practicing in Colorado courts. The Civil Litigator is published six times a year.

Coordinating Editor

Timothy Reynolds, Boulder, of Bryan Cave HRO-(303) 417-8510, timothy.reynolds@bryancave.com

About the Author

Ian T. Hicks is an associate attorney in the Consumer Finance Litigation and Compliance Practice Group at the Denver law firm of Akerman Senterfitt LLP-(303) 260-7712.

This article discusses the legal framework governing a removing defendant's burden to establish the amount in controversy when removing a civil action from state to federal district court on the basis of diversity jurisdiction.

Federal district courts are courts of limited subject matter jurisdiction.(fn1) In the context of civil actions, this jurisdiction is restricted to situations where the well-pled allegations of the complaint raise a substantial federal question or the relevant parties are citizens of different states and the amount in controversy exceeds the jurisdictional threshold.(fn2) Where an action is commenced in state court, it may be removed to federal district court if the defendant files a notice of removal establishing the existence of federal jurisdiction.(fn3) However, statutes conferring the right of removal are narrowly construed against the existence of federal jurisdiction, so as to preserve the limited role of federal courts.(fn4)

Where an action is removed on the basis of diversity jurisdiction, in addition to demonstrating that the relevant parties are of diverse citizenship, the proponent of federal jurisdiction has the burden of establishing that the amount in controversy exceeds the jurisdictional threshold.(fn5) This article examines the amount in controversy requirement from the perspective of a state court defendant seeking to remove an action on the basis of diversity jurisdiction, including how courts analyze the question of value, the nature of the defendant's burden, and the impact of recent amendments to the federal removal statutes.

Measuring the Amount in Controversy Under the Either-Viewpoint Rule

The logical starting point for any discussion on the amount in controversy requirement is identifying how a federal district court measures value. The U.S. Supreme Court first visited this issue in Mississippi and Missouri Railroad Company v. Ward, when a steamboat owner sued for the abatement of a nuisance, a bridge over the Mississippi River.(fn6) The owner of the bridge, a railroad company, argued that the steamboat owner had not suffered any actual damages, thereby depriving the lower federal district court of subject matter jurisdiction. The Supreme Court disposed of this argument, stating as follows:

But the want of a sufficient amount of damage having been sustained to give the Federal Courts jurisdiction, will not defeat the remedy, as the removal of the obstruction is the matter of controversy, and the value of the object must govern.(fn7)

From this point forward, federal courts have looked to the "value of the object of the litigation" to measure value when analyzing the amount in controversy.(fn8) However, the holding of Ward failed to resolve the question of whose viewpoint-between the plaintiff and the defendant-governs. The cryptic passage from Ward, quoted above,could have had one of three meanings-the cost of removing the bridge, the value of the bridge itself, or the value to the steamboat owner of having the river free of obstruction.

Over time, courts applied each of these three approaches.(fn9) Under the first approach, value was measured from the plaintiff's perspective.(fn10) However, this led to anomalous results where the value to the plaintiff of prevailing was less than the jurisdictional threshold, but the cost of complying with the judgment exceeded that threshold, such as in a case seeking burdensome injunctive relief.(fn11)

Under the second approach, value was measured according to the party seeking to invoke federal jurisdiction-the plaintiff in an original action or the defendant in a removed action.(fn12) Again, this led to anomalous results. If an action was filed in federal district court, but the value to the plaintiff was less than the threshold, it could be dismissed, but the same action, if the value of the detriment to the defendant exceeded the threshold, could be removed from state court to federal district court.(fn13)

The third approach, which ultimately was adopted by the Tenth Circuit Court of Appeals and is the current majority rule, is known as the either-viewpoint rule. Under this approach, a federal district court determines the value of the object of the litigation by looking to either the value to the plaintiff of a favorable judgment or the value of the detriment to the defendant of an adverse judgment.(fn14) Thus, where a plaintiff filed a complaint in state court seeking to force an oil company to remove a pipeline across the plaintiff's land, the federal district court denied the plaintiff's motion to remand, because the cost of removing the pipeline exceeded the jurisdictional threshold even though the value of a favorable judgment to the plaintiff did not.(fn15) The either-viewpoint rule serves to provide a more accurate assessment of the financial stakes at issue in a case without unduly expanding federal jurisdiction beyond its limited role.(fn16)

When measuring the value of the object of the litigation from either viewpoint, the court may consider any item of recovery generally available to the prevailing party under the governing substantive law, including punitive damages and attorney fees.(fn17) However, special attention must be given in cases beyond the straightforward situation of a single plaintiff against a single defendant, to ensure compliance with the rules governing aggregation of claims to satisfy the amount in controversy, which is governed by a complex legal framework.(fn18) Finally, the amount in controversy is measured at the time of removal, and subsequent events generally do not divest the court of subject matter jurisdiction. Federal district courts may, however, consider evidence that tends to show the amount in controversy was less than the jurisdictional minimum at the time of removal.(fn19)

The Allocation of Burdens for Determining the Amount in Controversy

In seeking to remove a civil action from state to federal court on the basis of diversity jurisdiction, the removing defendant, as the proponent of federal jurisdiction, has the burden to establish the amount in controversy. However, even if the removing defendant satisfies this initial burden, the plaintiff nevertheless may defeat removal by satisfying its contrary burden to show that it cannot recover an amount in excess of the jurisdictional minimum. In this section, the discussion focuses on how these burdens operate when the prayer for relief in the state court complaint: (1) specifically alleges damages in excess of the jurisdictional minimum; (2) fails to allege any specific amount of damages; or (3) specifically alleges damages below the jurisdictional minimum, in violation of the state court pleading rules.

Complaint Specifically Requests Damages Exceeding the Jurisdictional Minimum

The most straightforward situation arises where the state court complaint includes a specific allegation that the plaintiff is seeking damages in excess of the jurisdictional threshold. The U.S. Supreme Court first addressed this situation in St. Paul Mercury Indem. Co. v. Red Cab Co.(fn20) There, the plaintiff filed suit in the Marion County Superior Court, a state court located in Indiana, against the defendant for breach of a contract of insurance.(fn21) The state court complaint expressly alleged damages of $4,000, which exceeded the $3,000 necessary to establish the amount in controversy for purposes of diversity jurisdiction in place at that time.(fn22)

The defendant removed the case to Federal District Court for the Southern District of Indiana, and the plaintiff subsequently filed an amended complaint that again alleged damages of $4,000, but also attached a new exhibit demonstrating that the actual loss was only $1,162.98.(fn23) After judgment was entered against the defendant for $1,162.98, the plaintiff appealed the Seventh Circuit Court of Appeals.(fn24) The Seventh Circuit vacated the judgment, finding that the district court should have remanded the case to the superior court once it became apparent the actual loss claimed by the plaintiff failed to reach the jurisdictional threshold.(fn25) The Supreme Court in turn reversed the court of appeals.

There are three holdings of the St. Paul Mercury decision that are of continuing importance in the context of removal. First, in a case removed from state court, where the complaint alleges damages in excess of the jurisdictional minimum in good faith, that amount controls, unless it appears to a legal certainty that the claim is for less than the amount necessary to trigger diversity jurisdiction.(fn26) Second, events occurring subsequent to removal, such as amendment of the complaint or recovery of less than the jurisdictional amount at trial, typically do not operate to oust jurisdiction that existed at the time of removal.(fn27) Third, a state court plaintiff's allegation of damages is presumed to have been made in good faith because, as the Supreme Court reasoned, it would make little sense for a plaintiff to file a complaint in state court and allege damages in excess of the...

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