APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND
[Hon. Mary J. Lisi, U.S. District Judge]
David A. Wollin with whom Adler, Pollock & Sheehan Incorporation was on brief for appellants.
Steven M. Richard with whom Tillinghast, Collins & Graham was on brief for appellees.
STAHL, Circuit Judge.
Appellants, Coventry Sewage Associates ("Coventry") and Woodland Manor Improvement Association ("Woodland") brought a diversity action against appellees, Dworkin Realty Co. ("Dworkin") and The Stop & Shop Supermarket Company ("Stop & Shop"). The United States District Court for the District of Rhode Island found that the amount-in-controversy requirement of 28 U.S.C. Section(s) 1332(a) was not met and dismissed the case, pursuant to appellees' motion under Fed. R. Civ. P. 12(b)(1), for lack of subject matter jurisdiction. For the reasons stated below, and because of the unusual facts of this case, we reverse.
I. FACTUAL BACKGROUND AND PRIOR PROCEEDINGS
Coventry and Woodland own and operate a private sewer line and sewage pumping station servicing, among others, a supermarket run by Stop & Shop, located on property owned by Dworkin, a wholly-owned subsidiary of Stop & Shop (hereinafter appellants will be referred to collectively as "Stop & Shop").1 In June 1992, Coventry and Woodland (hereinafter, collectively "Coventry") entered into a "Sewer Connection Agreement" with Stop & Shop, whereby Stop & Shop agreed to pay a service fee for sewer-main usage. The service fee was based, in part, upon the number of cubic feet of water consumed on the property. To determine the amount of water consumed, the parties' contract relied on invoices from the Kent County Water Authority ("KCWA"). The KCWA sent these invoices to Stop & Shop, and Stop & Shop in turn forwarded them to Coventry.
Because of a dispute over the reasonableness of an increase in the service fee -- an increase Coventry claimed was permitted by the contract -- Stop & Shop refused to pay Coventry's bills which accumulated beginning in early 1994. In October 1994, Coventry filed this action seeking recovery of $74,953.00, the amount it claimed to be due based upon water-usage numbers obtained from the KCWA invoices and what Coventry claimed was the correct new service fee rate. Coventry also sought contractual attorneys' fees. It is undisputed that, at the time Coventry commenced the action, it alleged the amount in controversy in the belief that it exceeded the jurisdictional minimum, and not as a ruse to invoke federal jurisdiction.
Shortly after the complaint was filed, but before Stop & Shop filed its answer, Stop & Shop contacted the KCWA about the invoices underlying Coventry's fee calculations. The KCWA then sent an employee to the property who discovered that there had been a misreading of Stop & Shop's water meters, essentially caused by the adding of an extra zero to the number of cubic meters actually consumed. By letter dated November 18, 1994, the KCWA notified Stop & Shop that it was correcting the billing error by changing the amounts of the invoices.
Based upon the KCWA's corrected invoices, Coventry reduced the sum of its bills to Shop & Stop to only $18,667.88, an amount that included the disputed fee increase. Subsequently, Stop & Shop paid the undisputed portion of the fee, $10,182.48, initially withholding the disputed balance of $8,485.40. Stop & Shop ultimately paid this remaining sum as well, reserving the right to recoup the amount should it prevail in its challenge to the reasonableness of the service fee. Stop & Shop, presumably doubting the existence of diversity jurisdiction, asked Coventry to voluntarily dismiss the federal action; Coventry refused, however, apparently because of its intention to pursue in federal court its claim for contractual attorneys' fees.2
Stop & Shop moved to dismiss the action under Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction.3 The district court granted the motion, finding that, "to a legal certainty," the amount in controversy did not exceed $50,000 as required by 28 U.S.C. 1332(a). Notwithstanding the small amount actually in controversy, Coventry appeals the dismissal of the action. At oral argument before this court, counsel for Coventry stated that the reason for the insistence upon federal jurisdiction was that the case would get to an earlier trial in federal court (including the appeal proceedings) than if the case were pursued in state court.
II. DISCUSSION
A. Standard of Review
We review de novo the district court's dismissal for lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1). Murphy v. United States, 45 F.3d 520, 522 (1st Cir.), cert. denied, 115 S. Ct. 2581 (1995). Although the facts pertinent to this appeal are undisputed, we are nonetheless "mindful that the party invoking the jurisdiction of a federal court carries the burden of proving its existence." Taber Partners, I v. Merit Builders, Inc., 987 F.2d 57, 60 (1st Cir.), cert. denied, 114 S. Ct. 82 (1993).
B. Analysis
Coventry argues that at the time it filed the action, it claimed, in good faith, damages in excess of $50,000; thus, the subsequent reduction of the amount in controversy did not divest the district court of jurisdiction. Coventry contends that the KCWA's post-filing discovery of the billing error and changing of the invoice amounts was a "subsequent event" that neither undermined its good faith in filing, nor disturbed the court's jurisdiction once it attached. Shop & Stop argues that the billing error was a mere "subsequent revelation" that proved, to a legal certainty, that the amount in controversy had always been below the jurisdictional minimum and thus the court properly dismissed the case for lack of subject matter jurisdiction.
This case illustrates the competing policies that operate when a court makes an amount-in-controversy determination. On the one hand, a federal court should rigorously enforce the jurisdictional limits that Congress chooses to set in diversity cases. See Pratt Central Park Ltd. v. Dames & Moore, Inc., 60 F.3d 350, 352 (7th Cir. 1995). On the other hand, preliminary jurisdictional determinations should neither unduly delay, nor unfairly deprive a party from, determination of the controversy on the merits. See id. at 351-52 (noting the undesirable cost of a prolonged jurisdictional inquiry that only serves to determine which court will hear the case); 14A Wright & Miller, Federal Practice and Procedure Section(s) 3701 at 12-13 (1985) (noting competing policies). As a policy matter, the "which court" determination ought to be made with relative dispatch so that the parties may proceed to resolution of the dispute's merits. See Pratt Central Park Ltd., 60 F.3d at 352.
For the purpose of establishing diversity jurisdiction, the amount in controversy is determined by looking to the circumstances at the time the complaint is filed. Thesleff v. Harvard Trust Co., 154 F.2d 732, 732 n.1 (1st Cir. 1946) (noting that "federal jurisdiction depends upon the facts at the time suit is commenced, and subsequent changes . . . in the amount in controversy [will not] devest [sic] it"); 14A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure Section(s) 3702 at 28-29 n.31 (1985); Watson v. Blankinship, 20 F.3d 383, 387 (10th Cir. 1994); Klepper v. First American Bank, 916 F.2d 337, 340 (6th Cir. 1990); see Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 830 (1989) (noting that for determining diversity of citizenship, "[t]he existence of federal jurisdiction ordinarily depends on the facts as they exist when the complaint is filed"). Moreover, it has long been the rule that a court decides the amount in controversy from the face of the complaint, "unless it appears or is in some way shown that the amount stated in the complaint is not claimed `in good faith.'" Horton, 367 U.S. at 353 (quoting St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288 (1938)). When a plaintiff initiates an action in federal court, the plaintiff knows or should know whether the claim surpasses the jurisdictional minimum. St. Paul, 303 U.S. at 290.
[The plaintiff's] good faith in choosing the federal forum is open to challenge not only by resort to the face of the complaint, but by the facts disclosed at trial, and if from either source it is clear that his claim never could have amounted to the sum necessary to give jurisdiction, there is no injustice in dismissing the suit.
Id.
Coventry and Stop & Shop both cite passages from the seminal case of St. Paul, 303 U.S. 283 (1938), without discussing its facts. We pause to do so here. In St. Paul, the plaintiff-employer initiated a state-court action against the defendant-insurer for payment of workers' compensation benefits. Id. at 284-85. The plaintiff alleged an amount of damages sufficient to permit the defendant to remove the case to federal court. Id. at 285. Once in federal court, the plaintiff filed two amended complaints. Attached to the second amended complaint, which alleged the same amount of damages as originally claimed, was an exhibit detailing the damages; the exhibit revealed that the total sum of damages was no more than $1,380.89, an amount below the jurisdictional minimum (then $3,000). Id. The court of appeals, sua sponte, took notice of the exhibit and directed a remand of the case, reasoning that the amount in controversy was less than the jurisdictional minimum and that "[t]he court cannot close its eyes to the obvious, nor go ahead with the trial of a cause of which it has no jurisdiction." 90 F.2d 229, 230 (7th Cir. 1936).
The Supreme Court reversed, noting that there was no evidence that, at the time the action was commenced, the plaintiff could have ascertained the actual sum of the damages, and that the later exhibit setting forth this sum did not undermine plaintiff's initial good faith. 303 U.S. at 295-96 (also observing that the sum claimed was comprised of "numerous" items that, in turn, were each the total of several other items).4 Accordingly, the Court reasoned that the case fell comfortably within the rule that "subsequent reduction of the amount claimed cannot oust the district court's jurisdiction." Id. at 295.
In a portion of St. Paul crucial to the instant case, and from which the parties before us parse their favorite phrases, the Court wrote:
The intent of Congress drastically to restrict federal jurisdiction in controversies between citizens of different states has always been rigorously enforced by the courts. The rule governing dismissal for want of jurisdiction in cases brought in the federal court is that, unless the law gives a different rule, the sum claimed by the plaintiff controls if the claim is apparently made in good faith. It must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal. The inability of plaintiff to recover an amount adequate to give the court jurisdiction does not show his bad faith or oust the jurisdiction. Nor does the fact that the complaint discloses the existence of a valid defense to the claim. But if, from the face of the pleadings, it is apparent, to a legal certainty, that the plaintiff cannot recover the amount claimed or if, from the proofs, the court is satisfied to a like certainty that the plaintiff never was entitled to recover that amount, and that his claim was therefore colorable for the purpose of conferring jurisdiction, the suit will be dismissed. Events occurring subsequent to the institution of suit which reduce the amount recoverable below the statutory limit do not oust jurisdiction.
1. The existence of diversity of citizenship is undisputed.
2. We note that although attorneys' fees usually will not constitute a portion of the amount in controversy, there is an exception where, as here, the fees are contractual. Department of Recreation v. World Boxing Ass'n, 942 F.2d 84, 89 (1st Cir. 1991). In this case, Coventry cannot avail itself of this exception as a basis for federal jurisdiction because, not only are there no specifics in the record as to the amount of such fees, Coventry informed this court at oral argument that its estimation of attorneys' fees was only $10,000.
3. Although the KCWA notified Stop & Shop of the error in November 1994, Stop & Shop raised only a general, boilerplate amount-in-controversy defense in its December 1994 answer, and did not formally move to dismiss on the jurisdictional basis until February 1995.
4. The Court also noted that the removal posture of the case additionally bolstered the finding of good faith in claiming damages. St. Paul, 303 U.S. at 290-91. Because the plaintiff initially filed in state court, it was unlikely that the amount claimed was meant to somehow confer federal jurisdiction. Id.
The Court reasoned that a defendant's right to remove was not to be "subject to the plaintiff's caprice" by subsequent events -- whether or not such events are under plaintiff's control. Id. at 293-94; see also Pro Medica, Inc. v. Theradyne Corp., 331 F. Supp. 231, 232 (D.P.R. 1971) (refusing to allow plaintiff's amended complaint, that reduced amount of damages claimed to less than jurisdictional minimum, to divest federal court of jurisdiction). Thus, events occurring subsequent to removal, such as a stipulation, an affidavit, or an amendment that reduces the claim below the jurisdictional minimum, would not deprive the court of jurisdiction once it has attached. St. Paul, 303 U.S. at 292-93.
Despite the added weight the removal posture contributed to the good faith finding, the Court noted that dismissal of the case would not have been warranted had plaintiff originally brought the case in federal court. Id. at 290. Therefore, we find the reasoning of St. Paul no less applicable to the instant case, where Coventry originally filed in federal court, and where there is no dispute as to its good faith in its claimed amount in controversy.
5. We decline, at this time, to make any sort of legal distinction between "objective facts" and "actual facts" for purposes of determining amount in controversy.
6. We note here a paradox. Under 28 U.S.C. Section(s) 1332(b), a plaintiff who files a claim in federal court based on diversity jurisdiction is subject to the court's imposition of costs if the plaintiff "is finally adjudged to be entitled to recover less than the sum or value of $50,000." 28 U.S.C. 1332(b). Assuming that Coventry will persist in pursuing the case in federal court, it seems odd that while it has technically met the requirements of Section(s) 1332(a), it may not avoid potential liability under Section(s) 1332(b)'s cost sanction. Cf. Horton, 367 U.S. at 362 (noting the "strange result that while respondent has met the requirements of Section(s) 1332(a), . . . under Section(s) 1332(b) it will be liable for costs for failing to meet the same requirements) (Clark, J. dissenting). The determination of whether or not to impose such cost sanctions is, of course, within the sound discretion of the district court.