Davis v. Carl Cannon Chevrolet-Olds , 182 F.3d 792 ( 1999 )

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUITU.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
07/26/99
THOMAS K. KAHN
No. 98-6567 CLERK
________________________
D. C. Docket No. CV97-P-2889-J
GENEVA DAVIS, MICHAEL H. ROBERTS,
Plaintiffs-Appellants,
versus
CARL CANNON CHEVROLET-OLDS, INC; GENERAL
MOTORS ACCEPTANCE CORPORATION, et al.,
Defendants-Appellees.
________________________
Appeal from the United States District Court
for the Northern District of Alabama
_________________________
(July 26, 1999)
Before COX, Circuit Judge, FAY, Senior Circuit Judge, and NANGLE*, Senior
District Court Judge.
COX, Circuit Judge:
The question this appeal poses is whether, in a class action, a potential
attorneys’ fee awarded out of a common fund may count in the aggregate toward the
*
Honorable John F. Nangle, Senior U. S. District Judge for the Eastern District of Missouri,
sitting by designation.
jurisdictional minimum necessary to establish diversity jurisdiction. We hold that it
may not.
I. Background
The plaintiffs here, and the class they ask to represent, are purchasers of
extended service contracts on General Motors vehicles. According to the plaintiffs,
General Motors Acceptance Corporation, in conspiracy with GM dealerships,
fraudulently concealed that the dealerships make a profit on such contracts. The
plaintiffs thus sued GMAC and a local dealership in the Circuit Court of Walker
County, Alabama, a rural county northwest of Birmingham. The ad damnum clause
in each of the complaint’s six substantive counts seeks only “compensatory damages
as may be allowed by law.” (R.1-8 at 2-6.) The end of the complaint, moreover,
contains the following “do not remove me” “disclaimer” in capital, boldface letters:
NOTWITHSTANDING ANY ALLEGATION MADE WITHIN
THIS COMPLAINT, THIS ACTION IS BROUGHT SOLELY
PURSUANT TO THE COMMON LAW AND STATUTORY LAW
OF THE STATE OF ALABAMA. NO CLAIM IS MADE UNDER
OR FOR ANY CAUSE OF ACTION ARISING UNDER THE
CONSTITUTION OR LAWS OF THE UNITED STATES OF
AMERICA. FURTHER, NOTWITHSTANDING ANY
ALLEGATION CONTAINED HEREIN, THE PLAINTIFF AND
EACH AND EVERY MEMBER OF THE CLASS DEFINED
HEREIN EXPRESSLY WAIVE AND FOREGO [sic] ANY CLAIM
FOR PUNITIVE DAMAGES AND LIMIT THEIR CLAIMS
SOLELY TO COMPENSATORY DAMAGES. THE PLAINTIFF
AND EACH CLASS MEMBER ALSO EXPRESSLY WAIVE ANY
CLAIM FOR DAMAGES OVER SEVENTY-FIVE THOUSAND
2
DOLLARS ($75,000.00). THIS CLASS [sic] IS A MONEY
DAMAGE CASE BROUGHT ONLY UNDER RULE 23(B)(3),
ALABAMA RULES OF CIVIL PROCEDURE; THEREFORE,
ANY CLASS MEMBER WHO WISHES TO PURSUE PUNITIVE
DAMAGES IN AN AMOUNT GREATER THAN SEVENTY-FIVE
THOUSAND DOLLARS ($75,000.00) MAY OPT-OUT [sic] AND
DO SO.
(Id. at 8.)
GMAC nonetheless removed the action to federal court. The plaintiffs moved
to remand, pointing out the diversity jurisdiction-defeating features of their complaint:
first, they joined a local GM dealership; and second, they disclaimed on behalf of the
class all damages above the $75,000 jurisdictional amount.1 Notwithstanding these
features, the district court denied the plaintiffs’ motion to remand. First, the court
concluded that the GM dealership was fraudulently joined to defeat jurisdiction. (The
dealership was then voluntarily dismissed, so no fraudulent-joinder issue is before us.)
Second, the court concluded that the complaint, while disclaiming all compensatory
and punitive damages over $75,000 per plaintiff, alleged the requisite amount in
controversy because the lawyers did not disclaim a fee exceeding that amount. The
district court certified its order for interlocutory appeal under 28 U.S.C. § 1292(b).
The plaintiffs sought to appeal, and we permitted it.
2. Discussion
1
See 28 U.S.C. § 1332(a).
3
a. Zeroing in on the issue. Several undisputed background rules frame the
issue here. Removal jurisdiction exists only when the district court would have had
original jurisdiction over the action. See 28 U.S.C. § 1441(a); Wisconsin Dep’t of
Corrections v. Schacht, 118 S. Ct. 2047, 2051 (1998). One ground of original
jurisdiction in the district court — the only one asserted here — is complete diversity
of the parties’ citizenship and an amount in controversy exceeding $75,000. See 28
U.S.C. § 1332(a)2; Carden v. Arkoma Assocs., 494 U.S. 185, 187, 110 S. Ct. 1015,
1017 (1990). Because the district court found fraudulent joinder, and the plaintiffs
dismissed the only nondiverse party, the only issue here is whether the amount in
controversy is more than $75,000. And that issue is further narrowed because each
plaintiff seeks no more than $75,000, and the compensatory damage claims of
individual class members may not be aggregated to satisfy the amount. See Zahn v.
International Paper Co., 414 U.S. 291, 301, 94 S. Ct. 505, 512 (1973). Punitive
damage claims are aggregated,3 but the plaintiffs have disclaimed such damages; for
the moment we assume that the disclaimer is effective. We also assume, without
2
“The district courts shall have original jurisdiction of all civil actions where the
matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is
between —
(1) citizens of different States . . . .”
28 U.S.C. § 1332(a).
3
See Tapscott v. MS Dealer Serv. Corp., 77 F.3d 1353, 1359 (11th Cir. 1996).
4
deciding, that the plaintiffs’ claim for injunctive relief does not exceed $75,000 in
value. The sole possibility for satisfying the requisite amount in controversy,
therefore, is the claim for attorneys’ fees.
There is no dispute among the parties that plaintiffs’ lawyers will seek a fee
ultimately paid by the defendant. While the complaint contains no such claim, the
plaintiffs’ lawyers candidly acknowledged at oral argument that they were not
working for free, and the district court took an attorney-fee claim to be implicit in the
class-action complaint. The parties do disagree, however, over how Alabama law will
shape that fee award, for reasons that we will explain.
Alabama generally follows the American rule that each party must bear her own
attorneys’ fees. Apart from statutory and contractual fee-shifting provisions, neither
of which is available here, Alabama recognizes two principal kinds of “equitable” fee-
shifting. See Horn v. City of Birmingham, 718 So. 2d 694, 703 (Ala. 1998). The
first is the so-called “common fund” doctrine, which authorizes the trial court to
deduct as an attorneys’ fee a reasonable percentage (which apparently means at least
20%) of a common fund that class representatives have collected for distribution
among the class. See Edelman & Combs v. Law, 663 So. 2d 957, 959-60 (Ala. 1995).
The second is the “common benefit” doctrine, which permits an award of fees to be
paid by the defendant, independent of any fund, when the plaintiffs have conferred
5
some kind of benefit on the public. See, e.g., Brown v. Alabama, 565 So. 2d 585, 592
(Ala. 1990). GMAC contends, and the plaintiffs dispute, that a fee here could just as
well be awarded under the common-benefit doctrine as under the common-fund
doctrine.
On this issue the plaintiffs have the upper hand. Alabama courts have invoked
the common-benefit doctrine only when there is a benefit conferred upon the “general
public.” Horn, 718 So. 2d at 702; Battle v. City of Birmingham, 656 So. 2d 344, 347
(Ala. 1995); Bell v. Birmingham News Co., 576 So. 2d 669, 670 (Ala. Ct. Civ. App.
1991). And in every appellate-level case affirming a fee award under this doctrine,
a benefit was conferred on a large segment of the public by bringing “an end to an
improper practice” of a governmental entity. See Horn, 718 So. 2d at 706 (plaintiffs
stopped Birmingham from improperly approving the construction of a waste-transfer
facility); Brown, 565 So. 2d at 592 (plaintiffs’ suit caused state law enforcement
agencies to stop issuing traffic tickets without verification); Bell, 576 So. 2d at 670-71(plaintiff newspaper stopped Birmingham City Council from casting secret ballots).
Compare Dandy’s Discount Package Store, Inc. v. Sizemore, 597 So. 2d 1370, 1372
(Ala. Ct. Civ. App. 1992) (liquor stores who challenged tax and were successful had
not conferred sufficient benefit on general public to warrant fee award independent
of fund); Advertiser Co. v. Auburn Univ., 579 So. 2d 645, 648 (Ala. Ct. Civ. App.
6
1991) (trial court justified in refusing fees where action to force disclosure of
document, while successful, did not establish any precedent or stop any ongoing
illegal government practice).
The common-benefit doctrine would not apply here. Because of the
complaint’s vagueness, it is hard to imagine exactly what kind of injunctive relief
could follow a successful suit, but the relief would at most restrain GMAC from
certain marketing practices. Such relief would in no wise benefit the “general public”;
it would be a boon to only the relatively small number of consumers who purchase
certain products from GMAC. If Alabama courts respect their precedents, then any
award of attorneys’ fees will be deducted from the plaintiffs’ damages fund. Because
of this conclusion about Alabama law, we leave for another case the question of
whether an attorneys’ fee awarded as a discrete, but noncontractual and nonstatutory,
element of recovery may be counted as a single sum toward the jurisdictional amount
rather than allocated among the individual class members’ amounts in controversy.
Cf. Coventry Sewage Assocs. v. Dworkin Realty Co., 71 F.3d 1, 3 n. 2 (1st Cir. 1995)
(“[A]lthough attorneys’ fees usually will not constitute a portion of the amount in
controversy, there is an exception where, as here, the fees are contractual.”); In re
Abbott Labs., 51 F.3d 524, 526-27 (5th Cir. 1995) (award of attorneys’ fee against
defendant under Louisiana statute is attributed only to the class representatives, and
7
therefore can satisfy the jurisdictional amount in controversy); Premier Indus. Corp.
v. Texas Indus. Fastener Co., 450 F.2d 444, 447 (5th Cir. 1971) (“[T]he value of
attorney’s fees [plaintiff] was entitled to recover under the Settlement Agreement . .
. is properly includable in determining the amount in controversy.”).
The narrow question we answer now is thus only whether a fee to be deducted
from a common fund may, if it exceeds $75,000, satisfy the amount-in-controversy
requirement.
b. The rule and its application. Precedent compels us to answer this question
“no.” The rule of decision comes from a series of Supreme Court cases, dating back
to at least 1854, interpreting “matter in controversy”4 to permit aggregation of
multiple plaintiffs’ claims only when “plaintiffs [have] unite[d] to enforce a single
title or right in which they have a common and undivided interest.” Snyder v. Harris,
394 U.S. 332, 335, 89 S. Ct. 1053, 1056 (1969); accord, Zahn v. International Paper
Co., 414 U.S. 291, 294, 94 S. Ct. 505, 508 (1973); see, e.g., Clark v. Paul Gray, Inc.,
306 U.S. 583, 588, 59 S. Ct. 744, 748 (1939); Shields v. Thomas, 58 U.S. (17 How.)
3, 5 (1854). Why we look to the value of each plaintiff’s claim, rather than to the
defendant’s total exposure, is lost in the mists of antiquity; no Supreme Court case
that this court has been able to locate explains the rationale behind this seemingly
4
28 U.S.C. § 1332(a).
8
arbitrary rule. See 14B Charles A. Wright et al., Federal Practice & Procedure § 3704,
at 127 (3d ed. 1998) (“The traditional principles in this area have evolved haphazardly
and with little reasoning. They serve no apparent policy . . . .”). But a rule it is, and
it applies here. True, the Supreme Court cases have used this rule only to determine
if joint plaintiffs may aggregate the entire value of their claims. But this circuit has
extended the application of the “single title or right” principle to address the
aggregation of discrete portions of each plaintiff’s claim for relief. See Tapscott v.
MS Dealer Serv. Corp., 77 F.3d 1353, 1358 n.11 (11th Cir. 1996) (holding that
punitive damages are aggregable because they represent an undivided interest in
punishment and deterrence).
A common-fund attorneys’ fee, we conclude, does not represent a “single title
or right” of the plaintiffs, at least in the two ways it can be reasonably characterized.
The first reasonable characterization is to view the fee as part of the compensatory
damage award. It is indeed measured by the size of the damages award, and it does
not independently affect the size of the controversy. Under this view, the attorneys’
fee must be treated as “transparent,” and its treatment for diversity-jurisdiction
purposes must be identical to that of damages. When, as here, the damages claimed
are purely compensatory, the attorneys’ fees are no more aggregable than the
compensatory damages would be.
9
Alternatively, even if we accept the defendant’s invitation to view the fee as a
lump sum collectively benefitting the plaintiff class, the common-fund fee does not
represent a “right” of the plaintiffs. Facially, we could perhaps consider the fee as a
collective debt of the plaintiff class, incurred in common in pursuit of the plaintiffs’
recovery, that the defendants discharge to the plaintiffs’ benefit. But that would not
make sense in the common-fund context. After all, we are not dealing with attorneys
who, as plaintiffs’ “agents” in the common sense of the word, could be expected to
seek attorneys’ fees from their clients. Indeed, most of the clients involved will never
meet their attorneys. Rather, the lawyers are “entrepreneurs” who take a case in the
expectation of making money from it. Jonathan R. Macey & Geoffrey P. Miller, The
Plaintiffs’ Attorney’s Role in Class Action and Derivative Litigation: Economic
Analysis and Recommendations for Reform, 58 U. Chi. L. Rev. 1, 3 (1991); John C.
Coffee, Jr., Understanding the Plaintiff’s Attorney: The Implications of Economic
Theory for Private Enforcement of Law Through Class and Derivative Actions, 86
Colum. L. Rev. 669, 677 (1986) (both identifying the plaintiffs’ attorney in class
actions as an independent entrepreneur rather than an agent). Indeed, the common-
fund fee, which is most likely a matter solely for the court and the plaintiffs’ lawyers
(or the defendant and the plaintiffs’ lawyers, in the case of settlement), is often
calculated without representation of the plaintiffs’ interests. See Edelman & Combs
10
v. Law, 663 So. 2d 957, 959 (Ala. 1995) (observing that class lawyers have an
inherent conflict of interest with members of the class over fees). For these reasons,
we cannot deem the attorneys’ fee to be a collective benefit for the plaintiffs, who
have been excused from a debt at the defendant’s expense. Rather, the fees directly
compensate the lawyers who have acted independently as “private attorneys general.”
In short, the common-fund attorneys’ fee does not represent a collective interest of
the plaintiff class, and it is not aggregable.
c. Apologia. We acknowledge that this case and its kin present an anomaly in
our law. An important historical justification for diversity jurisdiction is the
reassurance of fairness and competence that a federal court can supply to an out-of-
state defendant facing suit in state court.5 GMAC is an out-of-state corporate
defendant facing a multimillion-dollar judgment — possibly tens or hundreds of
5
See, e.g., Barrow S.S. Co. v. Kane, 170 U.S. 100, 111, 18 S. Ct. 526, 530 (1898)
(“The object of the provisions of the constitution and statutes of the United States in conferring
upon the circuit courts of the United States jurisdiction of controversies between citizens of
different States of the Union . . . was to secure a tribunal presumed to be more impartial than a
court of the state in which one litigant resides.”); The Federalist No. 80, at 537-38 (Alexander
Hamilton) (Jacob E. Cooke, ed. 1961) (“[I]n order to the inviolable maintenance of that equality
of privileges and immunities to which the citizens of the union will be entitled, the national
judiciary ought to preside in all cases in which one state or its citizens are opposed to another
state or its citizens. To secure the full effect of so fundamental a provision against all evasion
and subterfuge, it is necessary that its construction should be committed to that tribunal which,
having no local attachments, will be likely to be impartial between the different states and their
citizens, and which, owing its official existence to the union, will never be likely to feel any bias
inauspicious to the principles on which it is founded.”).
11
millions, once the plaintiffs have waited out the one-year removal window6 and amend
their complaint to seek punitive damages explicitly — in a state court system that has
on occasion produced gigantic awards against out-of-state corporate defendants. See,
e.g., BMW of N. Am., Inc. v. Gore, 116 S. Ct. 1589, 1593 (1996) ($4 million punitive
damage verdict for failing to disclose that new car had been repainted by the
manufacturer); Jeff Bailey, Whirlpool Ordered to Pay $581 Million in Alabama
Satellite-Dish Finance Case, Wall St. J., May 11, 1999, at A3 (“The decision . . . is
believed to be the largest punitive damage award in Alabama, a state whose courts are
among the most widely feared by corporate defendants.”). One would think that this
case is exactly what those who espouse the historical justification for § 1332 would
have had in mind, and that this fact would somehow color the statute’s interpretation.
Whatever the policy behind § 1332, however, the Supreme Court has deemed
it irrelevant to construing ambiguous terms like “matter in controversy.” It would be
consistent with this nonresident-reassurance policy, for instance, to construe “matter
in controversy” to mean the value of a case from a removing defendant’s perspective.7
6
See 28 U.S.C. § 1446(b).
7
See Wright et al., supra, § 3705, at 180-81 (“This is one situation in which it
might have been useful to employ the defendant-viewpoint rule in determining the amount in
controversy. The policy goal of insuring that the federal courts do not ‘fritter away their time in
the trial of petty controversies’ still would be safeguarded, since the potential liability to the
defendant clearly is not insubstantial in almost all class actions despite the small size of the
claims of individual class members.”) (quoting S. Rep. No. 85-1830, at 3-4 (1958)).
12
But while the Supreme Court long ago flirted with the idea of evaluating multiple
claims from the defendant’s perspective, see Shields, 58 U.S. (17 How.), at 5,8 it has
since rejected that notion, as Snyder and Zahn confirm. Those cases look at the
“matter in controversy” solely through each plaintiff’s eyes, even though the
defendant may be looking at a much larger sum. See Zahn, 414 U.S. at 295, 94 S. Ct.
at 509; Snyder, 394 U.S. at 336, 89 S. Ct. at 1057. Thus, even though it may make
sense and be fair to a defendant to measure the case from its perspective, as well as
the plaintiffs’, the Supreme Court has long since closed that door. By analogy, we are
bound in our turn to reject any policy-based arguments in deciding lesser questions
about § 1332, including the one before us today.
d. Mopping up. Our conclusion does not end the diversity-jurisdiction dispute.
GMAC has proposed two additional ways that the amount in controversy could
exceed $75,000 here. First, it argues that the punitive damages waiver is
impermissible. Second, it argues that the injunctive relief that the plaintiffs seek is
unitary and therefore aggregable. Because the district court found the amount in
controversy satisfied by the possibility of a common-fund attorneys’ fee, it did not
8
“So far as the [defendant] is concerned, the entire sum found due by the Kentucky
court is in dispute. He disputes the validity of that decree, and denies his obligation to pay any
part of the money. And if the [plaintiffs] maintain their bill, he will be made liable to pay the
whole amount decreed to them. This is the controversy on his part; and the amount exceeds two
thousand dollars.”
13
reach these alternative grounds. We thus will leave these issues for the district court
to address in the first instance on remand.
3. Conclusion
For the foregoing reasons, we vacate the district court’s denial of the motion to
remand and remand the for further proceedings.
VACATED AND REMANDED.
14
NANGLE, Senior District Judge, concurring:.
This District Judge concurs with his colleagues in this matter but under
protest. The protest is not against the majority, who are two of the finest Circuit
Judges in this country, but is instead against the antiquated, out-of-date judicial
theories which force upon us the result reached in this case.
The case at hand is but one example of a growing trend in class action
litigation in this country. Plaintiffs’ attorneys are increasingly filing nationwide class
actions in various state courts, carefully crafting the language in the petitions or
complaints in order to avoid the amount in controversy requirement of the federal
courts. Existing federal precedent, as so clearly articulated by the majority, mandates
that this practice be permitted, although most of these cases in actuality will be
disposed of through “coupon” or “paper” settlements.9 Actual monetary
compensation rarely reaches the class members. Concurrently, and perhaps
coincidentally, such settlements are virtually always accompanied by munificent
grants of or requests for attorneys’ fees for class counsel.10
9
These settlements typically involve the extension or expansion of an existing warranty
or coupons for rebates on future purchases from defendants.
10
See In re General Motors Corp. Pickup Truck Fuel Tank Prods. Liab., 55 F.3d 768 (3d
Cir. 1995) (discussing settlement involving relief of rebate coupons on future truck purchases for
the class and $9.5 million in attorneys’ fees); In re Ford Motor Co. Bronco II Prod. Liab. Litig.,
981 F. Supp. 969 (E.D. La. 1997) (rejecting proposed settlement involving “utility vehicle
package” of safety materials for class and $6 million in fees for attorneys); In re Domestic Air
Transp. Antitrust Litig., 148 F.R.D. 297 (N.D. Ga. 1993) (approving proposed settlement which
15
The instant case is virtually indistinguishable from the types of cases that
result in coupon settlements. The plaintiffs allege fraud in the sale of an extended
warranty plan for their GM vehicles costing $685 per policy. The lead plaintiffs in the
instant case purport to waive all punitive damages and to limit compensatory damages
to $75,000 per class member. Even if this waiver were effective, the reality of the
situation is that plaintiffs will likely seek to amend their complaint and seek greater
amounts of damages after the one year removal window has closed. 28 U.S.C. §
1446(b). I make no comments on the merits of this case. But, if it reaches the trial
stage, I am willing to predict that it will be settled. Facing the possibility of an
Alabama jury which occasionally brings in “gigantic awards” in cases of this sort (as
pointed out by the majority),11 defendants in this case will be under extreme pressure
to settle with the only potential obstacle to settlement being plaintiffs’ attorneys fees.
included discount travel certificates for class and over $14 million in attorneys fees); In re
Cuisinart Food Processor Antitrust Litig. (D. Conn. Oct. 24, 1983) (approving settlement giving
discount coupon on future purchases to class and $600,000 in attorneys’ fees). Just recently, a
Cook County class action case was settled by sending three golf balls to each member of the
class, with significant attorneys’ fees for the plaintiffs’ attorneys. Jerry Heaster, Enough Already
with the Lawsuits, Kan. City Star, July 10, 1999, at C1.
11
BMW of North Am., Inc. v. Gore, 517 U.S. 559 (1996) (striking down $4 million dollar
punitive damage award in Alabama paint damage case); Margaret Cronin Fisk, Jurors’ Satellite
Signal: $581M, Nat’l L.J., May 24, 1999, at B5 (citing Carlisle v. Whirlpool Fin. Nat’l Bank,
No. 97-068 (Al. Cir. Ct., Hale Cty.) (awarding $581 million in damages for consumer fraud in
the sale and financing of two television satellite dishes)).
16
Thus, the stage is set for a coupon settlement, with the only cash involved flowing
directly to plaintiffs’ attorneys. And that cash will far exceed $75,000.
Consequently, although the majority’s opinion correctly states and
analyzes the law as it currently stands, this Judge is of the opinion that the present case
law does not adequately accommodate the reality of modern class action litigation and
settlements. The amount in controversy doctrine, in particular the rules concerning
aggregation, should provide for the inclusion of the prospective attorneys’ fees being
sought. In many such cases, that is the true “amount in controversy.” Under the
current state of the law, however, this Judge has no choice but to concur in the opinion
of his esteemed colleagues.
17