Valhal Corp v. Sullivan Assoc ( 1995 )

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit
3-20-1995
Valhal Corp v Sullivan Assoc
Precedential or Non-Precedential:
Docket 91-3650
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Recommended Citation
"Valhal Corp v Sullivan Assoc" (1995). 1995 Decisions. Paper 2.
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
NO. 94-1221
NO. 94-1241
VALHAL CORPORATION,
Appellee/
Cross-Appellant,
v.
SULLIVAN ASSOCIATES, INC.,
ARCHITECTS, PLANNERS, ENGINEERS,
Appellant/
Cross-Appellee.
SUR PETITION FOR REHEARING
BEFORE: SLOVITER, Chief Judge, STAPLETON,
MANSMANN, GREENBERG, HUTCHINSON, SCIRICA,
COWEN, NYGAARD, ALITO, ROTH, LEWIS, McKEE and
SAROKIN, Circuit Judges
The petition for rehearing filed by appellee/cross-
appellant in the above-entitled case having been submitted to the
judges who participated in the decision of this Court and to all
the other available circuit judges of the circuit in regular
active service, and no judge who concurred in the decision having
asked for rehearing, and a majority of the circuit judges of the
circuit
in regular active service not having voted for rehearing by the
court in banc, the petition for rehearing is denied. Judge
Hutchinson would grant in banc rehearing for the reasons set
forth in his attached Statement Sur Denial. Judge Greenberg
joins in Judge Hutchinson's Statement Sur Denial.
By the Court
/s/Theodore A. McKee
Circuit Judge
Dated: March 20, l995
STATEMENT SUR DENIAL OF REHEARING IN BANC
Nos. 94-1221 & 94-1241
HUTCHINSON, Circuit Judge
Neither the Supreme Court of Pennsylvania nor its
Superior Court has yet decided whether clauses in contracts for
professional services limiting the damages a contracting party
can recover for negligent performance are enforceable. The Court
concludes they are valid under applicable state law. The
district court concluded they are not, and I believe their
validity can be fairly characterized as doubtful. Nevertheless,
because Sullivan's contract with Valhal for professional services
has a clause that attempts to limit Sullivan's liability to
$50,000, this Court reverses a $1,000,000 judgment for appellee
Valhal and then holds that the case must be dismissed for lack of
subject matter jurisdiction. I believe this confuses the
jurisdictional issue concerning the amount in controversy with
the merits, deprives both parties of the binding judgment to
which they are entitled and ignores our obligation to exercise
subject matter jurisdiction when it is present. Moreover, it has
real practical significance to the parties as a non-merits
dismissal for lack of jurisdiction does not foreclose Valhal from
commencing a new action in a state trial court seeking the same
relief it did in the district court. See, e.g., Local 1498,
Fed'n of Gov't Employees v. American Fed'n of Gov't Employees,
AFL-CIO, 522 F.2d 486, 492 (3d Cir. 1975); Fratto v. New
Amsterdam Casualty Co., 252 A.2d 606, 607 (Pa. 1969).
Accordingly, I respectfully disagree with the Court's mandate
directing dismissal of this case for lack of subject matter
jurisdiction.1
In Saint Paul Mercury Indemn. Co. v. Red Cab Co., 303
U.S. 283, 288-89 (1938), the United States Supreme Court held
that the amount a diversity plaintiff claims controls
determination of the jurisdictional amount unless it appears to a
"legal certainty" that (1) the claim was really for less than the
jurisdictional amount, (2) the plaintiff could not recover more
than the jurisdictional amount, or (3) the amount claimed is
merely colorable. I recognize the Supreme Court 's statements in
Red Cab that Congress has restricted diversity jurisdiction and
that courts must rigorously enforce this intent. Id. at 288.
However, the Supreme Court in Red Cab went on to state:
The rule governing dismissal for want of
jurisdiction in cases brought in 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
1I realize that many jurists feel federal diversity
jurisdiction is an outmoded burden on federal district courts
facing burgeoning increases in cases involving federal question
jurisdiction as Congress responds to problems it sees as national
in scope. See Dolores K. Sloviter, A Federal Judge Views
Diversity Jurisdiction Through the Lens of Federalism, 78 Va.
L. Rev. 1671 (1992). Efforts to secure legislation limiting or
sharply curtailing diversity jurisdiction, however, have not
borne much fruit. Therefore, we are still charged with deciding
cases brought by citizens of diverse states when the amount in
controversy is more than $50,000, and our jurisdiction is not
affected by a merits disposition awarding the diversity plaintiff
less than that amount.
plaintiff to recover an amount adequate to
give the court jurisdiction does not show his
bad faith or oust 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.
Id. at 288-89 (footnotes omitted). Although old, Red Cab remains
the seminal case on this issue.
This Court concludes today that Valhal's $2,000,000
claim, on which it secured a jury verdict of $1,000,000 after the
district court refused Sullivan's motion to dismiss for lack of
subject matter jurisdiction, is a case in which it appears to a
"legal certainty" that the amount in dispute failed to reach the
jurisdictional minimum. I believe this holding confuses the
jurisdictional question of legal certainty with the standard for
judgment on the merits as a matter of law. I also believe it
ignores Red Cab's instruction that a diversity claim should not
be dismissed for lack of subject matter jurisdiction unless the
allegation in the complaint that it is for more than the
jurisdictional amount is made in bad faith. Id. On this record,
I do not think it can be inferred that Valhal's $2,000,000 claim
was made in a bad faith attempt to meet the jurisdictional amount
of more than $50,000 that 28 U.S.C.A. § 1332 (West 1993) requires
in a diversity case.
The length and complexity of the analysis the Court
uses to resolve the controlling issue of state law, not
heretofore authoritatively decided, seems to me to belie any
conclusion that Valhal's allegation that the amount in
controversy is more than $50,000 could be seen from the outset to
be false to a "legal certainty" and so was made in bad faith or
was merely colorable. It seems to me that these determinations
should be made ex ante, not post hoc.
In addition, it is clear from Part II of the opinion
that the Court, in directing dismissal of the case for lack of
subject matter jurisdiction, has incorrectly applied the standard
of review applicable to a Rule 56 grant of summary judgment
instead of the standard applicable to a Rule 12(b)(1) motion to
dismiss for lack of subject matter jurisdiction. Reasonable
jurists might indeed conclude that Valhal's claim should not
survive summary judgment, an issue on which I am dubitante; but I
think this record demonstrates that Red Cab's standard governing
dismissal for lack of subject matter jurisdiction is not met.
Moreover, none of this Court's own cases concerning
dismissal of a diversity case for failure to meet the
jurisdictional amount seem to support dismissal here. I believe,
rather, that Nelson v. Keefer, 451 F.2d 289 (3d Cir. 1971),
supports the district court's exercise of subject matter
jurisdiction over Valhal's $2,000,000 claim. In Nelson, we
stated: "'[W]here the jurisdictional issue cannot be stated
without the ruling constituting at the same time a ruling on the
merits, [the necessary choice] is to permit the cause to proceed
to trial.'" Id. at 292 (quoting Wade v. Rogala, 270 F.2d 280,
285 (3d Cir. 1959)). We went on to explain that our objective in
deciding questions of jurisdictional amount is to locate only
"those 'flagrant' cases where it can be determined in advance
'with legal certainty' that the congressional mandate . . . was
not satisfied." Id. (emphasis added). Here, the opinion of the
Court demonstrates the necessity of resolving the dispute on the
merits before the jurisdiction question could be decided.
Accordingly, I think the mandate of the Court should be to vacate
and remand the $1,000,000 judgment for Valhal with instructions
to enter judgment for $50,000 instead of dismissing for lack of
jurisdiction.2
In Lunderstadt v. Colafella, 885 F.2d 66 (3d Cir.
1989), we considered whether federal question claims were
substantial enough to justify the district court in exercising
federal question jurisdiction. Finding that they were not
"wholly insubstantial and frivolous," we held that the district
court had jurisdiction. Id. at 70 (citing Bell v. Hood, 327 U.S.
678, 682-83 (1946). We pointed out that "[t]he threshold to
withstand a motion to dismiss under Fed.R.Civ.P. 12(b)(1) is thus
lower than that required to withstand a Rule 12(b)(6) motion."
2
I do not find it necessary on this petition for rehearing to
decide the merits issue. Accordingly, I take no position at this
point on the merits of the state law question, as to which I am,
as stated, dubitante.
Id. Similarly, in Batoff v. State Farm Insurance Co., 977 F.2d
848 (3d Cir. 1992), after concluding that the claim of a non-
diverse defendant was not wholly insubstantial or frivolous, we
remanded a removed case to the state court, recognizing that the
remand could result in an order granting the defendant's motion
to dismiss.
Our decision in Packard v. Provident Nat'l Bank, 994
F.2d 1039 (3d Cir.), cert. denied sub nom. Upp v. Mellon Bank,
N.A., 114 S. Ct. 440 (1993), holding that the district court
lacked subject matter jurisdiction because "it [wa]s evident to a
legal certainty that the requisite amount in controversy for
diversity jurisdiction was never recoverable," is
distinguishable. Id. at 1042. There, we were considering
punitive damages that were "'patently frivolous and without
foundation'" or "asserted solely or primarily for the purpose of
conferring jurisdiction." Id. at 1046 (citations omitted); see
also In re Corestates Trust Fee Litig., 994 F.3d 61 (1994). To
read Packard more broadly brings it into tension with Batoff.
See I.O.P. 9.1.
I think two cases from the United States Court of
Appeals for the Second Circuit concerning determination of the
amount in controversy in a diversity case are instructive:
Zacharia v. Harbor Island Spa, Inc., 684 F.2d 199 (2d Cir. 1982)
and Ochoa v. Interbrew America, Inc., 999 F.2d 626 (2d Cir.
1993). They aptly capture the distinction between cases in which
the amount in controversy does not reach the jurisdictional
amount and those that proceed to judgment on the merits because
the amount initially in dispute is in excess of the
jurisdictional requirement, even though the court may ultimately
determine, on the merits, that the liability of the defendant is
limited to a lesser amount. In Zacharia, a hotel's liability was
limited to $1,000 by statute. The court held that the statutory
limitation was a clear defense to liability that deprived the
court of jurisdiction. Zacharia, 684 F.2d at 202. I agree. In
Ochoa, however, the court held, "[W]hen there is no claim of bad
faith in asserting the jurisdictional amount, courts are
permitted only to assess the allegations of the plaintiff's
complaint and are to refrain from adjudicating the merits of the
case." Ochoa, 999 F.2d at 630. I recognize that the Court of
Appeals for the Sixth Circuit has held "proof to a legal
certainty that a plaintiff is not entitled to more than [the
jurisdictional amount] overcomes even a good faith allegation
that the jurisdiction amount is in controversy." Sellers v.
O'Connell, 701 F.2d 575, 571 (6th Cir. 1983). I believe,
however, that Sellers conflicts with Red Cab, our statement in
Nelson and, by logical implication, our decisions in Batoff and
Lunderstadt, and is wrongly decided.
For these reasons, I dissent from the order denying
rehearing.
Judge Greenberg joins in this statement.