CE Design, Ltd. v. American Economy Insurance Com

United States Court of Appeals
For the First Circuit
No. 13-1080
CE DESIGN LTD.,
Plaintiff-Appellant,
v.
AMERICAN ECONOMY INSURANCE COMPANY,
Defendant-Appellee,
and
ERNIDA, LLC,
Defendant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. F. Dennis Saylor IV, U.S. District Judge]
Before
Howard, Stahl, and Thompson,
Circuit Judges.
David M. Oppenheim, with whom Brian J. Wanca, Jeffrey A.
Berman, Anderson + Wanca, Alan L. Cantor and Swartz & Swartz, P.C.
were on brief, for the appellant.
Myles W. McDonough, with whom Christopher M. Reilly, Ryan B.
MacDonald and SLOANE AND WALSH, LLP were on brief, for the
appellee.
June 19, 2014
THOMPSON, Circuit Judge. This is an appeal from a
dismissal of an action for declaratory judgment. Because, as a
threshold issue, we have an obligation to ascertain sua sponte the
existence of federal subject-matter jurisdiction, we asked the
parties for supplemental briefing on how (or whether) the
plaintiff-appellant's claim in this action met the $75,000 amount-
in-controversy requirement for diversity jurisdiction. Finding
federal jurisdiction wanting, we remand this case to the district
court with instructions to dismiss.
BACKGROUND
In 2008, plaintiff-appellant CE Design Ltd. ("CE") filed
a class action suit in the Circuit Court of Cook County, Illinois,
on behalf of itself and others similarly situated, against Ernida,
LLC. The complaint alleged violations of the Telephone Consumer
Protection Act ("TCPA"), 47 U.S.C. § 227, the Illinois Consumer
Fraud and Deceptive Business Practices Act, 815 Ill. Comp. Stat.
505/2, and common law conversion. CE claimed that Ernida had faxed
unsolicited advertisements to CE and "more than 39 other
recipients," without first obtaining their permission. CE sought
damages, including statutory damages of $500 for each violation of
the TCPA, as well as costs, and any further relief the court deemed
just and proper. The complaint specifically disclaimed any
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individual recovery in excess of $75,000.1 After being notified of
this suit, Ernida's insurer, American Economy Insurance Company
("American"), took up Ernida's defense in Cook County, explicitly
reserving its rights to withdraw from the defense and to deny
coverage.
With the Cook County action still ongoing, CE then filed
suit in federal court against American, seeking a declaratory
judgment on American's duty to defend Ernida in the Cook County
action and American's responsibility to indemnify and pay any
judgment entered in that action against Ernida.2 Ernida is also a
named defendant in the federal suit. CE asserted diversity
jurisdiction under 28 U.S.C. § 1332.
American moved to dismiss CE's federal action for lack of
a justiciable controversy and for failure to state a claim on which
relief could be granted; alternatively, it asked the court to
exercise its discretion under the Declaratory Judgment Act, 28
U.S.C. §§ 2201–2202, and decline to enter declaratory relief. The
district court granted American's motion, holding CE had not
presented a justiciable controversy. Applying Illinois law, it
1
CE's Cook County complaint specifically says "no federal
question or claim is asserted and Plaintiffs' individual claims are
worth less than $75,000.00, inclusive of all forms of damages and
fees." It further states that "Plaintiff expressly disclaims any
individual recovery in excess of $75,000.00, inclusive of all forms
of damages and fees."
2
CE also seeks an award of costs.
-3-
found CE did not have a cognizable injury for standing purposes
because "an injured claimant generally has no direct rights against
the insurer prior to a judgment of the tortfeasor's liability," and
the Cook County court had yet to issue a judgment against Ernida.3
This appeal followed.
Both parties filed appellate briefs, focusing on the
issues addressed by the district court in its order granting
American's motion to dismiss. However, in an extended footnote,
American raised a jurisdictional amount challenge, questioning
whether CE's claim met the amount-in-controversy requirement for
diversity jurisdiction since CE had expressly waived any right to
recover anything over $75,000 in its Cook County complaint. This
jurisdictional challenge went unanswered in CE's reply brief.
During oral argument, we asked CE's appellate counsel whether and
how his client's claim reached the amount-in-controversy
requirement of $75,000. Without a satisfactory answer, we ordered
the parties to file supplemental briefs on the issue.
In its supplemental brief, CE maintains federal
jurisdiction exists because the object of this litigation is to
obtain indemnity coverage, and the pecuniary burden on the insurer
(i.e., American's overall potential payout to all putative class
3
The district court further stated that even if the
jurisdictional and standing requirements had been met, it would
have declined to issue declaratory judgment due to certain
expressed prudential considerations.
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members4 in the Cook County action) exceeds the minimum
jurisdictional amount. American now squarely contests subject-
matter jurisdiction, arguing CE's claim does not meet the amount-
in-controversy requirement because it waived all individual damages
in excess of $75,000 in the Cook County complaint, and because it
cannot aggregate its claim with the claims of other putative class
members in the Cook County action to reach the required minimum.5
DISCUSSION
As a court of limited jurisdiction, we have "a
responsibility to police the border of federal jurisdiction."
Spielman v. Genzyme Corp., 251 F.3d 1, 4 (1st Cir. 2001). Even
where "no party has questioned whether the district court had
jurisdiction to rule in [a] case, it is well established that [we]
have a duty to ensure that [federal district courts] are not called
upon to adjudicate cases which in fact fall outside the
jurisdiction conferred by Congress." Esquilín-Mendoza v. Don King
Prods., Inc., 638 F.3d 1, 3 (1st Cir. 2011).
4
We refer to "putative class members" because we have no idea
whether the plaintiff class in Cook County has been certified. All
we know from CE's briefing is that a class action complaint and a
motion for class certification have been filed with the Cook County
court.
5
American also contests subject-matter jurisdiction due to
lack of complete diversity between CE and Ernida (CE is an Illinois
corporation and Ernida is an Illinois limited liability company).
Because we ultimately find CE's claim cannot meet the minimum
amount required for diversity jurisdiction, there is no need to
address whether complete diversity exists.
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When an action is brought in federal court pursuant to
diversity jurisdiction, jurisdiction lies only "where the matter in
controversy exceeds the sum or value of $75,000, exclusive of
interest and costs." 28 U.S.C. § 1332. The burden is on the
federal plaintiff to establish that the minimum amount in
controversy has been met. Abdel-Aleem v. OPK Biotech LLC, 665 F.3d
38, 41 (1st Cir. 2012). A plaintiff's good faith allegation of
damages meeting the required amount in controversy is usually
enough. Id. And "[t]he inability of plaintiff to recover an
amount adequate to give the court jurisdiction does not show his
bad faith or oust the jurisdiction." Esquilín-Mendoza, 638 F.3d at
4 (quoting St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S.
283, 289 (1938)). However, "where it appears 'to a legal certainty
that the claim is really for less than the jurisdictional amount,'
dismissal is required." Id. (quoting St. Paul Mercury Indem. Co.,
303 U.S. at 289).
Amount in controversy is usually assessed from the
viewpoint of the plaintiff. See, e.g., Miles v. Funk, 259 F. App'x
335, 337 (1st Cir. 2008) (per curiam) (unpublished) (finding only
three plaintiffs were "involved in the litigation" when assessing
the value of the matter in controversy); see also Richard C. Young
& Co., Ltd. v. Leventhal, 389 F.3d 1, 3 (1st Cir. 2004)
(considering the value of the object of the litigation in a case
involving both declaratory and injunctive relief from the
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plaintiff's perspective). The amount in controversy in actions
seeking declaratory relief "is the value of the right or the
viability of the legal claim to be declared, such as a right to
indemnification or a duty to defend." 14AA Charles Alan Wright et
al., Federal Practice and Procedure § 3708 (4th ed.). As a general
rule, multiple plaintiffs cannot aggregate their separate
individual claims to meet the jurisdictional amount threshold.
See Zahn v. Int'l Paper Co., 414 U.S. 291, 294-95 (1973),
superseded by 28 U.S.C. § 1367 on other grounds, as stated in Exxon
Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546 (2005).6 A
limited exception to this rule exists where "several plaintiffs
unite to enforce a single title or right, in which they have a
common and undivided interest." Id. at 294 (quoting Troy Bank of
Troy, Indiana v. G.A. Whitehead & Co., 222 U.S. 39, 40-41 (1911)).
In that instance, "it is enough if their interests collectively
equal the jurisdictional amount." Id. (quoting Troy Bank, 222 U.S.
at 41) (internal quotation mark omitted). For this exception to
apply, the interest must be both common and undivided. See Everett
v. Verizon Wireless, Inc., 460 F.3d 818, 824 (6th Cir. 2006) ("A
common interest in a litigation recovery thus represents a
6
Zahn held that each plaintiff in a multi-plaintiff action
must individually satisfy the amount-in-controversy requirement.
414 U.S. at 301. The Supreme Court in Exxon held Zahn had been
overruled by § 1367 "by its plain text" because § 1367 provided for
supplemental jurisdiction over claims where some, but not all, of
the plaintiffs in a diversity action had alleged a sufficient
amount in controversy. Exxon, 545 U.S. at 566-67.
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necessary, but by itself insufficient, ground to qualify claims for
aggregation."). Courts have found that individually cognizable and
calculable claims do not fit the exception. See, e.g., Travelers
Prop. Cas. v. Good, 689 F.3d 714, 720 (7th Cir. 2012) ("[W]here the
plaintiffs' claims are 'cognizable, calculable, and correctable
individually,' . . . they are clearly 'separate and distinct' and
may not be aggregated to meet the amount in controversy." (citation
omitted)).
We first questioned the amount in controversy in this
case at oral argument with the anti-aggregation rule in mind. CE
appeared to rely on the claims of the other putative class members
in the Cook County action, presumably because its individual claim
cannot reach $75,000. Again, CE had expressly waived any relief
over $75,000 in the Cook County complaint.
As the party seeking to invoke jurisdiction, CE has the
burden of showing it has met the amount-in-controversy requirement.
See Spielman, 251 F.3d at 4. Recognizing the anti-aggregation rule
would otherwise bar jurisdiction, CE makes two distinct arguments
as to why this rule is inapplicable in this case. First, CE argues
the "common and undivided interest" exception to this rule applies
here. Second, CE argues we should not assess the value of the
object of the litigation for our amount-in-controversy
determination from the plaintiff's viewpoint (which would require
the aggregation of its claims with those of the other putative
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class members in the Cook County action), but rather from the
defendant's perspective. We are not persuaded by either argument.
As to the first argument, CE fails to show us how this
case falls within the "common and undivided interest" exception.
CE limits its exposition to the following: "CE Design seeks to
vindicate the class's common and undivided interest in obtaining an
affirmative declaration of coverage, the value of which far exceeds
the jurisdictional threshold." Without more, we cannot do much.
There is no explanation as to why this class shares a "common and
undivided interest." While each of the putative Cook County class
members might be asserting a similar claim against Ernida in the
underlying state court action, this alone does not make their
interest undivided. See Everett, 460 F.3d at 824. Each putative
class member allegedly suffered a separate and distinct violation
of the TCPA, and the amount of money each may be entitled to
receive (including statutory damages of $500 per violation) is
readily discernible.
Furthermore, CE, which filed its complaint here in
federal court as an individual plaintiff, fails to tell us how it
can represent the entire Cook County class.7 At the risk of
oversimplifying, generally, a plaintiff can only assert claims
7
Unlike in its state court action, CE did not file this
action on behalf of others similarly situated. In its supplemental
brief, CE affirms it does not seek class certification of its
federal action.
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premised on his or her own legal rights, not those of third parties
(subject to some exceptions, of course). See Wilson v. HSBC Mortg.
Servs., Inc., 744 F.3d 1, 8 (1st Cir. 2014) (discussing prudential
concerns for standing). It is CE's burden to show why it can
assert claims on behalf of the other putative class members, see
id., and it has made no effort to do so. Merely citing to the
underlying state court complaint, which does not tell us whether
the class action has been certified or whether CE has been
appointed class representative, is not enough. Accordingly, the
"common and undivided interest" exception argument goes nowhere,
and the general rule that CE cannot aggregate its claim with the
claims of other putative Cook County class members to meet the
jurisdictional amount threshold holds.
CE is now left with its defendant-viewpoint argument.
But this too fails to make the grade. CE urges us to assess the
amount in controversy in this case from American's perspective
(i.e., the cost to American of the potential indemnity obligation
to all the putative class members in the Cook County action).
Although CE acknowledges the value of the object of the litigation
"has historically been assessed from a plaintiff's perspective," it
cites caselaw to suggest it is legally permissible to look at the
amount in controversy from the defendant's perspective. CE,
however, does not cite anything on-point, and fails to illustrate
how the cited caselaw applies to this particular case.
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From this circuit, CE references two footnotes in
Williams v. Kleppe, 539 F.2d 803 (1st Cir. 1976), and in
Massachusetts v. United States Veterans Administration, 541 F.2d
119 (1st Cir. 1976) -- particularly, footnote one in Williams8 and
footnote three in Massachusetts9 -- claiming they "signal[] an
openness to consider the 'defendant's viewpoint' in assessing the
amount in controversy." CE maintains this is the appropriate case
for us to finally employ this approach. But these footnotes, on
their own, give us no reason to abandon our general plaintiff-
perspective rule, and CE, which merely cites to and quotes them,
provides us with no analysis as to why these two footnoted comments
should persuade us to adopt something new here. It did so at its
peril. We need not "bend over backwards to preserve [CE's] right
to a federal forum." Travelers Indem. Co. v. Dingwell, 884 F.2d
629, 637 (1st Cir. 1989). But more importantly and viewed
8
"The action was brought under 28 U.S.C. § 1331(a). The
jurisdictional amount was alleged and has not been made an issue.
Applying conventional analysis, we are unwilling to say on this
record that the claimed interests of one or more plaintiffs, some
being residents of the Seashore area, may not exceed the
jurisdictional amount. Perhaps more realistically, we can rely on
the extent of the claimed pecuniary burden on defendants were
plaintiffs to prevail." Williams, 539 F.2d at 804 n.1.
9
"States may sue the United States in district courts. The
Commonwealth claims that the $10,000 jurisdictional amount is
satisfied because the matter in controversy concerns pollution of
interstate waters. Since the pecuniary burden on the VA would
probably be in excess of $10,000 should the Commonwealth prevail,
we think that the jurisdictional amount requirement is satisfied."
Massachusetts, 541 F.2d at 122 n.3 (citations omitted).
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correctly, Williams -- which involved a suit for declaratory relief
alleging the unconstitutionality of a National Park Service
regulation -- actually assessed the amount in controversy through
a plaintiff's lens. See 539 F.2d at 804 n.1 ("[W]e are unwilling
to say on this record that the claimed interests of one or more
plaintiffs . . . may not exceed the jurisdictional amount."). And
Massachusetts -- which involved a suit filed by a state alleging
violations of the Federal Water Pollution Control Act, as amended
33 U.S.C. § 1251 et seq. (and which was dismissed on a different
jurisdictional basis) -- does not give us much to go on due to the
brevity of its amount-in-controversy discussion (jurisdictional
amount was not at issue). While the footnote's reference to "the
pecuniary burden on the [Veterans Administration]" appears to
signal the application of a defendant-viewpoint approach, it is
hard to discern if that is what the court meant in light of the
preceding sentence acknowledging Massachusetts's claim that "the
matter in controversy concerns pollution of interstate waters."
541 F.2d at 122 n.3. Read together, the court's reference to the
VA's burden may simply be its assessment of the value of the
pollution (i.e., the court's assessment of Massachusetts's -- the
plaintiff's -- minimal damages). In any event, the brief
discussion in the Massachusetts footnote is arguably the sort of
"drive-by jurisdictional ruling[]" that the Supreme Court has
instructed has "no precedential effect." Steel Co. v. Citizens for
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a Better Env't, 523 U.S. 83, 91 (1998). As such, neither footnote
aids CE.
As for out-of-circuit cases cited by CE, two of them --
In re Brand Name Prescription Drugs Antitrust Litigation, 123 F.3d
599 (7th Cir. 1997), and In re Ford Motor Co./Citibank (South
Dakota), N.A., 264 F.3d 952 (9th Cir. 2001) -- actually weaken its
argument. In these cases, both courts adamantly maintained that
the non-aggregation rule could not be ignored simply by applying a
defendant-viewpoint approach. The court in In re Brand Name --
which involved consolidated class actions seeking, inter alia,
injunctive relief -- held that a defendant's cost to comply with
each plaintiff's claim for injunctive relief could not be
aggregated to satisfy the amount-in-controversy requirement,
expressly emphasizing that "[w]hatever the form of relief sought,
each plaintiff's claim must be held separate from each other
plaintiff's claim from both the plaintiff's and the defendant's
standpoint. The defendant in such a case is deemed to face
multiple claims for injunctive relief, each of which must be
separately evaluated." 123 F.3d at 610 (citing Snow v. Ford Motor
Co., 561 F.2d 787, 790 (9th Cir. 1977)). Likewise, in In re Ford
Motor Co. -- which involved multiple plaintiffs seeking to sue on
behalf of six million putative class members -- the court stressed
that the "either viewpoint rule" does not extend to class action
suits (regardless of whether the class has been certified) and that
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"logic would dictate that it should [also not extend to] multi-
party complaints," noting
[w]hile it may seem paradoxical to decline
jurisdiction in the multiplaintiff setting,
where the potential loss to defendants
typically is well beyond the jurisdictional
amount threshold, it is implicit in the rule
that forbids aggregation of class members'
separate claims that it will sometimes be more
difficult for a party asserting federal
jurisdiction to establish the minimum amount
of controversy in a multiplaintiff case than
in a much smaller single-plaintiff case.
264 F.3d at 958 (alterations omitted) (internal quotation marks
omitted). The court explained that in these cases the "either
viewpoint" rule must yield to the non-aggregation rule, inasmuch as
aggregation is the threshold question, which "must be resolved
affirmatively before total detriment to the defendant can be
considered." Id. at 958-59 (alterations omitted) (citations
omitted). According to the In re Ford Motor Co. court, when "each
plaintiff is asserting an individual right[,] . . . the test is the
cost to the defendants of an injunction running in favor of one
plaintiff." Id. at 959 (citations omitted). Therefore, if we
follow the reasoning of In re Brand Name and In re Ford Motor Co.,
the amount in controversy in this case from American's perspective
is the amount it would have to pay one plaintiff, CE, not the total
amount it would have to pay the putative Cook County class members.
And, we recall, CE's individual damages claims cannot exceed
$75,000.
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CE also misguidedly relies on Meridian Security Insurance
Co. v. Sadowski, 441 F.3d 536 (7th Cir. 2006), to support its
contention that we should assess the amount in controversy from
American's perspective. While CE correctly asserts that the
Seventh Circuit "looked to the magnitude of an insurer's potential
indemnity obligation for an underlying junk fax lawsuit to
determine the amount in controversy for a related insurance
coverage declaratory judgment action," it misses a crucial point.
Unlike the situation here, in Sadowski, the insurance company was
the plaintiff, and it had filed suit against its insured. 441 F.3d
at 537. The insurance company was the party seeking a declaratory
judgment that it had no duty to defend or indemnify its insured in
a pending TCPA state court suit. Id. Accordingly, the Seventh
Circuit (assessing the amount in controversy from the plaintiff's
perspective) found that the insurance company had not aggregated
the claims of multiple parties because "[f]rom its perspective
there [was] only one claim -- by its insured, for the sum of
defense and indemnity costs." Id. at 539. Here, American (the
insurance company similarly situated to the plaintiff in Sadowski,
in all but party status) is not asking us to declare its
contractual obligation with Ernida (the insured). Quite the
opposite, it is asking us not to do this. And CE does not explain
why it should be able to stand in American's shoes or why it can
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rely on anything other than its individual damages claim for less
than $75,000.
The other caselaw cited by CE in its attempt to show
courts have sanctioned jurisdiction where the amount in controversy
is satisfied from the defendant's viewpoint is similarly unavailing
and readily distinguishable. For instance, three cases -- Oklahoma
Retail Grocers Ass'n v. Wal-Mart Stores, Inc., 605 F.2d 1155 (10th
Cir. 1979), Wine Masters Cellars, LLLP v. Vinotemp International
Corp., No. 11–cv–00623, 2011 WL 2621537 (D. Colo. Jul. 1, 2011),
and In re M3Power Razor System Marketing & Sales Practices
Litigation, Civil Action Nos. 05-11177-DPW, 05-12336-DPW, 2007 WL
128846 (D. Mass. Jan. 11, 2007) -- do not involve the claims of
multiple plaintiffs. All three are single plaintiff versus single
defendant cases, which do not disrupt the anti-aggregation rule
(regardless of which party's perspective is ultimately considered)
because there is no one to aggregate with. See Okla. Retail
Grocers Ass'n, 605 F.2d at 1159-60 (looking at the impact on a
defendant corporation, including the cost of injunctive relief, in
a suit brought by a retail grocers association); Wine Masters
Cellars, LLLP, 2011 WL 2621537, at *4 (looking at the cost to a
limited liability limited partnership of not securing the
injunction it sought against a corporation); In re M3Power Razor
Sys., 2007 WL 128846, at *4 (looking at the cost to a defendant
corporation in a case brought by individual plaintiff seeking
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injunctive relief requiring defendant to make corrective
advertising).
Another case -- Hambell v. Alphagraphics Franchising,
Inc., 779 F. Supp. 910 (E.D. Mich. 1991) -- did not even entail the
application of a defendant-viewpoint approach. Although the court
noted that the interests of both parties could be considered when
making an amount-in-controversy determination, it did not do so,
seemingly because the amount was the same from both the plaintiffs'
and the defendants' perspectives. See id. at 912 (looking at the
amount of the possible award in the underlying arbitration as the
amount in controversy in a suit seeking injunctive relief to
prevent an arbitration from proceeding).
The two remaining cases -- Tatum v. Laird, 444 F.2d 947
(D.C. Cir. 1971), rev'd on other grounds, 408 U.S. 1 (1972), and
Petrey v. K Petroleum, Inc., No. 6: 07-168, 2007 WL 2068597 (E.D.
Ky. Jul. 16, 2007) -- do not involve claims that are easy to put a
price tag on from the plaintiff's perspective. There, plaintiffs
sought either declaratory or injunctive relief to affirmatively
protect and enforce individual rights against the defendants'
purported conduct; the court in at least one case -- in Tatum --
expressly underscored the unique setting which called for relying
on the defendant's viewpoint. See Tatum, 444 F.2d at 951
(plaintiffs sought declaratory judgment that the Army's
surveillance of lawful civilian political activity was
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unconstitutional, injunctive relief enjoining it from engaging in
future similar activity, and destruction of all data obtained
illegally); Petrey, 2007 WL 2068597, at *3 (plaintiffs sought a
declaration of superior title to certain real property upon which
the defendant intended to produce natural gas). In these cases,
the value of the object of the litigation is not as straightforward
as it would be in an action for the recovery of specific property
or monies, for example. Putting a precise dollar amount on non-
monetary rights can be a difficult task, if not an impossible one
in certain cases. (After all, the value of the right sought to be
gained by a plaintiff is not always quantifiable). It is logical
and more feasible in these cases that the amount in controversy be
assessed from the defendant's perspective (i.e., the cost to the
defendant if the right is enforced) because the cost of complying
with a particular remedy may be easier to discern. Unfortunately
for CE, that is not the case in actions where the value of the
property or the rights involved is apparent or easily
ascertainable, as is the case here.
With no reason to depart from the general rule that CE
cannot aggregate its claim with the claims of the other putative
Cook County class members to meet the jurisdictional amount
threshold, and CE's individual claim being less than $75,000, it
appears to a legal certainty that the matter in controversy does
not exceed the sum or value of $75,000, as required by 28 U.S.C. §
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1332. Despite the litany of caselaw misfits, a defendant-viewpoint
approach hardly helps CE avoid this inevitable conclusion. Indeed,
for practical purposes the Cook County action remains a single
plaintiff case; that state action has been pending since 2008, with
the class action question apparently continuing to remain open in
2014. And, the federal action is, on all fronts, a single
plaintiff case. Therefore, from American's perspective, while
there is some measure of potentiality that the insurance coverage
question might expose it to more than the circumscribed damages
sought by CE, this liability exposure does not fare beyond the
abstract at this juncture and under these circumstances. For now,
we remain certain: the potential exposure, at this point, in
dollars and cents is less than $75,000 by CE's own choosing.
CONCLUSION
For the reasons set forth above, we vacate the district
court's order dismissing the case for lack of standing and remand
this case with instructions to dismiss for lack of subject-matter
jurisdiction. Costs are awarded to the appellee.
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