Action to Compel Arbitration Satisfied Diversity Jurisdiction Amount

Sometimes it can be difficult to determine whether a plaintiff has presented a diversity case alleging an amount in controversy exceeding the federal minimum of $75,000. In an action to compel arbitration, for example, the relief sought from the district court is not a damage award. In Woodmen of the World Life Ins. Society v. Manganaro, 342 F.3d 1213 (10th Cir. Sept. 9, 2003), the Tenth Circuit adopted the technique of several other circuits that “look through to the possible award resulting from the desired arbitration.” Here, although the policyholders claimed that only $13,000 was at stake, they also demanded a mass mailing costing over $75,000 plus attorney’s fees and punitive damages that could not be considered unattainable “to a legal certainty.”

Excessive Punitive Damages Claim Does Not Confer Diversity Jurisdiction

In Smith v. American General Life and Accident Ins. Co., 337 F.3d 888 (7th Cir. July 24, 2003), plaintiff alleged bad faith against an insurance company, and claimed actual damages well below $75,000. Defendant argued that plaintiff’s additional claim for $1 million in punitive damages conferred diversity jurisdiction. However, in part relying on State Farm Mut. Automobile Ins. Co. v. Campbell, 538 U.S. 408 (Apr. 7, 2003) [see my post here], the Seventh Circuit disagreed, finding that a federal court must take a "realistic look" at punitive damages when considering whether the jurisdictional amount is satisfied for removal.

Removal Improper Where ESOP Participants’ Claims Did Not Implicate ERISA

In Husvar v. Rapoport, 337 F.3d 603 (6th Cir. July 23, 2003), plaintiffs brought claims in Ohio state court alleging common law breach of fiduciary duty for alleged mismanagement of their ESOP. Defendants removed the case by arguing that it implicated ERISA. The district court agreed, and subsequently granted a motion to dismiss. The Sixth Circuit found that the claims did not challenge the actions of the plan fiduciary, but rather attacked the actions of the company’s board of directors in compensating the plan fiduciary. The complaint could not be characterized as preempted by ERISA. Therefore, federal subject-matter jurisdiction was absent and the case was remanded to state court.

No Federal Diversity Jurisdiction Exists Over Complaint For Equitable Relief If Value Of Relief Sought Cannot Be Determined

A federal complaint invoking diversity jurisdiction under 28 U.S.C. §1332 must concern an amount in controversy exceeding $75,000. If the only remedy sought is equitable relief, the plaintiff must make a good faith estimate of the value of the relief sought – which can be difficult to do at times. As recently observed in Macken v. Jensen, 333 F.3d 797 (7th Cir. June 24, 2003), a plaintiff who is unable to value that relief at all must commence the case in state court. According to the court, a plaintiff is not permitted to file in federal court and then place the burden on the defendant of demonstrating that $75,000 or less is at stake; rather, Fed.R.Civ.P. 11(b)(3) requires plaintiff to establish sufficient support for federal diversity jurisdiction before filing in federal court.

Supplemental Jurisdiction Tolling Provision Is Constitutional

If a federal court declines to exercise its supplemental jurisdiction over state claims, the plaintiff may refile those claims in state court. To prevent the expiration of statutes of limitations governing such claims while pending in federal court, 28 U.S.C. § 1367(d) requires state courts to toll the local limitations period. In Jinks v. Richland County, South Carolina, 538 U.S. 456 (Apr. 22, 2003), the U.S. Supreme Court rejected the argument that the statute was an unconstitutional intrusion into states’ powers.