This is Part 4 of an 8-part series which covers:
Part 1 – Federal Question Jurisdiction;
Part 2 – Supplemental Jurisdiction;
Part 3 – Diversity Jurisdiction: Complete Diversity;
Part 4 – Diversity Jurisdiction: Amount in Controversy;
Part 5 – Diversity Jurisdiction: Resident Defendants;
Part 6 – Timing of Removal;
Part 7 – Checklist for Removal;
Part 8 – Remand
Part 4 – Diversity Jurisdiction: Amount in Controversy
In Part 1 and Part 2 of this Removal series, we discussed removal based on federal question jurisdiction and supplemental jurisdiction. A state court action can also be removed to federal court based on diversity jurisdiction. Diversity jurisdiction concerns three important factors: (1) complete diversity among the parties; (2) a sufficient amount in controversy; and (3) absence of resident defendants. Part 3 of this series discussed the requirement of complete diversity. This article explores the amount in controversy requirement.
The General Rules
For diversity jurisdiction to exist, a case must have an amount in controversy in excess of $75,000.00, exclusive of interest and costs. 28 U.S.C. § 1332(a). The amount in controversy is not based on the plaintiff’s ultimate recovery in the action. Rather, it is measured by the amount of damages alleged in the complaint at the time of removal. St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-91 (1938). While determining whether the amount in controversy requirement has been satisfied is relatively simple in a case where the amount of damages are specifically defined by a contract, sales invoice, or other document, this analysis can prove quite tricky in most cases – given that plaintiffs rarely plead damages with particularity in a complaint. Thus, when the amount in controversy is unclear or ambiguous on the face of the complaint, the removing defendant must prove, by a preponderance of the evidence, that the amount in controversy requirement has been satisfied. Sanchez v. Monumental Life Ins. Co., 102 F.3d 398, 403-04 (9th Cir. 1996).
While interest and costs may not be considered in the amount-in-controversy analysis, potential punitive damages and attorney’s fees awards may be included in the calculation. Gibson v. Chrysler Corp., 261 F.3d 927, 945 (9th Cir. 2001); Conrad Assocs. v. Hartford Accident & Indem. Co., 994 F. Supp. 1196, 1198 (N.D. Cal. 1998). Moreover, a single plaintiff may aggregate the values of his or her claims to meet the amount-in-controversy requirement, but the value of the claims of multiple plaintiffs cannot be aggregated. Everett v. Verizon Wireless, Inc., 460 F.3d 818, 822 (6th Cir. 2006).
Suppose that Ronnie owns five beauty salons in Las Vegas. Ronnie purchased $20,000 worth of hair dryers, hair-washing sinks, hydraulic lift chairs, and other supplies for each salon from Supplies Inc. Ronnie entered into separate purchase agreements with Supplies Inc. for each of his five salons. Supplies Inc. received five $20,000 checks from Ronnie for his order, but failed to deliver any of the ordered supplies. Ronnie sued Supplies Inc. in state court for breach of the purchase agreements. Has the amount-in-controversy requirement been satisfied if Supplies Inc. wants to remove the action?
Yes! Ronnie’s damages under each sales contract can be aggregated, and the amount-in-controversy would be $100,000.
Now, let’s assume that Ronnie entered into only one purchase agreement with Supplies Inc. for $20,000 in supplies, and the supplies were not delivered. Ronnie’s friends, Ellen, Sally, and Tom, who also own salons in Las Vegas, also ordered supplies from Supplies Inc. and failed to ever receive delivery. Ronnie, Ellen, Sally, and Tom all agree to sue Supplies Inc. in one action in state court for breach of these purchase agreements. Ellen’s damages total $10,000. Sally’s damages total $5,000, and Tom’s damages total $50,000. Can Supplies Inc. meet the amount-in-controversy requirement for removal of this action?
No. Despite the fact that the damages alleged by the four plaintiffs total $85,000, the damages alleged by Ronnie, Ellen, Sally, and Tom cannot be aggregated. No single plaintiff’s claim for damages individually satisfies the amount-in-controversy requirement. Therefore, diversity jurisdiction does not exist.
Stay tuned for Part 5 in this series, posted here, in which I will discuss the third and last requirement for diversity jurisdiction — the absence of resident defendants.
Please email me if you would like a copy of this series.
About Sarah Harmon:
Sarah E. Harmon is a partner at Bailey Kennedy and has over 18 years of experience in the areas of appellate advocacy and civil/business litigation, including breach of contract, fraud, legal malpractice, products liability, complex civil litigation, and many other types of business disputes. Her experience with appellate advocacy includes appeals from adverse judgments and orders as well as petitions for extraordinary writ relief. Ms. Harmon can assist clients with obtaining settlements and judgments before going to trial, avoiding errors at trial, and properly preserving issues for an appeal.
If you have any questions about appeals or civil/business litigation, please call or email Sarah Harmon at 702-562-8820 or firstname.lastname@example.org. Additional resources can also be found at www.baileykennedy.com/category/articles/ or linkedin.com/in/sarahharmonbk/.
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