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Valhal Corp v Sullivan Assoc Precedential or Non-Precedential: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. http://digitalcommons.law.villanova.edu/thirdcircuit_1995/2

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova University School of Law Digital Repository. It has been accepted for inclusion in 1995 Decisions by an authorized administrator of Villanova University School of Law Digital Repository. For more information, please contact [email protected]. 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,

(3d Cir. 1975); Fratto v. New Amsterdam Casualty Co.,

(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.,

(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.

.

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,

(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

(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,

(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.'"

at 292 (quoting Wade v. Rogala,

(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."

(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,

(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.

at 70 (citing Bell v. Hood,

(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.

Similarly, in Batoff v. State Farm Insurance Co.,

(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,

(3d Cir.), cert. denied sub nom. Upp v. Mellon Bank,

N.A.,

(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.,

(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.,

(2d Cir. 1982) and Ochoa v. Interbrew America, Inc.,

(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,

. 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,

. 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,

(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.