Indiana Court of Appeals: Developments in Litigation Can Allow Remand for Failure to Meet Amount in Controversy and Recovery in Excess of $75,000

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by: Colin E. Flora

     Today’s discussion takes to what may be a once-in-a-lifetime case in which a party successfully contended that the amount in controversy was less than $75,000 yet recovered a judgment for more than double that amount. As odd as that outcome may seem, as you will see, the perfect storm of events occurred in Harr v. Hayes to make that happen.

     As we’ve discussed, one of the two most common bases for federal court jurisdiction is what is called “diversity jurisdiction.” That type of jurisdiction arises from the text of Article III, sec. 2, which states, “The judicial power shall extend . . . to controversies between two or more states;--between a state and citizens of another state;--between citizens of different states;--between citizens of the same state claiming lands under grants of different states, and between a state, or the citizens thereof, and foreign states, citizens or subjects.” But just because the claim is between citizens of different states does not mean that the case will automatically be subject to federal jurisdiction. Instead, the boundaries of diversity jurisdiction are set by federal statute, specifically 28 U.S.C. § 1332(a):

(a) The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between—

(1) citizens of different States;
(2) citizens of a State and citizens or subjects of a foreign state, except that the district courts shall not have original jurisdiction under this subsection of an action between citizens of a State and citizens or subjects of a foreign state who are lawfully admitted for permanent residence in the United States and are domiciled in the same State;
(3) citizens of different States and in which citizens or subjects of a foreign state are additional parties; and
(4) a foreign state, defined in section 1603(a) of this title, as plaintiff and citizens of a State or of different States.

     So, for jurisdiction to arise under § 1332(a)(1), you need to have complete diversity of citizenship—i.e., every plaintiff is from a different state than every defendant—and the amount in controversy must be at least $75,000.01. It is the latter requirement, the amount in controversy, that gives us the oddity of Harr.

     Harr stemmed from a routine “accident between two semi-tractor trailers.” But, because the two drivers were from different states, the Defendants removed the case to federal court, invoking diversity jurisdiction. Once the case was in federal court, the Plaintiff argued that the case must be remanded because the Defendants did not carry their burden to support federal jurisdiction. Specifically, he asserted:

3. Plaintiff further provides that diversity jurisdiction is not met in this matter because the amount in controversy does not exceed Seventy-Five Thousand Dollars ($75,000.00).

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6. On December 16, 2015, Plaintiff submitted his first demand to Defendants in the amount of Seventy-Two Thousand, Five Hundred Dollars ($72,500.00).

7. Therefore, even if the citizenship of the parties is diverse, the requirements of diversity jurisdiction under 28 U.S.C. §1441 are not met because the amount in controversy does not exceed Seventy-Five Thousand Dollars ($75,000.00).

     Now, an important aspect to keep in mind about federal jurisdiction when a party removes from state court is that the party invoking federal jurisdiction—in the case of removal, a defendant is that party—at all times bears the burden of showing that the federal court has jurisdiction over the case. Ultimately, despite facts that may well have supported a finding of a sufficient amount in controversy, the federal court found that it lacked subject matter jurisdiction because the Defendants failed to carry their burden:

At the time of removal, [Plaintiff] had been released to return to work full time but was receiving ongoing medical treatment and had accumulated around $3,500 in medical bills. His workers compensation claim was still being processed. The same day [Plaintiff] filed the motion to remand, he also submitted a settlement demand for $72,500. In response, the Defendants sent a letter stating that they would agree to remand the case if [Plaintiff] would “provide[] assurance that he would not execute on any potential judgment over $75,000,” and included a proposed covenant not to execute. [Plaintiff] responded that “WE [sic] cannot agree to any agreement without payment. Are you offering the $75,000? If so, send a check.”

On December 29, Defendants objected to remanding the case, arguing the amount in controversy was clearly over $75,000 because [Plaintiff] refused to sign the proposed covenant. Id. at 78. On January 20, 2016, the district court granted [Plaintiff’s] motion to remand, determining that it lacked subject matter jurisdiction because it is the removing party’s burden to establish by a preponderance of the evidence that each requirement of 28 U.S.C. § 1332 has been met and “Defendants have made no effort whatsoever to explain why they had a good faith belief, at the time of removal, that the amount in controversy exceeded $75,000.”

     Having been sent back to state court, the Defendants then sought a ruling that the Plaintiff could not recover in excess of $75,000. They argued that the Plaintiff was bound by the doctrine of judicial estoppel to not recover more because he had represented to the federal court that the amount in controversy did not, in fact, exceed $75,000. Opposing that motion, the Plaintiff relied upon the order granting remand “and argued ‘the [district] Court order clearly demonstrates that the Defendants failed to meet their burden to demonstrate all of the elements necessary for federal court jurisdiction.’” In a subsequent filing, the Plaintiff explained that subsequent developments had increased the value of the case.

     One quick observation. The Seventh Circuit has recognized that an offer to settle for $60,000 suggested an amount in controversy in excess of $75,000:

To the extent that any event after the date of removal can shed light on the jurisdictional question, the willingness to accept $ 60,000 supports a conclusion that the “controversy” exceeds $ 75,000. Rising-Moore did not offer to take $ 60,000 if a jury should decide in his favor and nothing otherwise; he wanted $ 60,000 with certainty, which implies that the stakes at trial comfortably exceed the minimum. Plaintiffs win about half of all tort suits that go to trial. If Rising-Moore had a 50% likelihood of a $ 120,000 verdict at trial, he would offer to accept $ 60,000 with certainty, which has the same expected value; both sides then could save legal expenses. If he is risk averse, he would be willing to accept less than half of the anticipated award: then an offer to take $ 60,000 might imply that the stakes were $ 150,000. If his lawyer had private knowledge suggesting that the chance of prevailing was less than 50%, then the anticipated verdict implied by the offer (if a jury found in plaintiff’s favor) would be even higher. So, for example, a risk-averse plaintiff who thought that he had a one-in-three chance of winning $ 200,000 at trial would take a sure $ 60,000 happily. Only if Rising-Moore were risk-neutral and had more than an 80% chance of winning a favorable verdict would the $ 60,000 offer imply that the full controversy is under $ 75,000. Given the district judge’s belief that Rising-Moore has no chance of prevailing before a reasonable jury, that hardly seems likely.

            Still, it does not appear that the district court necessarily got this one wrong, because the conclusion was that the Defendants put forth no support for the proposition from which to carry their burden:

Here, Defendants have made no effort whatsoever to explain why they had a good faith belief, at the time of removal, that the amount in controversy exceeded $75,000, exclusive of interest and costs. Indeed, their only statement in the Amended Petition for Removal regarding the amount in controversy is that “the amount in controversy exceeds the sum or value of Seventy-Five Thousand Dollars ($75,000.00), exclusive of interest and costs.” Defendants do not point to any evidence to support their statement.

Further, [Plaintiff] specifically argues in the Motion to Remand that Defendants did not complete any pre-lawsuit discovery, and that removal was premature without such discovery. But Defendants do not respond to [his] argument at all, and still do not present any evidence in their response brief to support their belief that the amount in controversy exceeded $75,000, exclusive of interest and costs, at the time of removal. Instead, Defendants rely solely on post-removal events which, as discussed above, are irrelevant to the Court’s analysis regarding whether removal was proper in the first place. [Plaintiff] has challenged Defendants’ assertion that the amount in controversy exceeds $75,000, exclusive of interest and costs, and Defendants have failed to meet their burden of showing by a preponderance of evidence — evidence existing at the time of removal — that the amount in controversy requirement is met.

. . . Defendants had every opportunity to explain why they believed at the time of removal that the amount of controversy exceeded $75,000, exclusive of interest and costs, but chose not to do so. Accordingly, the Court finds that the removal was improper and that remand to the Marion Superior Court is necessary.

     Once the case went back to the state court, it proceeded to trial and the jury awarded $187,500 to the Plaintiff. That, of course, is well in excess of $75,000. Renewing their prior arguments, the Defendants filed a motion to correct error after the verdict to reduce the judgment to $75,000. The trial court denied that motion, writing:

This Court remains troubled by the notion that a party may represent to the U.S. District Court that the amount in controversy in a case is less than the jurisdictional requirement, and then, once remanded, that it exceeds that amount. However, neither party has pointed to any precedent which expressly prohibits such a practice. The parties submitted this matter to a jury in this Court for determination. The jury, as the trier of fact, determined that the Plaintiffs' damages totaled One Hundred Eight-Seven [sic] Thousand Five Hundred and 00/100 Dollars ($187,500.00). The Court finds that the jury’s verdict should not be disturbed.

As you would expect, the Defendants appealed.

     On appeal, the Defendants again argued that judicial estoppel applied and also argued the doctrines of waiver and judicial admission. Each was rejected by the unanimous appellate panel. Writing for the panel, Judge Robb began by analyzing application of judicial estoppel. The court summarized that doctrine as:

Judicial estoppel is a judicially created doctrine that seeks to prevent a litigant from asserting a position that is inconsistent with one asserted in the same or a previous proceeding. Judicial estoppel is not intended to eliminate all inconsistencies; rather, it is designed to prevent litigants from playing “fast and loose” with the courts. The primary purpose of judicial estoppel is not to protect litigants but to protect the integrity of the judiciary. The basic principle of judicial estoppel is that, absent a good explanation, a party should not be permitted to gain an advantage by litigating on one theory and then pursue an incompatible theory in subsequent litigation. Judicial estoppel only applies to intentional misrepresentation, so the dispositive issue supporting the application of judicial estoppel is the bad-faith intent of the litigant subject to estoppel.

     The Plaintiff made four arguments as to why judicial estoppel did not apply: “(1) [Plaintiff’s] motion to remand in federal court was not a pleading; (2) [Plaintiff] did not repudiate an earlier position; (3) the removal action was not part of the proceeding before the state trial court; and, (4) that at the time of removal, [Plaintiff’s] statement of the amount in controversy was not a material misrepresentation.” The first argument failed because the court found no support in confining the doctrine to pleadings—i.e., complaints, answers, counterclaims, and crossclaims—as opposed to all other court filings.

     The second argument also did not work. The court first had to resolve the apparent inconsistency in the motion for remand in so much as it patently said the amount in controversy did not exceed $75,000 but also that “removal was ‘pre-mature in not having conducted discovery[.]’” Although a fair reading could be that the amount in controversy did not “presently” exceed $75,000, the later filing in state court that “the value has increased and the Defendant[s] owe more than the original amount in controversy” did “at least partially repudiate his statement that the amount in controversy did not exceed $75,000.”

     The third argument fared no better: “Third, [Plaintiff] appears to argue that judicial estoppel does not apply because the ‘removal action before the District Court was not part of the proceeding before the state trial court.’ This is of no matter. As noted, judicial estoppel is designed to prevent litigants from playing ‘fast and loose’ with the courts and is designed to protect the judiciary, not individual litigants. We see no logical reason that judicial estoppel should be limited to representations made in the same litigation or to the same tribunal and we are unaware of precedent so limiting the doctrine.”

     The fourth argument, however, struck gold: “Fourth and finally, [Plaintiff] contends that because his statement regarding the amount in controversy was not a material misrepresentation at the time of removal, judicial estoppel is inapplicable. On this point, we agree.” There were two reasons that the court agreed: (1) the misrepresentation was not intentional and (2) the position needed to have been acted upon by the court, that is, the party’s argument needed to have won. The second reason is most easily explained, so we’ll start there. Remember what the actual finding of the federal court was. The court did not find that the amount in controversy was less than $75,000 because the Plaintiff said it was. The federal court did not actually make a finding as the amount in controversy. Instead, all the federal court found was that the Defendants had utterly failed to present evidence to carry their burden. That means the federal court did not have to rely at all on the misrepresentation to have remanded the case. As the Indiana Court of Appeals added, “[A]lthough [Plaintiff’s] position was technically successful, that success was due to the Defendants’ failure—not [Plaintiff’s] post-removal representations. After conducting further discovery or issuing interrogatories as to [Plaintiff’s] specific monetary damages, Defendants could have removed the case again. They chose, however, not to do so.”

     The finding that it was not intentional is a bit more complicated and best handled by excerpting the court:

As we have previously explained, “[j]udicial estoppel only applies to intentional misrepresentation, so the dispositive issue supporting the application of judicial estoppel is the bad-faith intent of the litigant subject to estoppel.” And, we have noted that the “basic principle of judicial estoppel is that, absent a good explanation, a party should not be permitted to gain an advantage by litigating on one theory and then pursue an incompatible theory in subsequent litigation.”

At the time of [Plaintiff’s] representations regarding the amount in controversy, [his] medical bills totaled only $3,500 and [he] submitted his first demand to the Defendants in the amount of $72,500. Although [he] was receiving ongoing medical treatment, it was not until after the case was remanded that [he] added his wife’s claim and he learned that he suffered an 8% permanent impairment.

Defendants removed this action without filing interrogatories as to the specific monetary damages claimed, or otherwise investigating the specific monetary amount. Therefore, in conjunction with his representations regarding the amount in controversy, [Plaintiff] argued that removal “was pre-mature in not having conducted discovery to investigate the amount of this claim or even inquire as to Plaintiff's demand.” Accordingly, we have no reason to believe that [he] intentionally misrepresented the amount in controversy or that [he] acted in bad faith.

Ongoing medical treatment and growing medical expenses, however, are not uncommon in personal injury actions. For this reason alone, plaintiffs should be cautious of proclaiming that the amount in controversy does not exceed $75,000—lest they be held to their word. In this regard, we share the trial court’s concern “that a party may represent to the U.S. District Court that the amount in controversy in a case is less than the jurisdictional requirement, and then, once remanded, that it exceeds that amount.” Under certain circumstances, judicial estoppel would serve to prevent a plaintiff from making representations to defeat diversity jurisdiction and then claiming otherwise in subsequent litigation. Such facts, however, are not presently before us.

We have explained that judicial estoppel is not meant to be a technical defense to “derail potentially meritorious claims” and that we must give “due consideration to all of the circumstances of a particular case.” Here, the Defendants filed a motion to remove the case to federal court based on diversity jurisdiction. As such, it was the Defendants who bore the burden to demonstrate by a preponderance of the evidence that the amount in controversy exceeded $75,000. But, as the district court concluded, the Defendants utterly failed to meet their burden of proof[.]

     With judicial estoppel overcome, there were still two other arguments to go. The court turned its attention to waiver and quickly rejected application:

Waiver is an intentional relinquishment of a known right. Waiver involves “both knowledge of the existence of the right and the intent to relinquish it.”

For this argument, Defendants rely exclusively on [the federal case] Jeffery v. Cross Country Bank. There, one day before the defendant removed the case to federal court, the plaintiff filed an amended complaint expressly stating that the amount in controversy did not exceed $75,000. Upon a motion to remand, the district court concluded that the plaintiff had waived her right to recover an amount greater than $75,000 because her statement was both timely and a “clear and unequivocal relinquishment of her right to seek more than $75,000 in damages.” Here, [Plaintiff’s] representations were neither timely, nor “clear and unequivocal.”

As discussed in the context of judicial estoppel, it is a defendant’s burden to establish the amount in controversy at the time of removal. Although we have no doubt that a plaintiff is entitled to waive his or her right to recover more than the minimum amount in controversy, such waiver must occur prior to removal. Here, [Plaintiff’s] representations were made after the Defendants had removed the case and due to the context of [Plaintiff’s] argument regarding the Defendants’ failure to meet their burden and removal being premature, we are not convinced that [he] intended to relinquish a known right.

     Finally, the court took up the judicial admission argument. In order for the doctrine of judicial admission to apply, “[t]he party must testify clearly and unequivocally to a fact peculiarly within his knowledge in order for it to be considered a judicial admission.” Application of the doctrine in this case came down to the ambiguous nature of the admission. As the court had mentioned in the context of judicial estoppel, the assertion that the amount in controversy did not exceed $75,000 could be read as not “presently” exceeding that amount. That ambiguity defeated a finding of judicial admission because “[a] statement which contains ambiguities or doubt is not to be regarded as a binding admission.”

     In the end, the best summary of the court’s opinion came bluntly at the end of the analysis: “Quite simply, the Defendants failed to meet their burden of proof before the district court and then attempted to cap [Plaintiff’s] damages because of it.”

     I do not think the procedural posture of Harr will soon be replicated. If I am proven wrong, there is at least clear authority to help guide future courts should the need arise.

Sources

*Disclaimer: The author is licensed to practice in the state of Indiana. The information contained above is provided for informational purposes only and should not be construed as legal advice on any subject matter. Laws vary by state and region. Furthermore, the law is constantly changing. Thus, the information above may no longer be accurate at this time. No reader of this content, clients or otherwise, should act or refrain from acting on the basis of any content included herein without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue.