Meritcare Inc v. St Paul Mercury Ins

Opinions of the United
1999 Decisions States Court of Appeals
for the Third Circuit

1-25-1999

Meritcare Inc v. St Paul Mercury Ins
Precedential or Non-Precedential:

Docket 98-3032

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Filed January 25, 1999

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 98-3032

MERITCARE INCORPORATED; MERITCARE
VENTURES, INC.; QUINLAN MEDICAL, INC.,
Appellants

v.

ST. PAUL MERCURY INSURANCE COMPANY

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
(D.C. Civ. No. 95-cv-1014)
Honorable William L. Standish, District Judge

Argued November 18, 1998

Before: McKEE, RENDELL, and WEIS, Circuit Judges

Filed January 25, 1999

Lawrence E. Flatley, Esquire
(ARGUED)
Joseph W. Klein, Esquire
Courtney C.T. Horrigan, Esquire
Reed Smith Shaw & McClay, LLP
435 Sixth Avenue
Pittsburgh, PA 15219-1886
Attorneys for Appellants
 Ronald B. Hamilton, Esquire
(ARGUED)
John J. Dwyer, Esquire
Cozen and O'Connor
1900 Market Street
The Atrium
Philadelphia, PA 19103
Attorneys for Appellee

OPINION OF THE COURT

WEIS, Circuit Judge.

In this diversity case, we conclude that a plaintiff with
claims less than the jurisdictional amount may not invoke
supplemental jurisdiction under 28 U.S.C. S 1367 where a
co-plaintiff's more substantial ones meet the requisite
amount. We also decide that the District Court correctly
held that the meaning of "collapse" in a property insurance
policy requires a caving in or falling in of a structure and
that the existence of serious impairment of structural
integrity is insufficient to invoke coverage. Accordingly, we
will remand the claims of one plaintiff to the state court
from which it was removed, and affirm summary judgment
in favor of the insurance carrier on the other plaintiff's
claims.

Plaintiffs Meritcare, Inc. and Meritcare Ventures, Inc.
operate a nursing home in Monroeville, Pennsylvania. They
lease the structure from its owner Caring I, Ltd.1 Plaintiff
Quinlan Medical, Inc. is a subsidiary of Meritcare and
furnishes "liquefied" food and other products to the
residents.

On December 27, 1994, Caring advised Meritcare that
the roof on the nursing home was structurally unsound
and posed a safety hazard. The facility was closed and all
_________________________________________________________________

1. The parties have represented to the Court that Meritcare, Inc. and
Meritcare Ventures, Inc. are both insured under the same policies and
have an indivisible claim. They will frequently be referred to as
"Meritcare" for convenience.

2
of its residents were moved to other institutions by January
6, 1995. They did not begin to return until after the roof
replacement was completed on February 13, 1995. The
nursing home did not obtain its previous occupancy level
until June 15, 1995.

Defendant St. Paul Mercury Insurance Company had
issued policies to Meritcare, Inc., Meritcare Ventures, Inc.,
and Quinlan that provided property damage and business
interruption coverage. The insurance company denied
plaintiffs' claims on the ground that the policies covered
losses from a roof "collapse" and that in this instance the
roof, although structurally unsound, did not fall in.

Meritcare, Inc., Meritcare Ventures, Inc., and Quinlan
filed suit in Pennsylvania state court on June 6, 1995,
claiming damages "exceed[ing] $25,000.00." St. Paul
removed the case to the District Court for the Western
District of Pennsylvania, and in its Notice of Removal
alleged that the amount in controversy exceeded $50,000,
the then-applicable amount.2

Plaintiffs did not challenge the amount in controversy at
that time, nor did they move for remand at anytime. They
later amended their complaint to add a claim under the
Pennsylvania Bad Faith Insurer statute, 42 Pa.C.S.A.
S 8371, asking for punitive damages, costs, and attorneys'
fees. Meritcare also requested damages for the loss of an
opportunity to purchase the facility under an option in the
lease. St. Paul filed counterclaims for misrepresentation,
insurance fraud, and bad faith.

In their respective pretrial statements, both the plaintiffs
and defendant stated that Quinlan's compensatory claims
amounted to no more than $5,000. At that point, for the
first time, St. Paul challenged the District Court's
jurisdiction over Quinlan's claim.
_________________________________________________________________

2. The amount in controversy has since been increased to $75,000. See
Federal Courts Improvement Act of 1996, Pub. L. 104-317, Title II,
S 205(a), 110 Stat. 3850 (amending 28 U.S.C.S 1332(a), effective 90 days
from enactment date of Oct. 19, 1996). Because plaintiffs' complaint was
filed prior to January 1997, the applicable jurisdictional amount in this
case is $50,000.

3
The District Court granted summary judgment to St.
Paul, holding that the deteriorated condition of the roof was
not a "collapse" under the policy and Pennsylvania law. The
Court did not discuss or rule on the jurisdictional objection
to Quinlan's claim. After the Court issued an order under
Fed. R. Civ. P. 54(b), the plaintiffs appealed. St. Paul's
counterclaims are still pending in the District Court and
are not before us in this appeal.

I.

We first address the rather complicated issues raised by
the fact that Quinlan's claim does not appear to meet the
amount in controversy required in diversity cases. We
exercise plenary review over this question of subject matter
jurisdiction. See Packard v. Provident Nat'l Bank, 994 F.2d
1039, 1044 (3d Cir. 1993).

A federal court has the obligation to address a question
of subject matter jurisdiction sua sponte. See Employer's
Ins. of Wausau v. Crown Cork & Seal Co., Inc., 905 F.2d 42,
45 (3d Cir. 1990). In particular, in removal cases, "[i]f at
any time before final judgment it appears that the district
court lacks subject matter jurisdiction, the case shall be
remanded." 28 U.S.C. S 1447(c). As we said in Liberty
Mutual Insurance Co. v. Ward Trucking Corp., 48 F.3d 742
(3d Cir. 1995), this statute enables "a district court to
address the question of jurisdiction, even if the parties do
not raise the issue." Id. at 750. In assessing the amount in
controversy, it is also important to bear in mind that the
parties may not confer jurisdiction by consent, see United
Indus. Workers v. Government of the Virgin Islands, 987
F.2d 162, 168 (3d Cir. 1993), a principle that is equally
applicable in removal as well as original jurisdiction cases.
See Liberty Mutual, 48 F.3d at 750.

A defendant may remove a case in "any civil action
brought in a State court of which the district courts of the
United States have original jurisdiction." 28 U.S.C.
S 1441(a). "The propriety of removal thus depends on
whether the case originally could have been filed in federal
court." City of Chicago v. International College of Surgeons,
118 S. Ct. 523, 529 (1997).

4
Jurisdiction under 28 U.S.C. S 1332(a) rests upon not
only diversity of citizenship -- which is not in doubt here --
but also in meeting the requisite amount in controversy.
Those constraints carry over to Section 1441, which is to be
strictly construed against removal, see Boyer v. Snap-On
Tools Corp., 913 F.2d 108, 111 (3d Cir. 1990), so that the
congressional intent to restrict federal diversity litigation is
honored. See Nelson v. Keefer, 451 F.2d 289, 293-95 (3d
Cir. 1971) (federal judiciary has been "too timid" in
eliminating the "plethora of cases which do not belong in
federal courts").

The ad damnum clause in the complaint is often a
convenient and customary reference point to ascertain the
amount in controversy. However, the rules in many state
courts place limits on the amounts that may be recited in
ad damnum clauses. In this case, for example, in
conformity with Pennsylvania state practice, the ad
damnum clause states the damages requested "exceed[ ]
$25,000.00," but does not specify actual damages. See Pa.
R. Civ. P. 1021(b). This ad damnum clause, then, is little
more than an open-ended claim that fails to answer the
amount in controversy inquiry.

Even though actual damages may not be established
until later in the litigation, the amount in controversy is
measured as of the date of removal, a practice similar to
that in original jurisdiction suits where the inquiry is
directed to the time when the complaint is filed. See
Pullman Co. v. Jenkins, 305 U.S. 534, 537 (1939); Abels v.
State Farm Fire & Cas. Co., 770 F.2d 26, 29 (3d Cir. 1985).
When it appears to a legal certainty that the plaintiff was
never entitled to recover the minimum amount set by
Section 1332, the removed case must remanded even if the
jurisdictional deficiency becomes evident only after trial.
See St. Paul Mercury Indemnity Co. v. Red Cab Co., 303
U.S. 283, 289 (1938).

As we noted in State Farm Mutual Automobile Insurance
Co. v. Powell, 87 F.3d 93 (3d Cir. 1996), "[a] distinction
must be made . . . between subsequent events that change
the amount in controversy and subsequent revelations that,
in fact, the required amount was or was not in controversy
at the commencement of the action." Id. at 97 (alterations

5
in original). A respected treatise cautions that the "[f]ailure
to satisfy the jurisdictional amount from the outset,
although not recognized until later, is not a subsequent
change that can be ignored." 15 James W. Moore et al.,
Moore's Federal Practice P 102.104[3], at 102-167 (3d ed.
1998). Thus, if it develops that the requisite amount in
controversy was never present, even if that fact is not
established until the case is on appeal, the judgment of the
District Court cannot stand. See American Fire & Casualty
Co. v. Finn, 341 U.S. 6, 17-19 (1951); Knop v. McMahan,
872 F.2d 1132, 1139 (3d Cir. 1989).3

A.

In circumstances where two or more plaintiffs in state
court have joined their claims, a question arises whether
those claims may be aggregated to meet the required
jurisdictional amount on removal. There is no dispute that
Meritcare's claims exceed $50,000, and if combined with
Quinlan's, would total more than $50,000, the minimum
required by the diversity statute at the time.

As succinctly stated in a leading treatise, the rule is
"long-standing and seemingly well-settled . . . that the
claims of several plaintiffs, if they are separate and distinct,
cannot be aggregated for purposes of determining the
amount in controversy." 14B Wright, Miller & Cooper,
Federal Practice and Procedure S 3704, at 134 (1994). The
rule applies even if the plaintiffs have a community of
interest, but fall short of establishing a single title or right
in which they have a common and undivided interest. See
Thomson v. Gaskill, 315 U.S. 442, 446-47 (1942); Pinel v.
Pinel, 240 U.S. 594, 596 (1916).

In such circumstances, the claims of those plaintiffs who
fail to meet the amount in controversy must be remanded.
_________________________________________________________________

3. Contrast this with the situation where the requisite diversity of
citizenship did not exist at the time of removal, but was remedied before
judgment. See Caterpillar Inc. v. Lewis, 117 S. Ct. 467, 471 (1996); Knop,
872 F.2d at 1138. In those instances, the judgments are valid. Contrast
those cases, however, with cases where a judgment, having become final
and no longer appealable, may not be collaterally attacked. See Chicot
Co. Drainage Dist. v. Baxter State Bank, 308 U.S. 371, 377 (1940).

6
See Clark v. Gray, Inc., 306 U.S. 583, 590 (1939); see also
Pinel, 240 U.S. at 596 (joinder case). Similarly, in a class
action, each member of a class who does not meet the
jurisdictional amount must be dismissed from the case. See
Zahn v. International Paper Co., 414 U.S. 291, 301 (1973);
Snyder v. Harris, 394 U.S. 332, 335-37 (1969). Although
the present dispute involves parties joined for convenience,
the line of cases from Pinel to Zahn applies equally to
joinder cases and class actions. See, e.g., Snyder, 394 U.S.
at 337 (treating class actions the same as cases with joined
plaintiffs for purposes of aggregation rules); 1 Moore et al.,
supra, P 0.97[5], at 928-29 (1994) ("Snyder and Zahn
simply mean that the aggregation rules formulated for
cases involving multiple plaintiffs or defendants apply to
class actions.").

Aggregation based on the total of the claims asserted by
Meritcare and Quinlan in this case cannot be used to
satisfy Quinlan's jurisdictional amount. Although their
claims stem from the same cause -- the roof "collapse" and
shared insurance coverage -- they are separate and
distinct. Quinlan alleges damages that differ from those of
Meritcare and are not of an undivided interest.

B.

As an alternative, Quinlan relies on supplemental
jurisdiction as conferred by the Judicial Improvements Act
of 1990, Pub. L. 101-650, Title III, S 310(a), 104 Stat. 5113
(codified as 28 U.S.C. S 1367). Subsection (a) of Section
1367 provides that when district courts have original
jurisdiction they "shall have supplemental jurisdiction over
all other claims that are so related to claims in the action
within such original jurisdiction that they form part of the
same case or controversy . . . . Such supplemental
jurisdiction shall include claims that involve the joinder or
intervention of additional parties."

Subsection (b), however, narrows supplemental juris-
diction in cases brought solely under the diversity statute,
28 U.S.C. S 1332. In that context, supplemental jurisdiction
does not extend to "claims by plaintiffs against persons
made parties" under Fed. R. Civ. P. 14 (third-party

7
practice), Rule 19 (mandatory joinder), Rule 20 (permissive
joinder), Rule 24 (intervention), or "over claims by persons
proposed to be joined as plaintiffs under Rule 19 . . ., or
seeking to intervene as plaintiffs under Rule 24 . . . when
exercising supplemental jurisdiction over such claims
would be inconsistent with the jurisdictional requirements
of section 1332."

The enactment of Section 1367 was an outgrowth of a
recommendation by the Federal Courts Study Committee
that "Congress should expressly authorize federal courts to
assert pendent jurisdiction over parties without an
independent federal jurisdictional base." Report of the
Federal Courts Study Committee 47 (Apr. 2, 1990) (Study
Committee Report). That suggestion was based to some
extent on a summary prepared for a subcommittee noting
concern with the holding in Finley v. United States, 490
U.S. 545 (1989). See Report of the Subcommittee on the
Federal Courts and Their Relation to the States 547 (Mar.
12, 1990) (Working Papers), reprinted in Federal Courts
Study Committee, Working Papers and Subcommittee
Reports, Vol. I (July 1, 1990).

In Finley, the plaintiff filed a wrongful death action in the
District Court under the Federal Torts Claims Act, which
provides for exclusive federal jurisdiction. See 28 U.S.C.
S 1346(b). She also sought to join a state-law claim, arising
out of the same factual circumstances. Because the added
defendant was not of diverse citizenship, the Supreme
Court held that federal jurisdiction over the state claim did
not exist. See Finley, 490 U.S. at 547, 555-56. The result
was that separate suits would have to be filed in both state
and federal courts.

The subcommittee's Working Papers proposed that the
Federal Courts Study Committee recommend legislation
rejecting the holding in Finley, and restoring the previous
state of the law. See Working Papers at 559-61. They also
proposed a further broadening of pendent jurisdiction to
provide a single forum for the disposition of related cases,
and in a footnote disagreed with the holding in Zahn. See
id. at 556-61 & n.33. However, somewhat inconsistently, in
their primary recommendations, the Working Papers urged
substantial limitations on diversity cases. See id. at 454.

8
The full Federal Courts Study Committee recommended
that Congress substantially reduce diversity jurisdiction
because of its expense to the federal system and the
existence of alternate forums in state courts. See Study
Committee Report at 14-15, 39-41. Consistent with that
policy, the Committee also suggested that Congress enact
legislation authorizing pendent jurisdiction that was limited
in its scope. See id. at 47-48. The Committee did not adopt
the subcommittee's footnote reference to Zahn.

The Study Committee Report advocated a narrower view
of pendent jurisdiction than the Working Papers, and
recommended inclusion of claims arising out of the same
transaction or occurrence "including claims, within federal
question jurisdiction, that require the joinder of additional
parties, namely, defendants against whom that plaintiff has
a closely related state claim." Id. at 47. It is clear that the
Committee focused on Finley -- not Zahn -- and did not
advocate substantially expanding diversity jurisdiction by
"overruling" Zahn.4 See id. at 40. ("[W]e discuss broadening
federal jurisdiction in certain cases that present both
federal and state claims, such as cases with pendent state
law claims.").

The organization of Section 1367 makes it clear that a
_________________________________________________________________

4. In Wright, Miller & Cooper, supra, S 3523.1, at 112 n.73 (Supp. 1998),
it is asserted that the Federal Courts Study Committee "explicitly
recommended the statutory overruling of Zahn," citing to the Working
Papers at 561 n.33. As noted here, this recommendation was not in the
Report of the Federal Courts Study Committee, but in the Working
Papers of a subcommittee, and was not adopted by the full Committee.
To avoid such errors, the full Study Committee cautioned in the Working
Papers: "[t]hese materials were valued background materials which the
Committee determined should be published for general consideration
whether or not the Committee agreed with their substantive
proposals. . . . In no event should the enclosed materials be construed as
having been adopted by the Committee." It is unfortunate that some
commentators and courts have erroneously concluded that the Working
Papers represented the view of the Federal Courts Study Committee. See
In re Prudential Ins. Co. of America Sales Practices Litigation, 962 F.
Supp. 450, 504-05 (D.N.J. 1997), aff'd on other gds., 148 F.3d 283 (3d
Cir. 1998); Leszczynski v. Allianz Ins., 176 F.R.D. 659, 665-66 (S.D. Fla.
1997).

9
distinction is to be made between a narrow approach to
diversity cases, as contrasted with a more expansive scope
for other sources of jurisdiction, such as federal question
litigation. This differentiation demonstrates an intent to
prevent erosion of the diversity requirements through such
"end-run" maneuvers as joining plaintiffs under Rules 19 or
20 after a suit is filed, when they could not have been
included as parties in the original complaint. As the House
Committee Report stated: "In accord with case law, the
subsection also prohibits the joinder or intervention of
persons a[s] plaintiffs if adding them is inconsistent with
section 1332's requirements." H.R. Rep. No. 101-734, at 29,
reprinted in 1990 U.S.C.C.A.N. 6860, 6875.

The limited reach of Section 1367 in diversity matters is
supported by additional references in the legislative history.
The House Committee was aided in its drafting by several
legal scholars who had participated in the Federal Courts
Study Committee's proceedings,5 and were aware of the
_________________________________________________________________

5. See Thomas M. Mengler, Stephen B. Burbank & Thomas D. Rowe, Jr.,
Congress Accepts Supreme Court's Invitation to Codify Supplemental
Jurisdiction, 74 Judicature 213, 216 (1991)."[T]he legislative history
makes clear that section 1367 is not intended to affect their [class
actions under Rule 23] jurisdictional requirements . . . . [citing Zahn].
Thus, the Supreme Court's holdings that . . . all class members must
satisfy the amount in controversy requirement, remains good decisional
law." Id. at 215. Section 1367 has engendered an unusually profuse and
spirited academic debate. As representative -- but by no means complete
-- see Richard D. Freer, Compounding Confusion and Hampering
Diversity: Life After Finley and the Supplemental Jurisdiction Statute, 40
Emory L.J. 445, 471 (1991); Thomas D. Rowe, Jr., Stephen B. Burbank
& Thomas M. Mengler, Compounding or Creating Confusion About
Supplemental Jurisdiction? A Reply to Professor Freer, 40 Emory L.J. 943
(1991); see also Thomas C. Arthur & Richard D. Freer, Grasping at Burnt
Straws: The Disaster of the Supplemental Jurisdiction Statute, 40 Emory
L.J. 963, 981 (1991); Christopher M. Fairman, Abdication to Academia:
The Case of the Supplemental Jurisdiction Statute, 28 U.S.C. S 1367, 19
Seton Hall Legis. J. 157 (1994); Mengler, Burbank & Rowe, Congress
Accepts Supreme Court's Invitation, supra . For a listing of other
scholarly
articles, see Packard, 994 F.2d at 1045 n.9.

Moore's Federal Practice takes the position that on its face the statute
appears to overrule Zahn, but that was not the intent of the statute's

10
Committee's views on limiting diversity jurisdiction. The
Report of the House Subcommittee flatly states that Zahn's
validity was not to be affected: "The section is not intended
to affect the jurisdictional requirements of 28 U.S.C. S 1332
in diversity-only class actions, as those requirements were
interpreted prior to Finley." H.R. Rep. No. 101-734, at 29,
reprinted in 1990 U.S.C.C.A.N. 6860, 6875 (citing Supreme
Tribe of Ben Hur v. Cauble, 255 U.S. 356 (1921); Zahn v.
International Paper Co., 414 U.S. 291 (1973)); see also
Hearing Before the Subcommittee on Courts, Intellectual
Property, and the Administration of Justice of the
Committee of the Judiciary on H.R. 5381, 101st Cong., 2nd
Sess., Sept. 6, 1990.

Most District Courts held that Section 1367 did not
overrule Zahn. See Wright, Miller & Cooper, supra,
S 3523.1, at 112 (1998 Supp.). However, the first appellate
ruling by the Court of Appeals for the Fifth Circuit in In re
Abbott Laboratories, 51 F.3d 524, 528-29 (5th Cir. 1995), a
class action, concluded that the text was clear on its face
and that Zahn was overruled. The Court discussed the
scholarly controversy over the matter and declined to rely
on the legislative history because the statute was neither
"unclear or ambiguous." Id. at 528.

The issue was next considered by the Court of Appeals
for the Seventh Circuit in Stromberg Metal Works, Inc. v.
Press Mechanical, Inc., 77 F.3d 928 (7th Cir. 1996).
Stromberg was not a class action, but involved only two
plaintiffs joined for convenience. The Court discussed the
difficulties with interpretation of the statute and called
attention to its text. Indicating that it was "reluctant to
create a conflict among the circuits on a jurisdictional
issue," id. at 930, the Court held that Section 1367 permits
aggregation. See id. at 932.
_________________________________________________________________

academic drafters or Congress. See 16 Moore et al., supra, P 106.44, at
106-62 to 106-63. Federal Practice and Procedure takes a broader view,
noting as compelling evidence that overruling Zahn would be
inconsistent with the often-mentioned purpose of codifying the pre-Finley
conception of supplemental jurisdiction. See 13 Wright, Miller & Cooper,
supra, S 3523.1, at 112 (Supp. 1998).

11
The Court of Appeals for the Tenth Circuit, however, did
not hesitate to take issue with both Abbott and Stromberg
in Leonhardt v. Western Sugar Co., ___ F.3d ____, No. 97-
8078, 1998 WL 789494 (10th Cir. Nov. 13, 1998). The
Court believed that section "1367(a) and (b) can be read
literally, and unambiguously, to require each plaintiff in a
class action diversity case to satisfy the Zahn definition of
`matter in controversy' and to individually meet the $75,000
requirement." Id. at *10.

In view of the holdings of the other Courts of Appeals to
the contrary, however, Leonhardt assumed ambiguity in the
statutory text and turned to the legislative history. See id.
There, it found substantial evidence that "Congress did not
intend to overrule the historical rules prohibiting
aggregation of claims, including Zahn's prohibition of such
aggregation in diversity class actions." Id.

We have not yet taken a position on the proper
construction of Section 1367. Although on two occasions
we have called attention to the problem, we have not been
required to meet it. See In re Prudential Ins. Co. of America
Sales Practices Lit., 148 F.3d 283, 303-06 (3d Cir. 1998);
Packard v. Provident Nat'l Bank, 994 F.2d 1039, 1045 n.9
(3d Cir. 1993).

In Russ v. State Farm Mutual Automobile Insurance Co.,
961 F. Supp. 808 (E.D. Pa. 1997), Judge Louis Pollak of the
Eastern District of Pennsylvania, after a careful and
exhaustive examination of the origin and legislative history
of Section 1367, concluded that Zahn retained its vitality.
See id. at 820. Judge Pollak's phraseology, in rejecting the
textual approach of Abbott Laboratories and Stromberg,
caught the eye of the Leonhardt Court: "To retain this case
in this court is to say to Congress: `We know what you
meant to say, but you didn't quite say it. So the message
from us in the judicial branch to you in the legislative
branch is: "Gotcha! And better luck next time." ' " Id. at
820; see also Leonhardt, 1998 WL 789494, at *10 n.9
(quoting Russ).

The proper construction of Section 1367 is squarely
presented by this appeal, and we must therefore stake out
our position. Our reading of the statute, particularly the

12
limitations placed on diversity cases in subsection (b) as
contrasted with the broad scope of supplemental
jurisdiction granted in other instances of federal
jurisdiction in subsection (a), convinces us that Section
1367 was not intended to substantially expand diversity
jurisdiction. Setting aside the holding in Zahn and Clark
would have such an effect.

Subsection (b) notes a number of instances where
"exercising supplemental jurisdiction . . . would be
inconsistent with the jurisdictional requirements of section
1332." Although subsection (b) does not list Rule 23, the
exercising of supplemental jurisdiction in class actions
would certainly be inconsistent with barring it in joinder
cases under Rule 19, which is cited in the text. Similarly
out of keeping is subsection (b)'s prohibition of"claims by
plaintiffs against persons made parties" under Rule 20, but
its silence as to "claims by persons proposed to be joined as
plaintiffs" under that Rule.6

Although there is much to be said for Leonhardt's view
that the text does not displace Zahn's ruling, we conclude
that there is sufficient ambiguity in the statute to make
resort to the legislative history appropriate. As noted
earlier, the House Report leaves no doubt that Congress
intended Zahn's restrictions to remain in effect. See H.R.
Rep. No. 101-734, at 29, reprinted in 1990 U.S.C.C.A.N.
6860, 6875.
_________________________________________________________________

6. Stromberg Metal Works, Inc. v. Press Mechanical, Inc., 77 F.3d 928 (7th
Cir. 1996), points out the anomaly in Section 1367(b), which lists Rule
20 among the Rules which plaintiffs may not use to bring claims
"against" persons under supplemental jurisdiction, even though the text
does not prohibit Rule 20 joinder of non-diverse plaintiffs. See id. at
932.
Subsection (b) denies jurisdiction over persons proposed to be joined as
plaintiffs under Rule 19 or intervening under Rule 24 "when exercising
supplemental diversity jurisdiction would be inconsistent with the
jurisdictional requirements of section 1332." The omission of Rule 20 at
that point is an unintentional drafting gap, but the legislative history
provides more than adequate evidence that Congress did not intend to
allow such an obvious evasion of the diversity statute. See Rowe,
Burbank & Mengler, Compounding or Creating Confusion, supra, at 960
n.90. Courts should not reach out to undermine Section 1332's
requirements. See id. at 961 n.91; see also Packard, 994 F.2d at 1044-
45 (courts should narrowly construe the removal statute).

13
Even were we to conclude that Section 1367 is
unambiguous, as Abbott Laboratories read it, we would
nevertheless turn to the legislative history because this is
one of those "rare cases [in which] the literal application of
a statute will produce a result demonstrably at odds with
the intentions of its drafters." United States v. Sherman,
150 F.3d 306, 313 (3d Cir. 1998) (internal quotation marks
removed, alterations in original); see also United States v.
Ron Pair Enterprises, Inc., 489 U.S. 235, 242 (1989) (same).

Our review of the text, legislative history, and origins of
Section 1367 leads us to hold that it preserves the
prohibition against aggregation outlined in Zahn v.
International Paper Co. and Clark v. Paul Gray, Inc., and
thus maintains the traditional rules governing diversity of
citizenship and the amount in controversy under 28 U.S.C.
S 1332.

C.

In the case before us, if the separate claims of Quinlan
did not meet the jurisdictional limit of $50,000 in effect at
the time of removal, they must be remanded. In its notice
of removal, St. Paul alleged that the value of all of the
matters in controversy would exceed $50,000. It also stated
that "[p]laintiffs have previously advised St. Paul that the
cost to replace the deteriorated roof exceeded $250,000.00."
St. Paul did not, however, indicate the amount in
controversy as to each of the three named plaintiffs.

Five months later, on November 27, 1995, the plaintiffs
filed their pretrial statement, stating that Quinlan's
compensatory damages were worth less than $5,000. St.
Paul's pretrial statement of December 7, 1995 asserted that
"Quinlan's claim of approximately $4900 is jurisdictionally
insufficient." In response to St. Paul's motion for summary
judgment, plaintiffs conceded that it was unlikely that even
the joinder of bad faith damages would boost Quinlan's
claim over the $50,000 minimum. Instead, plaintiffs argued
for supplemental jurisdiction under Section 1367, citing
Stromberg. Thus, more than a year before the entry of
summary judgment, the jurisdictional issue had been
raised, unlike cases where the problem became apparent
only after judgment.

14
The burden of establishing the amount in controversy in
removal cases rests on the defendant. See Abels, 770 F.2d
at 29. The record here demonstrates St. Paul's failure to
meet its burden, based on representations in its own
pretrial statements. In addition, plaintiffs acknowledge that
Quinlan's damages do not exceed $50,000, making it clear
that a jurisdictional problem exists.

In Angus v. Shiley, Inc., 989 F.2d 142 (3d Cir. 1993), we
concluded that removal jurisdiction established by the
plaintiff's original complaint would not be destroyed by an
amended complaint. See id. at 145. Here, however, both
plaintiffs' and defendant's statements in the circumstances
of this case make it obvious that Quinlan's compensatory
damages did not exceed $5,000 at the moment of removal.
See State Farm Mut. Auto. Ins. Co. v. Powell, 87 F.3d 93, 97
(3d Cir. 1996); Tonghook America, Inc. v. Shipton
Sportswear Co., 14 F.3d 781, 785 (2d Cir. 1994); Jones v.
Knox Exploration Co., 2 F.3d 181, 183 (6th Cir. 1993).

Quinlan also requests damages under Pennsylvania's bad
faith insurer statute, including punitive damages, attorney's
fees, and costs. Where a claim for punitive damages
"comprises the bulk of the amount in controversy and may
have been colorably asserted solely or primarily for the
purpose of conferring jurisdiction, that claim should be
given particularly close scrutiny." Packard, 994 F.2d at
1046.

In Suber v. Chrysler Corp., 104 F.3d 578 (3d Cir. 1997),
we found it necessary to remand to the District Court to
determine whether a potential award of attorneys' fees
would raise the amount of damages plaintiff could claim.
That further step is not required here because, as Angus
observed, although a court can make an independent
appraisal of the reasonable value of the claim, see 989 F.
2d at 146, it might also consider a stipulation as "clarifying
rather than amending an original pleading." Id. at 145 n.3.
Because of Quinlan's concession that even including
possible punitive and other damages, its total claim will not
surpass $50,000, and because St. Paul does not argue
otherwise, we need not delay our ruling at this stage.

In addition to Quinlan's concession, the record shows
that Meritcare's claims for losses over and above the roof

15
repair costs and business interruption are based on the
alleged bad-faith handling of the insurance claim.
According to the pretrial statements, delay in adjusting the
claim caused plaintiffs to lose an opportunity to purchase
the nursing home from Caring. But that option was granted
in the lease to Meritcare, not to Quinlan, which has no
claim to any loss from that source.

Moreover, Quinlan did not incur any expense to repair
the roof. Nothing in the record supports any claims by
Quinlan beyond the losses it suffered via lost sales to
residents of the facility during the period from December
31, 1994 to June 15, 1995. The record thus provides no
basis for additional sums due Quinlan for alleged bad faith
or reimbursement of attorneys' fees.

Thus, there is no necessity for a remand to determine
what the record already establishes -- that Quinlan's
claims do not exceed the requisite jurisdictional amount. In
this state of the appeal, we will therefore exercise our
authority to sever Quinlan's claims and direct that its case
be remanded to the state court. See Newman-Green, Inc. v.
Alfonzo-Larrain, 490 U.S. 826, 827, 837 (1989) (Court of
Appeals may dismiss non-diverse party on appeal).

II.

No jurisdictional obstacle appears to exist as to Meritcare
and it is therefore appropriate to consider the merits of the
District Court's entry of summary judgment. We exercise a
plenary standard when reviewing a grant of summary
judgment. See Valhal Corp. v. Sullivan Assoc., Inc., 44 F.3d
195, 200 (3d Cir. 1995). The Court of Appeals applies the
same test as the District Court, and must affirm if " `there
is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law.' "
Id. (citation omitted). " `[I]nferences ... drawn from the
underlying facts ... must be viewed in the light most
favorable to the party opposing the motion. The non-
movant's allegations must be taken as true and, when
these assertions conflict with those of the movant, the
former must receive the benefit of the doubt.' " Id. (most
alterations in original, citation omitted).

16
The District Court reviewed the undisputed facts in some
detail. We may summarize them as follows. Under the
terms of the Caring lease, Meritcare was to provide for
maintenance and repair of the nursing home facility.
Meritcare states, however, that over the years, Caring had
taken responsibility for the integrity of the facility's roof.

In November 1994, Caring received a report stating that
the plywood in the roof was "in an advanced stage of
degradation and a[n] extremely high potential of
catastrophic failure as a result of impact loads[existed]
. . . . catastrophic failure may occur under severe wind or
snow loads." The cause of the degradation was the
application of fire-retardant chemicals to the plywood. An
architectural firm made similar findings in January 1995.

St. Paul then retained an engineer to inspect the roof. He
reported that there had been degradation of the plywood
and the wood roof frame requiring repair or replacement.
However, he said that "[t]he structural elements in the roof
system are the concrete planks which have not suffered any
loss of strength. General collapse of the roof into the patient
rooms can not occur . . . . Even if small portions of the
sheathing do fall into the attic, there would not be
significant impact loading to damage the concrete planks
and collapse of the roof would not occur."

The relevant portions of the St. Paul policy read: "We'll
insure covered property against the risk of direct physical
loss or damage involving collapse of a building or any part
of a building . . . . under level 3 protection when the
collapse is due to any of the [following causes, including]
. . . .3. Hidden decay." However, "[c]ollapse does not include
settling, cracking, bulging, shrinking, or expansion." Nor is
there coverage for losses due to wear and tear,
deterioration, corrosion, or the inherent nature (i.e., latent
defect) of property, or for "settling, cracking, bulging,
shrinking or expansion of a . . . roof or ceiling."

Meritcare contends that the collapse provision is
triggered when the structural integrity of the building or a
part thereof is seriously impaired. St. Paul contends that
under Pennsylvania law, there had been no "collapse." It is
undisputed that the roof did not cave in, and was replaced
before such an adverse consequence occurred.

17
The District Court reviewed pertinent Pennsylvania case
law, which culminated in a Superior Court case that held
"collapse" means "to fall together or fall in." Dominick v.
Statesman Ins. Co., 692 A.2d 188, 192 (Pa. Super. Ct.
1997), alloc. denied, 1998 Pa. LEXIS 466 (Pa. Mar. 18,
1998). Noting that no such event had occurred, the District
Court entered summary judgment in favor of St. Paul.
Because St. Paul's counterclaims remained for disposition,
the District Court entered a certification offinality under
Fed. R. Civ. P. 54(b) as to the summary judgment.

On appeal, Meritcare notes that the word "collapse" is not
defined in the policy and is capable of several meanings,
including when structural integrity is seriously impaired. It
argues that to require the insured to wait until a structure
falls in before making a claim is contrary to the law in a
number of states, and to the holdings in some Pennsylvania
trial courts. Meritcare also cites Ercolani v. Excelsior
Insurance Co., 830 F.2d 31 (3d Cir. 1987), which held in
favor of the insured in an analogous situation, as an
example of that approach.

Unlike Ercolani, where New Jersey courts had not ruled
on the "collapse" issue, we conclude that here
Pennsylvania's appellate opinions control the outcome. In
Skelly v. Fidelity & Casualty Co., 169 A. 78 (Pa. 1933), the
damage to the insured's house consisted of a large hole in
the side of the structure and demolition of part of two
walls. The rest of the home stood intact. The Court denied
recovery, finding that the term "collapse" was to be given its
"plain, ordinary meaning." Id. at 79. Referring to dictionary
definitions, the Court required a "fall[ing] together
suddenly" or "[t]o fall together, or into an irregular mass or
flattened form, through the loss of firm connection or
rigidity and support of the parts or loss of the contents, as
a building through the falling in of its sides." Id. (internal
quotation marks omitted).

In Kattelman v. National Union Fire Insurance Co., 202
A.2d 66 (Pa. 1964), the Court found no collapse where a
break occurred in one of the outside walls, the building
broke away from the adjoining party wall, plaster fell, and
doors were jammed. See id. at 67. However, the structure
remained standing and none of the floors, walls or roof fell

18
in. The Court followed Skelly and concluded that the
structural damage did not constitute collapse "[i]n ordinary
speech." Id.

In Dominick, rotting joists caused the first floor to move
downward and separate from the interior walls. The
Superior Court noted that just as in Kattelman, neither the
walls, floors, or roof had fallen in. Consequently, the
insureds had not experienced collapse as the term is
"construed under both Pennsylvania law and in accordance
with its plain and ordinary meaning." Id. at 192.

These cases set out the law of Pennsylvania on the
subject. We cannot, therefore, follow Ercolani where, in
predicting New Jersey law, we decided that collapse meant
"a serious impairment of structural integrity." Ercolani, 830
F.2d at 34. We are not free to follow New Jersey in the case
before us, but must instead accept that of Pennsylvania.7
We conclude, therefore, that the District Court did not err
in determining that a "collapse" did not occur and that
Meritcare was not entitled to recover under the policy.
Because we have concluded that no collapse occurred, we
need not reach the other points raised in plaintiffs' brief.

The judgment of the District Court in favor of St. Paul
and against Meritcare will be affirmed. The case of Quinlan
Medical, Inc. v. St. Paul Mercury Insurance Co. will be
remanded to the District Court to be remanded to the Court
of Common Pleas of Allegheny County. Costs are to be
shared equally.
_________________________________________________________________

7. This case illustrates the anomalous effect of removal in many cases.
Here, the issue is purely a matter of state law in which the only
authoritative interpretation must come from the state court system. And
yet, the insurance company removed the case from a well-respected trial
court that is current in its work to the federal courts, which have only
the power to predict, not settle, state law. Cases such as this lend
strength to the suggestion that Congress should reinstate the
requirement that before removal, a party must show prejudice would
result if the case remained in the state forum. See Additional Views of
Judge Merritt, Joined by Justice White, Concerning the Appropriate
Jurisdiction of the Federal Courts, in Commission on Structural
Alternatives for the Federal Courts of Appeals 77, 80 & n.144 (Dec. 18,
1998); see also Study Committee Report at 15.

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A True Copy:
Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

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