FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
GEOGRAPHIC EXPEDITIONS, INC.,
Petitioner-Appellant,
No. 09-15069
v.
THE ESTATE OF JASON LHOTKA BY D.C. No.
3:08-cv-04624-SI
ELENA LHOTKA, executrix; SANDRA
OPINION
MENEFEE,
Respondents-Appellees.
Appeal from the United States District Court
for the Northern District of California
Susan Illston, District Judge, Presiding
Argued and Submitted
March 11, 2010—San Francisco, California
Filed March 31, 2010
Before: Betty B. Fletcher, Richard R. Clifton and
Carlos T. Bea, Circuit Judges.
Opinion by Judge Bea
5083
GEOGRAPHIC EXPEDITIONS v. ESTATE OF LHOTKA 5085
COUNSEL
Rodney E. Gould, Rubin Hay & Gould P.C. for Geographic
Expeditions, Inc., petitioner-appellant.
5086 GEOGRAPHIC EXPEDITIONS v. ESTATE OF LHOTKA
Daniel U. Smith, Law Office of Daniel U. Smith, David J.
Bennion, Law Offices of David J. Bennion, for the Estate of
Lhotka and Sandra Menefee, respondents-appellees.
OPINION
BEA, Circuit Judge:
Geographic Expeditions, Inc. (“GeoEx”), appeals the dis-
trict court’s dismissal of GeoEx’s petition to compel arbitra-
tion for lack of subject matter jurisdiction. Fed. R. Civ. P.
12(b)(1). GeoEx contends subject matter jurisdiction exists
under 28 U.S.C. § 1332(a), which provides federal jurisdic-
tion over disputes between citizens of different states in which
the amount in controversy exceeds $75,000 exclusive of inter-
est and costs. The district court held that GeoEx had to estab-
lish by a preponderance of the evidence that the amount in
controversy exceeded $75,000, and that, because a clause in
the arbitration agreement limited damages to $16,831, GeoEx
could not meet its burden. We conclude the district court
erred both when it applied a preponderance of the evidence
standard and when it held that the liability cap precludes fed-
eral jurisdiction. We therefore reverse and remand for further
proceedings.
I. Factual and Procedural Background1
The underlying dispute in this case arose out of a series of
events on Mount Kilimanjaro in October 2007. GeoEx, a Cal-
ifornia corporation with its principal place of business in San
1
We take these facts from the First Amended Complaint, on file in the
district court, and declarations filed in support of and in opposition to the
motion to dismiss. All are part of our record. See Trentacosta v. Frontier
Pac. Aircraft Indus., Inc., 813 F.2d 1553, 1558-59 (9th Cir. 1987) (quoting
5C C. Wright & A. Miller, Federal Practice and Procedure, § 1363, at
653-54 (1969)).
GEOGRAPHIC EXPEDITIONS v. ESTATE OF LHOTKA 5087
Francisco, leads guided expeditions for profit to various desti-
nations throughout the world. Jason Lhotka, who was 37
years old, and his mother, Sandra Menefee, both citizens of
Colorado, purchased tickets for a GeoEx expedition to Mount
Kilimanjaro. As part of their registration for the trip, Lhotka
and Menefee each signed a GeoEx trip participant contract,
which included a provision requiring them to submit any dis-
pute they might have with GeoEx to binding arbitration. The
agreement further provided that the amount of recovery would
be capped at “the sum of the land and air cost of my trip with
GeoEx,” which the parties agree is $16,831.2
The expedition began in Africa on September 29, 2007, and
was to last until October 8, 2007. On October 1, Jason Lhotka
began to suffer difficulty sleeping and experienced sudden
onset of severe fatigue—early symptoms of high altitude sick-
ness. On October 2, Jason Lhotka told the head expedition
guide he needed to go back down the mountain because of his
fatigue. He began his descent, accompanied by a GeoEx assis-
tant guide. Although supplemental oxygen was available, it
was not administered to Lhotka, nor was a rapid descent
ordered, although such a route was also available. Both of
these procedures are proper protocol for a person with high
altitude sickness. On October 4, while descending the moun-
tain, Lhotka died.
2
The full text of the clause is:
I agree that in the unlikely event a dispute of any kind arises
between me and GeoEx, the following conditions apply: (a) the
dispute will be submitted to a neutral third-party mediator in San
Francisco, California, with both parties splitting equally the costs
of such mediator. If the dispute cannot be resolved through medi-
ation, then (b) the dispute will be submitted for binding arbitra-
tion to the American Arbitration Association in San Francisco,
California; (c) the dispute will be governed by California law;
and (d) the maximum amount of recovery to which I will be enti-
tled under any and all circumstances will be the sum of the land
and air cost of my trip with GeoEx. I agree that this is a fair and
reasonable limitation on the damages, of any sort whatsoever,
that I may suffer.
5088 GEOGRAPHIC EXPEDITIONS v. ESTATE OF LHOTKA
In July 2008, Lhotka’s estate and his survivors filed suit in
San Francisco Superior Court alleging, inter alia, that Lhot-
ka’s death from high altitude sickness was caused by the neg-
ligence of GeoEx employees in failing to recognize and treat
Lhotka’s symptoms. In accord with California Code of Civil
Procedure § 425.10(b), the state court complaint did not spec-
ify the amount of damages sought. In September 2008, GeoEx
filed with the state court a motion to compel arbitration pursu-
ant to the parties’ arbitration agreement. In December 2008,
the state trial court denied GeoEx’s motion to compel arbitra-
tion; it held the arbitration agreement unconscionable and thus
unenforceable. GeoEx appealed, and, on January 29, 2010,
the California Court of Appeal affirmed. GeoEx then filed a
petition for review with the California Supreme Court, which
is currently pending.3 In October 2008—after filing in state
court its motion to compel arbitration, but before the state trial
court had ruled on the motion—GeoEx filed in federal district
court the current petition to compel arbitration. The district
court held that GeoEx had the burden to prove by a prepon-
derance of the evidence that the amount in controversy
exceeded $75,000 and that, because of the contractual dam-
ages limitation, recovery was limited to $16,831. Because
GeoEx could not carry its assigned burden of proof, the dis-
trict court dismissed GeoEx’s petition under Rule 12(b)(1) for
3
Although the California Court of Appeal held the arbitration agreement
to be unenforceable, that does not yet prevent the federal suit from pro-
ceeding. It is true that “federal courts are compelled by the ‘full faith and
credit’ statute” to give the same collateral estoppel and res judicata effects
to state court judgments as would the courts of that state. Se. Res. Recov-
ery Facility Auth. v. Montenay Int’l. Corp., 973 F.2d 711, 712 (9th Cir.
1992). However, the California Court of Appeal’s judgment that the arbi-
tration agreement is unenforceable is not yet final. Under California law,
a judgment is not final for the purposes of collateral estoppel until it is free
from the potential of a direct attack, i.e. until no further direct appeal can
be taken. Abelson v. Nat’l Union Fire Ins. Co., 35 Cal. Rptr. 2d 13, 19 (Ct.
App. 1994). Here, the parties agree that the state court judgment is not yet
final because GeoEx filed a petition for review in the California Supreme
Court, which petition remains pending. Thus, this court can proceed on the
merits.
GEOGRAPHIC EXPEDITIONS v. ESTATE OF LHOTKA 5089
lack of subject matter jurisdiction. This appeal from the order
of dismissal timely followed.
II. Standard of Review
We review de novo a district court’s dismissal for lack of
subject matter jurisdiction. Crum v. Circus Circus Enters.,
231 F.3d 1129, 1130 (9th Cir. 2000).
III. Analysis
A. Burden of Proof
[1] The district court erred when it held GeoEx had to
prove by a preponderance of the evidence that the amount in
controversy exceeded $75,000. GeoEx filed a petition to com-
pel arbitration under § 4 of the Federal Arbitration Act
(“FAA”). Section 4 provides:
A party aggrieved by the alleged failure, neglect, or
refusal of another to arbitrate under a written agree-
ment for arbitration may petition any United States
district court which, save for such agreement, would
have jurisdiction under title 28, in a civil action . . .
of the subject matter of a suit arising out of the con-
troversy between the parties, for an order directing
that such arbitration proceed in the manner provided
for in such agreement.
9 U.S.C. § 4. As the Supreme Court has explained, § 4 “be-
stows no federal jurisdiction but rather requires for access to
a federal forum an independent jurisdictional basis over the
parties’ dispute.” Vaden v. Discover Bank, 129 S. Ct. 1262,
1271 (2009). Thus, a federal court has jurisdiction over a peti-
tion to compel arbitration if the federal court would have
jurisdiction over the underlying substantive dispute—here the
negligence action filed by Lhotka’s estate and survivors. See
id. at 1273.
5090 GEOGRAPHIC EXPEDITIONS v. ESTATE OF LHOTKA
[2] A federal court has jurisdiction over the underlying dis-
pute if the suit is between citizens of different states,4 and the
amount in controversy exceeds $75,000 exclusive of interest
and costs (i.e., diversity jurisdiction). 28 U.S.C. § 1332(a).
Where the plaintiff originally files in federal court, “the
amount in controversy is determined from the face of the
pleadings.” Crum, 231 F.3d at 1131 (9th Cir. 2000). The
amount in controversy alleged by the proponent of federal
jurisdiction—typically the plaintiff in the substantive dispute
—controls so long as the claim is made in good faith. Id. “To
justify dismissal, it must appear to a legal certainty that the
claim is really for less than the jurisdictional amount.” Id.
(internal quotation omitted). This is called the “legal certain-
ty” standard, which means a federal court has subject matter
jurisdiction unless “upon the face of the complaint, it is obvi-
ous that the suit cannot involve the necessary amount.” St.
Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283,
292 (1938).
[3] On the other hand, in a case that has been removed
from state court to federal court under 28 U.S.C. § 1441 on
the basis of diversity jurisdiction, the proponent of federal
jurisdiction—typically the defendant in the substantive
dispute—has the burden to prove, by a preponderance of the
evidence, that removal is proper. See Gaus v. Miles, Inc., 980
F.2d 564, 567 (9th Cir. 1992). The preponderance of the evi-
dence standard applies because removal jurisdiction ousts
state-court jurisdiction and “must be rejected if there is any
doubt as to the right of removal in the first instance.” Id. at
566. This gives rise to a “strong presumption against removal
jurisdiction [which] means that the defendant always has the
burden of establishing that removal is proper.” Id. For these
reasons, “[w]e strictly construe the removal statute against
removal jurisdiction.” Id.5
4
The parties concede this is a suit between citizens of different states.
5
See also Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09
(1941) (“The power reserved to the states under the Constitution to pro-
GEOGRAPHIC EXPEDITIONS v. ESTATE OF LHOTKA 5091
[4] Here, the district court cited Sanchez v. Monumental
Life Ins. Co., 102 F.3d 398, 404 (9th Cir. 1996)—a removal
case—and held that, because Lhotka’s estate did not specify
damages in its state court complaint, GeoEx had the burden
to prove the amount in controversy was satisfied by a prepon-
derance of the evidence. This was error, however, because
GeoEx did not remove the case from state to federal court and
then file a motion to compel arbitration. Rather, GeoEx com-
menced an action in federal court by filing a petition to com-
pel arbitration. Because a parallel action to compel arbitration
commenced in federal court does not oust state court jurisdic-
tion, the presumption against removal jurisdiction and atten-
dant preponderance of the evidence standard, found in
removal cases, do not apply.6 Thus, we hold that the legal cer-
tainty standard applies when a party files a petition in federal
court to compel arbitration, even when the opposing party is
suing the federal petitioner in state court. Two other circuits
have come to the same conclusion. E.g., Doctor’s Assocs.,
Inc. v. Hamilton, 150 F.3d 157 (2d Cir. 1998); Woodmen of
the World Life Ins. Soc’y v. Manganaro, 342 F.3d 1213 (10th
Cir. 2003).
vide for the determination of controversies in their courts, may be
restricted only by the action of Congress in conformity to the Judiciary
Articles of the Constitution. Due regard for the rightful independence of
state governments, which should actuate federal courts, requires that [fed-
eral courts] scrupulously confine their own jurisdiction to the precise lim-
its which [§ 1441] has defined.”(internal quotation omitted)).
6
Although the petitioner in a motion to compel arbitration is typically
the defendant in the underlying substantive dispute, like the proponent of
federal jurisdiction in a removal case, that does not mean the removal
standard should apply in the non-removal context. When a case is
removed to federal court, the federal court completely precludes the state
court’s authority to adjudicate the controversy. A petition filed in federal
court to compel arbitration is much less intrusive on state court jurisdic-
tion. In fact, as this case demonstrates, it does not preclude the state action
from proceeding in any way. Thus the rationale for the higher burden of
proof is absent.
5092 GEOGRAPHIC EXPEDITIONS v. ESTATE OF LHOTKA
[5] Under the legal certainty standard, the good faith alle-
gations in GeoEx’s petition as to the amount in controversy
suffice to establish the jurisdictional amount unless it appears
legally certain that the amount in dispute is $75,000 or less.
Here, GeoEx’s petition alleges that Lhotka’s damages in the
state court action are reasonably in excess of $75,000. GeoEx
bases this allegation on the fact that Lhotka’s state court com-
plaint requests damages: (1) for the alleged wrongful death of
Jason Lhotka, who was 37 years old at the time of the trip,
was married, and had at least one dependant; (2) for loss of
consortium for his wife and his son; (3) for fraud, misrepre-
sentation, gross negligence, and intentional infliction of emo-
tional distress; (4) for violations of California’s consumer
fraud statutes; and (5) for funeral, medical, and burial
expenses. GeoEx alleged that, based on Lhotka’s requests in
state court, it “has a reasonable, good-faith belief that the
damages exceed $75,000” even though the state court com-
plaint does not specify an amount.7 This allegation is suffi-
cient to confer subject matter jurisdiction on a federal court
because it is not legally certain the amount in controversy is
$75,000 or less.
B. Potential Defenses
[6] GeoEx’s potential defense to the state court action that
the damages limitation restricts recovery to less than $75,000
(indeed, to $16,831) does not preclude federal jurisdiction. As
the Supreme Court has explained, “the fact that the complaint
discloses the existence of a valid defense to the claim” does
not eliminate federal jurisdiction, nor do events “occurring
subsequent to the institution of suit which reduce the amount
recoverable below the statutory limit.” St. Paul Mercury
Indemnity Co., 303 U.S. at 289-90. This rule makes sense;
just because a defendant might have a valid defense that will
7
As is perhaps quite predictable, Lhotka does not claim GeoEx’s allega-
tion that the amount in controversy exceeds $75,000 is not made in good
faith.
GEOGRAPHIC EXPEDITIONS v. ESTATE OF LHOTKA 5093
reduce recovery to below the jurisdictional amount does not
mean the defendant will ultimately prevail on that defense.8
Further, if a district court had to evaluate every possible
defense that could reduce recovery below the jurisdictional
amount the district court would essentially have to decide the
merits of the case before it could determine if it had subject
matter jurisdiction. This rule applies even though GeoEx is
asserting the potential defense, and at the same time seeking
a federal forum based on diversity jurisdiction.
[7] Thus, the district court erred when it held the amount
in controversy cannot exceed $16,831. The district court
should not have relied on GeoEx’s potential contractual
defense to determine the amount in controversy. Because it
does not appear to a legal certainty that the underlying amount
in controversy is below $75,000, the district court erred when
it dismissed for lack of subject matter jurisdiction GeoEx’s
petition to compel arbitration.
REVERSED and REMANDED
8
Indeed, in the context of this case, the state court determined that the
liability cap along with the rest of the arbitration agreement was uncon-
scionable and therefore unenforceable.