United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS November 18, 2003
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 02-21378
HECTOR GARCIA; ET AL
Plaintiffs
HECTOR GARCIA; INLAND OCEAN INC
Plaintiffs - Appellants
v.
KOCH OIL COMPANY OF TEXAS INC; KOCH GATHERING SYSTEMS INC;
KOCH SERVICE INC; KOCH OIL COMPANY; KOCH INDUSTRIES INC;
KOCH PIPELINES INC; PIPELINE COMPANY LP
Defendants - Appellees
Appeal from the United States District Court
for the Southern District of Texas, Houston
Before KING, Chief Judge, DENNIS, Circuit Judge, and LYNN,*
District Judge.
KING, Chief Judge:
This case comes to us on an interlocutory appeal under 28
U.S.C. § 1292(b). At issue is the proper way to measure the
amount in controversy, required for federal diversity
jurisdiction under 28 U.S.C. § 1332, in the context of a suit
*
District Judge for the Northern District of Texas,
sitting by designation.
1
seeking, inter alia, an equitable accounting. The district court
held that the defendants’ costs for performing the accounting may
be considered in calculating the amount in controversy. We
reverse.
I. STATEMENT OF THE FACTS AND PROCEDURAL HISTORY
On September 3, 1999, Plaintiffs Hector H. Garcia and Inland
Ocean, Inc.1 filed a putative class action in the 49th Judicial
District Court of Zapata County, Texas, on behalf of all Texas
royalty and leasehold interest holders “from whom [the
defendants] purchased oil and/or condensate between January 1,
1975 and December 31, 1989.” Alleging that the defendants
surreptitiously failed to reimburse them for certain oil and gas
overages, the plaintiffs sought (1) an equitable accounting to
determine whether any part of the overages could be attributed to
individual plaintiffs’ well sites, (2) restitution damages, and
(3) attorney’s fees and costs. The plaintiffs did not demand a
specific amount of monetary damages, as the Texas Rules of Civil
Procedure prohibit a plaintiff from doing so. See TEX. R. CIV. P.
47(b).
The defendants timely removed the case to the United States
District Court for the Southern District of Texas under 28 U.S.C.
§ 1441(b) based on federal diversity jurisdiction, asserting that
1
A third plaintiff, the Estate of Alice Barnes, was
voluntarily dismissed from the case without prejudice on January
2, 2002, and will not be discussed in this opinion.
2
the amount in controversy exceeds $75,000 and that the parties
are diverse.2 See 28 U.S.C. § 1332 (2000). The plaintiffs then
filed a motion to remand claiming that the defendants had failed
to proffer evidence that the requisite amount in controversy had
been met. The district court denied the motion, however, when
the defendants produced an affidavit stating that it would cost
more than $75,000 per plaintiff to perform the requested
accounting.
On agreement of the parties, the case was transferred to the
Houston Division of the district court. The plaintiffs filed a
second motion to remand on the basis that the costs of performing
an equitable accounting should not be considered part of the
“amount in controversy” under § 1332. On August 27, 2002, a
magistrate judge recommended that the plaintiffs’ motion be
denied, because the defendants’ affidavit “makes it clear that
the costs of an accounting for even a single claimant in this
matter would exceed the jurisdictional amount.” The district
2
In their notice of removal, the defendants also claimed
that Koch Oil Company of Texas, Inc. had been fraudulently joined
by the plaintiffs. The district court agreed, and this issue has
not been preserved on appeal. In addition, the defendants asked
the district court to attribute all of the plaintiffs’ attorney’s
fees to the named class representatives in order to calculate the
amount in controversy. The defendants have since conceded,
however, that class action attorney’s fees cannot be aggregated
in this manner. See Coughlan v. Wellcraft Marine Corp., 240 F.3d
449, 455 n.5 (5th Cir. 2001) (noting that, for jurisdictional
purposes, “[t]he standard approach to awards of attorney’s fees
in a class action context is to distribute them pro rata to all
class members, both named and unnamed”).
3
court subsequently adopted the magistrate’s findings in full and
denied the motion to remand. At the plaintiffs’ request,
however, the district court stayed the case pending an
interlocutory appeal to this court on the following controlling
question of law: “In a class action seeking damages and an
accounting, assuming diversity, [may] accounting costs to
defendants in a range of $322,800 to $899,400 for examining the
claim of a single plaintiff meet the amount in controversy
requirement of the diversity statute?” We hold that they may
not.
II. DISCUSSION
A. Standard of Review
We review the district court’s denial of a motion to remand
for lack of subject-matter jurisdiction de novo. Allen v. R & H
Oil & Gas Co., 63 F.3d 1326, 1336 (5th Cir. 1995); see also Webb
v. Investacorp, Inc., 89 F.3d 252, 255 (5th Cir. 1996)
(explaining that removal is an issue of statutory construction).
B. Burden of Proof
In resolving this question, we recognize that “[t]he intent
of Congress drastically to restrict federal jurisdiction in
controversies between citizens of different states has always
been rigorously enforced by the courts.” St. Paul Mercury Indem.
Co. v. Red Cab Co., 303 U.S. 283, 288 (1938). Thus, in § 1332
Congress instructs that a suit between diverse parties may be
4
adjudicated in a federal forum only if “the matter in controversy
exceeds the sum or value of $75,000, exclusive of interest and
costs.” The party seeking to invoke federal diversity
jurisdiction bears the burden of establishing both that the
parties are diverse and that the amount in controversy exceeds
$75,000. St. Paul Reinsurance Co. v. Greenberg, 134 F.3d 1250,
1253 (5th Cir. 1998). The question in this case is whether the
second burden has been met. In St. Paul Mercury Indemnity, the
Supreme Court delineated the general method for measuring the
amount in controversy: “[U]nless the law gives a different rule,
the sum claimed by the plaintiff controls if the claim is
apparently made in good faith.” 303 U.S. at 288.
Here, the Texas Rules of Civil Procedure barred the
plaintiffs from requesting a specific amount of damages in their
state court petition. See TEX. R. CIV. P. 47(b). In a similar
case, we held that “[w]hen the plaintiff’s complaint does not
allege a specific amount of damages, the removing defendant must
prove by a preponderance of the evidence that the amount in
controversy exceeds” the jurisdictional amount. De Aguilar v.
Boeing Co., 11 F.3d 55, 58 (5th Cir. 1993). This burden may be
fulfilled in one of two ways. First, jurisdiction will be proper
if “it is facially apparent” from the plaintiffs’ complaint that
their “claims are likely above [$75,000].” Allen, 63 F.3d at
1335. If the value of the claims is not apparent, then the
5
defendants “may support federal jurisdiction by setting forth the
facts–-[either] in the removal petition [or] by affidavit–-that
support a finding of the requisite amount.” Id. Critically, the
defendants may not aggregate the claims of different plaintiffs
in order to satisfy the $75,000 jurisdictional amount in this
putative class action. See Snyder v. Harris, 394 U.S. 332, 336-
38 (1969).
To date, no party has attempted to establish that the
defendants owe more than $75,000 in restitution damages to any
individual plaintiff in this case. In fact, the value of each
plaintiff’s property, which was allegedly converted by the
defendants, will not be determined unless the plaintiffs achieve
the equitable accounting relief they have requested.
Nonetheless, the district court held that defendants satisfied
their burden of establishing that more than $75,000 is “in
controversy” in this case. In a sworn affidavit, the defendants’
accountant estimated that it will cost at least $300,000 per
plaintiff to determine the amount of oil and gas condensate
removed from each plaintiff’s well sites during the years in
question. The plaintiffs did not proffer any evidence disputing
the cost of the equitable accounting,3 and the court concluded
3
In both their second motion to remand and their briefs
on appeal, plaintiffs argue that it will not cost $75,000 to
perform the equitable accounting. They have provided no record
evidence to support this claim, however.
6
that the requisite jurisdictional amount was satisfied.
C. Analysis
Whether the district court’s conclusion that the defendants
have met their burden is correct, the plaintiffs argue, depends
on the viewpoint by which the amount in controversy is measured.
Plaintiffs claim that our precedent dictates that “the value of
the plaintiff’s right sought to be enforced must exceed the
jurisdictional amount in order to confer federal jurisdiction.”
Vraney v. County of Pinellas, 250 F.2d 617, 618 (5th Cir. 1958);
see also Alfonso v. Hillsborough County Aviation Auth., 308 F.2d
724, 727 (5th Cir. 1962) (refusing to consider the potential loss
to defendants because “[t]he value to the plaintiff of the right
to be enforced or protected determines the amount in
controversy”). The plaintiffs argue that the instant case should
be remanded to state court because the accounting is of no
“value” to them; rather it is merely a means to discover the
amount of restitution damages they are owed. Therefore, they
believe that the monetary damages, not the accounting costs, are
the true amount in controversy. The plaintiffs conclude that
because the defendants have not alleged that any one plaintiff
will recover more than $75,000, the jurisdictional amount is
unsatisfied.
The defendants argue that it does not matter which viewpoint
we follow. Alternatively, they urge us to follow an “either-
7
party viewpoint” for determining the amount-in-controversy
requirement. Emphasizing that the accounting relief requested by
the plaintiffs is equitable in nature, the defendants argue that
we should consider the costs of providing that relief as the
amount in controversy. According to the defendants, because it
will cost them more than $75,000 to provide the equitable relief
requested by each plaintiff, we must recognize these costs as a
“pecuniary consequence” of the litigation that satisfies the
jurisdictional amount.4
4
The defendants’ argument is based on their assumption
that we implicitly approved of the either-party viewpoint in
Duderwicz v. Sweetwater Savings Association, 595 F.2d 1008 (5th
Cir. 1979), when we followed the reasoning of a line of cases
“support[ing] the proposition that the value of the matter in
controversy is measured not by the monetary judgment which the
plaintiff may recover, but by the judgment’s pecuniary
consequence to those involved in the litigation.” Id. at 1014.
Contrary to the defendants’ view, Duderwicz did not signal our
acceptance of the “either-party viewpoint”; rather, it presented
the question whether, in calculating the amount in controversy
for a case involving a usurious contract, we should consider only
the “interest already paid” on the contract or whether we should
instead consider the total “interest contracted to be charged”
over the lifetime of the contract. Id. at 1012, 1014.
Critically, we noted that the answer to this question depended on
“[s]tate law,” which “defines the nature of the right plaintiff
seeks to enforce.” Id. at 1012 (emphasis added). The Court of
Appeals for the Eleventh Circuit, which is also bound by
Duderwicz, reads this case as we do and similarly concludes that
it does not signal an “abandonment of the plaintiff-viewpoint
rule” by the Fifth Circuit. Ericsson GE Mobile Communications,
Inc. V. Motorola Communications & Elecs., Inc., 120 F.3d 216, 220
& n.13 (11th Cir. 1997).
We also disagree with the defendants’ assertion that our
decision in Webb indicates that this circuit no longer focuses
solely on the plaintiff’s viewpoint to determine the amount in
controversy in cases seeking equitable relief. See Webb, 89 F.3d
at 257 n.1 (stating specifically that the court’s holding “does
8
We conclude that the defendants are correct when they argue
that it does not matter from which viewpoint the amount in
controversy is viewed. Unlike the defendants, however, we
believe that the costs of an equitable accounting should not be
considered in determining the sum or value of the matter in
controversy in the instant case. These costs are collateral to
the true object of the litigation: reimbursement to the
plaintiffs for the oil and gas condensate allegedly converted by
the defendants.
The defendants urge us to remember that the first form of
relief demanded by the plaintiffs is an “equitable accounting.”
If a court eventually determines that the plaintiffs have
established a right to receive this relief, then the defendants
believe that they will be forced to bear the costs of calculating
how much oil and gas condensate was taken from each of the
plaintiffs’ wells between 1975 and 1989. Thus, the defendants
argue, the litigation will necessarily resolve the controversy
over whether the defendants are legally obliged to perform the
accounting––essentially providing the plaintiffs the “value” of
avoiding these expenses. Because they have proffered affidavit
evidence demonstrating that these costs exceed § 1332's
not violate the rule . . . that ‘[t]he value to the plaintiff of
the right to be enforced or protected determines the amount in
controversy’” (quoting Alfonso, 308 F.2d at 727) (alteration in
original)).
9
jurisdictional amount, the defendants argue that they have met
their burden to establish that federal jurisdiction is proper.
We do not agree. According to the Supreme Court, in cases
seeking equitable relief “it is well established that the amount
in controversy is measured by the value of the object of the
litigation.” Hunt v. Wash. State Apple Adver. Comm'n, 432 U.S.
333, 347 (1977). Here, the true object of the litigation is the
payment of restitution damages to the plaintiffs. The equitable
accounting is merely the means by which the value of the these
damages may be calculated.
Our sister circuits have explained that an equitable
accounting is simply a tool by which a plaintiff may shift the
plaintiff’s normal burden of discovery to the defendants. The
Court of Appeals for the District of Columbia Circuit, for
example, notes:
An accounting is a species of compulsory disclosure,
predicated upon the assumption that the party seeking
relief does not have the means to determine how much--
or, in fact, whether--any money properly his is being
held by another. The appropriate remedy, particularly
where the determinations may be detailed and complex, is
an order to account in a proceeding in which the burden
of establishing the non-existence of money due to the
plaintiff rests upon the defendant. Because of the very
nature of the remedy, that burden cannot rest upon
plaintiff, but must shift to the defendant once facts
giving rise to a duty to account have been alleged and
admitted.
Rosenak v. Poller, 290 F.2d 748, 750 (D.C. Cir. 1961); see also
Bradshaw v. Thompson, 454 F.2d 75, 79 (6th Cir. 1972) (“An
10
accounting is a species of disclosure, predicated upon the legal
inability of a plaintiff to determine how much, if any, money is
due him from another.”). Thus the costs of producing the
requested accounting are akin to the discovery costs incurred by
the parties in every lawsuit. We hold that these “litigation
costs” are simply not relevant to whether diversity jurisdiction
exists under § 1332. See Ratliff v. Sears, Roebuck & Co., 911 F.
Supp. 177, 179-80 (E.D.N.C. 1995) (holding that a defendant’s
discovery costs are not part of the amount in controversy).
Our decision comports with the manner by which we measure
the jurisdictional amount in actions where a trustee is compelled
to perform an accounting of the assets in a trust or when an
administrator is ordered to account for the value of the property
in an estate. In Davidson v. Blaustein, the court reviewed the
law in this area and found that “[w]here affirmative relief is
sought by an accounting, the amount in controversy is measured by
the value of the res, the damage to the res sought to be
redressed, or the monetary value of the complainant’s share of
the res which is distributable.” 247 F. Supp. 225, 228 (D. Md.
1965) (citations omitted). This last metric is analogous to the
jurisdictional amount in the case at hand. Without question, the
true “amount in controversy” is the restitution award that the
defendants may be required to pay to the putative class members
as a consequence of removing more oil and gas condensate from the
11
plaintiffs’ various well sites than the defendants previously
reported. Therefore, because neither party contends that the
defendants owe more than $75,000 to any single plaintiff, the
defendants have failed to demonstrate the existence of federal
diversity jurisdiction.
III. CONCLUSION
For the foregoing reasons, we find that defendants have not
met their burden of proving that this case satisfies the amount-
in-controversy requirement of § 1332. Therefore, we REVERSE and
instruct the district court to REMAND this case to state court.
Costs shall be borne by the defendants.
12