[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
APRIL 28, 2003
No. 02-14158 THOMAS K. KAHN
CLERK
D. C. Docket No. 02-00454 CV-D-N
FEDERATED MUTUAL INSURANCE COMPANY,
Plaintiff-Appellant,
versus
MCKINNON MOTORS, LLC.,
Defendant-Appellee.
Appeal from the United States District Court
for the Middle District of Alabama
(April 28, 2003)
Before DUBINA and FAY, Circuit Judges, and DOWD*, District Judge.
DUBINA, Circuit Judge:
_______________________________
*Honorable David D. Dowd, Jr., United States District Judge for the Northern District of Ohio,
sitting by designation.
Federated Mutual Insurance Company (“Federated”) appeals the district
court’s dismissal of its declaratory judgment action, brought to resolve an
insurance coverage dispute, for lack of subject matter jurisdiction based on a
failure to meet the amount in controversy requirement of 28 U.S.C. § 1332. The
sole issue raised on appeal is whether the district court erred in calculating the
amount in controversy by failing to consider McKinnon Motors, LLC’s
(“McKinnon’s”) claim against Federated for bad faith. We do not reach this issue
because we hold that, even if we were to consider McKinnon’s bad faith claim,
Federated failed to meet its burden of proof in establishing that the value of its
claim satisfied the amount in controversy.
I. BACKGROUND
A. Facts
McKinnon purchased an insurance policy from Federated that provided
coverage up to $50,000 for acts of employee dishonesty.
In August 1999, McKinnon filed a proof of loss with Federated for losses
allegedly incurred because of the dishonesty of Jackie Ray Neeley (“Neeley”), a
former general manager of a McKinnon dealership. McKinnon filed a second
proof of loss arising from Neeley’s alleged dishonesty in February 2000.
2
Federated investigated each of McKinnon’s claims for employee dishonesty
and eventually denied both claims because it found that the policy language did
not cover the losses. Following the denial of the claims and the resolution of a
lawsuit by Neeley against McKinnon, McKinnon demanded the $50,000 policy
limits of the employee dishonesty provision from Federated and threatened to sue
for bad faith failure to pay if Federated did not tender the policy limits.
B. Procedural History
Federated filed a declaratory judgment action against McKinnon in the
Federal District Court for the Middle District of Alabama seeking a declaration of
its rights and obligations under the employee dishonesty provision of its insurance
contract with McKinnon. McKinnon filed a motion to dismiss for lack of subject
matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). The district
court granted McKinnon’s motion to dismiss on the ground that Federated did not
meet the amount in controversy required by § 1332. Federated then perfected this
appeal.
II. STANDARD OF REVIEW
“We review a district court's dismissal of a complaint for lack of subject
matter jurisdiction under the de novo standard.” Digital Properties, Inc. v. City of
Plantation, 121 F.3d 586, 589 (11th Cir. 1997).
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III. DISCUSSION
“Federal courts are courts of limited jurisdiction.” Burns v. Windsor Ins.,
Co., 31 F.3d 1092, 1095 (11th Cir. 1994). In order to invoke a federal court’s
diversity jurisdiction, a plaintiff must claim, among other things, that the amount
in controversy exceeds $75,000. 28 U.S.C. §1332. “When a plaintiff seeks
injunctive or declaratory relief, the amount in controversy is the monetary value of
the object of the litigation from the plaintiff's perspective.” Cohen v. Office Depot,
Inc., 204 F.3d 1069, 1077 (11th Cir. 2000) (citation omitted). A plaintiff satisfies
the amount in controversy requirement by claiming a sufficient sum in good faith.
St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288, 58 S. Ct. 586,
590, 82 L. Ed. 845 (1938).
Generally, “[i]t must appear to a legal certainty that the claim is really for
less than the jurisdictional amount to justify dismissal.” Red Cab Co., 303 U.S. at
289, 58 S. Ct. at 590. However, where jurisdiction is based on a claim for
indeterminate damages, the Red Cab Co. “legal certainty” test gives way, and the
party seeking to invoke federal jurisdiction bears the burden of proving by a
preponderance of the evidence that the claim on which it is basing jurisdiction
meets the jurisdictional minimum. Tapscott v. MS Dealer Serv. Corp., 77 F.3d
4
1353, 1356-57 (11th Cir. 1996), abrogated on other grounds by Cohen v. Office
Depot, Inc., 204 F.3d 1069, 1072-77 (11th Cir. 2000).1
Federated argues that its claim satisfies the amount in controversy
requirement because the claim’s value includes both the $50,000 policy limits and
the potential liability it faces under McKinnon’s bad faith claim against it.2
McKinnon responds by arguing that the amount in controversy cannot be satisfied
by reference to its claim for bad faith because it is improper to consider counter-
claims in such an analysis.
We assume, without deciding, that Federated can meet the amount in
controversy by reference to McKinnon’s claim for bad faith.3 Taking this
1
We note that Tapscott arose in the removal context, while this case involves a declaratory
judgment. However, we find these two contexts analogous in this setting. Accord St. Paul
Reinsurance Co. v. Greenberg, 134 F.3d 1250, 1253 (5th Cir. 1998) (“Although most of our caselaw
regarding §1332's amount in controversy requirement has arisen in the context of removal from state
to federal court, we find the procedures developed in those cases to be instructive in the converse
context of declaratory judgment actions....”).
2
We note that at the time the district court considered this case, McKinnon had only
threatened to sue Federated for bad faith, but had not yet filed a claim. Subsequent to the district
court’s decision, McKinnon filed a complaint for bad faith against Federated in the Circuit Court of
Chilton County, Alabama. Although this fact was not before the district court and, therefore, is not
a part of the record, we take judicial notice of McKinnon’s bad faith claim under Fed. R. Evid. 201.
3
We recognize that support exists for this position. See Horton v. Liberty Mut. Ins. Co., 367
U.S. 348, 81 S. Ct. 1570, 6 L. Ed. 2d. 890 (1961) (finding that the amount in controversy was
satisfied where the plaintiff in a federal declaratory judgment action sought less than the
jurisdictional minimum, but the defendant brought a counter-claim that satisfied the amount in
controversy). However, we also recognize that the Horton decision has been the subject of criticism
centered around the difficulty in discerning the principle for which the case stands. See 14b
5
assumption into account, we turn to the question of whether Federated has
satisfied its burden of proving that its claims are in excess of $75,000. We hold
that it has not.
The employee dishonesty policy underlying this action only provides
$50,000 in coverage, which does not satisfy the amount in controversy standing by
itself. However, Federated argues that the value of its claim includes both the
policy limits and the potential liability it faces under McKinnon’s bad faith claim.4
But, McKinnon did not and has not placed any dollar amount on the various
damages it is seeking under its bad faith claim. Therefore, the damages McKinnon
prays for under the bad faith claim are indeterminate. See Greenberg, 134 F.3d at
1253 (explaining that a prayer for damages is indeterminate where the “complaint
does not allege a specific amount of damages”).
CHARLES ALAN WRIGHT, ARTHUR R. MILLER & EDWARD H. COOPER , FEDERAL PRACTICE AND
PROCEDURE § 3706 (3d ed. 1998). Because Federated would not reach the jurisdictional minimum
even if we extracted a rule from Horton or elsewhere that consideration of counter-claims in
determining the amount in controversy is proper, we decline to pass judgment today on whether such
a method of calculation is proper.
4
Federated additionally argues that McKinnon’s demands for attorneys fees and costs under
its bad faith claim count towards the jurisdictional minimum. The general rule is that attorneys fees
do not count towards the amount in controversy unless they are allowed for by statute or contract.
See Graham v. Henegar, 640 F.2d 732, 736 (5th Cir. 1981). The claim of bad faith failure to pay
is a common law cause of action in Alabama. Weems v. Jefferson-Pilot Life Ins. Co., Inc., 663 So.2d
905, 911-912 (Ala. 1995). Therefore, McKinnon’s claim for attorneys fees is neither statutory nor
contractual and does not count towards the jurisdictional minimum. Additionally, the very text of
28 U.S.C. § 1332 precludes consideration of McKinnon’s claim for costs in determining whether
Federated satisfied the amount in controversy.
6
In fact, McKinnon represented to the district court in its Motion to Remand
that it does not seek and, more importantly, will not accept damages in excess of
$74,000 exclusive of interest and costs. Because McKinnon’s lawyers are officers
of this court and subject to sanctions under Federal Rule of Civil Procedure 11 for
making a representation to the court for an improper purpose,5 such as merely to
defeat diversity jurisdiction, we give great deference to such representations and
presume them to be true. See Burns, 31 F.3d at 1095 (“Every lawyer is an officer
of the court. And, in addition to his duty of diligently researching his client’s
case, he always has a duty of candor to the tribunal.”).
Federated has offered no evidence to rebut McKinnon’s representation and
no evidence to show that McKinnon’s bad faith claim would satisfy the amount in
controversy. Federated does point to a number of Alabama cases where courts
have awarded punitive damages well in excess of $75,000 for bad faith failure to
pay, Intercontinental Life Insurance Co. v. Lindblom, 598 So. 2d 886 (Ala. 1992);
United Services Automobile Ass’n v. Wade, 544 So. 2d 906 (Ala. 1989);
Nationwide Mutual Insurance Co. v. Clay, 525 So. 2d 1339 (Ala. 1987), but mere
5
We note that under Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 396, 110 S. Ct. 2447,
2456, 110 L. Ed. 2d. 359 (1990), a motion for Rule 11 sanctions involves a collateral proceeding that
can be initiated and decided after the case on which it is based is finally resolved and no longer
pending.
7
citation to what has happened in the past does nothing to overcome the
indeterminate and speculative nature of Federated’s assertion in this case.
Therefore, we conclude that even if we were to consider McKinnon’s bad faith
claim in determining the amount in controversy, Federated has failed to prove by a
preponderance of the evidence that McKinnon’s claim is in excess of $75,000 and,
thus, the district court did not err in granting McKinnon’s Rule 12(b)(1) motion to
dismiss for lack of subject matter jurisdiction.
For the foregoing reasons, we affirm the district court’s judgment of
dismissal.
AFFIRMED.
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