Valhal Corp. v. Sullivan Associates, Inc.
| Decision Date | 20 March 1995 |
| Docket Number | 94-1241,Nos. 94-1221,s. 94-1221 |
| Parties | VALHAL CORPORATION, Appellee/Cross-Appellant, v. SULLIVAN ASSOCIATES, INC., Architects, Planners, Engineers, Appellant/Cross-Appellee. |
| Court | U.S. Court of Appeals — Third Circuit |
Before: SLOVITER, Chief Judge, STAPLETON, MANSMANN, GREENBERG, HUTCHINSON, SCIRICA, COWEN, NYGAARD, ALITO, ROTH, LEWIS, McKEE and SAROKIN, Circuit Judges.
Prior Report: 44 F.3d 195.
The petition for rehearing filed by appellee/cross-appellant in the above-entitled case having been submitted to the judges who participated in the decision of this Court and to all the other available circuit judges of the circuit in regular active service, and no judge who concurred in the decision having asked for rehearing, and a majority of the circuit judges of the circuit in regular active service not having voted for rehearing by the court in banc, the petition for rehearing is denied. Judge Hutchinson would grant in banc rehearing for the reasons set forth in his attached Statement Sur Denial. Judge Greenberg joins in Judge Hutchinson's Statement Sur Denial.
Neither the Supreme Court of Pennsylvania nor its Superior Court has yet decided whether clauses in contracts for professional services limiting the damages a contracting party can recover for negligent performance are enforceable. The Court concludes they are valid under applicable state law. The district court concluded they are not, and I believe their validity can be fairly characterized as doubtful. Nevertheless, because Sullivan's contract with Valhal for professional services has a clause that attempts to limit Sullivan's liability to $50,000, this Court reverses a $1,000,000 judgment for appellee Valhal and then holds that the case must be dismissed for lack of subject matter jurisdiction. I believe this confuses the jurisdictional issue concerning the amount in controversy with the merits, deprives both parties of the binding judgment to which they are entitled and ignores our obligation to exercise subject matter jurisdiction when it is present. Moreover, it has real practical significance to the parties as a non-merits dismissal for lack of jurisdiction does not foreclose Valhal from commencing a new action in a state trial court seeking the same relief it did in the district court. See, e.g., Local 1498, Fed'n of Gov't Employees v. American Fed'n of Gov't Employees, AFL-CIO, 522 F.2d 486, 492 (3d Cir.1975); Fratto v. New Amsterdam Casualty Co., 434 Pa. 136, 252 A.2d 606, 607 (1969). Accordingly, I respectfully disagree with the Court's mandate directing dismissal of this case for lack of subject matter jurisdiction. 1
In Saint Paul Mercury Indemn. Co. v. Red Cab Co., 303 U.S. 283, 288-89, 58 S.Ct. 586, 590, 82 L.Ed. 845 (1938), the United States Supreme Court held that the amount a diversity plaintiff claims controls determination of the jurisdictional amount unless it appears to a "legal certainty" that (1) the claim was really for less than the jurisdictional amount, (2) the plaintiff could not recover more than the jurisdictional amount, or (3) the amount claimed is merely colorable. I recognize the Supreme Court's statements in Red Cab that Congress has restricted diversity jurisdiction and that courts must rigorously enforce this intent. Id. at 288, 585 Ct. at 590. However, the Supreme Court in Red Cab went on to state:
The rule governing dismissal for want of jurisdiction in cases brought in federal court is that, unless the law gives a different rule, the sum claimed by the plaintiff controls if the claim is apparently made in good faith. It must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal. The inability of plaintiff to recover an amount adequate to give the court jurisdiction does not show his bad faith or oust jurisdiction. Nor does the fact that the complaint discloses the existence of a valid defense to the claim. But if, from the face of the pleadings, it is apparent, to a legal certainty, that the plaintiff cannot recover the amount claimed or if, from the proofs, the court is satisfied to a like certainty that the plaintiff never was entitled to recover that amount, and that his claim was therefore colorable for the purpose of conferring jurisdiction, the suit will be dismissed. Events occurring subsequent to the institution of suit which reduce the amount recoverable below the statutory limit do not oust jurisdiction.
Id. at 288-89, 58 S.Ct. at 590 (footnotes omitted). Although old, Red Cab remains the seminal case on this issue.
This Court concludes today that Valhal's $2,000,000 claim, on which it secured a jury verdict of $1,000,000 after the district court refused Sullivan's motion to dismiss for lack of subject matter jurisdiction, is a case in which it appears to a "legal certainty" that the amount in dispute failed to reach the jurisdictional minimum. I believe this holding confuses the jurisdictional question of legal certainty with the standard for judgment on the merits as a matter of law. I also believe it ignores Red Cab 's instruction that a diversity claim should not be dismissed for lack of subject matter jurisdiction unless the allegation in the complaint that it is for more than the jurisdictional amount is made in bad faith. Id. On this record, I do not think it can be inferred that Valhal's $2,000,000 claim was made in a bad faith attempt to meet the jurisdictional amount of more than $50,000 that 28 U.S.C.A. Sec. 1332 (West 1993) requires in a diversity case.
The length and complexity of the analysis the Court uses to resolve the controlling issue of state law, not heretofore authoritatively decided, seems to me to belie any conclusion that Valhal's allegation that the amount in controversy is more than $50,000 could be seen from the outset to be false to a "legal certainty" and so was made in bad faith or was merely colorable. It seems to me that these determinations should be made ex ante, not post hoc.
In addition, it is clear from Part II of the opinion that the Court, in directing dismissal of the case for lack of subject matter jurisdiction, has incorrectly applied the standard of review applicable to a Rule 56 grant of summary judgment instead of the standard applicable to a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction. Reasonable jurists might indeed conclude that Valhal's claim should not survive summary judgment, an issue on which I am dubitante; but I think this record demonstrates that Red Cab 's standard governing dismissal for lack of subject matter jurisdiction is not...
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