Advance America Servicing of Arkansas v. Mcginnis

• Decision Date: 23 May 2008
• Docket Number: No. 07-2770.,07-2770.
• Citation: 526 F.3d 1170
• Parties: ADVANCE AMERICA SERVICING OF ARKANSAS, INC., d/b/a/ Advance America Cash Advance; Advance America Cash Advance Centers of Arkansas, Inc.; Advance America, Cash Advance Centers, Inc., Plaintiffs-Appellants, v. Brenda McGINNIS, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

526 F.3d 1170

ADVANCE AMERICA SERVICING OF ARKANSAS, INC., d/b/a/ Advance America Cash Advance; Advance America Cash Advance Centers of Arkansas, Inc.; Advance America, Cash Advance Centers, Inc., Plaintiffs-Appellants, v. Brenda McGINNIS, Defendant-Appellee.

No. 07-2770.

United States Court of Appeals, Eighth Circuit.

Submitted: March 13, 2008.

Filed: May 23, 2008.

Lewis Steven Wiener, argued, Phillip E. Stano, Washington, DC, Claire Shows Hancock, Gary D. Marts, Jr., on the brief, Little Rock, AR, for appellant.

Christoper A. Averitt, argued, Jonesboro AR, Todd M. Turner, on the brief, Arkadelphia AR, for appellee.

Before MURPHY, BRIGHT, and BENTON, Circuit Judges.

MURPHY, Circuit Judge.

Advance America Servicing of Arkansas, Inc. (Advance America) and associated entities¹ brought this action against Brenda McGinnis seeking to compel arbitration of their dispute over a series of loan agreements. McGinnis moved to dismiss for lack of subject matter jurisdiction. The district court² granted the motion after determining that the amount in controversy was below the requisite minimum for diversity jurisdiction, and Advance America appeals. We affirm.

Underlying this lawsuit are six loan transactions which Advance America and McGinnis entered into between September 2006 and February 2007. Advance America offers cash loans in exchange for personal checks drawn on the customer's bank account. Under the terms of the loan Advance America agrees not to cash the customer's check for a specified period of time. At the end of that period, the customer must redeem the loan for the full amount of the check or may renew it by paying the interest due on the original loan and presenting a new check for the original loan amount with interest for the extended term. The loan agreement provides for arbitration for any dispute pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 et seq.

McGinnis brought a putative class action in Arkansas state court on February 27, 2007, alleging that she had been charged more than 150% interest in violation of usury laws and that Advance America had engaged in deceptive, oppressive, and unconscionable conduct in violation of the Arkansas Deceptive Trade Practices Act (ADTPA), Ark.Code. Ann. § 4-88-101, et seq. Her complaint sought invalidation of the contracts, twice the amount of interest paid by each member of the class, enforcement of a prior settlement agreement involving Advance America, and attorney fees and costs. Advance America filed an answer and motion to compel arbitration in the state court action; its motion had not been decided at the time of briefing in this case.

Advance America brought this action against McGinnis in federal district court to compel arbitration and to stay the state court proceedings, initially asserting jurisdiction on the basis of the Class Action Fairness Act (CAFA), 28 U.S.C. § 1332(d). McGinnis moved to dismiss, pointing out that Advance America had not removed the state action and that its federal complaint contained no class action allegations as required by CAFA. Advance America then amended its complaint to allege diversity jurisdiction pursuant to 28 U.S.C. § 1332(a). Such jurisdiction exists if there is complete diversity of citizenship and the amount in controversy is greater than $75,000. Capitol Indem. Corp. v. Russellville Steel Co., 367 F.3d 831, 835 (8th Cir.2004). McGinnis moved to dismiss on the grounds that Advance America could not satisfy the $75,000 amount in controversy requirement for diversity cases.

The district court granted McGinnis' motion after concluding that Advance America had failed to establish that at least $75,000 is at issue in this action. No class has been certified to date, and the district court found that the state court damage claim is worth less than $1,000.³ First acknowledging that it must view the value of the right sought to be enforced from Advance America's perspective, the district court went on to reject its argument that the costs of defending the state court class action and any potential judgment in favor of a class should be considered part of the amount in controversy here. The district court relied on New England Mortgage Sec. Co. v. Gay, 145 U.S. 123, 12 S.Ct. 815, 36 L.Ed. 646 (1892), in deciding that the amount in controversy should be determined by looking at what is involved in the case before the court rather than by trying to predict possible effects resulting from a judgment.

Advance America argues on appeal that the district court erred by focusing on the amount of McGinnis' possible recovery in the state action, rather than the consequential damages it could suffer from an adverse judgment. To support its argument, Advance America submitted a declaration by its corporate counsel stating that its potential liability in the state court action includes compensatory damages, class action exposure, and business cessation in Arkansas, and that its potential liability could easily exceed $75,000.⁴ It cites to the Supreme Court's decision in Hunt v. Washington State Apple Advert. Comm., which held that "[t]he value of [the right sought to be enforced] is measured from the losses that will follow from the [challenged state] statute's enforcement." 432 U.S. 333, 347, 97 S.Ct. 2434, 53 L.Ed.2d 383 (1977).

McGinnis points out that Advance America could have attempted to remove her state court action to federal court under diversity jurisdiction but instead chose to bring an action under the Federal Arbitration Act seeking a declaratory judgment and injunctive relief to enforce the arbitration provision in their contract. She argues that the object of the litigation here is limited to the amount involved in the arbitration between the two parties. Asserting that the value of her damage claims was less than $1,000, McGinnis submits that the district court appropriately determined that Advance America failed to meet the jurisdictional threshold. She contends that the courts must look to the possible award resulting from the arbitration which Advance America seeks in this action in order to determine whether the requisite amount in controversy is satisfied. Advance America's other potential future damages and contingent costs are therefore not relevant she argues.

The Federal Arbitration Act does not create independent federal question jurisdiction. Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 26 n. 32, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). Rather, § 4 of the Act "provides for an order compelling arbitration only when the federal district court would have jurisdiction over a suit on the underlying dispute; hence, there must be diversity of citizenship or some other independent basis for federal jurisdiction before the order can issue." Id. We review de novo the district court's ruling that it had no subject matter jurisdiction over Advance America's claim. See Minnesota Ass'n of Nurse Anesthetists v. Allina Health Syst. Corp., 276 F.3d 1032, 1040 (8th Cir.2002). The party invoking federal jurisdiction has the burden to prove the requisite amount by a preponderance of the evidence. Rasmussen v. State Farm Mut. Auto. Ins. Co., 410 F.3d 1029, 1031 (8th Cir.2005). A complaint will be dismissed for lack of subject matter jurisdiction if it appears to a legal certainty that the value of the claim is less than the required amount of $75,000. In re Minnesota Mut. Life Ins. Co. Sales Practices Litigation, 346 F.3d 830, 834 (8th Cir.2003).

In our circuit the amount in controversy is determined by the value to the plaintiff of the right sought to be enforced. Massachusetts State Pharm. Ass'n v. Fed. Prescription Serv., Inc., 431 F.2d 130, 132 (8th Cir.1970). In the case just cited, the plaintiff was a group of pharmacies seeking to bring a class action to enjoin the defendant from filling prescriptions at discount prices. We pointed out that to value the jurisdictional amount from the point of view projected by the defendant would effectively permit plaintiffs to aggregate their individual claims without having to fulfill the normal class action aggregation requirements. See id. at 132 n. 1. Under the plaintiff's viewpoint rule, value is measured by focusing on the object of the particular litigation brought by the plaintiff. See Hunt, 432 U.S. at 347, 97 S.Ct. 2434.

Although Advance America may suffer substantial costs as a result of an adverse class action judgment, possibly exceeding $75,000 in damages, the object of the action before the court is to compel arbitration of the dispute between McGinnis and Advance America concerning their loan transactions which have a small monetary value. Advance America's amended complaint in this action asserts that it has been injured by her refusal to honor the loan agreement and to submit her dispute to the arbitration process. The object of this litigation is thus the value at stake in the arbitration dealing with the loan transactions between these two parties. Cf. We Care Hair Dev., Inc. v. Engen, 180 F.3d 838, 841 (7th Cir.1999) ("[S]ince the present suit is not a removal suit but rather an independent federal suit, it is the stakes of the arbitration and not the possible state court award that control.").

While we adhere to the circuit rule that the value of the underlying controversy must be viewed from the perspective of the federal plaintiff, see Massachusetts State Pharm. Ass'n, 431 F.2d at 132, Advance America seeks to extend this principle to include costs of its potential exposure in the uncertified class action in state court and its increased costs in defending such a suit compared to the two party arbitration sought here. The cases cited by Advance America in support of its argument are inapposite or distinguishable. It relies on an unpublished opinion, Fitzgerald Railcar Serv. of Omaha, Inc. v. Chief Indus., Inc., 141 Fed.Appx. 491 (8th Cir. 2005), holding that the losses of a commercial tenant from breach of a lease,...