60 F.3d 350 (7th Cir. 1995), 94-2761, Pratt Central Park Ltd. Partnership v. Dames & Moore, Inc.

Docket Nº:94-2761, 94-3663.
Citation:60 F.3d 350
Party Name:PRATT CENTRAL PARK LIMITED PARTNERSHIP, Plaintiff-Appellant, v. DAMES & MOORE, INC., Defendant-Appellee.
Case Date:July 19, 1995
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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60 F.3d 350 (7th Cir. 1995)



DAMES & MOORE, INC., Defendant-Appellee.

Nos. 94-2761, 94-3663.

United States Court of Appeals, Seventh Circuit

July 19, 1995

Argued March 28, 1995.

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Laura A. Kaster (argued), William A. Von Hoene, Jr., Avidan J. Stern, Carey S. Rosemarin, Jenner & Block, Chicago, IL, for plaintiff-appellant.

Larry Selander (argued), Tracy D. Reckmeyer, Keck, Mahin & Cate, Chicago, IL, for defendant-appellee.

Before FLAUM, EASTERBROOK and RIPPLE, Circuit Judges.

EASTERBROOK, Circuit Judge.

Dames & Moore, an engineering firm, performed a series of environmental risk assessments for the Alter Group, Ltd., between 1988 and 1990. Early in 1989 D & M evaluated the premises of Lind Plastic Products; it reported some asbestos but no underground contamination. Alter Group formed Pratt Central Park Limited Partnership to purchase the property. Later it came to light that the Lind property has two underground storage tanks containing hazardous chemicals. Alter (as we call both Alter Group and the partnership) has incurred cleanup expenses that it pegs at $90,000; the property has also declined in value because of the risk that further expenditures will prove necessary. Alter filed this suit under the diversity jurisdiction seeking compensation for breach of contract, including D & M's warranty of competent performance. The district court dismissed the suit for want of jurisdiction, see Fed.R.Civ.P. 12(b)(1), (h)(3), ruling that a $5,000 limit of liability in the Alter-D & M contract keeps the stakes below the $50,000 jurisdictional minimum. 1994 U.S.Dist. Alter protests that whether it assented to a $5,000 cap is debatable, and that controversy protects federal jurisdiction under St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 289, 58 S.Ct. 586, 590-91, 82 L.Ed. 845 (1938): "It must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal."

This famous passage is a remark rather than a holding. The issue before the Court was whether events after removal from state to federal court--in particular, amendment of the complaint to reduce the amount demanded--divest a district court of jurisdiction. The Court answered "no." See also In re Shell Oil Co., 966 F.2d 1130, after remand, 970 F.2d 355 (7th Cir.1992). Later cases converted the observation to a holding, see Bell v. Preferred Life Assurance Society, 320 U.S. 238, 64 S.Ct. 5, 88 L.Ed. 15 (1943), which serves as a logical counterpart to the conclusion of Bell v. Hood, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939 (1946), that the failure of a claim on the merits does not divest the federal court of jurisdiction. Bell v. Hood held that if a claim purportedly based on federal law is not frivolous, then the court has jurisdiction even if the plaintiff ultimately loses. See also Crowley Cutlery Co. v. United States, 849 F.2d 273 (7th Cir.1988). Similarly, if a complaint sets out a dispute substantial enough to come within the diversity jurisdiction, the plaintiff's inability to prove an injury exceeding the minimum amount in controversy does not affect jurisdiction. Mt. Healthy City School District Board of Education, 429 U.S. 274, 277, 97 S.Ct. 568, 571, 50 L.Ed.2d 471 (1977); Rosado v. Wyman, 397 U.S. 397, 405 n. 6, 90 S.Ct. 1207, 1214 n. 6, 25 L.Ed.2d 442 (1970); Pace Communications, Inc. v. Moonlight Design, Inc., 31 F.3d 587, 591-92 (7th Cir.1994). The penalty for recovering less than $50,000 is the denial of costs, see 28 U.S.C. Sec. 1332(b), not the loss of the whole judgment.

Requiring the plaintiff to prevail on the merits (or to recover more than $50,000) as a condition of federal jurisdiction would create two kinds of undesirable costs. First there would be a heightened cost of jurisdictional inquiry at the outset of the case. A judge would need to conduct proceedings, potentially complex, to determine whether the claim had sufficient substance to meet the jurisdictional requirements. In federal-question cases this inquiry would be a doppelganger of the inquiry on the merits. In diversity cases this inquiry would probe the gravity of the

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plaintiff's injury, calling for fact-finding proceedings that would presage the work of the jury. Yet the only purpose of making the inquiry would be to determine which court hears the case, a decision that ought to be taken swiftly. See Landreth Timber Co. v. Landreth, 471 U.S. 681, 696-97, 105 S.Ct. 2297, 2307, 85 L.Ed.2d 692 (1985); In re Continental Casualty Co., 29 F.3d 292 (7th Cir.1994). To make the "which court" decision expeditiously and cheaply, a judge must simplify the inquiry, and, as both St. Paul and Bell v. Hood observe, the judge must give the plaintiff the benefit of the doubt. The second kind of cost falls on the parties. If a judge dismisses a case for want of jurisdiction well into the litigation, the parties repair to state court--where they must bear the expense of litigation a second time, imposing unnecessary costs on the state tribunal in the process. By contrast, a conclusive decision on the merits, even if in the defendant's favor (or in the plaintiff's for less than $50,000), ends the controversy, promoting both public and private interests in achieving peace.

All that said, however, it does not follow that the court must accept the plaintiff's perspective and proceed to adjudicate on the merits every case in which the lawyers can keep straight faces when making their presentations. Such a latitudinarian approach creates other costs--particularly the evasion of jurisdictional lines drawn by Congress. Ross v. Inter-Ocean Insurance Co., 693 F.2d 659, 661 (7th Cir.1982). Policing the border of federal jurisdiction is a necessity in any system having both limited (national) and general (state) courts. Set the barriers to federal adjudication too low, and the distinction collapses--for lawyers have a remarkable ability to propose improbable contentions with poker faces. The size of the federal bench, and the resources made available for adjudication, depend on assumptions about the ease of entry. To adjudicate a case fully just because the plaintiff has something of an argument may be the cheapest way to dispose of the current dispute, but it has costs for other litigants, who must wait in a longer queue, and the greater ease of access to the federal forum will attract new claimants for the limited time and resources of the federal bench. So there is necessarily a conflict between ready access to a federal court (the better to reduce costs in the immediate case) and rigorously enforcing the jurisdictional limits in marginal cases (the better to protect the interests of litigants whose claims are squarely within federal jurisdiction).

Conflicts of this sort between individual and systemic interests rarely yield to bright-line tests. Consider the "legal certainty" language of St. Paul itself. Does this mean "certain" knowing only what the plaintiff chooses to reveal in the complaint? Or does it mean "certain" after the judge has invested the energy needed to learn about the facts and the law? Many a case starts out looking uncertain to the judge, but as time passes and knowledge grows the outcome looks more and more inevitable. When does the "legal certainty" test apply? Surely not solely to the state of ignorance that prevails at the moment of filing; the judge must be allowed some time for legal research and factual inquiry. The plaintiff bears the burden of satisfying the judge's curiosity. McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 56 S.Ct. 780, 80 L.Ed. 1135 (1936). As soon as we begin to ask how much time may be invested the quandary is upon us: that investment will be wasted if the case is dismissed and the parties return to state court, but unless some effort to dispel the original state of ignorance is allowed, the limits on federal jurisdiction are unenforceable.

Today's case illustrates the conflict. Alter insists that D & M's liability is unlimited by contract, and in the alternative that the contractual limit is $100,000. D & M says that the maximum is $5,000, shown in a clause of its Form C contract that was sent to one of Alter's representatives. Alter replies that the parties actually used Form B, with a $100,000 limit, and that there was no written contract for the Lind work, implying no limit. All questions of jurisdiction to one side, this dispute would set the stage for cross-motions for partial summary judgment. The judge may be able to resolve the dispute without trial, and resolution in favor of the $5,000 limit would drive a stake through the heart of the litigation (legal costs would make continuation

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prohibitive). The jurisdictional overtones add two things: the court gains under Rule 12(b)(1) some factfinding power that it lacks under Rule 56, see Crawford v. United States, 796 F.2d 924, 928-29 (7th Cir.1986), and a decision cast in jurisdictional terms does not foreclose renewal of the controversy in state court.

Several cases hold or imply that a court has the power to dismiss for want of jurisdiction after deciding that a limitation-of-liability clause (or a state statute) caps damages at less than the jurisdictional amount. Valhal Corp. v. Sullivan Associates, Inc., 44 F.3d 195, rehearing en banc denied, 48 F.3d 760 (3d Cir.1995); Sanchez-Arroyo v. Eastern Airlines, Inc., 835 F.2d 407 (1st Cir.1987); Pachinger v. MGM Grand Hotel Las Vegas, Inc., 802 F.2d 362 (9th Cir.1986) (disagreeing with Zacharia v. Harbor Island Spa, Inc., 684 F.2d 199 (2d Cir.1982)); Morris v. Hotel Riviera, Inc., 704 F.2d 1113 (9th Cir.1983); Sellers v. O'Connell, 701 F.2d 575 (6th Cir.1983); Kalpakian v. Oklahoma Sheraton Corp., 398 F.2d 243 (10th Cir.1968). See also...

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