Anthony v. Security Pacific Financial Services, Inc.

• Decision Date: 31 January 1996
• Docket Number: No. 95-1673,95-1673
• Citation: 75 F.3d 311
• Parties: Willie May ANTHONY, et al., Plaintiffs-Appellants, v. SECURITY PACIFIC FINANCIAL SERVICES, INCORPORATED, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 311

75 F.3d 311

Willie May ANTHONY, et al., Plaintiffs-Appellants, v. SECURITY PACIFIC FINANCIAL SERVICES, INCORPORATED, Defendant-Appellee.

No. 95-1673.

United States Court of Appeals Seventh Circuit.

Argued Oct. 26, 1995.

Decided Jan. 31, 1996.

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division, No. 94 C 2026--Paul E. Plunkett, Judge.

Kristi L. Browne, Lawrence Walner, Walner & Associates, Chicago, IL, Daniel A. Edelman, Cathleen M. Combs, Michelle A. Weinberg, O. Randolph Bragg, James O. Latturner (argued), Edelman & Combs, Chicago, IL, for plaintiff-appellant.

Phil C. Neal, Lawrence Benjamin (argued), Ralph T. Russell, Neal, Gerber & Eisenberg, Chicago, IL, for defendant-appellee.

Before BAUER, MANION, and KANNE, Circuit Judges.

MANION, Circuit Judge.

Willie May Anthony is a member of a class of forty-nine plaintiffs who claim that a bank used unfair and deceptive practices to induce them to borrow money for home improvements. Plaintiffs eventually settled with the bank. Because Security Pacific, which had purchased the loans, discarded some loan documents that plaintiffs needed under the settlement agreement, plaintiffs sued in federal court. The question here is whether these class action plaintiffs who seek compensatory and punitive damages under Illinois law meet the minimum jurisdictional amount for diversity jurisdiction. Because it is clear beyond a legal certainty that plaintiffs' claims will not exceed $50,000 as required by 28 U.S.C. § 1332, we affirm the district court's dismissal for lack of subject matter jurisdiction.

I.

A. Factual and Procedural Background

In a previous proceeding in Illinois state court plaintiffs filed a class action suit against Community Bank of Greater Peoria ("the Bank") alleging that the Bank induced them to take out home improvement loans by unfair and deceptive practices in violation of RICO and state tort law. See Security Pacific Financial Services v. Jefferson, 259 Ill.App.3d 914, 198 Ill.Dec. 240, 632 N.E.2d 299 (1st Dist.1994). Security Pacific became a party to the suit when it bought some of the loans originated by the Bank.

The underlying case against the Bank settled in August 1990. Although a named defendant, Security Pacific was not a party to that settlement agreement. Pursuant to that agreement the Bank agreed to pay all or part of the cost of repairing any defective work, or to pay cash directly to the claimants in lieu of paying for the repairs. To qualify for benefits under the settlement agreement an eligible class member had to demonstrate that the home improvement contractor did defective work, that the class member complained orally or in writing within one year of disbursement of the loan, and that the class member was current on his loan payments. Class members then had to submit claims for defective construction work to a construction claims evaluator. The settlement agreement provided that for purposes of the submissions required, the files of the Bank or any transferee institution (e.g., Security Pacific) "shall be made available" to the claims evaluator.

In late October 1993, more than three years after the parties executed the settlement agreement, the Bank contacted Security Pacific with a list of the borrowers on the loans which the Bank had sold to Security Pacific. The Bank requested documents concerning each loan. Security Pacific provided those documents in its possession, but it also explained to the construction claims evaluator that due to Security Pacific's document retention guidelines, much of the requested information was no longer available.

In March 1994, based on the partial documentation Security Pacific had provided, the claims evaluator granted in part or denied plaintiffs' claims. As provided for in the settlement agreement, each plaintiff requested a review of the evaluator's decision by an arbitrator. The arbitrator's decision was final and non-appealable.

Dissatisfied with the results of their claims, plaintiffs filed this case in federal court on March 31, 1994. In Count I they claimed Security Pacific interfered with the settlement agreement between them and the Bank because Security Pacific had knowledge of the agreement and its terms yet destroyed documents necessary for plaintiffs to receive benefits. Plaintiffs styled Count II as a claim for "destruction of evidence" and listed substantially the same allegations, but also alleged that Security Pacific knew its documents constituted evidence in the arbitration proceedings and tortiously interfered with each plaintiff's rights in those hearings. Count III sought to recover attorneys' fees. The alleged basis of jurisdiction for this suit was diversity of citizenship under 28 U.S.C. § 1332. The complaint did not allege facts from which the amount of each plaintiff's compensatory damages could be ascertained. It also sought punitive damages.

In response, Security Pacific filed a Fed.R.Civ.P. 12(b)(1) motion to dismiss plaintiffs' case for lack of subject matter jurisdiction because the claims did not reach the $50,000 minimum. With permission from the district court Security Pacific conducted discovery regarding plaintiffs' alleged jurisdictional facts and the factual bases of plaintiffs' purported claims, including their claim for punitive damages. After reviewing plaintiffs' responses, Security Pacific submitted an affidavit to the district court which contained a list of the maximum allowable benefits that each of the plaintiffs could have received under the settlement agreement. Of the forty-nine plaintiffs, the maximum allowable benefits of six could not be determined. Of the remaining forty-three, thirty-five stood to recover under $4,000. One plaintiff, Joyce Covington, could have received $10,232.39; another couple, Robert and Bernice Hamilton, stood to receive $9,430.50. The remaining six could receive between $4,210 and $7,750. The average amount of the forty-three plaintiffs whose maximum allowable benefit could be determined was $2,881.65. The plaintiffs' only submission in opposition to Security Pacific's motion to dismiss was the declaration of one of its attorneys which summarized the nature of their claims. They did not proffer any evidence to contradict Security Pacific's rendition of the jurisdictional facts, including the average maximum allowable benefit figure.

B. The District Court Opinion

The district court concluded that plaintiffs had failed to adduce competent proof that the amount in controversy in this suit exceeded $50,000. It therefore granted Security Pacific's motion to dismiss.

First, the district court considered plaintiffs' spoliation of evidence claim. It reasoned that because Illinois law had not recognized a separate cause of action for spoliation of evidence, and it could not foresee that Illinois courts would create such a tort, it appeared to a "legal certainty" that the plaintiffs would not receive any damages on Count II. As to Count I, the tortious interference with contract claim, the district court found no evidence to support plaintiffs' assertion that Security Pacific knowingly destroyed documents. The court also noted that plaintiffs had failed to allege conduct by Security Pacific which rose to the level of "outrageous" and would thereby qualify for punitive damages under Illinois law. Thus, although the parties were completely diverse (plaintiffs from Illinois and Missouri, defendant Security Pacific a citizen of Delaware and California), the district court dismissed the complaint for lack of subject matter jurisdiction because plaintiffs had not pleaded an amount in controversy exceeding $50,000 as required for diversity jurisdiction under 28 U.S.C. § 1332. This court's jurisdiction over the appeal of the district court's order is proper pursuant to 28 U.S.C. § 1291.

II.

This court reviews de novo the dismissal of a complaint for lack of subject matter jurisdiction. Health Cost Controls v. Skinner, 44 F.3d 535, 536 (7th Cir.1995); Gammon v. GC Services Ltd. Partnership, 27 F.3d 1254, 1256 (7th Cir.1994). However, under a Rule 12(b)(1) motion we defer to the district court in the resolution of jurisdictional factual issues, which we review for abuse of discretion. Pratt Central Ltd. Partnership v. Dames & Moore, Inc., 60 F.3d 350, 354 (7th Cir.1995).

" 'Where both actual and punitive damages are recoverable under a complaint each must be considered to the extent claimed in determining the jurisdictional amount.' " Cadek v. Great Lakes Dragaway, Inc., 58 F.3d 1209, 1211 (7th Cir.1995) (quoting Bell v. Preferred Life Society, 320 U.S. 238, 240, 64 S.Ct. 5, 6, 88 L.Ed. 15 (1943), and Sharp Elec. Corp. v. Copy Plus, Inc., 939 F.2d 513, 515 (7th Cir.1991)). Each of the plaintiffs in this case stands to recover much less than the requisite $50,000: even Joyce Covington, who could glean the greatest compensatory damages of all the plaintiffs, must recover nearly $40,000 in punitive damages to exceed the statutory requirement. ¹ The plaintiffs in this case would have to recover on average at least $47,118.36 in punitive damages to satisfy 28 U.S.C. § 1332. Thus, a punitive damages recovery is essential in this case for diversity jurisdiction.

"Where punitive damages are required to satisfy the jurisdictional requirement in a diversity case, a two-part inquiry is necessary. The first question is whether punitive damages are recoverable as a matter of state law. If the answer is yes, the court has subject matter jurisdiction unless it is clear 'beyond a legal certainty that the plaintiff would under no circumstances be entitled to recover the jurisdictional amount.' " Cadek, 58 F.3d at 1212 (quoting Risse v. Woodard, 491 F.2d 1170, 1173 (7th Cir.1974)). When a claim for punitive damages makes up the bulk of the amount in controversy, and may even have been colorably asserted solely to confer jurisdiction, we should scrutinize that claim...