798 F.2d 1075 (7th Cir. 1986), 85-1833, Sarnoff v. American Home Products Corp.

Docket Nº:85-1833, 85-1880, 85-2547 and 85-2576.
Citation:798 F.2d 1075
Party Name:Norton SARNOFF and Carl Fletcher, Plaintiff-Appellee and Plaintiff-Appellant, v. AMERICAN HOME PRODUCTS CORPORATION, Defendant-Appellant-Appellee.
Case Date:August 20, 1986
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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798 F.2d 1075 (7th Cir. 1986)

Norton SARNOFF and Carl Fletcher, Plaintiff-Appellee and




Nos. 85-1833, 85-1880, 85-2547 and 85-2576.

United States Court of Appeals, Seventh Circuit

August 20, 1986

Argued April 7, 1986.

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Lewis Perkiss, New York City, for defendant-appellant-appellee.

Robert K. Blain, Altheimer & Gray, Chicago, Ill., for plaintiff-appellee and plaintiff-appellant.

Before CUDAHY, POSNER and EASTERBROOK, Circuit Judges.

POSNER, Circuit Judge.

This breach of contract suit, brought in federal court under the diversity jurisdiction, pits Norton Sarnoff and Carl Fletcher against their former employer, American Home Products Corporation. Fletcher was dismissed from the case on jurisdictional grounds but Sarnoff obtained summary judgment, 607 F.Supp. 77 (N.D.Ill.1985), and later an award of attorney's fees and an order directing American Home Products to issue him the shares of stock that he had sued for. Fletcher appeals from his dismissal and American Home Products from the award of stock and attorney's fees to Sarnoff.

Fletcher and Sarnoff were executives of an Illinois corporation, E-Z Por, which

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American Home Products bought in 1979. The headquarters of American Home Products is in New York, but the two executives remained in Illinois. In 1981 American Home Products, which had an incentive plan under which a committee of outside directors made awards to outstanding employees, wrote Fletcher and Sarnoff that the committee had awarded them 150 and 600 shares of stock (respectively) for 1980, to be delivered in 10 annual installments beginning at the end of their employment. The letter told the recipient to read the conditions of the award as disclosed in the incentive award plan, a copy of which was enclosed; stated that any legal questions arising under the plan would be decided under the law of New York; and requested the recipient to sign and return a copy of the letter in order to signify acknowledgment of the notification and "acceptance of New York Law as governing Plan interpretations." One of the conditions of the plan was that if the recipient left the employ of American Home Products and became an officer, director, employee, owner, or partner of an entity that "conducts a business in competition with the Company or renders a service (including, without limitation, advertising agencies and business consultants) to competitors with any portion of the business of the Company," he would forfeit the portion of the award not yet delivered to him. To get the entire award the former employee would thus have to comply with the no-competition condition for 10 years after he left American Home Products.

Fletcher and Sarnoff signed and returned the copies of the letter and shortly afterward quit American Home Products. Sarnoff formed and Fletcher became an employee of Ensar Corporation, which sells housewares, including bottle openers and can openers. From Fletcher and Sarnoff's answers to a questionnaire that American Home Products circulated in December 1981 to former employees who had received awards under the incentive plan, the committee concluded that the two of them (along with 11 others out of a total of 400 recipients) had forfeited their awards, because Ensar's openers competed with housewares made by American Home Products. This determination was made in January 1982, before Sarnoff and Fletcher had received the first installments of their awards. Their suit charges that the no-competition condition is invalid and in any event was misapplied; the district judge agreed with the first contention, so did not have to consider the second. But he dismissed Fletcher on jurisdictional grounds, and we shall first consider whether that dismissal was correct.

The joint complaint of Fletcher and Sarnoff, filed in February 1983, alleges that "the matter in controversy exceeds the sum or value of $10,000 exclusive of interests and costs." Except for an unimportant change in punctuation, this is the language in which 28 U.S.C. Sec. 1332(a) defines the minimum amount in controversy requirement in diversity cases. Yet actually the complaint contains a latent ambiguity; for when there is more than one plaintiff each one's claim must exceed the statutory minimum. Hixon v. Sherwin-Williams Co., 671 F.2d 1005, 1007-09 (7th Cir.1982). The claims cannot be aggregated, as the complaint in this case appears to do. In October 1984, Fletcher and Sarnoff moved for summary judgment and in their motion stated that as of that time the shares Fletcher was seeking were worth a total of $8,579.36 and the shares Sarnoff was seeking $34,467.08, and that these amounts plus attorney's fees were the plaintiffs' damages. The district judge advised the parties in December that "Fletcher could be dismissed for failure to allege the minimum jurisdictional amount." 607 F.Supp. at 81 n. 5. In response, the parties stipulated that the court had jurisdiction over Fletcher as a "pendent party." As the judge noted, however, the parties could not confer federal jurisdiction by stipulation, and he went on to hold that Fletcher could not be retained in the case under the pendent party concept.

Although it has never been determined whether Fletcher's claim was worth more than $10,000, we think his response to the

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judge's threat to dismiss forfeited his right to maintain suit under section 1332(a). Fletcher could have responded to the judge by pointing out that the relevant time for determining whether the requirement was satisfied was when the complaint was filed, not almost two years later when the motion for summary judgment was filed. See, e.g., Sellers v. O'Connell, 701 F.2d 575, 578 (6th Cir.1983); 14A Wright, Miller & Cooper, Federal Practice and Procedure Sec. 3702, at p. 28 (2d ed. 1985). He could have pointed out that the complaint asked for attorney's fees under Ill.Rev.Stat. ch. 13, Sec. 13, and that "where a litigant has a right, based on contract, statute, or other legal authority, to an award of attorney's fees if he prevails in the litigation, a reasonable estimate of those fees may be included in determining whether the jurisdictional minimum is satisfied. Batts Restaurant, Inc. v. Commercial Ins. Co. of Newark, 406 F.2d 118, 120 (7th Cir.1969)." Ross v. Inter-Ocean Ins. Co., 693 F.2d 659, 661 (7th Cir.1982). The district judge awarded Sarnoff almost $18,000 in attorney's fees and costs; presumably most of this amount was for attorney's fees. If Fletcher had won (and if the attorney's fee statute is applicable in a case of this sort), he too might have been entitled to a reasonable attorney's fee, and maybe it would have been large enough to carry him over the $10,000 hump.

That depends, however, on what the shares were worth when the suit was filed, and also on whether the value of the shares approximates the amount in controversy between Fletcher and the defendant. It may not. The damages estimated in the motion for summary judgment were derived by multiplying the price of American Home Products' stock when the motion was filed by the total number of shares to which the plaintiffs believed themselves entitled. But the plaintiffs have never said they were entitled to all the shares at once. At best, they were entitled to them in equal annual installments over 10 years; this was what the district judge, who in the end granted specific performance rather than awarding damages, ordered in Sarnoff's suit. The present value of Fletcher's shares may have been a lot less than $8,600 when the complaint was filed. When what is claimed is a future benefit, the valuation of the claim for purposes of jurisdiction (as for purposes of computing the lump sum of damages to which a winning plaintiff is entitled in compensation for losing the future benefit) requires discounting the future benefit to its present value. See Weinberger v. Wiesenfeld, 420 U.S. 636, 642 n. 10, 95 S.Ct. 1225, 1230 n. 10, 43 L.Ed.2d 514 (1975); 14A Wright, Miller & Cooper, supra, Sec. 3710 at p. 172. At a discount rate of 10 percent the present value of $8,600 received in equal annual installments over 10 years is only $5,284, though apparently by the time the plaintiffs got around to suing they were already owed (assuming that the condition not to compete was either invalid or inapplicable) two installments of stock, and this would raise the present value in the example to $6,308. A further wrinkle is that prejudgment interest may sometimes count...

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