916 F.2d 337 (6th Cir. 1990), 89-6380, Klepper v. First American Bank

Docket Nº:89-6380.
Citation:916 F.2d 337
Party Name:Irwin KLEPPER, Plaintiff-Appellant, v. FIRST AMERICAN BANK, Defendant-Appellee.
Case Date:October 04, 1990
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

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916 F.2d 337 (6th Cir. 1990)

Irwin KLEPPER, Plaintiff-Appellant,


FIRST AMERICAN BANK, Defendant-Appellee.

No. 89-6380.

United States Court of Appeals, Sixth Circuit

October 4, 1990

Argued July 30, 1990.

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Gordon J. Dill, Jr. (argued), Ashland, Ky. (Dill & Scott, Ashland, Ky., on the brief), for plaintiff-appellant.

John A. West (argued), Lexington, Ky. (D. Barry Stilz, and Greenebaum Doll & McDonald, Lexington, Ky., on the brief), for defendant-appellee.

Before MILBURN, GUY and TIMBERS, [*] Circuit Judges.

TIMBERS, Circuit Judge:

Appellant Irwin Klepper appeals from a summary judgment in favor of appellee First American Bank ("First American") entered October 13, 1989 in the Eastern District of Kentucky, Henry R. Wilhoit, Jr., District Judge, dismissing the complaint.

The court held that Klepper's claim for compensatory damages was barred by a previous recovery in a related arbitration proceeding. Klepper's second claim for punitive damages was rejected as insufficient under Kentucky law. Having disposed of the compensatory and punitive damage claims, the court held that plaintiff's remaining claim of $5,000 for incidental damages and attorney's fees was inadequate to support subject matter jurisdiction.

On appeal, Klepper contends that the court erred in dismissing the claims for compensatory and punitive damages. He further contends that the court did have subject matter jurisdiction to hear the claims.

For the reasons which follow, we affirm that part of the judgment which dismissed the claims for compensatory and punitive damages, but we remand the case with respect to the remaining claim for a determination on the merits.


We shall summarize only those facts believed necessary to an understanding of the issues raised on appeal.

In 1980, Klepper formed a partnership with David Osborne, his son-in-law. Klepper was a limited partner with a twenty-percent interest, while Osborne was the general partner who owned an eighty-percent interest. The partnership was formed to hold title to certain commercial real estate in Ashland, Kentucky. The partnership acquired property which later was occupied by First American. The relationship between the two partners deteriorated when Osborne and Klepper's daughter were divorced. Subsequently, Osborne entered into negotiations with First American for the sale of the partnership property.

Osborne and First American consummated an agreement in December 1988. Osborne conveyed real estate owned by the partnership to First American for $3.5 million. Concurrently, First American entered into a contract with Debcon, Inc. ("Debcon"), a construction company wholly owned by Osborne. The construction contract provided that Debcon could earn up to $400,000 over a three year period for certain unspecified projects. Under this same contract, Debcon was guaranteed a net profit of $200,000, whether or not work actually was performed for First American.

In August 1988, Osborne commenced an arbitration proceeding against Klepper based on unrelated partnership matters. Upon learning of the construction contract with Debcon, Klepper asserted a counterclaim in that same arbitration. He alleged that Osborne breached his fiduciary duty to the partnership by entering into the construction contract with First American. Klepper believed that the contract price of the second agreement actually was consideration for the sale of the partnership's real estate. The arbitrators awarded Klepper $80,000, which represented his twenty-percent share of the construction contract with Debcon. The arbitrators then deducted from the $80,000 award what Klepper owed Osborne which left a balance for Klepper of $17,315.45. The award later was confirmed by the district court, and in this proceeding, Osborne has acknowledged that he has received full payment of the award. Osborne appealed the confirmation

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of the award to this Court. On May 8, 1990, the district court's judgment was affirmed. Klepper v. Osborne, 902 F.2d 33 (6th Cir.1990).

On February 28, 1989, Klepper filed the instant complaint against First American. It alleged that First American tortiously interfered with the partnership agreement and further conspired with Osborne to defraud Klepper of his share of the construction contract with Debcon. The complaint sought $80,000 in compensatory damages plus attorney's fees and expenses totaling $5,000, and punitive damages of $500,000 due to the Bank's alleged "intentional, oppressive, fraudulent and malicious" conduct.

First American filed a motion for summary judgment asserting that, since Klepper already had recovered in the arbitration proceeding against Osborne the full amount which was owed to him, he was collaterally estopped from recovering compensatory damages in this action. In addition, First American asserted that Klepper could not recover punitive damages as a matter of law; and accordingly, that claim could not be used to satisfy the jurisdictional amount required for maintaining diversity actions in the federal court. First American accordingly asserted that the remaining claim for attorney's fees and incidental costs must be dismissed because the court lacked subject matter jurisdiction.

In a judgment entered October 13, 1989, the court granted First American's motion for summary judgment and dismissed Klepper's complaint. Since Klepper received one recovery in the arbitration against Osborne, the court held that the compensatory damage claim should be dismissed. The punitive damage claim was dismissed because Klepper failed to offer "clear and convincing proof" that First American acted with "oppression, fraud and malice" as required under Kentucky law. Having dismissed those claims, the court held that the remaining claim of $5,000 was insufficient in amount to confer subject matter jurisdiction.


We turn first to the question whether the district court had subject matter jurisdiction to hear the claim for punitive damages and the further claim for incidental damages and attorney's fees. Since summary judgment was granted on the punitive damage claim, the district court apparently found it had jurisdiction to hear that claim. 10 Wright, Miller & Kane, Federal Practice and Procedure Sec. 2713 (1983) ("If the court has no jurisdiction, it has no power to enter a judgment on the merits and must dismiss the action.").

The district court, however, held that it did not have jurisdiction to hear the claim for incidental damages and attorney's fees. It reasoned that, after granting summary judgment in favor of First American on the claims for compensatory and punitive damages, the remaining claim failed to satisfy the jurisdictional amount requirement of $10,000, which was the required amount in effect at the time the complaint was filed. 28 U.S.C. Sec. 1332(a) (1982). To the extent that First American asserts that the district court did not have jurisdiction over the claims for punitive damages or incidental damages and attorney's fees, we disagree for the reasons set forth below.

In a federal diversity action, the amount alleged in the complaint will suffice unless it appears to a legal certainty that the plaintiff in good faith cannot claim the jurisdictional amount. St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-89, 58 S.Ct. 586, 590, 82 L.Ed. 845 (1938). When determining whether the amount in controversy has been satisfied, we examine the complaint at the time it was filed. Worthams v. Atlanta Life Ins. Co., 533 F.2d 994, 997 (6th Cir.1976). Jurisdiction, once established, cannot be destroyed by a subsequent change in events. Id. For example, "even if part of the claim is dismissed on a motion for summary judgment, thereby reducing plaintiff's claim below the requisite amount, the court retains jurisdiction to adjudicate the balance of the claim." 14A Wright, Miller & Cooper, Federal Practice and Procedure Sec. 3702 (1985). It is with these well-settled principles in

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mind that we review the holdings of the district court.

First, we review the district court's jurisdictional holding as to the punitive damage claim. In Kentucky, punitive damages are governed solely by statute. Ky.Rev.Stat. Sec. 411.184(5). The statute provides that "a plaintiff shall recover punitive damages only upon proving, by clear and convincing evidence, that the defendant from whom such damages are sought acted toward the plaintiff with oppression, fraud or malice." Id. at Sec. 411.184(2). Klepper's complaint described the real estate transaction between Osborne and First American. He alleged that First American interfered with his...

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