Barbers, Hairstyling For Men & Women, Inc. v. Bishop

• Decision Date: 26 January 1998
• Docket Number: No. 97-2360,97-2360
• Citation: 132 F.3d 1203
• Parties: The BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC., et al., Plaintiffs-Appellants, v. Lela BISHOP, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1203

132 F.3d 1203

The BARBERS, HAIRSTYLING FOR MEN & WOMEN, INC., et al., Plaintiffs-Appellants, v. Lela BISHOP, et al., Defendants-Appellees.

No. 97-2360.

United States Court of Appeals, Seventh Circuit.

Argued Dec. 5, 1997.

Decided Dec. 30, 1997.

Rehearing and Suggestion for Rehearing

En Banc Denied Jan. 26, 1998.

William J. McKenna, Jr., Hopkins & Sutter, Chicago, IL, Kirk W. Reilly (argued), Steven A. Mogck, Gray, Plant, Mooty, Mooty & Bennett, Minneapolis, MN, for Plaintiffs-Appellants.

Jacquelyn F. Kidder, Ross & Hardies, Chicago, IL, David M. Duree (argued), Robert L. Carter, Reinert & Duree, St. Louis, MO, for Defendants-Appellees.

Before EASTERBROOK, DIANE P. WOOD, and EVANS, Circuit Judges.

EASTERBROOK, Circuit Judge.

Some operators of We Care Hairp salons began a class action in state court alleging that their franchisors violated Illinois law. The suit could not have been removed under 28 U.S.C. § 1441 because it is not within the federal courts' original jurisdiction: it arises under state rather than federal law, and the parties are not of completely diverse citizenship. Seeking to make doubly sure that they would remain in state court, the plaintiffs' complaint alleges:

The claims for actual damages and punitive damages, treble damages and attorneys fees in the aggregate, under all counts of this Complaint against all Defendants, when combined, do not exceed the sum of $74,950.00 for each franchisee.

Defendants did not attempt to remove the case. But some have filed two original actions in federal court under the Federal Arbitration Act. They want the court to compel the franchisees to arbitrate rather than litigate their disputes. A demand for arbitration based on a clause in a domestic contract does not arise under federal law, see Minor v. Prudential Securities, Inc., 94 F.3d 1103, 1105 (7th Cir.1996), so the suits must be dismissed unless 28 U.S.C. § 1332 provides jurisdiction.

The first case was assigned to Judge Gottschall, who held that the requirements of the diversity jurisdiction had been satisfied. We Care Hair Development, Inc. v. Engen, No. 97 C 2579 (N.D.Ill.1997). The second case, by firms claiming to be the original franchisor's successors in interest, was assigned to Judge Shadur, who dismissed for lack of federal jurisdiction in light of the damages cap in the state-court complaint. The Barbers, Hairstyling for Men and Women, Inc. v. Bishop, 962 F.Supp. 124 (N.D.Ill.1997). Judge Gottschall has since enforced the arbitration clauses and enjoined prosecution of the pending state case. Earlier the state trial judge had ruled that the arbitration clauses are unenforceable under the public policy of Illinois; that ruling was on appeal when the injunction issued. If Judge Shadur is right, the state case should continue unimpeded. The appeal from Judge Shadur's order has reached us first, and we have endeavored to act swiftly in order to eliminate the conflict within the district court.

Judge Shadur concluded that the complaint before him failed to meet either the complete-diversity or the amount-in-controversy requirements. The former deficiency was cured in an amended exhibit to the complaint. The latter deficiency Judge Shadur deemed insuperable, ruling that the $74,950 amount specified in the state court complaint must be respected unless it is "clear to a legal certainty" that the franchisees will recover more. Barbers has not tried to show that it is certain that they will do so. Although Barbers did contend that money damages are not the only relief in prospect--that the state court may award equitable remedies such as rescission that are worth more than $50 per plaintiff--Judge Shadur concluded that the state-court complaint does not seek equitable relief. Judge Gottschall read the state-court complaint differently and added that because the franchisees can amend their complaint any damages cap is illusory. More important from Judge Gottschall's perspective, however, is the fact that the franchisors are the plaintiffs in the federal suits and therefore receive the benefit of the doubt when determining the amount in controversy.

Accepted wisdom has it that, when deciding whether a claim meets the minimum amount in controversy, the plaintiff's evaluation of the stakes must be respected. "It must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal." St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 289, 58 S.Ct. 586, 590, 82 L.Ed. 845 (1938). See also Pratt Central Park Limited Partnership v. Dames & Moore, Inc., 60 F.3d 350 (7th Cir.1995). A corollary remarked in St. Paul Mercury is that a plaintiff in state court may prevent removal by committing to accept less than the federal jurisdictional minimum. St. Paul Mercury was decided when the demands in pleadings were conclusive. Judge Shadur held that a limited financial demand in a pleading precludes removal even when amendment is possible--indeed, even when state law, following the approach of Fed. R. Civ. P. 54(c), treats the sum in a pleading as irrelevant. Under Rule 54(c), "Except as to a party against whom a judgment is entered by default, every final judgment shall grant the relief to which the party in whose favor it is rendered is entitled, even if the party has not demanded such relief in the party's pleadings." Many states, of which Illinois is one, see 735 ILCS 5/2-604, follow the federal lead and permit parties to recover more than their pleadings seek. Indeed, § 5/2-604 actually forbids a financial demand in any complaint for personal injury, treating such figures as addressed only to the newspapers. The prohibition does not cover commercial cases, so the franchisees were entitled to include the $74,950 ad damnum in their complaint, but under Illinois law it is ineffectual.

What effect to give to non-binding pleadings is a subject on which this circuit has not yet come to rest. See Chase v. Shop 'N Save Warehouse Foods, Inc., 110 F.3d 424 (7th Cir.1997); Shaw v. Dow Brands, Inc., 994 F.2d 364 (7th Cir.1993); In re Shell Oil Co., 966 F.2d 1130, after remand, 970 F.2d 355 (7th Cir.1992). These cases recognize that a binding cap on damages prevents removal, and that by the time a case arrives in federal court it is too late for the plaintiff to foreclose federal jurisdiction by agreeing to collect less than the jurisdictional amount. Beyond that, the standard is hazy. May the defendant remove if it establishes by a preponderance of the evidence that the plaintiff is likely to recover more? Chase suggests, but does not hold, that the answer is yes. One passage in Shaw might be read to support the proposition that even a legally-irrelevant figure in a plaintiff's complaint precludes removal unless the plaintiff is "legally certain" to recover more than the jurisdictional minimum, see 994 F.2d at 366, but the only citation was to the first opinion in Shell, which said no such thing. Instead Shell observed that a panel of the fifth circuit had so held--but that this decision had been vacated by the fifth circuit en banc. 966 F.2d at...