Expeditions v. The Estate Of Jason Lhotka By

• Citation: 599 F.3d 1102
• Decision Date: 31 March 2010
• Docket Number: No. 09-15069.,09-15069.
• Parties: GEOGRAPHIC EXPEDITIONS, INC., Petitioner-Appellant, v. The ESTATE OF Jason LHOTKA by Elena LHOTKA, executrix; Sandra Menefee, Respondents-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

599 F.3d 1102

GEOGRAPHIC EXPEDITIONS, INC., Petitioner-Appellant, v. The ESTATE OF Jason LHOTKA by Elena LHOTKA, executrix; Sandra Menefee, Respondents-Appellees.

No. 09-15069.

United States Court of Appeals

Ninth Circuit.

Argued and Submitted: March 11, 2010.

Filed: March 31, 2010.

COPYRIGHT MATERIAL OMITTED

Rodney E. Gould, Rubin Hay & Gould P.C. for Geographic Expeditions, Inc., petitioner-appellant.

Daniel U. Smith, Law Office of Daniel U. Smith, David J. Bennion, Law Offices of David J. Bennion, for the Estate of Lhotka and Sandra Menefee, respondents-appellees.

Appeal from the United States District Court for the Northern District of California, Susan Illston, District Judge, Presiding. D.C. No. 3:08-cv-04624-SI.

Before BETTY B. FLETCHER RICHARD R. CLIFTON and CARLOS T BEA, Circuit Judges.

BEA, Circuit Judge:

Geographic Expeditions, Inc. ("GeoEx") appeals the district court's dismissal of GeoEx's petition to compel arbitration for lack of subject matter jurisdiction. Fed R.Civ.P. 12(b)(1). GeoEx contends subject matter jurisdiction exists under 28 U.S.C. § 1332(a), which provides federal jurisdiction over disputes between citizens of different states in which the amount in controversy exceeds $75,000 exclusive of interest and costs. The district court held that GeoEx had to establish by a preponderance of the evidence that the amount in controversy exceeded $75,000, and that because a clause in the arbitration agreement limited damages to $16,831, GeoEx could not meet its burden. We conclude the district court erred both when it applied a preponderance of the evidence standard and when it held that the liability cap precludes federal jurisdiction. We therefore reverse and remand for further proceedings.

I. Factual and Procedural Background¹

The underlying dispute in this case arose out of a series of events on Mount Kilimanjaro in October 2007. GeoEx, a California corporation with its principal place of business in San Francisco, leads guided expeditions for profit to variousdestinations throughout the world. Jason Lhotka, who was 37 years old, and his mother, Sandra Menefee, both citizens of Colorado, purchased tickets for a GeoEx expedition to Mount Kilimanjaro. As part of their registration for the trip, Lhotka and Menefee each signed a GeoEx trip participant contract, which included a provision requiring them to submit any dispute they might have with GeoEx to binding arbitration. The agreement further provided that the amount of recovery would be capped at "the sum of the land and air cost of my trip with GeoEx, " which the parties agree is $16,831.²

The expedition began in Africa on September 29, 2007, and was to last until October 8, 2007. On October 1, Jason Lhotka began to suffer difficulty sleeping and experienced sudden onset of severe fatigue—early symptoms of high altitude sickness. On October 2, Jason Lhotka told the head expedition guide he needed to go back down the mountain because of his fatigue. He began his descent, accompanied by a GeoEx assistant guide. Although supplemental oxygen was available, it was not administered to Lhotka, nor was a rapid descent ordered, although such a route was also available. Both of these procedures are proper protocol for a person with high altitude sickness. On October 4, while descending the mountain, Lhotka died.

In July 2008, Lhotka's estate and his survivors filed suit in San Francisco Superior Court alleging, inter alia, that Lhotka's death from high altitude sickness was caused by the negligence of GeoEx employees in failing to recognize and treat Lhotka's symptoms. In accord with California Code of Civil Procedure § 425.10(b), the state court complaint did not specify the amount of damages sought. In September 2008, GeoEx filed with the state court a motion to compel arbitration pursuant to the parties' arbitration agreement. In December 2008, the state trial court denied GeoEx's motion to compel arbitration; it held the arbitration agreement unconscionable and thus unenforceable. GeoEx appealed, and, on January 29, 2010, the California Court of Appeal affirmed. GeoEx then filed a petition for review with the California Supreme Court, which is currently pending.³ In October 2008—after filing in state court its motion to compel arbitration, but before the state trial court had ruled on the motion— GeoEx filed in federal district court the current petition to compel arbitration. The district court held that GeoEx had the burden to prove by a preponderance of the evidence that the amount in controversy exceeded $75,000 and that, because of the contractual damages limitation, recovery was limited to $16,831. Because GeoEx could not carry its assigned burden of proof, the district court dismissed GeoEx's petition under Rule 12(b)(1) for lack of subject matter jurisdiction. This appeal from the order of dismissal timely followed.

II. Standard of Review

We review de novo a district court's dismissal for lack of subject matter jurisdiction. Crum v. Circus Circus Enters., 231 F.3d 1129, 1130 (9th Cir.2000).

III. Analysis

A. Burden of Proof

The district court erred when it held GeoEx had to prove by a preponderance of the evidence that the amount in controversy exceeded $75,000. GeoEx filed a petition to compel arbitration under § 4 of the Federal Arbitration Act ("FAA"). Section 4 provides:

A party aggrieved by the alleged failure neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under title 28, in a civil action... of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement.

9 U.S.C. § 4. As the Supreme Court has explained, § 4 "bestows no federal jurisdiction but rather requires for access to a federal forum an independent jurisdictional basis over the parties' dispute." Vaden v. Discover Bank, —U.S.—, 129 S.Ct 1262, 1271, 173 L.Ed.2d 206 (2009). Thus, a federal court has jurisdiction over a petition to compel arbitration if the federal court would have jurisdiction over the underlying substantive dispute-here the negligence action filed by Lhotka's estate and survivors. See id. at 1273.

A federal court has jurisdiction over the underlying dispute if the suit is between citizens of different states, ⁴ and the amount in controversy exceeds $75,000 exclusive of interest and costs (i.e., diversity jurisdiction). 28 U.S.C. § 1332(a). Where the plaintiff originally files in federal court, "the amount in controversy is determined from the face of the pleadings." Crum, 231 F.3d at 1131 (9th Cir. 2000). The amount in controversy alleged by the proponent of federal jurisdictiontypically the plaintiff in the substantive dispute—controls so long as the claim is made in good faith. Id. "To justify dismissal, it must appear to a legal certainty that the claim is really for less than the jurisdictional amount." Id. (internal quotation omitted). This is called the "legal certainty" standard, which means a federal court has subject matter jurisdiction unless "upon the face of the complaint, it is obvious that the suit cannot involve the necessary amount." St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 292, 58 S.Ct. 586, 82 L.Ed. 845 (1938).

On the other hand, in a case that has been removed from state court to federal court under 28 U.S.C. § 1441 on the basis of diversity jurisdiction, the proponent of federal jurisdiction—typicallythe defendant in the substantive dispute— has the burden to prove, by a preponderance of the evidence, that removal is proper. See Gaus v. Miles, Inc., 980 F.2d 564, 567 (9th Cir.1992). The preponderance of the evidence standard applies because removal jurisdiction ousts state-court jurisdiction and "must be rejected if there is any doubt as to the right of removal in the first instance." Id. at 56(5. This gives rise to a "strong presumption against removal jurisdiction [which] means that the defendant always has the burden of establishing that removal is proper." Id. For these reasons, "[w]e strictly construe the removal statute against removal jurisdiction." Id.⁵

Here, the district court cited Sanchez v. Monumental Life Ins. Co., 102 F.3d 398, 404 (9th Cir.l996)-a removal case—and held that, because Lhotka's estate did not specify damages in its state court complaint, GeoEx had the burden to prove the amount in controversy was satisfied by a preponderance of the evidence. This was error, however, because GeoEx did not remove the case from state to federal court and then file a motion to compel arbitration. Rather, GeoEx commenced an action in federal court by filing a petition to compel arbitration. Because a parallel action to compel arbitration commenced in federal court does not oust state court jurisdiction, the presumption against removal jurisdiction and attendant preponderance of the evidence standard, found in removal cases, do not apply.⁶ Thus, we hold that the legal certainty standard applies when a party files a petition in federal court to compel arbitration, even when the opposing party is suing the federal petitioner in state court. Two other circuits have come to the same conclusion. E.g., Doctor's Assocs., Inc. v. Hamilton, 150 F.3d 157 (2d Cir.1998); Woodmen of the World Life Ins. Soc'y v. Manganaro, 342 F.3d 1213 (10th Cir.2003).

Under the legal certainty standard, the good faith allegations in GeoEx's petition as to the amount in controversy suffice to establish the jurisdictional amount unless it appears legally certain that the amount in dispute is $75,000 or less. Here GeoEx's petition alleges that Lhotka's damages in the state court action are reasonably in excess of $75,000. GeoEx bases this allegation on the fact that Lhotka's state court complaint requests damages: (1) for the alleged wrongful death of Jason Lhotka, who was 37 years...