Shanaghan v. Cahill

• Decision Date: 28 June 1995
• Docket Number: No. 94-1628,94-1628
• Citation: 58 F.3d 106
• Parties: Kathleen A. SHANAGHAN, Plaintiff-Appellant, v. John D. CAHILL; Cahill & Associates, Incorporated, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 106

58 F.3d 106

64 USLW 2020

Kathleen A. SHANAGHAN, Plaintiff-Appellant, v. John D. CAHILL; Cahill & Associates, Incorporated,

Defendants-Appellees.

No. 94-1628.

United States Court of Appeals, Fourth Circuit.

Argued April 6, 1995.

Decided June 28, 1995.

ARGUED: David Clifton Schroeder, Murphy, McGettigan, Richards & West, P.C., Alexandria, VA, for Appellant. David Rosenblum, Rosenblum & Rosenblum, P.C., Alexandria, VA, for Appellees.

Before WILKINSON and WILKINS, Circuit Judges, and PHILLIPS, Senior Circuit Judge.

Reversed and remanded by published opinion. Judge WILKINSON wrote the opinion, in which Judge WILKINS and Senior Judge PHILLIPS joined.

OPINION

WILKINSON, Circuit Judge:

This appeal presents the question whether the district court properly dismissed plaintiff's case for lack of jurisdiction because of an insufficient amount in controversy under 28 U.S.C. Sec. 1332(a). The trial court felt compelled to dismiss all of plaintiff's claims when one count was eliminated and the remaining liquidated damages totalled less than fifty thousand dollars. Because we think the district court had discretion to retain the remaining counts, we reverse and remand the case for an appropriate exercise of that discretion.

I.

In 1993, Kathleen Shanaghan brought this diversity action in Virginia against John Cahill and his company Cahill & Associates, Inc., seeking to recover on three separate debts. Her complaint alleged that in 1987 and 1988 she made three loans to Cahill and his company, in the amounts of $40,000, $23,696, and $14,700. She further alleged that the defendants had refused payment despite repeated demands, and were in default on all three debts.

The defendants filed an answer, and discovery proceeded through March of 1994. Plaintiff produced two promissory notes memorializing the loans of $23,696 and $14,700. She was unable, however, to provide a writing for the alleged loan of $40,000, though she has always maintained that such a writing exists. The defendants filed for partial summary judgment in March of 1994, arguing that the claim on the $40,000 loan was barred by the Virginia Statute of Frauds, Va.Code Sec. 11-2(4), and the Statute of Limitations, Va.Code Sec. 8.01-246. The district court agreed and granted summary judgment on the $40,000 claim. Then, noting that the amount in controversy had fallen below fifty thousand dollars, the court dismissed the remaining claims for lack of subject matter jurisdiction. Plaintiff has appealed, challenging only the dismissal of her two smaller claims.

II.

A.

Federal district courts possess jurisdiction over cases in diversity when "the matter in controversy exceeds the sum or value of $50,000." 28 U.S.C. Sec. 1332(a) (1988). A plaintiff may aggregate smaller claims in order to reach this threshold, as was done in this case. Griffin v. Red Run Lodge, Inc., 610 F.2d 1198, 1204 (4th Cir.1979). After Shanaghan's claim for $40,000 was dismissed, however, the district court concluded it was bound by Sec. 1332 to dismiss her remaining aggregated claims of $38,669. The court apparently believed it had no discretion in this matter, but rather was faced with a mandatory obligation to dismiss the case in its entirety, despite the possibility of a statute of limitations bar to refiling in state court, and regardless of the potential merit of the remaining claims.

This assumption was in error. The basis for district court discretion in this context lies in the model of supplemental jurisdiction set forth in 28 U.S.C. Sec. 1367. The doctrine of supplemental jurisdiction indicates that federal courts generally have discretion to retain or dismiss state law claims when the federal basis for an action drops away. See 28 U.S.C. Sec. 1367 (1993). Federal supplemental jurisdiction was created by the Judicial Improvement Act of 1990, Pub.L. No. 101-650, Title III, Sec. 310(a), which codified the doctrine of pendent jurisdiction developed by the Supreme Court in the case of United Mine Workers of America v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966), and its progeny. ¹ Section 1367(a) provides that

in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution.

28 U.S.C. Sec. 1367(a). Supplemental jurisdiction thus allows parties to append state law claims over which federal courts would otherwise lack jurisdiction, so long as they form part of the same case or controversy as the federal claims. Gibbs, 383 U.S. at 725, 86 S.Ct. at 1138.

Moreover, the statute is not limited to cases where the original basis for federal jurisdiction was a federal question. It clearly provides for the operation of supplemental jurisdiction in diversity cases. First, Sec. 1367(a) is broadly phrased to provide for supplemental jurisdiction over claims appended to "any civil action" over which the court has "original jurisdiction." 28 U.S.C. Sec. 1367(a). Second, Sec. 1367(b) imposes specific limits on the use of supplemental jurisdiction in diversity cases in order to prevent the addition of parties that would destroy complete diversity as required by Sec. 1332, but otherwise plainly contemplates the use of supplemental jurisdiction in that context. 28 U.S.C. Sec. 1367(b). See also 28 U.S.C.A. Sec. 1367, David Seigel, Practice Commentary 832 (1993) (noting that "[b]y no means does [Sec. 1367(b) ] exclude [supplemental jurisdiction] from diversity cases in general."). The only possible interpretation of this language is that state law claims between diverse parties that do not, however, satisfy the jurisdictional amount requirements appended to diversity actions are cognizable under supplemental jurisdiction.

The statute then goes on to provide that courts "may decline" to exercise supplemental jurisdiction in certain circumstances. 28 U.S.C. Sec. 1367(c). In particular, a court has discretion to dismiss or keep a case when it "has dismissed all claims over which it has original jurisdiction." 28 U.S.C. Sec. 1367(c)(3). Recent case law has emphasized that trial courts enjoy wide latitude in determining whether or not to retain jurisdiction over state claims when all federal claims have been extinguished. See, e.g., Noble v. White, 996 F.2d 797, 799 (5th Cir.1993). Among the factors that inform this discretionary determination are convenience and fairness to the parties, the existence of any underlying issues of federal policy, comity, and considerations of judicial economy. Carnegie-Mellon University v. Cohill, 484 U.S. 343, 350 n. 7, 108 S.Ct. 614, 619 n.7, 98 L.Ed.2d 720 (1988); Growth Horizons, Inc. v. Delaware County, 983 F.2d 1277, 1284 (3d Cir.1993). The doctrine of supplemental jurisdiction "thus is a doctrine of flexibility, designed to allow courts to deal with cases involving pendent claims in the manner that most sensibly accommodates a range of concerns and values." Cohill, 484 U.S. at 350, 108 S.Ct. at 619.

B.

There are several reasons why the supplemental jurisdiction model of discretion should apply when the amount in controversy falls below the fifty thousand dollar threshold, just as it does when a federal question or a diverse claim falls out of a case. First, the same basic pattern of circumstances exists in both contexts: the jurisdictional basis of the action fades away and the court is left with what would otherwise be a state law case. There is no way to distinguish a reduction of the amount in controversy from the disappearance of a federal claim as contemplated under Sec. 1367(c)(3). Indeed, the factors applicable in the typical pendent jurisdiction case are equally applicable here--comity, the existence of a state limitations bar, and considerations of judicial economy. Whenever the basis for federal jurisdiction evaporates, Congress has provided for discretion. There are no situations wherein a federal court must retain jurisdiction over a state law claim, which would not by itself support jurisdiction. It makes little sense, then, to think of jurisdictional amounts as a separate category of cases when they so clearly fit into the congressional scheme of supplemental jurisdiction. It does make sense, however, to have one rule of district court discretion, not separate rules for separate jurisdictional bases when simple logic dictates that they be treated the same.

This point is illustrated by the fact that the grant of discretion to retain or dismiss residual state law claims in Sec. 1367(c)(3) would apply in cases closely analogous to the one before us. For example, Sec. 1367(c)(3) provides on its own terms for supplemental jurisdiction over an inadequate amount in controversy if the claim that is dismissed is in excess of $50,000. See 28 U.S.C. Sec. 1367(c) ("courts may ... exercise supplemental jurisdiction ... if ... the district court has dismissed all claims over which it has original jurisdiction"). In such a case the remaining smaller claims would have been "pendent" to the larger dismissed claim, and thus the court could choose to exercise jurisdiction over them. See Worthams v. Atlanta Life Ins. Co., 533 F.2d 994, 997-98 (6th Cir.1976) (finding jurisdiction still existed over claim of $7,900 when other $100,000 claim was dismissed). Here, the only difference is that no single claim by itself carried plaintiff into federal court, and so she was forced to aggregate her various smaller claims to reach the jurisdictional threshold. Similarly, supplemental (ancillary) jurisdiction provides discretionary review of counterclaims of less than $50,000 even when the primary federal claim is dismissed. 28 U.S.C.A. Sec. 1367, David Seigel, Practice Commentary 830 (1993). Hence, a reduction of the amount in controversy below the $50,000 limit simply does not affect the...