Unified Catholic Schools v. Universal Card Serv.

• Decision Date: 27 January 1999
• Docket Number: No. 98-C-1156.,98-C-1156.
• Citation: 34 F.Supp.2d 714
• Parties: UNIFIED CATHOLIC SCHOOLS OF BEAVER DAM EDUCATIONAL ASSOCIATION, Plaintiff, v. UNIVERSAL CARD SERVICES CORP., Defendant.
• Court: U.S. District Court — Eastern District of Wisconsin

34 F.Supp.2d 714

UNIFIED CATHOLIC SCHOOLS OF BEAVER DAM EDUCATIONAL ASSOCIATION, Plaintiff, v. UNIVERSAL CARD SERVICES CORP., Defendant.

No. 98-C-1156.

United States District Court, E.D. Wisconsin.

January 27, 1999.

COPYRIGHT MATERIAL OMITTED

Wm. H. Gergen, Beaver Dam, WI, for plaintiff.

Leonard G. Leverson, Molly J. Zillig, Laurie E. Peterson, Milwaukee, WI, for defendant.

DECISION AND ORDER

ADELMAN, District Judge.

I. FACTUAL AND PROCEDURAL BACKGROUND

The plaintiff, Unified Catholic Schools of Beaver Dam Educational Association ("UCPS") is an unincorporated educational association organized under Wisconsin law and the auspices of St. Patrick's, St. Michael's and St. Peter's Parishes of Beaver Dam and the Archdiocese of Milwaukee. All of its members are Wisconsin citizens. The defendant, Universal Card Services Corporation ("Universal"), is a Delaware corporation with its principal place of business in Jacksonville, Florida.

On October 26, 1998, plaintiff sued defendant in Dodge County Circuit Court alleging that defendant converted funds of the plaintiff's to the defendant's use. Plaintiff's former employee, Janet L. Gittus, who had check-writing authority over a UCPS account, improperly used the account to write checks to defendant in payment of her personal credit card bills in the amount of $38,944.44. Upon discovering Ms. Gittus's misappropriation, plaintiff asked defendant to return the money, but defendant refused. Plaintiff then sued, seeking compensatory and punitive damages and attorneys fees and alleging that defendant acted intentionally and without regard for plaintiff's rights.

On November 25, 1998, pursuant to 28 U.S.C. §§ 1441(a) and 1446, defendant removed the action to this court under 28 U.S.C. § 1332, based on diversity of citizenship. On December 3, 1998, defendant answered, admitting many of the factual allegations but interposing a number of affirmative defenses, including that it was a holder in due course under the Uniform Commercial Code and thus received the checks free of plaintiff's claims. Defendant further stated that it used the proceeds to pay vendors who had provided goods and services to Gittus.

On December 24, 1998, pursuant to 28 U.S.C. § 1447(c), plaintiff filed a motion to remand the case to Dodge County Circuit Court, claiming that this court lacks subject matter jurisdiction because the amount in controversy is not more than $75,000. Plaintiff also filed the affidavit of James R. Hafenstein, president of UCPS, "to clarify our initial pleading ... to the effect that the punitive damages we seek shall not ... result in a total claim ... greater than $74,000." Hafenstein also offered to stipulate to the same effect. The issue before me is whether I have subject matter jurisdiction.

II. ANALYSIS

A. Applicable Federal Law

Generally, the party seeking a federal forum has the burden of establishing federal jurisdiction. Wellness Community Nat'l v. Wellness House, 70 F.3d 46, 49 (7th Cir.1995). Where the amount in controversy is contested, the proponent of federal jurisdiction must "support its assertion with `competent proof.'" Rexford Rand Corp. v. Ancel, 58 F.3d 1215, 1218 (7th Cir.1995) (quoting McNutt v. General Motors Acceptance Corp. of Ind., 298 U.S. 178, 189, 56 S.Ct. 780, 80 L.Ed. 1135 (1936)). A diversity defendant in a removal action must show to a reasonable probability that more than the jurisdictional amount is in controversy. Shaw v. Dow Brands, Inc., 994 F.2d 364, 366-67 n. 2 (7th Cir.1993).

In determining whether the jurisdictional amount is met, I generally look at plaintiff's state court complaint along with the record as a whole. Gould v. Artisoft, Inc., 1 F.3d 544, 547 (7th Cir.1993). Where both actual and punitive damages are claimed as the basis for establishing the jurisdictional amount, both elements must be considered to the extent claimed. Cadek v. Great Lakes Dragaway, Inc., 58 F.3d 1209, 1211 (7th Cir.1995); Bell v. Preferred Life Assurance Soc'y of Montgomery, 320 U.S. 238, 240, 64 S.Ct. 5, 88 L.Ed. 15 (1943),

Where punitive damages are required to satisfy the jurisdictional requirement in a diversity case, I must undertake a two-part inquiry. The first question is whether punitive damages are recoverable as a matter of state law. If the answer is in the affirmative, the court has subject matter jurisdiction unless it is clear beyond a legal certainty that plaintiff would under no circumstances be entitled to recover the jurisdictional amount. Anthony v. Security Pac. Fin. Serv., Inc., 75 F.3d 311, 315 (7th Cir. 1996); Sharp Electronics Corp. v. Copy Plus, Inc., 939 F.2d 513, 515 (7th Cir.1991).¹ However, when a claim for punitive damages makes up the bulk of the amount in controversy and may even have been asserted solely to confer jurisdiction, I must scrutinize the claim closely. Anthony, at 315; see also Kahal v. J.W. Wilson & Assoc., Inc., 673 F.2d 547, 548 (D.C.Cir.1982) (holding that where the availability of punitive damages is the sine qua non of federal jurisdiction, courts must examine the punitive damage claim carefully to ensure that it has a colorable basis in law and fact).²

In determining whether the jurisdictional amount is met, I am limited to considering the facts existing at the time of removal. Gould, 1 F.3d at 547. In In re Shell Oil Co., 970 F.2d 355, 356 (7th Cir. 1992), the Seventh Circuit held that where plaintiff's state court complaint alleged a breach of a $70,00 contract and defendant removed, plaintiff's post-removal affidavit and stipulation limiting its claim to less than the jurisdictional amount (then $50,000) was ineffective as a basis for remand because jurisdiction is determined as of the instant of removal. This rule was reiterated in Shaw, 994 F.2d at 367, and Chase v. Shop 'N Save Warehouse Foods, Inc., 110 F.3d 424, 427-29 (7th Cir.1997). The rationale underlying the Seventh Circuit's refusal to consider a plaintiff's post-removal submission modifying previous demands for damages was that plaintiffs should not be permitted to "manipulate the process" to defeat federal jurisdiction once a case has been properly removed. Gould, at 547.

In a removal case, however, a plaintiff is not prohibited from raising the issue of whether the amount actually in controversy at the time of removal met the jurisdictional requirement. Harmon v. OKI Sys., 902 F.Supp. 176, 178 (S.D.Ind.1995); Reason v. General Motors Corp., 896 F.Supp. 829 (S.D.Ind.1995). Moreover, nothing in Shell Oil, Shaw or Chase prevents the consideration of evidence generated subsequent to removal if it is probative of the amount in controversy at the time of removal. Harmon at 178.

B. Wisconsin Law Regarding Punitive Damages

In 1995 the legislature created a new statute, Wis.Stat. § 895.85, which revised the law of punitive damages in Wisconsin. Section 895.85 limits the availability of punitive damages to cases where there is evidence "that the defendant acted maliciously toward the plaintiff or in intentional disregard of the rights of plaintiff." The Wisconsin Civil Jury Instructions Committee indicates that the intent of the new legislation was to make it more difficult for a plaintiff to recover punitive damages. See Wis. JI-Civil 1707.1 n. 1. The Committee states that the "intentional disregard standard" was clearly intended to be more narrow than the case law standard which allowed punitive damages for conduct which showed a reckless indifference to or disregard of the rights of others on the part of the wrongdoer. Id. n. 2.

Section 895.85, however, is consistent with previous Wisconsin law insofar as it makes clear that the availability of punitive damages depends on the character of the particular conduct committed rather than on the theory of liability propounded by the plaintiff. See Wangen v. Ford Motor Co., 97 Wis.2d 260, 269, 294 N.W.2d 437 (1980) (citing Entzminger v. Ford Motor Co., 47 Wis.2d 751, 757-58, 177 N.W.2d 899 (1970)). The statute is also consistent with prior case law in permitting punitive damages for "malicious" acts. Wisconsin jury instructions define "malicious" acts as those resulting from hatred, ill will, a desire for revenge, or inflicted under circumstances where insult or injury is intended. Id.

There is no case law which defines "intentional disregard of the plaintiff's rights." However, the Wisconsin Supreme Court has stated that the ill-intent necessary to recover punitive damages requires that "something must be shown over and above the mere breach of duty for which compensatory damages can be given. That is, a showing of bad intent deserving punishment, or something in the nature of special ill will towards the person injured ..." Wangen, 97 Wis.2d at 268, 294 N.W.2d 437 (quoting Meshane v. Second St. Co., 197 Wis. 382, 387, 222 N.W. 320 (1928)).

Moreover, under Wisconsin law, a jury award of punitive damages is subject to the control of the trial court. A trial court has the power to reduce the amount of punitive damages to what it determines is a fair and reasonable amount for such kind of conduct. Fahrenberg v. Tengel, 96 Wis.2d 211, 232 n. 12, 291 N.W.2d 516 (1980). In determining the proper amount of the award, courts consider such factors as the grievousness of the acts, the degree of malicious intent, whether the award bears a reasonable relationship to the award of compensatory damages, the potential damage that might have been caused by the acts, and the ratio of the award to civil or criminal penalties that could be imposed for comparable misconduct. Management Computer Serv. v. Hawkins, Ash, Baptie & Co., 206 Wis.2d 158, 557 N.W.2d 67 (1996).

C. Application of Law to Facts

In the present case, plaintiff's state court complaint sought $38,944.44 in compensatory damages and an unspecified amount of punitive damages. After defendant removed the case, plaintiff submitted the Hafenstein affidavit stating that its punitive damages demand, together with other damages, was less...