Work v. US Trade, Inc., Civ. A. No. 90-0749-A.

• Decision Date: 16 October 1990
• Docket Number: Civ. A. No. 90-0749-A.
• Citation: 747 F. Supp. 1184
• Court: U.S. District Court — Eastern District of Virginia
• Parties: Duncan WORK, Plaintiff, v. U.S. TRADE, INC., Defendant.

747 F. Supp. 1184

Duncan WORK, Plaintiff, v. U.S. TRADE, INC., Defendant.

Civ. A. No. 90-0749-A.

United States District Court, E.D. Virginia, Alexandria Division.

October 16, 1990.

COPYRIGHT MATERIAL OMITTED

Peder A. Garske, Robert C. Sanders, Clifford & Warnke, Washington, D.C., for plaintiff.

Richard T. Robb, Springfield, Va., for defendant.

MEMORANDUM OPINION

ELLIS, District Judge.

This matter is before the Court on defendant U.S. Trade, Inc.'s Motion to Dismiss for Want of Subject Matter Jurisdiction. For the reasons stated below, the Court denies defendant's motion.

Background

This is a diversity action for breach of an employment contract and for declaratory judgment. The complaint, filed in early June, 1990, consists of two counts. The first seeks monetary damages for the breach of contract in the amount of $45,000. More specifically, plaintiff Duncan Work ("Work") alleges that his former employer, U.S. Trade, Inc. ("U.S. Trade") failed to pay him certain commissions and minimum salary payments earned through services performed on various projects. In the second count, Work seeks a declaratory judgment that U.S. Trade breached the employment contract and that such breach has discharged Work from his obligation under the contract not to compete with U.S. Trade for a period of two years following termination. Work values his right to compete for the roughly four remaining months subject to the non-competition provision¹ at $20,000.² Thus, standing alone, neither count satisfies the jurisdictional $50,000 minimum. See 28 U.S.C. § 1332. Taken together, they do. On these facts, U.S. Trade attacks Work's jurisdictional allegation that the amount in controversy exceeds $50,000, exclusive of interest and costs. U.S. Trade advances a variety of arguments, each of which is, in essence, an attack on the declaratory judgment count. None is ultimately persuasive.

Analysis

The parties do not dispute the well-established rule that the jurisdictional amount in controversy is determined as of the time that the action is commenced. See In Re A.H. Robins Co., Inc., 880 F.2d 709, 723 (4th Cir.) (jurisdictional amounts determined by facts alleged at time of filing of action), cert. denied, ___ U.S. ___, 110 S.Ct. 377, 107 L.Ed.2d 362 (1989); Wright & Miller § 3702, at 28. Even when the complaint discloses a valid defense to plaintiff's action, the sum claimed by plaintiff controls. See Smithers v. Smith, 204 U.S. 632, 27 S.Ct. 297, 51 L.Ed. 656 (1907). And subsequent events that diminish the plaintiff's recovery below the jurisdictional minimum do not destroy jurisdiction once it is properly acquired. See, e.g., Griffin v. Red Run Lodge, Inc., 610 F.2d 1198 (4th Cir. 1979). The general rule governing dismissal for want of jurisdiction in federal cases is that "the sum claimed by the plaintiff controls if the claim is apparently made in good faith. 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, 288-89, 58 S.Ct. 586, 590, 82 L.Ed. 845 (1938).

These principles, applied to the instant complaint, suggest that the complaint, on its face, satisfies the jurisdictional minimum. But U.S. Trade invites the Court to look behind the face of the complaint. Specifically, U.S. Trade contends that the jurisdictional amount calculation should exclude the $20,000 attributable to the declaratory judgment because that claim is not asserted in good faith, because it presents no case or controversy, and because there is a legal certainty that the claim will not succeed.

A. Good Faith

The lack of good faith argument rests on an inference U.S. Trade contends is compelled by certain facts. Those facts are (i) that Work apparently has not attempted to compete with U.S. Trade, (ii) that U.S. Trade has done nothing to prevent Work from competing, (iii) the parties' correspondence makes no mention of the non-competition provision, and (iv) that early drafts of the complaint did not include the declaratory judgment count. From these circumstances, the Court is asked to conclude that the right to compete is worthless to plaintiff and that the sole purpose of its inclusion is to obtain federal jurisdiction.

This argument fails. To begin with, the inferences urged by U.S. Trade are neither compelled nor inevitable; other reasons, reasons consistent with Work's valuation of the right to compete, may explain the facts. The point is that nothing on the face of the complaint shows bad faith. See St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. at 288-89, 58 S.Ct. at 590 (plaintiff's claim need only be "apparently made in good faith"). And significantly, U.S. Trade offers no independent facts of the sort that typically suggest bad faith. Nor do any such facts exist in the record. In these circumstances, courts must be wary of relying on ambiguous circumstances to find a bad faith abuse of federal court jurisdiction. Such a finding typically is warranted only in those "relatively infrequent instances in which flagrant abuse of federal court jurisdiction is obvious." Wright & Miller § 3702 at 53.³ This case is not such an instance; this complaint does not exhibit the requisite flagrant discrepancy between the damages alleged and the facts. Compare Reyes v. Eastern Airlines, Inc., 528 F.Supp. 765 (D.PR.1981) (in action for denial of seats on reserved flight, bad faith was found to infect the $10,000 damage allegation where assertions of mental anguish and pain were conclusory at best, claims for lost baggage were valued at $394, and case did not involve physical injury).

Also worth noting is that while some judicial language suggests a subjective good faith test, the proper test is an objective one. See Wright & Miller § 3702 at 55-56. In other words, courts should not probe for subjective ill-will on the part of a plaintiff, but should be limited to imputing bad faith from objective facts and circumstances. Were this not so, the elusiveness of subjective good faith might well cause threshold jurisdictional hearings to be inappropriately lengthy and futile efforts. In any event, as a practical matter, courts have largely conflated the good faith test with the legal certainty test. Thus, bad faith is generally imputed only where it appears to a legal certainty that plaintiff's claim cannot meet the jurisdictional minimum. See Horton v. Liberty Mut. Ins. Co., 367 U.S. 348, 81 S.Ct. 1570, 6 L.Ed.2d 890 (1961); Jones v. Landry, 387 F.2d 102, 104 (5th Cir.1967) (good faith and legal certainty are equivalents rather than separate tests); McDonald v. Patton, 240 F.2d 424 (4th Cir.1957); Laws v. Spain, 312 F.Supp. 315, 318 (E.D.Va.1970) ("in deciding the `good faith' issue, it must appear to a legal certainty that the claim is really for less than the jurisdictional amount"). And, as explained infra, none of U.S. Trade's legal certainty arguments is persuasive.

B. Legal Certainty

Legal certainty sets a high threshold that is not often met. "The legal impossibility of recovery must be so certain as virtually to negative the plaintiff's good faith in asserting the claim." Wiggins v. North American Equitable Life Assurance Co., 644 F.2d 1014, 1017 (4th Cir.1981) (quoting McDonald v. Patton, 240 F.2d 424, 426 (4th Cir.1957)); see also Wright & Miller § 3702, at 48-49. This makes dismissal on jurisdictional amount grounds rare despite the fact that a majority of courts appear to place the burden of demonstrating jurisdiction on the party seeking to invoke it. See Wright & Miller § 3702, at 19 (citing cases). Yet another reason the legal certainty test rarely leads to dismissal is that it is the face of the complaint⁴ and the circumstances at the time of filing that control. Nor does it matter that the passage of time, here about four months, operates to render a claim moot. See, e.g., Golden v. Zwickler, 394 U.S. 103, 89 S.Ct. 956, 22 L.Ed.2d 113 (1969) (right to declaratory relief is determined at the time of hearing); Merced Rosa v. Herrero, 423 F.2d 591 (1st Cir.1970) (mootness is judged at the present). In the context of determining jurisdiction, what matters is whether, viewed from the date the complaint was filed, a plaintiff reasonably could expect to recover the sum sought. Nothing on the face of Work's complaint or in the circumstances existing at the time of filing compel the conclusion to a legal certainty that the declaratory judgment claim was worthless.

In an effort to escape this conclusion, U.S. Trade argues that the declaratory judgment count was destined to fail because the Court would surely decline to entertain it. The flaw here is that this is only a prediction, not a legal certainty. It is established that all bases for nonmonetary relief, including declaratory judgments, are discretionary. See, e.g., Sanchez-Espinoza v. Reagan, 770 F.2d 202 (D.C.Cir.1985); Hill v. Liberty Mut. Ins. Co., 453 F.Supp. 1342 (E.D.Va.1978). But U.S. Trade cannot create a legal certainty by speculating as to how the Court might exercise its discretion. Legal certainty is a higher standard. See, e.g., Kahal v. T.W. Wilson & Associates, Inc., 673 F.2d 547 (D.C.Cir.1982) (claim for punitive damages insufficient to give district court subject matter jurisdiction in a diversity action where plaintiff did not allege the type of egregious conduct that would justify punitive damages under District of Columbia law); Wiggins v. North American Equitable Life Assurance Co., 644 F.2d 1014 (4th Cir.1981) (where claim for compensatory damages was for less than jurisdictional minimum, punitive damages claim could not confer subject matter jurisdiction on district court because plaintiff could not recover punitive damages for pure breach of contract under Maryland law).

Finally, U.S. Trade argues that the declaratory relief is inappropriate here because it does not seek affirmative relief but merely asks the Court to validate a...