Johnson, Raymond v. Wattenbarger, Lee ( 2004 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 02-3707
RAYMOND JOHNSON and ROBERT JOHNSON,
Plaintiffs-Appellants,
v.
LEE WATTENBARGER and RUTH WATTENBARGER,
Defendants-Appellees.
____________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 00 C 7187—William J. Hibbler, Judge.
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SUBMITTED MARCH 4, 2004—DECIDED MARCH 22, 2004
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Before EASTERBROOK, MANION, and EVANS, Circuit
Judges.
EASTERBROOK, Circuit Judge. All too often both litigants
and judges disregard their first duty in every suit: to de-
termine the existence of subject-matter jurisdiction. In this
litigation, by contrast, the defendants and judge were alert
to jurisdiction and endeavored to apply the requirements of
28 U.S.C. §1332. Unfortunately, the judge waited until two
years after the case began and the resolution of several
claims on the merits had cut down the stakes. Because the
2 No. 02-3707
diversity jurisdiction depends on matters as they stand
when the complaint is filed, this was a misstep.
Lee and Ruth Wattenbarger hired Raymond and Robert
Johnson (doing business as RLJ & Associates) to remodel
their home. According to the Johnsons, the price was dis-
counted in exchange for promotional assistance that the
Wattenbargers agreed to provide. Relations eventually
broke down: the Johnsons say that the Wattenbargers re-
quired changes after the contract had been signed, delayed
in approving work, failed to move a utility pole, and then
refused to pay or to provide the promised promotional
consideration; the Wattenbargers say that the work was not
done right and that they never promised to recommend the
Johnsons to their friends and neighbors. In this federal suit,
the Johnsons originally sought more than $200,000— about
$15,000 still unpaid on the contract, $33,000 for the value
of the referrals and other assistance that the Wattenbargers
did not furnish (the Johnsons describe this as the amount
of the discount in the contract price), $28,000 in profits lost
on other contracts because the extra work on the
Wattenbarger residence kept them from other business, at
least $59,000 in other lost profits that they attribute to
disparagement and intentional interference with economic
advantage, $42,000 in lost wages that they could have made
had they been able to move on to other work, $75,000 for
intentional infliction of emotional distress, and a few
smaller items.
In a single motion the Wattenbargers sought dismissal on
two grounds: that the amount in controversy did not exceed
$75,000 (diversity of citizenship is not in question) and that
the complaint failed to state a claim on which relief may be
granted. First the district court dismissed on the merits all
of the claims by Robert Johnson, ruling that he had not
alleged a contractual relation with the Wattenbargers. Next
the court dismissed several of Raymond Johnson’s claims
under Fed. R. Civ. P. 12(b)(6). At this point the judge
No. 02-3707 3
calculated that the surviving claims exceeded $75,000. After
discovery had been completed, however, the district court
reassessed the amount in controversy with the benefit of an
interrogatory answer in which the Johnsons more clearly
set out their damages calculations. The district court
concluded that the remaining dispute was limited to
$47,745 for breach of the Wattenbargers’ oral and written
promises and $24,250 in lost profits from other contracts
that the Johnsons say they had been forced to cancel in
order to do extra work for the Wattenbargers. These come
to $71,995, and as this is below $75,000 the judge dismissed
the Johnsons’ complaint (and the Wattenbargers’ counter-
claim) without prejudice.
Combining partial decision on the merits with a jurisdic-
tional dismissal violates the norm that courts cannot decide
any controversy over which they lack subject-matter
jurisdiction. It is the case, rather than the claim, to which
the $75,000 minimum applies. If the complaint as filed puts
more than $75,000 at issue, then a district court has
jurisdiction and may resolve on the merits every legal
theory and aspect of damages. Whether §1332 supplies
subject-matter jurisdiction must be ascertained at the out-
set; events after the suit begins do not affect the diversity
jurisdiction. See Freeport-McMoRan Inc. v. K N Energy,
Inc., 498 U.S. 426 (1991); Louisville, New Albany & Chicago
Ry. v. Louisville Trust Co., 174 U.S. 552, 566 (1899); Molan
v. Torrance, 22 U.S. (9 Wheat.) 537, 539-40 (1824); Trans
States Airlines v. Pratt & Whitney Canada, Inc., 130 F.3d
290, 292-93 (7th Cir. 1997). (The few exceptions to this
principle involve events, such as dismissal of a non-diverse
party, that make federal jurisdiction secure. If a suit can
start over in the same court immediately after being tossed
out, there is no point to a dismissal. See Newman-Green,
Inc. v. Alfonzo-Larrain, 490 U.S. 826 (1989).) If, however,
the case as a whole does not entail at the get-go a contro-
versy exceeding $75,000, then the court must not resolve
4 No. 02-3707
any aspect of it on the merits. By combining partial disposi-
tion of the merits with a dismissal of what remained, the
district court either improperly entered a partial substan-
tive judgment in a case over which it lacked jurisdiction, or
improperly found that jurisdiction was missing.
Here the error was the latter one. Even after multi-
ple theories of relief had been carved off, the stakes still
were $71,995. What had been jettisoned along the way
amounted to at least $3,006 more. Only if, on the date the
case began, it was legally impossible for any of the
Johnsons’ additional damages theories to come to fruition
would it have been proper to dismiss for want of jurisdic-
tion. See St. Paul Mercury Indemnity Co. v. Red Cab Co.,
303 U.S. 283, 289 (1938). “Impossibility” differs from the
standard under Rule 12(b)(6). A legal shortcoming does
not equate to a jurisdictional shortfall, see Bell v. Hood, 327
U.S. 678 (1946), else defendants would never win in
diversity cases. They could at best achieve jurisdictional
dismissals, followed by new suits in state court. Thus
“[s]ubject matter jurisdiction is not defeated by the pos-
sibility that the complaint ultimately fails to state a claim.”
Louque v. Allstate Insurance Co., 314 F.3d 776, 782 (5th Cir.
2002). A demand is legally impossible for jurisdictional
purposes when it runs up against a statutory or contractual
cap on damages, see Pratt Central Park Limited Partner-
ship v. Dames & Moore, Inc., 60 F.3d 350 (7th Cir. 1995), or
when the theories of damages employ double counting, see
Gardynski-Leschuck v. Ford Motor Co., 142 F.3d 955 (7th
Cir. 1998). Some of the Johnsons’ demands may reflect
different ways of estimating a single loss; for example, sums
not received from other customers and lost wages may be
two descriptions of the same injury. But the Johnsons’
theories include at least $3,006 in non-duplicative items
that cannot be called so insubstantial that application of
the St. Paul Mercury and Bell standard would allow the
judge to dismiss on jurisdictional grounds.
No. 02-3707 5
Section 1332(b) provides that a plaintiff who sues un-
der the diversity jurisdiction and ultimately receives less
than $75,000 loses any entitlement to costs and may be
required to pay the adversary’s costs. This device is the
principal safeguard against inflated demands. When decid-
ing whether the case may be litigated to conclusion in
federal court, the district judge should apply the standards
of St. Paul Mercury and Bell to the original complaint, and
§1332(b) to the bottom line, rather than attempt to ascer-
tain day by day whether the judgment is likely to come in
under $75,000.
One final note. Dismissals of some claims under Rule
12(b)(6) may have been influenced by a belief that com-
plaints must include all important facts and legal theories
(such as the existence of a contract between Robert Johnson
and the Wattenbargers). Yet the federal rules do not
require plaintiffs to plead either facts or law. See
Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002); Bartholet
v. Reishauer A.G. (Zürich), 953 F.2d 1073 (7th Cir. 1992). It
may be prudent for the district court to review its decisions
under Rule 12(b)(6) to ensure that it has not asked for more
than Fed. R. Civ. P. 8 demands of a complaint.
The judgment of the district court is vacated, and the
matter is remanded for decision on the merits.
6 No. 02-3707
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—3-22-04