                                                                                                                           Opinions of the United
1995 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


3-20-1995

Valhal Corp v Sullivan Assoc
Precedential or Non-Precedential:

Docket 91-3650




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Recommended Citation
"Valhal Corp v Sullivan Assoc" (1995). 1995 Decisions. Paper 2.
http://digitalcommons.law.villanova.edu/thirdcircuit_1995/2


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                   UNITED STATES COURT OF APPEALS
                       FOR THE THIRD CIRCUIT



                              NO. 94-1221
                              NO. 94-1241


                           VALHAL CORPORATION,

                                              Appellee/
                                              Cross-Appellant,

                                    v.

                     SULLIVAN ASSOCIATES, INC.,
                  ARCHITECTS, PLANNERS, ENGINEERS,

                                              Appellant/
                                              Cross-Appellee.




                     SUR PETITION FOR REHEARING

     BEFORE:    SLOVITER, Chief Judge, STAPLETON,
                MANSMANN, GREENBERG, HUTCHINSON, SCIRICA,
                COWEN, NYGAARD, ALITO, ROTH, LEWIS, McKEE and
                SAROKIN, Circuit Judges



          The   petition    for   rehearing   filed   by   appellee/cross-

appellant in the above-entitled case having been submitted to the

judges who participated in the decision of this Court and to all

the other available circuit judges of the circuit in regular

active service, and no judge who concurred in the decision having

asked for rehearing, and a majority of the circuit judges of the

circuit
in regular active service not having voted for rehearing by the

court in banc, the petition for rehearing is denied.          Judge

Hutchinson would grant in banc rehearing for the reasons set

forth in his attached Statement Sur Denial.         Judge Greenberg

joins in Judge Hutchinson's Statement Sur Denial.
                                   By the Court



                                   /s/Theodore A. McKee
                                        Circuit Judge


Dated: March 20, l995
            STATEMENT SUR DENIAL OF REHEARING IN BANC
Nos. 94-1221 & 94-1241

HUTCHINSON, Circuit Judge



               Neither       the    Supreme          Court    of     Pennsylvania         nor   its

Superior Court has yet decided whether clauses in contracts for

professional services limiting the damages a contracting party

can recover for negligent performance are enforceable.                                 The Court

concludes       they    are    valid       under          applicable       state      law.      The

district      court     concluded         they       are     not,    and     I    believe     their

validity can be fairly characterized as doubtful.                                 Nevertheless,

because Sullivan's contract with Valhal for professional services

has    a    clause     that   attempts          to    limit       Sullivan's       liability     to

$50,000, this Court reverses a $1,000,000 judgment for appellee

Valhal and then holds that the case must be dismissed for lack of

subject       matter     jurisdiction.                I    believe       this     confuses      the

jurisdictional issue concerning the amount in controversy with

the merits, deprives both parties of the binding judgment to

which they are entitled and ignores our obligation to exercise

subject matter jurisdiction when it is present.                              Moreover, it has

real       practical    significance            to     the    parties       as    a   non-merits

dismissal for lack of jurisdiction does not foreclose Valhal from

commencing a new action in a state trial court seeking the same

relief it did in the district court.                               See, e.g., Local 1498,

Fed'n of Gov't Employees v. American Fed'n of Gov't Employees,

AFL-CIO,       522    F.2d    486,        492    (3d       Cir.     1975);       Fratto   v.    New
Amsterdam       Casualty           Co.,    252        A.2d        606,     607     (Pa.      1969).
Accordingly, I respectfully disagree with the Court's mandate

directing    dismissal    of   this   case   for   lack   of   subject   matter

jurisdiction.1

             In Saint Paul Mercury Indemn. Co. v. Red Cab Co., 303

U.S. 283, 288-89 (1938), the United States Supreme Court held

that   the     amount     a    diversity     plaintiff     claims    controls

determination of the jurisdictional amount unless it appears to a

"legal certainty" that (1) the claim was really for less than the

jurisdictional amount, (2) the plaintiff could not recover more

than the jurisdictional amount, or (3) the amount claimed is

merely colorable.       I recognize the Supreme Court 's statements in

Red Cab that Congress has restricted diversity jurisdiction and

that courts must rigorously enforce this intent.                 Id. at 288.

However, the Supreme Court in Red Cab went on to state:
          The rule governing dismissal for want of
          jurisdiction in cases brought in federal
          court is that, unless the law gives a
          different rule, 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.      The  inability   of

    1I realize that many jurists feel federal diversity
jurisdiction is an outmoded burden on federal district courts
facing burgeoning increases in cases involving federal question
jurisdiction as Congress responds to problems it sees as national
in scope.     See Dolores K. Sloviter, A Federal Judge Views
Diversity Jurisdiction Through the Lens of Federalism, 78 Va.
L. Rev. 1671 (1992). Efforts to secure legislation limiting or
sharply curtailing diversity jurisdiction, however, have not
borne much fruit. Therefore, we are still charged with deciding
cases brought by citizens of diverse states when the amount in
controversy is more than $50,000, and our jurisdiction is not
affected by a merits disposition awarding the diversity plaintiff
less than that amount.
          plaintiff to recover an amount adequate to
          give the court jurisdiction does not show his
          bad faith or oust jurisdiction. Nor does the
          fact   that  the    complaint   discloses the
          existence of a valid defense to the claim.
          But if, from the face of the pleadings, it is
          apparent, to a legal certainty, that the
          plaintiff cannot recover the amount claimed
          or if, from the proofs, the court is
          satisfied to a like certainty that the
          plaintiff never was entitled to recover that
          amount, and that his claim was therefore
          colorable for the purpose of conferring
          jurisdiction, the suit will be dismissed.
          Events    occurring     subsequent    to  the
          institution of suit which reduce the amount
          recoverable below the statutory limit do not
          oust jurisdiction.



Id. at 288-89 (footnotes omitted).            Although old, Red Cab remains

the seminal case on this issue.

          This    Court    concludes    today       that   Valhal's     $2,000,000

claim, on which it secured a jury verdict of $1,000,000 after the

district court refused Sullivan's motion to dismiss for lack of

subject matter jurisdiction, is a case in which it appears to a

"legal certainty" that the amount in dispute failed to reach the
jurisdictional minimum.         I believe this holding confuses the

jurisdictional question of legal certainty with the standard for

judgment on the merits as a matter of law.                   I also believe it

ignores Red Cab's instruction that a diversity claim should not

be dismissed for lack of subject matter jurisdiction unless the

allegation   in   the     complaint    that    it    is    for   more    than   the

jurisdictional amount is made in bad faith.                Id.   On this record,

I do not think it can be inferred that Valhal's $2,000,000 claim

was made in a bad faith attempt to meet the jurisdictional amount
of more than $50,000 that 28 U.S.C.A. § 1332 (West 1993) requires

in a diversity case.

              The length and complexity of the analysis the Court

uses   to     resolve      the    controlling       issue    of    state     law,    not

heretofore authoritatively decided, seems to me to belie any

conclusion      that       Valhal's       allegation       that    the     amount    in

controversy is more than $50,000 could be seen from the outset to

be false to a "legal certainty" and so was made in bad faith or

was merely colorable.            It seems to me that these determinations

should be made ex ante, not post hoc.

              In addition, it is clear from Part II of the opinion

that the Court, in directing dismissal of the case for lack of

subject matter jurisdiction, has incorrectly applied the standard

of   review    applicable        to   a   Rule 56    grant   of    summary    judgment

instead of the standard applicable to a Rule 12(b)(1) motion to

dismiss for lack of subject matter jurisdiction.                           Reasonable

jurists might indeed conclude that Valhal's claim should not

survive summary judgment, an issue on which I am dubitante; but I

think this record demonstrates that Red Cab's standard governing

dismissal for lack of subject matter jurisdiction is not met.

              Moreover, none of this Court's own cases concerning

dismissal      of    a     diversity       case     for   failure     to     meet    the

jurisdictional amount seem to support dismissal here.                      I believe,

rather, that Nelson v. Keefer, 451 F.2d 289 (3d Cir. 1971),
supports      the    district         court's     exercise    of    subject     matter

jurisdiction        over   Valhal's       $2,000,000      claim.     In    Nelson,    we

stated:       "'[W]here the jurisdictional issue cannot be stated
without the ruling constituting at the same time a ruling on the

merits, [the necessary choice] is to permit the cause to proceed

to trial.'"      Id. at 292 (quoting Wade v. Rogala, 270 F.2d 280,

285 (3d Cir. 1959)).      We went on to explain that our objective in

deciding questions of jurisdictional amount is to locate only

"those 'flagrant' cases where it can be determined in advance

'with legal certainty' that the congressional mandate . . . was

not satisfied."      Id. (emphasis added).         Here, the opinion of the

Court demonstrates the necessity of resolving the dispute on the

merits    before    the   jurisdiction     question       could   be   decided.

Accordingly, I think the mandate of the Court should be to vacate

and remand the $1,000,000 judgment for Valhal with instructions

to enter judgment for $50,000 instead of dismissing for lack of

jurisdiction.2

           In    Lunderstadt    v.   Colafella,     885    F.2d   66   (3d    Cir.

1989),    we    considered    whether    federal     question     claims      were

substantial enough to justify the district court in exercising

federal   question    jurisdiction.       Finding     that    they     were    not

"wholly insubstantial and frivolous," we held that the district

court had jurisdiction.        Id. at 70 (citing Bell v. Hood, 327 U.S.
678, 682-83 (1946).          We pointed out that "[t]he threshold to

withstand a motion to dismiss under Fed.R.Civ.P. 12(b)(1) is thus

lower than that required to withstand a Rule 12(b)(6) motion."


    2
     I do not find it necessary on this petition for rehearing to
decide the merits issue. Accordingly, I take no position at this
point on the merits of the state law question, as to which I am,
as stated, dubitante.
Id.   Similarly, in Batoff v. State Farm Insurance Co., 977 F.2d

848 (3d Cir. 1992), after concluding that the claim of a non-

diverse defendant was not wholly insubstantial or frivolous, we

remanded a removed case to the state court, recognizing that the

remand could result in an order granting the defendant's motion

to dismiss.

              Our decision in Packard v. Provident Nat'l Bank, 994

F.2d 1039 (3d Cir.), cert. denied sub nom. Upp v. Mellon Bank,

N.A., 114 S. Ct. 440 (1993), holding that the district court

lacked subject matter jurisdiction because "it [wa]s evident to a

legal certainty that the requisite amount in controversy for

diversity          jurisdiction          was      never         recoverable,"          is

distinguishable.          Id.    at   1042.       There,    we    were    considering

punitive    damages       that   were     "'patently      frivolous      and    without

foundation'" or "asserted solely or primarily for the purpose of

conferring jurisdiction."             Id. at 1046 (citations omitted); see

also In re Corestates Trust Fee Litig., 994 F.3d 61 (1994).                            To

read Packard more broadly brings it into tension with Batoff.

See I.O.P. 9.1.

              I   think   two    cases    from    the    United   States       Court   of

Appeals for the Second Circuit concerning determination of the

amount   in       controversy    in   a   diversity       case    are    instructive:

Zacharia v. Harbor Island Spa, Inc., 684 F.2d 199 (2d Cir. 1982)
and Ochoa v. Interbrew America, Inc., 999 F.2d 626 (2d Cir.

1993).   They aptly capture the distinction between cases in which

the   amount      in   controversy      does     not    reach   the   jurisdictional

amount and those that proceed to judgment on the merits because
the     amount     initially         in     dispute     is     in    excess     of    the

jurisdictional requirement, even though the court may ultimately

determine, on the merits, that the liability of the defendant is

limited to a lesser amount.               In Zacharia, a hotel's liability was

limited to $1,000 by statute.                   The court held that the statutory

limitation was a clear defense to liability that deprived the

court of jurisdiction.              Zacharia, 684 F.2d at 202.             I agree.     In

Ochoa, however, the court held, "[W]hen there is no claim of bad

faith     in     asserting      the       jurisdictional       amount,     courts     are

permitted      only    to    assess       the    allegations    of   the    plaintiff's

complaint and are to refrain from adjudicating the merits of the

case."     Ochoa, 999 F.2d at 630.                 I recognize that the Court of

Appeals    for     the      Sixth    Circuit      has   held   "proof      to   a    legal

certainty that a plaintiff is not entitled to more than [the

jurisdictional amount] overcomes even a good faith allegation

that the jurisdiction amount is in controversy."                            Sellers v.

O'Connell,       701   F.2d    575,       571    (6th   Cir.   1983).       I   believe,

however, that Sellers conflicts with Red Cab, our statement in

Nelson and, by logical implication, our decisions in Batoff and

Lunderstadt, and is wrongly decided.
               For these reasons, I dissent from the order denying

rehearing.

               Judge Greenberg joins in this statement.
