                              In the

United States Court of Appeals
               For the Seventh Circuit

No. 12-3310

B ABA-D AINJA E L,
                                                  Plaintiff-Appellant,
                                  v.

A MERIC REDIT F INANCIAL S ERVICES, INC., et al.,

                                               Defendants-Appellees.


             Appeal from the United States District Court
        for the Northern District of Illinois, Eastern Division.
             No. 12 C 153—Harry D. Leinenweber, Judge.



   S UBMITTED F EBRUARY 14, 2013—D ECIDED M ARCH 20, 2013




  Before P OSNER, W OOD , and T INDER, Circuit Judges.
  P OSNER, Circuit Judge. The plaintiff bought a used
pickup truck in 2011 for $28,000 and financed the
purchase by means of a six-year installment contract that
specified an interest rate of 23.9 percent. The dealer
who sold him the truck assigned the contract to
AmeriCredit. But after making the first installment the
plaintiff sent his new creditor a copy of the installment
contract that he had stamped “accepted for value and
2                                                 No. 12-3310

returned for value for settlement and closure,” and told
AmeriCredit to collect the balance of the money due it
under the contract from the U.S. Treasury. AmeriCredit
repossessed the truck, sold it, and billed the plaintiff
$11,322.28 to cover the difference between the price
at which the truck had been resold and the unpaid
balance on the installment contract.
  The plaintiff responded by suing AmeriCredit and
two of its officers in a federal district court in Illinois for
$34 million in compensatory damages and $2.2 billion
in punitive damages. Needless to say, he was proceeding
pro se. The district judge couldn’t make sense of the
complaint and dismissed it as being frivolous. Frivolous
it is, though not completely unintelligible. It has the
earmarks of the “Sovereign Citizens” movement. As
explained by the FBI, “Sovereign citizens view the
USG [U.S. government] as bankrupt and without
tangible assets; therefore, the USG is believed to use
citizens to back US currency. Sovereign citizens believe
the USG operates solely on a credit system using
American citizens as collateral. Sovereign citizens
exploit this belief by filing fraudulent financial docu-
ments charging their debt to the Treasury Department.”
Federal Bureau of Investigation, “Sovereign Citizens:
An Introduction for Law Enforcement” 3 (Nov. 2010),
http://info.publicintelligence.net/FBI-SovereignCitizens.pdf
(visited March 6, 2013).
  The plaintiff based federal jurisdiction on the
admiralty and diversity jurisdictions of the federal
courts. Admiralty jurisdiction over his case may seem
No. 12-3310                                                 3

unavailable to him on two grounds: the case has nothing
to do with maritime activities; and, “in the absence of
diversity of citizenship, it is essential to jurisdiction that
a substantial federal question should be presented.”
Hagans v. Lavine, 415 U.S. 528, 537 (1974); see also
Frederick v. Marquette National Bank, 911 F.2d 1, 2 (7th
Cir. 1990); Beauchamp v. Sullivan, 21 F.3d 789, 790 (7th Cir.
1994); Dixon v. Coburg Dairy, Inc., 369 F.3d 811, 817 n. 5
(4th Cir. 2004). The first ground is solid, but not the
second. Article III, section 2 of the Constitution confers
federal jurisdiction over admiralty cases. But cases don’t
have to arise under federal law in order to be within the
admiralty jurisdiction, Romero v. International Terminal
Operating Co., 358 U.S. 354 (1959)—they just have to
involve maritime activities. Often, however, they do
arise from federal law, either statutory or judge-made.
It is unclear what the plaintiff’s admiralty claim arises
from, but clear that the claim is not within the ad-
miralty jurisdiction because it has no relation to
maritime activities. (The Sovereign Citizens movement
does not recognize the limitation of the admiralty juris-
diction to maritime activities. See “Why We Are in
the Admiralty Jurisdiction,” Apr. 18, 2004, http://freedom-
school.com/law/Admiralty.htm (visited March 7, 2013),
where we read, for example, that “any of the actors work-
ing for the United States are vessels . . . . We are all
vessels; human bags carrying ‘sea water.’ ”)
   Dismissals because of absence of federal jurisdiction
ordinarily are without prejudice—“dismissal [for want
of federal jurisdiction] with prejudice is inappropriate
because such a dismissal may improperly prevent a
litigant from refiling his complaint in another court that
4                                               No. 12-3310

does have jurisdiction…, and perhaps more essentially,
once a court determines it lacks jurisdiction over a
claim, it perforce lacks jurisdiction to make any deter-
mination of the merits of the underlying claim.” Brereton
v. Bountiful City Corp., 434 F.3d 1213, 1217 (10th Cir.
2006). We added the qualifier “ordinarily” for two rea-
sons. The first is the sensible remark in Caribbean Broad-
casting System, Ltd. v. Cable & Wireless P.L.C., 148 F.3d
1080, 1091 (D.C. Cir. 1998), that “in rare circumstances,
a district court may use its inherent power to dismiss
with prejudice (as a sanction for misconduct) even a
case over which it lacks jurisdiction, and its decision to
do so is reviewed for abuse of discretion.” We return
to this qualification at the end of the opinion.
  Second, if the reason there’s no federal jurisdiction is
the plaintiff’s having predicated jurisdiction on a
frivolous federal claim, dismissal with prejudice is ap-
propriate, Beauchamp v. Sullivan, supra, 21 F.3d at 790-91,
for such a suit will go nowhere in any court. This
almost certainly is the case insofar as the plaintiff’s ad-
miralty claim is concerned, if that claim is founded on
federal law (though if not it’s still outside admiralty
jurisdiction, as we’ve pointed out). But he invoked di-
versity jurisdiction as well, and if there was diversity
jurisdiction but the claim asserted was frivolous the
case should have been dismissed with prejudice. When
a case of which the court has jurisdiction is dismissed
because it fails to state a claim (which a frivolous suit
obviously fails to do), the dismissal is a merits deter-
mination and is therefore with prejudice. The difference
between a federal-question case that is frivolous and a
diversity case that is frivolous is that the latter case but
No. 12-3310                                                  5

not the former is within federal jurisdiction, because a
substantial claim is not a condition of diversity jurisdiction.
   The district court dismissed the entire complaint
without prejudice. Indeed, remarking that the “inordi-
nately high interest rate” in the installment contract
(almost 24 percent) might violate Illinois’s usury law, he
invited the plaintiff to file an amended complaint. The
plaintiff did so but did not take the judge’s hint about
usury. Had he done so, he would soon have hit a dead
end. Illinois does not recognize a common law claim
for usury, Tennant v. Joerns, 160 N.E. 160, 162-63 (Ill. 1928)
(per curiam); Sweeney v. Citicorp Person-to-Person Financial
Center, Inc., 510 N.E.2d 93, 98 (Ill. App. 1987), and the
Illinois Motor Vehicle Retail Installment Sales Act, 815
ILCS 375/21, provides that “notwithstanding the pro-
visions of any other statute, for motor vehicle retail in-
stallment contracts executed after September 25, 1981,
there shall be no limit on the finance charges which may
be charged, collected, and received.” See General Motors
Acceptance Corp. v. Kettelson, 580 N.E.2d 187 (Ill. App. 1991);
cf. In re Oakes, 267 F.2d 516, 518 (7th Cir. 1959) (Illinois
law). Instead the plaintiff refiled his original complaint
with immaterial changes. The judge again dismissed the
complaint, but this time ruled (incorrectly as we’ll see)
that it had successfully invoked diversity jurisdiction;
and so this time he made the dismissal a dismissal on the
merits and therefore with prejudice, as we suggested
is the proper procedure when a claim within the
diversity jurisdiction is frivolous.
  AmeriCredit filed a counterclaim to the amended
complaint, seeking the $11,322.28 that it was out plus
6                                                 No. 12-3310

prejudgment interest and attorneys’ fees. It did not seek,
and could not, for a mere breach of contract, have
obtained, punitive damages. Morrow v. L.A. Goldschmidt
Associates, Inc., 492 N.E.2d 181, 183 (Ill. 1986). (The two
officers whom the plaintiff had sued were not counter-
claimants; the $11,322.28 was owed to AmeriCredit, not
to them.) It might have charged the plaintiff with fraud,
in which event it could have sought punitive damages;
but it did not. The plaintiff did not answer the counter-
claim and eventually the judge entered a default judg-
ment for $13,582, plus costs, in favor of AmeriCredit.
  The plaintiff has appealed. The appeal tracks his sub-
mission in the district court. In their brief in response
the defendants argue that the district court never
acquired jurisdiction over the plaintiff’s suit, because
the only possible basis for federal jurisdiction was
diversity of citizenship and the complaint didn’t state
a colorable claim for monetary relief in excess of $75,000,
as the diversity statute requires. 28 U.S.C. § 1332(a).
   If there is no jurisdiction over the plaintiff’s suit, there
would be jurisdiction over the counterclaim only if, were
it filed as a free-standing suit, it would be within federal
jurisdiction. See Barefoot Architect, Inc. v. Bunge, 632
F.3d 822, 836 (3d Cir. 2011); Safeco Ins. Co. v. City of
White House, 36 F.3d 540, 546 (6th Cir. 1994). The defen-
dants’ counterclaim is based exclusively on state law, so
the only basis of federal jurisdiction is the diversity
jurisdiction, which requires that the parties be of diverse
citizenship and the amount in controversy exceed
$75,000. The defendants’ brief asks us to affirm the
default judgment but does not contend that the counter-
No. 12-3310                                                 7

claim satisfied the amount in controversy require-
ment. The plaintiff’s opening and reply briefs don’t
mention the counterclaim.
  We ordered the defendants’ brief stricken because it
lacked an adequate jurisdictional statement. The defen-
dants filed an amended brief. The jurisdictional statement
in it states that the plaintiff’s suit is within diversity
jurisdiction because it “alleges that the matter in contro-
versy exceeds the sum or value of $75,000.00, exclusive
of interest and costs” and that the plaintiff is a citizen
of Illinois and the three defendants are citizens of Delaware
(AmeriCredit) and Texas (AmeriCredit and the two
officers). The brief adds that the district court had sup-
plemental jurisdiction over the counterclaim, 28 U.S.C.
§ 1367, and repeats the request in the stricken brief
that we affirm the default judgment.
   The revised jurisdictional statement is riddled with
errors. The fact that the plaintiff alleged an amount in
controversy in excess of $75,000—in fact in excess of
$2 billion—does not establish that this is the amount
in controversy. “[I]f from the face of the pleadings, it is
apparent, to a legal certainty, that the plaintiff cannot
recover the amount [that is, an amount required to main-
tain a diversity suit] claimed or if, from the proofs,
the court is satisfied to a like certainty that the plain-
tiff never was entitled to recover that amount, . . . the
suit will be dismissed.” St. Paul Mercury Indemnity Co. v.
Red Cab Co., 303 U.S. 283, 289 (1938). It is a legal certainty
that the plaintiff is entitled to recover nothing. Since
his suit is therefore not within federal jurisdiction (for
remember that his invocation of admiralty jurisdiction
8                                                   No. 12-3310

is also groundless), the counterclaim cannot be within
the district court’s supplemental jurisdiction. That juris-
diction is limited to claims intimately related to claims
that are within federal jurisdiction on some other
ground. “[I]n 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 con-
troversy under Article III of the United States Constitu-
tion.” 28 U.S.C. § 1367(a) (emphasis added); see Kelly
v. Fleetwood Enterprises, Inc., 377 F.3d 1034, 1040 (9th
Cir. 2004).
  Nor has the counterclaim, considered as an indep-
endent suit, been shown to be within federal jurisdic-
tion. AmeriCredit has as we said no federal claim; and
while there is complete diversity of citizenship, the
amount in controversy alleged by AmeriCredit is below
the statutory minimum; it is only $11,000 plus prejudg-
ment interest. This is another bobble by AmeriCredit,
though one without consequences. The loan contract
required the plaintiff to pay “reasonable attorney’s fees,
costs and expenses incurred [by AmeriCredit] in the
collection or enforcement of the debt,” and when such
expenses are sought as part of an underlying claim,
rather than pursuant to a separate post-judgment right
to “costs” or “fees” incurred in the litigation, they are
considered part of the amount in controversy. Missouri
State Life Ins. Co. v. Jones, 290 U.S. 199, 202 (1933); Gardynski-
Leschuck v. Ford Motor Co., 142 F.3d 955, 958 (7th Cir.
1998); Manguno v. Prudential Property & Casualty Ins. Co.,
276 F.3d 720, 723-24 (5th Cir. 2002); Miera v. Dairyland
No. 12-3310                                              9

Ins. Co. 143 F.3d 1337, 1340 (10th Cir. 1998); compare
Smith v. American General Life & Accident Ins. Co., 337
F.3d 888, 896-97 (7th Cir. 2003); Hart v. Schering-Plough
Corp., 253 F.3d 272, 273-74 (7th Cir. 2001); Gardynski-
Leschuck v. Ford Motor Co., supra, 142 F.3d at 958-59; Hall
v. EarthLink Network, Inc., 396 F.3d 500, 506 (2d Cir.
2005); Burns v. Windsor Ins. Co., 31 F.3d 1092, 1097
(11th Cir. 1994). Nevertheless it’s inconceivable that
AmeriCredit’s claim was worth more than $75,000 exclu-
sive of interest and costs when we consider the
default judgment that AmeriCredit does not challenge
as inadequate—a measly $13,582.75, plus costs.
  So the judge should have dismissed the counterclaim
for want of federal jurisdiction, though without
prejudice because AmeriCredit should be allowed to
refile it as a new suit in an Illinois state court. Not
that that would be an ideal solution. The amount
AmeriCredit would be suing for might be too small to
make a suit worthwhile unless it would have an in
terrorem effect that would make future debtors less
inclined to try to stiff AmeriCredit, which seems unrealis-
tic. Rather than file a counterclaim over which the
district court had no jurisdiction, as AmeriCredit’s
lawyers should have realized from the get-go, or bring
suit in state court, AmeriCredit could have asked the
judge to impose sanctions on the plaintiff under Fed. R.
Civ. P. 11 for filing a frivolous suit; it did not.
  It might seem that an appropriate sanction would
have been to award AmeriCredit the amount of the
default judgment, on the theory that the plaintiff’s frivo-
lous suit foisted that cost on AmeriCredit. But that isn’t
10                                            No. 12-3310

correct. Had the plaintiff simply failed to pay the
$11,322.28 it owed AmeriCredit, AmeriCredit would
have had to file a suit in state court if it wanted to
collect the money. The harm it incurred by being sued
frivolously by the plaintiff was the expense of defending
against the plaintiff’s suit—that was the expense it could
have sought reimbursement of under Rule 11 but didn’t.
  Another possible sanction, as we suggested earlier,
would have been dismissal of the plaintiff’s second com-
plaint with prejudice, so that he cannot refile his suit
against AmeriCredit in state court; for the only motive
of such a refiling could be harassment. The district judge
did dismiss the second complaint with prejudice, but
not as a sanction—instead on the erroneous ground
that there was federal diversity jurisdiction and he was
deciding the merits.
  The judgment must therefore be vacated and the
case remanded with directions that the judge (1) either
dismiss the plaintiff’s suit without prejudice or dismiss
with prejudice, as a sanction (not requested by the de-
fendant, but within the court’s inherent authority);
(2) vacate the default judgment in favor of AmeriCredit
on its counterclaim; and (3) dismiss the counterclaim
but without prejudice.
                                V ACATED , AND R EMANDED
                                        WITH D IRECTIONS.




                          3-20-13
