GAUS v. MILES, INC

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Docket Number

No. 91-16385.

Attorney(S)

Robert E. Dickey, Clark Dickey, Reno, Nev., for plaintiff-appellant. Victor A. Perry, Perry Spann, Reno, Nev., for defendant-appellee. Thomas N. Alfrey, Treece, Alfrey Musat, Denver, Colo., for defendant-appellees.

Judges

Alfred Theodore Goodwin
Joseph Jerome Farris
Harry Pregerson

Acts

Judiciary And Judicial Procedure — District Courts; Jurisdiction — Jurisdiction And Venue — Diversity Of Citizenship; Amount In Controversy; Costs
Judiciary And Judicial Procedure — District Courts; Removal Of Cases From State Courts — Jurisdiction And Venue — Removal Of Civil Actions

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Smart Summary

Factual and Procedural Background

Frank D. Gaus filed a lawsuit on May 25, 1990, in the Second Judicial District Court of Nevada against Mobay Corporation, alleging breach of contract, intentional interference with contractual relationships, and intentional interference with prospective economic advantage, seeking damages in excess of $10,000. Mobay Corporation removed the case to the United States District Court for the District of Nevada, asserting subject matter jurisdiction based on diversity jurisdiction under 28 U.S.C. § 1332 and alleging the amount in controversy exceeded $50,000. The district court granted summary judgment in favor of Mobay Corporation. Gaus appealed the grant of summary judgment. The Ninth Circuit panel reviewed the case without oral argument and addressed the issue of subject matter jurisdiction.

Legal Issues Presented

Whether the district court had subject matter jurisdiction under 28 U.S.C. § 1332 given the amount in controversy requirement of $50,000 as amended by the Judicial Improvements and Access to Justice Act of 1988.
Whether removal to federal court was proper given the plaintiff's allegation of damages "in excess of $10,000" and the defendant's failure to establish facts supporting the jurisdictional amount.

Arguments of the Parties

Appellant's Arguments

Gaus argued that Nevada Rule of Civil Procedure 8(a) prohibits stating a specific amount above $10,000 in the complaint.
He asserted that the actual damages sought were "in the millions of dollars," though no pleading in the record explicitly supported this claim aside from an appendix to his summary judgment reply brief.

Appellee's Arguments

Mobay Corporation contended that Gaus's alleged damages amount may have been a procedural error but did not provide factual support to establish the amount in controversy exceeded $50,000.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Boggs v. Lewis, 863 F.2d 662 (9th Cir. 1988)	Removal statute must be strictly construed against removal jurisdiction.	Cited to support the principle that doubts about removal jurisdiction require rejection of federal jurisdiction.
Takeda v. Northwestern Nat'l Life Ins. Co., 765 F.2d 815 (9th Cir. 1985)	Strict construction of removal jurisdiction.	Reinforced the court's approach to construe removal statutes narrowly.
Libhart v. Santa Monica Dairy Co., 592 F.2d 1062 (9th Cir. 1979)	Federal jurisdiction must be rejected if any doubt exists as to removal right.	Supported the court's position to reject removal jurisdiction when uncertain.
St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283 (1938)	Strong presumption against removal jurisdiction; distinction between original and removal jurisdiction on amount in controversy.	Used to explain the burden on defendants to prove jurisdictional amount in removal cases.
Nishimoto v. Federman-Bachrach Assocs., 903 F.2d 709 (9th Cir. 1990)	Defendant bears the burden to establish removal jurisdiction.	Confirmed that defendants must prove jurisdictional facts in removal petitions.
Emrich v. Touche Ross Co., 846 F.2d 1190 (9th Cir. 1988)	Burden of proof on defendant to establish jurisdictional amount.	Supported the court’s strict approach to removal jurisdiction.
Pachinger v. MGM Grand Hotel-Las Vegas, Inc., 802 F.2d 362 (9th Cir. 1986)	Amount in controversy requirement for diversity jurisdiction.	Referenced in context of burden of proof for jurisdictional amount.
Garza v. Bettcher Indus., Inc., 752 F. Supp. 753 (E.D. Mich. 1990)	Defendant must prove jurisdictional facts if amount in controversy is unclear.	Applied to hold that bald assertions without factual support warrant remand.
McNutt v. General Motors Acceptance Corp., 298 U.S. 178 (1936)	Party asserting jurisdiction must prove jurisdictional facts by a preponderance of evidence.	Used to emphasize the burden on defendants to support jurisdictional allegations.

Court's Reasoning and Analysis

The court analyzed the jurisdictional issue by first noting that the amount in controversy requirement under 28 U.S.C. § 1332 had been increased from $10,000 to $50,000 effective May 18, 1989, prior to the filing of Gaus's complaint. Since Gaus's complaint alleged damages "in excess of $10,000" but did not specify an amount exceeding $50,000, the court questioned whether the district court had subject matter jurisdiction.

The court emphasized the strict construction of removal statutes against removal jurisdiction, citing binding precedent that any doubt about the propriety of removal requires rejection of federal jurisdiction. It highlighted the "strong presumption" against removal jurisdiction in diversity cases and the burden on defendants to establish the jurisdictional amount in removal petitions.

Because Gaus's complaint was ambiguous regarding the amount in controversy due to Nevada procedural rules prohibiting specific demands above $10,000, the burden shifted to Mobay (defendant) to prove that the amount in controversy exceeded $50,000. Mobay failed to present any factual support beyond a conclusory statement in the removal petition. The court found this insufficient to overcome the presumption against removal jurisdiction.

Accordingly, the court vacated the district court's summary judgment and remanded the case with instructions to remand the matter back to the state court for lack of subject matter jurisdiction in federal court.

Holding and Implications

The court VACATED the district court's grant of summary judgment and REMANDED the case to the district court with instructions to REMAND the case to the state court for lack of subject matter jurisdiction.

The direct effect of this decision is that the federal courts lack jurisdiction over the case as currently pleaded, and the case must proceed in state court. The decision does not establish new precedent but reinforces the strict requirements for removal jurisdiction and the burden on defendants to prove the jurisdictional amount in controversy when it is unclear from the plaintiff's pleadings.

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FRANK D. GAUS, PLAINTIFF-APPELLANT, v. MILES, INC., AN INDIANA CORPORATION, DEFENDANT-APPELLEE.

PER CURIAM:

Frank D. Gaus appeals the district court's grant of summary judgment in favor of Mobay Corporation. Gaus alleged breach of contract, intentional interference with contractual relationships, and intentional interference with prospective economic advantage. We vacate the judgment for lack of subject matter jurisdiction and remand to the district court with instructions to remand to the state court.

The parties filed a stipulation to change the name of the appellee Mobay Corporation to "Miles, Inc., an Indiana Corporation" in order to reflect a corporate merger. The motion was granted.

FACTS

On May 25, 1990, Gaus filed this action against Mobay Corporation in the Second Judicial District Court of the State of Nevada. Gaus sought damages "in excess of $10,000." On July 13, 1990, Mobay Corporation removed the action to the United States District Court for the District of Nevada, relying on 28 U.S.C. § 1332 and 1441(a), and alleging that "the matter in current controversy . . . exceeds the sum of $50,000."

Concerned that the district court lacked subject matter jurisdiction, we issued the following order on October 26, 1992:

It appears that there is a jurisdictional defect in that the appellant alleged damages in excess of $10,000. The parties are directed to file simultaneous supplemental memoranda, not to exceed 5 pages, as to why the case should not be dismissed for lack of subject matter jurisdiction. The memoranda shall be filed by November 5, 1992.

Gaus responded that Nevada Rule of Civil Procedure 8(a) prohibits a demand for a specific amount above $10,000. Gaus alleges that the actual damages sought are "in the millions of dollars." Gaus fails to point to any pleading which supports this allegation other than the Appendix to his Summary Judgment Reply Brief. Mobay states only that Gaus's alleged damages may be a procedural error.

DISCUSSION 1. Amount in Controversy Requirement Increased

On November 19, 1988, pursuant to the Judicial Improvements and Access to Justice Act, Pub.L.No. 100-702, 102 Stat. 4642 (1988), Congress increased the "amount in controversy" provision of 28 U.S.C. § 1332 from $10,000 to $50,000. The relevant portion of the act provides:

SEC. 201 AMOUNT IN CONTROVERSY IN DIVERSITY CASES

(a) Increase in Amount in Controversy to $50,000 — Subsections (a) and (b) of section 1332 are each amended by striking out "$10,000" and inserting in lieu thereof "$50,000".

(b) Effective Date — The amendments made by this section shall apply to any civil action commenced on or after the 180th day after the enactment of this title.

The "date of enactment" for section 201 was November 19, 1988. The "effective date" was therefore May 18, 1989.

Gaus's complaint, filed May 25, 1990, alleges damages "in excess of $10,000." The effective date of the $50,000 "amount in controversy" requirement was May 18, 1989.

2. Removal Statute Strictly Construed

We strictly construe the removal statute against removal jurisdiction. Boggs v. Lewis, 863 F.2d 662, 663 (9th Cir. 1988); Takeda v. Northwestern Nat'l Life Ins. Co., 765 F.2d 815, 818 (9th Cir. 1985). Federal jurisdiction must be rejected if there is any doubt as to the right of removal in the first instance. Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1064 (9th Cir. 1979).

In diversity cases, where the amount in controversy is in doubt, the Supreme Court has drawn a sharp distinction between original jurisdiction and removal jurisdiction:

[I]n cases brought in the federal court . . . [i]t must appear to a legal certainty that the [plaintiff's] claim is really for less than the jurisdictional amount to justify dismissal. . . . A different situation is presented in the case of a suit instituted in a state court and thence removed. There is a strong presumption that the plaintiff has not claimed a large amount in order to confer jurisdiction on a federal court or that the parties have colluded to that end.

St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-290, 58 S.Ct. 586, 590-591, 82 L.Ed. 845 (1938).

The "strong presumption" against removal jurisdiction means that the defendant always has the burden of establishing that removal is proper. Nishimoto v. Federman-Bachrach Assocs., 903 F.2d 709, 712 n. 3 (9th Cir. 1990); Emrich v. Touche Ross Co., 846 F.2d 1190, 1195 (9th Cir. 1988). Normally, this burden is satisfied if the plaintiff claims a sum greater than the jurisdictional requirement. See St. Paul, 303 U.S. at 288-89, 58 S.Ct. at 590; Pachinger v. MGM Grand Hotel-Las Vegas, Inc., 802 F.2d 362, 363 (9th Cir. 1986).

If it is unclear what amount of damages the plaintiff has sought, as is true here with regard to Gaus's claim, which is governed by Nevada Rule of Civil Procedure 8(a), then the defendant bears the burden of actually proving the facts to support jurisdiction, including the jurisdictional amount. Garza v. Bettcher Indus., Inc., 752 F. Supp. 753, 763 (E.D.Mich. 1990). This principle was announced in McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189, 56 S.Ct. 780, 785, 80 L.Ed. 1135 (1936):

The authority which the statute vests in the court to enforce the limitations of its jurisdiction precludes the idea that jurisdiction may be maintained by mere averment or that the party asserting jurisdiction may be relieved of his burden by any formal procedure. If his allegations of jurisdictional facts are challenged by his adversary in any appropriate manner, he must support them by competent proof. And where they are not so challenged the court may still insist that the jurisdictional facts be established or the case be dismissed, and for that purpose the court may demand that the party alleging jurisdiction justify his allegations by a preponderance of evidence.

Mobay has offered no facts whatsoever to support the court's exercise of jurisdiction. Instead, Mobay simply alleges that "the matter in current controversy . . . exceeds the sum of $50,000." This allegation, although attempting to recite some "magical incantation," neither overcomes the "strong presumption" against removal jurisdiction, nor satisfies Mobay's burden of setting forth, in the removal petition itself, the underlying facts supporting its assertion that the amount in controversy exceeds $50,000. See Garza, 752 F. Supp. at 763 (holding that defendant's bald recitation that "the amount in controversy exceeds $50,000," without the defendant identifying any specific factual allegations or provisions in the complaint which might support that proposition, should provoke sua sponte remand).

The judgment is VACATED. The case is REMANDED to the district court with instructions to REMAND to the state court.