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Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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In the

United States Court of Appeals

For the Seventh Circuit ____________________

No. 14-2959

JOSEPH C. MCCORMICK and MARY C. MCCORMICK,

Plaintiffs-Appellants,

v.

INDEPENDENCE LIFE AND ANNUITY COMPANY,

Defendant-Appellee.

____________________

Appeal from the United States District Court

for the Eastern District of Wisconsin.

No. 12-C-763 — William C. Griesbach, Chief Judge.

____________________

ARGUED JUNE 2, 2015 — DECIDED JULY 24, 2015

____________________

Before POSNER, EASTERBROOK, and SYKES, Circuit Judges.

EASTERBROOK, Circuit Judge. Joseph and Mary McCormick 

bought a single-premium variable life-insurance policy that 

permits them to borrow against its cash value. Loans are secured by moving an equivalent amount from sub-accounts 

that the policyholder can invest to a “general account” that 

draws 4% interest. The policyholder owes 4.7% on any borrowed sums, so the net is 0.7% per annum, plus foregoing 

the opportunity to exercise discretion about how to invest 

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the borrowed sum. The policy adds that, if the owner does 

not pay the annual 4.7% interest, “it will be added to the 

principal of the loan and will bear interest.”

The McCormicks borrowed against the policy’s cash value and did not pay interest. Independence, the insurer, added the amount of unpaid interest “to the principal of the 

loan” (which caused additional sums to be moved from investments into the general account as security) and charged 

interest on the higher indebtedness. Over the years, compound interest has increased the debt by $44,000, which if 

not repaid will reduce the policy’s death benefit. The 

McCormicks seek a declaration that they do not owe this 

$44,000. As they see things, when the unpaid annual interest 

was “added to the principal of the loan” each year and 

moved to the general account, it was thus “paid” automatically—and what has been paid cannot draw interest. The insurer removed the suit to federal court, and the district judge 

granted judgment on the pleadings, since the dispute turns 

entirely on the policy’s language. The judge thought that the 

language unambiguously supports the insurer. 2014 U.S. 

Dist. LEXIS 34981 (E.D. Wis. Mar. 18, 2014).

Our mention of a $44,000 dispute is a tipoff to the only 

question we need address: What is this case doing in federal 

court? Removal rested on diversity of citizenship, and 

$75,000 is the minimum amount in controversy for that jurisdiction. 28 U.S.C. §1332(a). Both sides nonetheless support 

the removal and maintain that it was proper because the 

McCormicks’ complaint asked for cancellation of the entire 

loan balance (roughly $70,000) in addition to elimination of 

the interest. The problem is that there is no legal basis for 

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No. 14-2959 3

that request, which the McCormicks voluntarily dropped 

soon after removal.

If a suit is filed initially in federal court, a plaintiff’s 

good-faith estimate of the stakes controls unless it is legally 

impossible for a court to award what the plaintiff demands. 

St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 

289 (1938) (asking whether it “appear[s] to a legal certainty” 

that the plaintiff cannot recover the jurisdictional minimum). 

The same approach applies to a removing defendant’s estimate of the stakes. Dart Cherokee Basin Operating Co. v. Owens, 135 S. Ct. 547, 553–54 (2014). Cancellation of the principal balance as a remedy for excessive interest is legally impossible in Wisconsin, whose law supplies the rule of decision. When pressed at oral argument for any authority underlying the complaint’s demand for this remedy, the 

McCormicks’ lawyer conceded that there is none. Wisconsin 

entitles a party aggrieved by breach of contract to a remedy 

that will restore him to the position he would have occupied 

had all promises been fulfilled. See, e.g., Thorp Sales Corp. v. 

Gyuro Grading Co., 111 Wis. 2d 431 (1983). Cancellation of the 

principal debt would be a windfall, not a means of vindicating the McCormicks’ contractual rights.

Counsel told us that he put the demand in the complaint 

only because Joseph McCormick really wants cancellation of 

the debt and thinks himself entitled to it—though without a

legal basis. The complaint might as well have demanded 

treble the amount of disputed interest, even though Wisconsin law offers not a shred of support for a treble-damages 

remedy. The amount-in-controversy requirement would not 

be worth the paper it’s written on if arbitrary multipliers, or 

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a plaintiff’s fondest wishes, counted toward federal jurisdiction.

In a memorandum filed after the oral argument, the insurer contends that jurisdiction is supported by the complaint’s request for an injunction against cancellation of the 

policy. The policy allows cancellation if a loan’s unpaid balance equals or exceeds the policy’s cash value. The McCormicks’ loan (including interest) was nearing that point, and 

Independence sent them a notice of proposed cancellation. 

But how does this propel the stakes over $75,000? If the policy really was at (or approaching) a negative value, then the 

difference between its continuation and its cancellation has a 

correspondingly small value.

Suppose, despite this, that the policy’s value exceeds 

$75,000. The policy serves as security for the loan. Forget insurance for a moment and consider the situation in which 

the owner of a parcel of land worth $1 million uses it as security for a $50,000 loan. The borrower does not repay, and 

the lender seeks to foreclose and sell the parcel to satisfy the 

debt. What is the amount in controversy: $50,000 or $1 million? The amount is $50,000, because that is what would satisfy the lender’s entire demand on the date the suit was filed. 

See Gardynski-Leschuck v. Ford Motor Co., 142 F.3d 955 (7th 

Cir. 1998). Similarly, the McCormicks could have satisfied 

Independence’s demand by paying the $44,000 it claims as 

interest—and they could have avoided a risk of the policy’s 

cancellation by paying even less (just enough to keep its cash 

value positive). The request for an injunction against cancellation therefore does not turn this dispute about $44,000 into 

a controversy worth more than $75,000.

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Finally, the insurer maintains that the district court had 

jurisdiction when it entered judgment, even if not when the 

case was removed, because after the removal the McCormicks added a federal securities-law claim to their complaint, furnishing federal-question jurisdiction under 28 

U.S.C. §1331. There are two potential problems with that line 

of argument. First, jurisdiction usually depends how things 

stand when a case is removed, not on what happens later. St. 

Paul Mercury, 303 U.S. at 291–94; In re Shell Oil Co., 966 F.2d 

1130, amended, 970 F.2d 355 (7th Cir. 1992). These decisions 

hold that post-removal changes to the pleadings do not cancel federal jurisdiction that existed on the date of removal, 

which leaves open the possibility that new bases of federal 

jurisdiction could be added. See Caterpillar, Inc. v. Lewis, 519 

U.S. 61 (1996). Otherwise a court might dismiss a suit for 

lack of jurisdiction, only to have it re-filed the next day with 

jurisdiction secure. Cf. Newman-Green, Inc. v. Alfonzo-Larrain, 

490 U.S. 826 (1989). So we turn to the second problem: the 

securities claim is as impossible as the demand for zeroing 

out the loan’s principal balance.

Plaintiffs invoked §12 of the Securities Act of 1933, 15 

U.S.C. §77l, which governs the sale of securities. (Variable 

insurance policies are securities. See SEC v. Variable Annuity 

Life Insurance Co. of America, 359 U.S. 65 (1959).) They asserted that the insurer violated §12 by stating in the registration 

statement and prospectus that interest on loans will be deducted from the policy’s cash value if not paid when due. 

Yet the McCormicks’ complaint avers that this is exactly 

what the policy itself says. The complaint therefore does not 

allege a false statement. The McCormicks alleged breach of 

contract, not fraud. On the difference between these two for 

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the purpose of federal securities law, see Wharf (Holdings) 

Ltd. v. United International Holdings, Inc., 532 U.S. 588 (2001).

More than that: As the district court observed, 2014 U.S. 

Dist. LEXIS 34981 at *11–14, the complaint reveals that the 

claim is time-barred—by twenty-four years! A claim under §12 

arises when the security is first offered to the public, 15 

U.S.C. §77m, and a statute of repose sets three years as the 

outer limit for suit. The McCormicks bought their policy in 

1987 (the policy may have been “offered” even earlier) and 

did not assert a securities claim until 2014. Statutes of repose 

cannot be equitably tolled, see Lampf, Pleva, Lipkind, Prupis & 

Petigrow v. Gilbertson, 501 U.S. 350, 363 (1991), and ongoing 

injury (which the McCormicks assert) differs from a new 

claim. New injury from an old wrong does not affect the period of limitations. See, e.g., National Railroad Passenger Corp. 

v. Morgan, 536 U.S. 101, 110–15 (2002); United States v. Kubrick, 444 U.S. 111 (1979). The securities claim is wacky, so far 

beyond the pale that it cannot support federal jurisdiction. 

See Hagans v. Lavine, 415 U.S. 528, 537 (1974) (an “essentially 

fictitious” claim does not support jurisdiction under §1331).

The judgment is vacated, and the case is remanded with 

instructions to dismiss for lack of subject-matter jurisdiction.

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