Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_07-cv-00177/USCOURTS-azd-2_07-cv-00177-0/pdf.json

Parties Involved:
Home Buyers Warranty Corporation
Petitioner
Melyssa Leighty
Defendant
Randy Leighty
Respondent

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Home Buyers Warranty

Corporation, 

Petitioner, 

vs.

Randy Leighty; Melyssa Leighty,

Husband and Wife, 

Respondents. 

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No. CV 07-177-PHX-RCB

 O R D E R 

Currently pending before the court is a motion to dismiss

for lack of subject matter jurisdiction brought pursuant to Fed.

R. Civ. P. 12(b)(1) by respondents, Randy and Melyssa Leighty

(doc. 6). Also pending before the court is a motion by

petitioner Home Buyers Warranty Corporation (“HBW”) to compel

arbitration and to stay the parallel state court action of

Leighty v. U.S. Homes, et al., CV 2006-013254 (Superior Court,

Maricopa Co.) (“Leighty I”) (doc. 7). For the reasons set forth

below, the court grants the respondents’ motion to dismiss for

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lack of subject matter jurisdiction, and accordingly and denies

as moot HBW’s motion to compel arbitration. 

Background

Both this action and the related state court action arise

out of respondent’s dissatisfaction with a new home which they

purchased in 1997. Respondents complain of a number of

“movement-related” problems with that home such as “cracks in

pool plaster, drywall cracks” and “linoleum splitting[.]” Mot.

to Compel Arbitration (doc. 7), exh. 3 thereto (state court co.)

at ¶ 5. In addition to naming HBW, a warranty company, as a

defendant in Leighty I, respondents named the home

builder/seller, U.S. Homes.

 In Leighty I respondents allege six causes of action: 

(1) breach of contract; (2) breach of the “warranty of

workmanship[;]” (3) breach of the “warranty of habitability[;]”

(4) negligence; (5) negligent misrepresentation; and 

(6) violations of the Arizona Consumer Fraud Act (“ACFA”), A.R.S.

§ 44-1522. See id., exh. 3 thereto. In that state court action

respondents are seeking unspecified damages “in an amount as will

be proven at trial, but believed to be in excess of

$50,000.00[.]” Id. at ¶ 14. Respondents also are seeking, “where

appropriate at law, exemplary damages . . . , plus, where

appropriate at law, attorneys fees, costs and disbursements,

interest, disgorgement and injunctive or reformation relief[.]” 

Id. at 12. Respondents did not allege any discrete amounts with

respect to these other types of damages and relief though.

In accordance with section 4 of the Federal Arbitration

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1 Section four provides in relevant part as follows:

 A party aggrieved by the alleged failure, neglect, 

or refusal of another to arbitrate under a written 

agreement for arbitration may petition any United States 

district court which, save for such agreement, would have 

jurisdiction under Title 28, in a civil action . . . of the 

subject matter of a suit arising out of the controversy 

between the parties, for an order directing that such 

arbitration proceed in the manner provided for in such 

agreement.

9 U.S.C. § 4 (West 1999).

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Act(“FAA),1 on January 29, 2007, HBW commenced the present action

specifically seeking “to Compel Arbitration and Stay [the] State

Action[.]” Co. (doc. 1) at 2. HBW relies upon 28 U.S.C. § 1332

and section 4 of the FAA, 9 U.S.C. § 4, as the jurisdictional

bases for its claims. Mirroring the language of section 1332, in

its complaint HBW baldly alleges that “[t]he amount in

controversy exceeds $75,000, exclusive of interest and costs.” 

Co. (doc. 1) at 2, ¶ 4. HBW further alleges, more specifically,

that in Leighty I respondents are asserting that “HBW’s alleged

breaches and misrepresentations entitle [them] to recovery of

$50,000+ repairs plus statutory interest (at 10% per annum),

attorney’s fees, taxable costs and disbursements, and punitive

damages.” Id. at 4, ¶ 9 (emphasis in original). 

On March 6, 2007, respondents filed the present motion to

dismiss arguing first that the FAA does not create an independent

ground of federal jurisdiction. Second, respondents argue that

HBW did not sufficiently allege the $75,000.00 minimum amount in

controversy necessary to confer subject matter jurisdiction upon

this court pursuant to 28 U.S.C. § 1332. Shortly thereafter, on

March 13, 2007, HBW filed its motion to compel arbitration and to

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2 When respondents filed their motion to dismiss, they advised

the court that U.S. Homes had filed a motion to compel arbitration in Leighty I,

and that that motion was to be argued on March 28, 2007. Mot. (Doc. 6) at 2.

As it may, the court has taken judicial notice of those state court proceedings.

See Kolocotronis v. Benefis Health Care, 2007 WL 2710366, at *3 n.3 (D. Mont.

Sept. 13, 2007) (citing, inter alia, Smith v. Duncan, 297 F.3d 809, 815 (9th Cir.

2002)) (“The Court may take judicial notice of matters of public record . . . ,

including pleadings or documents filed in state or federal courts.”) From the

filings in Leighty I it appears that the state court granted that motion to

compel, and stayed that action until October 4, 2007, to allow completion of the

arbitration. See Leighty I, slip op. at 4 (Superior Court, April 4, 2007) (doc.

code 078). More recently, in an order filed on October 26, 2007, the state court

continued Leighty I on its “Inactive Calendar for dismissal on April 4, 2008,

without notice, unless prior to that date a Judgment is entered, a Stipulation

and Order to Dismiss is presented or a Motion to Set and Certificate of Readiness

is filed.” Id., slip op. at 1 (Superior Court, Oct. 25, 2007) (doc. code 084)

(emphasis in original). Evidently, however, that arbitration involves only

respondents and U.S. Homes, as HBW continues to seek arbitration in this action.

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stay the state court action (doc. 7). Respondents did not file a

response to that motion. On July 27, 2007, HBW filed what it

denominated as a reply, wherein it continues to seek an order

compelling arbitration, in the event the court denies the motion

to dismiss. See Reply (doc. 14) at 2-3.2

Discussion

I. Subject Matter Jurisdiction

As previously noted, HBW asserts two separate jurisdictional

bases – the FAA and diversity. The court will address each in

turn. 

A. FAA

“[T]he [FAA] creates federal substantive law requiring the

parties to honor arbitration agreements[.]” Southland Corp. v.

Keating, 465 U.S. 1, 17 n. 9 (1984). By the same token though,

it is well established that “[t]he FAA ‘does not create any

independent federal-question jurisdiction.’” Douglas v. U.S.

Dist. Court for Cent. Dist. Cal., 495 F.3d 1062, 1067 n.2 (9th

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Cir. 2007) (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr.

Corp., 460 U.S. 1, 25 n. 32 (1983)). “Rather, § 4 of the FAA

‘provides for an order compelling arbitration only when the

federal district court would have jurisdiction over a suit on the

underlying dispute; hence, there must be diversity of citizenship

or some other independent basis for federal jurisdiction before

the order can issue.’” Blue Cross of California v. Anesthesia

Care Assoc., 187 F.3d 1045, 1050 (9th Cir. 1999) (quoting Moses

H. Cone, 460 U.S. at 25 n. 32) (emphasis added). As these well

settled principles show, HBW is improperly relying upon the FAA

as a basis for subject matter jurisdiction in this action. 

Therefore, subject matter jurisdiction exists here, if at all,

based upon HBW’s second asserted basis – 28 U.S.C. § 1332. 

B. Diversity Jurisdiction

Section 1332 provides in relevant part that district courts

“shall have original jurisdiction of all civil actions where the

matter in controversy exceeds the sum or value of $75,000,

exclusive of interest and costs, and is between . . . citizens of

different States[.]” 28 U.S.C. § 1332(a)(1) (West 2006) (emphasis

added). Thus, as this court recently explained in Lacombe v.

Bullhead City Hosp. Corp., 2007 WL 2702005 (D.Ariz. Sept. 12,

2007):

To establish federal jurisdiction under this 

statute, two requirements must be met. First, 

“each defendant [must be] a citizen of a 

different state from each plaintiff.” Owen 

Equip. & Erection Co. v. Kroger, 437 U.S. 365, 

373 (1978) (emphasis in original) . . . Second, 

the complaint must include allegations that the 

amount in controversy “exceeds” $75,000.00.

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Id. at *1 (other citation omitted). As will be seen, HBW cannot

meet either requirement.

1. Citizenship

As in Lacombe, “[e]ven though 28 U.S.C. § 1332 ‘speaks of

citizenship, not of residency,’ [HBW] . . . did not [expressly]

allege the citizenship of any of the parties.” Id. at *2

(quoting Kanter v. Warner-Lambert Co., 265 F.3d 853, 857 (9th

Cir. 2001)). HBW did allege, however, that it is “a Colorado

corporation with its principal place of business [in] . . . ,

Denver, Colorado.” Co. (doc. 1) at 2, ¶ 1. As to the individual

respondents, HBW alleges that each of them “reside[] in Maricopa

County in the State of Arizona.” Id. at 2, ¶¶ 2 and 3. Under

the governing case law, as discussed below, while HBW’s

allegations are sufficient to establish that it is a citizen of

Colorado for diversity purposes, HBW’s allegations as to the

residency of the individual respondents are insufficient to

establish their citizenship.

a. Corporate Petitioner

“Corporations have dual citizenship for purposes of

diversity jurisdiction[.]” Lacombe, 2007 WL 2702005, at *3. “A

corporation is deemed to be a citizen of both the State in which

it is incorporated ‘and of the State where it has its principal

place of business.’” Id. (quoting 28 U.S.C. § 1332(c)(1)). Based

upon the allegations in its complaint, although HBW did not

explicitly allege its citizenship, it can easily be inferred that

it is a citizen of Colorado, the state where it is both

incorporated and where it has its principal place of business. 

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b. Individual Respondents

HBW’s complaint cannot be so generously read, however, in

terms of the citizenship of the individual respondents. On more

than one occasion, this court has recently explicated “‘the

simple allegations needed to establish a natural person’s state

of citizenship[]’ under § 1332(a)(1)[.]” Id. (quoting Western

World Insurance Company v. Ramirez, 2007 WL 1839594, at *1

(D.Ariz. June 26, 2007)). More specifically:

To be a citizen of a state, a natural person 

must first be a citizen of the United States.... 

The natural person's state citizenship is then

determined by her state of domicile, not her state of

residence. A person's domicile is her permanent home,

where she resides with the intention to remain or to

which she intends to return.... A person residing in a

given state is not necessarily domiciled there, and

thus is not necessarily a citizen of that state.

Id. (quoting Western World, 2007 WL 1839594, at *1) (quoting in

turn Kanter, 265 F.3d at 857) (emphasis added by Western World

court). In Western World, “[t]his court went on to explain that

‘[t]he distinction between domicile and residence is an

uncontroversial principle to which the Supreme Court has spoken

long ago:‘[A]n averment that a party resided within the State or

the district in which the suit was brought was not sufficient to

support the jurisdiction, because in the common use of words a

resident might not be a citizen, and therefore it was not stated

expressly and beyond ambiguity that he was a citizen of the

State, which was the fact on which the jurisdiction

depending[.]’‘” Id. (quoting Western World, 2007 WL 1839594, at

*1) (quoting in turn Shaw v. Quincy Mining Co., 145 U.S. 444, 447

(1892)).

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“Applying these well settled diversity jurisdiction pleading

requirements to the present case,” as in LaCombe, HBW’s “failure

to allege the state of citizenship of [the] individual

[respondents] is fatal because” HBW, as “the party asserting

diversity jurisdiction[,] bears the burden of proof[.]” Id.

(citing Kanter, 265 F.3d at 85758 (citation omitted)). Also as

in Western World and LaCombe, “this court cannot simply assume

the state of citizenship of the individual respondents “based on

where they reside or have resided.” Id. (citing Western World,

2007 WL 1839594, at *2). Thus, even though respondents “do not

dispute that there is complete diversity of citizenship between

the parties[,]” the court is not free to ignore the explicit

pleading requirements for diversity of citizenship as enunciated

by the Supreme Court. See Resp. (doc. 10) at 3 (citation

omitted). Accordingly the court finds, as it must, that HBW has

not properly alleged the citizenship of the individual

respondents as required to invoke section 1332. It appears that

this jurisdictional defect could likely be cured by amendment,

and ordinarily the court would allow such amendment as it did in

Lacombe. See id. at *4. Given that this jurisdictional defect

is curable, combined with the fact that the amount in controversy

is the focus of this dismissal motion, requires close examination

of the amount in controversy element.

 2. Amount in Controversy

Incorrectly assuming that complete diversity of citizenship

has been properly alleged, respondents direct their motion to

dismiss solely to the amount in controversy. Before delving into

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whether HBW has met the statutory minimum necessary to confer

jurisdiction pursuant to section 1332, there are two matters

which the court must address. The first is how to determine the

amount of controversy in the context of a petition to compel

arbitration. The second and more contentious issue centers

around the burden of proof.

a. Focus of Amount in Controversy Inquiry

 In contrast to the burden of proof issue, the parties seem

to agree that in determining the amount of controversy when a

petition to compel arbitration is brought, the focus is on “the

potential award in the underlying arbitration proceeding.” See

Circuit City Stores v. McLemore, 2001 WL 1705659, at *4 (N.D.Cal.

2001), vacated on other grounds, 70 Fed. Appx. 917 (9th Cir.

2003) (citing, inter alia, Jumara v. State Farm Ins. Co., 55 F.3d

873, 877 (3rd Cir. 1995)); see also Webb v. Investacorp, Inc., 89

F.3d 252, 257 n. 1 (5th Cir. 1996) (§ 1332's amount in

controversy met given that the difference to plaintiffs “between

winning and losing the underlying arbitration w[ould] be

$75,000[]”). Thus, “[t]he damages sought in the state court

action . . . is the amount in controversy.” Doctor’s Associates,

Inc. v. Hamilton, 150 F.3d 157, 160 (2d Cir. 1998) (internal

quotation marks omitted). The rationale for “look[ing] through

to the possible award resulting from the desired arbitration” is

that “the petition to compel arbitration is only the initial step

in a litigation which seeks as its goal a judgment affirming the

award.” Id. (internal quotation marks and citations omitted). 

Admittedly, there is no Ninth Circuit case directly on

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point. See Circuit City Stores , 2001 WL 1705659, at *4 (“The

issue of amount in controversy in the context of a petition to

compel arbitration has apparently not been addressed by the Ninth

Circuit.”) In Theis Research, Inc. v. Brown & Bain, 400 F.3d 659

(9th Cir. 2005), however, the Ninth Circuit held that in a

proceeding to vacate an arbitration award, “the amount in

controversy is the amount [plaintiff] sought to recover by its

complaint.” Id. at 664. That holding strongly suggests that if

directly confronted with the issue of how to measure the amount

in controversy in a petition to compel arbitration, the Ninth

Circuit would, in all likelihood, follow the approach outlined

above taken by the Second, Third and Fifth Circuits. 

Accordingly, to measure the amount in controversy here, the court

will examine the “underlying [state court] cause[s] of action

that w[ill] be arbitrated[,]” as opposed to HBW’s complaint

seeking to compel arbitration. See Jumara, 55 F.3d at 877. 

b. Burden of Proof

Respondents repeatedly contend that to survive this motion

to dismiss HBW must “prove[]” that the amount in controversy in

the underlying state court action satisfies the $75,000.00

statutorily prescribed minimum under section 1332. Mot. (doc. 6)

at 6 (emphasis in original); see also id. at 7 (emphasis in

original) (HBW “must prove that respondent[s] seek[] more than

the threshold amount.”); and at 8 (“[T]he burden is on [HBW] to

prove that the amount in controversy is over $75,000.00[.]”); and

Reply (doc. 10) at 6 (HBW’s failure to “present[] . . . competent

proof” of the “value of the . . . allegations in the state court

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3 This argument need not detain the court for long. In their state

court action respondents allege joint and several liability Mot. to Compel

Arbitration (doc. 7), exh. 3 thereto (st. ct. co.) at ¶ 2. Thus it does not, as

respondents suggest, necessarily follow that because there is more than one

defendant in that action, the amount in controversy is more likely to be less

than the statutory minimum.

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complaint[]” requires dismissal). Instead of offering such

proof, however, from respondents’ perspective HBW is relying upon

nothing more than “self-serving statements . . . and a set of

woeful magical incantations[,]” none of which suffice to prove

that the $75,000.00 threshold has been met here. Id. at 5

(internal quotation marks omitted). Respondents add that because

U.S. Homes is named as a defendant in the state court action,

along with HBW, that “further decrease[s] the likelihood that the

amount in controversy” exceeds the “$75,000.00 jurisdictional

threshold.”3 Id. at 8.

Relying upon the seminal case of St. Paul Mercury Indemnity

Co. v. Red Cab Co., 303 U.S. 283 (1938), HBW impliedly urges the

court to apply a “legal certainty” standard in assessing the

amount in controversy. Under that standard, “[a] dismissal for

lack of jurisdiction . . . is warranted only if it appears to the

Court to a legal certainty that the amount of the claim is really

less than the jurisdictional amount.” Floyd v. Oliverson, 2007

WL 3237728, at *7 (D. Mont. Oct. 31, 2007) (citing, inter alia,

St. Paul Mercury, 303 U.S. at 288). HBW reasons that because in

the state court action Respondents allege damages “believed to be

in excess of $50,000.00[,]" as well as claims for punitive

damages, attorney’s fees and statutory interest, it does not

“appear[] . . . to a legal certainty that the amount of the

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[state court] claim[s] is really less than” $75,000.00. See Mot.

to Compel (doc. 7), exh. 3 thereto at ¶ 14 (emphasis added). HBW

thus concludes that subject matter jurisdiction exists here, and

therefore the court must deny respondents’ motion to dismiss. 

 Respondents challenge HBW’s reliance upon the “legal

certainty” standard, asserting that that standard has been

“flatly rejected by the Courts in cases such as the instant

case.” Reply (doc. 10) at 7. Based upon Gaus v. Miles, Inc.,

980 F.2d 565 (9th Cir. 1992), and its progeny, respondents

explain that the “legal certainty” test does not come into play

when an indeterminate amount of damages has been alleged[,]” as

in the underlying state court action. Reply (doc. 10) at 7. 

Thus, as noted at the outset, respondents maintain that it is

“incumbent upon [HBW] to prove, with competent proof, that [the

state court] complaint alleges damages in excess of $75,000.00."

Id. at 8. Because HBW has “failed to provide such proof,”

respondents contend that the state court “complaint should be

taken on its face[.]” Id. When that is done, as respondents read

that complaint, it does not “allege over $75,000” in controversy;

hence, subject matter jurisdiction is lacking. See id.

Therefore, the court must dismiss this action.

Admittedly, Gaus and its progeny limit the applicability of

the St. Paul Mercury legal certainty test. What Respondents fail

to take into account, however, is that Gaus and Sanchez v.

Monumental Life Ins. Co., 102 F.3d 398 (9th Cir. 1996), the 

cases upon which they rely, were both removed actions. As such,

the Ninth Circuit required the moving defendants to prove the

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amount in controversy by a preponderance of the evidence. The

Court required that standard of proof primarily for two reasons. 

First, the Ninth Circuit invoked the “strong presumption” against

removal jurisdiction. See Gaus, 980 F.2d at 566; Sanchez, 102

F.3d at 403. Second, requiring that burden of proof is

consistent with the removing defendant’s “burden of setting

forth, in the removal petition itself, the underlying facts

supporting its assertion that the amount in controversy exceeds

[$75,000.00].” Gaus, 980 F.2d at 566 (citation omitted) (emphasis

in original); and Sanchez, 102 F.3d at 403-04. Arguably neither

of those concerns is implicated in this “independent federal

suit[,]” which was not removed from state court. See Associates

Housing Finance, LLC v. Young, 2001 WL 34043450, at *3 (D.Or.

2001) (internal quotation marks and citations omitted). 

Moreover, in Gaus itself the Ninth Circuit recognized that “[i]n

diversity cases, where the amount in controversy is in doubt, the

Supreme Court has drawn a sharp distinction between original and

removal jurisdiction[.]” Gaus, 980 F.2d at 566. Thus, simply put,

because this is not a removed action, Respondents’ reliance upon

removal cases such as Gaus is misplaced.

Additionally, even after Gaus and its progeny the Ninth

Circuit has continued to employ the “legal certainty” test in

diversity actions such as this where the amount in controversy is

at issue. For example, in Crum v. Circus Circus Enterprises, 231

F.3d 1129 (9th Cir. 2000), the Ninth Circuit started from the

well-settled rule that “[g]enerally the amount in controversy is

determined from the face of the pleadings.” Id. at 1131. Citing

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4 In Horton v. Liberty Mut. Ins. Co., 367 U.S. 348 (1961), the Supreme

Court clarified the relationship between the good faith inquiry and the legal

certainty standard, stating that “[i]n deciding the question of good faith[,] .

. . it ‘must appear to a legal certainty that the claim is really for less than

the jurisdictional amount to justify dismissal.’” Id. at 353 (quoting St. Paul

Mercury, 303 U.S. at 289). 

5 More recently, the Ninth Circuit applied the “legal certainty” test

to a Magnuson-Moss Warranty Act claim and held that the district court properly

granted a motion to dismiss for lack of subject matter jurisdiction because

plaintiff’s claims did not meet the statutory threshold under that Act. Kelly

v. Fleetwood Enterprises, Inc., 377 F.3d 1034, 1037-38 (9th Cir. 2004). 

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to St. Paul Mercury, the Ninth Circuit recited the equally wellsettled rule that “[t]he sum claimed by the plaintiff controls so

long as the claim is made in good faith.” Id. (citing St. Paul

Mercury, 303 U.S. at 288). In further reliance upon St. Paul

Mercury, the Court in Crum expressly stated that “‘[t]o justify

dismissal, ‘it must appear to a legal certainty that the claim is

really for less than the jurisdictional amount.’”4 Id. (quoting

Budget Rent-a-Car, Inc. v. Higashiguchi, 109 F.3d 1471, 1473(9th

Cir. 1997) (quoting in turn St. Paul Mercury, 303 U.S. at 289). 

Applying that standard, the Ninth Circuit held that “it does not

appear legally certain that [plaintiff] cannot recover more than

$75,000.00[]” where she alleged $13,000.00 in medical expenses;

estimated lost income in excess of $100,000.00; estimated future

medical expenses of $36,000.00; and that “her injuries w[ould]

cause a lifetime of pain and suffering.”5 Id. (citing 28 U.S.C.

§ 1332(a)). Accordingly, the Court in Crum reversed the district

court’s dismissal for lack of subject matter jurisdiction due to

sufficiently plead the requisite amount in controversy.

Because this is not a removed action and because the Ninth

Circuit has applied the legal certainty test in diversity cases

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such as this, this court will employ that test to resolve

respondents’ motion to dismiss. At the same time though, the

court is fully cognizant that “[o]n a motion to dismiss for lack

of subject matter jurisdiction, the plaintiff bears the burden of

establishing subject matter jurisdiction (even though it is

defendants’ motion).” Sun Microsystems, Inc. v. Hynix

Semiconductor, Inc., 2007 WL 3022556, at *5 (N.D.Cal. Oct. 15,

2007) (citing, inter alia, Kokkonen v. Guardian Life Ins. Co. of

America, 511 U.S. 375 (1994)). In this regard, a plaintiff’s 

“pleading must show ‘affirmatively and distinctly the existence

of whatever is essential to federal jurisdiction[.]’” Kelly v.

Echols, 2005 WL 2105309, at *2 (E.D.Cal. 2005) (quoting Tosco

Corp. v. Communities For a Better Env’t, 236 F.3d 495, 499 (9th

Cir. 2001)). Therefore, HBW has the burden of “show[ing] that

it d[oes] not appear to a legal certainty that [its] claim for

relief [is] for less than the statutorily prescribed amount of

$75,000.00.” See Floyd, 2007 WL 3237728, at *8 (citing United

States v. Southern Pacific Transportation Co., 543 F.2d 676, 682

(9th Cir. 1976)). For the reasons outlined below, the court

finds that HBW has not met this burden. 

In deciding whether HBW has met its burden, the court notes

that respondents are making a facial attack “i.e., the[y] [are]

contend[ing] that the allegations of jurisdiction contained in

the [state court] complaint are insufficient to demonstrate the

existence of jurisdiction[.]” See Denney v. Drug Enforcement

Administration, 508 F.Supp.2d 815, 824 (E.D.Cal. 2007). 

Respondents did not file a “‘speaking motion,’ that is, [they]

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are not attacking jurisdiction with extrinsic evidence.” See

American Economy Insurance Co. v. Herrera, 2007 WL 2696716, at

*1, n.1 (S.D.Cal. Sept. 11, 2007) (citing Trentacosta v. Frontier

Pac. Aircraft Indus., Inc., 813 F.2d 1553, 1558 (9th Cir. 1987)). 

Hence, because this is a facial attack, HBW “is entitled to

safeguards similar to those applicable when a Rule 12(b)(6)

motion is made.” See Denney, 508 F.Supp.2d at 824. Namely,

“[t]he factual allegations of the [state court] complaint are

presumed to be true, and the motion is granted only if the

plaintiff fails to allege an element necessary for subject matter

jurisdiction.” Id. (internal quotation marks and citations

omitted). By the same token, however, “[u]nlike a Rule 12(b)(6)

motion, . . . the court will not reasonably infer allegations

sufficient to support federal subject matter jurisdiction because

a plaintiff must affirmatively allege such jurisdiction.” 

Hawai’i Disability Center v. Chenung, 2007 WL 2823761, at *__ (D.

Hawai’i Oct. 1, 2007) (internal quotation marks and citation

omitted); see also Kelly, 2005 WL 2105309, at *2 (citing, inter

alia, Century Southwest Cable Television, Inc. v. CIIF Assocs.,

33 F.3d 1068, 1071 (9th Cir. 1994) (“[S]ubject matter

jurisdiction must be affirmatively alleged, courts will not infer

allegations supporting federal jurisdiction.”))

Applying the foregoing principles to the present case

compels a finding that subject matter jurisdiction is lacking

here because the requisite $75,000.00 amount in controversy was

not sufficiently alleged. Looking at the stakes in the

underlying arbitration, the respondents allege only that the

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damages sought are “believed to be in excess of $50,000.00[.]”

Mot. to Compel Arbitration (doc. 7), exh. 3 (state court co.)

thereto at ¶ 14 (emphasis added). This speculative allegation

does not come close to “affirmatively and distinctly” alleging

the $75,000.00 amount in controversy necessary to confer

jurisdiction under section 1332. See Tosco Corp., 236 F.3d at

499. HBW attempts to satisfy that statutory minimum by

piggybacking onto the claimed $50,000.00 plus in damages the

other types of damages which respondents are seeking in the state

court action. This attempt is unavailing.

First of all, HBW makes much of the fact that “[s]tatutory

interest in Arizona is at 10% per annum (A.R.S. § 44-1201(A)),

and the [respondents] claim HBW first breached the HBW Warranty

in 1998.” Resp. (doc. 8) at 7 (citations omitted). Section

1332(a) explicitly provides that the amount in controversy must

“exceed[]” $75,000.00, “exclusive of interest and costs[,]”

however. 28 U.S.C. § 1332(a). Therefore, in calculating the

amount in controversy, the court will not consider any possible

award of interest, no matter how large. 

Likewise, to satisfy the $75,000.00 amount in controversy,

HBW cannot rely upon a possible award of punitive damages under

the Arizona Consumer Fraud Act (“ACFA”), which HBW claims “if

proven, can be valued in an amount five times compensatory

damages[.]” See Resp. (doc. 8) at 7 (citation omitted). To be

sure, “[p]unitive damages are available under the ACFA[.]” Howell

v. Midway Holdings, Inc., 362 F.Supp.2d 1158, 1165 (D.Ariz. 2005)

(citation omitted). Especially where the damages which

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respondents are seeking to recover are only “believed to be in

excess of $50,000.00[,]” Mot. to Compel Arbitration (doc. 7),

exh. 3 thereto at ¶ 14, the unspecified potential punitive

damages in the underlying arbitration does not suffice to show,

as HBW contends, that the stakes therein exceed $75,000.00. Cf.

Nguyen v. Hartford Casualty Insurance Co., 2007 WL 2206903, at *3

(D.Ariz. July 30, 2007) (internal quotation marks and citations

omitted)(remanding where, inter alia, removing defendant did not

“take into account . . . that the mere possibility of a punitive

damage award is insufficient to prove that the amount in

controversy requirement has been met[]’”). Given that “[w]hether

to award punitive damages and the amount thereof is within the

discretion of the jury[,]” Schmidt v. American Leasco, 679 P.2d

532, 535 (Ariz. Ct. App. 1984) (citation omitted), further

undermines HBW’s ability to establish the requisite amount in

controversy by relying upon a possible punitive damage award. 

Cf. Valente v. Colonial Life & Acc. Ins., 2007 WL 2221048, at *6

(E.D.Cal. Aug. 1, 2007) (citation omitted) (refusing to consider

a punitive damage award in calculating amount in controversy

because such award “is solely with the discretion of the trier of

fact[,]” and defendants did not show “by a preponderance of the

evidence that such an award is likely or the amount of any such

damages if awarded[]”), recommendation adopted in full, 2007 WL

2582893, at *1 (E.D.Cal. Sept. 7, 2007). 

HBW is correct that “[a]ttorneys’ fees may be included in

computing the amount in controversy ‘where an underlying statute

authorizes an award of attorneys’ fees, either with mandatory or

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6 Respondents did not mention this statute in their state court

complaint and HBW did not reference it in its Response. Presumably, however,

this is the basis for HBW’s assertion that “statutory attorney’s fees” should be

included when computing the amount in controversy herein. See Resp. (doc. 8) at

7. 

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discretionary language.’” Shoemaker v. Sentry Life Ins. Co., 484

F.Supp.2d 1057, 1058 (D.Ariz. 2007) (quoting Galt G/S v. JSS

Scandinavia, 142 F.3d 1150, 1156 (9th Cir. 1998)). “Arizona law

authorizes a discretionary award of attorneys’ fees in contract

actions.” Id. (citing A.R.S. § 12-341.01(A)6). Although the

state court complaint alleges that respondents “have incurred and

continue[] to incur attorneys fees[,]” it is silent as to the

amount. Mot. to Compel Arbitration (doc. 7), exh. 3 (st. ct.

co.) thereto at ¶ 8. It does not, for example, allege the hours

expended by respondents’ attorneys to date, nor their hourly

rate. Thus, the court declines to take into account this wholly

speculative attorneys’ fee award in determining whether HBW has

satisfied section 1332's statutory threshold. Cf. Alvarez v.

Limited Express, LLC, 2007 WL 2317125, at *4 n.3 (S.D.Cal. Aug.

8, 2007) (citation omitted) (remanding where, among other things,

“defendant claim[ed] the reasonable attorneys’ fees result[ed] in

an even higher amount in controversy, [but] [it] provide[d] the

Court with no data from which [to] compute the estimated

attorneys’ fees recoverable[]”).

At the end of the day, in calculating the amount in

controversy in the underlying arbitration, the court is left with

nothing more than respondents’ “belie[f]” that their damages will

be “in excess of $50,000.00” – not even a belief that those

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7 The court is keenly aware that “[d]ismissal without leave to amend

is improper unless it is clear, . . ., that the complaint could not be saved by

any amendment.” U.S. Mortg., Inc. v. Saxton, 494 F.3d 833, 840 (9th Cir. 2007)

(internal quotation marks and citation omitted). Although as earlier noted

amendment could save HBW’s complaint in terms of citizenship, the same is not

true as to the jurisdictional amount in the underlying action, over which HBW has

no control. Therefore, because under the unique circumstances of this action,

respondents’ complaint cannot “be saved by amendment[,]” there is no basis for

granting leave to amend here. 

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damages will be in excess of $75,000.00 as section 1332 mandates.

See Mot. to Compel Arbitration (doc. 7), exh. 3 (st. ct. co.)

thereto at ¶ 14. Moreover, even including unspecified attorneys’

fees and punitive damages, the state court complaint upon which

HBW must rely does not “affirmatively and distinctly” show the

existence of an amount in controversy in excess of $75,000.00,

exclusive of costs and interest – an essential element of

jurisdiction under section 1332. See Tosco Corp., 236 F.3d at

499. To find that the amount in controversy in the underlying

arbitration exceeds $75,000.00 would require the court to

impermissibly infer allegations to support federal subject matter

jurisdiction. See Hawai’i Disability, 2007 WL 2823761, at *__. 

In short, because it appears to a “legal certainty” that the

stakes in the underlying arbitration “are really for less than”

$75,000.00, the court grants respondents’ motion to dismiss for

lack of subject matter jurisdiction pursuant to Fed. R. Civ. P.

12(b)(1).7 The court hastens to add that construing the state

court complaint in this way is in keeping with the “presumption 

. . . that ‘a federal court . . . lack[s] jurisdiction in a

particular case unless the contrary affirmatively appears.’” See

Lacombe, 2007 WL 2702005, at *4 (quoting A-Z Intern. v. Phillips,

323 F.3d 1141, 1145 (9th Cir. 2003)); see also Kokkonen, 511 U.S.

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at 377 (citation omitted) (“It is to be presumed that a cause

lies outside this limited jurisdiction [of federal courts], 

. . . , and the burden of establishing the contrary rests upon

the party asserting jurisdiction.”) 

Because subject matter jurisdiction is lacking here, plainly

the court is unable to address petitioner’s motion to compel

arbitration. Consequently it denies that motion as moot.

To conclude, IT IS ORDERED that:

(1) respondents’ motion to dismiss for lack of subject

matter jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1) is

GRANTED (doc. 6); and IT IS FURTHER ORDERED that:

(2) petitioner’s motion to compel arbitration (doc. 7) is

DENIED as moot. 

DATED this 28th day of December, 2007.

copies to all counsel of record

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