Court Opinion

ID: 2995916
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:23:25.121404+00
Date Added: 2024-06-11T09:18:50.390869
License: Public Domain

In the
 United States Court of Appeals
                 For the Seventh Circuit
                          ____________

No. 01-1679
BEM I, L.L.C.,
                                                 Plaintiff-Appellant,
                                 v.

ANTHROPOLOGIE, INC.,
                                                Defendant-Appellee.
                          ____________
         Appeal from the United States District Court for the
           Northern District of Illinois, Eastern Division.
            No. 98 C 358—Rebecca R. Pallmeyer, Judge.
                          ____________
      ARGUED APRIL 2, 2002—DECIDED AUGUST 20, 2002
                          ____________

  Before POSNER, MANION, and KANNE, Circuit Judges.
   POSNER, Circuit Judge. Anthropologie, a chain of pricey
retail clothing stores, wanted to open a store in the wealthy
Chicago suburb of Highland Park. So in 1996 it leased
13,000 square feet in a building, owned by BEM, that was
under construction. The lease was to run for 10 years,
at an annual rental of almost a quarter of a million dol-
lars. Under the terms of the lease, Anthropologie’s obliga-
tion to pay rent did not arise until 90 days after “substan-
tial completion,” defined as the date of completion of the
landlord’s work, pursuant to the lease, in making the
premises fit for occupancy, “all as certified by the Land-
lord’s Architect.” The architect certified the work as com-
2                                                  No. 01-1679

plete on June 20, 1997, but in fact the work was not com-
plete until August 19, and Anthropologie could not oc-
cupy the premises during this period. BEM insisted, never-
theless, that Anthropologie owed it rent from Septem-
ber 18, 90 days after June 20, rather than from 90 days
after the actual (as distinct from the architect-certified)
date of completion, a difference of some $48,000. BEM
sued Anthropologie under Illinois law in an Illinois state
court seeking damages in that amount plus an order of
eviction. Anthropologie removed the case to federal dis-
trict court, the parties being of diverse citizenship. Pursu-
ant to a clause in the lease, the judge referred the par-
ties’ dispute to a panel of arbitrators, which found in fa-
vor of Anthropologie, awarding it more than half a million
dollars in damages and attorneys’ fees. The judge con-
firmed the arbitrators’ award and so Anthropologie re-
mains in possession under the lease. BEM claims that
the removal of the case to federal court was improper,
and, alternatively, that the arbitrators’ awards were im-
proper and should not have been confirmed.
  Removal was proper only if the amount in controversy
exceeded $75,000 on the date of removal. In re Shell Oil
Co., 970 F.2d 355, 356 (7th Cir. 1992) (per curiam); Hayes
v. Equitable Energy Resources Co., 266 F.3d 560, 573 (6th
Cir. 2001); Journal Publishing Co. v. General Casualty Co.,
210 F.2d 202, 204-05 (9th Cir. 1954). Before the case was
removed, when it was still in state court, BEM had filed
a motion to increase its claim for rent from $48,000 to
$88,000, but when it discovered that Anthropologie in-
tended to remove the case, it immediately withdrew the
motion, which the state court judge had not acted on. It
did this because it wanted to prevent removal. Neverthe-
less it did not object to removal or flag any issue concern-
ing the district court’s jurisdiction. Not until 21 months
later, after the district judge had on her own initiative raised
No. 01-1679                                                 3

the issue, did BEM contend that the requirement of a
minimum amount in controversy of $75,000 had not been
satisfied.
   BEM reminds us that the subject-matter jurisdiction of
a federal court may be questioned at any time until the
litigation becomes final, and sometimes even later. True;
but deliberately to avoid raising the issue is improper,
indeed sanctionable, In re Brand Name Prescription Drugs
Antitrust Litigation, 248 F.3d 668, 670 (7th Cir. 2001);
First National Bank v. A.M. Castle & Co. Employee Trust, 180
F.3d 814, 819 (7th Cir. 1999); Richmond v. Chater, 94 F.3d
263, 267 (7th Cir. 1996); Minority Police Officers Ass’n v.
City of South Bend, 721 F.2d 197, 199 (7th Cir. 1983); Aves
By & Through Aves v. Shah, 997 F.2d 762, 767 (10th Cir. 1993);
Tuck v. United Services Automobile Ass’n, 859 F.2d 842, 844-
46 and n. 3 (10th Cir. 1988); see Board of License Commis-
sioners v. Pastore, 469 U.S. 238, 240 (1985) (per curiam);
Missouri ex rel. Nixon v. Craig, 163 F.3d 482, 484 n. 3 (8th
Cir. 1998), and quite possibly unethical. See United States
v. Shaffer Equipment Co., 11 F.3d 450, 457-58 (4th Cir. 1993).
As officers of the court, lawyers who practice in federal
court have an obligation to assist the judges to keep within
the boundaries fixed by the Constitution and Congress; it
is precisely to impose a duty of assistance on the bar
that lawyers are called “officers of the court.” Lawyers
also owe it to the judge and the opposing lawyer to
avoid subjecting them to the burdens of a lawsuit that
they know or think may eventually be set at naught, and
have to be started over again in another court, because of
a jurisdictional problem of which the judge and the op-
posing lawyer may be unaware. As reference to such un-
awareness should make clear, we acknowledge that juris-
dictional problems may be overlooked in all innocence.
E.g., Maguire Oil Co. v. City of Houston, 143 F.3d 205, 210-
12 (5th Cir. 1998). But BEM’s lawyer acknowledged at the
4                                                 No. 01-1679

argument before us that he was aware of a jurisdictional
problem even before the case was removed; it was that
awareness that motivated him to withdraw his motion to
increase the amount of damages he was seeking.
   What makes BEM’s conduct at once egregious and
harmless is that its challenge to the district court’s subject-
matter jurisdiction was frivolous, quite apart from the
fact that even while withdrawing its motion for the addi-
tional rent it continued to claim that the additional rent
was owed it. Illinois practice, like that of the federal
courts, does not limit the plaintiff’s possible recovery to
the amount of damages stated in its complaint, 735 ILCS
§ 5/2-604; Barbers, Hairstyling for Men & Women, Inc.
v. Bishop, 132 F.3d 1203, 1205 (7th Cir. 1997); see Fed. R.
Civ. P. 54(c); EEOC v. Massey-Ferguson, Inc., 622 F.2d
271, 277 (7th Cir. 1980)—even if that amount is zero. See
Z Channel Limited Partnership v. Home Box Office, Inc.,
931 F.2d 1338, 1341 (9th Cir. 1991); Columbia Nastri &
Carta Carbone, S/p/A v. Columbia Ribbon & Carbon Mfg. Co.,
367 F.2d 308, 312 (2d Cir. 1966). And so reducing the
ad damnum had no effect on the actual stakes in the case.
Had BEM wanted to make sure that its stake was less
than $75,000, it should have stipulated to that effect. Work-
man v. United Parcel Service, Inc., 234 F.3d 998, 1000 (7th
Cir. 2000); In re Shell Oil Co., supra, 970 F.2d at 356;
De Aguilar v. Boeing Co., 47 F.3d 1404, 1412 (5th Cir. 1995).
If Illinois, like some states, had a rule limiting the plain-
tiff’s recovery to the amount asked for in the complaint,
that would have the same effect as a stipulation, Barbers,
Hairstyling for Men & Women, Inc. v. Bishop, supra, 132
F.3d at 1205, and then the plaintiff who asked for less
than $75,000 in damages (and no other relief—the im-
portance of this qualification will appear shortly) would
prevent removal. But Illinois does not have such a rule.
No. 01-1679                                               5

   A further complication is that the additional $40,000
in rent that BEM was seeking was the rent due on Jan-
uary 1, which was several days after the suit was filed,
and there are cases (none appellate, however) which
are said to hold “that in a suit to recover accrued install-
ments, those payments that become due between the
date of filing the state court complaint and the date on
which removal is sought cannot be considered.” 14C
Charles Alan Wright, Arthur R. Miller & Edward H.
Cooper, Federal Practice and Procedure § 3725, p. 115 (3d
ed. 1998). Unless the payor had repudiated his future ob-
ligations (and we are given no reason to suppose that
Anthropologie was unwilling to pay the January rent,
since it had been in occupancy of the leased premises
for well over 90 days at that point), the amount would not
be in controversy on the date the complaint was filed.
But the Wright and Miller treatise is wrong; the relevant
date for determining whether the minimum amount in
controversy is present is the date of removal, not the date
of the original complaint in state court, as Workman,
Shell, and De Aguilar make clear. The cases Wright and
Miller cite are ones in which the installment was due
after removal, not, as the treatise implies, before.
  Events subsequent to removal that merely reveal whether
the required amount was in dispute on the date of filing,
rather than alter the current amount in controversy, can
be considered in deciding what that original amount in
controversy was. State Farm Mutual Automobile Ins. Co.
v. Powell, 87 F.3d 93, 97 (3d Cir. 1996); Watson v. Blankin-
ship, 20 F.3d 383, 387-88 (10th Cir. 1994); Tongkook Amer-
ica, Inc. v. Shipton Sportswear Co., 14 F.3d 781, 782-86 (2d
Cir. 1994). Although Anthropologie did not pay the Janu-
ary rent until January 27, and thus was technically in de-
fault when the case was removed, there is no indication
that it denied owing the rent or that the delay in pay-
6                                                  No. 01-1679

ment was an actual breach of contract rather than being,
instead, consistent with trade usage.
   The question how much damages BEM was seeking
is anyway a red herring, since the jurisdictional mini-
mum in diversity cases is not the amount sought by the
plaintiff but the amount at stake to either party to the suit.
Not all courts take this view but ours certainly does.
Del Vecchio v. Conseco, Inc., 230 F.3d 974, 977 (7th Cir.
2000); In re Brand Name Prescription Drugs Antitrust Litiga-
tion, 123 F.3d 599, 609 (7th Cir. 1997). For illustrative
cases in other circuits, see Justice v. Atchison, Topeka &
Santa Fe Ry., 927 F.2d 503, 505 (10th Cir. 1991); Smith v.
Washington, 593 F.2d 1097, 1099 (D.C. Cir. 1978), and for
approval by a leading, if, as we have noted, occasionally
mistaken, treatise see 14B Wright, Miller & Cooper, supra,
§ 3703, pp. 121-25. The division of authority is sum-
marized in Brittain Shaw McInnis, Comment, “The
$75,000.01 Question: What Is the Value of Injunctive Re-
lief?,” 6 Geo. Mason L. Rev. 1013, 1021 n. 52 (1998).
   It seems to us beyond absurd to allow a defendant to
remove if the plaintiff is seeking damages of $75,000.01,
but not if the plaintiff is seeking an injunction directing
the defendant to tear down, as a nuisance, a $10 mil-
lion building that the defendant owns. The purpose of a
statute is often and here the essential clue to its meaning.
The purpose of allowing removal in diversity cases is to
enable a nonresident defendant to move the case against
him from state to federal court, provided the case is not
trivial. What is trivial from the defendant’s standpoint—
and remember that it is for his benefit that removal is
allowed; removal is a privilege of a defendant, not of a
plaintiff, whose access to a federal court is by filing his suit
in that court—depends on what he may lose in the suit.
McCarty v. Amoco Pipeline Co., 595 F.2d 389, 394 (7th Cir.
No. 01-1679                                               7

1979); 15 Moore’s Federal Practice § 102.109[3], p. 102-199,
§ 102.109[4], p. 102-200 (3d ed. 1998); McInnis, supra, at
1029-30. Whether his loss will also be the plaintiff’s gain
is irrelevant.
  BEM argues that if this is right, every eviction case is
going to be removed to federal court. That is another
absurdity, and not only or mainly because most tenants
are citizens of the same state as their landlord. Most evic-
tions are not that costly to the tenant, in part because of
the tenant’s duty to mitigate his damages by seeking
alternative premises. See Bush v. Roadway Express, Inc., 152
F. Supp. 2d 1123, 1126 (S.D. Ind. 2001). Most tenants are
not tenants of a 13,000 square foot store and do not pay
upwards of $20,000 a month in rent or invest hundreds
of thousands of dollars, as Anthropologie did, in unre-
coverable improvements. (The lease is explicit that any
improvements made by Anthropologie are to revert to
BEM when the lease ends.) Most tenants do not have 10-
year leases and are not successful retail chains that spend
more than $75,000 in legal and related costs to negotiate
a lease and anticipate hundreds of thousands of dollars
of revenues from every month of their occupancy. Unlike
the average tenant, Anthropologie incurred a likely loss
of hundreds of thousands of dollars in unrecoverable
improvements and negotiating costs. And while it is true
as BEM points out that it was always possible that if
Anthropologie was evicted it would make a still more
advantageous lease with someone else—so much more
advantageous, conceivably, as to exceed the hundreds of
thousands of dollars in lost improvements and negotiat-
ing costs—the mere possibility of a windfall that might
convert a likely loss into a serendipitous gain is too spec-
ulative to affect the determination of the amount in con-
troversy on the date the complaint was filed. Otherwise
8                                               No. 01-1679

the determination of federal jurisdiction in diversity cases
would be incredibly complicated.
   So the district court did have jurisdiction, and we can
proceed to the merits. BEM’s argument against the ar-
bitrators’ award is very simple, and very wrong. It is
that the arbitrators misapplied Illinois law, even though
the arbitration clause in the lease is explicit that they
were to apply Illinois law. They misapplied it, BEM ar-
gues, first when they disregarded the architect’s certifica-
tion that substantial completion of the landlord’s work
had occurred by June 30, even though they thought the
architect not guilty of fraud but merely mistaken and did
not pronounce his mistake an evident mistake, although
under Illinois law fraud and evident mistake are the only
grounds for disregarding such a certification; second when
they awarded lost profits in the operation of a new store
at a new location; and third when they awarded prejudg-
ment interest on those lost profits, though the lost prof-
its were not a liquidated amount, and Illinois law al-
lows an award of prejudgment interest only when the
plaintiff is suing for such an amount.
   We should distinguish between two types of case in
which an arbitral award might be challenged for disre-
garding the law. In one, although the arbitration clause
directs the arbitrators to apply the law of a specified
state, they decide they don’t like that state’s law, they
like another state’s law better and so they will apply that
state’s law. That would be a case in which the arbitra-
tors had exceeded the authority granted them by the ar-
bitration clause in the parties’ contract, a ground for
setting aside an arbitration award. 9 U.S.C. § 10(a)(4);
Northern Indiana Public Service Co. v. United Steelworkers of
America, 243 F.3d 345, 347 (7th Cir. 2001); AGCO Corp. v.
Anglin, 216 F.3d 589, 596 (7th Cir. 2000); Brotherhood
No. 01-1679                                                     9

of Locomotive Engineers v. Atchison, Topeka & Santa Fe
Ry., 768 F.2d 914, 921 (7th Cir. 1985); Abram Landau
Real Estate v. Bevona, 123 F.3d 69, 74 (2d Cir. 1997);
Michigan Mutual Ins. Co. v. Unigard Security Ins. Co., 44
F.3d 826, 830 (9th Cir. 1995). The language that in-
structed the arbitrators to apply Illinois law (“This lease
shall be construed, interpreted and governed by the laws
of the State in which the Leased Space is situated”) was
part of the contract, and if they had refused to follow it
this would signify that they were exceeding their author-
ity; for, with immaterial exceptions, arbitrators are autho-
rized only to interpret contracts and not to use their
own ideas of justice to decide the parties’ dispute. Eastern
Associated Coal Corp. v. United Mine Workers of America,
District 17, 531 U.S. 57, 62 (2000); International Truck &
Engine Corp. v. United Steel Workers of America, Local 3740,
294 F.3d 860, 861 (7th Cir. 2002); Ethyl Corp. v. United
Steelworkers of America, 768 F.2d 180, 184-85 (7th Cir.
1985). No interpretation of the contract is imaginable that
would have authorized the arbitrators to apply the law of
another state instead.
  Contrast that with a case in which the arbitrators con-
scientiously attempt to apply Illinois law, pursuant to the
choice of law provision in the contract, but fail to apply it
correctly. The loser has no judicial remedy in that case
because it is merely a case of legal error, not of ultra vires,
and there is no judicial review of arbitration awards for
legal error. IDS Life Ins. Co. v. Royal Alliance Associates,
Inc., 266 F.3d 645, 650 (7th Cir. 2001); George Watts & Son,
Inc. v. Tiffany & Co., 248 F.3d 577, 581 (7th Cir. 2001); Flexible
Mfg. Systems Pty. Ltd. v. Super Products Corp., 86 F.3d 96,
100 (7th Cir. 1996); Grammar v. Artists Agency, 287 F.3d
886, 893 n. 8 (9th Cir. 2002); Bull HN Information Systems,
Inc. v. Hutson, 229 F.3d 321, 330 (1st Cir. 2000). BEM ar-
gues ingeniously that unless judges correct arbitrators’ le-
10                                               No. 01-1679

gal mistakes, contracting parties will shun arbitration and
we judges will be overwhelmed with breach of contract
suits. Maybe; but against that is the added cost of arbitra-
tion if parties can challenge arbitrators’ legal errors in
court. And while we are discussing arbitrators’ incen-
tives, we should point out that arbitrators probably would
not write opinions—they are not required to—if their
opinions were reviewable for legal errors, which would
be concealed if the award consisted simply of a dollar
amount. The quality of arbitration would be less, if,
as seems plausible, having to articulate one’s views in
writing is a good discipline—something we judges certain-
ly believe.
  The arbitrators wrote a very brief, bare-bones opinion
in which they did not say they were disregarding Illinois
law or, what would amount to the same thing, trying to
change it. The parties dutifully argued Illinois cases to
them. The issues of Illinois law on which those cases
bore were difficult. It’s true that Illinois law requires a
finding of fraud or evident mistake to justify disregarding
an architect’s certificate, Weld v. First National Bank, 99
N.E. 72, 73-74 (Ill. 1912); R.W. Dunteman Co. v. Village of
Lombard, 666 N.E.2d 762, 765 (Ill. App. 1996); Robert G.
Regan Co. v. Fiocchi, 194 N.E.2d 665, 668 (Ill. App. 1963),
but it is arguable that the lease in this case required sub-
stantial completion in fact, with the certification merely
back-up protection for the tenant: if the architect did
not certify substantial completion, the landlord would
not be heard to argue later that actually the premises
had been substantially completed. Cf. In re Oriskany Cen-
tral School District, 654 N.E.2d 1208, 1209 (N.Y. 1995);
Steffek v. Wichers, 507 P.2d 274, 279-81 (Kan. 1973). As for
lost profits for a new store, the outer limits of that hoary
principle are vague, MindGames, Inc. v. Western Publish-
ing Co., 218 F.3d 652, 656, 657 (7th Cir. 2000), even in Illi-
No. 01-1679                                                  11

nois, see Milex Products, Inc. v. Alra Laboratories, Inc., 603
N.E.2d 1226, 1236-37 (Ill. App. 1992), and, bearing in mind
that its purpose is merely to limit the speculative element
in estimating lost profits, it may be inapplicable to a
case such as this, in which the new store is an identical
copy of the other stores in a highly successful chain.
DeJong v. Sioux Center, Iowa, 168 F.3d 1115, 1123 (8th Cir.
1999); No Ka Oi Corp. v. National 60 Minute Tune, Inc.,
863 P.2d 79, 82-84 (Wash. App. 1993); see also Eljer Mfg.,
Inc. v. Kowin Development Corp., 14 F.3d 1250, 1255-56
(7th Cir. 1994).
   As for the award of prejudgment interest in apparent
contradiction of the Illinois rule that limits such awards
to cases in which the damages are a sum certain or readi-
ly calculable (as in a suit for the contract price), Couch
v. State Farm Ins. Co., 666 N.E.2d 24, 27-28 (Ill. App. 1996);
Rockford Redi-Mix, Inc. v. Teamsters Local 325, 551 N.E.2d
1333, 1343 (Ill. App. 1990); Phelps v. O’Malley, 511 N.E.2d
974, 978-79 (Ill. App. 1987); Spagat v. Schak, 473 N.E.2d 988,
993-94 (Ill. App. 1985), the arbitrators may have thought
the choice of law provision in the contract was not in-
tended to displace the remedial rules of the American Ar-
bitration Association, which include a rule awarding pre-
judgment interest whether or not the damages are a sum
certain. The Illinois rule is merely a default rule; the parties
are free to specify prejudgment interest beyond the rule’s
scope, 815 ILCS § 205/2; Continental Casualty Co. v. Com-
monwealth Edison Co., 676 N.E.2d 328, 331 (Ill. App.
1997); Premier Electrical Construction Co. v. American National
Bank of Chicago, 658 N.E.2d 877, 888 (Ill. App. 1995); and
it is arguable that that’s what they did when they agreed
that any dispute under the lease would be referred to
arbitration. Medcom Holding Co. v. Baxter Travenol Laborato-
ries, Inc., 200 F.3d 518, 519-520 (7th Cir. 1999) (applying
Illinois law). But we are straying far afield in glancing how-
12                                                No. 01-1679

ever lightly at the merits, for it is of no moment whether the
arbitrators got Illinois law right—or very wrong.
   Finally, BEM asks us to enter judgment for it on the basis
of the arbitrators’ finding that the architect’s certification
of substantial completion as of June 20 was not based
on fraud and their implicit finding that it was not based
on an evident mistake. (We don’t really know whether
that was their implicit finding. They didn’t say it was an
evident mistake, but they may have thought it was
and used that as the premise for their conclusion that
substantial completion did not occur until August 19.)
That finding, BEM argues, compels the conclusion that
Anthropologie’s obligation to pay rent commenced 90
days after June 20. Not so, for the reason we stated earlier
and for another as well. At most, BEM has identified a
contradiction in the arbitrators’ opinion, which, if it
created a serious doubt as to the arbitrators’ bottom line,
would be a basis for a remand to the arbitrators. 9 U.S.C.
10(a)(4); IDS Life Ins. Co. v. Royal Alliance Associates, Inc.,
supra, 266 F.3d at 651; Tri-State Business Machines, Inc.
v. Lanier Worldwide, Inc., 221 F.3d 1015, 1019-20 (7th
Cir. 2000); Colonial Penn Ins. Co. v. Omaha Indemnity Co.,
943 F.2d 327, 334-35 (3d Cir. 1991); United Steelworkers
of America, Local 4839 v. New Idea Farm Equipment
Corp., 917 F.2d 964, 968 (6th Cir. 1990). But BEM does
not seek a remand; and anyway there is no doubt what re-
lief the arbitrators ordered and, that being so, any incon-
sistencies in their reasoning are merely errors of law or
fact, neither of which is a basis for setting aside the award.
                                                   AFFIRMED.
No. 01-1679                                           13

A true Copy:
       Teste:

                      _____________________________
                      Clerk of the United States Court of
                        Appeals for the Seventh Circuit

                USCA-97-C-006—8-20-02