Court Opinion

ID: 9490823
Source: CourtListenerOpinion
Date Created: 2023-08-05 13:55:41.786615+00
Date Added: 2024-06-11T17:54:20.273506
License: Public Domain

WELLFORD, Senior Circuit Judge,
dissenting:
I respectfully dissent from the decision in this ease based on what I believe to be a serious question about lack of jurisdiction. Spectacor proceeded in the federal court in its chosen venue, asserting diversity jurisdiction and more than the required jurisdictional amount, but only barely, on the face of the complaint. The defendant Brown filed an answer affirmatively’ stating “[t]he Court lacks jurisdiction over the subject matter in that the amount of controversy does not exceed $50,000.” He added, among other things:
Plaintiff has failed to state a valid claim upon which relief can be granted.
Plaintiff was already obligated to provide the sums and benefits to Defendant.
Plaintiff’s Complaint was filed in bad faith to harass Defendant.’
Defendant contemporaneously filed a counterclaim, seeking a substantially greater amount than was requested in the original complaint.
The district court found that the action was. not filed in bad faith because “[slums owed by a plaintiff to the defendant are not subtracted from the amount of plaintiffs claim when calculating the jurisdictional amount. Savarese v. Edrick Transfer & Storage, Inc., 513 F.2d 140, 142 (9th Cir.1975).” In my view, however, the facts of Savarese are materially different from those presented by the jurisdictional issue in this ease. In that case, the plaintiff sought $11,-901 from the defendant who did not contest the claim. Additionally, the plaintiff acknowledged that he held some $2,578 that belonged to the defendant, which he sought to apply against the debt owed him. The defendant conceded that the amount sought by Savarese was above the jurisdictional minimum amount.1 The defendant did not challenge, in a timely fashion, jurisdiction in its responsive pleading.
In the instant case, even if Brown had not pleaded lack of jurisdiction, a challenge to subject matter jurisdiction is not waivable; and when a challenge is made, it must be fully considered. United States ex rel Coffey v. Austin Construction, 436 F.Supp. 626 (W.D.Okla.1977). Whether federal jurisdiction exists is determined as of the time the action is filed, not after the responsive pleading is filed. Wright, Miller and Cooper, Federal Practice and Procedure, Vol. 13B § 3608, Vol. 14A § 3702. The party seeking to invoke federal jurisdiction, once challenged, “has the burden of proving its existence.” Id., § 3702.
In a suit for a sum certain that is less than the jurisdictional amount, adding a claim for punitive damages so that the jurisdictional amount may be exceeded may be insufficient to establish jurisdiction. Wiggins v. N.A. Equitable Life Assur. Co., 644 F.2d 1014 (4th Cir.1981). Furthermore, “the extent to which a counterclaim can be considered in determining the amount in controversy never has been determined satisfactorily by the federal courts.” Wright, Miller and Cooper, Federal Practice and Procedure, Vol. 14, § 3706. “Defendant can object to the court’s jurisdiction over the original elaim in the *128answer and' plead the counterclaim in the alternative.” Id., § 3706.
Here, the district court acknowledged that Spectacor admitted “that it does not ‘own’ the set-off funds,” but, rather than holding that that fact barred the claim, the court held that Spectacor took a “strategic action” to “obtain what it perceives to be a more amenable forum.” Brown argued (I think plausibly) that Spectacor genuinely claimed only $47,421 in “salary advances” and “medical insurance premiums” made for his benefit. Brown complained, however, about the asserted “payroll tax liabilities” of $3,287, arguing that this additional claim was a “ ‘sham’ to manufacture federal court jurisdiction.” The district court never decided whether, in fact, the so-called “payroll tax liability” portion of the complaint, which was necessary to exceed the jurisdictional amount of $60,000 was something other than a “sham” or a “contrivance” to establish federal jurisdiction. The district court merely held, without elaboration, that the suit was filed in good faith and not for the purpose of harassing the defendant.
The majority holds that because defendant did not file a motion to dismiss for lack of jurisdiction and asserted a compulsory counterclaim, that it would consider the amount of the counterclaim in determining the amount in controversy, citing Fenton v. Freedman, 748 F.2d 1358 (9th Cir.1984). But, as the majority acknowledged, Fenton involved a situation where defendant had not first objected to jurisdiction. It is therefore distinguishable from this case, as is the earlier Ninth Circuit case, Roberts Mining Co. v. Schrader, 95 F.2d 522 (9th Cir.1938), for the same reason.
The remaining case cited by the majority for this jurisdictional holding was Motorists Mutual Ins. Co. v. Simpson, 404 F.2d 511 (7th Cir.1969). That court held contrary to the majority’s interpretation:
When a claim over which there is otherwise jurisdiction does not embrace an amount in controversy in excess of that required by the statute, the “plaintiff-viewpoint” rule, under which jurisdiction is determined on the basis of what the plaintiff claims, requires dismissal of'the claim. A problem arises, however, when although the plaintiffs claim does not involve the requisite jurisdictional amount, a compulsory counterclaim is filed which independently meets the required amount. There are eases which hold that in such a situation federal jurisdiction should be sustained.
But irrespective of the holding in those cases, we believe that a compulsory counterclaim should not be held to give rise to federal jurisdiction where the defendant-counterclaimant has objected from the beginning to the federal court’s assumption of jurisdiction over the plaintiffs main action on the ground that the amount in controversy in that action is insufficient and additionally, after his jürisdictional objection is overruled, files a compulsory counterclaim even though the amount therein involved exceeds $10,000 exclusive of interest and costs.
Simpson, 404 F.2d at 514 (emphasis added) (footnotes omitted).
The Simpson court, moreover, in the type of situation existing in this case, observed that “[s]ince, however, defendant did not originally choose the federal forum, the option should be his whether or not to keep the action in federal court,” citing 1 J. Moore, Federal Practice ¶ 0.98[1], at 896 (2d ed. 1964). Simpson held that it was without jurisdiction to proceed unless the original claim exceeded the jurisdictional amount. I would agree with this assessment, and I would question the authority of Home Life Ins. Co. v. Sipp, 11 F.2d 474 (3d Cir.1926), to the extent that it indicates a contrary rule.2
The majority properly concedes that there is a “well-established rule” that a plaintiff cannot create federal jurisdiction by anticipating federal defenses. Like the majority, I perceive no persuasive basis for considering Horton v. Liberty Mutual Ins. Co., 367 U.S. *129348, 81 S.Ct. 1570, 6 L.Ed.2d 890 (1961), as authority in this ease. The district court made no reference to any of these authorities except Savarese, which is easily distinguishable.
In my view, the determinative question as to adequacy of the jurisdictional amount asserted in the complaint has not been determined. Spectacor could have filed a declaratory judgment action to have avoided these problems, but it did not. It also could have sought removal from state court to federal court had Brown sued as he indicated he would. I disagree with the majority view that Brown should lose the jurisdictional argument because he did not file a motion to dismiss, when he objected to the court’s jurisdiction affirmatively in his answer. Federal courts are courts of limited jurisdiction, and I believe we should strictly construe jurisdictional requirements..
The question of whether “payroll tax liability” is a proper claim against Brown is a novel one and I see no easy answer. Was this liability actually paid or incurred, or was it a mere bookkeeping entry? Did it constitute a part of the “advance” to Brown? Was Brown liable to repay that amount to Specta-cor, the IRS, or the State, if Spectacor had later deemed the salary to have been erroneously paid? In addition, I would call upon the district court to consider the “good faith” question in view of the circumstances and give an explanation for its determination in this regard. I would, therefore, REMAND to the district court for a thorough consideration of the jurisdictional issue for the reasons stated.

. The Savarese court acknowledged that had plaintiff initially demanded a judgment of $9,323 (the difference after application of an offset), the district court would have lacked jurisdiction, citing Kansas City Philharmonic Ass'n v. Greyhound Lines, 257 F.Supp. 941 (W.D.Mo.1966); C. Wright, Federal Courts, 116-17 and n. 52, 134 (2d ed. 1970).

. I would agree that Sipp correctly held that neither unearned premiums nor a policy loan could be added to the then minimum jurisdictional amount requirement ($3,000 plus) involving a $3,000 face amount life insurance policy to establish federal jurisdiction; and (2) filing of the defendant's counterclaim could not confer jurisdiction.