Court Opinion

ID: 3003897
Source: CourtListenerOpinion
Date Created: 2015-09-24 22:33:16.203347+00
Date Added: 2024-06-11T09:49:50.084290
License: Public Domain

In the

United States Court of Appeals
               For the Seventh Circuit

No. 09-2523

N IGHTINGALE H OME H EALTHCARE, INC.,

                                                 Plaintiff-Appellant,
                                 v.

A NODYNE T HERAPY, LLC,
                                                Defendant-Appellee.

             Appeal from the United States District Court
     for the Southern District of Indiana, Indianapolis Division.
     No. 1:06-CV-01435-SEB-DML—Sarah Evans Barker, Judge.

  A RGUED N OVEMBER 6, 2009—D ECIDED D ECEMBER 21, 2009

 Before P OSNER, K ANNE, and R OVNER, Circuit Judges.
  P OSNER, Circuit Judge. The plaintiff appeals from an
adverse judgment in what began as a diversity suit,
but is most securely within federal jurisdiction if
recharacterized as a federal-question suit in which the
plaintiff’s state-law claims are within the federal courts’
supplemental jurisdiction. 28 U.S.C. § 1367. The reason
for this convoluted approach to jurisdiction is that there
is serious doubt (as we’ll see) whether the plaintiff ever
2                                               No. 09-2523

had a good-faith basis for claiming damages in excess of
$75,000, the jurisdictional minimum for a diversity case.
The suit was filed in an Indiana state court in 2006, and
the following year, after the defendant had removed the
case to the federal district court on the ground that the
case was within the diversity jurisdiction, the plaintiff
filed an amended complaint adding a claim under the
Lanham Act. The judge dismissed that claim on summary
judgment, and the plaintiff does not challenge that
ruling on appeal.
  Even if the suit was improperly removed, and should
have been dismissed for failure to satisfy the jurisdic-
tional minimum, the plaintiff could have refiled the suit
in the district court; its Lanham Act claim furnished a
secure basis for federal jurisdiction. (There is no con-
tention that the statute of limitations would have barred
the refiled suit.) But probably the judge would have
relinquished jurisdiction over the state-law claims (of
which the only one pressed in the appeal is a claim of
fraud under Indiana law) to the Indiana state courts; that
is the usual sequel to the dismissal before trial of the
claim on which federal jurisdiction is based. 28 U.S.C.
§ 1367(c)(3); Carlsbad Technology, Inc. v. HIF Bio, Inc., 129
S. Ct. 1862, 1865 (2009); Leister v. Dovetail, Inc., 546 F.3d
875, 882 (7th Cir. 2008); Musson Theatrical, Inc. v. Federal
Express Corp., 89 F.3d 1244, 1254-57 (6th Cir. 1996). The
judge did not do this, probably because no one had ques-
tioned that the case was within the diversity jurisdic-
tion. Instead she retained jurisdiction and granted sum-
mary judgment in favor of the defendant.
No. 09-2523                                                    3

   A district court is not required to relinquish jurisdiction
over supplemental state-law claims just because it has
dismissed the federal claim before trial. The decision
whether to relinquish or retain is committed to the
district judge’s discretion. 28 U.S. C. § 1367(c)(3); City
of Chicago v. International College of Surgeons, 522 U.S. 156,
173 (1997). For examples of cases in which jurisdiction
was properly retained despite the dismissal of the
federal claim before trial, see Khan v. State Oil Co., 93
F.3d 1358, 1366 (7th Cir. 1996), vacated on other grounds
by 522 U.S. 3 (1997); Timm v. Mead Corp., 32 F.3d 273, 276-
77 (7th Cir. 1994); Motorola Credit Corp. v. Uzan, 388 F.3d 39,
55-57 (2d Cir. 2004); cf. Hansen v. Board of Trustees, 551
F.3d 599, 608-09 (7th Cir. 2008). But if as in this case the
district court retains jurisdiction because it mistakenly
believes that the claims, rather than being supplemental,
are within the diversity jurisdiction, the retention cannot
be defended as an exercise of discretion. It is an abuse
of discretion not to exercise discretion. Miami Nation of
Indians of Indiana, Inc. v. U.S. Dept. of Interior, 255 F.3d 342,
350 (7th Cir. 2001); Lemons v. Skidmore, 985 F.2d 354, 358
(7th Cir. 1993); Miller v. Hambrick, 905 F.2d 259, 262 (9th Cir.
1990); Vinci v. Consolidated Rail Corp., 927 F.2d 287, 288
(6th Cir. 1991) (per curiam). But since the state-law
claims in this case have been litigated, and neither side
is arguing for relinquishment, judicial economy counsels
us to retain jurisdiction of the claims and decide the
merits of the appeal, as in Khan v. State Oil Co., supra, 93
F.3d at 1366, and Brazinski v. Amoco Petroleum Additives Co.,
6 F.3d 1176, 1182 (7th Cir. 1993), even if the case is not
within the diversity jurisdiction.
4                                               No. 09-2523

  Anodyne, the defendant, sells an infrared lamp designed
to relieve pain and improve circulation. It sold several
of the lamps to the plaintiff, Nightingale, a provider of
home healthcare services, at $6,000 per device. Nightingale
complains that Anodyne’s sales representative told it the
device had been approved by the Food and Drug Ad-
ministration for the treatment of peripheral neuropathy,
a condition involving numbness and tingling in the
extremities, caused by diabetes and other diseases. Ano-
dyne denies that its sales representative had made such
a representation—he had, according to Anodyne, repre-
sented that the device was FDA-approved and that it
was intended for the treatment of peripheral neuropathy,
but not that the FDA had approved it for that purpose.
The district judge did not attempt to resolve the
dispute over the representation, but instead based dis-
missal of the fraud claim on a disclaimer of war-
ranties in Anodyne’s contract with Nightingale and on
Nightingale’s failure to present any evidence of damages
from the alleged fraud.
  Anodyne had obtained the FDA’s approval for the
marketing of the device on the representation that it was
intended for the treatment of minor muscle and joint
pain and the improvement of “superficial circulation”
(the circulation of blood near the surface of the body), but
had marketed the device as a treatment for peripheral
neuropathy. Had it said that the device provides relief
for symptoms of peripheral neuropathy, it would have
avoided trouble with the FDA. But when in a routine
inspection of Anodyne’s premises the FDA learned more
about the product’s labeling and marketing, it sent the
No. 09-2523                                                5

company a letter warning it not to market the device as
a treatment for peripheral neuropathy as distinct from a
treatment for the symptoms of that disease. The dif-
ference between marketing a drug or medical device as
a treatment for a disease and as a treatment for
symptoms is subtle but significant: a drug that reduces
fatigue caused by any number of conditions, including
leukemia, is not a treatment for leukemia.
  But the FDA’s ruling did not preclude a physician or
other healthcare provider, such as Nightingale, from
prescribing the device to patients as a treatment for
peripheral neuropathy. For 21 U.S.C. § 396 says that
“nothing in this chapter shall be construed to limit or
interfere with the authority of a health care practitioner
to prescribe or administer any legally marketed device
to a patient for any condition or disease within a
legitimate health care practitioner-patient relationship.”
See Buckman Co. v. Plaintiffs’ Legal Committee, 531 U.S. 341,
350 (2001); Bober v. Glaxo Wellcome PLC, 246 F.3d 934, 942
(7th Cir. 2001); In re Gilead Sciences Securities Litigation,
536 F.3d 1049, 1051 and n. 2 (9th Cir. 2008); Sigma-Tau
Pharmaceuticals, Inc. v. Schwetz, 288 F.3d 141, 147-48 (4th
Cir. 2002). The decision to prescribe such “off-label usage,”
as it is called, is regarded as a professional judgment for
the healthcare provider to make. Nightingale told its
patients that the Anodyne device was a treatment for
peripheral neuropathy, but as far as appears did not
tell them that it had been approved by the FDA as a
treatment for that condition.
  Yet when Nightingale learned of the warning letter
it stopped using the Anodyne devices that it had
6                                               No. 09-2523

bought—though not immediately; several months elapsed
before Nightingale, having bought similar devices from
a company called MedX Health Corporation, told
Anodyne that it was returning the Anodyne devices
and wanted its money back. Anodyne refused. Nightingale
seeks damages consisting of the purchase price of the
Anodyne devices that it tried to return, the expenses
that it incurred in retraining its staff to use the MedX
devices, and the cost of an advertising campaign in
which it had referred to Anodyne’s product.
  Anodyne’s primary defense is the warranty for its
devices, a one-year warranty covering defects in
material and workmanship which states that it “is in lieu
of [all] other warranties.” But it also states that “you [the
buyer] may have other rights, which vary from state
to state. To the extent allowable by applicable law, in
no event shall [Anodyne] be liable for any incidental,
consequential, special, indirect, punitive or exemplary
damages or lost profits from any breach of warranty.”
Anodyne claims that these disclaimers disclaim liability
for fraud. But they don’t. They disclaim liability for
breach of warranty but reserve other legal rights, which
include the right to sue for fraud.
  It is true that many courts will enforce a “no reliance” or
“disclaimer of reliance” clause, at least against a sophisti-
cated party. Such “clauses serve a legitimate purpose in
closing a loophole in contract law” by heading off a suit
for fraud used as “a device for trying to get around the
limitations that the parol evidence rule and contract
integration clauses place on efforts to vary a written
No. 09-2523                                               7

contract on the basis of oral statements made in the
negotiation phase,” Extra Equipamentos e Exportação Ltda. v.
Case Corp., 541 F.3d 719, 724 (7th Cir. 2008)—which is
what Nightingale is trying to do.
  “[N]o-reliance clauses are called ‘big boy’ clauses (as in
‘we’re big boys and can look after ourselves’),” and hence
in some states are not enforced without “an inquiry into
the circumstances of its negotiation, to make sure that the
signatory knew what he was doing.” Id. No such inquiry
was conducted here. The enforceability of “big boy”
clauses in either Florida (which Anodyne treats as the
source of controlling law, without addressing the issue
of choice of law, though Nightingale bases its fraud
claim on Indiana law and the district court did not ques-
tion that choice of law) or Indiana is in any event un-
clear. But there is no need to try to clarify it in this
case, because the parties’ contract contains no such clause.
   The problem with Nightingale’s case is profound but
lies elsewhere. Nightingale had the expected results
with its use of the Anodyne device to treat patients
who suffer from peripheral neuropathy; it relieved their
symptoms. And there is no suggestion that the MedX
device with which it replaced the Anodyne device did
any better; for no more than the Anodyne device had
it been approved by the FDA for the treatment of periph-
eral neuropathy. Nightingale has not explained why
it decided to replace the Anodyne device with the
MedX device. At argument one of us asked Nightingale’s
lawyer whether the reason might be that his client had
represented to its patients that the Anodyne device
8                                            No. 09-2523

had been approved by the FDA for the treatment of
peripheral neuropathy and that rather than correct the
representations and perhaps frighten its patients it had
decided to replace the device. If so, Nightingale may
have been committing a fraud against its patients—its
lawyer conceded the possibility although we are disin-
clined to hold her to a concession, made in the heat
of argument, that may not have been considered or in-
tended. No matter; she has proposed no motive for Night-
ingale’s precipitate replacement of the Anodyne de-
vice—replacement that is the direct or indirect source of
the damages it seeks.
  We might have a different case had Nightingale been
motivated to buy the Anodyne device by a representa-
tion that it had been approved by the FDA as a treat-
ment for peripheral neuropathy. But if so it would not
have replaced the device with a product, materially
identical to Anodyne’s, that also had not been approved
for such treatment.
  Its fraud claim has no merit. There was no material
misrepresentation. But for completeness we return to
the jurisdictional question with which we began this
opinion—whether Nightingale had a good-faith basis
for asserting that its damages (which it claimed exceeded
$600,000) exceeded the $75,000 threshold for a diversity
suit. As the district judge pointed out, Nightingale pre-
sented no evidence of damages. The point was
repeated with some emphasis in Anodyne’s brief in this
court, yet Nightingale’s reply brief does not mention
damages. Nightingale presented evidence about cost—the
cost of the Anodyne devices, the cost of its advertising,
No. 09-2523                                                 9

and so forth—but cost is not damages. Since the MedX
device that replaced Anodyne’s device was materially
identical, Nightingale’s action in replacing it constituted
a dramatic failure to mitigate damages.
  Ordinarily a failure to prove any damages does not
disturb jurisdiction under a statute that sets a damages
threshold. The failure is a failure on the merits rather than
a failure of jurisdiction. Hixon v. Sherwin-Williams Co.,
671 F.2d 1005, 1007 (7th Cir. 1982). But if it is demon-
strated that jurisdiction was invoked without a good-
faith basis for supposing that the plaintiff crossed the
threshold, the case must be dismissed for want of juris-
diction no matter how late in the litigation the lack of a
good-faith basis comes to light, e.g., Gardynski-Leschuck
v. Ford Motor Co., 142 F.3d 955, 958-59 (7th Cir. 1998);
Charvat v. GVN Michigan, Inc., 561 F.3d 623, 628, 632 (6th
Cir. 2009); Jones v. Knox Exploration Corp., 2 F.3d 181, 183
(6th Cir. 1993), just as with any other late-discovered
absence of subject-matter jurisdiction. E.g., Williams v.
Aztar Indiana Gaming Corp., 351 F.3d 294, 300 (7th Cir.
2003); Cave v. East Meadow Union Free School District, 514
F.3d 240, 250 (2d Cir. 2008); Loughlin v. United States, 393
F.3d 155, 171 (D.C. Cir. 2004). Otherwise federal juris-
diction could be conferred by the defendant’s pretending
that the plaintiff had alleged in good faith a claim for
damages in an amount above the threshold because both
parties wanted to be in federal court. Federal subject-
matter jurisdiction cannot be conferred by collusion or
consent. 28 U.S.C. § 1359; Insurance Corp. of Ireland, Ltd.
v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702
(1982); Wolff v. Cash 4 Titles, 351 F.3d 1348, 1357 (11th Cir.
2003).
10                                              No. 09-2523

   So clear is Nightingale’s failure to have mitigated its
damages that it could have had no basis for thinking that
its suit satisfied the minimum amount in controversy
requirement of the diversity jurisdiction. That is not a
criticism, however; for remember that Nightingale filed
the suit in an Indiana state court, where there was no
such requirement. The suit was removed to the federal
district court by Anodyne. When a suit is removed on
the ground that it is within the diversity jurisdiction and
a question arises whether the amount in controversy
requirement has been satisfied, the defendant has the
burden of persuading the court that it has been satisfied.
Rising-Moore v. Red Roof Inns, Inc., 435 F.3d 813, 815-17
(7th Cir. 2006); Brill v. Countrywide Home Loans, Inc., 427
F.3d 446, 447-48 (7th Cir. 2005). The question has arisen
in this case—we have raised it, as a court is required to
do if it is a question about its subject-matter jurisdiction,
since such questions are not waivable; and we have found
that the suit is not within the diversity jurisdiction. Ordi-
narily this would require dismissal of the case, allowing
Nightingale to start over in the Indiana court. But by
adding a federal claim after removal, Nightingale
brought its suit within the federal-question jurisdiction
of the district court and its state-law claims within the
district court’s supplemental jurisdiction, which has
no minimum amount in controversy requirement.
  The merits judgment in favor of Anodyne is therefore
                                                  A FFIRMED.

                           12-21-09