Court Opinion

ID: 156692
Source: CourtListenerOpinion
Date Created: 2010-08-14 04:44:27+00
Date Added: 2024-06-11T09:41:41.838319
License: Public Domain

F I L E D
                                                                      United States Court of Appeals
                                                                              Tenth Circuit
                                       PUBLISH
                                                                              JUL 31 1998
                    UNITED STATES COURT OF APPEALS
                                                                         PATRICK FISHER
                                                                                  Clerk
                                 TENTH CIRCUIT

 STATE FARM MUTUAL
 AUTOMOBILE INSURANCE
 COMPANY, an Illinois corporation,

               Plaintiff-Counter
               Defendant - Appellee,
          v.                                               No. 97-6271
 EUGENE NARVAEZ,

               Defendant-Counter-
               Claimant - Appellant.

                    Appeal from the United States District Court
                       for the Western District of Oklahoma
                             (D.C. No. CIV-96-1845-L)

Robert M. Behlen, Oklahoma City, Oklahoma, for Defendant-Appellant.

Timothy D. Cain (Joseph T. Acquaviva, Jr. with him on the brief), of Wilson,
Cain & Acquaviva, Oklahoma City, Oklahoma, for Plaintiff-Appellee.

Before PORFILIO, MAGILL, * and LUCERO, Circuit Judges.

      *
        Honorable Frank J. Magill, Senior Circuit Judge, United States Court of Appeals
for the Eighth Circuit, sitting by designation.
MAGILL, Circuit Judge.

      After Eugene Narvaez was assaulted while entering his van, he filed a

claim for exactly $50,000 in uninsured motorist benefits under his auto insurance

policies with State Farm Mutual Auto Insurance Company (State Farm). State

Farm denied Narvaez's claim and filed this action for a declaratory judgment that

Narvaez's injuries were not covered by the policies. The district court granted

State Farm's motion for summary judgment, and Narvaez appeals. Because the

district court did not have subject matter jurisdiction over this matter, we reverse

and remand with directions to dismiss.

                                         I.

      On July 2, 1996, Narvaez was attacked and beaten in a motel parking lot in

Oklahoma City as he was entering his van. The assailant stole Narvaez's van, and

Narvaez sustained severe head injuries. At the time of the assault, Narvaez held

two auto insurance policies with State Farm. Each policy provided uninsured

motorist coverage of up to $25,000 per injured person for injuries arising out of

the operation, maintenance, or use of an uninsured motor vehicle. Narvaez made

a claim for $50,000, the sum of the policy limits for each of the two policies.

After an investigation, State Farm concluded that the uninsured motorist coverage

of its policies did not cover Narvaez's injuries, and denied Narvaez's claim.

                                         -2-
      On October 29, 1996, State Farm filed a declaratory judgment action in the

district court seeking a declaration that the uninsured motorist provisions of its

insurance policies with Narvaez did not cover Narvaez's injuries. Responding to

the district court's concern that the claim for $50,000 in uninsured motorist

coverage failed to meet the minimum amount in controversy required for diversity

jurisdiction--an amount in excess of $50,000--State Farm filed an amended

complaint that also sought a declaration that State Farm did not owe "interest on

the unpaid insurance policies." Am. Compl. at 1, reprinted in App. at 39. In an

amended answer, Narvaez counterclaimed, without further explanation, for the

recovery of "interest upon insurance contract benefits previously paid to him

under the 'medical-payments' provisions of the insurance contract." Answer and

Countercl. to Am. Compl. at 1, reprinted in App. at 41. After discovery, the

district court granted State Farm's motion for summary judgment, and Narvaez

now appeals.

                                          II.

      Although neither party has challenged the district court's jurisdiction,

"[i]nsofar as subject matter jurisdiction is concerned, it has long been recognized

that a federal court must, sua sponte, satisfy itself of its power to adjudicate in

every case and at every stage of the proceedings." Tafoya v. Department of

                                          -3-
Justice, 748 F.2d 1389, 1390 (10th Cir. 1984). We "must rigorously enforce

Congress' intent to restrict federal jurisdiction in controversies between citizens

of different states." Miera v. Dairyland Ins. Co., Nos. 97-2048, 97-2135, 1998

WL 226272, at *2 (10th Cir. May 7, 1998). "[T]he burden of proving jurisdiction

is on the party asserting it," Gibson v. Jeffers, 478 F.2d 216, 221 (10th Cir. 1973),

and we review the district court's subject matter jurisdiction over this matter de

novo. See Rosette Inc. v. United States, 141 F.3d 1394, 1395 (10th Cir. 1998).

      When this action was filed, 28 U.S.C. § 1332 provided for diversity

jurisdiction "where the matter in controversy exceeds the sum or value of

$50,000, exclusive of interest and costs." 28 U.S.C. § 1332(a) (1994) (emphasis

added). The Supreme Court has held that when deciding whether the amount in

controversy is adequate, "the sum claimed by the plaintiff controls if the claim is

apparently made in good faith." Saint Paul Mercury Indem. Co. v. Red Cab Co.,

303 U.S. 283, 288 (1938) (footnote omitted). In other words, "[i]t must appear to

a legal certainty that the claim is really for less than the jurisdictional amount to

justify dismissal." Id. at 289.

      Where insurance coverage is denied, the maximum "amount in controversy

is the maximum limit of the insurer's liability under the policy." Farmers Ins. Co.

v. McClain, 603 F.2d 821, 823 (10th Cir. 1979) (quotations and emphasis

omitted). Accordingly, the dispute between State Farm and Narvaez over $50,000

                                          -4-
in uninsured motorist benefits, alone, is inadequate to confer subject matter

jurisdiction.

      State Farm argues that its claim that it did not owe interest on the unpaid

uninsured motorist benefits can be included in calculating the amount in

controversy because it is a substantive part of Narvaez's insurance claims. We

disagree. Section 1332 provides that the amount in controversy must be met

without considering "interest and costs." 28 U.S.C. § 1332. The purpose of

excluding interest is "to prevent the delaying of a suit merely to accumulate the

necessary amount for federal jurisdiction." Branin v. Melikian, 396 F.2d 153, 155

(3d Cir. 1968) (denial of Pet. for Reh'g en banc). Thus, interest is not counted if

it "was an incident arising solely by virtue of a delay in payment" of the

underlying amount in controversy. Id. at 154. Here, if State Farm was ultimately

obligated to pay Narvaez the uninsured motorist benefits, the interest on the

unpaid policies would arise solely by virtue of State Farm's delay in paying the

insurance claim. This is precisely the type of interest that § 1332 prohibits us

from considering. See Principal Mut. Life Ins. Co. v. Juntunen, 838 F.2d 942,

943 (7th Cir. 1988) (per curiam) (interest from the date insurance benefits were

due until the date of payment is not considered in amount in controversy because

it "is a sum that becomes due because of delay in payment"). Thus, in

                                         -5-
determining the amount in controversy, we will not consider State Farm's claim

that it does not owe interest on the unpaid policies.

      State Farm next argues that, in calculating the amount in controversy, we

should consider Narvaez's counterclaim for interest on medical payments. The

counterclaim, standing alone, is worth less than the jurisdictional amount, 1 but

State Farm argues that it can be aggregated with the claim in its complaint to

reach the jurisdictional threshold. We need not decide whether the value of an

insufficient counterclaim can be added to the value of an insufficient claim to

calculate the amount in controversy, compare Geoffrey E. Macpherson, Ltd. v.

Brinecell, Inc., 98 F.3d 1241, 1245 n.2 (10th Cir. 1996) (counterclaim can be

considered when, standing alone, it satisfies the amount in controversy

requirement) with 14A Charles A. Wright, Arthur R. Miller & Edward H. Cooper,

Federal Practice and Procedure § 3706, at 118 (1985) ("On balance, however,

aggregating two insufficient claims in the claim-counterclaim situation seems to

be too large a step for the federal courts to take under the existing jurisdiction

statutes, especially in the diversity of citizenship context." (emphasis added)),

because Narvaez's counterclaim was inadequately pleaded and subsequently

abandoned, and Narvaez all but admitted that it was concocted solely to obtain

federal jurisdiction.

      1
       At oral argument, State Farm admitted that it was worth less than $25,000.

                                          -6-
      State Farm has failed to carry its burden of showing that the medical

interest counterclaim was not meritless to a legal certainty, see Saint Paul

Mercury Indem., 303 U.S. at 289 (legal certainty test), because neither party

alleged facts explaining the basis of the counterclaim, and we cannot determine

what the medical payments were for, why the medical payments were overdue,

how long the payments were overdue, or, most importantly for jurisdictional

purposes, the amount of payments that were overdue and upon which interest

purportedly accrued. See Gibson, 478 F.2d at 221 ("Although allegations in the

complaint need not be specific or technical in nature, sufficient facts must be

alleged to convince the district court that recoverable damages will bear a

reasonable relation to the minimum jurisdictional floor." (footnote omitted)).

Additionally, because the counterclaim was never litigated and was not the

subject of any discovery and its merits were not argued in the parties' motions for

summary judgment or on appeal, the counterclaim was abandoned. See Phillips v.

Calhoun, 956 F.2d 949, 950 n.2 (10th Cir. 1992). Although dismissed claims may

be considered in determining the amount in controversy, see Geoffrey E.

MacPherson, 98 F.3d at 1244-45 (a party may voluntarily dismiss a claim to

permit the district court to enter a final judgment in its favor without affecting the

amount in controversy), we will not consider the abandoned medical interest

counterclaim in the circumstances of this case because its prompt abandonment

                                          -7-
without any development leads us to believe that it was not actually in

controversy. Indeed, counsel who raised the counterclaim admitted at oral

argument that it was "somewhat trivial" and "really was calculated to allow the

district court to hear the case." See Emland Builders, Inc. v. Shea, 359 F.2d 927,

929 (10th Cir. 1966) (claims must be "asserted by [the plaintiff] in good faith, as

jurisdiction cannot be conferred or established by colorable or feigned allegations

solely for such purpose"); cf. Flast v. Cohen, 392 U.S. 83, 100 (1968) (cases are

nonjusticiable when they are "feigned or collusive in nature"). Accordingly,

because the amount actually in controversy is exactly $50,000, the limit of

Narvaez's policies, the district court lacked subject matter jurisdiction.

      Finally, State Farm invokes 28 U.S.C. § 1653 and asks this Court to allow

it to add an additional claim to its complaint that, when added to the uninsured

motorist claim, would state the jurisdictional amount. Section 1653 provides that

"[d]efective allegations of jurisdiction may be amended, upon terms, in the trial or

appellate courts." 28 U.S.C. § 1653 (1994). However, § 1653 does not "empower

federal courts to amend a complaint so as to produce jurisdiction where none

actually existed." Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 831

(1989). Accordingly, we cannot permit State Farm to add a new claim to satisfy

the amount in controversy because subject matter jurisdiction never actually

existed over the present action. Cf. Brennan v. University of Kan., 451 F.2d

                                          -8-
1287, 1289 (10th Cir. 1971) (§ 1653 "concerns defects of form, not substance,"

and therefore does not authorize court to add a federal claim to preserve

jurisdiction).

      We REMAND this matter to the district court for purposes of dismissing
the case for lack of jurisdiction.

                                        -9-