Effort to Defeat Diversity Jurisdiction by Reducing Demand Ineffective

Effort to Defeat Diversity Jurisdiction by Reducing Demand Ineffective

      In a recent decision from the Eastern District of Kentucky (Chief Judge Caldwell), an effort by the plaintiff to avoid diversity jurisdiction by reducing the amount sought in the litigation was ineffectual. 859 Boutique Fitness, LLC v The Cyclebar Franchising, LLC, Civ. Act. No. 5:16-CV-018-KKC, 2016 WL4414786 (E.D. Ky. August 18, 2016).

      859 Boutique sued Cyclebar for, apparently, failure to enter into a franchise agreement. In connection therewith, damages exceeding $25 million were sought. Thereafter, Cyclebar removed the dispute to federal court on the basis of diversity jurisdiction.  Diversity jurisdiction (28 U.S.C. 1332) has two components.  First, there must be diversity of citizenship, which in this case was present.  In addition, the amount in controversy must exceed $75,000.  Clearly $25 million exceed $75,000.  However, after removal, 859 Boutique amended its Complaint and alleged that it’s damages did not exceed $74,383.79, below the threshold required for diversity jurisdiction.  The question was therefore whether this post-removal reduction in the amount sought would be sufficient to deprive the Federal Court of diversity jurisdiction.  Judge Caldwell held that it did not.

For purposes of a motion to remand, a district court considers “the amount in controversy at the time of removal.” Singer v. State Farm Mut. Auto. Ins. Co., 116 F.3d 373, 377 (9th Cir. 1997) (quoting Allen v. R & H Oil & Gas Co., 63 F.3d 1326, 1335–36 (5th Cir. 1995)). The Plaintiff’s complaint at the time of removal controls a district court’s subject matter jurisdiction inquiry when the case is based on diversity jurisdiction. O’Keefe v. Mercedes-Benz United States, LLC, 214 F.R.D. 266, 279 (E.D. Pa. 2003); see St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 291–92 (1938). Even if a “plaintiff after removal, by stipulation, by affidavit, or by amendment of his pleadings, reduces the claim below the requisite amount, this does not deprive the district court of jurisdiction.” St. Paul Mercury Indem. Co., 303 U.S. at 292.

When CycleBar filed its notice of removal, damages exceeding $2,500,000 were in dispute, clearly satisfying the jurisdictional requirement. Plaintiff’s amended complaint emphasizes that the amount in controversy is now only $74,383.79, an amount just below the jurisdictional threshold. However, “events occurring subsequent to removal which reduce the amount recoverable, whether beyond the plaintiff’s control or the result of his volition, do not oust the district court’s jurisdiction once it has attached.” St. Paul, 303 U.S. at 293.

“Simply put, a plaintiff cannot defeat federal jurisdiction by agreeing to seek no more than $75,000 after the action has been removed to federal court.” Nave v. Hilton Worldwide, Inc., 2014 WL 3585401, at *2 (E.D. Ky. July 21, 2014). The amount that was considered for jurisdictional purposes was the amount in the original complaint—over $2,500,000. Thus, the jurisdictional amount requirement was met, and removal was proper. This rule is “grounded not only in precedent, but also in sound policy.” Rogers, 230 F.3d at 872. “If the plaintiff could, no matter how bona fide his original claim in the state court, reduce the amount of his demand to defeat federal jurisdiction the defendant’s supposed statutory right of removal would be subject to the plaintiff’s caprice.” St. Paul, 303 U.S. at 294.