Legal Commentary

One Penny Away from Federal Jurisdiction

By Orin Kerr

Here?s the introduction of today?s decision of the 6th Circuit in Freeland v. Liberty Mutual Fire Insurance Co.:

This insurance coverage case arises out of a tragic car accident. Despite the resources that have been invested in litigating this action, we must dismiss it to start anew in state court because the amount in controversy is one penny short of our jurisdictional minimum.

From the opinion:

The penny is easily the most neglected piece of U.S. currency. Pennies tend to sit at the bottom of change jars or vanish into the cracks between couch cushions. Vending machines and parking meters will not accept them. Many people refuse to bend down to pick up a penny off the ground, deeming the reward not worth the effort. And a member of Congress even introduced legislation that would effectively eliminate the penny by requiring merchants to round their prices to the nearest nickel. See Currency Overhaul for an Industrious Nation (COIN) Act, H.R. 5818, 109th Cong. § 3(a) (2006). In this case, however, the penny gets a rare moment in the spotlight. The amount in controversy in this declaratory judgment action is exactly one penny short of the jurisdictional minimum of the federal courts.

Although the district court did not address it and the parties did not raise the issue in their briefs, this Court has ?an independent obligation to determine whether subject? matter jurisdiction exists, even in the absence of a challenge from any party.? Arbaugh v. Y&H Corp., 546 U.S. 500, 514 (2006). Liberty Mutual removed this case to federal court under 28 U.S.C. § 1441(a), which allows removal of civil actions ?of which the district courts of the United States have original jurisdiction.? Because this case presents no federal question, Liberty Mutual invoked the district court?s diversity jurisdiction. Article III of the Constitution authorizes federal jurisdiction in all controversies where the parties are ?citizens of different states.? U.S. Const. art. III, § 2. But Congress has always limited this grant of jurisdiction by also requiring that cases satisfy a minimum amount-in-controversy requirement. See Snyder v. Harris, 394 U.S. 332, 334 (1969). When Congress first established the lower federal courts in the Judiciary Act of 1789, the required amount in controversy was $500. Id. That figure has increased over the years, and today ?the matter in controversy [must] exceed[] the sum or value of $75,000, exclusive of interest and costs.? 28 U.S.C. § 1332.

Yet in this case the amount in controversy is $75,000 exactly?one penny short of the jurisdictional bar that Congress has set.

The amount in controversy was exactly $75,000 because the plaintiffs sought a declaratory judgment that their insurance policy would pay $100,000 for a claim, while the insurance company argued that the policy would pay $25,000 for the claim. That meant that the difference, exactly $75,000, was the amount of the controversy ? an amount that did not ?exceed? the value of $75,000 as required by 28 U.S.C. § 1332.

Thanks to How Appealing for the link.

Full post as published by The Volokh Conspiracy on February 04, 2011 (boomark / email).