Davis v. Carl Cannon Chevrolet-Olds

182 F.3d 792

• Court: Court of Appeals for the Eleventh Circuit
• Decided: July 26, 1999
• Docket: 98-6567
• Status: Published

Opinion

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS FILED FOR THE ELEVENTH CIRCUITU.S. COURT OF APPEALS ________________________ ELEVENTH CIRCUIT 07/26/99 THOMAS K. KAHN No. 98-6567 CLERK ________________________

D. C. Docket No. CV97-P-2889-J

GENEVA DAVIS, MICHAEL H. ROBERTS,

Plaintiffs-Appellants,

versus

CARL CANNON CHEVROLET-OLDS, INC; GENERAL MOTORS ACCEPTANCE CORPORATION, et al.,

Defendants-Appellees. ________________________

Appeal from the United States District Court for the Northern District of Alabama _________________________ (July 26, 1999)

Before COX, Circuit Judge, FAY, Senior Circuit Judge, and NANGLE*, Senior District Court Judge.

COX, Circuit Judge:

The question this appeal poses is whether, in a class action, a potential

attorneys’ fee awarded out of a common fund may count in the aggregate toward the

* Honorable John F. Nangle, Senior U. S. District Judge for the Eastern District of Missouri, sitting by designation. jurisdictional minimum necessary to establish diversity jurisdiction. We hold that it

may not.

I. Background

The plaintiffs here, and the class they ask to represent, are purchasers of

extended service contracts on General Motors vehicles. According to the plaintiffs,

General Motors Acceptance Corporation, in conspiracy with GM dealerships,

fraudulently concealed that the dealerships make a profit on such contracts. The

plaintiffs thus sued GMAC and a local dealership in the Circuit Court of Walker

County, Alabama, a rural county northwest of Birmingham. The ad damnum clause

in each of the complaint’s six substantive counts seeks only “compensatory damages

as may be allowed by law.” (R.1-8 at 2-6.) The end of the complaint, moreover,

contains the following “do not remove me” “disclaimer” in capital, boldface letters:

NOTWITHSTANDING ANY ALLEGATION MADE WITHIN THIS COMPLAINT, THIS ACTION IS BROUGHT SOLELY PURSUANT TO THE COMMON LAW AND STATUTORY LAW OF THE STATE OF ALABAMA. NO CLAIM IS MADE UNDER OR FOR ANY CAUSE OF ACTION ARISING UNDER THE CONSTITUTION OR LAWS OF THE UNITED STATES OF AMERICA. FURTHER, NOTWITHSTANDING ANY ALLEGATION CONTAINED HEREIN, THE PLAINTIFF AND EACH AND EVERY MEMBER OF THE CLASS DEFINED HEREIN EXPRESSLY WAIVE AND FOREGO [sic] ANY CLAIM FOR PUNITIVE DAMAGES AND LIMIT THEIR CLAIMS SOLELY TO COMPENSATORY DAMAGES. THE PLAINTIFF AND EACH CLASS MEMBER ALSO EXPRESSLY WAIVE ANY CLAIM FOR DAMAGES OVER SEVENTY-FIVE THOUSAND 2 DOLLARS ($75,000.00). THIS CLASS [sic] IS A MONEY DAMAGE CASE BROUGHT ONLY UNDER RULE 23(B)(3), ALABAMA RULES OF CIVIL PROCEDURE; THEREFORE, ANY CLASS MEMBER WHO WISHES TO PURSUE PUNITIVE DAMAGES IN AN AMOUNT GREATER THAN SEVENTY-FIVE THOUSAND DOLLARS ($75,000.00) MAY OPT-OUT [sic] AND DO SO.

(Id. at 8.)

GMAC nonetheless removed the action to federal court. The plaintiffs moved

to remand, pointing out the diversity jurisdiction-defeating features of their complaint:

first, they joined a local GM dealership; and second, they disclaimed on behalf of the

class all damages above the $75,000 jurisdictional amount.1 Notwithstanding these

features, the district court denied the plaintiffs’ motion to remand. First, the court

concluded that the GM dealership was fraudulently joined to defeat jurisdiction. (The

dealership was then voluntarily dismissed, so no fraudulent-joinder issue is before us.)

Second, the court concluded that the complaint, while disclaiming all compensatory

and punitive damages over $75,000 per plaintiff, alleged the requisite amount in

controversy because the lawyers did not disclaim a fee exceeding that amount. The

district court certified its order for interlocutory appeal under 28 U.S.C. § 1292(b).

The plaintiffs sought to appeal, and we permitted it.

2. Discussion

1 See 28 U.S.C. § 1332(a).

3 a. Zeroing in on the issue. Several undisputed background rules frame the

issue here. Removal jurisdiction exists only when the district court would have had

original jurisdiction over the action. See 28 U.S.C. § 1441(a); Wisconsin Dep’t of

Corrections v. Schacht, 118 S. Ct. 2047, 2051 (1998). One ground of original

jurisdiction in the district court — the only one asserted here — is complete diversity

of the parties’ citizenship and an amount in controversy exceeding $75,000. See 28

U.S.C. § 1332(a)2; Carden v. Arkoma Assocs., 494 U.S. 185, 187, 110 S. Ct. 1015,

1017 (1990). Because the district court found fraudulent joinder, and the plaintiffs

dismissed the only nondiverse party, the only issue here is whether the amount in

controversy is more than $75,000. And that issue is further narrowed because each

plaintiff seeks no more than $75,000, and the compensatory damage claims of

individual class members may not be aggregated to satisfy the amount. See Zahn v.

International Paper Co., 414 U.S. 291, 301, 94 S. Ct. 505, 512 (1973). Punitive

damage claims are aggregated,3 but the plaintiffs have disclaimed such damages; for

the moment we assume that the disclaimer is effective. We also assume, without

2 “The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between —

(1) citizens of different States . . . .”

28 U.S.C. § 1332(a). 3 See Tapscott v. MS Dealer Serv. Corp., 77 F.3d 1353, 1359 (11th Cir. 1996).

4 deciding, that the plaintiffs’ claim for injunctive relief does not exceed $75,000 in

value. The sole possibility for satisfying the requisite amount in controversy,

therefore, is the claim for attorneys’ fees.

There is no dispute among the parties that plaintiffs’ lawyers will seek a fee

ultimately paid by the defendant. While the complaint contains no such claim, the

plaintiffs’ lawyers candidly acknowledged at oral argument that they were not

working for free, and the district court took an attorney-fee claim to be implicit in the

class-action complaint. The parties do disagree, however, over how Alabama law will

shape that fee award, for reasons that we will explain.

Alabama generally follows the American rule that each party must bear her own

attorneys’ fees. Apart from statutory and contractual fee-shifting provisions, neither

of which is available here, Alabama recognizes two principal kinds of “equitable” fee-

shifting. See Horn v. City of Birmingham, 718 So. 2d 694, 703 (Ala. 1998). The

first is the so-called “common fund” doctrine, which authorizes the trial court to

deduct as an attorneys’ fee a reasonable percentage (which apparently means at least

20%) of a common fund that class representatives have collected for distribution

among the class. See Edelman & Combs v. Law, 663 So. 2d 957, 959-60 (Ala. 1995).

The second is the “common benefit” doctrine, which permits an award of fees to be

paid by the defendant, independent of any fund, when the plaintiffs have conferred

5 some kind of benefit on the public. See, e.g., Brown v. Alabama, 565 So. 2d 585, 592

(Ala. 1990). GMAC contends, and the plaintiffs dispute, that a fee here could just as

well be awarded under the common-benefit doctrine as under the common-fund

doctrine.

On this issue the plaintiffs have the upper hand. Alabama courts have invoked

the common-benefit doctrine only when there is a benefit conferred upon the “general

public.” Horn, 718 So. 2d at 702; Battle v. City of Birmingham, 656 So. 2d 344, 347

(Ala. 1995); Bell v. Birmingham News Co., 576 So. 2d 669, 670 (Ala. Ct. Civ. App.

1991). And in every appellate-level case affirming a fee award under this doctrine,

a benefit was conferred on a large segment of the public by bringing “an end to an

improper practice” of a governmental entity. See Horn, 718 So. 2d at 706 (plaintiffs

stopped Birmingham from improperly approving the construction of a waste-transfer

facility); Brown, 565 So. 2d at 592 (plaintiffs’ suit caused state law enforcement

agencies to stop issuing traffic tickets without verification); Bell, 576 So. 2d at 670-71

(plaintiff newspaper stopped Birmingham City Council from casting secret ballots).

Compare Dandy’s Discount Package Store, Inc. v. Sizemore, 597 So. 2d 1370, 1372

(Ala. Ct. Civ. App. 1992) (liquor stores who challenged tax and were successful had

not conferred sufficient benefit on general public to warrant fee award independent

of fund); Advertiser Co. v. Auburn Univ., 579 So. 2d 645, 648 (Ala. Ct. Civ. App.

6 1991) (trial court justified in refusing fees where action to force disclosure of

document, while successful, did not establish any precedent or stop any ongoing

illegal government practice).

The common-benefit doctrine would not apply here. Because of the

complaint’s vagueness, it is hard to imagine exactly what kind of injunctive relief

could follow a successful suit, but the relief would at most restrain GMAC from

certain marketing practices. Such relief would in no wise benefit the “general public”;

it would be a boon to only the relatively small number of consumers who purchase

certain products from GMAC. If Alabama courts respect their precedents, then any

award of attorneys’ fees will be deducted from the plaintiffs’ damages fund. Because

of this conclusion about Alabama law, we leave for another case the question of

whether an attorneys’ fee awarded as a discrete, but noncontractual and nonstatutory,

element of recovery may be counted as a single sum toward the jurisdictional amount

rather than allocated among the individual class members’ amounts in controversy.

Cf. Coventry Sewage Assocs. v. Dworkin Realty Co., 71 F.3d 1, 3 n. 2 (1st Cir. 1995)

(“[A]lthough attorneys’ fees usually will not constitute a portion of the amount in

controversy, there is an exception where, as here, the fees are contractual.”); In re

Abbott Labs., 51 F.3d 524, 526-27 (5th Cir. 1995) (award of attorneys’ fee against

defendant under Louisiana statute is attributed only to the class representatives, and

7 therefore can satisfy the jurisdictional amount in controversy); Premier Indus. Corp.

v. Texas Indus. Fastener Co., 450 F.2d 444, 447 (5th Cir. 1971) (“[T]he value of

attorney’s fees [plaintiff] was entitled to recover under the Settlement Agreement . .

. is properly includable in determining the amount in controversy.”).

The narrow question we answer now is thus only whether a fee to be deducted

from a common fund may, if it exceeds $75,000, satisfy the amount-in-controversy

requirement.

b. The rule and its application. Precedent compels us to answer this question

“no.” The rule of decision comes from a series of Supreme Court cases, dating back

to at least 1854, interpreting “matter in controversy”4 to permit aggregation of

multiple plaintiffs’ claims only when “plaintiffs [have] unite[d] to enforce a single

title or right in which they have a common and undivided interest.” Snyder v. Harris,

394 U.S. 332, 335, 89 S. Ct. 1053, 1056 (1969); accord, Zahn v. International Paper

Co., 414 U.S. 291, 294, 94 S. Ct. 505, 508 (1973); see, e.g., Clark v. Paul Gray, Inc.,

306 U.S. 583, 588, 59 S. Ct. 744, 748 (1939); Shields v. Thomas, 58 U.S. (17 How.)

3, 5 (1854). Why we look to the value of each plaintiff’s claim, rather than to the

defendant’s total exposure, is lost in the mists of antiquity; no Supreme Court case

that this court has been able to locate explains the rationale behind this seemingly

4 28 U.S.C. § 1332(a).

8 arbitrary rule. See 14B Charles A. Wright et al., Federal Practice & Procedure § 3704,

at 127 (3d ed. 1998) (“The traditional principles in this area have evolved haphazardly

and with little reasoning. They serve no apparent policy . . . .”). But a rule it is, and

it applies here. True, the Supreme Court cases have used this rule only to determine

if joint plaintiffs may aggregate the entire value of their claims. But this circuit has

extended the application of the “single title or right” principle to address the

aggregation of discrete portions of each plaintiff’s claim for relief. See Tapscott v.

MS Dealer Serv. Corp., 77 F.3d 1353, 1358 n.11 (11th Cir. 1996) (holding that

punitive damages are aggregable because they represent an undivided interest in

punishment and deterrence).

A common-fund attorneys’ fee, we conclude, does not represent a “single title

or right” of the plaintiffs, at least in the two ways it can be reasonably characterized.

The first reasonable characterization is to view the fee as part of the compensatory

damage award. It is indeed measured by the size of the damages award, and it does

not independently affect the size of the controversy. Under this view, the attorneys’

fee must be treated as “transparent,” and its treatment for diversity-jurisdiction

purposes must be identical to that of damages. When, as here, the damages claimed

are purely compensatory, the attorneys’ fees are no more aggregable than the

compensatory damages would be.

9 Alternatively, even if we accept the defendant’s invitation to view the fee as a

lump sum collectively benefitting the plaintiff class, the common-fund fee does not

represent a “right” of the plaintiffs. Facially, we could perhaps consider the fee as a

collective debt of the plaintiff class, incurred in common in pursuit of the plaintiffs’

recovery, that the defendants discharge to the plaintiffs’ benefit. But that would not

make sense in the common-fund context. After all, we are not dealing with attorneys

who, as plaintiffs’ “agents” in the common sense of the word, could be expected to

seek attorneys’ fees from their clients. Indeed, most of the clients involved will never

meet their attorneys. Rather, the lawyers are “entrepreneurs” who take a case in the

expectation of making money from it. Jonathan R. Macey & Geoffrey P. Miller, The

Plaintiffs’ Attorney’s Role in Class Action and Derivative Litigation: Economic

Analysis and Recommendations for Reform, 58 U. Chi. L. Rev. 1, 3 (1991); John C.

Coffee, Jr., Understanding the Plaintiff’s Attorney: The Implications of Economic

Theory for Private Enforcement of Law Through Class and Derivative Actions, 86

Colum. L. Rev. 669, 677 (1986) (both identifying the plaintiffs’ attorney in class

actions as an independent entrepreneur rather than an agent). Indeed, the common-

fund fee, which is most likely a matter solely for the court and the plaintiffs’ lawyers

(or the defendant and the plaintiffs’ lawyers, in the case of settlement), is often

calculated without representation of the plaintiffs’ interests. See Edelman & Combs

10 v. Law, 663 So. 2d 957, 959 (Ala. 1995) (observing that class lawyers have an

inherent conflict of interest with members of the class over fees). For these reasons,

we cannot deem the attorneys’ fee to be a collective benefit for the plaintiffs, who

have been excused from a debt at the defendant’s expense. Rather, the fees directly

compensate the lawyers who have acted independently as “private attorneys general.”

In short, the common-fund attorneys’ fee does not represent a collective interest of

the plaintiff class, and it is not aggregable.

c. Apologia. We acknowledge that this case and its kin present an anomaly in

our law. An important historical justification for diversity jurisdiction is the

reassurance of fairness and competence that a federal court can supply to an out-of-

state defendant facing suit in state court.5 GMAC is an out-of-state corporate

defendant facing a multimillion-dollar judgment — possibly tens or hundreds of

5 See, e.g., Barrow S.S. Co. v. Kane, 170 U.S. 100, 111, 18 S. Ct. 526, 530 (1898) (“The object of the provisions of the constitution and statutes of the United States in conferring upon the circuit courts of the United States jurisdiction of controversies between citizens of different States of the Union . . . was to secure a tribunal presumed to be more impartial than a court of the state in which one litigant resides.”); The Federalist No. 80, at 537-38 (Alexander Hamilton) (Jacob E. Cooke, ed. 1961) (“[I]n order to the inviolable maintenance of that equality of privileges and immunities to which the citizens of the union will be entitled, the national judiciary ought to preside in all cases in which one state or its citizens are opposed to another state or its citizens. To secure the full effect of so fundamental a provision against all evasion and subterfuge, it is necessary that its construction should be committed to that tribunal which, having no local attachments, will be likely to be impartial between the different states and their citizens, and which, owing its official existence to the union, will never be likely to feel any bias inauspicious to the principles on which it is founded.”).

11 millions, once the plaintiffs have waited out the one-year removal window6 and amend

their complaint to seek punitive damages explicitly — in a state court system that has

on occasion produced gigantic awards against out-of-state corporate defendants. See,

e.g., BMW of N. Am., Inc. v. Gore, 116 S. Ct. 1589, 1593 (1996) ($4 million punitive

damage verdict for failing to disclose that new car had been repainted by the

manufacturer); Jeff Bailey, Whirlpool Ordered to Pay $581 Million in Alabama

Satellite-Dish Finance Case, Wall St. J., May 11, 1999, at A3 (“The decision . . . is

believed to be the largest punitive damage award in Alabama, a state whose courts are

among the most widely feared by corporate defendants.”). One would think that this

case is exactly what those who espouse the historical justification for § 1332 would

have had in mind, and that this fact would somehow color the statute’s interpretation.

Whatever the policy behind § 1332, however, the Supreme Court has deemed

it irrelevant to construing ambiguous terms like “matter in controversy.” It would be

consistent with this nonresident-reassurance policy, for instance, to construe “matter

in controversy” to mean the value of a case from a removing defendant’s perspective.7

6 See 28 U.S.C. § 1446(b). 7 See Wright et al., supra, § 3705, at 180-81 (“This is one situation in which it might have been useful to employ the defendant-viewpoint rule in determining the amount in controversy. The policy goal of insuring that the federal courts do not ‘fritter away their time in the trial of petty controversies’ still would be safeguarded, since the potential liability to the defendant clearly is not insubstantial in almost all class actions despite the small size of the claims of individual class members.”) (quoting S. Rep. No. 85-1830, at 3-4 (1958)).

12 But while the Supreme Court long ago flirted with the idea of evaluating multiple

claims from the defendant’s perspective, see Shields, 58 U.S. (17 How.), at 5,8 it has

since rejected that notion, as Snyder and Zahn confirm. Those cases look at the

“matter in controversy” solely through each plaintiff’s eyes, even though the

defendant may be looking at a much larger sum. See Zahn, 414 U.S. at 295, 94 S. Ct.

at 509; Snyder, 394 U.S. at 336, 89 S. Ct. at 1057. Thus, even though it may make

sense and be fair to a defendant to measure the case from its perspective, as well as

the plaintiffs’, the Supreme Court has long since closed that door. By analogy, we are

bound in our turn to reject any policy-based arguments in deciding lesser questions

about § 1332, including the one before us today.

d. Mopping up. Our conclusion does not end the diversity-jurisdiction dispute.

GMAC has proposed two additional ways that the amount in controversy could

exceed $75,000 here. First, it argues that the punitive damages waiver is

impermissible. Second, it argues that the injunctive relief that the plaintiffs seek is

unitary and therefore aggregable. Because the district court found the amount in

controversy satisfied by the possibility of a common-fund attorneys’ fee, it did not

8 “So far as the [defendant] is concerned, the entire sum found due by the Kentucky court is in dispute. He disputes the validity of that decree, and denies his obligation to pay any part of the money. And if the [plaintiffs] maintain their bill, he will be made liable to pay the whole amount decreed to them. This is the controversy on his part; and the amount exceeds two thousand dollars.”

13 reach these alternative grounds. We thus will leave these issues for the district court

to address in the first instance on remand.

3. Conclusion

For the foregoing reasons, we vacate the district court’s denial of the motion to

remand and remand the for further proceedings.

VACATED AND REMANDED.

14 NANGLE, Senior District Judge, concurring:.

This District Judge concurs with his colleagues in this matter but under

protest. The protest is not against the majority, who are two of the finest Circuit

Judges in this country, but is instead against the antiquated, out-of-date judicial

theories which force upon us the result reached in this case.

The case at hand is but one example of a growing trend in class action

litigation in this country. Plaintiffs’ attorneys are increasingly filing nationwide class

actions in various state courts, carefully crafting the language in the petitions or

complaints in order to avoid the amount in controversy requirement of the federal

courts. Existing federal precedent, as so clearly articulated by the majority, mandates

that this practice be permitted, although most of these cases in actuality will be

disposed of through “coupon” or “paper” settlements.9 Actual monetary

compensation rarely reaches the class members. Concurrently, and perhaps

coincidentally, such settlements are virtually always accompanied by munificent

grants of or requests for attorneys’ fees for class counsel.10

9 These settlements typically involve the extension or expansion of an existing warranty or coupons for rebates on future purchases from defendants. 10 See In re General Motors Corp. Pickup Truck Fuel Tank Prods. Liab., 55 F.3d 768 (3d Cir. 1995) (discussing settlement involving relief of rebate coupons on future truck purchases for the class and $9.5 million in attorneys’ fees); In re Ford Motor Co. Bronco II Prod. Liab. Litig., 981 F. Supp. 969 (E.D. La. 1997) (rejecting proposed settlement involving “utility vehicle package” of safety materials for class and $6 million in fees for attorneys); In re Domestic Air Transp. Antitrust Litig., 148 F.R.D. 297 (N.D. Ga. 1993) (approving proposed settlement which

15 The instant case is virtually indistinguishable from the types of cases that

result in coupon settlements. The plaintiffs allege fraud in the sale of an extended

warranty plan for their GM vehicles costing $685 per policy. The lead plaintiffs in the

instant case purport to waive all punitive damages and to limit compensatory damages

to $75,000 per class member. Even if this waiver were effective, the reality of the

situation is that plaintiffs will likely seek to amend their complaint and seek greater

amounts of damages after the one year removal window has closed. 28 U.S.C. §

1446(b). I make no comments on the merits of this case. But, if it reaches the trial

stage, I am willing to predict that it will be settled. Facing the possibility of an

Alabama jury which occasionally brings in “gigantic awards” in cases of this sort (as

pointed out by the majority),11 defendants in this case will be under extreme pressure

to settle with the only potential obstacle to settlement being plaintiffs’ attorneys fees.

included discount travel certificates for class and over $14 million in attorneys fees); In re Cuisinart Food Processor Antitrust Litig. (D. Conn. Oct. 24, 1983) (approving settlement giving discount coupon on future purchases to class and $600,000 in attorneys’ fees). Just recently, a Cook County class action case was settled by sending three golf balls to each member of the class, with significant attorneys’ fees for the plaintiffs’ attorneys. Jerry Heaster, Enough Already with the Lawsuits, Kan. City Star, July 10, 1999, at C1. 11 BMW of North Am., Inc. v. Gore, 517 U.S. 559 (1996) (striking down $4 million dollar punitive damage award in Alabama paint damage case); Margaret Cronin Fisk, Jurors’ Satellite Signal: $581M, Nat’l L.J., May 24, 1999, at B5 (citing Carlisle v. Whirlpool Fin. Nat’l Bank, No. 97-068 (Al. Cir. Ct., Hale Cty.) (awarding $581 million in damages for consumer fraud in the sale and financing of two television satellite dishes)).

16 Thus, the stage is set for a coupon settlement, with the only cash involved flowing

directly to plaintiffs’ attorneys. And that cash will far exceed $75,000.

Consequently, although the majority’s opinion correctly states and

analyzes the law as it currently stands, this Judge is of the opinion that the present case

law does not adequately accommodate the reality of modern class action litigation and

settlements. The amount in controversy doctrine, in particular the rules concerning

aggregation, should provide for the inclusion of the prospective attorneys’ fees being

sought. In many such cases, that is the true “amount in controversy.” Under the

current state of the law, however, this Judge has no choice but to concur in the opinion

of his esteemed colleagues.