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Spectacor Management Group v. Brown

November 24, 1997

SPECTACOR MANAGEMENT GROUP

v.

MATTHEW G. BROWN, APPELLANT.



Appeal from the United States District Court for the Eastern District of Pennsylvania

(D.C. Civil No. 93-5246)

Before: GREENBERG, McKEE, Circuit Judges, and WELLFORD, *fn1

Senior Circuit Judge

Argued June 24, 1997

Filed November 24, 1997

OPINION OF THE COURT

McKEE, Circuit Judge.

Spectacor Management Group ("Spectacor") initiated this diversity action as a result of a disagreement with a former senior level executive over severance pay and benefits. The defendant counterclaimed, alleging that Spectacor had breached an oral contract with him and owed him money as a result. Following a bench trial, the district court entered judgment for the defendant but in an amount that was substantially less than the amount of his counterclaim. The defendant appeals. We will affirm the judgment of the district court without further comment, as it is based upon that court's assessment of the evidence, and find no clear error. *fn2 However, the jurisdictional issues raised by this appeal require us to discuss the district court's exercise of subject matter jurisdiction. Accordingly, we will discuss whether the amount in controversy requirement of 28 U.S.C.A. Section(s) 1332(a) has been satisfied.

I.

Spectacor, a Pennsylvania joint venture engaged in the business of managing public assembly facilities, such as stadiums, arenas, and convention centers, brought this diversity action in an attempt to recoup severance benefits paid to defendant Matthew Brown, a New Jersey citizen, following his termination as Executive Vice-President of Spectacor. Spectacor's complaint alleged that it paid Brown $42,500 in benefits and $4,921.04 for medical insurance. The resulting total ($47,421.04) was, therefore, less than the $50,000 minimum required for diversity jurisdiction when the suit was filed. Spectacor, however, also alleged that it was entitled to recoup an additional $3,287.21 it had paid in payroll taxes. This additional sum brought the amount that Spectacor claimed to $50,708.25 exclusive of costs and interest.

Brown argues that Spectacor included the amount of the payroll taxes as a "sham" to manufacture federal jurisdiction in a preemptive attempt to prevent him from suing Spectacor in state court. Brown further argues that Spectacor conceded that even Spectacor's claim to recover benefits from Brown was a "sham" because Spectacor stipulated in the district court that it owed him $50,000 in benefits plus $15,692 in vacation pay. See Appellant's Br. at 5. Spectacor maintained that it retained the money that it owed Brown as a set off against payments it had made to Brown that he was obligated to repay. Thus, Brown's response to the suit was twofold. He claimed that Spectacor manipulated the payroll tax claim as a contrivance to manufacture the amount in controversy needed for diversity jurisdiction and that Spectacor owed him more than he owed it. However, rather than filing a motion to dismiss Spectacor's complaint for lack of jurisdiction in the district court under Fed. R. Civ. P. 12(b)(1), Brown filed an answer in which he denied jurisdiction, and counterclaimed against Spectacor for the amount Spectacor allegedly owed him for severance pay ($135,000), sales commissions ($837,000), an earned bonus ($70,720), unused vacation days and unreimbursed business expenses ($17,550).

Spectacor argues that it included payroll taxes in good faith and the jurisdictional amount therefore appears on the face of the complaint. Spectacor maintains that, in any event, Brown's counterclaim can be considered in calculating the amount in controversy. That counterclaim easily surpasses the $50,000 threshold needed for diversity jurisdiction. Brown counters by arguing that Spectacor's allegation of damages in the amount of $50,708.25 fails to satisfy the jurisdictional amount as the claim was not made in good faith and that his counterclaim cannot be considered in calculating the amount in controversy.

We hold that where, as here, a defendant elects not to file a motion to dismiss for lack of jurisdiction, but answers a complaint by asserting a compulsory counterclaim, *fn3 the amount of that counterclaim may be considered by the court in determining if the amount in controversy exceeds the statutory requirement for diversity jurisdiction. Accordingly, since the amount in controversy easily clears the jurisdictional hurdle when Brown's counterclaims are included, we need not reach the novel and interesting issue of whether the payroll taxes can be considered in calculating the amount in controversy.

II.

Federal courts have diversity jurisdiction where there is complete diversity among the parties, and the amount in controversy meets the jurisdictional minimum. See 28 U.S.C. Section(s) 1332(a). At the time this case wasfiled that amount was $50,000. *fn4 As a general rule, that amount is determined from the good faith allegations appearing on the face of the complaint. See St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 288 (1938). A complaint will be deemed to satisfy the required amount in controversy unless the defendant can show to a legal certainty that the plaintiff cannot recover that amount. Id. at 289.

In a cause instituted in the federal court the plaintiff chooses his forum. He knows or should know whether his claim is within the statutory requirement as to amount. His good faith in choosing the federal forum is open to challenge not only by resort to the face of his complaint, but by the facts disclosed at trial, and if from either source it is clear that his claim never could have amounted to the sum necessary to give jurisdiction there is no injustice in dismissing the suit.

Red Cab, 303 U.S. at 290. As noted above, Brown challenged the district court's jurisdiction by way of an averment in his answer. At Para(s) 16 of his answer, under the section of the answer captioned "DEFENSES", Brown states: "[t]he Court lacks jurisdiction over the subject matter in that the amount in controversy does not exceed $50,000.00." See app. at 16. Under Rule 12 of the Federal Rules of Civil Procedure, Brown could have filed a motion to dismiss for lack of jurisdiction and not filed an answer unless that motion was denied.

Every defense, in law or fact, to a claim for relief in any pleading . . . shall be asserted in the responsive pleading thereto if one is required except that the following defenses may at the option of the pleader be made by motion: (1) lack of jurisdiction over the subject matter . . ."

Fed. R. Civ. P. 12(b) (emphasis added). Brown elected not to exercise that option. Instead, he asserted a counterclaim against Spectacor based upon the same transactions ...


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