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Coventry Sewage Associates v. Dworkin Realty Co.

Court of Appeals for the First Circuit
71 F.3d 1, 33 Fed. R. Serv. 3d 395, 1995 U.S. App. LEXIS 32702 (1995)
ELI5:

Rule of Law:

When a plaintiff files a diversity action in good faith, claiming an amount in controversy that exceeds the jurisdictional minimum, federal jurisdiction is not divested if a subsequent event, such as the discovery of a factual error by a third party, reduces the amount recoverable below the statutory limit.


Facts:

  • Coventry Sewage Associates ('Coventry') and The Stop & Shop Supermarket Company ('Stop & Shop') entered into a 'Sewer Connection Agreement' in June 1992.
  • Under the agreement, Stop & Shop's service fee was based on water consumption data provided by a third party, the Kent County Water Authority (KCWA).
  • Stop & Shop forwarded invoices from the KCWA to Coventry for billing purposes.
  • A dispute arose over a fee increase, and Stop & Shop refused to pay bills that accumulated beginning in early 1994.
  • After Coventry filed its lawsuit, Stop & Shop contacted the KCWA, which discovered it had been misreading Stop & Shop's water meters by adding an extra zero to the consumption figures.
  • The KCWA sent a letter to Stop & Shop on November 18, 1994, correcting its invoices and drastically reducing the amount of water Stop & Shop had actually consumed.

Procedural Posture:

  • Coventry Sewage Associates and Woodland Manor Improvement Association sued Dworkin Realty Co. and The Stop & Shop Supermarket Company in the U.S. District Court for the District of Rhode Island.
  • The complaint, based on diversity of citizenship, sought damages of $74,953.00, exceeding the $50,000 jurisdictional minimum.
  • Stop & Shop filed a motion to dismiss for lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1) after discovering that a billing error reduced the actual amount in controversy to $18,667.88.
  • The district court granted Stop & Shop's motion, dismissing the case for lack of subject matter jurisdiction.
  • Coventry, as appellant, appealed the dismissal to the U.S. Court of Appeals for the First Circuit.

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Issue:

Does a federal district court lose subject matter jurisdiction when a good faith claim exceeding the jurisdictional minimum is subsequently reduced below that minimum due to the post-filing discovery of a third-party's factual error?


Opinions:

Majority - Stahl, Circuit Judge

No. The district court's jurisdiction, which attaches at the time a complaint is filed, is not ousted by a subsequent change of events that reduces the amount in controversy. The amount in controversy is determined by the circumstances at the time the complaint is filed, and the plaintiff's claimed sum controls if it is made in good faith. Here, Coventry filed its claim in both subjective and objective good faith, as it reasonably relied on invoices from a third-party water authority and had no reason to know they were incorrect. The post-filing discovery of the KCWA's error and its subsequent correction constitute 'events occurring subsequent to the institution of suit.' Unlike cases involving a 'subsequent revelation' where a plaintiff should have known the actual amount was below the minimum, these 'extraordinary circumstances' involving an independent third party's non-obvious error do not retroactively defeat jurisdiction that was properly established at the outset.



Analysis:

This decision reinforces the 'time-of-filing' rule for determining the amount in controversy and clarifies the distinction between a 'subsequent event' and a 'subsequent revelation.' It establishes that when a plaintiff's good faith is undisputed and the reduction in the claimed amount is due to the post-filing actions of an independent third party correcting a non-obvious error, the reduction is treated as a subsequent event that does not destroy jurisdiction. This protects plaintiffs who reasonably rely on third-party information from being penalized for factual errors they could not have discovered prior to litigation. The court's characterization of the facts as 'extraordinary' may limit the holding's application to similar, narrow circumstances.

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