Last week on the Property Insurance Coverage Law Blog, I wrote about removal of lawsuits from state to federal court. The possibility that an insurance carrier defendant will remove a lawsuit filed by a condominium association is much greater than that for the average homeowner. One reason is because many condominium associations get insurance from out of state carriers, and another is because property losses to a condominium association will typically be larger than that of the average homeowner.

As discussed in last week’s blog, an out-of-state defendant can remove a lawsuit filed in state court to federal court if diversity of citizenship exists between the parties and the jurisdictional limit of $75,000, has been exceeded. If the jurisdictional amount of $75,000 has not been exceeded, the case can be remanded back to state court, which is what happened in Potts v. Southern Fidelity Ins. Co., No. 10-3039, 2011 WL 289239 (E.D. La. Jan. 25, 2011).

An interesting case was decided earlier this month by the United States Court of Appeals for the Sixth Circuit, in which the amount in controversy equaled exactly $75,000. In Freeland v. Liberty Mutual Fire Ins. Co., No. 10-3038, 2011 WL 338039 (6th Cir. Feb. 4, 2011), an insured sued its insurer in state court, and the insurer removed the case to federal court. After the federal district court granted summary judgment in favor of the insurer, the insured appealed the case to the Sixth Circuit. Neither party objected to the jurisdiction of the federal courts, but the Sixth Circuit exercised its obligation to ensure that it had the proper jurisdiction to hear the case, specifically that the amount in controversy exceeded $75,000. The court paid a tribute to the penny before finding that the amount in controversy was exactly $75,000. The Court remanded the case back to state court for lack of subject matter jurisdiction, all over a penny:

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. s 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.

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The Court recognizes that vacating the district court’s judgment and remanding this case is painfully inefficient. This is especially so in light of the substantial resources that have been spent litigating the merits of this case and the infinitesimal amount by which the amount in controversy falls short. But the Court simply has no choice in the matter. "Federal courts are courts of limited jurisdiction. They possess only that power authorized by Constitution and statute … which is not to be expanded by judicial decree." Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994) (internal citations omitted). The district court lacked the authority to grant Liberty Mutual’s motion for summary judgment. The only proper course is to remand this case back to state court for lack of federal jurisdiction.

For condominium associations and anyone else facing an out-of-state defendant with an amount in controversy in the area of $75,000, this means extra care needs to be devoted to calculating damages to ensure that the case doesn’t have to be started over from scratch, all because of a penny.

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