Plaintiff Chase Manhattan Bank (“Chase”) extended a loan for the financing of improvements to real property, and accepted as security a mortgage on the property and the defendants’ personal guaranty that, in the event of default and foreclosure, they would pay to Chase the costs “incurred or to be incurred” by Chase in completing the improvements, or “such” costs “as estimated by the Construction Consultant.” When the developers stopped work and defaulted on the loans, Chase obtained an estimate of completion costs from the Construction Consultant, unsuccessfully demanded payment under the guaranty, took possession in a friendly foreclosure proceeding, and sold the property— without making any improvements- — for an amount insufficient to satisfy the loans.
Chase commenced a diversity action in the United States District Court for the Southern District of New York (Baer, Jr., /.), seeking more than $4 million in damages for the alleged breach of the guaranty agreement. After the parties filed cross-motions for summary judgment, the district court ruled first that Chase’s claim for completion costs estimated by the Construction Consultant is a claim for liquidated damages that is unsustainable under New York law, and then dismissed Chase’s complaint on the ground that, in the absence of evidence that Chase incurred any improvement costs or that the unimproved state of the property reduced the sale price, Chase suffered no damages and therefore failed to satisfy the $50,000 amount in controversy requirement for diversity jurisdiction. See 28 U.S.C. § 1332(a); Fed.R.Civ.P. 12(h)(3).
Everyone appeals. Chase argues that the district court had diversity jurisdiction because the amended complaint pleaded sufficient facts to establish that, at the time the complaint was filed, Chase had a good faith belief that its claim exceeded $50,000. The defendants agree that there is jurisdiction, but contend that the district court — having properly concluded that the guaranty covers only costs that Chase has incurred (or will be required to incur) and that Chase has incurred (and will incur) no such costs — should have dismissed the complaint on the merits.
We agree with all parties that there is diversity jurisdiction, and we agree with the defendants that the undisputed facts defeat the claim. We therefore vacate the dismissal of the complaint for lack of subject matter jurisdiction, and remand to the district court with instructions to enter summary judgment in favor of the defendants.
BACKGROUND
Defendants Samuel Zell and the late Robert Lurie,
On April 11, 1989, Chase, ANB and Morton Grove entered into an agreement in which Chase agreed to loan $6 million to ANB (still acting as trustee for the land trust) to finance certain renovations to the office building (the “Loan Agreement”). Chase secured that loan with a second mortgage on the office complex. To further protect the collateral, and to ensure that the loan proceeds would be used to enhance the marketability of the office complex, the Loan Agreement required Morton Grove to make certain renovations and improvements to the office building, including the replacement of
The Loan Agreement contemplated that the proceeds would be disbursed in monthly installments only as costs were incurred in connection with the specified improvements. At the time that the Loan Agreement was executed, no such costs had been incurred by Morton Grove or by ANB. In an amendment to the Loan Agreement, Chase expressly waived the provisions that tied the loan disbursements to the incurring of costs. Ultimately, Chase disbursed approximately $5,125 million to finance the Improvements.
Concurrent with the Loan Agreement, Zell and Lurie executed a document designated “Completion Costs Guaranty” in the form of a letter from them to Chase (the “Guaranty”). Pursuant to the Guaranty, Zell and Lurie agreed, in the event of default under the Loan Agreement, to reimburse costs incurred or to be incurred by Chase for the completion of Improvements to the extent that those costs exceeded the undisbursed portion of the loan. At Chase’s option, that amount could be based on costs “actually incurred” or on a binding estimate rendered by the Construction Consultant as to the amount of such costs “required to be incurred” to complete the Improvements. The relevant text is set out in the margin.
Chase alleges that, sometime after executing the Guaranty and the Loan Agreement, Zell and Lurie transferred their assets to, respectively, the Samuel Zell Revocable Trust and the Robert Lurie Revocable Trust (the “Revocable Trusts”), each naming himself as trustee of the trust bearing his name. Chase contends that on August 31, 1990, the Revocable Trusts agreed to share responsibility for all guarantees and agreements entered into by Zell and Lurie, including the Completion Costs Guaranty. Thus, Chase alleges that Zell, Lurie and the Revocable
Between 1989 and early 1990, Morton Grove made some of the Improvements to the office building, but all work stopped in the summer of 1990. Whether Morton Grove completed all the Improvements remains disputed. ANB stopped making payments on the two loans as of May 1, 1991, and then defaulted under the Loan Agreement. In August 1991, ANB tendered the deed to Chase, which Chase refused. There is no evidence in the record that Chase took any further action until late 1992, when it instructed Eekland Consulting, the construction consultant designated by the Guaranty and the Loan Agreement, to estimate the cost of completing the Improvements. Eek-land submitted its report to Chase in November 1992, estimating that the completion of the Improvements would cost $8,558,540 for a single space for occupancy by one tenant, or $4,519,180 for twelve units. On December 4, 1992, Chase forwarded a copy of that report to Zell accompanied by a letter demanding payment of $4,519,180. Zell made no response.
In January 1993, Chase commenced friendly foreclosure proceedings against the property. However, Chase alleges that by the time it took title on June 9,1993, the market for suburban office buildings in Illinois had collapsed. On July 9, 1993, Chase entered into an agreement to sell the property for $2.685 million for use as a warehouse. That deal closed on or around July 14,1993. During the one month that Chase actually held title to the office complex, Chase made no Improvements to the property. Under the terms of the sale, Chase undertook no obligation (and has no obligation) to make any Improvements to the property.
Chase originally commenced this action for breach of the Guaranty in May 1992. Chase’s amended complaint (dated April 9, 1993 but filed on May 4, 1993) alleges that Zell, Lurie and the Revocable Trusts guaranteed the costs of completing the Improvements, that the Improvements were unfinished, that the estimated completion costs exceed $4 million, and that Chase is entitled to recover at least $4 million from the defendants for breach of the Guaranty.
DISCUSSION
All parties appeal the district court’s decision to dismiss Chase’s complaint for lack of subject matter jurisdiction. In addition, the defendants contend that, because Chase incurred and will incur no reimbursable costs in connection with completion of the Improvements, no open question of material fact bars entry of summary judgment in favor of the defendants. We separately address the parties’ contentions.
A. Subject Matter Jurisdiction.
In dismissing the amended complaint, the district court concluded that neither of Chase’s theories of damages could support a $50,000 damage award, because Chase suffered no compensable damages at all. As to actual damages, the court noted Chase’s concession that it incurred and will incur no costs in connection with the Improvements, and made the finding that in the depressed regional real estate market of July 1998, “regardless of any renovations that could have been performed, Chase would not have received a higher sales price for the property.” As to liquidated damages, the district court concluded that the Guaranty contains
Because the plaintiff suffered no actual damages, it appears to a legal certainty that the jurisdictional amount required for subject matter jurisdiction, pursuant to 28 U.S.C. § 1332(a) ($50,000), cannot be satisfied. Thus, this case is dismissed for want of subject matter jurisdiction pursuant to Rule 12(h)(3).
We review de novo a district court’s legal conclusion with respect to subject matter jurisdiction. In re Vogel Van & Storage, Inc.,
“The amount in controversy is determined at the time the action is commenced.” Id.; see also Coventry Sewage Assocs. v. Dworkin Realty Co.,
the sum claimed by the plaintiff controls if the claim is apparently made in good faith. It must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal.
St. Paul Mercury Indem. Co. v. Red Cab Co.,
[I]f, from the face of the pleadings, it is apparent, to a legal certainty, that the plaintiff cannot recover the amount claimed],] or if, from the proofs, the court is satisfied to a like certainty that the plaintiff never was entitled to recover that amount, and that his claim was therefore colorable for the purpose of conferring jurisdiction, the suit will be dismissed.
St. Paul Mercury,
The amended complaint was filed on May 4, 1993. At that time, Chase had commenced foreclosure proceedings against the office complex, but had not yet won title. According to the complaint, “[c]ertain of the Improvements to the Property required to be made under the Building Loan Agreement and guaranteed by the Completion [Costs] [G]uaranty have not been made. Consequently, Chase is entitled to collect from defendants Samuel Zell, B. Ann Lurie ..., The Samuel Zell Revocable Trust and the Robert Lurie Revocable Trust the direct and indirect costs of completing such Improve-
Chase concedes that at the time that the amended complaint was filed, Chase had incurred no costs in connection with the Improvements. But recovery under the Guaranty did not depend on whether Chase had already incurred costs, because the Guaranty requires reimbursement for all “Direct and Indirect Costs incurred, or estimated by the Construction Consultant to be required to be incurred, as the case may be, in order to complete the Improvements-” (Emphasis added.) Eckland Consulting estimated those costs at more than $4 million. It remained possible, at the time that the complaint was filed, that Chase would complete the Improvements at some point in the future, or would undertake to pay for Improvements made by a tenant or a buyer. Indeed, the defendants concede that they would have been liable if Chase actually had expended (or been required to spend) any sum in connection with the Improvements. Accordingly, at the time the complaint was filed, Chase had a viable cause of action for an amount that exceeded the jurisdictional threshold. Moreover, Chase has argued in evident good faith that the Guaranty creates liability (for more than $4 million) regardless of whether Chase expended any sums or expected to do so. This argument fails, see supra at 1073-1075, but based on Chase’s allegations and the undisputed facts that have come to light in discovery, we cannot say that the legal impossibility of recovery on Chase’s complaint at the time it was filed was “so certain as virtually to negat[e] the plaintiffs good faith in asserting the claim.” Tongkook,
The district court noted the concession by Chase that “it neither incurred expenses related to making the renovations prior to the sale of the property ..., nor is obligated to pay for, nor make, any such improvements now that the property has been sold.” But those circumstances could not come to pass or be known until the property was sold in July 1993, 14 months after the filing of the original complaint and three months after the amendment. Evidence concerning events that post-date the filing of a complaint is relevant only to the extent that it casts light on whether recovery was never legally possible or whether a plaintiff had a good faith belief, at the time the complaint was filed, that the jurisdictional requirement was met. See St. Paul Mercury,
Because the amended complaint satisfied the amount in controversy requirement, we reverse the ruling that diversity jurisdiction is lacking.
B. Summary Judgment.
On appeal, the defendants contend that they are entitled to summary judgment because the district court correctly ruled that Chase “suffered no actual damages,” and because Chase concedes that it has never in
The defendants make the preliminary argument, which we address first, that Chase waived its appellate arguments by failing to raise them in district court.
1. Waiver.
Chase contends on appeal that it is entitled to damages because the Guaranty obligates the defendants to pay Chase the estimated costs of making the Improvements regardless of whether it actually incurred those costs. Alternatively, Chase argues that the district court erroneously considered damages as of the date of the property’s sale rather than as of the date of breach. The defendants claim that Chase raised neither of these arguments in district court, and that Chase is thus precluded from making them on appeal. See Amalgamated Clothing & Textile Workers Union v. Wal-Mart Stores, Inc.,
The defendants’ waiver argument is unpersuasive. Chase argued in district court that the Completion Cost Guaranty contained “no language ... that Chase must actually expend any funds or even intend to do so” in order to recover from the defendants. Chase’s Memorandum in Opposition to Defendants’ Motion for Summary Judgement at 4 (May 31, 1995). That is the same argument, albeit in different terms, that Chase makes on appeal. See Chase’s Brief at 10-11, 22, 27-32. Judge Baer’s opinion reflects that the argument was both raised and considered:
Chase ... moved for summary judgment on the grounds that the unambiguous language of the contract at issue required the defendants ... to pay Chase the amount required to complete said renovations.
(Emphasis added.) Chase therefore properly preserved that argument for appellate review.
Chase did not specifically contend in district court that damages should be measured as of the time of breach. But Chase raises that argument here by way of a challenge to an aspect of the district court’s analysis that Chase need not have anticipated. Prior to a ruling, a party cannot be expected to anticipate every aspect of it that may be subject to profitable challenge on appeal. We therefore reject the defendants’ contention that Chase waived the arguments which it now makes.
2. Merits.
A party is entitled to summary judgment only if, “resolving all ambiguities and drawing all factual inferences in favor of the non-moving party, there is no genuine issue of material fact to be tried.” Keywell Corp. v. Weinstein,
After submission of competing motions for summary judgment, and incidental to its jurisdictional analysis, the district court found that: (i) Chase suffered no damages because, according to Chase’s own employees, the area market was so depressed that “the ‘best price’ available for the property was the price [Chase] received for the premises in its ‘unfinished’ condition”; and (ii) Chase’s only remaining theory of recovery—that the provision in the Guaranty that requires payment of the sum estimated by the Construction Consultant operates as a liquidated damages clause—was unsustainable because, under New York law, a liquidated clause must be express and cannot operate as a penalty.
On appeal, Chase does not contest the district court’s rejection of liquidated damages, but does challenge the “best price” analysis on the ground that the district court assessed the bank’s loss as of the date of sale rather than as of the date of breach, as generally required by New York law. See Sharma v. Skaarup Ship Management Corp.,
If we had the building a year before when there were large deals floating around we would have said, yeah, it probably would make sense to turn this into an office building.
In its brief, Chase contends that “[t]he Improvements ... would have added significant value to the Property had they been made at the time of the breach and Chase should have been awarded the cost of those Improvements as its damages.” We are, of course, bound to assume these facts in Chase’s favor in ruling on the defendants’ motion for summary judgment.
All this might be germane if the Guaranty required Zell and Lurie to pay damages arising out of the breach of the Loan Agreement. But it does not. As explained below, the Guaranty obligates the defendants to pay Chase an ascertainable sum in the event of breach of the Loan Agreement. That sum, however, is not computed as damages resulting from breach. The Guaranty expressly states: “In no event shall this Guaranty be deemed to constitute a guaranty of the payment of the principal or the interest evidenced by the Note and secured by the Mortgage.” Chase, of course, is not in terms seeking either principal or interest under the Loan Agreement; but it is seeking to recover in cash some or all of that portion of the principal that was not expended on the Improvements.
We think that any liability of the guarantors must be drawn from the wording of the Guaranty, which recites that it is to be construed and enforced in accordance with New York law. Under New York law, guarantee agreements must be strictly construed according to their terms. Caldor, Inc. v. Mattel, Inc.,
Under the Loan Agreement, Morton Grove was the party required to complete the Improvements. Under the Guaranty, Zell and Lurie (and the Revocable Trusts) agreed to reimburse Chase for any costs that Chase incurred or was required to incur in connection with the completion of any Improvements that were not finished by Morton Grove. Thus, if Chase expended funds to complete the Improvements, or if Chase was required or undertook to do so, Zell and Lurie would be obligated to reimburse the amounts expended, or a good faith estimate of those amounts. But we think that nothing in the wording of the Guaranty requires Zell and Lurie to pay the estimated cost of Improvements that were not made, were not required to be made, and never will be made.
Specifically, Zell and Lurie agreed to pay Chase an amount equal to the excess “of (i) all of [Chase’s] Direct and Indirect Costs, other than Interest on Loan, incurred or to be incurred in connection with the hen free completion of the Improvements ... over (ii) the undisbursed portion of the loan as of the date of maturity or [Chase’s] acceleration of the loan following an Event of Default.” (Emphasis added.) The term “Direct Costs” is defined in the Loan Agreement
The Guaranty goes on to provide the following method for calculating the liability of Zell and Lurie under the Guaranty in the event of default:
We agree that, for purposes of this Guaranty, [Chase’s] aforesaid Direct and Indirect Costs shall, at [Chase’s] sole option, be equal to either (i) the aggregate amount of such Direct and Indirect Costs actually incurred by [Chase] ... or (ii) the amount of such Direct and Indirect Costs as estimated by the Construction Consultant at any time after maturity or such acceleration of the loan.
(Emphasis added.) Chase argues that alternative (ii) in the above quoted passage entitles it to the cost of completing the Improvements as estimated by the Construction Consultant regardless of whether such costs are (or will be) actually incurred. We disagree. The above passage tells how to calculate the guarantors’ obligation. But it does not purport to alter the Guaranty’s expression of that obligation in terms of those costs “incurred or to be incurred in connection with the lien free completion of the Improvements.” (Emphasis added.) That conclusion is further bolstered by the provision in the Guaranty that Chase’s Direct and Indirect Costs consist of such costs “incurred, or estimated by the Construction Consultant to be required to be incurred” to complete the Improvements either in accordance with stated or customary industry standards or in accordance with undertakings to future tenants or buyers. (Emphasis added.)
Nothing in the Guaranty persuades us that Zell and Lurie agreed to reimburse Chase for costs that it did not incur, is not required to incur, and will never incur. To the extent that the clause on which Chase relies may be said to introduce an ambiguity, that ambiguity must be resolved in favor of the guarantors. See Caldor,
Chase relies on several New York cases for the proposition that where “there has been a breach of an agreement to complete construction, the measure of damages is the reasonable cost of completion.” Chase’s Brief at 23 (citing Bellizzi v. Huntley Estates, Inc.,
We hold that the Guaranty obligates Zell and Lurie to reimburse Chase for any costs that it incurred or is required to incur in completing the Improvements. Because it is undisputed that Chase has incurred and will incur no costs in connection with the Improvements, we conclude that Chase can recover nothing under the Guaranty, and summary judgment should be granted in the defendants’ favor.
CONCLUSION
The judgment of the district court dismissing the plaintiffs complaint for lack of subject matter jurisdiction is vacated. This case is remanded to the district court with instructions to enter summary judgment in favor of the defendants.
Notes
. Because Robert Lurie is deceased. Chase named B. Ann Lurie, the executrix of his estate, as a defendant.
. Another developer was also an investor in Morton Grove, but is not a party to this suit.
. Subject to the caveat that the Guaranty not "be deemed to constitute a guaranty of the payment of the principal or the interest” on the underlying note or mortgage, the Guaranty provides in relevant part:
[Ejach of us unconditionally guarantees to you [Chase] the payment by the undersigned of an amount equal to the excess, if any, of (i) all of your Direct and Indirect Costs, other than Interest on Loan, incurred or to be incurred in connection with the lien free completion of the Improvements as required of the Borrower by the Building Loan Agreement, including, without limitation, those Direct and Indirect Costs occasioned by, or arising as a result of, any default under any documents evidencing, securing or relating to the loan ..., over (ii) the undisbursed portion of the loan as of the date of maturity or your acceleration of the loan following an Event of Default under the Mortgage other than the undisbursed Loan Budget Amount for Interest on Loan. We agree that, for purposes of this Guaranty, your aforesaid Direct and Indirect Costs shall, at your sole option, be equal to either (i) the aggregate amount of such Direct and Indirect Costs actually incurred by you from time to time to and including the date on which the Improvements are completed, lien free, and the conditions of the final advance of loan proceeds ... under the Building Loan Agreement have been satisfied in full or (ii) the amount of such Direct and Indirect Costs as estimated by the Construction Consultant at any time after maturity or such acceleration of the loan. Unless the Plans provide for a standard of completion greater than that set forth below, for purposes of this Guaranty, your aforesaid Direct and Indirect Costs shall be deemed to also include (a) Direct and Indirect Costs incurred, or estimated by the Construction Consultant to be required to be incurred, as the case may be, in order to complete the Improvements to a standard equal to the Borrower's standard work letter ... and (b) Direct and Indirect Costs incurred, or estimated by the Construction Consultant to be required to be incurred, as the case may be, in order to complete the Improvements in accordance with the terms and provisions of any contracts of sale, leases, subleases, Permanent Commitment or other agreements, or letters of intent in connection therewith, with respect to occupancy, sale or financing of all or any portion of the Improvements. We agree that any amount estimated by the Construction Consultant as aforesaid, and any determination by the Construction Consultant with respect to industry practices, shall be conclusive for purposes of determining our liability hereunder, provided that the Construction Consultant has made such estimate or determination in good faith. Such payment shall be due no later than ten (10) days following the giving of a written demand therefor from you to each of the undersigned....
. There is no evidence that Chase sent that letter to the Revocable Trusts, to Lurie or his representatives, or to ANB.
. There is no allegation in the amended complaint or in any of the papers filed with this Court that ANB was a signatory to the Completion Costs Guaranty.
. Chase has not pleaded and has nowhere argued that it ever expected and intended to complete the Improvements at the time it demanded payment from Zell under the Guaranty, or when it filed the complaint. We do not decide whether the outcome of this case would be different otherwise.
. The Guaranty provided that "[c]apitalized terms used herein without definition shall have the respective meanings ascribed thereto in the [] Loan Agreement.”