*1 Before B AUER , E ASTERBROOK , and W OOD , Circuit Judges . E ASTERBROOK , Circuit Judge . Meridian Security Insur- ance filed this action under the diversity jurisdiction. 28 U.S.C. §1332(a)(1). It asked the district court to issue a declaratory judgment that it need not defend or indemnify its insured, The Rose Depot of Arlington Heights, against a claim pending in state court. Kamal Haddad, who filed that suit on behalf of a class, sought damages on account of unsolicited advertising faxes that The Rose Depot had sent to prospective customers.
The Telephone Consumer Protection Act prohibits most unsolicited commercial solicitations by facsimile and permits the court to award $500 per fax, a sum that may be *2 trebled if “the defendant willfully or knowingly violated this subsection or the regulations prescribed under this subsec- tion”. 47 U.S.C. §227(b)(3). Haddad proposed to represent a class of “more than 50” recipients of fax ads, and Meridian calculated the stakes of its federal suit by multiplying $1,500 (the maximum award per fax) by 51 (the minimum size of the class), which yields $76,500, or $1,500 more than the minimum required for federal jurisdiction. See Brill v. Countrywide Home Loans, Inc ., 427 F.3d 446 (7th Cir. 2005), which holds that $1,500 multiplied by the number of class members is the amount “in controversy” under the Telephone Consumer Protection Act. The expense of providing a legal defense against Haddad’s suit also counts for purposes of §1332, but Meridian did not try to estimate this, thinking that the indemnity alone suffices.
Without holding a hearing under Fed. R. Civ. P. 12(b)(1), the district court dismissed the complaint for want of jurisdiction. The district court started with the norm that a dispute about an insurer’s duty to indemnify generally is not ripe for decision until the insured has been called on to pay—for until then the precise ground of liability, and thus the relation of the insured’s liability to the policy’s coverage and exclusions, is uncertain. See, e.g., Lear Corp. v. Johnson Electric Holdings Ltd ., 353 F.3d 580 (7th Cir. 2003); Nationwide Insurance Co. v. Zavalis , 52 F.3d 689, 693 (7th Cir. 1995); Travelers Insurance Cos. v. Penda Corp ., 974 F.2d 823, 833 (7th Cir. 1992). Then, relying exclusively on other decisions issued by judges in the Northern District of Illinois, the court held that the stakes of any portion of a dispute not ripe for federal adjudication never count toward the amount in controversy under §1332.
Because Meridian has not alleged that attorneys’ fees
alone will exceed $75,000, the court dismissed the suit
outright. This put Meridian in an awkward position, for
Illinois (where Haddad’s suit was pending) requires an
insurer to defend its client on demand, no matter how clear
*3
the policy may be that there is no such duty, unless it
prosecutes an action for a declaratory judgment that
the claim is outside the policy’s coverage. See
State Farm
Fire & Casualty Co. v. Martin
, 186 Ill. 2d 367, 371, 710
N.E.2d 1228, 1230-31 (1999). We have held that suits
materially identical to Haddad’s do not require either
defense or indemnity under policies materially identical
to Meridian’s. See
American States Insurance Co. v. Capital
Associates of Jackson County, Inc
.,
While Meridian’s appeal was pending, Haddad and The Rose Depot settled for $7,500; attorneys’ fees for the defense came to about $14,000. So Meridian’s total obligation if the policy covers Haddad’s claims turns out to be about $21,500. But these developments do not affect jurisdiction, which depends on the amount that was in controversy when the federal suit began. See St. Paul Mercury Indemnity Co. v. Red Cab Co ., 303 U.S. 283, 293 (1938). Post-filing events may mean that Meridian cannot recover costs (and must pay defendants’ costs) even if it prevails, see 28 U.S.C. §1332(b), but do not terminate jurisdiction that was proper at the outset. Thus we must decide whether the controversy exceeded $75,000 before the underlying dispute was resolved.
The district court supposed that ripeness always is a
jurisdictional doctrine. Yet “ripeness is peculiarly a question
of timing” rather than a limit on subject-matter jurisdiction.
*4
Regional Rail Reorganization Act Cases
,
Many decisions in this and other circuits count the potential outlay for indemnity toward the amount in controversy, whether or not adjudication about indemnity should be deferred until the state case is over. See, e.g., Grinnell Mutual Reinsurance Co. v. Shierk , 121 F.3d 1114 (7th Cir. 1997); Motorists Mutual Insurance Co. v. Simpson , 404 F.2d 511, 515 (7th Cir. 1968); Maryland Casualty Corp. v. United Corp ., 111 F.2d 443, 447 (1st Cir. 1940); U.S. Fidelity & Guaranty Co. v. Pierson , 97 F.2d *5 560, 562 (8th Cir. 1938); Hartford Insurance Group v. Lou- Con, Inc ., 293 F.3d 908, 911-12 (5th Cir. 2002); Farmers Insurance Co. v. McClain , 603 F.2d 821, 823 (10th Cir. 1979). The contrary argument has been made often enough that both of the principal treatises on federal practice cover the topic, and both conclude that the potential indemnity obligation counts toward the jurisdictional minimum. 12 Moore’s Federal Practice-Civil §57.22[8][b] (2005 rev.); Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, 14B Federal Practice & Procedure §3710 at 262-70 (3d ed. 1998). Wright, Miller, and Cooper add that the argument for the exclusion of the potential indemnity “never has been accepted by the federal courts .” Id . at 268. This passage needs amendment, now that several judges in the Northern District of Illinois have swallowed the bait, but it could be revised in light of today’s decision to say that the position “never has been accepted by any federal court of appeals.”
Appellees offer additional arguments in defense of their
judgment, as they are entitled to do. One is that, because
none of the class members would be entitled to recover more
than $1,500, the rule against aggregating multiple litigants’
claims to reach the jurisdictional floor, see
Snyder v. Harris
,
Appellees’ other contention—which echoes some language
in the district court’s opinion—is that Meridian did not
*6
“prove” a “reasonable probability that jurisdiction exists.”
The requirement of “proof” comes from
McNutt v. General
Motors Acceptance Corp
., 298 U.S. 178, 189 (1936) (if
plaintiff’s “allegations of jurisdictional facts are challenged
by his adversary in any appropriate manner, he must
support them by competent proof.”). The “reasonable
probability” language comes from
Shaw v. Dow Brands,
Inc
., 994 F.2d 364, 366 (7th Cir. 1993), and has been
repeated in six other decisions of this circuit plus more than
80 decisions of district judges within our jurisdiction—and,
as far as we can ascertain, by no judge outside this circuit.
See
Middle Tennessee News Co. v. Charnel of Cincinnati,
Inc.
, 250 F.3d 1077, 1081 (7th Cir. 2001);
Target Market
Publishing, Inc. v. Advo, Inc
.,
Shaw ’s mention of “reasonable probability that juris- diction exists” thus has been taken to mean that uncer- tainty about the stakes must be resolved against the proponent of jurisdiction. That’s not what Shaw set out to establish. In retrospect it is clear that the turn of phrase was infelicitous. We now retract that language; it has no role to play in determining the amount in con- troversy. †
† Although this opinion does not overrule any decision, the extent to which “reasonable probability that jurisdiction exists” has
(continued...)
*7
McNutt
holds that the proponent of federal jurisdic-
tion has the burden of proof (which is to say, bears the
risk of non-persuasion). General Motors Acceptance Corpo-
ration had asked a federal court to enjoin state officials
from enforcing a law that regulated the purchase and sale
of retail installment contracts. Although GMAC asserted
that the amount in controversy requirement (then $3,000)
was satisfied, it did not try to explain how. It alleged only
that it bought and sold millions of dollars of financing paper
annually. The Court held this insufficient, as the contro-
versy concerned the effect of the state statute and not
GMAC’s gross receipts. Because GMAC was unwilling even
to allege the difference between the value of its business
free from the state’s requirement and its value if the law
were enforced, the Court held that jurisdiction had not been
established. Near the close of this opinion the Justices
remarked that jurisdictional facts, if contested, must be
supported by “competent proof.” That statement rested on
the Court’s understanding of §5 of the Act of March 3, 1875,
18 Stat. 472, which has been superseded by the Federal
Rules of Civil Procedure. But the Civil Rules, which took
effect a little more than two years after
McNutt
, do not alter
the requirement that a party that chooses federal court
set out the basis of federal jurisdiction and prove any
contested factual allegation. See Fed. R. Civ. P. 8(a)(1),
12(b)(1);
Lujan v. Defenders of Wildlife
,
What the proponent of jurisdiction must “prove” is contested factual assertions—for example, where each party resides plus any plans for change of residence, in order to establish domicile, or what state issued a corporation’s (...continued)
become a catchphrase has led us to circulate this opinion before release to all active judges under Circuit Rule 40(e). No judge favored a hearing en banc.
charter. Jurisdiction itself is a legal conclusion, a
conse-
quence
of facts rather than a provable “fact.” The Court
made that clear two years after
McNutt
, holding in
St. Paul
Mercury
that “the sum claimed by [the proponent of federal
jurisdiction] 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.”
As we remarked in Rising-Moore , this standard usually operates in a transparent and simple way when the case begins in federal court and the complaint asserts an amount in controversy, as Meridian did here. Defendants might have called on Meridian to prove that it actually had issued an insurance policy to The Rose Depot, that Haddad really sought to represent more than 50 other recipients of junk faxes, and that The Rose Depot had notified Meridian of the claim and tendered its defense. Those are facts, though none of the allegations about them has been contested. Whether damages will exceed $75,000 is not a fact but a prediction, and with respect to that subject the court must decide whether “to a legal certainty . . . the claim is really for less than the jurisdictional amount”. For the reasons given above (and in Brill ), a court cannot say that; Haddad’s suit exposed Meridian to the expense of mounting a legal defense plus the risk of $76,500 or more in indemnity.
Shaw , where the “reasonable probability” language originated, dealt with one of those situations in which it can be tough to apply the St. Paul Mercury standard. Shaw began his suit in state rather than federal court. Illinois, where Shaw filed suit, limits what a complaint can say about remedies to matters that determine the appropriate court. A plaintiff may state, for example, that he wants more than $15,000 (which allocates the suit to the circuit court), less than $15,000 (which puts it in a specialized court with expedited procedures), or less than $5,000 (which diverts it to a small-claims tribunal). Other states, of which Indiana is an example (discussed in Rising-Moore ), forbid all mention of how much money the plaintiff hopes to recover. These rules get rid of headline-grabbing but unrealistic demands. Unfortunately, they also complicate the question whether a suit may be removed, for if the plaintiff does not say what he wants, how can the St. Paul Mercury standard be applied? That’s the question with which this court wrestled in Shaw .
What we held there, and have reiterated in decisions such
as
Rising-Moore
and
Brill
, is that the removing defendant,
as proponent of federal jurisdiction, must establish what
the plaintiff stands to recover. We have suggested several
ways in which this may be done—by contentions, interroga-
tories or admissions in state court; by calculation from the
complaint’s allegations (as in
Brill
); by reference to the
plaintiff’s informal estimates or settlement demands (as in
Rising-Moore
); or by introducing evidence, in the form of
affidavits from the defendant’s employees or experts, about
how much it would cost to satisfy the plaintiff’s demands
(see
Rubel v. Pfizer Inc
.,
In passing,
Shaw
remarked that the “competent
proof” required when factual allegations must be estab-
lished means “proof to a reasonable probability that juris-
diction exists.” The context for this phrase is: “the burden
rests on the defendant in a removal action to prove that the
amount in controversy is sufficient.
Wilson v. Republic Iron
& Steel Co
., 257 U.S. 92, 97 (1921). Defendants seeking
removal may meet that burden by a preponderance of the
evidence,
McNutt v. General Motors Acceptance Corp
., 298
U.S. 178, 189 (1936), which we take to mean proof to a
reasonable probability that jurisdiction exists.”
Many decisions by district courts in this circuit—of which the decision under review is one example, and Wilson v. McRae’s, Inc ., No. 05 C 2125 (N.D. Ill. Aug. 29, 2005), is another—employ the phrase not as a variant on the prepon- *11 derance standard (which is how Shaw used it) but as a replacement for the standard of St. Paul Mercury . Instead of asking whether contested factual allegations have been established by a preponderance of the admissible evidence, some district judges have asked whether these facts demonstrate a “reasonable probability” that the judgment will exceed $75,000. Excessive attention to the phrase “reasonable probability that jurisdiction exists” may lead a judge to neglect St. Paul Mercury (as in the decision under review) or get its point backward (the opinion in Wilson , after quoting the “reasonable probability” language, stated that jurisdiction is proper only if “ ‘to a legal certainty’ the court is convinced that [that the plaintiff] is entitled to over $75,000 in damages” (slip op. 6-7)).
Language that came into being as a restatement of “more likely than not” (the usual preponderance stan- dard) for matters of fact has been misapplied to the infer- ences drawn from facts. And it has been used to displace the Supreme Court’s rule for handling uncertainty about what will happen at trial (jurisdiction exists unless it is legally impossible for the recovery to exceed the minimum) with a much different standard (jurisdiction does not exist unless there is a “reasonable probability” that the recovery will exceed the minimum). All legal phrases have some potential for misuse, which must be tolerated when there is no good alternative. But there are very good alternatives to “reason- able probability”—the preponderance standard (for factual disputes) and the holding of St. Paul Mercury (for predic- tions about the value of the judgment). The new phrase causes problems without offsetting benefits. “Reasonable probability that jurisdiction exists”, a phrase with no provenance and no following outside this circuit, is banished from our lexicon.
To recap: a proponent of federal jurisdiction must, if
material factual allegations are contested, prove those
jurisdictional facts by a preponderance of the evidence.
*12
Once the facts have been established, uncertainty about
whether the plaintiff can prove its substantive claim, and
whether damages (if the plaintiff prevails on the merits)
will exceed the threshold, does not justify dismissal. See,
e.g.,
Johnson v. Wattenbarger
,
The judgment of the district court is vacated, and the case is remanded with instructions to resolve the dispute on the merits.
A true Copy:
Teste:
________________________________ Clerk of the United States Court of Appeals for the Seventh Circuit USCA-02-C-0072—3-22-06