In 1986, аppellant Ferdinan B. Stevenson retained a lawyer, appellee Charles Severs,
The district court granted summary judgment for all three appellees. The court found that Stevenson had not incurred any additional gift tax liabilities since she had already used her $10,000 per year exemption by giving yearly gifts to her children, the trust’s beneficiaries. Even if the trust had been set uр correctly, contributions to it would therefore have been subject to gift taxes. Moreover, the interpolated terminal reserve value of the рolicies at the date of the ultimate gift, $165,260, was less than the $170,901 that Stevenson would have had to pay had the trust been set up correctly. (Stevenson would havе been liable for gift taxes on $161,256 in premium payments paid from 1990 to 1994 plus $9,645 for gifts given from 1986 to 1988 above and beyond her $10,000 per year exemption.) The court alsо found that none of the appellees had a duty to advise Stevenson on the potential gift tax liabilities of the trust arrangement, and that even if they had suсh a duty, they had not breached it. The district court found that the estate tax claim was unripe. Relying on the “American Rule” that each party pay the costs of its own litigation, the coui’t also rejected Stevenson’s elaim for attorneys’ fees.
We affirm the district court’s ruling that Stevenson has failed to prove аctual injury. We agree that no evidence appears in the record suggesting that even if appel-lees had properly established the trust, Stevеnson would have paid less in gift taxes than she eventually did. Stevenson fails to point to anything in the record suggesting that she would have altered her gift-giving practices had the trust been properly established. Indeed, Stevenson’s own estate tax expert states in his affidavit: “There is absolutely no way of knowing whether the plaintiff would have maintained the same pattern of gift giving if she were using her annual exclusion for the payment of insurance premiums.” Affidavit of Sanford J. Schlesinger, ¶ 8. We аlso agree with the district court that the estate tax claim was unripe for adjudication. Indeed, assuming Stevenson has survived beyond September 29, 1998&emdash; three years after the date of transfer&emdash;the estate tax claim is now moot.
We find, howevеr, that the district court misinterpreted Stevenson’s elaim for attorneys’ fees. The district court viewed Stevenson’s claim as one for litigation costs. Howevеr, she sought these fees not as litigation costs, but as damages for costs incurred to correct . negligence.
See
Appellant’s Amended Complaint at ¶¶ 23-25, 35, 39, 44, 48. Viewed this way, her claim is not barred by the “American Rule.” But Stevenson can only recover the fees paid tó the lawyer who discovered the problem if apрellees had, in fact, breached a duty they owed her. Specifically, she must show that Severs’ “neglect of a reasonable duty ... resulted in and was the proximate cause of loss to' the client,”
M & S Building Supplies v. Keiler,
This leaves for adjudication on remand, then, a $25,000 claim for attorneys’ fees, a claim which falls below the $75,000 amount-in-controversy requirement for federal court jurisdiction based on diversity of citizenship. See 28 U.S.C.A. § 1332(a) (West Supp.1998). We must therefore decide whether to follow appellees’ suggestion and remand with direсtions to dismiss this remaining claim for want of jurisdiction, or leave the question whether to dismiss to the discretion of the district court, as Stevenson urges.
Resolution of this issue turns оn the language of the supplemental jurisdiction statute, 28 U.S.C. § 1367(a) (1994), which provides:
[I]n any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case .or controversy under Article III of the United States Constitution.
Courts may decline to exercise supplemental jurisdiction over a statе law claim if
(1) the claim raises a novel or complex issue of state law,
(2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction,
(3) the district court has dismissed all clаims over which it has original jurisdiction, or
(4) in exceptional circumstances, there are other compelling reasons for declining jurisdiction.
Id.
In the typicаl exercise of supplemental jurisdiction, a district court finds that a state claim is “so related” to a federal cause of action that it forms “the same case or controversy,”
United Mine Workers v. Gibbs,
In this ease, the district court had original jurisdiction over Stevenson’s claim since the amount in controversy from her combined gift tax liability, estate tax liability, and attorneys’ fees claims exceeded $75,000. Because we have affirmed the district court’s grant of summаry judgment on two of the three claims, however, the case on remand now consists entirely of a claim over which the district court would not have had jurisdictiоn had it been the sole basis for the original claim. Yet because the attorneys’ fees claim formed part of the same “case or controversy” as the underlying jurisdictionally sufficient claims, the district court has discretion to entertain the remaining claim if it so chooses. In' deciding whether to exercise its discretion to try the remaining cause of action, the Supreme Court has directed district courts to consider factors such as “judicial economy, convenience, fairness [to the parties], and comity [between the federal and state judiciary].”
Carnegie-Mellon University v. Cohill,
This matter is remanded for proceedings consistent with this opinion.
So ordered.