Summary
recognizing that "interest on a note prior to maturity, and therefore payable according to the terms of the note, is a part of the amount in controversy"
Summary of this case from Roberts v. Chandaleur Homes, Inc.Opinion
Civil Action NO. 00-1426 Section "K"(4).
August 15, 2000.
Before the court is a Motion to Dismiss for Lack of Subject Matter Jurisdiction filed by defendants Vincent Glorioso, Jr. and Vincent Glorioso, Jr. A.P.L.C. (collectively "Glorioso"). For the reasons explained below, the motion is denied.
I. Background
In September of 1995, Glorioso, who represented plaintiffs in a personal injury action solicited a loan of $66,000 out of the proceeds of plaintiffs personal injury settlement and executed an assignment of proceeds. Glorioso executed a promissory note dated September 15, 1995, in the principal amount of $66,000, bearing interest on the unpaid balance at a rate of twelve percent. The promissory note also states that plaintiffs shall be entitled to recover reasonable attorney's fees associated with collection or suit on the note, which fees become part of the principal obligation.
Glorioso paid $8,000 toward the note and assignment of proceeds and, until November of 1998, were making interest payments of $660 per month. In order to collect the $8000 already paid and to file this action, plaintiffs have retained counsel and incurred attorney's fees. Plaintiffs allege that under the terms of the note, Glorioso owes $58,000, plus $13,823.28 in interest, as well as reasonable attorney's fees.
In the Motion to Dismiss, Glorioso contends that plaintiffs have failed to meet the $75,000 jurisdictional amount required in a diversity action by 28 U.S.C. § 1332.
II. Standard
Motions filed under rule 12(b)(1) of the Federal Rules of Civil Procedure allow a party to challenge the subject matter jurisdiction of the district court to hear a case. Fed.R.Civ.P. 12(b)(1). In a case brought pursuant to the court's diversity jurisdiction, a party may claim that subject matter jurisdiction is lacking because of failure to meet the requisite amount in controversy exceeding $75,000. 28 U.S.C. § 1332. The burden of establishing subject matter jurisdiction in the federal court rests on the party seeking to invoke it. Leininger v. Leininger, 705 F.2d 727, 729 (5th Cir. 1983). The sum claimed in good faith by the plaintiff controls unless it appears to a "legal certainty" that the plaintiff cannot possibly recover the jurisdictional amount. St. Paul Mercury Indemnity Co. v. Red Cab Co. 303 U.S. 283 (1938); De Aguilar v. Boeing Co., 47 F.3d 1404, 1408 (5th Cir.), cert. denied, 516 U.S. 865 (1995).
III. Analysis
Glorioso argues that interest should not be included in determining the jurisdictional amount for purposes of a 12(b)(1) motion to dismiss. The Supreme Court first addressed the question of interest in Brown v. Webster, 15 S.Ct. 377, 156 U.S. 328, 39 L.Ed. 440 (1895). In Brown, the plaintiff sought to recover $6000 in damages after being evicted from land he had purchased from defendant. The plaintiff had paid only $1200 for the land, and the defendant argued that the jurisdictional amount requirement of $2000 was not satisfied. The plaintiff argued that interest should have been included in the calculation of the purchase price because the applicable state law provided that the damages in such an action were the return of the purchase price with interest. The Court held that federal jurisdiction existed and distinguished "interest as such" from interest "as an instrumentality in arriving at the amount of damages to be awarded on the principal demand." Brown, 15 S.Ct. at 377, 156 U.S. 329-330. The Court reasoned that when the interest is an essential ingredient of the plaintiffs principal claim, rather than a mere accessory demand, it could be used to calculate the amount in controversy. Id.
The apparent purpose of excluding interest in calculating the jurisdictional amount is to prevent the plaintiff from delaying suit until the claim, with accruing interest, exceeds the statutory minimum. Brainin v. Melikian, 396 F.2d 153 (3d Cir. 1968); Kline v. Nationsbank of Virginia, NA., 886 F. Supp. 1285 (D.C.Va. 1995). Thus, under the rule of Brown v. Webster, if interest is only incidental to the plaintiffs claim or if it arises solely by a delay in payment. See, e.g., Regan v. Marshall, 309 F.2d 677 (1st Cir. 1962) (interest on wrongful death recovery under New Hampshire statute was excluded from computation). On the other hand, interest is not excluded if it is itself the basis of the suit. Consequently, courts have held that interest on a note prior to maturity, and therefore payable according to the terms of the note, is a part of the amount in controversy, even though interest accruing after maturity would not be. See Greene County v. Kortrecht, 81 F. 241 (5th Cir. 1897).
This case is distinguishable from Brainin, cited by the plaintiffs. In Brainin, the interest included in the jurisdictional amount computation was interest that had accrued prior to maturity. Brainin, 396 F.2d at 154. In this case, the note was executed on September 15, 1995, and it matured on September 15, 1996. During the intervening months, Glorioso made monthly interest payments of $660. Therefore, no interest accrued from date until maturity. The $13,823.28 in interest to which plaintiffs claim they are entitled represents the delay in payment after maturity. Hence, interest will not be considered for purposes of determining the amount in controversy.
From the record before the court, it is difficult to determine when the note matured. The note itself contains no maturity date, but the plaintiffs assert in their complaint that "defendants further promised that `in any event, the above loan will be paid not later than right at 12 months from the date of the execution of this note.'" Plaintiffs' Complaint. Paragraph IV. Under Louisiana law, if a promise does not state a definite time for payment, it is payable on demand. La. R.S. 10:3-108. However, for purposes of this motion, the court will assume that the note did not mature immediately, and treat it as though it matured twelve months after date.
The plaintiffs point out, and Glorioso admits that a reasonable attorney's fee may be included in the amount in controversy calculation. In this case, the difference between the $75,000.01 jurisdictional amount and the $58,000 claim is $17,000.01. The court has serious doubts that $17,000 could be construed as a reasonable attorney's fee in a suit on a promissory note.
Rule 1.5 of the Rules of Professional Conduct, La. R.S. 37:221 provides, in pertinent part:
(a) A lawyer's fee shall be reasonable. The factors to be considered in determining the reasonableness of a fee include the following:
(1) The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
(2) The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) The fee customarily charged in the locality for similar legal services;
(4) The amount involved and the results obtained;
(5) The time limitations imposed by the client or by the circumstances;
(6) The nature and length of the professional relationship with the client;
(7) The experience, reputation, and ability of the lawyer or lawyers performing the services; and
(8) Whether the fee is fixed or contingent.
The Fifth Circuit has not decided whether the Johnson factors should apply in a diversity case to determine the reasonableness of attorney's fees. See Mid-Continent Cas. Co. v. Chevron Pipe Line Co., 205 F.3d 222, 231 (5th Cir. 2000). Because Louisiana courts engage in an analysis similar to Johnson, the court reaches the same result as if Johnson were applied.
Although $17,000 is not an exorbitant percentage of the total amount that plaintiffs hope to recover, it is an unreasonably large sum, considering the time and labor involved and the complexity of the case. At $150 per hour, plaintiffs' counsel would have to work more than 113 hours to earn $17,000. With respect to the first factor, the court sees no reason why collection on this particular note would require such work or expertise as to justify a $17,000 fee. Nonetheless, the court has no information concerning factors two through eight. At the terminus of this litigation, the remaining seven factors could support a $17,000 attorney's fee. On the evidence before it, the court cannot say to a legal certainty that the plaintiff cannot recover $17,000 in attorney's fees. Accordingly,
IT IS ORDERED that defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction is hereby DENIED.