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Lawyers’ Corner: Amount in Controversy in Hodge v State Farm

Choosing where to file your First Party no-fault action is usually straightforward. The extent of your client’s injuries and damages indicate whether the case should be filed in district court or circuit court. But what happens when you are wrong? A recent Michigan Supreme Court case has made clear that what matters is the amount in controversy.

Sometimes, choosing where to file your no-fault lawsuit can be difficult. Developing injuries or complications can quickly turn a district court case into a much larger claim, even as the case progresses to trial. Two years ago, in Moody v. Home Owners Ins Co, a Michigan Court of Appeals created a new rule that allowed auto insurance companies to get district court cases dismissed if a plaintiff’s lawyer made the wrong choice. Now the Michigan Supreme Court has stepped in to set the record straight.

Linda Hodge was struck by a vehicle in Detroit. She suffered a closed head injury, back injuries, a shoulder injury, and a bruised wrist. However, her attorney filed her complaint in 36th District Court, stating she sought damages “not in excess of $25,000.” At trial, Hodge presented proof of extensive injuries, including more than $150,000 in attendant-care services. The jury returned a verdict of $85,957, which the district court judge reduced to the court’s jurisdicational limit: $25,000.

In Michigan, the circuit court has general jurisdiction over any case not assigned elsewhere by statute. MCL 600.8301 says:

“The district court has exclusive jurisdiction in civil actions when the amount in controversy does not exceed $25,000.00.”

In other words, any case worth less than $25,000 is heard by the district court. Any case worth more than $25,000 is heard by the circuit court. That division is based on “subject-matter jurisdiction” or the court’s ability to hear a particular type of case.

The question for the court was whether the evidence Hodge presented at trial to damages beyond $25,000 destroyed the district court’s subject-matter jurisdiction over the case and required the judge to dismiss or transfer the case to circuit court. The circuit court (which is the first line of appeals in a district court case) said yes. Then the case got put together with Moody v Home Owners Ins Co at the Michigan Court of Appeals.

Moody v Home Owners Ins Co

The court of appeals opinion agreed that the cases should be dismissed. To justify its decision, the court picked apart the legal term “amount in controversy.” The court of appeals found:

“The word ‘amount’ clearly refers to a dollar value. . . . The plain and ordinary meaning of ‘controversy’ is confirmed by consulting a dictionary which defines it as ‘a [usually] prolonged public dispute concerning a matter of opinion’. . . . Based on these definitions, we conclude that the plain, ordinary, and legal meaning of ‘amount in controversy’ under MCL 600.8301(1) is the amount the parties to a lawsuit dispute, argue about, or debate during litigation.”

Because that dispute continues through trial, the court of appeals ruled that by presenting evidence of more than the jurisdictional limit on damages, the plaintiff violated the rules of court and her case should be dismissed.

For the last two years, insurance defense attorneys have been using Moody to defeat otherwise valid claims that have bumped up against the jurisdictional limits of the district court. But this month, the Michigan Supreme Court said “enough.”

Hodge v State Farm Mut Auto Ins Co

In Hodge v State Farm Mut Auto Ins Co, decided June 6, 2016, the Michigan Supreme Court overturned Moody and set the record straight on “amount in controversy” claims. It cited to cases as early as 1855, which stated that subject-matter jurisdiction is determined by reference to the pleadings – particularly the amount claimed by the plaintiff. This “well settled” rule applied even if a plaintiff presented proof of damages, or received a verdict beyond the court’s jurisdictional limit.

“Amount in controversy,” the Supreme Court held, was a legal term of art. The statute did not define the term or otherwise depart from its common-law usage to refer to the amount described in the pleadings. In response to the court of appeals’ reliance on dictionary definitions, the court stated:

“The dispute here is over how and when to determine the ‘damages claimed or relief demanded’: on the pleadings or on the proofs. As a method for determining the district court’s subject matter jurisdiction, then, the Black’s [Law Dictionary] definition of ‘amount in controversy’ is simply incomplete.”

Bad Faith and “Artful Pleading”

Both courts recognized that attorneys can use “artful pleading” to bend rules and bring a case in a questionable forum. But the Michigan Supreme Court found:

“But, absent a finding of bad faith, we do not believe these concerns affect the district court’s jurisdiction, which has always been determined based on the amount of the pleadings.”

The Supreme Court then noted the effect of the court of appeals’ decision on judicial economy. Evidence, and independent jury verdicts, above the jurisdictional limits on judicial resources, would require second trials at circuit court all because of a last minute addition to damages. Instead it held clearly:

“[I]n its subject-matter jurisdiction inquiry, a district court determines the amount in controversy using the prayer for relief set forth in the plaintiff’s pleadings, calculated exclusive of fees, costs, and interest.

Since there was no claim that Hodge had acted in bad faith, the court did not consider whether to dismiss the case on that basis. However, it did note that the only case law supporting this involved an “unjustifiable” claim that could not be proven.

This decision provides forgiveness to clients whose claims are near the cusp of the district court’s jurisdictional limit. Under Hodge, trial attorneys no longer have to worry their case being dismissed for proving too much in damages. Instead, such cases will only be dismissed where a case is filed improperly based on bad faith.

David Christensen is an auto accident attorney at Christensen Law in Southfield, Michigan. If your client has a complicated no-fault claim, contact Christensen Law for a referral today.