Judges: Easterbrook
Filed: Jul. 24, 2015
Latest Update: Mar. 02, 2020
Summary: In the United States Court of Appeals For the Seventh Circuit _ No. 14---2959 JOSEPH C. MCCORMICK and MARY C. MCCORMICK, Plaintiffs---Appellants, v. INDEPENDENCE LIFE AND ANNUITY COMPANY, Defendant---Appellee. _ Appeal from the United States District Court for the Eastern District of Wisconsin. No. 12---C---763 — William C. Griesbach, Chief Judge. _ ARGUED JUNE 2, 2015 — DECIDED JULY 24, 2015 _ Before POSNER, EASTERBROOK, and SYKES, Circuit Judges. EASTERBROOK, Circuit Judge. Joseph and Mar
Summary: In the United States Court of Appeals For the Seventh Circuit _ No. 14---2959 JOSEPH C. MCCORMICK and MARY C. MCCORMICK, Plaintiffs---Appellants, v. INDEPENDENCE LIFE AND ANNUITY COMPANY, Defendant---Appellee. _ Appeal from the United States District Court for the Eastern District of Wisconsin. No. 12---C---763 — William C. Griesbach, Chief Judge. _ ARGUED JUNE 2, 2015 — DECIDED JULY 24, 2015 _ Before POSNER, EASTERBROOK, and SYKES, Circuit Judges. EASTERBROOK, Circuit Judge. Joseph and Mary..
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In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 14-‐‑2959
JOSEPH C. MCCORMICK and MARY C. MCCORMICK,
Plaintiffs-‐‑Appellants,
v.
INDEPENDENCE LIFE AND ANNUITY COMPANY,
Defendant-‐‑Appellee.
____________________
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 12-‐‑C-‐‑763 — William C. Griesbach, Chief Judge.
____________________
ARGUED JUNE 2, 2015 — DECIDED JULY 24, 2015
____________________
Before POSNER, EASTERBROOK, and SYKES, Circuit Judges.
EASTERBROOK, Circuit Judge. Joseph and Mary McCormick
bought a single-‐‑premium variable life-‐‑insurance policy that
permits them to borrow against its cash value. Loans are se-‐‑
cured by moving an equivalent amount from sub-‐‑accounts
that the policyholder can invest to a “general account” that
draws 4% interest. The policyholder owes 4.7% on any bor-‐‑
rowed sums, so the net is 0.7% per annum, plus foregoing
the opportunity to exercise discretion about how to invest
2 No. 14-‐‑2959
the borrowed sum. The policy adds that, if the owner does
not pay the annual 4.7% interest, “it will be added to the
principal of the loan and will bear interest.”
The McCormicks borrowed against the policy’s cash val-‐‑
ue and did not pay interest. Independence, the insurer, add-‐‑
ed the amount of unpaid interest “to the principal of the
loan” (which caused additional sums to be moved from in-‐‑
vestments into the general account as security) and charged
interest on the higher indebtedness. Over the years, com-‐‑
pound interest has increased the debt by $44,000, which if
not repaid will reduce the policy’s death benefit. The
McCormicks seek a declaration that they do not owe this
$44,000. As they see things, when the unpaid annual interest
was “added to the principal of the loan” each year and
moved to the general account, it was thus “paid” automati-‐‑
cally—and what has been paid cannot draw interest. The in-‐‑
surer removed the suit to federal court, and the district judge
granted judgment on the pleadings, since the dispute turns
entirely on the policy’s language. The judge thought that the
language unambiguously supports the insurer. 2014 U.S.
Dist. LEXIS 34981 (E.D. Wis. Mar. 18, 2014).
Our mention of a $44,000 dispute is a tipoff to the only
question we need address: What is this case doing in federal
court? Removal rested on diversity of citizenship, and
$75,000 is the minimum amount in controversy for that ju-‐‑
risdiction. 28 U.S.C. §1332(a). Both sides nonetheless support
the removal and maintain that it was proper because the
McCormicks’ complaint asked for cancellation of the entire
loan balance (roughly $70,000) in addition to elimination of
the interest. The problem is that there is no legal basis for
No. 14-‐‑2959 3
that request, which the McCormicks voluntarily dropped
soon after removal.
If a suit is filed initially in federal court, a plaintiff’s
good-‐‑faith estimate of the stakes controls unless it is legally
impossible for a court to award what the plaintiff demands.
St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283,
289 (1938) (asking whether it “appear[s] to a legal certainty”
that the plaintiff cannot recover the jurisdictional minimum).
The same approach applies to a removing defendant’s esti-‐‑
mate of the stakes. Dart Cherokee Basin Operating Co. v. Ow-‐‑
ens, 135 S. Ct. 547, 553–54 (2014). Cancellation of the princi-‐‑
pal balance as a remedy for excessive interest is legally im-‐‑
possible in Wisconsin, whose law supplies the rule of deci-‐‑
sion. When pressed at oral argument for any authority un-‐‑
derlying the complaint’s demand for this remedy, the
McCormicks’ lawyer conceded that there is none. Wisconsin
entitles a party aggrieved by breach of contract to a remedy
that will restore him to the position he would have occupied
had all promises been fulfilled. See, e.g., Thorp Sales Corp. v.
Gyuro Grading Co., 111 Wis. 2d 431 (1983). Cancellation of the
principal debt would be a windfall, not a means of vindicat-‐‑
ing the McCormicks’ contractual rights.
Counsel told us that he put the demand in the complaint
only because Joseph McCormick really wants cancellation of
the debt and thinks himself entitled to it—though without a
legal basis. The complaint might as well have demanded
treble the amount of disputed interest, even though Wiscon-‐‑
sin law offers not a shred of support for a treble-‐‑damages
remedy. The amount-‐‑in-‐‑controversy requirement would not
be worth the paper it’s written on if arbitrary multipliers, or
4 No. 14-‐‑2959
a plaintiff’s fondest wishes, counted toward federal jurisdic-‐‑
tion.
In a memorandum filed after the oral argument, the in-‐‑
surer contends that jurisdiction is supported by the com-‐‑
plaint’s request for an injunction against cancellation of the
policy. The policy allows cancellation if a loan’s unpaid bal-‐‑
ance equals or exceeds the policy’s cash value. The McCor-‐‑
micks’ loan (including interest) was nearing that point, and
Independence sent them a notice of proposed cancellation.
But how does this propel the stakes over $75,000? If the poli-‐‑
cy really was at (or approaching) a negative value, then the
difference between its continuation and its cancellation has a
correspondingly small value.
Suppose, despite this, that the policy’s value exceeds
$75,000. The policy serves as security for the loan. Forget in-‐‑
surance for a moment and consider the situation in which
the owner of a parcel of land worth $1 million uses it as se-‐‑
curity for a $50,000 loan. The borrower does not repay, and
the lender seeks to foreclose and sell the parcel to satisfy the
debt. What is the amount in controversy: $50,000 or $1 mil-‐‑
lion? The amount is $50,000, because that is what would sat-‐‑
isfy the lender’s entire demand on the date the suit was filed.
See Gardynski-‐‑Leschuck v. Ford Motor Co., 142 F.3d 955 (7th
Cir. 1998). Similarly, the McCormicks could have satisfied
Independence’s demand by paying the $44,000 it claims as
interest—and they could have avoided a risk of the policy’s
cancellation by paying even less (just enough to keep its cash
value positive). The request for an injunction against cancel-‐‑
lation therefore does not turn this dispute about $44,000 into
a controversy worth more than $75,000.
No. 14-‐‑2959 5
Finally, the insurer maintains that the district court had
jurisdiction when it entered judgment, even if not when the
case was removed, because after the removal the McCor-‐‑
micks added a federal securities-‐‑law claim to their com-‐‑
plaint, furnishing federal-‐‑question jurisdiction under 28
U.S.C. §1331. There are two potential problems with that line
of argument. First, jurisdiction usually depends how things
stand when a case is removed, not on what happens later. St.
Paul Mercury, 303 U.S. at 291–94; In re Shell Oil Co., 966 F.2d
1130, amended, 970 F.2d 355 (7th Cir. 1992). These decisions
hold that post-‐‑removal changes to the pleadings do not can-‐‑
cel federal jurisdiction that existed on the date of removal,
which leaves open the possibility that new bases of federal
jurisdiction could be added. See Caterpillar, Inc. v. Lewis, 519
U.S. 61 (1996). Otherwise a court might dismiss a suit for
lack of jurisdiction, only to have it re-‐‑filed the next day with
jurisdiction secure. Cf. Newman-‐‑Green, Inc. v. Alfonzo-‐‑Larrain,
490 U.S. 826 (1989). So we turn to the second problem: the
securities claim is as impossible as the demand for zeroing
out the loan’s principal balance.
Plaintiffs invoked §12 of the Securities Act of 1933, 15
U.S.C. §77l, which governs the sale of securities. (Variable
insurance policies are securities. See SEC v. Variable Annuity
Life Insurance Co. of America, 359 U.S. 65 (1959).) They assert-‐‑
ed that the insurer violated §12 by stating in the registration
statement and prospectus that interest on loans will be de-‐‑
ducted from the policy’s cash value if not paid when due.
Yet the McCormicks’ complaint avers that this is exactly
what the policy itself says. The complaint therefore does not
allege a false statement. The McCormicks alleged breach of
contract, not fraud. On the difference between these two for
6 No. 14-‐‑2959
the purpose of federal securities law, see Wharf (Holdings)
Ltd. v. United International Holdings, Inc., 532 U.S. 588 (2001).
More than that: As the district court observed, 2014 U.S.
Dist. LEXIS 34981 at *11–14, the complaint reveals that the
claim is time-‐‑barred—by twenty-‐‑four years! A claim under §12
arises when the security is first offered to the public, 15
U.S.C. §77m, and a statute of repose sets three years as the
outer limit for suit. The McCormicks bought their policy in
1987 (the policy may have been “offered” even earlier) and
did not assert a securities claim until 2014. Statutes of repose
cannot be equitably tolled, see Lampf, Pleva, Lipkind, Prupis &
Petigrow v. Gilbertson, 501 U.S. 350, 363 (1991), and ongoing
injury (which the McCormicks assert) differs from a new
claim. New injury from an old wrong does not affect the pe-‐‑
riod of limitations. See, e.g., National Railroad Passenger Corp.
v. Morgan, 536 U.S. 101, 110–15 (2002); United States v. Ku-‐‑
brick, 444 U.S. 111 (1979). The securities claim is wacky, so far
beyond the pale that it cannot support federal jurisdiction.
See Hagans v. Lavine, 415 U.S. 528, 537 (1974) (an “essentially
fictitious” claim does not support jurisdiction under §1331).
The judgment is vacated, and the case is remanded with
instructions to dismiss for lack of subject-‐‑matter jurisdiction.
