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Jadair Inc. v. Walt Keeler Co.

decided*fn*: May 26, 1982.


Appeal from the United States District Court for the Eastern District of Wisconsin. No. 79-C-791 -- Robert W. Warren, Judge.

Before Cummings, Chief Judge, and Sprecher*fn** and Wood, Circuit Judges.

Author: Cummings

Jadair, Inc. ("Jadair"), a Wisconsin corporation, brought a declaratory judgment action in Wisconsin state court against the Walt Keeler Company, Inc. ("Keeler"), a Kansas corporation. Keeler removed the suit to federal court under 28 U.S.C. § 1441(a). Jadair challenged the removal, arguing that Keeler had failed to demonstrate an amount in controversy in excess of $10,000. In a March 1980 memorandum and order Judge Warren denied Jadair's motion to remand the case to state court. Then Keeler moved to dismiss the federal suit for lack of personal jurisdiction, and in a February 1981 memorandum and order Judge Warren granted Keeler's motion. Jadair's appeal is phrased in the alternative: the case should have been remanded; if not, the federal court should have exercised jurisdiction over Keeler. We affirm, 508 F. Supp. 879, both of Judge Warren's rulings.


Jadair manufactures machinery for cleaning cement mixers in Port Washington, Wisconsin. In November of 1978 Keeler, which produces concrete and other building materials in Wichita, Kansas, contracted to buy a Jadair machine for $75,850. The unit was shipped to Keeler's plant, but did not perform satisfactorily. In September of 1978 Keeler sent Jadair a bill for $6,825.24 worth of electrical and hydraulic repairs to the machine. The parties were not able to resolve their differences, including who should pay this bill.

What would have been a garden-variety contract dispute became more complicated as the parties jockeyed for litigating position. Seeking a convenient forum Jadair moved first. On October 22, 1979, it asked the Circuit Court of Milwaukee County to declare it free of any liability to Keeler. Keeler countered by removing the action to federal court on November 15, 1979, apparently in hopes Wisconsin's long-arm statute would be construed more narrowly there than in a Wisconsin state court. If it were successful in having the suit dismissed, Keeler could then force Jadair either to litigate in Kansas or to wait to be sued in Wisconsin.


As a single defendant and non-citizen of Wisconsin, Keeler was entitled to remove the lawsuit against it from state to federal court, if the federal court could have entertained the case in the first place. 28 U.S.C. § 1441(a) and (b). That provision requires in this instance that diversity jurisdiction be properly invocable-i.e., that the dispute be between citizens of different states and that the amount in controversy exceed $10,000, exclusive of interest and costs. 28 U.S.C. § 1332(a).

For purposes of this appeal, the only issue is how to evaluate, ex ante, the amount in controversy. Declaratory judgment and injunctive relief actions sometimes present difficult and subtle valuation problems, as McCarty v. Amoco Pipeline Co., 595 F.2d 389, 391-395 (7th Cir. 1979), indicates. Here, however, Jadair sought a declaration of nonliability as to any and all Keeler claims. Therefore the amount in controversy must be what Keeler could possibly recover from Jadair. Jadair argues that Keeler's maximum recovery would be its $6,825.24 out-of-pocket expenses. In response Keeler says it has additional claims for $9,300 in consequential damages, or for rescission and restoration of the contract price. Jadair thinks we must ignore these claims because (1) Keeler never demanded either consequential damages or rescission in its negotiations with Jadair; (2) Keeler made the claims only after Jadair moved to remand the case, and the jurisdictional amount must be demonstrated at the time of Keeler's removal petition; (3) consequential damages were excluded by contractual agreement; and (4) rescission is too remote a possibility to count in the computation.

Jadair's first two objections are easily disposed of. Conduct during negotiations could conceivably create an estoppel which would preclude success on the merits,*fn1 but a party's prayer for relief is not legally limited to amounts he would have settled for when he thought settlement was a real possibility.*fn2 Nor is a court obliged to rely solely on the removal petition-or on an original complaint-to test the sufficiency of the alleged jurisdictional amount. It is entitled to consider the matter when the parties raise it, as they did here by a motion to remand and the memorandum and affidavits in opposition thereto. Exactly this procedure was followed by the district court, without demur by this Court, in McCarty, supra, 595 F.2d at 391.

Jadair's third argument involves the application of the Uniform Commercial Code, as enacted in Wisconsin and Kansas.*fn3 The contract limited damages to the costs of repair or replacement, but that provision may not be enforceable if "circumstances cause (the) exclusive or limited remedy to fail of its essential purpose." UCC § 2-719(2). Whether the repair efforts were futile enough to activate section 2-719(2) is a factual question not yet capable of resolution, but it is at least not impossible that Keeler could recover both its direct and consequential damages, which together amount to more than $14,500.

Like the district judge, we need not reach Keeler's claim for rescission and Jadair's argument against it, because the jurisdictional hurdle is surmounted by Keeler's showing on direct and consequential damages. We note, however, that the rescission claim too is grounded on the Uniform Commercial Code*fn4 and requires factual development. Keeler's right to rescind is not contingent, however, nor is its value necessarily less than $10,000.*fn5


Having established that the district court had subject-matter jurisdiction, we turn to the issue of personal jurisdiction. The Wisconsin long-arm statute, made applicable in federal diversity cases by Rules 4(e) and 4(d)(7) of the Federal Rules of Civil Procedure, contemplates jurisdiction over an out-of-state defendant if the action "(r)elates to goods, documents of title, or other things of value shipped from this state by the plaintiff to the defendant on the defendant's order or direction." Wis.Stat.Ann.1977, § 801.05(5)(d). But there ...

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