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McCormick v. Independence Life & Annuity Co.

United States Court of Appeals, Seventh Circuit

July 24, 2015

JOSEPH C. MCCORMICK and MARY C. MCCORMICK, Plaintiffs-Appellants,
v.
INDEPENDENCE LIFE AND ANNUITY COMPANY, Defendant-Appellee

Argued June 2, 2015.

For Joseph C. Mccormick, Plaintiff - Appellant: George Burnett, Attorney, Conway, Olejniczak & Jerry, S.C., Green Bay, WI; Michael R. Fox, Attorney, Fox & Fox, S.C, Monona, WI.

For Mary C. Mccormick, Plaintiff - Appellant: George Burnett, Attorney, Conway, Olejniczak & Jerry, S.C., Green Bay, WI; Michael R. Fox, Attorney, Fox & Fox, S.C, Monona, WI.

For Independence Life And Annuity Company, Defendant - Appellee: Paul E. Benson, Attorney, Michael Best & Friedrich Llp, Milwaukee, WI; Andrea J. Robinson, Attorney, Timothy Jeffrey Perla, Attorney, Wilmer Hale Llp, Boston, MA.

Before POSNER, EASTERBROOK, and SYKES, Circuit Judges.

OPINION

Page 818

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 secured 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 borrowed sums, so the net is 0.7% per annum, plus foregoing the opportunity to exercise discretion about how to invest 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 value and did not pay interest. Independence, the insurer, added the amount of unpaid interest " to the principal of the loan" (which caused additional sums to be moved from investments into the general account as security) and charged interest on the higher indebtedness. Over the years, compound 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" automatically--and what has been paid cannot draw interest. The insurer 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. (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 jurisdiction. 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 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, 58 S.Ct. 586, 82 L.Ed. 845 (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 estimate of the stakes. Dart Cherokee Basin Operating Co. v. Owens, 135 S.Ct. 547, 553-54, 190 L.Ed.2d 495 (2014). Cancellation of the principal balance as a remedy for excessive interest is legally impossible in Wisconsin, whose law supplies the rule of decision. When pressed at oral argument for any authority underlying 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.

Page 819

See, e.g., Thorp Sales Corp. v. Gyuro Grading Co., 111 Wis.2d 431, 331 N.W.2d 342 (1983). Cancellation of the principal debt would be a windfall, not a means of vindicating 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 Wisconsin law offers not a shred of support for a treble-damages remedy. The amount-in-controversy requirement would not be worth the paper ...


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