CONFUSION AS TO DISTRICT COURT AMOUNT IN CONTROVERY/SUBJECT MATTER JURISDICTION – THE EFFECT OF ABCS TROY V. LOANCRAFT, LLC

Simon PLC Attorneys & Counselors – October 2021 Memorandum

CONFUSION AS TO DISTRICT COURT AMOUNT IN CONTROVERY/SUBJECT MATTER JURISDICTION – THE EFFECT OF ABCS TROY V. LOANCRAFT, LLC

Bloomfield Hills, Michigan – It has been said that trial courts jealously guard their jurisdiction and will not entertain lawsuits that fall outside.  Through this approach, they do not step on the proverbial toes of other trial courts, while inoculating themselves from appellate reversal.  This also provides the litigants with some certainty, including when identifying the correct court in which to file a lawsuit.

A court’s guarding of their jurisdiction is most commonly seen in terms of subject matter jurisdiction in the form of the amount in controversy in a civil lawsuit.  Michigan statutes set the subject matter, amount in controversy jurisdiction in the various trial courts of this state. For District Courts, Michigan Compiled Laws 600.8301(1) provides that “the district court has exclusive jurisdiction in civil actions when the amount in controversy does not exceed $25,000.00.”

How and when is this amount in controversy calculated?  Are reasonable attorneys’ fees and costs included when making this determination?

In 2016, the Michigan Supreme Court appeared to have provided a good and steadfast analysis of how and when the amount in controversy is to be determined. As explained in Hodge v State Farm Mut Auto Ins Co, 499 Mich. 211, 223-224; 884 NW2d 238 (2016), “in 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.” “The question of jurisdiction does not depend on the truth or falsity of the charge, but upon its nature: it is determinable on the commencement, not at the conclusion, of the inquiry.” Altman v Nelson, 197 Mich.App. 467, 472; 495 N.W.2d 826 (1992).

Thus, so long as the prayer for relief reasonably states principal damages under the amount in controversy jurisdiction of $25,000.00 in District Court, the court’s analysis of jurisdiction excludes a request for award of legal fees and costs. Hodge; see also, Krawczyk v Detroit Auto Inter-Ins Exchange, 117 Mich.App. 155, 163; 323 N.W.2d 633 (1982)(“As a general rule, neither costs, attorney fees nor interest is considered in determining the jurisdictional amount.”), affirmed in part, reversed in part on other grounds, 418 Mich. 231; 341 N.W.2d 110 (1983).

More recently, however, the Michigan Court of Appeals has attempted to carve out an exception to the universal rule provided in Hodge.  On April 29, 2021, the opinion in ABCS Troy, LLC v Loancraft, LLC, Case No. 349835, was issued and took a different approach where a contract that was the subject of litigation, included a fee shifting provision such that the losing party was responsible for the winning party’s reasonable attorneys’ fees and costs.  Because of their inclusion in a contract, are the winning party’s reasonable attorneys’ fees and costs to be considered damages when a trial court undertakes an amount in controversy analysis at the outset of a lawsuit?  According to the Michigan Court of Appeals in its opinion in ABCS Troy, LLC, the answer is “yes.” The Michigan Court of Appeals explained:

“we hold that contractual attorney fees are an element of general damages and are to be included in the amount-in-controversy calculation for purposes of a district court’s jurisdiction”

and added:

“If a dispute involves a contract with a fee-shifting provision and a party makes a claim for attorney fees under that provision, then that party can submit a reasonable estimate of such fees that it expects to incur during the lawsuit for purposes of determining the amount in controversy.”

What appears to be a carve out and limited exception to the general rule provided in Hodge, will no doubt create issues for litigants down the road.  First and foremost, the holding in ABCS Troy, LLC is in direct conflict with the universal rule provided in Hodge.  As Hodge was issued by the Michigan Supreme Court, it remains the supreme law of the state on this issue.  No doubt that opportunistic litigants will use ABCS Troy, LLC strategically, to cause delay and increased costs in challenging a party’s choice of venue,  and slowly chip away at the universal rule in Hodge.

Second and because attorneys’ fees and costs are considered general damages under ABCS Troy, LLC, a new burden and requirement is created for a plaintiff to estimate what their anticipated attorneys’ fees and costs may be at the outset of the lawsuit, in trying to identify which court, District Court or Circuit Court, to file its lawsuit in.  The plaintiff must now take a prospective approach to this analysis.  Conversely, a Circuit Court that undertakes an examination of the amount in controversy at the outset of a case may see principal or compensatory damages sought at under $25,000.00, and end-up remanding the case to the District Court because the jurisdictional requirement may not be met on the face of the complaint.

Third, it creates an increased burden and requirement on the parties to continually re-assess in a pending District Court litigation, whether and when the amount in controversy is exceeded, for purposes of removal to Circuit Court.  This could include removal on the eve of trial.

In addition to confusion and uncertainty, ABCS Troy, LLC also presents an opportunity for mischief by litigants. In a recent case involving one of our clients, the defendant attempted to not only inject the rule in ABCS Troy, LLC into the analysis on a post-judgment motion to quantify reasonable attorneys’ fees and costs previously awarded in a judgment, but to also expand its application.  In that case, the District Court had awarded the client its principal damages of $25,000.00, together with “reasonable legal fees and costs.” The judgment was awarded on claims for breach of contract and for statutory violations under the Michigan Uniform Commercial Code.  Note that there was no fee shifting provision in the contract, and that the legal fees and costs were awarded under the UCC.

The defendant appealed the judgment, and the Circuit Court, sitting as an appellate court, affirmed the District Court’s judgment. A motion to quantify the legal fees and costs followed, and was opposed by the defendant. Relying on ABCS Troy, LLC, the defendant argued that the District Court would exceed its subject matter jurisdiction of $25,000.00, were it to award even one dollar as “reasonable legal fees and costs” under the now affirmed judgment.

Fortunately, the District Court applied the universal rule provided for in Hodge, and refused to apply ABCS Troy, LLC to its analysis.  Further, the District Court relied on the Law of the Case Doctrine, as the defendant failed to challenge the propriety of the “reasonable legal fees and costs” award in the first instance. The Law of the Case Doctrine is an ancient doctrine that stands for the principal that “an appellate court’s determination of an issue in a case binds lower tribunals on remand and the appellate court in subsequent appeals.” Grievance Administrator v Lopatin, 462 Mich. 235, 259-260; 612 N.W.2d 120 (2000); Ashker v Ford Motor Co, 245 Mich.App. 9, 13; 627 N.W.2d 1 (2001).  The doctrine applies to “issues actually decided, either implicitly or explicitly, in the prior appeal.” Lopatin, 462 Mich. at 260.  “[C]ourts generally to refuse to reopen what has been decided, [and is] not a limit to their power.” Locricchio v Evening News Ass’n, 438 Mich. 84, 109; 476 N.W.2d 112 (1991), quoting Messenger v Anderson, 225 US 436, 444; 32 S Ct 739; 56 L Ed 1152 (1912).

As original judgment was awarded on a motion for summary disposition, the appeal of the judgment resulted in a de novo review by the appellate court.  All matters and issues addressed in the judgment, including the award of “reasonable legal fees and costs,” were necessarily reviewed and affirmed by the appellate court on appeal.  The award to our client of its “reasonable legal fees and costs” became the law of the case, and could no longer be challenged by the defendant going forward including through a challenge to subject matter, amount in controversy jurisdiction.

Although in this case we see the right result was reached, ABCS Troy, LLC creates confusion and a potential pitfall to litigants navigating District Court litigation, well beyond the initial lawsuit filing. Litigants must carefully examine subject matter, amount in controversy jurisdiction prior to case filing, especially where the lawsuit involves a contract with cost shifting provisions.

N.B. Not Legal Advice: Please contact us if you would like to discuss the facts and circumstances of your specific matter. Simon PLC Attorneys & Counselors expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this memorandum. The information contained herein may not reflect current legal developments and is provided without any knowledge as to the recipient’s location, industry, identity or specific circumstances. No recipients of this content, clients or otherwise, should act, or refrain from acting, on the basis of any content included in this memorandum without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the jurisdiction for which the recipient’s legal issue(s) involve. The application and impact of relevant laws varies from jurisdiction to jurisdiction, and our attorneys do not seek to practice law in states, territories, and foreign countries where they are not properly authorized to do so.

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