Hodge v. State Farm Mut. Auto Ins. Co.
Docket No. 149043
Trial Attorneys’ Bottom Line: The amount of damages listed in the prayer for relief determines jurisdiction.
In Hodge, the Supreme Court ruled that the ad damnum clause in a plaintiff’s complaint determines “the amount in controversy” for the purposes of jurisdiction. In other words, as long as you allege damages that do not exceed $25,000, the district court will still have jurisdiction. In absence of bad faith (more on this later), even if your discovery answers, your argument, or your evidence indicate damages worth more than $25,000, you can still bring your case in district court.
MCL 600.8301 grants the district court exclusive jurisdiction in civil actions when the amount in controversy does not exceed $25,000. Hodge, the plaintiff, was seriously injured in a car accident, but stated that she sought damages “not in excess of $25,000.” At trial, it became clear that Hodge was presenting of evidence of damages far greater than $25,000. And the jury ultimately awarded Hodge $85,957. But the district court reduced the damages to the $25,000 jurisdictional limit. Despite the reduction in damages, State Farm still appealed to the Wayne Circuit Court that the district court lacked jurisdiction (and won). Hodge appealed to the Court of Appeals, which denied leave to appeal. On appeal of the denial, the Supreme Court ordered the Court of Appeals to hear the case. The Court of Appeals affirmed the circuit court's opinion, and the Supreme Court ultimately granted leave to appeal on the merits.
In its unanimous opinion, authored by Justice Larsen, the Supreme Court made clear that courts should determine jurisdiction based on the pleadings, not the proofs at trial. The common law recognized this principle, and the Supreme Court said there was no evidence that the Michigan Legislature abrogated the common law.
Justice Markman authored a separate concurrence to describe what he thought would constitute bad-faith pleadings. He said that a plaintiff that intends to litigate a case that exceeds the amount claimed has pleaded in bad faith. Thus, the ad damnum clause would not be dispositive. This seems to suggest that Hodge’s pleading would have been in bad faith if she had always intended to present evidence of damages greater than $25,000 (but the Court did not address this question).
Justice Markman went on to describe evidence of bad faith. First (and most obviously), a plaintiff presenting evidence of damages that exceed $25,000 is evidence of bad faith. Second, evidence that a plaintiff has used their pleading to avoid discovery—which is mandatory in circuit court, but not in district court—shows potential bad faith. Third, bad faith could be found where the plaintiff attempts to utilize the offer-of-judgment rule (MCR 2.405), which holds a party liable for additional litigation costs if it rejects a settlement offer. As an example, a plaintiff would offer a $24,999 settlement and then presenting much higher damages. Fourth, bad faith can be inferred where the additional damages may turn the jury against the defendant. And fifth, where a plaintiff may be attempting to use the anchoring effect—by stating very high initial damages to affect the jury’s ultimate award—the court could find bad faith.
Again, Markman’s opinion was only a concurrence, but the Court did not describe what constitutes a bad-faith pleading; State Farm did not allege bad faith. If a case like this returns to the Court, it is entirely possible that it could adopt Justice Markman’s factors. Thus, do not think the Supreme Court has given blanket authorization to list “damages not exceeding $25,000” in your complaint to guarantee district court jurisdiction when you actually are seeking a much greater amount.