Second Circuit Holds that in Recission Action, Entire Value of Contract is Amount in Controversy for Jurisdictional Purposes

In Pyskaty v. Wide World of Cars, LLC, the Second Circuit joins the Third and Sixth Circuits in holding that when a plaintiff sues for rescission of a contract, the total value of the contract, without any offsets, is the amount in controversy for jurisdictional purposes.  In Psykaty, the plaintiff bought a certified pre-owned BMW from a dealer who told her that the car had never been in an accident.  After the car had numerous irreparable problems that began only a few weeks after she bought it, the plaintiff sued the dealer under the federal Lemon Law and New York State law, seeking actual damages and rescission of the contract of sale, among other things.  The plaintiff alleged that when she bought the car for approximately $52,000, it was actually only worth $20,000.

The District Court dismissed the case, holding that the plaintiff’s federal Lemon Law claims did not meet the $50,000 amount in controversy jurisdictional threshold.  The District Court held that the plaintiff alleged actual damages of $30,000, that the plaintiff’s state law claims could not be aggregated to meet the amount in controversy threshold under the federal Lemon Law, and that the rescission claim did not add enough value because the car was only worth $20,000 when the plaintiff bought it.

The Second Circuit reversed the dismissal, holding that the value of the plaintiff’s claim for rescission of the contract must be measured by the full purchase price of the defective car, not by its value at the time of the sale.  The Court therefore rejected the District Court’s approach to determining the amount in controversy by looking to the value of the good.

Because the full purchase price of the contract was in excess of $50,000, the Court held that the plaintiff’s rescission claim satisfied the jurisdictional amount in controversy.  The Court also rejected the defendants’ arguments that the rescission claim could not be considered because the contract itself had waived any other than the specified remedies.  The New York UCC, the Court held, however, does not appear to countenance such a result.

In light of the Court’s holding, it declined to reach, and therefore left for another day, the question whether a plaintiff’s state law claims can be considered and aggregated with federal Lemon Law claims to meet the $50,000 federal jurisdictional amount in controversy threshold.

The Second Circuit’s opinion can be found here

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