Opinion
Civil No. 00-3646 (JBS).
January 4, 2001
Gary D. Ginsburg, Esq., Adam M. Raditz, Esq., Law Offices of Gary D. Ginsburg, PC, Mt. Laurel, New Jersey, for Plaintiffs.
Patrick J. McDonnell, Esq., Roberto K. Paglione, Esq., McDonnell Associates, PC, Marlton, N.J., for Defendants.
OPINION
Plaintiffs William Baduske and his wife Miriam Baduske filed suit in New Jersey Superior Court seeking to enforce a $40,000 settlement agreement allegedly entered into with defendants Wal-Mart Stores, Inc. ("Wal-Mart") and its agent or insurer, Claims Management, Inc., ("CMI"). Wal-Mart removed the case to this Court, on July 27, 2000, citing as authority 28 U.S.C. § 1332, which allows for federal jurisdiction when there is diversity of citizenship and the amount in controversy is at least $75,000.00. In an amended Notice of Removal filed August 17, 2000, the caption was amended to reflect that both Wal-Mart and CMI were effecting the removal.
Presently before the Court are plaintiffs' motions for remand, and for sanctions against defendants, pursuant to Rule 11 of the Federal Rules of Civil Procedure. Plaintiffs argue that the requisite amount of controversy is absent since plaintiffs' complaint clearly demands only $40,000.00 in damages, plus attorneys' fees and costs, a total that falls below the required minimum. Defendants counter that federal jurisdiction is appropriate because plaintiffs' complaint is based on the breached settlement of a tort action, the total damages in the tort case have the potential to exceed $75,000.00. The two main issues for decision in this case thus are (1) whether there is a colorable argument that the amount in controversy in this case exceeds $75,000, and (2) if the requisite amount in controversy is not present, whether defendants should be sanctioned for removing this matter to federal court without a reasonable basis for doing so.
For reasons stated below, the Court finds that the amount in controversy in the present case unambiguously falls below the required minimum of $75,000.00, and plaintiffs' motion to remand to State court will be granted. Plaintiffs' motion for sanctions will be denied because defendants were not provided 21 days notice before plaintiffs filed the present motion for sanctions as required by the "safe harbor" provision of Fed.R.Civ.P. 11(c)(1)(A).
Despite the unavailability of Rule 11 sanctions, the Court on its own motion ordered defendants to show cause why fees and costs should not be imposed pursuant to 28 U.S.C. § 1447(c), which permits imposition of costs including attorney's fees and expenses caused by a removal. (Court's Ltr. to Counsel Dated December 6, 2000 (Docket Entry No. 13).) Having considered the parties' submissions in response to the Court's Order to Show Cause, and for reasons explained herein, the Court finds that sanctions would not be appropriate at this time.
Section 1447 provides:
(a) In any case removed from a State court, the district court may issue all necessary orders and process to bring before it all proper parties whether served by process issued by the State court or otherwise. (b) It may require the removing party to file with its clerk copies of all records and proceedings in such State court or may cause the same to be brought before it by writ of certiorari issued to such State court. (c) A motion to remand the case on the basis of any defect other than lack of subject matter jurisdiction must be made within 30 days after the filing of the notice of removal under section 1446(a). If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded. An order remanding the case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal.28 U.S.C. § 1447.
BACKGROUND
The facts relevant to deciding the present motions are as follows. This is a contract claim for breach of an alleged pre-litigation settlement agreement arising from an automobile accident claim. Plaintiffs allege that he was injured in an automobile accident caused by defendants' negligence. (Pl. Br. ¶ 2.) The accident occurred on November 28, 1998, after a tire became detached from plaintiffs' car while in operation. (Compl. ¶ 4.) The tire was allegedly installed improperly by defendants. (Id.) In subsequent negotiations with defendants several months before this suit was filed, plaintiffs claim to have reached an agreement to settle the matter for a sum of $40,000.00. (Pl. Br. ¶ 2.) But plaintiffs allege that defendants reneged on the settlement agreement on or around May 2000, by trying to add additional terms to the agreement. (Id. ¶ 3.) Plaintiffs assert that defendants asked plaintiffs to agree to repay the Personal Injury Protection (PIP) carrier for expenses it incurred in paying for plaintiffs' medical treatment. (Id.; Compl. ¶ 8.) This was a proposition that plaintiffs claim was not previously discussed (Compl. ¶ 8), and that plaintiffs' claim would have been satisfied if defendants had paid $40,000.00 as allegedly agreed.
This unfolding of events led plaintiffs to file a Verified Complaint in the Superior Court of New Jersey, Burlington County on June 16, 2000, to seek enforcement of the original agreement. (Pl. Br. ¶ 4.) The total sum of damages requested in the Verified Complaint was $40,000.00, plus attorney's fees and cost of suit. (Verified Compl. ¶ 12, et seq.)
Following the filing of the Verified Complaint, defendants on July 27, 2000 removed this case to federal court, asserting diversity jurisdiction under 28 U.S.C. § 1332. (Id. ¶ 6.) As part of the asserted grounds for removal, defendants cited to (1) a previous pre-litigation demand letter (dated January 4, 2000) from plaintiffs in the amount of $250,000.00, (2) medical bills exceeding $32,000, and (3) the plaintiffs' previous refusal to stipulate to damages under $75,000.00. (Def. Br. in Opp'n.) On August 29, 2000, plaintiffs' counsel sent defense counsel a letter demanding that defendants agree to remand this case back to State court because the requisite amount of controversy needed for Federal diversity jurisdiction was lacking. (Pl. Br. ¶ 7.) Plaintiffs' counsel also advised that plaintiffs were only seeking to enforce the settlement agreement for the amount of $40,000.00. (Pl. Ex. B.) Plaintiffs' counsel also threatened to seek Rule 11 sanctions if defendants' counsel did not comply with plaintiffs' request. (Id.)
Both parties met at a scheduling conference before U.S. Magistrate Judge Robert B. Kugler on September 5, 2000, at which time Judge Kugler instructed plaintiffs to file a motion by September 8, 2000 to remand the case to State court. (Pl. Br. ¶ 8.) On September 8, 2000, plaintiffs adhered to the Court's suggestion and filed the present motion to remand the case to State court. In addition, plaintiffs filed the present motion for sanctions against the defendants pursuant to Rule 11 of the Federal Rules of Civil Procedure.
On December 6, 2000, the Court wrote to counsel to request supplemental submissions on the subject of whether § 1447(c) sanctions should be imposed in the event of remand. In response, defense counsel informed the Court that on November 22, 2000, plaintiffs also filed a complaint with the Superior Court of New Jersey, Camden County, which sounds completely in tort, arising from the underlying accident, as to which plaintiffs had earlier made the $250,000 pre-litigation demand. (See Letter of Roberto K. Paglione, Esq., dated Dec. 12, 2000 at 3-4 and Ex. B. thereto.) The November 22, 2000 complaint is not before this Court and has not been removed to this Court so far as the Clerk's records presently reflect. Plaintiffs' counsel, in response, indicated that he filed the second complaint to assert plaintiffs' tort claim as a protective measure because the statute of limitations would otherwise have expired on November 28, 2000. (See Letter of Gary D. Ginsburg, Esq., dated Dec. 18, 2000 at 2.) Plaintiffs' counsel contends that the tort suit is not removable to this court because of incomplete diversity of citizenship of the parties, since a New Jersey defendant (Mike Ebert) is also named.
DISCUSSION
A. Motion for Remand to State Court
On a motion to remand, the removing party bears the burden of proving that jurisdiction exists. Boyer v. Snap-On Tools Corp., 913 F.2d 108, 111 (3d Cir. 1990), cert. denied, 498 U.S. 1085 (1991); Hunter v. Greenwood Trust Co., 856 F. Supp. 207, 211, 218 (D.N.J. 1992). The removal statute is "strictly construed against removal and all doubts should be resolved in favor of remand." Boyer, 913 F.2d at 111 (quoting Steel Valley Auth. v. Union Switch and Signal Div., 809 F.2d 1006 (3d Cir. 1987)).
Federal district courts are courts of limited jurisdiction, and a civil action brought in state court may be removed to federal court only if the plaintiffs could have originally filed the complaint in federal court. 28 U.S.C. § 1441. Defendants removed this action pursuant to 28 U.S.C. § 1332, which provides the district courts with "original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between . . . citizens of different States." The diverse citizenship of the parties is uncontested in this case. The only real issue is whether defendants, as the parties asserting jurisdiction, have demonstrated that the $75,000 amount in controversy requirement is met.
In determining the true amount in controversy the court will rely on the "good faith allegations in the complaint." Dardovitch v. Haltzman, 190 F.3d 125, 135 (3d Cir. 1999); Spectacor Mgt. Group v. Brown, 131 F.3d 120, 122 (3d Cir. 1997). It is the "sum claimed by the plaintiffs" that controls. St. Paul Mercury Indemnity. Co. v. Red Cab Co., 303 U.S. 283, 288-89 (1938). Furthermore, "the amount in controversy is measured as of the date of removal" even if "actual damages may not be established until later in the litigation." Meritcare Inc. v. St. Paul Mercury Ins. Co., 166 F.3d 214, 217 (3d. Cir. 1999). Judge Cooper recently noted that, where a plaintiff has moved to remand the complaint back to state court for lack of requisite amount in controversy, the defendants must show by a preponderance of the evidence that the amount in controversy requirement is met. See Penn v. Wal-Mart Stores, Inc., 116 F. Supp.2d 557, 562-567 (D.N.J. 2000) (noting split in authority on what is correct standard to be applied to amount in controversy disputes where a plaintiff alleges unspecified tort damages, and adopting preponderance of the evidence standard as the correct test). In the present case, in contrast to Penn, plaintiffs have specified the damages sought — $40,000.00 — in this contract claim. Since this is not an open-ended claim for unspecified tort damages, this Court needs simply to examine the plaintiffs' complaint and surrounding circumstances to determine whether the amount in controversy requirement is met.
In the instant case, plaintiffs seek enforcement of a settlement agreement in the amount of $40,000.00 plus attorneys and costs. (Compl. ¶ 12.) This sum of $40,000.00 plus attorney's fees is plainly the amount in controversy since that is the sum claimed by plaintiffs, exclusive of costs. St. Paul Mercury Indemnity. Co., 303 U.S. at 288-89.
Defendants' contention that the amount in controversy may exceed $75,000.00 is unpersuasive. Defendants point to a previous demand letter for $250,000.00; plaintiffs' medical bills; and plaintiffs' refusal to stipulate that damages will remain under $75,000.00. Nonetheless, as of the filing of the motion to remand, and at all times prior, plaintiffs have not amended their Verified Complaint to include a demand other than the $40,000.00 plus attorney's fees and costs. Plaintiffs withdrew their initial pre-litigation demand for $250,000.00, as evidenced by their desire to enforce the alleged settlement agreement for $40,000.00. (Compl. ¶ 12.) Plaintiffs' counsel's written demand of $250,000 on January 4, 2000 is not relevant to this remand motion because that demand pertains to a matter (damages for personal injury) not in dispute in the Verified Complaint subsequently filed. The Verified Complaint seeks to enforce plaintiffs' alleged acceptance of Wal-Mart's $40,000 offer of settlement, which Wal-Mart's adjuster Jonna Brodbeck allegedly made on May 3, 2000, according to the Verified Complaint at ¶ 6. This is not a situation where plaintiffs filed a complaint and then demanded $250,000.00. Instead, this is a circumstance where the complaint at issue involves a claim to enforce a $40,000 settlement agreement. Thus, it is manifest that plaintiffs' demand in this case is short of the $75,000 threshold, and that this case involves solely an action to enforce a settlement agreement having a liquidated damage value of $40,000.00.
Plaintiffs' refusal to sign a stipulation agreement as to medical damages has no bearing on the amount in controversy as a matter of law as to an automobile negligence claim. Plaintiffs' medical bills have been paid by their PIP carrier, and plaintiffs are not permitted to seek these costs at trial. In sum, it appears that the amount demanded in plaintiffs' Complaint — damages in the amount of $40,000.00 plus costs, not exceeding $75,000.00 — was made in good faith. As such, that demand must control both this motion and any subsequent proceedings.
Even if plaintiffs sought to recover for medical bills, he would be barred from doing so under New Jersey law. In Adams v. Cooper Hospital , 295 N.J. Super. 5, 7 (1996), the court held that N.J.S.A. 39:6A-12 barred the admissibility of all evidence pertaining to medical expenses caused by automobile accidents. Thus, plaintiffs is effectively prevented from obtaining medical damages. This supports the purpose of the statute to prevent a plaintiffs eligible for PIP benefits from double recovery. Rybeck v. Rybeck , 141 N.J. Super. 481, 508 (1976).
Finally, defendants also argue that the Court should consider the attorneys' fees sought by plaintiffs in determining whether the amount in controversy requirement is met. Generally, attorneys' fees do not constitute part of the amount in controversy, though there is an exception to this rule if the fees are provided for by contract or statute. Penn, 116 F. Supp.2d at 569-570; 15 Moore's Federal Practice 3d § 102.106[6][a] (3d ed. 1997). There is not a contractual or statutory provision for fees at issue in this case, and thus neither exception is met. Additionally, defendants have failed to provide an estimate of the likely attorney fees plaintiffs would recover in this case. It is not a foreseeable result that the attorney's fee to enforce a $40,000 settlement would amount to another $35,000 to bring the total claim to an amount exceeding $75,000, even if this non statutory, non-contractual fee were included in the § 1332 calculation.
In sum, Wal-Mart, as the party invoking the Court's jurisdiction, has not met its burden of establishing that the requisite amount in controversy has been met. This case will accordingly be remanded to state court.
B. Motion for Sanctions
A motion for sanctions is properly brought under Rule 11 of the Federal Rules of Civil Procedure. It states in relevant part that:
A motion for sanctions under this rule shall be made separately from other motions or requests and shall describe the specific conduct alleged to violate subdivision (b). It shall be served as provided in Rule 5, but shall not be filed with or presented to the court unless, within 21 days after service of the motion (or such other period as the court may prescribe), the challenged paper, claim, defense, contention, allegation, or denial is not withdrawn or appropriately corrected.
Fed.R.Civ.P. 11(c)(1)(A) (emphasis added).
Rule 11(c) requires that the movant seeking sanctions against the opposing party should serve the motion for sanctions on the opposing party and then wait 21 days to allow the opposing party the chance to remedy the situation before filing the motion with the Court. Id. See also Thomas v. Treasury Management Ass'n, Inc., 158 F.R.D. 364, 366 (D.Md. 1994) (stating that the 1993 amendment to the Federal Rules of Civil Procedure requires that a party who objects to a pleading has an obligation to allow his opponent an opportunity to withdraw the pleading). This safe harbor provision is designed to alleviate the number of filings presented to the court by providing "procedural safeguards to enable parties to avoid sanctions." Hadges v. Yonkers Racing Corp., 48 F.3d 1320, 1327 (2d Cir. 1995). If after the 21 days, the opposing party still has not remedied the situation, the movant may then file the motion for sanctions with the court. Fed.R.Civ.P. 11(c)(1)(A).
In the instant case, plaintiffs' counsel first informed defense counsel on August 29, 2000, of his intent to file a motion for sanctions unless defendants' counsel agreed to remand. (Letter dated Aug. 29, 2000, Pl. Ex. B.) The parties met on September 5, 2000 at a scheduling conference where plaintiffs' counsel again reiterated his position. (Pl. Br. ¶ 8.) Shortly thereafter, on September 8, 2000, plaintiffs filed a motion for sanctions against defendants' counsel. This was only 10 days after plaintiffs' counsel first gave notice in a letter to defendants' counsel of plaintiffs' intent to file a motion for sanctions with this court. Plaintiffs' present motion for sanctions is thus untimely and impermissible under the safe harbor provision of Rule 11(c). Because plaintiffs' counsel did not allow defendants' counsel the required 21 days from time of notice to time of filing, the motion for sanctions cannot be granted under Rule 11(c).
Although Rule 11 sanctions are not available to plaintiffs, the Court has examined whether defendants should nevertheless be required to pay any costs and fees plaintiffs have incurred as a result of removal to this Court, pursuant to § 1447(c). By letter to counsel dated December 6, 2000, the Court gave notice that it was considering, in the event of remand, whether to require defendants "to make payment of `just costs and any actual expenses, including attorney's fees, incurred as a result of the removal,' pursuant to 28 U.S.C. § 1447(c)." Consequently, the parties were permitted to file supplemental briefs as to whether such fees and costs should be imposed.
As § 1447 does not provide a standard of review for assessing a demand for costs or fees, the District Courts have broad discretion as to whether to order such payment. Mints v. Educational Testing. Serv., 99 F.3d 1253 (3d Cir. 1996). In the Third Circuit, fees and costs should be awarded where the circumstances require the fees to serve some purpose, such as to deter removal where a complaint clearly does not state a removable claim. See Ingemi v. Pelino Lentz, 866 F. Supp. 156, 163 (D.N.J. 1994). See also Newton v. Tavani, 962 F. Supp. 45 (D.N.J. 1997) (costs not awarded where basis of removal "not insubstantial").
Defendants' citation of FMC Corp. v. Medtronic, Inc . , 208 F.3d 445 (3d Cir. 2000), for the proposition that a District Court should not sua sponte remand a case on procedural grounds, is misplaced. That case involved a remand without notice or hearing. Here, defendants have been given notice and the opportunity to be heard due to plaintiffs' duly filed motions for remand and for Rule 11 sanctions, with the supplemental notice and opportunity to be heard on the subject of § 1447(c) fees.
In response to the Court's call for additional briefing, the defendants have come forward with eight specific factors supporting removal and weighing against the imposition of costs under § 1447. These are:
1. A pre-complaint demand of $250,000.00;
2. Plaintiffs' refusal to stipulate to an amount of damages less than the statutory limit;
3. The likelihood that the law suit seeking enforcement of the alleged settlement agreement was in reality a tort claim artfully pleaded as a contract claim;
4. The absence of a timely motion to remand by plaintiffs;
5. The absence of any bad faith on the part of Wal-Mart in removing the case here;
6. The judicial resources required to deal with separate tort and contract lawsuits filed by plaintiffs;
7. The past history of this Court using a stipulation to establish to a legal certainty whether plaintiffs' claim exceeded $75,000;
8. The public policy implications of compensating a party for selectively filing suit in such a way as to confuse the issues.
The Court would be unpersuaded by defendants' proffered factors were it not for plaintiffs' filing of the second complaint on November 22, 2000, asserting a personal injury claim on which a $250,000.00 demand has been made, and in which this federal case was necessarily recognized as a related case. There is now a prospect that this contract case will be consolidated with the personal injury suit, yielding an overall controversy between plaintiffs and Wal-Mart exceeding the $75,000 threshold. This Court cannot ignore the arguable quality of Wal-Mart's belief at the time of removal that the contract case would necessarily blossom into a larger controversy involving the new related tort case. While Wal-Mart clearly misread the plaintiffs' first complaint, it did not misread plaintiffs' refusal to abandon the larger personal injury claim. Although this Court remains firmly of the view that removal was improper and that this case must be remanded, it is not prepared to impose a monetary award under § 1447(c) where it now appears likely that the true scope of battle, under New Jersey's entire controversy doctrine, will embrace both the contract claim and, in the alternative, the potentially more valuable tort claim. Accordingly, no § 1447(c) fees will be awarded, but this case will be remanded.
CONCLUSION
For the foregoing reasons, plaintiffs' motion for remand to State Court will be granted and plaintiffs' motion for sanctions will be denied. The accompanying Order is entered.
This matter having come before the Court upon the motions of plaintiffs (1) for remand to State court; and (2) for sanctions pursuant to Fed.R.Civ.P. 11; and the Court having considered the submissions of the parties; and for the reasons expressed in the Opinion of today's date;
IT IS this day of January, 2001, hereby ORDERED as follows:
1. Plaintiffs' motion for remand to State court is GRANTED ;
2. Plaintiffs' motion for sanctions is DENIED ;
3. This case is hereby REMANDED to the Superior Court of New Jersey, Burlington County, Docket No. BUR-L-1736-00.