Opinion
02-CV-0041E(Sc)
June 6, 2002
MEMORANDUM and ORDER
On December 7, 2001 plaintiff ("BSI") commenced this action against defendant ("AISA") in New York State Supreme Court, County of Erie, asserting claims for, inter alia, breach of contract and breach of fiduciary duty. On January 15, 2002 AISA removed this action to federal court on diversity grounds. Currently pending before this Court is BSI's motion to remand and AISA's motion to dismiss. For the reasons stated hereinafter, AISA's motion will be denied and BSI's motion will be granted.
In support of its motion, AISA contends that this action should be dismissed because venue is improper in this Court due to a venue provision that purportedly governs litigation between AISA and BSI. Section 23.1 of AISA's by-laws provides that
AISA also contends that this action is governed by a venue provision in ¶ 8(C) of a contract between BSI and Greater Buffalo Soccer, L.P. ("GBS") involving the transfer of shares in AISA (the "Transfer Agreement"). This contention, however, appears unfounded because such venue provision governs disputes arising from the Transfer Agreement between the parties thereto, i.e., BSI and GBS. AISA was not a party to the Transfer Agreement and this action does not arise from the Transfer Agreement. Although some provisions of the Transfer Agreement may be relevant to this action — see e.g., ¶ 3 discussed in footnote 2 infra — the venue provision is irrelevant.
"This Agreement and all Amendments thereto shall be governed in all respects by the laws of the state of Ohio and all litigation arising between [AISA] and its Shareholders and/or Directors shall be venued in federal court in Ohio to the extent permitted by law."
BSI is a shareholder of AISA. More importantly, BSI expressly agreed to comply with AISA's by-laws in its League Membership Agreement and its Acknowledgment And Acceptance Of Corporate By-Laws Of The American Indoor Soccer Association, Inc. DBA National Professional Soccer League, both of which are dated November 22, 1996. Therefore, assuming arguendo that the by-laws' venue provision is applicable, this action should be venued in a federal court in Ohio "to the extent permitted by law." By its own terms, however, the venue provision is only applicable if venue in a federal court in Ohio is permitted by law. In other words, if a federal court in Ohio lacks subject-matter jurisdiction over this action, then such venue would not be "permitted by law," in which case the by-laws appear to be silent as to venue. Federal question jurisdiction has not been claimed nor does it appear to exist. Accordingly, this Court must ascertain whether diversity jurisdiction exists under 28 U.S.C. § 1332.
Additionally, to the extent that GBS was a shareholder of AISA bound by AISA's by-laws, BSI may also have been bound by such by-laws as a result of ¶ 3 of the Transfer Agreement.
The amount in controversy is dispositive of both parties' motions. If diversity jurisdiction exists, then this action should be transferred to a federal court in Ohio pursuant to AISA's by-laws as discussed above. In the event, however, that diversity jurisdiction does not exist, this action should be remanded to the New York State Supreme Court from whence it was removed by AISA.
BSI is a New York corporation and AISA is an Ohio corporation ostensibly with a principal place of business in Connecticut. The parties hotly dispute whether the amount in controversy exceeds $75,000. BSI acknowledges that there is at least $30,000 in controversy — i.e., the amount of its claim relating to the BSI's first cause of action. BSI, however, disputes that its second and third causes of action, respectively seeking an accounting from AISA and indemnification for a presently unknown amount of money that is the subject of a related action in the New York State Supreme Court, County of Monroe, initiated by Douglas Miller against BSI, the Major Indoor Soccer League ("MISL") (which is alleged to be the successor to AISA) and the Philadelphia Kixx Indoor Soccer, LLP (the "Miller Action"). The Miller Action is related to this action inasmuch as BSI seeks indemnification from AISA in this action for the amount, if any, that Miller recovers against BSI in the Miller Action. Miller seeks, inter alia, at least $138,412.95 from BSI in the Miller Action (the "Miller Claim").
The parties do not dispute that they are "diverse."
AISA contends that the amount in controversy exceeds $168,000 when BSI's first cause of action ($30,000) is added to the Miller Claim ($138,412.95). BSI counters that the amount of the Miller Claim cannot be considered for purposes of diversity jurisdiction.
Inasmuch as the Miller Claim is only a potential claim, it is too speculative to be considered for purposes of determining the amount in controversy. Prosoco, Inc. v. Stonewall Surplus Lines Ins. Co., 1989 WL 58989, at *1 (D.Kan. May 9, 1989) (finding that a potential claim for indemnification was insufficient to satisfy the jurisdictional amount in a diversity action). In Prosoco, Stonewall was sued in New York on a products liability claim. Ibid. Under Stonewall's insurance policy, it would not receive any reimbursement for defense costs or indemnification until it had satisfied its $25,000 deductible. Ibid. Stonewall disagreed with the insurer's policy interpretation and consequently sued its insurer while the underlying product liability claim was still pending — and before Stonewall had spent $25,000 in defense costs. Ibid. The district court held that Stonewall's claim for defense costs and indemnification was speculative because the products liability action was still pending and Stonewall had not yet satisfied the policy deductible. Ibid. Accordingly, the court held that "because plaintiff suffered no damages, and whatever damages it may suffer are merely speculative, plaintiff cannot allege sufficient facts to bring it within the amount in controversy requirement for diversity jurisdiction." Ibid. Likewise, because BSI's claim for indemnification from AISA is only a potential claim, it may not be considered for purposes of ascertaining the amount in controversy because AISA has not met its burden of showing by a reasonable probability that the jurisdictional minimum is satisfied here. See Brown v. Randell, No. 88-3310, 1988 U.S. App. LEXIS 9923, at *2 (6th Cir. July 22, 1988) ("Despite plaintiff's assertions that he has suffered $25,000 in damages, apparently calculated by speculating as to the potential royalties a published song could receive, we do not believe this is sufficient to confer diversity jurisdiction upon the federal courts."); Freeman v. Great Lakes Energy Partners, L.L.C., 144 F. Supp.2d 201, 208-209 (W.D.N.Y. 2001) (finding that, in an action removed from state court, the defendants could not rely on "a potential award of attorney's fees in a class action in order to show a reasonable probability that the jurisdictional minimum has been met").
Cf. In re United Tele., Inc. Sec. Litig., No. 90-2251-EEO, 1993 WL 100202, at *3 (D.Kan. Mar. 4, 1993) ("Where, as here, the claim of damages is contingent on the outcome of a separate, pending lawsuit, the claim is not ripe and the complaint must be dismissed.").
AISA concedes, as it must, that the Miller Claim is only "potentially worth at least $138,000." AISA's Mem. Of Law In Opp. To Pl's Mot. To Remand, at 3 (emphasis added); Decl. In Opp. To Pl's Mot. To Remand, at ¶ 5 ("Battenfeld seeks indemnification from AISA for this potential obligation to Miller.") (emphasis added).
Because there is no diversity jurisdiction, the by-laws' venue provision is inapplicable by its own terms. The by-laws are thus silent as to proper venue where venue in a federal court in Ohio is not permitted by law. This action shall be remanded to the New York State Supreme Court, County of Erie, because the Miller Claim is too speculative to be considered for purposes of determining the amount in controversy.
Accordingly, it is hereby ORDERED that defendant's motion to dismiss is denied and plaintiff's motion to remand is granted and that this action is remanded to the New York State Supreme Court, County of Erie.