Opinion
NA 02-132-C B/H
August 28, 2002
ENTRY REMANDING CASE TO STATE COURT
This matter comes before the Court on Defendant Judson Atkinson Candies, Inc.'s Motion to Dismiss for Improper Venue, or alternatively, to Transfer Venue. Judson Atkinson argues that it is not subject to personal jurisdiction in Indiana, and thus, that venue is improper under 28 U.S.C. § 1391(a).
Alternatively, Judson Atkinson moves for transfer of this action to the Western District of Texas pursuant to 28 U.S.C. § 1404(a). In response, Plaintiff Kenray, Inc. requests remand of this action to the Superior Court of Floyd County, Indiana. For the reasons set forth below, the Court does not reach the issues presented in Defendant's Motion to Dismiss for Improper Venue, or alternatively, to Transfer Venue and GRANTS Plaintiff's request for remand to state court.
Factual Background Plaintiff Kenray, Inc. ("Kenray") is an Indiana corporation with its principal place of business in Greenville, Indiana. (Compl. ¶ 1.) It sells and installs computer hardware and software, and provides computer-related support services, including computer programming and training. (Def. Reply, Ex. 1 at ¶ 5.) Defendant Judson Atkinson Candies, Inc. ("Judson Atkinson") is a Texas corporation with its principal place of business in San Antonio, Texas. (Compl. ¶ 3.) Judson Atkinson manufactures and distributes a variety of candy products. (Def. Reply, Ex. 1 at ¶ 5.) Kenray and Judson Atkinson entered into an Agreement (the "Agreement"), dated June 22, 2001, providing that Judson Atkinson would purchase from Kenray a computer system designed to perform comprehensive financial and managerial accounting functions. Kenray alleges that Judson Atkinson failed to perform its obligations under the Agreement and interfered with Kenray's performance under the Agreement. (Compl. ¶¶ 5-15.)
The Agreement contains a forum selection clause, stipulating that Indiana law shall govern "any action" arising from the Agreement and directing that such actions be filed in Floyd County, Indiana.
The Agreement provides in relevant part:
10. ENTIRE AGREEMENT: . . . The terms and conditions of the agreement cover all future transactions between KENRAY AND THE CUSTOMER [Atkinson]. This agreement is pursuant to the laws of the State of Indiana, County of Floyd. Additionally, by signing this agreement, THE CUSTOMER agrees that the venue of any action shall be laid in Floyd County, Indiana.
(Agreement ¶ 10) (emphasis in original). In June 2002, Kenray filed a breach of contract action in the Superior Court of Floyd County, Indiana, which was subsequently removed by Judson Atkinson to this Court on the basis of diversity jurisdiction. Kenray's Complaint, however, does not allege an amount in controversy.
We find ourselves wondering, in passing, why Kenray did not challenge the removal of its case for lack of diversity jurisdiction. Nonetheless, as developed in this entry, we address the matter, as we must, in the context of Atkinson's motions, which turns out to be dispositive.
In May 2002, before Kenray brought this action, Judson Atkinson filed suit against Kenray in the United States District Court for the Western District of Texas (the "Texas Action"). In the Texas Action, which is currently pending, Judson Atkinson asserts two causes of action: first, a tort action under the Texas Deceptive Trade Practices Act; and second, a breach of contract action under the Texas Business and Commercial Code. Its Complaint alleged an amount in controversy greater than $75,000. (Def.'s Reply, Ex. 1 at ¶¶ 14, 18.)
Judson Atkinson filed its Motion to Dismiss for Improper Venue, or alternatively, to Transfer Venue ("Def.'s Mot. to Dismiss") in this Court on July 18, 2002. On July 23, 2002, Kenray filed its Response to Defendant's Motion to Transfer Venue ("Pl.'s Resp."), which included a request to remand this case to the Superior Court of Floyd County.
Legal Issues
In its Motion to Dismiss for Improper Venue pursuant to Federal Rule of Civil Procedure 12(b)(3), Judson Atkinson claims that it is not subject to personal jurisdiction in Indiana, and thus, that venue is improper under 28 U.S.C. § 1391(a). Judson Atkinson also asserts an alternate Motion to Transfer this action to the Western District of Texas pursuant to 28 U.S.C. § 1404(a). Before we consider the issues of personal jurisdiction and venue, however, we must address Kenray's challenge to this court's subject matter jurisdiction. Cook v. Winfrey, 141 F.3d 322, 324 (7th Cir. 1998) (finding that "[i]t is axiomatic that a federal court must assure itself that it possesses jurisdiction over the subject matter of an action before it can proceed to take any action respecting the merits of the action").
Pursuant to 28 U.S.C. § 1441(a), removal of a case from state to federal court is proper only if the case might have been brought originally in federal court. Federal subject matter jurisdiction may be based on either diversity of citizenship or a federal question. Brewer v. State Farm Mut. Auto. Ins. Co., 101 F. Supp.2d 737, 739 (S.D.Ind. 2000). A defect in the removal procedure or a lack of subject matter jurisdiction requires remand of the action to state court. 28 U.S.C. § 1447(c). Furthermore, the propriety of removal is to be strictly construed against removal, with all doubts resolved in favor of remand. Brewer, 101 F. Supp.2d at 739; see also People of the State of Ill. v. Kerr-McGee Chem. Corp., 677 F.2d 571, 576 (7th Cir. 1982).
When a court's subject matter jurisdiction is challenged, as it is here by Kenray, we look first to the face of the complaint to verify that the elements of diversity jurisdiction are satisfied. Bush v. Roadway Express, Inc., 152 F. Supp.2d 1123, 1125 (S.D.Ind. 2001). In this case, complete diversity exists because the sole plaintiff, Kenray, is a citizen of Indiana, and the sole defendant, Judson Atkinson, is a citizen of Texas. Kenray's Complaint, however, does not allege an amount in controversy. See 28 U.S.C. § 1332(a).
Where the amount in controversy is at issue, the party seeking the federal forum-Judson Atkinson, in this case-bears the "burden of coming forward with `competent proof' to establish at least a `reasonable probability' that the amount in controversy requirement is satisfied." King v. Wal-Mart Stores, 940 F. Supp. 213, 216 (S.D.Ind. 1996). Judson Atkinson must meet its burden by a preponderance of the evidence. Workman v. United Parcel Serv., 234 F.3d 998, 999 (7th Cir. 2000).
The amount in controversy requirement is $75,000, exclusive of interest and costs. 28 U.S.C. § 1332.
Judson Atkinson does not offer any proof, "competent" or otherwise, that the damages alleged in Kenray's Complaint exceed $75,000. In fact, Judson Atkinson never makes the argument that the value of Kenray's claims is sufficient to satisfy the amount in controversy requirement, and thus, to give this Court subject matter jurisdiction over the case. Rather, Judson Atkinson argues that this action should be consolidated with the related, but separate, Texas Action. (Def.'s Mot. to Dismiss ¶ 15.)
Judson Atkinson asserts, on the one hand, that Kenray's claims constitute compulsory counterclaims to its claims in the Texas Action. (Def.'s Mot. to Dismiss ¶ 14). In making this argument, however, Judson Atkinson mistakenly ignores the import of the forum selection clause included in the Agreement. See Publicis Communication v. True North Communications, Inc., 132 F.3d 363, 365-66 (7th Cir. 1997). "A party to a forum selection clause may not raise in a different forum, even as a compulsory counterclaim, a dispute within the scope of that clause." Id. at 366 (citation omitted). Kenray's breach of contract claims fall within the scope of the Agreement's forum selection clause because they constitute "any action" arising from the Agreement. See Omron Healthcare, Inc. v. Maclaren Exports Ltd., 28 F.3d 600, 603 (7th Cir. 1994) (finding that "all disputes the resolution of which arguably depend on the construction of an agreement arise out of that agreement for purposes of . . . a forum selection clause"). Therefore, Kenray may not raise its breach of contract claims as counterclaims in the Texas Action because the forum selection clause directs that the venue of "any action" arising from the Agreement "shall be laid in Floyd County, Indiana."
A compulsory counterclaim is one that arises out of the transaction or occurrence that is the subject matter of the opposing party's, here Judson Atkinson's, claims. Fed.R.Civ.P. 13(a).
In the alternative, Judson Atkinson seeks to consolidate this action with the Texas Action by transferring venue of this action to the Western District of Texas. (Def.'s Mot. to Dismiss at ¶ 12.)
What Judson Atkinson fails to consider, however, is that this Court may not transfer a case over which it does not have subject matter jurisdiction. Kendall U.S.A., Inc. v. Central Printing Co., 666 F. Supp. 1264, 1266 (N.D.Ind. 1987) (citing Wright Miller, 15 Fed. Prac. Proc. Juris.2d § 3844 (1986), for the proposition that transfer under § 1404(a) is possible only if venue is proper in the original forum and federal jurisdiction existed there). Judson Atkinson makes the novel argument that this Court should apply the value of its claims against Kenray in the Texas Action toward the satisfaction of the amount in controversy requirement in this related, but separate, action. Because the amount in controversy is derived from the plaintiff's (Kenray's) good faith claim for relief, however, Judson Atkinson's argument fails. St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 288 (1938) (finding that "[t]he rule governing dismissal for want of jurisdiction in cases brought in the federal court is that, unless the law gives a different rule, the sum claimed by the plaintiff controls if the claim is apparently made in good faith"). Although Kenray's Complaint and brief in this case are silent as to the amount it seeks to put in controversy, its request for remand indicates that it does not seek damages in excess of $75,000. In addition, as noted above, all doubts are resolved in favor of remand.
In the Texas Action, Judson Atkinson's Complaint alleged an amount in controversy of $101,060.00 plus incidental, consequential, and statutory exemplary damages. (Def.'s Reply, Ex. 1 at ¶¶ 14, 18.)
Judson Atkinson does not assert its claims against Kenray in the Texas Action as counterclaims in this action. Even if it did, however, the amount in controversy requirement still would not be satisfied.
A majority of courts hold that no part of the required jurisdictional amount may be met by considering a defendant's counterclaim. Wright Miller, 14B Fed. Prac. Proc. Juris.3d § 3706 (2001); see e.g., Flexcon Co., Inc. v. Ramirez Commercial Arts, Inc., 190 F. Supp.2d 185 (D.Mass. 2002), Al-Cast Mold Pattern, Inc. v. Perception, Inc., 52 F. Supp.2d 1081 (D.Minn. 1999), Indep. Mach. Co., v. Int'l Tray Pads Packaging, Inc., 991 F. Supp. 687 (D.N.J. 1998).
Because Judson Atkinson has not met its burden of providing "competent proof" to show at least a "reasonable probability" that the amount in controversy requirement is satisfied, we GRANT Kenray's request to remand this case to the Floyd County Superior Court.
Conclusion
Judson Atkinson has moved to dismiss for improper venue, or in the alternative, to transfer venue to the Western District of Texas. We do not reach the issues presented by its motions, however, because we lack subject matter jurisdiction over this case. Judson Atkinson failed to provide competent evidence that the amount in controversy exceeds the required threshold of $75,000.
Therefore, Kenray's request to remand this case to state court is GRANTED.
It is so ORDERED