Opinion
Case No. 1:01-CV-200
July 10, 2001
ORDER OF REMAND
In accordance with the Opinion filed this date, IT IS HEREBY ORDERED that Plaintiff's Motion For Remand To State Court Pursuant To 28 U.S.C. § 1447(c) (docket no. 4) is GRANTED because this Court lacks subject matter jurisdiction over Plaintiff's claims. Each party shall bear its own costs and expenses in connection with the removal.
IT IS FURTHER ORDERED Defendant's Motion For Change Of Venue (docket no. 6) is DENIED AS MOOT. IT IS FURTHER ORDERED that this case is remanded to the Kent County Circuit Court.
OPINION
Plaintiff, PureFlex, Inc. ("PureFlex"), filed its complaint against Defendant, Semmelmeyer-Corby Company ("SCC"), on December 18, 2000, in the Kent County Circuit Court alleging claims for breach of contract, fraud, and violation of the Michigan Uniform Trade Secrets Act. SCC removed the case to this Court on March 28, 2001, based upon diversity jurisdiction. Now before the Court are PureFlex's motion to remand to state court and SCC's motion for change of venue. For the reasons set forth below, the Court will grant PureFlex's motion to remand and deny SCC's motion for change of venue as moot.
Background
PureFlex is a Michigan corporation engaged in the manufacture and sale of industrial products, including Teflon hoses, fittings, and hose assemblies. On December 1, 1998, PureFlex entered into a distributor agreement (the "Agreement") with Foster Mechanical ("Foster"), under which Foster was appointed PureFlex's "semi-exclusive Independent Distributor" for the majority of Missouri, the southern counties in Illinois, and the southwestern counties in Kentucky. Pursuant to paragraph 7A. of the Agreement, Foster agreed that it would not distribute or sell any product that competed with PureFlex's products without PureFlex's written consent. (Agreement ¶ 7A., Pl.'s Mot. Remand Ex. A.) PureFlex alleges that at the time the parties entered into the Agreement, Foster's agents represented to PureFlex that Foster was a corporate entity and that one or more of the shareholders of Foster also owned stock in SCC, which sells products that compete with PureFlex's products, but that Foster competed with SCC. (Compl. ¶ 8, 9.) PureFlex alleges that contrary to Foster's representations, Foster was simply an assumed name for SCC and that SCC used its position under the Agreement to obtain pricing and other information from PureFlex.
In its complaint filed in state court, PureFlex alleged pursuant to M.C.R. 2.111(B)(2) that its damages were in excess of $25,000. In its petition for removal filed on March 29, 2001, SCC alleged that on March 26, 2001, it learned for the first time that the amount in controversy in this case exceeds the $75,000 jurisdictional threshold for diversity jurisdiction. (Pet. for Removal ¶ 4.) SCC supported that allegation with the affidavit of its counsel, Charles Worsfold, who stated that during a telephone conversation with PureFlex's counsel on March 26, 2001, PureFlex's counsel indicated that his client was unable to calculate the exact amount of damages because SCC had the documents containing that information but that his client was seeking damages in excess of $75,000. (Worsfold Aff. ¶¶ 2, 3, Pet. for Removal Ex. 2.)
SCC's use of the term "petition" is technically incorrect because the removal statute was amended in 1988 to substitute the term "notice of removal" for "petition for removal." See generally, 16 James W. Moore,Moore's Federal Practice, ¶ 107.30[2][a][i](3d ed. 1997). Thus, under the present statute, removal is properly achieved by filing a notice of removal. See 28 U.S.C. § 1446(a).
Discussion
As a court of limited jurisdiction, this Court must proceed with caution in deciding that it has subject matter jurisdiction. Musson Theatrical, Inc. v Fed. Express Corp., 89 F.3d 1244, 1252 (6th Cir. 1996). Removal statutes are strictly construed to promote comity and preserve jurisdictional boundaries between state and federal courts. See Alexander v. Elec. Data Sys. Corp., 13 F.3d 940, 949 (6th Cir. 1994). Thus, any doubt about the removability of the case must be resolved against federal court jurisdiction. Her Majesty the Queen in Right of the Province of Ontario v. City of Detroit, 874 F.2d 332, 339 (6th Cir. 1989). As the removing party, SCC has the burden of proving by a preponderance of the evidence that the amount in controversy exceeds the jurisdictional requirement where the complaint does not specify the amount sought by the plaintiff. Gafford v. Gen. Elec. Co., 997 F.2d 150, 158 (6th Cir. 1993) Where the amount in controversy cannot be ascertained from the complaint, the defendant must show facts supporting the jurisdictional amount. See Gaus v. Miles, 980 F.2d 564, 566-67 (9th Cir. 1992) (per curiam). The time for removal is as follows:
The notice of removal of a civil action or proceeding shall be filed within thirty days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based.
If the case stated by the initial pleading is not removable, a notice of removal may be filed within thirty days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable.28 U.S.C. § 1446(b). Although not jurisdictional, the thirty-day period for removal is mandatory and must be strictly construed. See Kerr v. Holland America-Line Westours, Inc., 794 F. Supp. 207, 210 (E.D.Mich. 1992). Two issues are presented by the motion to remand: (1) whether SCC's removal of this case was untimely; and (2) if removal was timely, whether SCC has carried its burden of demonstrating that the amount in controversy exceeds the jurisdictional threshold.
With regard to the issue of timeliness, a notice of removal must "be filed within thirty days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based." 28 U.S.C. § 1446(b). However, the thirty-day period under § 1446(b) is not triggered unless "[t]he removability of the action [is] readily ascertainable from the face of the pleading." Tech Hills II v. Phoenix Home Life Mut. Ins. Co., 5 F.3d 963, 968 (6th Cir. 1993); see also Kerr, 794 F. Supp. at 213 (stating "that for a writing to be considered an `initial pleading' that will trigger the running of § 1446(b)'s thirty-day removal period, the pleading must be one from which the defendant is able to intelligently ascertain the removability of the action"); Link Telecommunications, Inc. v. Sapperstein, 119 F. Supp.2d 536, 540 (D.Md. 2000) ("If no grounds for removal are revealed on the face of the complaint, then a defendant is not initially bound by the thirty-day time limit").
The complaint in this case does not reveal on its face that the action was removable because it alleges only that PureFlex seeks to recover damages in excess of $25,000 and there are no allegations which could reasonably lead to the conclusion that the amount of damages sought exceeds $75,000, exclusive of interest and costs. In spite of the lack of an indication in the complaint that damages are in excess of $75,000, PureFlex contends that SCC had information within its possession which, when considered in light of the allegations in complaint, should have put SCC on notice that the case was removable. PureFlex cites an unpublished decision by the Sixth Circuit in Holston v. Carolina Freight Carriers Corp., No. 90-1358, 1991 WL 112809 (6th Cir. June 26, 1991) (per curiam), and a decision from the Eastern District of Michigan in Mielke v. Allstate Insurance Co., 472 F. Supp. 851 (E.D.Mich. 1979), as support for its contention that a defendant's receipt or possession of information outside of the complaint or other pleadings indicating that the amount in controversy exceeds the jurisdictional requirement may be sufficient to trigger the thirty-day period.
In Mielke, the court rejected the more narrow view adopted by some courts that the facts showing a basis for removability must be contained in the complaint. Instead, the court reasoned that "in diversity cases that can best be handled in state court, there is no reason to allow a defendant additional time if the presence of grounds for removal are unambiguous in light of the defendant's knowledge and the claims made in the initial complaint." Id. at 853. The court held that remand was proper because even though the initial complaint did not contain a dollar amount, the defendant-insurer had actual knowledge that the insurance claims exceeded the jurisdictional minimum. Id. In Holston, the Sixth Circuit agreed with Mielke and held "that § 1446(b) starts the thirty-day period running from the date that a defendant has solid and unambiguous information that the case is removable, even if that information is solely within its own possession." Holston, 1991 WL 112809, at *3. The court recognized that its interpretation of § 1446(b) was contrary to the interpretation adopted by the majority of district courts that had addressed the issue. The court reasoned, however, that limiting a defendant's knowledge of facts establishing removability to only those set forth in the complaint would give defendants an unfair advantage by allowing defendants to first "test the waters" in state court and then remove the case in the event of an unfavorable ruling. See id. at *3-4.
PureFlex contends that under Holston, the thirty-day removal period commenced when SCC received the complaint because the facts necessary to establish the basis for removal, as indicated by the claims in the complaint, are, and have always been, in SCC's sole possession. In particular, PureFlex argues that the first two counts of its complaint allege that SCC was unjustly enriched through its acts of breach of contract and fraud and that the Uniform Trade Secrets Act, upon which the third count is based, authorizes damages for unjust enrichment caused by the misappropriation. PureFlex contends that because SCC had knowledge of its own profits and knew from the complaint that it might be forced to disgorge those profits, SCC had all the information it needed to determine that the action was removable at the time the complaint was served. SCC counters that the complaint does not allege a claim for unjust enrichment, but rather, the measure of PureFlex's damages is its lost profits, a matter known solely to PureFlex.
Because Holston is an unreported case, it is not binding on this Court. See Stone v. William Beaumont Hosp., 782 F.2d 609, 614 n. 4 (6th Cir. 1986). Likewise, Mielke, a case from another district court, is not binding on this Court. However, assuming that Holston and Mielke state the correct rule, i.e., that information within the defendant's knowledge may establish removability, the Court concludes that SCC did not possess "solid and unambiguous information," Holston, 1991 WL 112809, at *3, showing that the case was removable. While it is true, as PureFlex notes, that SCC has all the information regarding the sales made by SCC in breach of the Agreement, PureFlex has not shown that SCC was aware of PureFlex's profit margin. For example, SCC may have made two sales in the amount of $70,000 each using SCC equipment. If the cost of PureFlex equipment for those sales would have been $60,000 ($120,000 for both), the amount in controversy would be satisfied only if PureFlex's profit margin is 62.5% or more. While SCC would know the cost of the PureFlex equipment, it would have no way to determine whether PureFlex's profit on those sales exceeded $75,000. Moreover, it is far from clear in the complaint that PureFlex is seeking or entitled to recover under an unjust enrichment theory the profits that SCC made on the sales (versus PureFlex's own profits). The same is true for the claim under the Uniform Trade Secrets Act, which authorizes recovery for unjust enrichment, because recovery for unjust enrichment is allowed only to the extent that it "is not taken into account in computing actual loss." M.C.L. § 445. 1904. There is no indication in the complaint what elements of damage for unjust enrichment might be sought beyond lost profits. Thus, the thirty-day period did not commence at the time SCC was served with the complaint.
At least four circuits have since rejected the approach taken inHolston. See Foster v. Mut. Fire, Marine, Inland Ins. Co., 986 F.2d 48, 54 (3d Cir. 1993) (holding that "the relevant test is not what the defendants purportedly knew, but what [the initial pleadings] said");Lovern v Gen. Motors Corp., 121 F.3d 160, 162-63 (4th Cir. 1997) (holding that, for the purposes of the first paragraph of § 1446(b), a defendant must file a notice of removal within thirty days only when the grounds for removal appear on the face of the initial pleading and that a court need not inquire into the subjective knowledge of the defendant);Chapman v. Powermatic, Inc., 969 F.2d 160, 163 (5th Cir. 1992) (holding that "for the purposes of the first paragraph of § 1446(b), the thirty day time period in which a defendant must remove a case starts to run from defendant's receipt of the initial pleading only when that pleading affirmatively reveals on its face that the plaintiff is seeking damages in excess of the minimum jurisdictional amount of the federal court"); In re Willis, 228 F.3d 896, 897 (8th Cir. 2000) (per curiam) ("We find the thirty-day time limit of section 1446(b) begins running upon receipt of the initial complaint only when the complaint explicitly discloses the plaintiff is seeking damages in excess of the federal jurisdictional amount").
Having determined that the case was not initially removable, the Court must address the second issue and determine whether the case subsequently became removable under the alternative time limit in § 1446(b), which allows the defendant to file a notice of removal "within thirty days after receipt through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable."
The Court concludes that the case did not subsequently become removable because SCC has not shown that it received "a copy of an amended pleading, motion, order or other paper" indicating that the action was removable. In fact, SCC relies not on a writing, but rather upon an oral statement by PureFlex's counsel to SCC's counsel to show that the case is within this Court's jurisdictional limit. However, SCC has not cited any case holding that an oral statement in a telephone conversation between counsel suffices to meet the "other paper" requirement. Addo v. Globe Life and Accident Insurance Co., 230 F.3d 759 (5th Cir. 2000), cited by SCC, is distinguishable from this case because the plaintiff sent the defendant a demand letter offering to settle the case for $250,000, which was deemed an "other paper." See id. at 760-61. Here there is no demand letter or any other writing that could be considered an "other paper".
Through its own research, the Court has located some cases which have allowed oral statements to show that the jurisdictional threshold is met. However, those cases typically involve statements made in open court, see Singer v. State Farm Mut. Auto. Ins. Co., 116 F.3d 373, 376 (9th Cir. 1997) (noting that the district court "considered a formal judicial admission made in open court by the plaintiff's attorney, that the amount in controversy exceeds $50,000); First Nat. Bank in Little Rock v. Johnson Johnson, 455 F. Supp. 361, 362 n. 1 (E.D.Ark. 1978) (holding that diversity was established when the court granted an oral motion to dismiss the non-diverse party), or by party-witnesses under oath during depositions, see S.W.S. Erectors, Inc. v. Infax, Inc., 72 F.3d 489, 494 (5th Cir. 1996); Huffman v. Saul Holdings Ltd. P'ship, 194 F.3d 1072, 1078 (10th Cir. 1999); Haber v. Chrysler Corp., 958 F. Supp. 321, 325-26 (E.D.Mich. 1997), which can be objectively verified.
On the other hand, oral statements made out of court or that are not made under oath and contemporaneously recorded do not suffice to establish removal jurisdiction. In Thomas v. Ritter, No. 3:98CV530-H, 1999 WL 1940047 (W.D.N.C. Feb. 11, 1999), the court stated, "[a]llowing oral communications of settlement offers to establish the amount in controversy would present enormous proof problems, and potentially require an evidentiary hearing on every notice of removal and motion for remand. Accordingly, the statute is worded specifically to require written notice." Id. at *2.
The court in that case rejected the plaintiff's contention that a settlement demand conveyed in a telephone conversation could put the defendant on notice of the amount in controversy. Id.; see also Smith v. Nike Retail Servs., Inc., No. Civ. A. 98-1405, 1998 WL 195913, at *2 (E.D.Pa. Apr. 9, 1998) (finding it "irrelevant that plaintiff's counsel allegedly informed defendants' counsel that this action was worth between $75,000 and $125,000"); Abdishi v. Phillip Morris, Inc., No. 98 C 1310, 1998 WL 311991, at *3 (N.D.Ill. June 4, 1998) (stating that "an oral demand would not trigger the thirty-day period contained in the second paragraph of § 1446(b)"). The facts in this case are closely on point with the facts in Smith v. Bally's Holiday, 843 F. Supp. 1451 (N.D.Ga. 1994). In Smith, the defendants removed the case to federal court based upon a statement made by the plaintiff's counsel in a telephone conversation with the defendants' counsel that damages "would be sought `in the six-figure range.'" Id. at 1452. The court held that the oral statement did not comply with § 1446(b)'s notice requirement. In reaching this conclusion, the court considered the applicability ofGottlieb v. Firestone Steel Products Co., 524 F. Supp. 1137 (E.D.Pa. 1981), which held that a telephone conversation between counsel concerning a dismissal of a non-diverse defendant that had not yet occurred did not satisfy § 1446(b)'s requirements, and Mike Silverman Associates v. Drai, 659 F. Supp. 741 (C.D.Cal. 1987), which held that a telephone conversation in which the plaintiff's counsel informed the defendant's counsel that a non-diverse defendant had already been dismissed satisfied § 1446(b)'s requirements, to the facts in Smith. The court noted that the difference between those cases was that the statement in Mike Silverman that a dismissal had already occurred could be independently verified by examining the state court docket, whereas the statement in Gottlieb regarding a dismissal that had not yet occurred was not recorded and could not be independently verified. Smith, 843 F. Supp. at 1455. The court concluded that the facts in Smith were more like the facts in Gottlieb because the "six-figure range" statement was uncertain and could not be independently verified. Furthermore, the court held that the words of the statute left no room for inclusion of mere oral communications as being a sufficient basis of notice that a case is removable. Id.
The alleged oral communication by PureFlex's counsel in this case is similar to the oral statement in Smith because there are no means of independent verification. Moreover, given SCC's counsel's admission that PureFlex's counsel stated in the same conversation that PureFlex could not calculate the exact amount of damages because it needed documents from SCC to be able to do so, the alleged statement by PureFlex's counsel that damages are in excess of $75,000 is uncertain at best. The uncertainty is highlighted by the affidavit of PureFlex's counsel, Erik Jesson, in which Jesson states that he told SCC's counsel that PureFlex was only aware of two specific incidents where SCC breached the Agreement and that PureFlex was unable to calculate the amount of damages. (Jesson Aff. ¶¶ 5, 6, Pl.'s Br. Supp. Mot. Remand Ex. 3.) Therefore, the Court concludes that the alleged oral communication by PureFlex's counsel is insufficient to trigger the alternative thirty-day period under § 1446(b), and SCC has failed to carry its burden of proving by a preponderance of the evidence that the amount in controversy exceeds $75,000.
Conclusion
For the foregoing reasons, the Court will grant PureFlex's motion to remand and deny SCC's motion for change of venue as moot. The Court will require each party to bear its own costs in connection with the removal.
An Order consistent with this Opinion will be entered.