Movie Gallery US, LLC v. Smith et al

Filing 16

MEMORANDUM OPINION AND ORDER that: Movie Gallery's 9 MOTION to Remand to State Court is GRANTED. This case is REMANDED to the Circuit Court of Houston County, Alabama. The Clerk of Court is DIRECTED to take appropriate steps to effect the remand. Signed by Honorable William Keith Watkins on 9/5/2008. (Attachments: #(1) Civil Appeals Checklist) Copy mailed to Circuit Court Houston County, AL. (dmn)

IN THE UNITED STATES DISTRICT COURT F O R THE MIDDLE DISTRICT OF ALABAMA S O U T H E R N DIVISION M O V I E GALLERY US, LLC, P l a in tif f , v. J A R E D P. SMITH, et al., D e f e n d a n ts . ) ) ) ) ) ) ) ) )

C A S E NO. 1:08-cv-352-WKW [WO]

M E M O R A N D U M OPINION AND ORDER T h is case is before the court on a Motion to Transfer (Doc. # 7), filed by Defendants J a re d P. Smith, Andrew S. Kiel, and Adam M. Plymale (collectively "Defendants"), and a M o tio n to Remand or, in the Alternative, to Consolidate (Doc. # 9), filed by Plaintiff Movie G a lle ry US, LLC ("Movie Gallery"). For the reasons set forth below, the court finds that the m o t io n to remand is due to be granted and that the court lacks jurisdiction to rule on the M o tio n to Transfer or to consolidate the cases. I. FACTS AND PROCEDURAL HISTORY O n April 10, 2008, Movie Gallery filed this lawsuit in the Circuit Court of Houston C o u n ty, Alabama, against former employees Jared P. Smith, Andrew S. Kiel, and Adam M. P lym a le , alleging Defendants breached their duty of loyalty to Movie Gallery and m isa p p ro p ria ted confidential and proprietary information to steal customers for the benefit

o f a competitor in the movie racking business.1 (Doc. # 1 Ex. A ¶¶ 1-2, 11.) For each claim ­ negligence/wantoness, breach of duty of loyalty, violation of trade secrets acts, intentional in te rf e re n c e with contractual or business relations, and fraudulent suppression ­ the C o m p la in t and Request for Relief requests compensatory and punitive damages of u n s p e c if ie d amounts. (Doc. # 1 Ex. A ¶¶ 22, 26, 33, 37 & 42.) D e f en d a n ts removed the case to federal court on May 13, 2008, basing subject-matter ju ris d ic tio n on 28 U.S.C. § 1332, diversity jurisdiction. (Doc. # 1 ¶ 6.) As a basis for the a m o u n t in controversy, Defendants referred the court to a pending action in this district b e f o re the Honorable Myron H. Thompson, Movie Gallery US, LLC v. Greenshields, No. 2 :0 7 -c v - 0 1 0 3 2 -M H T -C S C ("Greenshields"). (Doc. # 1 ¶ 15.) Greenshields is Movie G a llery's lawsuit against a competitor and other associated parties that are not parties in this c a s e . Greenshields was filed in state court as well (Doc. #1 Ex. C & Ex. 1), but Movie G a llery did not contest the removal to federal court and subsequent to removal, amended its c o m p la in t to add federal claims (Doc. #12 Ex. A). Defendants base jurisdiction for removal on an affidavit the defendants in G r e e n s h ie ld s submitted in support of removal in that case. (See Doc. #1 Ex. C ¶¶ 8-10.) D e f e n d a n ts submitted a declaration with the Notice of Removal by Defendant Mr. Smith c o n f irm in g the affidavit he gave and the defendants submitted in Greenshields. (See Doc. # 1 Ex. C.) In the Greenshields affidavit, Mr. Smith, by then an employee of the competitor,
Movie Gallery's business includes entering into contracts to rent or sell VHS and DVD movies from racks placed in retail stores. (Doc. # 1 Ex. A ¶ 11.)
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a ss e rte d his opinion on the amount of revenue lost to Movie Gallery when customers for M o v ie Gallery switched to its competitor. (Doc. #1 Ex. C & 2.) Defendants argue that M o v ie Gallery's lawsuit against them "regard[s] alleged interference with the same c u sto m e rs and appropriation of the same confidential matter" as that in Greenshields. (Doc. # 1 ¶ 16.) Subsequent to the Notice of Removal, Defendants filed a Motion to Transfer (Doc. # 7), contending that venue in Alabama is improper and requesting the case be transferred to the District of Montana. On June 10, 2008, within thirty days of the Notice of Removal, M o v ie Gallery filed a motion to remand and in the alternative, requested that the court c o n so lid a te this proceeding with Greenshields and not transfer the case (Docs. # 9, 10). D e f e n d a n ts responded to those motions (Doc. # 12), and Movie Gallery filed a timely reply (D o c. # 15.) II. STANDARD OF REVIEW F e d e ra l courts have a strict duty to exercise the jurisdiction conferred on them by C o n g re s s . Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716 (1996). However, "[f]ederal c o u rts are courts of limited jurisdiction." Burns v. Windsor Ins. Co., 31 F.3d 1092, 1095 (1 1 th Cir. 1994). Thus, with respect to cases removed to this court pursuant to 28 U.S.C. § 1441, the law of the Eleventh Circuit favors remand where federal jurisdiction is not a b so lu te ly clear. "[R]emoval statutes are construed narrowly; where plaintiff and defendant c la sh about jurisdiction, uncertainties are resolved in favor of remand." Id.

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I I I . DISCUSSION B e c a u se the Motion to Remand addresses the court's subject-matter jurisdiction, it w ill be analyzed first. See Sinochem Int'l Co. v. Malaysia Int'l Shipping Corp., 127 S.Ct. 1 1 8 4 , 1194 (2007) ("If . . . a court can readily determine that it lacks jurisdiction over the c a u se . . . , the proper course would be to dismiss on that ground."). Defendants removed this a c tio n pursuant to 28 U.S.C. § 1441(b) on the basis that this court has subject-matter ju ris d ic tio n under 28 U.S.C. § 1332, diversity jurisdiction. Federal district courts may e x e rc is e diversity jurisdiction over cases involving citizens of different states where the a m o u n t in controversy, exclusive of interest and costs, exceeds $75,000. 28 U.S.C.

§ § 1332(a)-1332(b). The sole issue relating to the court's subject-matter jurisdiction is w h e th e r the amount in controversy exceeds $75,000. In Lowery v. Alabama, the Eleventh Circuit articulated the scope of evidence which c a n be considered and the burden of proof for establishing the jurisdictional amount in a re m o v a l case based upon diversity of citizenship where the complaint alleges unspecified d a m a g e s . 483 F.3d 1184 (11th Cir. 2007), cert. denied, 128 S. Ct. 2877 (2008). To d e te rm in e the amount in controversy in removal actions, a court can consider only the notice o f removal and accompanying documents, id. at 1213-14, at least for jurisdictional challenges b ro u g h t within thirty days of removal, id. at 1218. Those documents must "unambiguously e sta b lis h federal jurisdiction," id. at 1213, and the court must remand unless the jurisdictional a m o u n t "is either stated clearly on the face of the documents before the court, or readily

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d e d u c i b l e from them," id. at 1211. Furthermore, "where damages are unspecified, the re m o v in g party bears the burden of establishing the jurisdictional amount by a preponderance o f the evidence." Id. at 1208. A removing defendant can predicate jurisdiction on either the initial pleading, or "an a m e n d e d pleading, motion, order or other paper from which it may first be ascertained that th e case is one which is or has become removable." 28 U.S.C. § 1446(b). When a defendant b a s e s removal on a document other than the initial pleading, three specific conditions must b e satisfied. There must be "(1) `an amended pleading, motion, order or other paper,'which (2 ) the defendant must have received from the plaintiff (or from the court, if the document is an order), and from which (3) the defendant can `first ascertain' that federal jurisdiction e x is ts ." Lowery, 483 F.3d at 1215 n.63 (quoting 28 U.S.C. § 1446(b)). "Courts have not a rtic u la te d a single test for identifying `other paper,' but numerous types of documents have b e e n held to qualify." Id. at 1213 n.62. Those documents include responses to requests for a d m is s io n s , settlement offers, interrogatory responses, deposition testimony, demand letters, a n d emails estimating damages. Id. Importantly, however, Lowery emphasized that the evidence "contemplated" by 28 U .S .C . § 1446 is evidence "received from the plaintiffs." Lowery, 483 F.3d at 1221; see also, e .g ., id. at 1215 n.63 ("[T]he defendant's appraisal of the amount in controversy . . . will o rd in a rily not provide grounds for his counsel to sign a notice of removal in good faith." (e m p h a s is added)). The exceptions to that rule are narrow. One relevant exception Lowery

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re c o g n iz e d is for evidence "regarding damages arising from a source such as a contract"; re g a rd le ss of whether or not the defendant receives that evidence from the plaintiff, that e v id e n c e can be considered for jurisdictional purposes. Id. at 1215 n.66. The basis for that e x c ep tio n , however, dictates its limitations. "In such situations," Lowery noted, "the u n d e rlyin g substantive law provides a rule that allows the court to determine the amount of d am ag es," for example, as in contract law, where the court can rely on the default measure o f expectations damages. Id. Where the substantive law cannot provide that rule,"the factual in f o rm a tio n establishing the jurisdictional amount must come from the plaintiff," id.; e v id e n c e from "outside sources" will fail to satisfy § 1446(b), id. at 1221. In addition, this e x c ep tio n is set against the backdrop of Lowery's admonitions against jurisdiction "divined b y looking to the stars," id. at 1215, based on "frowned upon" speculation and "unabashed g u e ss w o rk ," id. at 1211. Indeed, even when a defendant presents evidence received from a plaintiff, the court m a y still question whether it sufficiently establishes the amount in controversy. In Lowery, th e defendants based jurisdiction, in part, on evidence "regarding the value of purportedly sim ilar tort claims in Alabama," 483 F.3d at 1220; in response, the court noted that even if th a t evidence had actually been received from the plaintiffs, the court would not have been a b le to "possibly ascertain how similar the current action [wa]s to those the defendants cite," id . at 1221. "Absent specific detail about the present action, [the] supplement in no way c la rif ie s the aggregate value of the claims here." Id.

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L o w e r y is dispositive of the issue in this case, and is the primary authority relied upon b y Movie Gallery. The thrust of Movie Gallery's argument is that the jurisdictional amount c a n n o t be established by the documents filed with the Notice of Removal ­ specifically, the d e c la ra tio n confirming the affidavit by Mr. Smith filed in Greenshields ­ because that e v id e n c e was not received by Defendants from Movie Gallery in this proceeding. (Doc. # 1 0 at 8; Doc. # 15 at 3-4.) Defendants note instead the similarities between this case and G r e e n s h ie ld s (Doc. # 12 at 4-6), and argue that Movie Gallery's failure to oppose removal in Greenshields based on the same evidence amounts to an admission to the amount in c o n tro v e rsy, ostensibly both in that and in this case (Doc. # 12 at 5-6).2 For the reasons to f o llo w , the court agrees with Movie Gallery that remand is appropriate. Resolution of this matter depends on how the evidence submitted with the Notice of R e m o v a l is characterized. Because Movie Gallery filed its motion to remand within thirty

Defendants also make two other arguments, both of which miss the mark. First, Defendants argue that this case resembles three cases that, at least according to Defendants, Lowery distinguishes. (Doc. # 12 at 3-4.) In Lowery, the court concedes that "one might question the application of a preponderance of the evidence standard in a removal case ­ like this one ­ where there is no evidence to review." 483 F.3d at 1210. The court continues by listing three cases, those that Defendants cite, as illustrative of the preponderance standard when applied in cases with evidence. Id. The court concludes, however, that circuit precedent requires the preponderance standard even in naked pleading cases. Id. Thus, Lowery's discussion of those three cases was not intended to exemplify the type of evidence permitted in this case, but serves only to demonstrate the court's point that one could question whether the preponderance standard is more practical in instances in past cases, where other evidence was available. Second, Defendants argue that Movie Gallery's alternative argument for consolidating the cases concedes the similarity of the cases for jurisdictional purposes. (Doc. # 12 at 4-5.) Defendants assert that Movie Gallery's arguments for consolidation and against removal are inconsistent. (Doc. # 12 at 5.) That argument does not change what evidence the court can consider for jurisdictional purposes. Furthermore, Movie Gallery requested consolidation in the alternative.

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d a ys , this court is limited in determining jurisdiction to considering the notice of removal and d o cu m en ts filed with it. That evidence must satisfy the three conditions for (1) type of paper, (2 ) receipt of paper, and (3) ascertainability of damages, based on 28 U.S.C. § 1446 and s u m m a riz e d in Lowery, unless the evidence falls into one of the Lowery exceptions, s p e c if ic a lly, the exception for evidence indicating substantive law which sets the damages a m o u n t. Defendants' evidence for removal jurisdiction fails to satisfy those three conditions. B e c au s e Defendants are not relying on the initial pleading, jurisdiction must be based on an a m e n d e d pleading, motion, order or other paper. Evidence accepted for "other paper" has i n c l u d e d documents ranging from interrogatory responses to emails estimating damages, L o w e r y , 483 F.3d at 1213 n.62, and an affidavit, or even an affidavit confirmed by a d e c la ra tio n , would seem to fit into that category. But if a document submitted by the d e fen d a n t can establish removal jurisdiction, then the defendant circumvents the second r e q u ir e m e n t , that the evidence must come from the plaintiff. Plus, as Movie Gallery argues, c o n s id e ra tio n of Mr. Smith's Declaration "would allow a diverse removing defendant to c r e a te federal jurisdiction by submitting an affidavit stating that the amount in controversy is met." (Doc. # 15 at 4.) The outcome would be no different had Movie Gallery, rather than the Greenshields d e f e n d a n ts , submitted the affidavit in Greenshields. Lowery addresses the reaches of the re c eip t requirement when it discusses whether an initial complaint was received by the

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d ef en d an ts for removal purposes; though the court notes that actual receipt does not matter, th a t is because the plaintiffs had filed the document and it had become part of the record. L o w e r y , 483 F.3d at 1219. Movie Gallery was not the party that filed Mr. Smith's

D e c la ra tio n , and Defendants did not receive it from Movie Gallery by its becoming part of th e record through that filing. Thus, even if it had been Movie Gallery that submitted the a f f id a v it in Greenshields, this court would have still found that Defendants in this case, who a re not the same parties as the defendants in Greenshields, had failed to receive the affidavit f ro m Movie Gallery. Allowing a defendant to establish jurisdiction by submitting a

d e c la ra tio n confirming an affidavit in another proceeding strays too far afield from the re c eip t requirement, especially if the affidavit from the other proceeding was submitted by d e f e n d a n ts . Defendants additionally have not established that the evidence falls into the Lowery ex ce p tio n for evidence where substantive law provides a rule on damages. Movie Gallery's c o m p la in t identifies agreements it signed with Defendants. (See, e.g., Doc. #1 Ex. A ¶ 19.) D e f en d a n ts submitted the Greenshields' state court complaint, which contains excerpts of th o s e agreements, and the confidentiality agreement between Movie Gallery and other relev an t parties, with the Notice of Removal (Doc. #1 Ex. C & 1). Under Lowery, those a g re e m e n ts theoretically could be relied upon by the court to ascertain damages in this case. T h a t theory, however, collapses in practice, primarily because the causes of action are not c o n tra c t claims, and Movie Gallery seeks compensatory damages for the tortious conduct of

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m is a p p ro p ria tio n and violating duties. If the court cannot "look to the contract and determine w h a t [the] damages would be," basing damages on the contract no longer satisfies the e x c e p tio n . Lowery, 483 F.3d at 1215 n.66; see also id. at 1211 (requiring the jurisdictional am o u n t be "stated clearly on the face of the documents or readily deducible from them"). T h e agreements fail to yield a "rule" that sufficiently ascertains damages. See id. at 1215 n .6 6 . Even in cases where contract claims are directly asserted, the contracts may not be sp e c if ic enough to determine damages. A case from the Northern District of Georgia is illu s tra tiv e on this point. In Thrift Auto Repair, Inc. v. U.S. Bancorp, the defendants urged th e court to consider the contract evidence under this Lowery exception because there was a n "Equipment Lease Agreement," and the plaintiffs had filed a breach of contract claim. N o . 1:07-cv-1051-TWT, 2007 WL 2788465, at *3 (N.D. Ga. Sept. 21, 2007). The court n e v e rth e le s s found the evidence insufficient to establish the amount in controversy. Id. In th e court's words, its case was "not the kind of case that lends itself to a fair approximation o f the measure of expectation damages such as a traditional contract case." Id. That was b e c au s e the contract in that case "d[id] not specify the amounts of the allegedly improper f e es , charges, and taxes." Id. The court thus found it impossible to determine damages by lo o k in g to the contract, and viewing the exception otherwise ­ "that a defendant may in tro d u c e its own evidence in support of removal in any case involving a contract in any way ­ is much broader than the Eleventh Circuit intended." Id.

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T h e same could be said of any reliance on the agreements in this case, that they do not len d themselves to expectation damages calculations nor do they provide any other numeric h in t as to damages. Furthermore, as stated, Movie Gallery does not allege breach of contract. S u b s ta n tiv e contract law on expectations damages does not govern and no analogue can p ro v id e a rule for ascertaining damages. To determine damages for the tortious conduct by re lyin g instead on the contracts Movie Gallery had with customers, as they were described in Mr. Smith's affidavit (Doc. # 1 Ex. C & 2), only circles back to the original problem that th o s e numbers came not from the contracts themselves but from an affidavit by one of the D e f e n d a n ts , in another proceeding. Neither can the court consider Mr. Smith's declaration as "additional evidence," to s h e d light on the amount of damages by way of comparison. Lowery discusses the

u n a v a ila b ility of such additional evidence. In Lowery, the defendants relied in part on e v id e n c e of jury verdicts or settlement amounts other plaintiffs had received in allegedly s im ila r recent mass tort actions in the forum state. 483 F.3d at 1189. After noting the e v id e n c e could not be considered because it had not been received by the defendants from th e plaintiffs, the court explained why even if received properly, the evidence would insu ff icien t ly ascertain damages. Id. at 1221. "Looking only to the evidence and the c o m p lain t, the facts regarding other cases tell us nothing about the value of the claims in this la w s u it." Id. Going even further, the court added that "[e]ven were we to look to evidence b eyo n d that contained within the notice of removal, in the present dispute ­ with a record

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b e re f t of detail ­ we cannot possibly ascertain how similar the current action is to those the d e f en d a n ts cite." Id. T h e same can be said for this case. The paucity of detail in the record limits how u s e f u l any comparative evidence can be for establishing jurisdiction. In addition, the c o m p la in t in Greenshields has different claims than the complaint in this case. Movie G a lle ry alleged breach of contract in Greenshields based on the confidentiality agreement.3 (D o c . #1 Ex. C & 1.) The relationships between Movie Gallery and the competitor and a ss o c ia te d parties in Greenshields are different in time, expectation, and quality than the re la tio n s h ip between Movie Gallery and Defendants in a way that could have a bearing on th e outcome,4 and there is no detailed evidence demonstrating the interdependence of Movie G a l l e r y' s claims against Defendants on Movie Gallery's claims against the defendants in G r e e n sh ie ld s . IV. CONCLUSION F o r the foregoing reasons, it is ORDERED that: 1. 2. M o v ie Gallery's Motion to Remand (Doc. # 9) is GRANTED; T h is case is REMANDED to the Circuit Court of Houston County, Alabama;

In the amended complaint in Greenshields, Movie Gallery also alleged Lanham Act claims (Doc. # 12 Ex. A), but the amended complaint was not served prior to the filing of the motion to remand. See Lowery, 483 F.3d at 1213-14 (stating that in cases where remand is timely filed, "the district court has before it only the limited universe of evidence available when the motion to remand is filed ­ i.e., the notice of removal and accompanying documents"). For example, Movie Gallery's agreement with the defendants in Greenshields was entered into pursuant to negotiations over Movie Gallery's sale of business to the defendants, a sale that eventually fell through (Doc. # 12 Ex. A ¶¶ 12-13), not pursuant to employment with Movie Gallery.
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T h e Clerk of Court is DIRECTED to take appropriate steps to effect the re m a n d .

D o n e this 5th day of September, 2008. /s/ W. Keith Watkins UNITED STATES DISTRICT JUDGE

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