Melaleuca Inc v. Bartholomew et al

Filing 40

MEMORANDUM DECISION AND ORDER denying 2 Plaintiff's Motion to Remand to State Court. Signed by Judge B. Lynn Winmill. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (cjm) Modified on 7/19/2012 to add memorandum decision to text (cjm).

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

MELALEUCA INC., an Idaho
corporation,
Case No. 4:12-cv-00216-BLW

Plaintiff,
v.
BRIAN BARTHOLOMEW and
ANGELIQUE BARTHOLOMEW,
husband and wife

MEMORANDUM DECISION AND
ORDER

Defendant.
INTRODUCTION
The Court has before it Plaintiff’s Motion to Remand to State Court (Dkt. 2). For
the reasons explained below, the Court will deny the motion.

MEMORANDUM DECISION AND ORDER - 1

BACKGROUND
Melaleuca is a consumer goods company that sells primarily nutritional, personal
care, and household products. Melaleuca sells products directly to its customers by using
independent contractors called Marketing Executives. When Marketing Executives join
Melaleuca, they sign what is called an Independent Marketing Executive Agreement with
Melaleuca. The Bartholomews were Marketing Executives at Melaleuca until recently,
when they left Melaleuca and joined another multi-level marketing company called
Independent Energy Alliance (“IEA”).
On April 20, 2012, Melaleuca filed suit against the Bartholomews in the Seventh
Judicial District of the State of Idaho. Melaleuca claims that the Bartholomews breached
a policy contained in the Independent Marketing Executive Agreement by soliciting other
Melaleuca Marketing Executives to join IEA. The Bartholomews removed the case to
this Court on May 7. On the same day, Melaleuca moved to remand, claiming lack of
jurisdiction for failure to meet the minimum amount in controversy.
In its complaint, Melaleuca claims damages of not less than $25,000 each for past
and future losses; a temporary restraining order, preliminary injunction, and permanent
injunction directing the Bartholomews to “cease and desist from raiding Melaleuca
independent Marketing Executives, clients and Customers;” and attorney’s fees and costs
of suit. Complaint, at 4-5, ¶¶ 1-4 (Dkt. 1-3). Melaleuca also expressly reserved the right
to seek punitive damages in its original complaint. Id., at 5, ¶ 5. The Court has already
granted a modified temporary restraining order. Dkt. 13.

MEMORANDUM DECISION AND ORDER - 2

LEGAL STANDARD
Removal from state court is governed by 28 U.S.C. § 1441 and 28 U.S.C. § 1332.
Rule 1441(b) allows for removal based on diversity of citizenship, which is further
defined by Rule 1332(a). This rule requires that the parties have diverse citizenship and
that the amount in controversy exceed the sum or value of $75,000.
Federal courts strictly construe the removal statute against removal. Gaus v. Miles,
980 F.2d 564, 566 (9th Cir. 1992), citing Boggs v. Lewis, 863 F.2d 662, 663 (9th Cir.
1988). In diversity cases where the amount in controversy is in doubt, there is a
presumption against removal jurisdiction, which means that the defendant always has the
burden of establishing that removal is proper. Id., citing Nishimoto v. FedermanBachrach & Assocs., 903 F.2d 709, 712 n. 3 (9th Cir. 1990). This burden is satisfied if
the plaintiff claims a sum greater than the jurisdictional requirement of $75,000 or, if the
amount claimed is unclear from the complaint and the defendant proves by a
preponderance of the evidence that “more likely than not” the jurisdictional requirement
is met. Sanchez v. Monumental Life Ins. Co., 102 F.3d 398, 404 (9th Cir. 1996). This
“more likely than not” standard strikes an appropriate balance between the plaintiff’s
right to choose its forum and the defendant’s right to remove. Id.; see also Tapscott v. MS
Dealer Serv. Corp., 77 F.3d 1353, 1357 (11th Cir. 1996); De Aguilar v. Boeing Co., 11
F.3d 55, 58 (5th Cir. 1993).
To determine whether the defendant has proved that the amount in controversy has
been met, the Court should consider (1) the petition for removal and (2) later-filed

MEMORANDUM DECISION AND ORDER - 3

opposition and affidavits. Cohn v. Petsmart, Inc., 281 F.3d 837, 840 n. 1 (9th Cir. 2002),
citing Willingham v. Morgan, 395 U.S. 402, 407 n. 3 (1969). Relief which may be
included in the amount in controversy includes (1) compensatory damages, (2) punitive
damages, (3) value of injunctive relief, and (4) attorney’s fees. Id. at 840; Simmons v.
PCR Technology, 2009 F. Supp. 2d 1029, 1033 (N.D. Cal. 2002).
ANALYSIS
The parties agree that complete diversity is not in question—rather, the conflict
concerns the amount in controversy. Because the complaint specifies “at least” $50,000
in damages, the amount in controversy in this case is unclear on its face.1 The burden is
therefore upon the Bartholomews to prove by a preponderance of the evidence that it is
more likely than not that more than $75,000 is at stake. The Bartholomews suggest that
the value of the injunction, attorney’s fees and costs, and punitive damages add up to
more than $25,000, and that this amount, when coupled with the $50,000 in past and
future loses asserted in the complaint, clearly exceed the jurisdictional minimum.

1

The Bartholomews argue that the injunction’s value to Melaleuca makes jurisdiction facially
apparent from the complaint. See Singer v. State Farm Mut. Auto Ins. Co., 116 F.3d 373, 377
(9th Cir. 1997). They argue that “[t]o the extent Plaintiff alleges the $50,000 includes future
damages, that argument is nonsensical considering Plaintiff has also requested broad injunctive
relief which would prevent any such purported future damages.” Def.’s Opp. at 8, n. 2 (Dkt. 23).
Relying on this assumption, the Bartholomews conclude that all future damages are part of the
value of the injunction. However, Melaleuca seeks recovery for future damages from alleged
past behavior (i.e. recruiting a current Marketing Executive) as well as an injunction to prevent
future breach of contract (i.e. recruiting other Marketing Executives). These claims are separate,
so the amount in controversy is not facially apparent.
MEMORANDUM DECISION AND ORDER - 4

1.

Value of the Injunction
“[I]n determining the amount in controversy, [the court] may also include the

value of the requested injunctive relief to either party.” International Padi, Inc. v.
Diverlink, 2005 WL 1635347, *1 (9th Cir. 2005). Thus, jurisdiction is appropriate if the
value of the injunction to Melaleuca or its value to the Bartholomews, combined with the
$50,000 for past and future loss sought by Melaleuca, exceeds $75,000.
The Bartholomews argue that the injunction sought by the plaintiffs would so
affect the Bartholomews’ business for the next year that the injunction’s value to them is
enough to satisfy the amount in controversy requirement. Specifically, they claim that
Mr. Bartholomew’s real estate business and their work through IEA would each be
profoundly affected by the proposed injunction.
Mr. Bartholomew is a realtor and co-broker. He testifies that he sells between two
and three pieces of real estate per month at around $9,000 commission per sale. Def.’s
Decl., at ¶ 10, Dkt. 23-4. He also testifies that his pools of real estate contacts and
Melaleuca contacts largely overlap. Id., at ¶ 11, Dkt. 23-4. Mr. Bartholomew’s future
business in real estate will therefore likely involve some sales to Melaleuca contacts,
customers, and Marketing Executives.
Melaleuca argues that Mr. Bartholomew’s real estate sales are irrelevant to the
proposed injunction because “selling someone (whether or not a Marketing Executive) a
piece of real estate is not ‘recruiting to participate in’ another ‘business venture,’” and is
therefore not covered by the contract. Pl.’s Reply at 7, Dkt. 27. However, Mr.

MEMORANDUM DECISION AND ORDER - 5

Bartholomew testifies that some of his real estate sales are investment purchases or
otherwise within the definition of “business ventures.” Def.’s Decl., at ¶ 10, Dkt. 24-3.
Under these circumstances, a fair amount of Mr. Bartholomew’s real estate sales
would probably not be affected by the proposed injunction. But at least some of his
sales—investment sales to Melaleuca customers or Marketing Executives—would likely
be prohibited by a permanent injunction in the form sought by Melaleuca.2 Mr.
Bartholomew predicts that between one-third and one-half of his sales would be affected.
Id., at ¶ 12. It is difficult for the Court to make a judgment on whether that is an accurate
assessment, but even if only 3 of the approximately 30 properties (only 10%) he testifies
he will sell in a year fall into this category, the total loss amount would exceed $25,000.
If one-third (the bottom end of Mr. Bartholomews’ estimation) of the sales were affected,
the total loss amount would exceed $75,000.
The Bartholomews also predict a loss of income from their new IEA business if
the injunction is ordered. They estimate that without the injunction they would sign up in
excess of 400 individuals as IEA customers with whom they had contact or whose
contact information they obtained through Melaleuca. Id., at ¶ 8. At the $62 commission
per customer they testify they would receive from IEA, this amounts to approximately
$25,000. This seems somewhat optimistic, but again the Court is not in an ideal position

2

The Court notes that although it has entered a permanent injunction that enjoins the
Bartholomews from recruiting Customers and Marketing Executives only for other multi-level
marketing businesses, that is not what is ultimately sought by Melaleuca, and the Court must
consider what is sought in the complaint when considering the jurisdictional amount question.
Thus the Court must consider Mr. Bartholomew’s real estate business at this point.
MEMORANDUM DECISION AND ORDER - 6

to check the accuracy of the estimate. The Court does note that it is somewhat suspicious
that they predict they would recruit a number of customers that happens to add up to
almost exactly the $25,000 needed to satisfy the jurisdictional minimum. However, some
IEA sales are very likely, given the Bartholomews success at Melaleuca, and those sales
are likely to be affected by the proposed injunction.
Under these circumstances, the Court finds that the Bartholomews have met their
burden that “more likely than not” the jurisdictional requirement is met. Sanchez v.
Monumental Life Ins. Co., 102 F.3d 398, 404 (9th Cir. 1996).3 The injunction, based on
its value to Bartholomews, is more likely than not worth more than $25,000, and
potentially more than $75,000, based on Mr. Bartholomew’s real estate sales losses alone.
Additionally, the Bartholomews will more likely than not lose income from loss of
potential IEA customers. When coupled with the additional $50,000 sought by Melaleuca
for past and future loss, the amount is well in excess of $75,000.4
2.

Melaleuca’s Stipulation to Damages
One day after removal, Melaleuca stipulated that it will not seek more than

$75,000 in this suit. Aff., at ¶ 8 (Dkt. 2-2). The Ninth Circuit has said that, subject to a

3

The Court need not address the additional value of claimed attorney’s fees and punitive
damages.
4
The injunction may have even greater value to Melaleuca than to the Bartholomews, though the
parties offered little evidence or argument to put a number to that value. The $50,000 in damages
appears to be centered on one alleged effort to recruit a Marketing Executive to IEA. With this
valuation by Melaleuca, it seems that a year’s worth of further “raiding” of Melaleuca’s sales
force and customer base may be worth something, and possibly multiples of $50,000, to the
company. However, the Court need not make such a determination because the loss amount to
the Bartholomew’s exceeds $75,000.

MEMORANDUM DECISION AND ORDER - 7

“good faith” requirement in pleading, a plaintiff can sue for less than the amount she may
be entitled to in order to avoid federal jurisdiction. Lowdermilk v. U.S. Bank National
Association, 479 F.3d 994, 999 (9th Cir. 2007) (citing St. Paul Mercury Indem. Co. v.
Red Cab Co., 303 U.S. 283, 288-89 (1938). However, while a plaintiff is free to plead to
an amount below the jurisdictional minimum, reducing the amount in controversy below
the jurisdictional minimum once jurisdiction has vested will not destroy federal
jurisdiction. In St. Paul Mercury Indemnity Company v. Red Cab Co., 303 U.S. 283, 29192 (1938), the case cited by the Ninth Circuit for the above proposition, the Supreme
Court held that even if “the plaintiff after removal, by stipulation, by affidavit, or by
amendment of his pleadings, reduces the claim below the requisite amount, this does not
deprive the district court of jurisdiction.” This illustrates the principle that the amount in
controversy is established with the filing of the complaint, and subsequent events which
reduce the amount below the statutory limit do not oust jurisdiction. See, e.g., Budget
Rent-A-Car, Inc. v. Higashiguchi, 109 F.3d 1471, 1473 (9th Cir. 1997); Geographic
Expeditions, Inc. v. Estate of Lhotka ex rel. Lho0tka, 599 F.3d 1102, 1108 (9th Cir.
2010).
Thus, assuming that the amount in controversy at the time of the complaint was
sufficient for jurisdiction to attach, as the Court has indicated is the case above,
Melaleuca’s stipulation cannot oust jurisdiction. Moreover, Melaleuca still seeks an
injunction that is more likely than not enough to reach the jurisdictional minimum.

MEMORANDUM DECISION AND ORDER - 8

Melaleuca cannot simply stipulate that it does not intend for the injunction to be valued at
more than $75,000.
ORDER
IT IS ORDERED THAT:
1.

Plaintiff’s Motion to Remand to State Court (Dkt. 2) is DENIED.

DATED: July 19, 2012

_________________________
B. Lynn Winmill
Chief Judge
United States District Court

MEMORANDUM DECISION AND ORDER - 9