Sabol-Krutz v. Quad Electronics,Inc.

Filing 16

OPINION & ORDER denying 10 Deft's Motion to Dismiss. Signed by District Judge Nancy G. Edmunds. (CBet)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

STACEY SABOL-KRUTZ,
Case No. 15-13328
Plaintiff,
Honorable Nancy G. Edmunds
v.
QUAD ELECTRONICS, INC.,
Defendant.
/

OPINION AND ORDER DENYING DEFENDANT'S MOTION TO DISMISS [10]
On January 26, 2015, Plaintiff filed this breach of contract/employment action in the
United States District Court for the Eastern District of California. The California court
declined to hear Plaintiff's primary claim for declaratory relief—invoking the doctrine of
abstention—and the parties agreed to transfer the matter to this Court pursuant to 28
U.S.C. § 1404(a) as the more convenient forum. Plaintiff has since amended her complaint
and added several substantive claims under California law. In essence, Plaintiff asserts
that she was wrongfully terminated under the guise of a failed drug test and is owed over
$1 million in unpaid commissions.
Currently before the Court is Defendant's motion to dismiss the complaint under
Federal Rules of Civil Procedure 12(b)(1), 12(b)(6), and 56(c). Defendant's challenge boils
down to two procedural questions: First, whether Plaintiff has satisfied the $75,000 amountin-controversy requirement for purposes of establishing diversity jurisdiction and, if so,
whether California or Michigan law applies to the state law claims pled in Plaintiff's
complaint.

For the reasons stated more fully below, the Court DENIES Defendant's motion to
dismiss. (Dkt. 10).
I.

BACKGROUND
Plaintiff Stacey Sabol-Krutz ("Sabol") worked as an account executive selling electrical

components at Defendant Quad Electronics ("Quad") from early 2008 to late 2014. (Am.
Compl. ¶ 6-9). After spending approximately three years in Quad's Michigan office, Sabol
maintains that she "moved to California to essentially run [their] West coast operations."
(Id. at ¶ 7). While Quad asserts that the reason for Sabol's move was "so that her
daughter would not have to pay non-resident college tuition", (Def.'s Mot. Tomica Aff. ¶ 4,
Ex. 3), there is seemingly no dispute that the vast majority of Sabol's sales—before and
after the move—concerned accounts outside the state of California. Sabol has continued
to reside in California ever since. (Plf.'s Resp. 6).
According to the complaint, throughout the course of Sabol's employment she was
subjected to a number of sexually inappropriate comments from her supervisor, Daniel
Tomica. See (Am. Compl. ¶ 11). While it is unclear when—and to whom—Sabol reported
Tomica's allegedly improper behavior, "on August 20, 2014, Defendant terminated Plaintiff
for a positive hair follicle drug test." (Am. Compl. ¶ 15). Notwithstanding the positive drug
test, Sabol contends that she was fired "in retaliation for her reports of inter alia sexual
harassment under the pretext of . . . drug use." (Id. at ¶ 16). Following Sabol's termination,
a flurry of litigation was commenced by both parties.
On January 26, 2015, Sabol filed an action in the United States District Court for the
Eastern District of California ("California Court") "seeking a declaration that the NonCompete Agreement [she executed with Quad] was invalid[,] and monetary damages for
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unpaid commissions earned during the course of her employment." Sabol Krutz v. Quad
Elecs., Inc., No. 2:15-CV-00201, 2015 WL 4095584, at *1 (E.D. Cal. July 7, 2015). Less
than three weeks later, Quad filed a complaint for injunctive relief in Oakland County Circuit
Court, Michigan, to prevent Sabol from working at Great Lakes Wire and Cable; a direct
competitor of Quad that was one of nineteen companies specifically identified in Sabol's
non-compete agreement. (Def.'s Mot. Oakland County Complaint, Ex. 9).
While the outcome of the Oakland County action is unknown, on July 7, 2015, the
California Court issued an order denying Quad's motion to dismiss for lack of subject matter
jurisdiction, reasoning that "[i]n the present case, there is no demonstrated contractual limit
to Plaintiff's recovery, nor is there any substantive legal rule that limits her potential
damages to less than $75,000." Sabol-Krutz, 2015 WL 4095584, at *4.1 The California
Court further denied Sabol's motion for partial summary judgment on her claim for
declaratory relief, finding that (1) "since the contractual agreement was entered into in
Michigan for work at a Michigan-based company, Michigan law should apply", and (2)
because the Michigan courts sit "in a better position to adjudicate the reasonableness of
the [non-compete] Agreement under Michigan law . . . this Court abstains from interfering
with that process." Id. at *8.2 Plaintiff has since abandoned her argument that the noncompete agreement should be invalidated.

1

For reasons unknown, Quad attempts to reassert this argument here as though the
California Court never addressed it.
2

Worthy of note, the California Court expressed no opinion regarding the appropriate
state law to be applied to Sabol's breach of contract claim for lost commissions.
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In light of the California Court's decision that Sabol's non-compete agreement is
governed under Michigan law, the parties agreed to transfer the case to this Court. See
(Dkt. 2, Stip.). Sabol has since amended her complaint and added six new claims against
Quad, four of which (Counts II, III, IV, and VII) are premised under the California Labor
Code.

Against this backdrop the Court endeavors to address Quad's procedural

challenges to Sabol's complaint.
II.

ANALYSIS
Quad's motion rests on two procedural grounds, Fed R. Civ. P. 12(b)(1) and 12(b)(6).

The Court is “bound to consider the 12(b)(1) motion first, since the Rule 12(b)(6) challenge
becomes moot if this court lacks subject matter jurisdiction.” Moir v. Greater Cleveland
Reg'l Transit Auth., 895 F.2d 266, 269 (6th Cir. 1990). Where subject matter jurisdiction is
challenged in a 12(b)(1) motion, it is the plaintiff's burden to prove jurisdiction. Id.
A. Subject Matter Jurisdiction
“A Rule 12(b)(1) motion can either attack the claim of jurisdiction on its face, in which
case all allegations of the plaintiff must be considered as true, or it can attack the factual
basis for jurisdiction, in which case the trial court must weigh the evidence and the plaintiff
bears the burden of proving that jurisdiction exists.” Abbott v. Michigan, 474 F.3d 324, 327
(6th Cir. 2007) (citations and internal quotations omitted); see also Ohio Nat'l Life Ins. Co.
v. United States, 922 F.2d 320, 325 (6th Cir. 1990).
Where, as here, the factual basis for subject matter jurisdiction is challenged, “no
presumptive truthfulness attaches to plaintiffs allegations, and the existence of disputed
material facts will not preclude the trial court from evaluating for itself the merits of
jurisdictional claims.” RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1134
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(6th Cir. 1996). In doing so, the Court has wide discretion to consider affidavits and
documents outside the complaint. Id. Consideration of documents outside the pleadings
does not convert the Rule 12(b)(1) motion into a Rule 56 motion. Rogers v. Stratton Indus.,
Inc., 798 F.2d 913, 915–16 (6th Cir. 1986).
Quad's subject matter jurisdiction argument is fairly straightforward: because Sabol
is purportedly unable to satisfy the $75,000 amount-in-controversy threshold for diversity
actions, this Court is prohibited from entertaining her complaint. But the California Court
explicitly considered and rejected this challenge for a multitude of reasons; chief among
them: Sabol "contends that she is still owed the substantial sum of $1,138,152 . . . [and has
supplied] specific accounts with corresponding commissions . . . . " in support of this
assertion. Sabol-Krutz, 2015 WL 4095584, at *4. Morever, Sabol has since amended her
complaint and added six additional claims. In this way, the amount-in-controversy has only
increased since the California Court's decision finding that there was no merit to this
argument. And, conceptually, the Sixth Circuit subscribes to the same rationale employed
by the Ninth Circuit—and relied upon by the California Court—to assess jurisdictional
challenges in this context. Indeed, "[i]t is well-settled that if a plaintiff brings an action in
federal court and a defendant seeks dismissal on amount-in-controversy grounds, the case
will not be dismissed unless it appears that the plaintiff's assertion of the amount in
controversy was made in bad faith." Schultz v. Gen. R.V. Ctr., 512 F.3d 754, 756 (6th Cir.
2008) (citation and quotations omitted). A showing of bad faith is made if the defendant
demonstrates “to a legal certainty that the original claim was really for less than the
amount-in-controversy requirement.” Id.

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Here, Quad maintains that Sabol is unable to satisfy the $75,000 damages threshold
because she is not entitled to commissions on the accounts listed in her affidavit. (Def.'s
Mot. 14). But adopting Quad's position would require the Court to find, as a matter of law,
that Sabol played no role in the procurement of the accounts leading to the sales in
question- a factual issue that is hotly debated. Furthermore, Quad ignores the potential
damages stemming from Sabol's six other counts. At a minimum, then, as the California
Court concluded, "there is no concrete measure of damages, based on the pleadings, that
this Court could divine at this stage of the case." Sabol-Krutz, 2015 WL 4095584, at *4. For
those reasons, the Court must, and does, DENY Quad's request to dismiss this matter
under Rule 12(b)(1).
B. Choice of Law
In the alternative, Quad argues that Sabol's California state law claims—Counts II, III,
IV, and VII—must be dismissed because "Michigan law applies to the matters asserted in
[the] complaint . . . . (Def.'s Mot. 16). This argument misapprehends a long line of Supreme
Court precedent dating back to Erie Railroad Co. v. Thompkins, 304 U.S. 64, 58 S.Ct. 817,
82 L.Ed. 1188 (1938). Indeed, where, as here, "a case heard in diversity is transferred
from one federal district court to another as a change of venue, the substantive law of the
forum in which the plaintiff initially filed . . . continues as the governing law following the
transfer . . . . " Whal v. General Elec. Co., 786 F.3d 491 (6th Cir. 2015). The reason for this
is clear: "[t]here is nothing . . . in the language or policy of § 1404(a) to justify its use by
defendants to defeat the advantages accruing to plaintiffs who have chosen a forum which,
although it was inconvenient, was a proper venue.” Van Dusen v. Barrack, 376 U.S. 612,
633-34, 84 S.Ct. 805, 11 L.Ed.2d 945 (1964). While the Court has acknowledged that this
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policy might “seem too generous because it allows the [plaintiff] to have both [his] choice
of law and [his] choice of forum," Ferens v. John Deere Co., 494 U.S. 516, 531, 110 S. Ct.
1274, 1284, 108 L. Ed. 2d 443 (1990),"[a] plaintiff always can sue in the favorable state
court or sue in diversity and not seek a transfer." Id. at 525. In this way, applying "the Erie
policy analysis to § 1404(a), [ensures] that the accident of federal diversity jurisdiction does
not enable a party to utilize a transfer to achieve a result in federal court that could not have
been achieved in the courts of the state where the action was filed." Id. at 524 (quotations
omitted).
Similarly here, Sabol originally filed suit in the Eastern District of California. The
parties then agreed to transfer the matter to this Court pursuant to 28 U.S.C. § 1404(a).
(Dkt. 2). Under Ferens and Wahl, the substantive law of the transferor forum "travels with
the case." In re Dow Corning Corp., 778 F.3d 545, 550 (6th Cir. 2015) ("The principles of
practicality and fairness that animate the rule of Van Dusen and Ferens are equally
applicable to personal injury and wrongful death cases originally brought in diversity but
transferred . . . after the defendant filed for bankruptcy. In bankruptcy, just as in diversity,
state substantive law defines the parties' underlying rights and obligations."). Accordingly,
Sabol's California state law claims are properly before this Court. For that same reason,
the Court likewise rejects Quad's request to dismiss Count VIII-—wrongful termination—on
the basis that it "cannot be sustained as it is not actionable under Michigan common law
or statute." (Def.'s Mot. 20). While Count VIII may very well lack merit under California law,
that argument is not before the Court. As such, the Court DENIES Quad's request to
dismiss Sabol's state law claims.

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III.

Conclusion
For the reasons thus stated, the Court DENIES Defendant's motion to dismiss the

complaint. [10]

SO ORDERED.

S/Nancy G. Edmunds
Nancy G. Edmunds
United States District Judge
Dated: April 27, 2016
I hereby certify that a copy of the foregoing document was served upon counsel of record
on April 27, 2016, by electronic and/or ordinary mail.
S/Carol J. Bethel
Case Manager

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