No Regrets Properties Inc et al v. Neighborhood Sports Pub Concepts Inc

Filing 62

ORDER granting 26 Motion to Remand to State Court. Clerk's Notice: Attorneys are responsible for supplementing the State Record with all documents filed in Federal Court. Signed by Honorable J Michelle Childs on 6/8/11.(awil)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
GREENVILLE DIVISION

No Regrets Properties, Inc. and Richard A. )
Godley, Sr.
)
)
Plaintiffs,
)
)
v.
)
)
Neighborhood Sports Pub Concepts, Inc., )
)
Defendant.
)
____________________________________)

C.A. No. 6:10-cv-1024-JMC
ORDER AND OPINION

This matter is before the court pursuant to Plaintiffs No Regrets Properties, Inc. and
Richard Godley’s (“Plaintiffs”) Renewed Motion to Remand [Doc. 26] under 28 U.S.C. § 1447.
Plaintiffs commenced this action on March 19, 2010, when they filed a Summons and Complaint
in the Court of Common Pleas in Greenville County. [Doc. 1-1]. Plaintiffs allege a cause of
action for breach of contract. [Doc. 1-1, at 7]. On April 26, 2010, Defendant Neighborhood
Sports Pub Concepts, Inc. filed its Notice of Removal [Doc. 1] claiming diversity jurisdiction
under 28 U.S.C. § 1332.

After reviewing the motions, memoranda, and applicable law,

Plaintiffs’ Motion to Remand is granted.
FACTS AND PROCEDURAL BACKGROUND
Plaintiffs originally filed this action in the Court of Common Pleas in Greenville County,
South Carolina on March 19, 2010. Plaintiffs sought $63,962.51 for breach of contract, and they
disclaimed any award in excess of $74,900.00. Defendant filed a Notice of Removal on April
26, 2010, and answered on May 3, 2010, without asserting counterclaims. [Doc. 5].

On May 25, 2010, Plaintiffs filed a timely Motion to Remand pursuant to 28 U.S.C. §
1447(c), on the grounds that (1) the amount in controversy requirement of $75,000.00 for
diversity jurisdiction under 28 U.S.C. § 1332(a) is not satisfied; and (2) Defendant was a
suspended corporation, thus unable to participate in litigation under California law, and
consequently precluded from filing a Notice of Removal. Neither party disputes the diversity of
citizenship.
On June 7, 2010, after the time for filing a Notice of Removal passed, Defendant once
again obtained proper corporate standing in the state of California where it was originally
incorporated. By order dated September 2, 2010, this court granted Defendant’s Motion to
Amend its Answer to include compulsory counterclaims.

[Doc. 23].

Defendant filed its

Amended Answer and Counterclaims on September 10, 2010. [Doc. 24].
LEGAL STANDARD
Under 28 U.S.C. § 1441, actions originally filed in state courts may be removed to
federal courts at the option of the defendant in “any civil action of which the district courts have
original jurisdiction.” Federal courts have original jurisdiction in diversity cases where the
opposing parties are citizens of different states and the amount in controversy exceeds
$75,000.00. 28 U.S.C. § 1332(a)(1).
Due to federalism concerns, courts strictly construe the removal statute. Mulcahey v.
Columbia Organic Chem. Co. Inc., 29 F.3d 148, 151 (4th Cir. 1994) (citing Shamrock Oil & Gas
Corp. v. Sheets, 313 U.S. 100 (1941)); see also Owen Equip. & Erection Co. v. Kroger, 437 U.S.
365, 374 (1978) (“It is a fundamental precept that federal courts are courts of limited
jurisdiction.

The limits upon federal jurisdiction, whether imposed by the Constitution or

Congress, must be neither disregarded nor evaded.”). When federal jurisdiction is doubtful,

remanding to the state courts is both desirable and necessary. See Mulcahey, 19 F.3d at 151. In
response to a motion to remand, Defendant has the burden of establishing that removal was
proper. See id.
I. Removal
The primary issue before the court is whether the amount in controversy exceeds the
requisite $75,000.00. Plaintiffs’ claims standing alone do not meet this threshold amount as they
specifically disclaim any award in excess of $74,900.00; however, Defendant urges the court to
aggregate the amounts claimed in Plaintiffs’ complaint and in Defendant’s counterclaims in
order to reach the required amount.
Before addressing whether the two amounts should be combined or not, it is important to
note that the jurisdictional amount in controversy must be determined at both the time of
commencement of the action in state court and at the time of removal; the jurisdictional amount
may not be modified by subsequent changes. See e.g., Rota v. Consolidation Coal Co., No. 981807, 1999 WL 183873, at *1, n.2 (4th Cir. Apr. 5, 1999) (“At the time of removal, the amount
in controversy had to exceed $50,000 for diversity jurisdiction. Since that time, Congress has
increased the amount to $75,000…. [J]urisdiction is determined [at] the time of removal….”);
Brown v. E. States Corp., 181 F.2d 26, 28-29 (4th Cir. 1950) (holding plaintiff may not amend
complaint after removal in an attempt to eliminate federal question jurisdiction); see also Sayers
v. Sears, Roebuck and Co., 732 F. Supp. 654, 656 (W.D. Va. 1990) (“The jurisdictional
requirements for diversity jurisdiction are not present if they are not met at both the time of
commencement and the time of removal.”); Griffin v. Holmes, 843 F. Supp. 81, 87 (E.D.N.C.
1993) (“As the Supreme Court stated in 1938, ‘[i]f the plaintiff could … reduce the amount of
his demand to defeat federal jurisdiction[,] the defendant’s supposed statutory right of removal

would be subject to the plaintiff’s caprice.”) (quoting Saint Paul Mercury Indem. Co. v. Red Cab
Co., 303 U.S. 283, 294 (1938)). To be sure, the cases above have to do with attempts to remove
federal jurisdiction after it had already been clearly established.

Nevertheless, the cases

demonstrate the judiciary’s desire for and value of uniformity, analytical consistency, and ease
of judicial administration. See GreCon Dimter, Inc. v. Horner Flooring Co., No. 3:02-CV-101W, 2007 WL 121732, at *7 (W.D.N.C. Jan. 11, 2007). All of these goals are served by the
principle that jurisdiction should be determined at the time of removal not just in the federal
question context but in diversity cases as well. See id.

Furthermore, this principle helps

alleviate federalism concerns by limiting the power of the federal courts. See Unitrin Auto and
Home Ins. Co. v. Bastida, No. 3:09-cr-00217-W, 2009 WL 3591190, at *3 (W.D.N.C. Oct 27,
2009).
Both at the time of the commencement of the action and when Defendant filed its Notice
of Removal, the amount in controversy was $63,962.51, the amount sought in Plaintiffs’
complaint.

[Doc. 1-1, at 8].

At those times, Defendant had not asserted counterclaims.

Therefore, the jurisdictional amount was not satisfied either at the time of commencement or at
the time of removal, and the case should be remanded for lack of federal subject matter
jurisdiction.
Addressing Defendant’s chief argument, there is a well-established split among the
courts as to whether or not to consider counterclaims when calculating the jurisdictional amount.
The modern trend and a majority of courts hold that “no part of the required jurisdictional
amount may be met by considering the defendant’s counterclaim, whether permissive or
compulsory.” 14AA Charles Alan Wright et al., Federal Practice & Procedure § 3706 (4th ed.
2011). The United States Court of Appeals for the Fourth Circuit has indicated in dictum that

they would adopt this rule. See R.L. Jordan Oil Co. of N.C. v. Boardman Petroleum, Inc., 23
Fed. Appx. 141, 144-45 (4th Cir. Dec. 3, 2001) (“[I]t appears, although we have not decided, that
[defendant’s] counterclaim may not be used in calculating the amount in controversy.”).
In Holmes Grp., Inc. v. Vornado Air Circulation Sys., Inc., 535 U.S. 826 (2002), the
United States Supreme Court held that the United States Court of Appeals for the Federal Circuit
lacked federal question jurisdiction to decide an appeal where the only federal claim had been
raised by the defendant as a compulsory counterclaim. The Court justified its holding in part by
explaining that “allowing responsive pleadings by the defendant to establish [federal subject
matter] jurisdiction would undermine the clarity and ease of administration of the well-pleadedcomplaint doctrine, which serves as a ‘quick rule of thumb’ for resolving jurisdictional
conflicts.” Id. at 832.
Defendant argues that Holmes does not apply to the instant facts because it only
addresses federal question counterclaims, not counterclaims that invoke federal diversity
jurisdiction by increasing the amount in controversy.

See GreCon Dimter, Inc., 2007 WL

121732, at *6 (“The Holmes holding could be “[n]arrowly construed … not to extend outside of
the federal question … context …” because the Court “neglected to consider [the] … line of
authority which had developed in relation to … whether counterclaims may be credited for the
purpose of establishing other elements of federal jurisdiction (such as the amount in
controversy).”). However, the same court states that
[T]he values of uniformity and ease of judicial administration – not to mention analytic
consistency – would support extending Holmes Group’s holding to the diversity context,
such that the jurisdictional amount in controversy “must be determined from what
necessarily appears in the plaintiff’s statement of his own claim in the bill or
declaration.” Holmes Group, 535 U.S. at 830 (quoting Christianson v. Colt Indus.
Operating Corp., 486 U.S. 800, 809 (1988)); see also R. Fallon et al., Hart & Weschler’s
The Federal Courts and the Federal System 1480 (5th ed. 2003) (“The Court’s rationale
[in Holmes Group] would appear equally applicable in a diversity case where the sole

basis for asserting the requisite amount-in-controversy rests on the amount in dispute
with respect to a counterclaim.”).
Id. at *7.
Additionally, the Holmes Court’s reasoning has been adopted and further explained in
federal district court cases in the District of South Carolina. Specifically, in Blankenship v.
Wynne, C.A. No. 2:05-3611-CWH, 2006 WL 1207834, at *1-2 (D.S.C. May 3, 2006), a South
Carolina plaintiff sued under state law for around $7,500.00 in a breach of contract suit. The
defendant, also a resident of South Carolina, invoked federal law, counterclaimed for
$75,000.00, and requested removal. The United States District Court for the District of South
Carolina held that the action should be remanded to state court because “[t]o be removable to
federal court under 28 U.S.C. § 1441, … [federal] jurisdiction must be ascertainable from the
face of the complaint.” Id. at *2 (citing Cook v. Georgetown Steel Corp., 770 F.2d 1272, 1275
(4th Cir. 1985)) (emphasis added). Further, the court stated that “a plaintiff is the master of his
claim and may avoid federal jurisdiction by relying exclusively on state law.” Id. (citing
Caterpillar, Inc. v. Williams, 482 U.S. 386, 399 (1987)).
Although Blankenship was litigated in the federal question context and there was no
diversity of citizenship, it seems equally applicable to the jurisdictional amount in controversy.
See GreCon Dimter, Inc., 2007 WL 121732, at *7. Here, Plaintiffs have requested less than
$64,000.00 in damages and specifically disclaimed any amount over $74,900.00. Again, federal
courts are intended to be courts of limited jurisdiction, so plaintiffs are entitled to draft their
complaints to ensure that their cases are heard in state court.

See Saint Paul Mercury Indem.

Co., 303 U.S. at 294 (“If [the plaintiff] does not desire to try his case in the federal court[,] he
may resort to the expedient of suing for less than the jurisdictional amount, and though [the
plaintiff] would be justly entitled to more, the defendant cannot remove.”).

Also problematic is the manner in which Defendant asserts counterclaims and then seeks
to rely on those counterclaims to keep the case in federal court. Defendant fails to address that
the counterclaims were not available to be tabulated for the jurisdictional amount at the time the
Notice of Removal was filed. Instead, Defendant’s counsel instead relies on Mackay v. Uinta
Dev. Co., 229 U.S. 173 (1913), which held that the damages claimed in the complaint and the
counterclaims could be aggregated to satisfy the jurisdictional amount. However, the instant
facts are distinguishable. In Mackay, the case was removed without plaintiff’s objection, and the
Court allowed the removal because the damages in the complaint and the counterclaims together
exceeded the minimum jurisdictional amount required at the time. Id. at 174. The Court heard
the case and entered judgment for the defendant, and then the plaintiff objected that the amount
in controversy was not sufficient to give rise to federal jurisdiction. Id. at 174-75. Here,
Plaintiffs made a Motion to Remand [Doc. 9] shortly after the removal, and they further renewed
their Motion to Remand [Doc. 26] before the case proceeded to judgment. Mackay is therefore
inapplicable to the current situation. Furthermore, the other supporting cases cited by Defendant
[Doc. 33, at 4, n.7, 8, 9] involved counterclaims filed simultaneously with the Notice of Removal
and are thus equally unhelpful in deciding this matter since Defendant filed its counterclaims in
such a belated fashion, more than four months after its initial answer. The cases cited by
Plaintiff [Doc. 26-1, at 3-4; Doc. 34, at 1-3], although involving federal question jurisdiction
instead of the amount in controversy, are more persuasive because they all state the same
proposition: jurisdiction must be determined at the time of removal.
Finally, in considering the timing of the removal and assertion of compulsory
counterclaims, a defendant must file a Notice of Removal within thirty days from receipt of “the
initial pleading setting forth the claim for relief upon which such action or proceeding is based”

or “after receipt by the defendant” of the plaintiff’s amended pleading which provides a basis for
removal. 28 U.S.C. § 1446(b) (emphasis added). The plain language of the removal statute
requires the court to consider only pleadings filed by the plaintiff and received by the defendant
at the time of removal in deciding whether removal was proper. This analysis is fully discussed
in GreCon Dimter, Inc. when the court stated “[t]he term ‘initial pleading’ [in Section 1446(b)]
plainly excludes a defendant’s statement of counterclaims, which appears in the
defendant/counter-claimant’s ‘responsive pleading[]’….”

GreCon Dimter, Inc., 2007 WL

121732, at *2. It concluded that Congress’s intent in writing the removal statutes must have
been to disallow “removal on the basis of a defendant’s counterclaim.” Id. (agreeing with the
holding in Cabe v. Pennwalt Corp., 372 F. Supp. 780 (W.D.N.C. 1974)). The court analyzed the
language in Section 1446(b) as compared with that of the diversity statute, Section 1332(a),
notably reaching the conclusion that:
Courts of appeals consistently have held that subject matter jurisdiction exists when a
plaintiff originally files in federal court a jurisdictionally insufficient claim for relief, but
the defendant – instead of protesting jurisdiction and moving to dismiss – answers the
complaint with a jurisdictionally sufficient counterclaim. However, district courts
consistently have distinguished this line of cases and refused to extend them to the
removal context … provided at least that the plaintiff lodges a timely objection to the
purported removal.
Id. at *3 (emphasis added) (citations omitted).
Furthermore, this court has previously held that the defendant must file a motion for
removal “within 30 days from the time ‘the presence of grounds for removal are unambiguous in
light of the defendant’s knowledge and the claims made in the initial complaint.’ There is an
exception to this 30-day limitation period only in those circumstances where the defendant
cannot be sure that the case is removable.” Bobbin Publ’ns, Inc. v. Klingenberg, 525 F. Supp.
245, 246 (D.S.C. 1981) (quoting from Mielke v. Allstate Ins. Co., 472 F. Supp. 851, 853 (E.D.

Mich. 1979)). The Bobbin Court went on to say that at the latest, the defendant’s 30-day
window for removal starts as soon as he knows he has a claim in excess of the jurisdictional
amount. See id. In the present case, Defendant has offered no rationale why it would have been
unable to calculate its counterclaim damages immediately and therefore realize it had a claim in
excess of the jurisdictional amount. Because of that, its 30-day window started running upon
receipt of the initial complaint on March 19, 2010 and expired 30 days later on April 26, 2010.
28 U.S.C. § 1446(b). At that point in time, the amount in controversy, including all asserted
claims at the time, fell short of the requisite $75,000.00.

Therefore, since there is no

“anticipatory or ‘wait-and-see’ [federal] jurisdiction” based on anticipated counterclaims raising
the value of the amount in controversy, “creat[ing] such a rule now would [impermissibly]
expand the limited jurisdiction upon which federal courts are premised.” Unitrin Auto and Home
Ins. Co., 2009 WL 3591190, at *3.
II. Defendant’s Corporate Status
Plaintiffs additionally argue that Defendant lacked the capacity to remove the case in the
first instance because its corporate status was suspended when the Notice of Removal was filed.
[Doc. 26-1, at 8]. According to Fed. R. Civ. P 17(b), the “capacity of a corporation to sue or be
sued shall be determined by the law under which it was organized.” Defendant is a California
corporation, and thus their ability to sue or be sued is dictated by California law. In California, a
corporation’s “powers, rights, and privileges”, including their ability to prosecute or defend an
action, may be suspended for failing to pay certain taxes and penalties. Cal. Rev. & Tax. Code §
23301; Ctr. for Self-Improvement and Cmty. Dev. v. Lennar Corp., 94 Cal. Rptr. 3d 74, 79-80
(Ct. App. 2009) (citation omitted). California courts have allowed procedural steps taken on
behalf of the suspended corporation to be retroactively validated by revival of proper corporate

standing. Lennar Corp, 94 Cal. Rptr. 3d at 80-81. This is compared to substantive defenses,
such as the expiration of statutes of limitation, which are not retrospectively sanctioned after the
corporation regains its corporate standing. Id. at 81.
Plaintiffs argue that Defendant’s Notice of Removal is untimely, and they base their
argument on an analogy between the statutory time limit for removal and the statute of
limitations defense; however, the United States Court of Appeals for the Ninth Circuit considers
removals to be procedural.

Page v. Children’s Council, No. C 06-3268 SBA, 2006 WL

2595946, at *3 (N.D. Cal. Sept. 11, 2006) (citing Maniar v. FDIC, 979 F.2d 782, 785 (9th Cir.
1992)). Therefore, the revival of Defendant’s corporate status on June 7, 2010, resuscitated the
procedural steps it undertook during suspension, including its timely Notice of Removal. This
revival, however, does not alter the outcome of this court’s determination that remand is proper
because the amount in controversy is insufficient to give rise to federal jurisdiction.
Accordingly, Plaintiff’s Motion to Remand [Doc. 26] is granted.
CONCLUSION
For the foregoing reasons, Plaintiff’s Renewed Motion to Remand [Doc. 26] is
GRANTED, and this action is hereby REMANDED to the Court of Common Pleas in
Greenville County, South Carolina.
IT IS SO ORDERED.

s/ J. Michelle Childs
United States District Court

June 8, 2011
Greenville, South Carolina