Opinion
CIVIL ACTION NO. 3:03-CV-1210-P
September 9, 2003
MEMORANDUM OPINION AND ORDER
Now before the Court is Plaintiffs' Motion to Remand, filed June 30, 2003. Defendant filed its Response on July 23, 2003, and Plaintiff filed its Reply on August 11, 2003. After considering the parties' arguments and briefing, and the applicable law, the Court DENIES Plaintiffs Motion to Remand.
I. Background and Procedural History
Defendant, America II Electronics, Inc. ("America II"), is among the largest distributors of electronic components. On May 1, 1995, Joel Patrick Smith was hired by America II as its Director of Excess Procurement, In this position, Smith had access to America II's confidential business information, which included information regarding the identity of Defendant's business partners, customers, pricing, and America II's own market analyses. Smith also was responsible for developing an excess inventory procurement program. According to America II, this program is unique to its industry, and its implementation has generated substantial profits for the company.
On July 29, 1996, Smith and America II entered into a Sales/Purchasing Agreement ("the Sales/Purchasing Agreement"), which contained both confidentiality and no-compete clauses, In relevant part, these clauses provided that Smith would not:
(1) disclose or use any of America II's confidential information at any time after his employment with America II;
(2) directly or indirectly perform any services for any of America II's competitors for a period of two consecutive years following the cessation of his employment with America II;
(3) directly or indirectly solicit or procure the business of any of America II's vendors, customers, or prospective customers with whom he had contact with during his employment for a period of two consecutive years following the cessation of his employment with America II; and
(4) supervise or assist others to engage in the actions described above.
On January 31, 2001, Smith resigned from his employment with America II Later, in December 2001, America II learned that Smith was given an offer of employment from Anovastar, L.L.C., one of its competitors. On December 19, 2001, America n filed a lawsuit in Pinella County, Florida, seeking to enjoin Smith from accepting employment with Anovastar under the terms of the Sales/Purchasing Agreement. Notwithstanding this lawsuit, Smith began working for Anovastar in January 2002. Subsequently, Smith left Anovastar, and began working for Plaintiff, Component Management Services, Inc. ("CMS"), on May 1, 2002. Among the various services it offers, CMS provides inventory appraisals and order fulfillment services for manufacturers of electronic components.
On August 6, 2002, CMS filed an action in the 95th Judicial District Court of Dallas, County, Texas, In its Original Petition, CMS prayed for (1) a declaration that the Sales/Purchasing Agreement was unenforceable, and (2) a declaration that the Sales/Purchasing Agreement did not prohibit Smith from accepting employment with CMS, (3) reasonable and necessary attorney's fees, and (4) costs of suit.
II. The Motion to Remand
America II removed CMS's state court action on May 29, 2003 on the basis of this Court's diversity jurisdiction. Removal of a state court action to federal court is proper when the complaint falls within the original subject-matter jurisdiction of the federal district court. See 28 U.S.C. § 1441 (a). The burden of establishing that federal jurisdiction exists lies with the removing party. See St. Paul Reinsurance Co., Ltd. v. Greenburg, 134 F.3d 1250, 1253 (5th Cir. 1998). Under 28 U.S.C. § 1332(a), a federal court has diversity jurisdiction when (1) the action involves citizens of different states, and (2) the amount in controversy exceeds $75,000. While neither party disputes that there is complete diversity of citizenship, CMS now moves to remand this case to state court because the amount in controversy does not meet the $75,000 jurisdictional minimum.
When a complaint does not allege a specific amount of damages, the party invoking federal jurisdiction must prove by a preponderance of the evidence that the amount in controversy exceeds the jurisdictional minimum. See White v. FCI USA, Inc., 319 F.3d 672, 675 (5th Cir. 2003); St. Paul Reinsurance, 134 F.3d at 1253. In an action for declaratory or injunctive relief, the amount in controversy is "measured by the value of the object of the litigation." Aladdin's Castle, Inc. v. Mesquite, 630 F.2d 1029, 1035 (5th Cir. 1980) ( quoting Hunt v. Washington State Apple Advertising Commission, 432 U.S. 333, 347 (1977)). Stated differently, the amount in controversy in such cases is "the value of the right to be protected or the extent of the injury to be prevented." St. Paul Reinsurance, 134 F.3d at 1252-53 (quoting Leininger v. Leininger, 705 F.2d 727, 729 (5th Cir. 1983)). The Court must first examine the factual allegations of the complaint to determine whether it is "facially apparent" that the amount in controversy requirement has been satisfied. White, 319 F.3d at 675 ( citations omitted). If it is not thus apparent, the court may then rely on affidavits and other "summary judgment-type" evidence to ascertain the amount in controversy. Id.
Based on the factual allegations of CMS's Original Petition, it is not "facially apparent" that the amount in controversy exceeds $75,000. The Original Petition does not specify the value of the declaratory judgements sought by CMS, nor does it provide any indication as to the amount of "reasonable attorney's fees" CMS seeks to recover. However, looking beyond the face of CMS's Original Petition, this Court finds that America n has met its burden for establishing diversity jurisdiction by presenting compelling evidence in the form of affidavits and depositions that the minimum amount in controversy exceeds $75,000.
In its Motion to Remand, CMS asserts that the only "object" of this litigation is its right to employ Smith, irrespective of the terms of the Sales/Purchase Agreement. Although it does not assign a value to this right, CMS maintains that it falls somewhere below the jurisdictional minimum. On the other hand, America n contends that CMS is a competitor, and Smith's employment with CMS would expose its proprietary, confidential, and trade secret information. Thus, the true "object" of the litigation involves not only CMS's right to employ Smith, but the confidential business information protected by the Sales/Purchase Agreement as well. Under this theory, the amount in controversy would include the value of this information to America n, and would far exceed the $75,000 minimum requirement.
Both parties have briefed extensively the issues of whether CMS is in competition with America n, and whether Smith's employment with CMS puts America II's confidential business information at risk. However, these issues go to the merits of the underlying declaratory judgment action (i.e., whether certain parts of the Sales/Purchasing Agreement affect CMS's right to employ Smith), and this Court finds it both unnecessary and premature to resolve these issues in ruling on this Motion. Even under CMS's theory that the only "object" of this litigation is a vindication of its right to employ Smith, America n has demonstrated sufficiently that the minimum amount in controversy is more likely than not to exceed $75,000.
CMS argues that if one "considers the potential for an extended term of employment," any declaratory judgment action involving the right to employ an individual would satisfy the minimum amount in controversy. If a removing party was simply allowed to aggregate an employee's salary over the number of pay periods necessary to satisfy the jurisdictional minimum, CMS would be correct. However, an employee's salary is a reasonable measure of the value of the employee to the employer, and the facts in this case allow for a more precise calculation of the value of CMS's right to employ Smith.
In this case, Smith resigned from America II on January 31, 2001. Thus, the two-year no-compete clause of the Sales/Purchasing Agreement was effective at least until January 31, 2003. Even assuming that the only provision at issue in this case is the no-compete clause (and not the ongoing confidentiality clause), the amount in controversy would be equal to at least the value of Smith's employment while the no-compete clause was still in effect (i.e., from May 1, 2002 to January 31, 2003). America n has presented evidence in the form of deposition testimony that Smith's salary at CMS is $6,700 per month, or approximately $80,400 per year. Based on these figures, "the value of the right to be protected" is at least $65,325 (39 weeks × $1,675/week). See Amtech Inc. v. Qualitek International, Inc., 2002 U.S. Dist. LEXIS 1217, *21-23 (N.D. Ill. 2002) (presented with similar facts, the court determined the amount in controversy by calculating the amount of wages the employee would have received while the contested restrictive covenant was in effect).
In its Original Petition, CMS also seeks recovery of "reasonable and necessary attorneys' fees." Texas law expressly authorizes recovery of attorneys' fees in an action for declaratory relief. See Tex. Civ. Prac. Rem. Code Ann. 37.009. "When . . . a statute mandates or allows payment of such fees, attorneys' fees are considered part of the amount in controversy for jurisdictional purposes." Manguno v. Prudential Prop. Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002) ( citing Foret v. Southern Farm Bureau Life Ins. Co., 918 F.3d 534, 537 (5th Cir. 1990)). CMS's own litigation counsel estimates that prosecution of this case will cost between $35,000 and $45,000 in attorneys fees. When coupled with the value of CMS's right to employ Smith, the total amount in controversy in this case exceeds the $75,000 minimum.
III. Conclusion
Defendant America II has demonstrated that it is more likely than not that the amount in controversy exceeds the jurisdictional minimum. Removal to this Court was therefore proper, and Plaintiff CMS's Motion to Remand is DENIED.