Opinion
Civil Action No. 3:03-CV-3050-P.
July 2, 2004.
MEMORANDUM OPINION AND ORDER
Now before the Court is Plaintiff Rob J. McCoy's Motion to Abstain and to Remand, filed January 15, 2004. Defendants filed a Response on January 27, 2004, and Plaintiff filed his Reply on January 30, 2004. After considering the parties' arguments and briefing, and the applicable law, the Court DENIES Plaintiff's Motion.
I. Background and Procedural History
The factual underpinnings of this case have been previously set forth in the Court's April 27, 2004 Order granting Defendants' Application for Temporary and Permanent Injunctions, and need not be discussed at length here. The dispute in this case arises out of certain provisions and language contained in the Employee Confidential Information and Proprietary Interest Agreement ("Employment Agreement") entered into by Plaintiff and Defendant Exhibitgroup. Plaintiff resigned from Exhibitgroup on December 1, 2003, and, that same day, filed suit against the Defendants in the 116th District Court of Dallas County, Texas. In his Original Petition, Plaintiff seeks the following declaratory judgments:
(1) that the non-compete provisions in the Employment Agreement are unenforceable under Texas law;
(2) that the choice of law provision in the Employment Agreement is void and unenforceable, and that Texas law should govern the interpretation of the Employment Agreement;
(3) that the forum selection and conflict of law waiver provisions in the Employment Agreement are void and unenforceable; and
(4) that the entire Employment Agreement is unenforceable because its use of the terms "confidential information" and "trade secrets" is vague, ambiguous, and overly broad, and constitutes a restraint of trade on Plaintiff. Pl.'s Mot. to Rem., Ex. B.
Defendants removed Plaintiff's lawsuit to this Court on December 23, 2003 on the basis of this Court's diversity jurisdiction. Plaintiff now moves to have the case remanded to state court.
II. The Motion to Remand
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. Plaintiff now moves to remand this case to state court for three reasons: (1) the amount in controversy does not meet the $75,000 jurisdictional minimum, (2) the parties are not diverse, and (3) Defendants have waived their right of removal. Each of these arguments will be addressed in turn.
a. Amount in Controversy
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 v. FCI USA, Inc., 319 F.3d 672, 675 (5th Cir. 2003). 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. In such situations, the party invoking federal jurisdiction bears the burden of proving by a preponderance of the evidence that the amount in controversy exceeds the jurisdictional minimum. See Id.; St. Paul Reinsurance, 134 F.3d at 1253.
Based on the factual allegations of Plaintiff's Original Petition, it is not facially apparent that the amount in controversy exceeds $75,000. Although Plaintiff seeks a declaratory judgment vitiating the entire Employment Agreement, the Court finds that it cannot determine the "value of the object of the litigation" by looking only at the face of Plaintiff's Original Petition. As such, Defendants bear the burden of proving by a preponderance of the evidence that the amount in controversy requirement has been met. In his Motion to Remand, Plaintiff asserts that Defendants cannot meet this burden because "the value of the right to be protected or the extent of the injury prevented in this case cannot be determined with any degree of certainty." Pl.'s Mot. to Rem. at p. 6. However, the Court finds that Defendants have presented sufficient evidence to show that the amount in controversy exceeds $75,000.
1. The Value of Defendants' Confidential Information and Trade Secrets Exceeds $75,000.
The Employment Agreement at issue contains express language with respect to confidential information and trade secrets:
1. THE COMPANY is in the business of design, manufacture, sale, distribution and servicing of trade show exhibits. [The employee] understand[s] that said exhibits are highly specialized items and the identity and particular needs of THE COMPANY'S customers are not generally known in the trade show/exhibit industry. [The employee] further understand[s] that THE COMPANY has a proprietary interest in its customer lists and the documents and information regarding pricing, costs and the specialized requirements of THE COMPANY's customers are highly confidential and constitute trade secrets. . . .
3. [The employee realizes that he] will have access to and become familiar with various confidential information and trade secrets of THE COMPANY, . . . [and] acknowledge[s] that such confidential information and trade secrets are owned and shall continue to be owned solely by THE COMPANY and are special and unique property of THE COMPANY. They are not general secrets of the trade, nor public knowledge; however, they could be adapted for used by other businesses if made available to them. . . . [The employee] understand[s] if [he] disclose[s] this information or use[s] it outside of [his] employment with THE COMPANY, it may cause THE COMPANY substantial damage. . . .
4. [Both during and after his employment, the employee] will maintain in confidence and use [his] best efforts to preserve the confidentiality of all information held in confidence by THE COMPANY which, in connection with [his] employment by THE COMPANY, are acquired . . . or maintained in [the employee's] custody. Pl.'s Mot. to Rem., Ex. B.
By seeking a declaration that these provisions are unenforceable, Plaintiff is, in essence, trying to protect his claimed "right" to materials and information he has retained. Consequently, the "controversy" with respect to these provisions centers around the rightful ownership of those materials and information, and the "amount in controversy" would necessarily include the value of the allegedly proprietary and confidential information. As to this "value," it appears uncontested that materials like Defendants' customer information, customer lists, and price/cost lists are uniquely valuable in the trade show/exhibit industry. Moreover, Matthew Kelley, National Director of Manufacturing at Exhibitgroup, attests that "net profits derived from Horton business and the ICSC Trade Show business in 2003 alone exceeded $100,000." Resp. to Pl.'s Mot. to Rem., Ex. D, p. 370. Although they have not (and concede that they cannot) place a precise monetary value on these proprietary materials, the Court finds that Defendants have presented sufficient evidence that the value of their confidential information and trade secrets would exceed the jurisdictional minimum of $75,000.
Plaintiff argues that under the Fifth Circuit's "plaintiff perspective" jurisprudence, the potential losses to Defendants should not be considered when determining the amount in controversy. While Plaintiff is correct that the amount in controversy is to be adjudged from the viewpoint of the plaintiff, the Court notes that, in this particular case, the application of the "plaintiff perspective" rule is not as straightforward as Plaintiff contends.
By considering the potential losses to Defendants, the Court is not improperly considering "the costs a defendant incurs in complying with declaratory or injunctive relief." Unlike the cases cited by Plaintiff, there is no "cost of compliance" in this case, as Defendants will not be required to pay under an insurance policy if Plaintiff is granted declaratory relief. See, e.g., Hartford Ins. Group v. Lou-Con Inc., 293 F.3d 908 (5th Cir. 2002); St. Paul Reinsurance Co., Ltd. v. Greenberg, 134 F.3d 1250 (5th Cir. 1998). Quite to the contrary, the dispute between the parties in this case is best characterized as a zero sum game — the "value" of the rights in controversy directly corresponds with the "losing" party's potential losses. As such, the Court's consideration of Defendants' potential losses is tied to its assessment of the "value" of the rights Plaintiff seeks to protect.
2. The Amount in Controversy with Respect to the Non-Solicitation Provision Exceeds $75,000.
The Employment Agreement also contains a non-solicitation provision:
6. That during and for 12 months after employment with THE COMPANY, [the employee] will not directly or indirectly solicit or induce any employee, supplier, contractor, consultant or representative of THE COMPANY to terminate their or its relationship with THE COMPANY. Pl.'s Mot. to Rem., Ex. B.
Defendants alleges that Plaintiff has violated this provision by soliciting and hiring ten employees from Exhibitgroup, and contend that the value of these ten employees should also be considered in determining the amount in controversy. Plaintiff argues, however, that these ten employees were at-will employees, and that any estimation of their "value" would be speculative. With respect to Plaintiff's claims arising out of the non-solicitation provision, the "right to be protected" is Plaintiff's claimed right to solicit and hire Exhibitgroup's employees. In determining the value of this "right," the Court finds that the salary information of the ten employees is both competent and relevant evidence concerning the amount in controversy. As discussed supra, although the Court is neither willing nor able to determine a precise monetary value of this "right," the Court believes that Defendants have met their burden in demonstrating that its value exceeds $75,000.
Defendants have produced affidavit testimony that states: "Even taking into account the `at will' nature of their employment, the cumulative amount of just one month's compensation (salary and attributable monthly bonus accrual) that was willingly being paid by Exhibitgroup to those lost employees mentioned above exceeds $75,000." Resp. to Pl.'s Mot. to Rem., Ex. D, p. 370.
Plaintiff concedes that "[t]o be certain, declaratory judgments have value. . . ." Pl.'s Mot. to Rem. at p. 6. Thus, even if the "value" of Plaintiff's right to solicit and employ falls below $75,000, the Court believes that, when coupled with the value of Defendants' confidential information and trade secrets, the total amount in controversy in this case easily exceeds the jurisdictional minimum.
b. The Parties are Diverse.
Plaintiff also argues that diversity jurisdiction does not exist because complete diversity is lacking. Plaintiff claims that, because the Employment Agreement was signed in Texas, Defendants maintain an active office in Texas, and all work performed by Plaintiff for Defendants occurred in Texas, "Defendants have imputed Texas citizenship." Pl.'s Mot. to Rem. at p. 7.
Pursuant to 28 U.S.C. § 1332(c)(1), "a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business. . . ." As noted by Defendants, it is undisputed that Viad is a Delaware corporation with its principal place of business in Phoenix, Arizona, and Exhibitgroup is an unincorporated division of Viad based in Roselle, Illinois. Moreover, although the Fifth Circuit has adopted an "attribution" rule, whereby courts may impute the citizenship of a non-diverse subsidiary to its diverse, unjoined parent corporation, the Court finds the rule inapposite to this case. Viad and Exhibitgroup are both named parties to Plaintiff's declaratory judgment action, and neither party is a resident of Texas. The Court finds no factual or legal justification for imputing Texas citizenship on either party.
c. Defendants have not Waived Their Right to Remove This Case.
Plaintiff alternatively argues that, if the Court finds that diversity jurisdiction exists, this case should still be remanded because Defendants waived their right of removal. Plaintiff contends that Defendants' assertion of an affirmative defense in state court constitutes a waiver. Again, Plaintiff's argument is not without legal basis. It is well settled that defendant may lose or waive the right to remove an action to federal court by taking some substantial defensive action in the state court before petitioning for removal. See, e.g., Beighley v. FDIC, 868 F.2d 776, 782 (5th Cir. 1989). However, the Fifth Circuit has made clear that "[a] waiver of the right of removal must be clear and unequivocal. In general, the right of removal is not lost by action in the state court short of proceeding to an adjudication on the merits." Id. at 782 (internal quotations and citations omitted). Defendants' actions in state court do not rise to this level, and the Court finds that Defendants have not waived their right of removal.
III. Conclusion
The Court finds that the requirements for diversity jurisdiction have been satisfied, and that removal of Plaintiff's state court action was proper. In addition, the Court finds that Defendants did not waive their right to remove by filing an affirmative defense in state court. Accordingly, Plaintiff's Motion to Abstain and Remand is hereby DENIED.
It is so ordered.