Amount In Controversy In Lawsuit Challenging Arbitration Award Includes The Full Matter At Stake In The Arbitration

If a defendant removes a case to federal court but the plaintiff successfully moves to remand the case, 28 U.S.C. § 1447(c) provides that a district court "may require payment of just costs and any actual expenses, including attorney fees, incurred as the result of the removal."

In Sirotsky v. New York Stock Exchange, No. 02-3240, 2003 WL 22442988 (7th Cir. Oct. 29, 2003), as the losing party in an NYSE arbitration, plaintiff was ordered by the arbitrators to pay the NYSE's $4,800 arbitration fee. Plaintiff sued her opponent and the NYSE in Illinois state court to vacate that order on the ground that her opponent's lawyer was not licensed to practice in Illinois. Defendant believed plaintiff was litigating both over the $4,800 fee and over the original arbitration in which she sought $242,000, and therefore removed on diversity grounds. The court determined that only the $4,800 fee was at stake, and remanded based on failure of the jurisdictional minimum. Plaintiff then asked for an award of attorneys' fees under § 1447(c), but the district court denied the motion.

On appeal, for the first time in the case, plaintiff clarified that she only was litigating over the $4,800 fee. However, the Seventh Circuit held that it was reasonable for defendant to assume that plaintiff would not have made a federal case out of the fee award alone, and had the right to assume plaintiff was intending to reopen the arbitration. As such, the amount in controversy in any new arbitration proceeding that plaintiff hoped to commence would have been the original $242,000. Thus, it was clear at the time of removal that defendant properly removed a case with an amount in controversy exceeding $75,000.

Regarding the denial of attorneys' fees, the Seventh Circuit found no abuse of discretion. It clarified that although the statue does not set forth the criteria for awarding fees and costs, the cases are in agreement that the plaintiff must show that removal was improper and need not establish that defendant acted in bad faith. Furthermore, the court noted that the Seventh Circuit has taken the further step of holding that, provided removal was improper, there is a rebuttable presumption that the plaintiff is entitled to an award of fees, as under standard fee-shifting statutes. Here, the removal itself was not even improper.

Supreme Court To Consider Whether Defect In Diversity Jurisdiction Is Curable

The U.S. Supreme Court has agreed to hear an appeal from a Fifth Circuit case involving diversity jurisdiction.

In Atlas Global Group, L.P. v. Grupo Dataflux, 312 F.3d 168 (5th Cir. 2002), cert granted, No. 02-1689, 2003 WL 21229394 (Oct. 14, 2003), a partnership sued a Mexican corporation in federal court for breach of contract, but diversity jurisdiction was lacking because two partners were residents of Mexico. Before defendants complained, plaintiff dismissed those two partners and "cured" the defect. After a jury verdict for plaintiff, defendant successfully moved to dismiss for lack of jurisdiction arguing diversity is determined at the time the complaint is filed. The Fifth District reversed because plaintiff dismissed its Mexican partners sua sponte before any challenge, and starting over would be wasteful. One judge dissented against the creation of a “new exception” just to save judicial resources.

Litigants May Not Defend Against Opponents' Claims By Filing Separate Lawsuits Seeking To Stay Them

Some litigants believe the best defense is a good offense. However, the Seventh Circuit recently confirmed that a "good offense" does not include filing a separate lawsuit seeking a stay of the first.

In Buntrock v. SEC, No. 03-1890, 2003 WL 22442993 (7th Cir. Oct. 29, 2003), the SEC authorized its legal staff to bring a civil complaint in federal court against Dean Buntrock charging him with violations of federal securities laws. Buntrock filed his own lawsuit against the SEC, seeking to stay the SEC's filing of a case against him; when the SEC actually filed its case (Buntrock had not sought an injunction), Buntrock amended his complaint to seek a stay of the SEC's case. Both cases were consolidated, and on the SEC's motion the court dismissed Buntrock's case for lack of subject-matter jurisdiction.

The Seventh Circuit affirmed the dismissal because Buntrock's case had "no basis in law or common sense." The jurisprudence of federal jurisdiction includes a line of cases holding that a plaintiff's case might be so completely frivolous that it does not even trigger the jurisdiction of the federal courts. The Seventh Circuit found this to be such a case. One reason for disallowing such a tactic is that defendant's approach would "turn every case in which there is a defense into two cases." The rules of federal procedure provide litigants with the opportunity to present their defenses in a single action. Put simply, if you have a defense to a plaintiff's claims, you must plead it in the case plaintiff has filed.

Another, more technical, approach is that Buntrock has an adequate remedy at law -- to interpose his defense in the SEC's case -- and is unable to satisfy the prerequisites for equitable relief, i.e., a stay. While Buntrock argued that his remedy was not adequate because he would have to go through a whole trial, and the purpose of his complaint was to prevent that, the Seventh Circuit held that did not render his remedy inadequate as a matter of law.

Supreme Court Vacates Punitive Damages Awards

In the wake of its decision in State Farm Mut. Automobile Ins. Co. v. Campbell, 123 S. Ct. 1513 (2003), regarding the due process limits on awards of punitive damages, the U.S. Supreme Court has granted 10 petitions for writ of certiorari and summarily vacated and remanded the cases for further consideration to a variety of state and federal courts.

The two most recent of those rulings are Philip Morris USA v. Williams, No. 02-1553, 2003 WL 21020159 (U.S. Oct. 6, 2003); and Chrysler Corp. v. Clark, No. 02-1748, 2003 WL 21313765 (U.S. Oct. 6, 2003). Philip Morris USA involved an Oregon case in which the jury had awarded over $79.5 million in punitive damages, which the judge reduced to $32 million. The appellate court had affirmed in 2002, allowing punitive damages with a ratio of more than 60:1. In Chrysler Corp., the Sixth Circuit had affirmed a jury award of $3 million in a products liability case where compensatory damages were $236,000 (more than 12:1). The Supreme Court's order suggests that even low awards are constitutionally suspect if the ratio to compensatory damages exceeds a single-digit number.

The other vacated cases are:

• Cass v. Stephens, [02-983] 123 S.Ct. 2213 (May 27, 2003), vacating No. 08-97-00582-CV, 2001 WL 28092 (Tex. App. 8th Dist. Jan. 11, 2001) (25 times compensatory damages after remittitur)

• Ford Motor Co. v. Ramon Romo, [02-1097] 123 S.Ct. 2072 (May 19, 2003), vacating 99 Cal.App.4th 1115, 122 Cal. Rptr. 2d 139 (5th Dist. 2002) (46.4 times original compensatory damages, or 58.6 times reduced compensatory damages)

• Ford Motor Co. v. Smith, [02-1096] 123 S.Ct. 2072 (May 19, 2003), vacating 83 S.W.3d 483 (Ky 2002) (reducing award of 6.7 times compensatory damages to 5 times compensatory damages)

• DeKalb Genetics Corp. v. Bayer CropScience, S.A., [02-130] 123 S.Ct. 1828 (Apr. 21, 2003), vacating 272 F.3d 1335 (Fed. Cir. 2002) (3.33 times compensatory damages)

• National Union Fire Ins. Co. of Pittsburgh, Pa. v. Textron Financial Corp., [02-966] 123 S.Ct. 1783 (Apr. 21, 2003), vacating No. G020323, 2002 WL 1399105 (Cal. App. 4th Dist.
June 28, 2002) (10.2 times compensatory damages after remittitur)

• San Paolo U. S. Holding Co., Inc. v. Simon, [01-1722] 123 S.Ct. 1828 (Apr. 21, 2003), vacating No. B121917, 2001 WL 1380836 (Cal. App. 2d Dist. Nov. 7, 2001) (340 times compensatory damages)

• Key Pharmaceuticals, Inc. v. Edwards, [02-342] 123 S.Ct. 1781 (Apr. 21, 2003), vacating Bocci v. Key Pharmaceuticals, Inc., 178 Or.App. 42, 35 P.3d 1106 (2002) (45
times compensatory damages)

• Anchor Hocking, Inc. v. Waddill, [02-370] 123 S.Ct. 1781 (Apr. 21, 2003), vacating 175 Or.App. 294, 27 P.3d 1092 (2002) (9.9 times compensatory damages)

Of those ten cases, three have been decided on remand. The DeKalb court has reconsidered its
original decision and held that the award of $50 million in punitive damages was not unconstitutional under State Farm when compared with the $15 million in compensatory damages awarded (a ratio of 3.33:1). Rhone-Poulenc Agro, S.A. v. DeKalb Genetics Corp., 345 F.3d 1366 (Fed. Cir. Sept. 29, 2003). In Key Pharmaceuticals, the punitive damages award was vacated and remanded with instructions to allow defendants' motion for a new trial unless plaintiff agreed to remittitur of punitive damages to $3.5 million, down from $22.5 million. The remittitur would result in a ratio of 7:1, down from 45:1. Bocci v. Key Pharmaceuticals, Inc., 189 Or.App. 349, 76 P.3d 669 (Sept. 10, 2003). In the Anchor Hocking case, the appellate court ordered a new trial unless plaintiff agreed to remittitur of punitive damages to $403,416, down from $1 million. The reduction would yield a ratio of 4:1 instead of 9.9:1. Anchor Hocking, Inc. v. Waddill, 190 Or.App. 172, 2003 WL 22404943 (Oct. 22, 2003).