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How to Measure the Amount in Controversy for Diversity Jurisdiction in Federal Court When No Monetary Relief is Sought
June 18, 2021
By: Patrick W. Daley
In Martin v. Hauser, Inc., 1:20-cv-04223, 2020 U.S. Dist. LEXIS 200477 (N.D. Ga. October 28, 2020), the United States District Court for the Northern District of Georgia ruled that the defendant did not establish removal was proper because it could not show the amount in controversy in a case seeking only declaratory and injunctive relief exceeded $75,000 for diversity jurisdiction purposes.
In Hauser, the plaintiff, Cameron Martin (“Martin”), was employed by an insurance brokerage firm, Hauser, Inc. (“Hauser”). In connection with his employment with Hauser, Martin executed an agreement that contained three restrictive covenants: (1) a non-solicitation provision that precluded Martin from soliciting Hauser’s customers; (2) a provision that forbid Martin from inducing Hauser’s employees to terminate their relationship with Hauser; and (3) a provision that prohibited Martin from interfering with any relationship involving Hauser’s suppliers or customers. After working for Hauser for approximately six years, Martin resigned and joined another insurance brokerage firm.
Shortly after resigning from Hauser and commencing employment with the new firm, Martin sued Hauser in Georgia state court seeking (1) a declaration that the restrictive covenants were not enforceable and (2) an injunction to enjoin Hauser from enforcing the restrictive covenants. Approximately one week after Martin filed his lawsuit, Hauser filed a lawsuit against Martin in Ohio state court seeking a temporary restraining order (“TRO”) that would require Martin to abide by the restrictive covenants. The same day that Hauser filed suit in Ohio, Martin moved for a TRO against Houser in the Georgia state court action, that sought to enjoin Hauser from enforcing the restrictive covenants against him. Following a hearing, the Georgia state court granted Martin’s request for a TRO and enjoined Hauser from enforcing the restrictive covenants for 30 days, including in the Ohio state court action. Five days later, Hauser, removed the Georgia state court action to federal court based on diversity jurisdiction. Martin immediately sought to remand, contending that Hauser failed to satisfy the $75,000 threshold for diversity jurisdiction required by 28 U.S.C. § 1332(a).
In response to Martin’s motion to remand, the federal court acknowledged there was no dispute as to the citizenship of each party and the issue before it was whether the amount in controversy exceeded $75,000. The court further noted that in a case like the one before it, when a plaintiff seeks only declaratory and injunctive relief and does not seek monetary relief, it is a “tricky” analysis to determine whether the amount in controversy exceeds $75,000.
The court began its analysis by explaining the value of the injunctive relief is the monetary value of the benefit that would flow to the plaintiff if the injunction were granted. In other words, the value of the injunctive relief is measured by comparing what a plaintiff could earn while complying with the restrictive covenants with what the plaintiff could earn without having to comply. The court further explained that the burden is on the removing party to show by a preponderance of the evidence that the difference between the two earnings numbers exceeds the jurisdictional requirement.
The court noted the burden on the removing party is not easy to satisfy. The court further noted that any uncertainties as to whether the jurisdictional amount is satisfied are resolved in favor of remand (i.e., sending the case back to state court). To this end, the removing party must show “unambiguously that the benefit to be obtained from the injunction is sufficiently measurable and certain to satisfy the amount in controversy requirement.” (emphasis in original). As the court explained, “[b]enefits resulting from an injunction that are too speculative and immeasurable to be included in determining the amount in controversy” must not be considered. In making this determination, the court may consider the complaint, the notice of removal, and any record evidence at the time of removal related to the amount in controversy.
Hauser argued that Martin stood to lose more than $75,000 in compensation from the new firm if he were required to comply with the restrictive covenants. To make this argument, Hauser relied on parts of a draft email it found in Martin’s inbox. The draft email identified “alternative options” for employment, and one option included what appeared to be a compensation package from Martin’s new employer, which indicated a $500,000 salary, an equity stake on day one, a $300,000 forgivable loan, and 15% sales commissions. The court, however, discounted the significance of the email for three reasons: (1) the email was incomplete in that Hauser presented only screenshots of portions of the email, which led the court to question whether the entire email provided additional context; (2) the email was several months old and appeared to be based on market information obtained from unidentified sources in 2019, with no indication as to whether the information was or is accurate; and (3) even if the numbers were accurate, it was unclear what they represented, i.e., it was unclear whether the information reflected Martin’s actual compensation from the new firm or whether it reflected compensation of other employees, other offers, or other information. For these reasons, the court could not conclusively determine Hauser’s compensation from this email, especially with Martin denying that his compensation was what Hauser proffered.
Although the court found that Hauser failed to carry its burden with the email, the court analyzed whether the jurisdictional threshold would otherwise be satisfied if the email did, indeed, accurately identify Martin’s pay from the new firm. To this end, the court noted that Hauser assumed Martin would lose his job at the new firm if he was required to abide by the restrictive covenants, but there was insufficient evidence to support that conclusion. Specifically, while abiding by the restrictive covenants would prevent Martin from, inter alia, interfering with Hauser’s current customers and employees, none of the restrictive covenants prevented Martin from working at the new firm and, thus, there was no reason to think that enforcing the restrictive covenants would cost Martin his job entirely.
Hauser next argued that Martin had the ability to earn more than $75,000 in commissions by stealing Hauser’s clients and, by enforcing the restrictive covenants to prevent Martin from engaging in such activity, it would cost him more than $75,000. The court found this argument unpersuasive because it was speculative as to which Hauser clients, if any, would follow Martin to the new firm. Complicating matters further, Hauser presented no evidence, and, therefore, the court could not assume, that any stolen clients would generate the same revenue for the new firm as they did for Hauser. Finally, the court explained that the commission structure itself was otherwise a mystery -- there was no proffered explanation as to how Martin was to earn the 15% commission (again, assuming the draft email was accurate), nor does it explain any other terms or conditions governing the commission scheme. While the court acknowledged that Hauser did not need to present such evidence with mathematical precision, simply stating that customers will leave Hauser, follow Martin to the new firm, and subsequently generate more than $75,000.00 in commissions is not sufficient to meet the jurisdictional amount in controversy.
Hauser also argued that Martin was seeking to recruit several Hauser employees, all of whom earn in excess of $75,000. The court rejected this argument too, finding that, even if true, there was no allegation as to how such recruitment would benefit Martin by an amount in excess of $75,000.
Ultimately, the court found that Hauser failed to carry its burden and, consequently, the court remanded the case to Georgia state court because Hauser did not substantiate its claim that the court had diversity jurisdiction.
The court’s decision in Martin is significant for practitioners and businesses alike. It illustrates the significant burden a party has when trying to establish diversity jurisdiction in a case where monetary relief is not being sought and the need for clear evidence to establish the amount in controversy. The court’s decision in Martin not only shows a successful challenge to the amount in controversy at the initial stages of litigation, it also provides a road map for those seeking to make such a challenge. In addition, this case illustrates some practical considerations and potential pitfalls for businesses when evaluating whether to fight in state court or remove to federal court. As this case makes clear, establishing the amount in controversy to trigger federal court jurisdiction is not as boilerplate as it may seem.