ERIC F. MELGREN, District Judge.
Defendant Regional One, Inc. removed this case on June 28, 2018, and filed a motion to stay litigation and compel arbitration on the following day. Plaintiff Jet AirParts, LLC did not initially respond to Defendant's motion to stay and compel arbitration, but instead filed a motion to remand arguing that this Court lacks subject-matter jurisdiction because the amount in controversy does not exceed $75,000. On September 11, 2018, Plaintiff filed a motion to stay Defendant's motion to compel arbitration and for leave to file its response to Defendant's motion to stay litigation and compel arbitration out of time. The Court granted Plaintiff's request for leave to file its response out of time, but did not rule on Plaintiff's motion to the extent it sought to stay Defendant's motion to compel arbitration. This matter comes before the Court on Plaintiff's Motion to Remand (Doc. 10), Defendant's Motion to Stay Case, including Answer Date and Jury Trial Demand, Application for Arbitration, and Motion for Relief under 28 U.S.C. § 1927 (Doc. 6), and Plaintiff's Motion to Stay (Doc. 14). For the reasons stated below, the Court denies Plaintiff's motion to remand, denies Defendant's motion to stay and compel arbitration and for relief under 28 U.S.C. § 1927, and denies as moot Plaintiff's motion to stay.
On March 26, 2018, Plaintiff filed a petition in the Cowley County District Court alleging that Defendant breached its contract with Plaintiff and committed tortious interference with a contract Plaintiff had with a vendor. Plaintiff alleged that it had an opportunity to purchase airplane parts ("Material") from a vendor, with an understanding that the vendor would buy back parts from the Material once inspected and certified. The vendor's intended purchases were expected to cover a significant portion of the purchase price of the Material. Defendant financed the purchase of the Material under the parties' Consignment Agreement. Under the Consignment Agreement, Plaintiff agreed to a commission schedule of 10% of the net proceeds of the Material parts sales up to $3.4 million and then 40% thereafter. Plaintiff agreed to this commission schedule in reliance on the fact that a significant portion of the Material would be sold back to the vendor. Prior to execution of the Consignment Agreement, the vendor sold or scrapped parts from the Material and only delivered part of the Material to Plaintiff in Kansas. Defendant entered into a separate agreement with the vendor to receive airplane parts of equivalent value to replace the missing parts from the Material. The vendor delivered those parts to Defendant's place of business in Florida and Defendant did not make those parts available to Plaintiff for inspection, evaluation, repair, overhaul, or sale. Instead, Defendant sold some or all of the parts, but did not credit the sales under the Consignment Agreement or pay Plaintiff a commission.
Plaintiff's tortious interference claim alleged that it had an agreement with the vendor to buy back inspected and certified parts as needed from the Material, that the vendor's intended purchases were expected to account for a substantial part of the $3.4 million in sales required for Plaintiff to reach the 40% commission on further sales, and that Defendant engaged in several arguments and disputes with the vendor such that the vendor refused to purchase parts from the Material so long as Defendant owned the Material. Plaintiff alleged that Defendant's actions caused it to suffer damages in lost commissions from anticipated sales to the vendor as well as reduced commissions on sales of the Material.
Plaintiff's breach of contract claim alleged that Defendant received parts to replace those that were to be included in the Material and that Defendant failed to make them available to Plaintiff for sale. Plaintiff sought damages in the amount of a 40% commission on the net proceeds from the sale of these parts.
On May 2, 2018, Defendant removed the action to federal court on the basis of diversity jurisdiction. It filed a motion to stay deadlines and compel arbitration six days later.
On the same day that Plaintiff voluntarily dismissed the first federal lawsuit, it filed a second state court action in Cowley County District Court. Plaintiff's second petition repeated several of the factual allegations contained in the first. Plaintiff again alleges that it had an opportunity to purchase Material from a vendor, with an understanding that the vendor would buy back parts from the Material once inspected and certified by Plaintiff. Defendant financed the purchase of the Material under the Consignment Agreement, which provided a commission schedule that the parties agreed to recognizing that a significant portion of the Material would be sold back to the vendor. Defendant engaged in several disputes with the vender such that the vendor refused to purchase any parts from the Material. While the second petition contains several of the same factual allegations, it does not repeat all of the allegations contained in the first petition, it contains additional allegations, and it contains different claims for relief.
Plaintiff alleges that the Consignment Agreement expired on February 7, 2016, that the Consignment Agreement shall not automatically renew unless by agreement between the parties in writing, and that the parties did not agree to renew the Consignment Agreement. After the Agreement expired Plaintiff continued to sell parts of the Material. From February 2016 through December 2017, Plaintiff sold parts from the Material to third parties for $857,048 without any objection from Defendant. Plaintiff retained 40% of the sales on these parts as commission, with the remainder payable to Defendant. In January 2018, a third party offered to purchase the remaining Material in Plaintiff's possession for $180,000. Defendant objected to this sale and will not allow Plaintiff to consummate the transaction.
While the first petition briefly notes that Plaintiff is storing the Material for Defendant, the second petition adds additional factual allegations relating to storage. It claims that Plaintiff stores parts for other customers and charges a storage fee unless it receives commissions on the sale of the parts, and claims that its average storage charge for the number of parts in the remaining Material was $2,500 per month for the 27 preceding months.
Plaintiff's second petition does not allege that Defendant committed a tortious interference with contract, and does not allege that Defendant breached the Consignment Agreement. Its prayer for relief seeks an order either (1) directing Defendant to approve the sale of the Material or for a judgment in amount of the lost commission on the sale Defendant allegedly refused to approve in 2018, or alternatively, (2) judgment in an amount equal to the alleged storage fees incurred since the expiration of the Consignment Agreement.
Defendant removed the second state court action to federal court on June 28, 2018, again on the basis of diversity jurisdiction. In support of removal, Defendant included an affidavit from its general counsel, Joseph Schwantes. The affidavit states that, "the claims Jet Airparts, LLC made in its petition, if proven true, would meet or exceed $75,000.00 in claimed damages." Specifically, Schwantes alleges that the Material Plaintiff seeks to sell is worth considerably more than $180,000 and "if Jet AirParts LLC's allegation that it is entitled to a 40% commission were proven true, it would be entitled to $75,000 or more in damages." It also claims that if Jet Airparts "is entitled to recover $2,500 per month in storage fees, . . . then it would be entitled to $75,000 or more in damages."
On August 2, 2018, Plaintiff filed a motion to remand asserting that this Court lacks subject-matter jurisdiction over the claims. Specifically, Plaintiff argues that the amount in controversy necessary for diversity jurisdiction has not been met, and accordingly, this case must be remanded to state court.
Shortly after removing the second state court petition, Defendant filed a motion to stay litigation and compel arbitration of Plaintiff's claims. Defendant argues that the claims in this lawsuit fall under the parties' agreement to arbitrate contained in the Consignment Agreement. The Consignment Agreement includes a dispute resolution provision, which states:
The Consignment Agreement also includes provisions regarding its term and termination that state:
The Agreement calls for the application of Florida law to "[t]he terms of this Agreement and the transactions hereunder." Defendant argues that the arbitration agreement in the Consignment Agreement covers the claims in the current lawsuit and that Plaintiff must submit those claims to arbitration. Plaintiff argues that its current claims arose after the Consignment Agreement expired, that no written agreement to arbitrate existed at the time the claims in this case arose, and that its claims are not subject to the Consignment Agreement's arbitration provision. In a separate filing, it also asked that the Court stay ruling on the request to compel arbitration until after ruling on the motion to remand.
Defendant's motion also seeks relief under 28 U.S.C. § 1927 for Plaintiff's alleged unreasonable and vexatious multiplication of proceedings. Defendant asserts that Plaintiff acted improperly in dismissing its first lawsuit and filing a second lawsuit, and argues that Plaintiff should have simply amended his claims in the first lawsuit and its failure to do so stems from an overt attempt to avoid federal jurisdiction. Plaintiff's actions allegedly resulted in a duplication of efforts on the part of Defendant and extended Plaintiff's time to seek remand and respond to the motion to compel. Plaintiff argues that it did not multiply proceedings because the claims in the two lawsuits relate to different events and that the claims in the second lawsuit did not arise until after the first lawsuit had been filed.
Generally, "any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending."
Title 28, U.S.C. § 1446 governs the procedures for removing a civil action. It addresses removal when the state court pleading identifies a specific damages request:
"Under the preponderance standard, defendants seeking to remove must prove jurisdictional facts by a preponderance of the evidence."
Plaintiff asks that the Court remand this case for lack of subject-matter jurisdiction. Specifically, Plaintiff argues that this Court does not have subject-matter jurisdiction because the amount in controversy does not exceed $75,000 and thus, the requirements for diversity jurisdiction have not been met.
Since Defendant removed this case based on diversity jurisdiction and Plaintiff's initial pleading includes a claim for relief that does not exceed $75,000, Defendant must prove the requisite jurisdictional facts by a preponderance of the evidence.
If Plaintiff did not attempt to limit its request for storage fees, but instead sought storage fees for the entire time that it has stored the Material after the expiration of the Agreement, the amount in controversy would clearly be met.
Plaintiff, however, requests storage fees only for a specific time frame and "seeks no further relief from the Court." Plaintiff argues that "Defendant confuses the amount in controversy for what the plaintiff may be entitled to receive," and suggests that a plaintiff "may resort to the expedient of suing for less than the jurisdictional amount, and though he would be justly entitled to more, the defendant cannot remove."
The 2011 amendment to § 1446(c) established "that `the sum demanded in good faith in the initial pleading shall be deemed to be the amount in controversy,' subject to certain exceptions."
Plaintiff attempts to limit its request for damages to recover storage fees for some, but not all of the months that it has stored the Material since the Agreement expired. K.S.A. § 60-254(c) allows Plaintiff to receive the full award of damages it would be entitled to for storing the Material, even though Plaintiff has only requested a portion of such damages. Accordingly, under the second exception in § 1446(c)(2)(A), Defendant "may assert the amount in controversy." As noted above, but for Plaintiff's attempt to limit its request to damages, the amount in controversy would clearly exceed $75,000.
Because Kansas law allows Plaintiff to recover damages in excess of the amount demanded in its petition, § 1446(c)(2) allows Defendant to prove the amount in controversy. The Court finds that a preponderance of the evidence demonstrates that the amount in controversy—the amount of storage fees put in controversy in this action—exceeds $75,000. Thus, the Court has subject-matter jurisdiction over this case, and Plaintiff's motion to remand is denied.
Arbitration is a matter of contract, and a party must arbitrate only those disputes that they have agreed to submit to arbitration.
The Federal Arbitration Act provides that arbitration agreements are valid and enforceable subject to the same legal grounds for the revocation of any contract.
The Consignment Agreement contains an arbitration provision stating that disputes "relating to the Agreement and related damages" will be submitted to binding arbitration. Defendant asserts that Plaintiff's claims must be submitted to arbitration because "plaintiff's theory of the case rests in large part on its perceived right to a 40% commission under the terms of the Consignment Agreement," and the request for storage fees relates to the Consignment Agreement since Plaintiff alleges the Consignment Agreement obligated it "to store and maintain the Material at its warehouse to preclude damage or abnormal deterioration." It argues that any potential duty owed to Plaintiff "springs from the parties' contractual relationship" and must be arbitrated under the Agreement. Plaintiff contends that its current claims arise out of events occurring after the Consignment Agreement expired, that the arbitration clause expired with the Consignment in February 2016, and that no agreement exists to arbitrate the current claims. As the party seeking to compel arbitration, Defendant must carry "the burden of demonstrating a valid arbitration agreement."
In analyzing "whether an agreement to arbitrate has been reached," the Court looks to state law principles of contract formation—here, the Court looks to Florida law.
The Florida Supreme Court has recognized that use of the words "relating to" in an arbitration provision typically indicates that the agreement to arbitrate is "broad in scope."
"The mere fact that the dispute would not have arisen but for the existence of the contract and consequent relationship between the parties is insufficient by itself to transform a dispute into one `arising out of or relating to' the agreement."
Here, Defendant seeks to characterize Plaintiff's current actions as actions based on the Consignment Agreement, but a review of the petition shows that Plaintiff pursues actions based on conduct occurring after the expiration of the Consignment Agreement. Plaintiff asserts that the Consignment Agreement expired on February 7, 2016, and that the parties made no oral or written agreement to extend the Agreement. Indeed, the Consignment Agreement states that it "shall not automatically renew unless by agreement between the Parties in writing." Defendant has identified no evidence suggesting that the parties extended the Consignment Agreement and Plaintiff specifically alleges that they did not.
Plaintiff alleges that it sold parts of the Material after the expiration of the Agreement from February 2016 through December 2017, without objection from Defendant, and that it retained 40% of the sales as a commission, with the remainder payable to Defendant. Plaintiff appears to allege that after the expiration of the Consignment Agreement, the parties had a business relationship—not governed by the Consignment Agreement—and that under that relationship Defendant should have approved of the sale of certain Material, or alternatively, should be compelled to compensate Plaintiff for the benefit it derived from Plaintiff storing its Material after the expiration of the Agreement.
While Plaintiff seeks "specific performance," it does not ask for "specific performance of the Consignment Agreement" as alleged by Defendant.
Finally, although Plaintiff provides factual background in its Petition relating to the Consignment Agreement, it does not assert that any right arising under the Consignment Agreement has been violated, that it holds any entitlement based on the Consignment Agreement, or that Defendant breached any duty arising under the Consignment Agreement. Plaintiff's claims appear grounded entirely upon events occurring after the expiration of the Consignment Agreement.
The Court cannot conclude, based on the current record, that the parties intended for the arbitration provision to govern the parties' future business relations after the expiration of the Consignment Agreement. While the parties may not have entered into an additional relationship if they had not previously been parties to the Consignment Agreement, that is insufficient to conclude that the claims constitute a dispute "relating to" the Consignment Agreement. Rather, similar to Seifert, "[n]one of the allegations assert that [Defendant's] duties or obligations arose from or were governed by the contract."
Title 28, U.S.C. § 1927 authorizes an award of attorneys' fees and costs when an attorney has unreasonably and vexatiously multiplied proceedings. It states:
Defendant argues that the Court should provide it relief for Plaintiff's vexatious and unreasonable multiplication of proceedings. Based on the record before the Court, however, it does not appear as though Plaintiff has engaged in a "serious and standard disregard for the orderly process of justice."
The Court denies Plaintiff's motion to remand because the amount in controversy exceeds $75,000 and Plaintiff may not avoid jurisdiction by electing to pursue less than it would otherwise be entitled to receive if successful on its claim. The Court denies Defendant's motion to stay, to compel arbitration, and for relief under 28 U.S.C. § 1927, as Defendant has failed to show an agreement to arbitrate the claims present in this lawsuit and Plaintiff has not unreasonably and vexatiously multiplied proceedings. Finally, the Court denies Plaintiff's motion to stay as moot.
