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On Fri, 26 Jun 2009 11:13:34 -0400, MrVidmar <...@nowhere.com
OPINION
JEANNE E. SCOTT, U.S. District Judge:
This matter is before the Court on Plaintiff United States of America
Chess Federation, Inc.’s (the USCF) Motion to Remand (d/e 4). In
February 2009, the USCF filed a two-count Complaint in Sangamon County,
Illinois Circuit Court, seeking a court order removing Defendants Susan
Polgar and Hoainhan Truong from the USCF Executive Board pursuant to §
108.35(d) of the Illinois General Not for Profit Corporation Act. Notice
of Removal (d/e 1), Attachments 2-7, Complaint & Exhibits; 805 ILCS
105/108.35(d). Polgar and Truong filed a Notice of Removal on March 13,
2009, asserting that this Court has subject matter jurisdiction over the
action under both 28 U.S.C. § 1331 and 28 U.S.C. § 1332(a). Plaintiff
subsequently filed the instant Motion to Remand, asserting that the
action does not present a federal question under 28 U.S.C. § 1331 and
further that the amount in controversy does not exceed $75,000.00, as
required for diversity jurisdiction under 28 U.S.C. § 1332(a). For the
reasons set forth below, the Motion to Remand is allowed.
The following facts are taken from the allegations of the Complaint. The
USCF is an Illinois not-for-profit corporation with its principal place
of business in Crossville, Tennessee. The USCF is the official
membership organization for chess players and supporters in the United
States. It is governed by a Board of Delegates, which consists of a
seven-member Executive Board, Delegates at Large, and 125 Delegates
apportioned among U.S. states. The seven-member Executive Board
functions as a board of directors and is tasked with managing the
affairs of the USCF. Defendants Polgar and Truong are members of the
USCF Executive Board. They were elected to the Executive Board in June
2007 and seated on or about August 5, 2007. Polgar and Truong are
married and have resided in Lubbock, Texas, since 2007.
Count I of the Complaint seeks an order removing Truong from the USCF
Executive Board pursuant to 805 ILCS 105/108.35(d), and Count II seeks
an order removing Polgar from the Executive Board under the same
section. USCF also seeks an order indefinitely prohibiting Truong and
Polgar from running for reelection to the Executive Board and an award
of its reasonable costs incurred in connection with this action. Section
105/108.35(d) allows the Circuit Court to remove a director of a
not-for¬profit corporation from office in a proceeding commenced by the
corporation “if the court finds (1) the director is engaged in
fraudulent or dishonest conduct or has grossly abused his or her
position to the detriment of the corporation, and (2) removal is in the
best interest of the corporation.” The statute further provides that
“[i]f the court removes a director, it may bar the director from
reelection for a period prescribed by the court.” 805 ILCS 105/108.35(d).
According to the Complaint, Sam Sloan, a New York resident, was elected
to the USCF Executive Board in July 2006, but was not reelected to the
Board in July 2007. Count I alleges that, during and after the 2007
Executive Board election, Defendant Truong impersonated Sam Sloan and
others in over 2,500 separate internet postings on USCF member forums,
which disparaged the purported authors as well as present and former
USCF officers, committee members, employees, volunteers, and sponsors.
According to the Complaint, digital footprints conclusively show that
Truong was the author of the postings at issue. As a result of the
postings, Sloan filed suit in the United States District Court for the
Southern District of New York against Truong, Polgar, and the USCF,
among others. Additionally, the USCF launched an investigation into the
allegations against Truong and Polgar. The Executive Board designated a
“Litigation Committee,” which excluded Truong and Polgar, to permit
confidential communications about the investigation and USCF’s legal
options. The USCF hired the law firm of Kronenberger Burgoyne, LLP
(Kronenberger) to review and investigate the allegations against Truong
and Polgar.
On November 29, 2007, counsel for the USCF sent Truong a letter asking
him: (1) to admit or deny whether he was involved in the postings or had
knowledge of who made the postings, (2) to provide IP addresses for his
home and work computers since 2005 or to consent for the USCF to obtain
such information, and (3) to provide any information to support his
claim that he was not at his computers at the time of the postings. In
response, Truong provided: (1) copies of two pay stubs from Texas
TechUniversity for the periods ending July 31, 2007, and August 31,
2007, and (2) a Southwest Airlines ticketless travel confirmation, dated
June 2, 2007, in Truong’s name for a one-way flight from Las Vegas,
Nevada, to Lubbock, Texas, on June 12, 2007. Complaint, Ex. I.
The Complaint further alleges that, after the 2007 Executive Board
election, the USCF discovered that Truong made numerous misleading and
dishonest representations during his Executive Board campaign, including
false representations that he had earned a Ph.D. and an M.B.A. and had
held high-level marketing positions with billion dollar companies.
Additionally, it is alleged that Truong failed to reveal that he was
married to Polgar, who was also running for the Board, despite being
questioned about it on the USCF Issues Forum prior to the election.
Finally, the Complaint alleges that Truong engaged in bankruptcy fraud
in June 2007 by swearing in his bankruptcy petition that he was
unemployed, despite the fact that he was employed by Texas Tech
University. According to the USCF, Truong’s actions are inconsistent
with the values’ and mission statement of the USCF and have had
significant adverse consequences on the ability of the USCF to operate
efficiently and achieve its corporate objectives.
Count II seeks Polgar’s removal from the USCF Executive Board. Count II
alleges that, from November 2007, through June 2008, Kronenberger
performed a significant review of the Truong/Polgar controversy and sent
a number of emails to the Litigation Committee, which included an
Executive Board member named Randall Hough. According to the Complaint,
Polgar was aware that the USCF had engaged Kronenberger as counsel. The
USCF alleges that, between November 26, 2007, and June 24, 2008,
Defendant Polgar and an accomplice unlawfully accessed Hough’s email
account at least 111 times, and that Polgar read and unlawfully copied
numerous confidential communications regarding the USCF’s investigations
of her and Truong, including emails sent between members of the
Litigation Committee and attorney-client privileged communications. The
USCF further alleges that Polgar and an accomplice distributed these
confidential communications to the public via an internet blog and a
webs ite owned by Polgar.
Paragraph 53 of the Complaint alleges that “[i]n hacking into Hough’s
e-mail account, Defendant Polgar violated the federal Electronic
Communications Privacy Act, the Computer Fraud and Abuse Act, in
addition to violating California computer crimes laws.” Complaint, p. 9.
According to ¶ 54, “[t]hese allegations are the subject of a pending
federal action by the USCF against Polgar in the United States District
Court for the Northern District of California, originally filed in June
2008 . . . .” Id. Count II further asserts that, in August 2008, when
Polgar realized that her misconduct was about to be discovered, she
preemptively sued the USCF, including all remaining Executive Board
members and several USCF members who were critical of her conduct, in
state court in Texas.1 According to the USCF, Polgar’s actions are
inconsistent with the values and mission statement of the USCF and have
had significant adverse consequences on the ability of the USCF to
operate efficiently and achieve its corporate objectives.
ANALYSIS
Removal is proper in any action that could have originally been filed in
federal court. 28 U.S.C. § 1441. Defendants, as the proponents of
1In response to the Motion to Remand, Defendants have produced copies of
Polgar’s original and Amended Complaints in the Texas action as well as
the Third Party Complaint that USCF filed against Truong in the Texas
action, alleging claims of defamation, breach of fiduciary duty, fraud,
conspiracy, and conspiracy to defraud, based on the alleged misconduct
that is the subject of the instant case. Memorandum of Defendants, Susan
Polgar and Paul Truong, in Opposition to Motion for Remand (d/e 6)
(Defendants’ Memorandum), Exs. A, B, & C. In analyzing an amount in
controversy, the Court may look outside the pleadings to other evidence
of jurisdictional amount. Chase v. Shop "N Save Warehouse Foods, Inc.,
110 F.3d 424, 42 7-28 (7th Cir. 1997).
federal jurisdiction, bear the burden of proof on the issue of
jurisdiction. See McNutt v. General Motors Acceptance Corp., 298 U.S.
178 (1936). As previously noted, Polgar and Truong assert that this
Court has subject matter jurisdiction over the action under both 28
U.S.C. § 1331 and 28 U.S.C. § 1332(a). The Court addresses each
proffered basis for jurisdiction separately.
I. FEDERAL QUESTION JURISDICTION
District courts have original jurisdiction in cases involving a “[f]
ederal question,” i.e., cases “arising under the Constitution, laws, or
treaties of the United States.” 28 U.S.C. § 1331. “Ordinarily,
determining whether a particular case arises under federal law turns on
the ‘well-pleaded complaint’ rule.” Aetna Health Inc. v. Davila, 542
U.S. 200, 207 (2004) (quoting Franchise Tax Bd. of Cal. v. Construction
Laborers Vacation Trust for Southern Cal., 463 U.S. 1, 9-10 (1983)). The
Supreme Court has instructed on several occasions that a case arises
under federal law for purposes of § 1331, “if ‘a well-pleaded complaint
establishes either that federal law creates the cause of action or that
the plaintiff's right to relief necessarily depends on resolution of a
substantial question of federal law.’” Empire Healthchoice Assur., Inc.
v. McVeigh, 547 U.S. 677, 690 (2006)
(quoting Franchise Tax Bd. of Cal., 463 U.S. at 27-28).
Defendants assert that USCF is seeking relief for alleged violations of
federal statutes, specifically the Electronic Communications Privacy
Act, 18 U.S.C. § 2510, et seq., and the Computer Fraud Abuse Act, 18
U.S.C. § 1030, et seq. Notice of Removal, ¶ 2. Clearly, however, state
law, not federal law, creates the instant cause of action. In this case,
USCF seeks to remove Truong and Polgar from the Executive Board pursuant
to an Illinois statute. Thus, the question becomes whether USCF’s right
to relief necessarily depends on resolution of a substantial question of
federal law. As set forth below, the Court finds that it does not.
Defendants assert that, in analyzing Count II against Polgar, the Court
must determine whether Polgar’s actions violated the Electronic
Communications Privacy Act and the Computer Fraud Abuse Act. Thus,
according to Defendants, USCF’s right to relief as against Polgar
necessarily depends on resolution of substantial questions of federal
law. The Court disagrees. Under 805 ILCS 105/108.35(d), USCF’s right to
relief on Count II requires a showing that Polgar engaged in fraudulent
or dishonest conduct or grossly abused her position to the detriment of
the USCF. The Complaint alleges specific actions by Polgar, all of which
the USCF asserts to be fraudulent and dishonest. Paragraphs 53 and 54 of
the Complaint assert that Polgar violated federal and California law in
hacking into Hough’s e-mail account and allude to a federal action
pending in California. However, the actions attributed to Polgar in the
Complaint could be found to be fraudulent or dishonest, even if they do
not constitute a violation of federal law. Thus, the analysis necessary
to determine whether Polgar should be removed from the Executive Board
does not necessarily involve an analysis of whether Polgar’s actions
violated federal law. Defendants fail to establish that federal question
jurisdiction exists under 28 U.S.C. § 1331.
II. DIVERSITY JURISDICTION
District courts have jurisdiction over “civil actions where the matter
in controversy exceeds the sum or value of $75,000, exclusive of
interest and costs, and is between . . . citizens of different States.”
28 U.S.C. § 1332(a)(1). The parties do not dispute the allegations
regarding citizenship, and if they are true, the parties are diverse.
The issue becomes whether the amount in controversy exceeds $75,000.00,
exclusive of interest and costs. Defendants bear the burden of
demonstrating that the amount in controversy meets the statutory
minimum. Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d 536, 541 (7th Cir.
2006).
When a complaint seeks injunctive relief, as USCF’s does, “the amount in
controversy is measured by the value of the object of the litigation.”
Macken ex rel. Macken v. Jensen, 333 F.3d 797, 799 (7th Cir. 2003)
(quoting Hunt v. Washington State Apple Advertising Commission, 432 U.S.
333, 347 (1977)). The Seventh Circuit has repeatedly held that “the
object [of the litigation] may be valued from either perspective - what
the plaintiff stands to gain, or what it would cost the defendant to
meet the plaintiff's demand.” Id. at 799-800 (citing cases). In cases
involving injunctive relief, the Seventh Circuit recognizes the
following ways in which the amount in controversy may be established:
(1) the value of the injunction to the plaintiff exceeds the statutory
minimum; (2) the injunction would require an alteration in the
defendant's conduct that would cost the defendant of at least the
statutory minimum; (3) the injunction would force the defendant to
forego an action that is worth more than the statutory minimum; or (4)
the defendant's clerical or ministerial costs of compliance with the
injunction would exceed the statutory minimum.
Third Educ. Group, Inc. v. Phelps, 2008 WL 3200251, *3 (E.D. Wis. Aug.
6, 2008) (citing In re Brand Name Prescription Drugs Antitrust Litig.,
123 F.3d 599, 609-10 (7th Cir. 1997)).
The Notice of Removal asserts that the Complaint seeks judgment under
which the Plaintiff stands to gain in excess of $75,00.00 and/or
Defendants’ ability to meet the Plaintiff’s demand exceeds the amount of
$75,000.00.” Notice of Removal, ¶ 3. Plaintiff’s Motion to Remand
contests this assertion. The Seventh Circuit recently addressed the
amount in controversy analysis, noting that when the jurisdictional
threshold is uncontested, courts generally will accept a party’s good
faith allegation of the amount in controversy unless it appears to a
legal certainty that the claim is really for less than the
jurisdictional amount. McMillian v. Sheraton Chicago Hotel & Towers,
2009 WL 1491459, at *5 (7th Cir. May 29, 2009). The Court of Appeals
recognized, however, that when the allegation of the amount in
controversy is challenged, the party asserting jurisdiction must support
its assertion with “competent proof” and must prove the jurisdictional
facts by a preponderance of the evidence. Id. (citing McNutt v. Gen.
Motors Acceptance Corp., 298 U.S. 178, 189 (1936); Meridian Sec. Ins.
Co., 441 F.3d at 543). “To satisfy this burden, a party must do more
than ‘point to the theoretical availability of certain categories of
damages.’” Id. (quoting Am. Bankers Life Assur. Co. of Florida v. Evans,
319 F.3d 907, 909 (7th Cir. 2003)).
Defendants assert that the amount in controversy exceeds $75,000.00 from
the USCF, Truong, and Polgar’s viewpoints. The Court turns first to the
USCF. The USCF provides the Court with the declaration of USCF Executive
Director Bill Hall, who avers that USCF Executive Board members are not
compensated for their service to the USCF. Memorandum in Support of
Motion to Remand (d/e 5), Ex. 1, p. 2. Hall further avers that the USCF
does not stand to gain monetarily from the instant action, other than
reimbursement of costs. Id. Defendants contend that Hall’s declaration
is irrelevant because it omits significant facts, i.e., that the USCF is
seeking damages in excess of the jurisdictional amount in its Third
Party Complaint against Truong in the Texas state court proceeding and
in its California action against Polgar. In its Third Party Complaint in
the Texas action, the USCF requests an award of monetary damages against
Truong for alleged defamation, breach of fiduciary duty, fraud,
conspiracy, and conspiracy to defraud, based on the alleged misconduct
that is the subject of the instant case, and states that the USCF
“expects such amounts to vastly exceed one million dollars.” Defendants’
Memorandum, Ex. A, p. 11, ¶ 28. In its California action against Polgar,
the USCF seeks punitive damages in an amount no less than $1 million, in
addition to compensatory damages. Defendants’ Memorandum, Ex. B, p.
10-11. Thus, Defendants assert that, by its own admission, the USCF
stands to gain far in excess of $75,000.00 from an entry of judgment in
its favor in the instant case.
In the Third Party Complaint against Truong and the California action
against Polgar, the USCF seeks damages that it has allegedly already
sustained as a result of Truong and Polgar’s actions. If the USCF were
to achieve prospective injunctive relief in the instant matter, securing
the removal of Truong and Polgar from the Executive Board, it would not
alter damages that the USCF has already sustained as a result of the
alleged misconduct. Additionally, while the three cases revolve around
the same alleged misconduct, the elements of the claims raised in each
case do not mirror one another. Thus, damages claimed by the USCF in the
Texas and California actions do not establish that the requisite amount
in controversy exists in the instant case from USCF’s viewpoint.
The Court turns its analysis to the value of the object of the
litigation from Truong and Polgar’s viewpoints. Defendants have each
filed an affidavit in support of removal. Defendants’ Memorandum,
Attachment 6, Declaration of Susan Polgar in Support of Petition for
Removal to Federal Court (Polgar Declaration); Defendants’ Memorandum,
Attachment 7, Declaration of Paul Truong in Support of Petition for
Removal to Federal Court (Truong Declaration). Truong avers that he is
employed with Texas Tech University in connection with the Susan Polgar
Institute for Chess Excellence and also that he manages Polgar’s
business ventures in the international chess world. Truong Declaration,
¶ 2. According to Truong, his removal for cause from the Executive Board
“for either fraudulent conduct or participation in illegal conduction”
would “have a deleterious effect in [his] continued employment at Texas
Tech University and income to be derived from [his] continued ability to
act as a business representative for Susan Polgar, all of which,
separate from the monetary damages to which [he] would be exposed in the
Third Party Complaint, exceed $75,000.00.” Id., ¶ 4. Similarly, Polgar
avers that the harm to her that would result from a “for cause” removal
from the USCF Executive Board would substantially exceed $75,000.00 due
to: (1) damage to her reputation in the international chess community,
(2) jeopardy to her continued employment at Texas Tech University, and
(3) jeopardy to her continued business interests including publication
of chess books, production of instructional DVDs, and potential
endorsement contracts. Polgar Declaration, ¶ 4. Polgar further states
that she has set forth her harm in her First Amended Complaint in the
Texas action. Id.
Defendants have not provided the Court with any evidence of their annual
salaries and benefits at Texas Tech or of the amount of income received
from the other identified income sources, despite the fact that such
information would be of the type that would be readily available to
them. Polgar’s reliance on her Texas Complaint is unavailing because
that action seeks damages that Polgar has allegedly already suffered
because of allegations raised against her in the chess community, not
based on removal from the Board. Additionally and significantly, the
Seventh Circuit instructs that “the test for determining the amount in
controversy is the pecuniary result to either party which the judgment
would directly produce.” McCarty v. Amoco Pipeline Co., 595 F.2d 389,
393 (7th Cir. 1979) (emphasis added). In the instant case, judgment in
favor of the USCF would result in the removal of Truong and Polgar from
the Executive Board. The remainder of the claimed harm is speculative,
at best.
Defendants assert that the instant case is analogous to Lindland v.
United States of America Wrestling Ass'n, Inc. 230 F.3d 1036 (7th Cir.
2000). Matt Lindland lost a championship bout during the United States
Olympic trials for Greco-Roman Wrestling to Keith Sieracki. As the
winner, Sieracki was entitled to be nominated to the United States Olympic
Committee as a member of the United States Olympic team. Lindland
protested the match and eventually initiated arbitration as allowed
under applicable rules. The arbitrator directed that the championship
bout be re- wrestled, and it was. Lindland won the rematch, but he was
not given the nomination to the Olympic team; rather, he was named an
alternate. Lindland sued in federal court to enforce the arbitration
award. The Seventh Circuit found that diversity jurisdiction existed,
holding that “the value of a position on the Olympic team cannot be said
(to a legal certainty) to be less than $75,000.” Id. at 1038 (citation
omitted). According to Defendants, it is not unreasonable to view
removal from the USCF Executive Board as valuable as the object of the
litigation in Lindland.
Lindland, however, is distinguishable from the instant case. Nothing in
the record substantiates a finding that a seat on the USCF Executive
Board is as valuable as the opportunity to participate in the Olympic
games. It is clear that Polgar and Truong’s success, financial and
otherwise, flows from Polgar’s substantial chess ability, and not from
their positions with the USCF. Polgar’s own First Amended Complaint in
the Texas action indicates that Texas Tech University established the
Susan Polgar Institute for Chess Excellence and hired Polgar as
Executive Director and head chess coach in
May 2007. Defendants’ Memorandum, Ex. C, p. 5, ¶ 22. This would have
been prior to the USCF Executive Board election in June 2007. Thus, the
Court finds that Defendants’ allegations regarding the amount in
controversy are too speculative and without adequate foundation to
support a finding that diversity jurisdiction exists under 28 U.S.C. §
1332(a).
THEREFORE, for the reasons set forth above, this Court lacks
jurisdiction over the instant matter, and Plaintiff’s Motion to Remand
(d/e 4) is ALLOWED. This case is remanded to the Circuit Court of
Sangamon County, Illinois. All pending motions are denied as moot. This
case is closed before this Court.
IT IS THEREFORE SO ORDERED.
ENTER: June 25, 2009
FOR THE COURT:
s/ Jeanne E. Scott JEANNE E. SCOTT UNITED STATES DISTRICT JUDGE
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