Opinion
06-CV-2901 (SJF).
July 31, 2007
OPINION ORDER
I. Introduction
Plaintiffs Christine Houston and Erik Floyd (collectively, plaintiffs) commenced this action against defendant Steven P. Scheno (defendant) in the Supreme Court of the State of New York, County of Suffolk (the state court), bearing index number 06-05587, seeking damages for allegedly unpaid rent and property damage, prejudgment interest and attorney's fees. On June 9, 2006, defendant filed a Notice of Removal to remove the state court action to this Court. Plaintiffs now move pursuant to 28 U.S.C. § 1447(c) to remand this action to the state court and for costs and attorney's fees. For the reasons set forth below, plaintiffs motion is granted in part and denied in part.
II. Background
The following facts are taken from the pleadings and do not constitute findings of fact by the Court.
Plaintiffs reside at No. 401 Tavinstock, 10 Tregunter Path, Mid-Levels, Hong Kong. (Complaint [Compl.], p. 1). Plaintiffs own certain property located at 72 Manhasset Road, Shelter Island, New York, on which is situated a one-family residence (the premises). (Compl. ¶ 1).
Defendant is a resident of Connecticut, residing at 14 Buckingham Lane, Greenwich, Connecticut. (Notice of Removal, ¶ 3a).
On December 29, 2004, plaintiffs entered into a written lease with defendant, pursuant to which defendant leased the premises for a term of one (1) year, commencing on January 1, 2005, for fifty-five thousand dollars ($55,000.00), payable in monthly installments of four thousand five hundred eighty-four dollars ($4,584.00). (Compl., ¶ 3; Exhibit [Ex.] A).
With respect to the failure to pay rent, the lease only provides, as follows:
If [defendant] fails to pay rent when due and the default continues for seven 10 [sic] days thereafter, [plaintiffs] may, at [plaintiffs'] option, declare the entire balance of rent payable hereunder to be immediately due and payable and may exercise any and all rights and remedies available to [plaintiffs] at law or in equity or may immediately terminate this Agreement.
(Compl., Ex. A ¶ 20).
With respect to the abandonment of the premises, the lease provides, in pertinent part, as follows:
If at any time during the term of this Agreement [defendant] abandons the Premises or any part thereof, [plaintiffs] may, at [plaintiffs'] option, obtain possession of the Premises in the manner provided by law, and without becoming liable to [defendant] for damages or for any payment of any kind whatever[.] [Plaintiffs] may, at [plaintiffs'] discretion, as agent for [defendant] relet the Premises, or any part thereof, for the whole or any part thereof, for the whole or any part of [sic] the then unexpired term, and may receive and collect all rent payable by virtue of such reletting, and, at [plaintiffs'] option, hold [defendant] liable for any difference between the rent that would have been payable under this Agreement during the balance of the unexpired term, if this Agreement had continued in force, and the net rent for such period realized by [plaintiffs] by means of such reletting. * * *
(Compl., Ex. A ¶ 21).
Paragraph twenty-two (22) of the lease provides, as follows:
"Should it become necessary for [plaintiffs] to employ an attorney to enforce any of the conditions or covenants hereof, including the collection of rentals or gaining possession of the Premises, [defendant] agrees to pay all expenses so incurred, including a reasonable attorneys' fee."
(Compl., Ex. A).
On January 1, 2005, defendant entered into possession of the premises. (Compl., ¶ 5). Defendant paid rent in accordance with the lease only through April 2005. (Compl., ¶ 6). On or about July 11, 2005, defendant quit the premises and plaintiffs entered and took possession of the premises in accordance with paragraph twenty-one (21) of the lease. (Compl., ¶¶ 7-9). Despite diligent efforts, plaintiffs were unable to relet the premises. (Compl., ¶ 10).
B. Procedural Background
On February 27, 2006, plaintiffs filed the instant complaint against defendant in the Supreme Court of the State of New York, Suffolk County for breach of the lease and abandonment of the premises, seeking damages in the amount of fifty-nine thousand four hundred nine dollars and forty-six cents ($59,409.46), plus prejudgment interest, costs and attorney's fees. (Compl., ¶¶ 11-12 and p. 4). On June 9, 2006, defendant removed the action to this Court pursuant to 28 U.S.C. § 1441, et seq., alleging that this Court has diversity jurisdiction pursuant to 28 U.S.C. § 1332. According to defendant, the amount in controversy exceeds the statutory jurisdictional amount of seventy-five thousand dollars ($75,000.00) taking into account the amount claimed in the complaint as damages plus the claims for prejudgment interest and attorney's fees. (Notice of Removal, ¶ 3b).
Plaintiffs now move pursuant to 28 U.S.C. § 1447(c) to remand this action to the state court and for attorney's fees and costs associated with the purportedly wrongful removal of this action to this Court.
III. Discussion
A. Removal Jurisdiction
"Under 28 U.S.C. § 1441, a civil action filed in state court may be removed by the defendant to federal district court if the district court has original subject matter jurisdiction over the plaintiff's claim." Lupo v. Human Affairs International, Inc., 28 F.3d 269, 271 (2d Cir. 1994). "Removal jurisdiction must be strictly construed, both because the federal courts are courts of limited jurisdiction and because removal of a case implicates significant federalism concerns." James v. Gardner, No. CIVA04CIV1380, 2004 WL 2624004, at * 1 (E.D.N.Y. Nov. 10, 2004) (citing In re NASDAQ Market Makers Antitrust Litigation, 929 F.Supp. 174, 178 (S.D.N.Y. 1996). The burden of proving the Court's removal jurisdiction rests upon the party asserting jurisdiction. See United Food Commercial Workers Union, Local 919, AFL-CIO v. CenterMark Properties Meriden Square, Inc., 30 F.3d 298, 301 (2d Cir. 1994).
28 U.S.C. § 1447(c) mandates that an action removed to federal district court be remanded to the state court "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction." On a motion to remand, the removing defendant "bears the burden of demonstrating the propriety of removal." California Public Employees' Retirement System v. Worldcom. Inc., 368 F.3d 86, 100 (2d Cir. 2004) (citation omitted).
B. Diversity Jurisdiction
28 U.S.C. § 1332(a), which provides the basis for diversity of citizenship jurisdiction, provides, in pertinent part, that "district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs and is between — (1) citizens of different States; [or] (2) citizens of a State and citizens or subjects of a foreign state * * *." (Emphasis added). In a removal case in which the jurisdictional amount is controverted, the defendant has the burden of proving that it appears to "a reasonable probability that the claim is in excess of the statutory jurisdictional amount." Mehlenbacher v. Akzo Nobel Salt, Inc., 216 F.3d 291, 296 (2d Cir. 2000) (citing United Food, 30 F.3d at 305); see also McNutt v. General Motors Acceptance Corp. of Indiana, 298 U.S. 178, 189, 56 S.Ct. 780, 80 L.Ed.2d 1135 (1936) (holding that the party claiming diversity jurisdiction has the burden of establishing that the amount in controversy exceeds the jurisdictional minimum); Lupo, 28 F.3d at 273 (holding that the party asserting diversity jurisdiction has the burden of establishing the existence of the jurisdictional amount in controversy). "To determine whether that burden has been met, [courts] look first to the [plaintiff's] complaint and then to [the defendant's] petition for removal." Mehlenbacher, 216 F.3d at 296. "[I]f the jurisdictional amount is not clearly alleged in the plaintiff's complaint, and the defendant's notice of removal fails to allege facts adequate to establish that the amount in controversy exceeds the jurisdictional amount, federal courts lack diversity jurisdiction * * *." Lupo, 28 F.3d at 273-274.
Plaintiffs contend that the amount in controversy does not exceed the seventy-five thousand dollar ($75,000.00) jurisdictional amount. Since the complaint only seeks monetary damages in the amount of $59,409.46, plus an unspecified amount of prejudgment interest and attorney's fees, the amount in controversy does not satisfy the jurisdictional amount. The notice of removal states only that "[t]he amount in controversy exceeds $75,000.00 taking into account the amount claims in the Verified Complaint ($59,409.46), plus the Plaintiffs' claims for prejudgment interest and attorney's fees pursuant to Paragraph 22 of the subject lease." (Notice of Removal, ¶ 3b).
Although the complaint also seeks recovery for costs, such amount is expressly excluded in the calculation of jurisdictional amount by the diversity jurisdiction statute. 28 U.S.C. § 1332(a).
Defendant's conclusory statement that the amount in controversy exceeds the jurisdictional amount is insufficient to establish jurisdiction. See, e.g. Johnson-Kamara v. W. Chacon Trucking, No. 05 Civ. 9900, 2006 WL 336041, at * 3 (S.D.N.Y. Feb. 9, 2006).
1. Attorney's Fees Recoverable Under the Lease
Attorney's fees may be included in the calculation of the jurisdictional amount only if they are recoverable as a matter of right pursuant to contract or statute. Givens v. W.T. Grant Co., 457 F.2d 612, 614 (2d Cir. 1972), vacated on other grounds, 409 U.S. 56, 93 S.Ct. 451, 34 L.Ed.2d 266 (1972); see also In re Ciprofloxacin Hydrochloride Antitrust Litigation, 166 F.Supp.2d 740, 755-756 (E.D.N.Y. 2001); Window Headquarters, Inc. v. MAI Basic Four, Inc., Nos. 91 Civ. 1816, 93 Civ. 4135 and 92 Civ. 5283, 1994 WL 673519, at * 11 (S.D.N.Y. Dec. 1, 1994) (holding that attorney's fees may be included in the jurisdictional amount if the contract at issue provides for such a remedy). Since the lease between the parties herein provides for the recovery of "reasonable attorneys' fees", (Compl., Ex. A, ¶ 22), that amount is properly considered in the calculation of the jurisdictional amount. However, defendant has not met his burden of establishing the amount of "reasonable attorneys' fees" recoverable under the lease as of the date of the notice of removal, nor does he even allege that such amount is fifteen thousand five hundred ninety dollars and fifty-five cents ($15,590.55) or more.
Jurisdictional facts, such as the amount in controversy are evaluated "on the basis of the pleadings, viewed at the time when defendant files the notice of removal." Blockbuster, Inc. v. Galeno, 472 F.3d 53, 56-57 (2d Cir. 2006) (citing Vera v. Saks Co., 335 F.3d 109, 116, n. 2 (2d Cir. 2003) (per curiam)). According to plaintiffs, as of the date of the filing of the complaint — to wit, February 27, 2006 — plaintiff had only incurred legal fees in the amount of five thousand seven hundred five dollars and twenty-four cents ($5,705.24). (Affirmation of Philip D. Nykamp in Support of Motion to remand [Nykamp Aff.], ¶ 9). Defendant has not established the unlikely event that plaintiffs incurred an additional nine thousand eight hundred eighty-five dollars and thirty-one cents ($9885.31) in legal fees in the approximate three month period between the filing of the complaint and the notice of removal.
2. Prejudgment Interest
Although section 1332 generally provides that interest should be excluded from calculating the amount in controversy, the Supreme Court has distinguished between "interest as such," and interest "as an instrumentality in arriving at the amount of damages to be awarded on the principal demand." Brown v. Webster, 156 U.S. 328, 15 S.Ct. 377, 39 L.Ed.2d 440 (1895). The former must not be taken into account when computing the amount in controversy, whereas the latter may. Id. "[W]here * * * interest is owed as part of an underlying contractual obligation, unpaid interest becomes part of the principal for jurisdictional purposes." Transaero, Inc. v. La Fuerza Area Bolivinia, 24 F.3d 457, 461 (2d Cir. 1994); see also Grunblatt v. UnumProvident Corp., 270 F.Supp.2d 347, 349 (E.D.N.Y. 2003) (holding that interest is included in the amount in controversy when it is an essential ingredient of the principal claim). "When interest is sought merely as an accessory to an underlying injury and not part of the principal demand, it should not be included in the amount in controversy." See Mississippi Veterans Home Purchase Board v. State Farm Fire Casualty Co., ___ F.Supp.2d ___, 2007 WL 1826862, at * 6 (S.D.Miss. Jun. 21, 2007); see also Brashich and Finley v. Palmquist, No. 84 Civ. 5819, 1984 WL 1059, at * 1 (S.D.N.Y. Oct. 23, 1984) (holding that interest incidental to the claim plaintiff asserts or arising solely by virtue of delay in payment is not part of the amount in controversy).
Plaintiffs' principal claim is for fifty-nine thousand four hundred nine dollars and forty-six cents ($59,409.46). Their claim for prejudgment interest "is nothing more than an accessory claim which arises solely by virtue of the defendant's failure to pay [rent]," Mississippi Veterans, ___ F.Supp.2d ___, 2007 WL 1826862, at * 6, and is not a contractually-agreed upon penalty in the lease. Indeed, nothing in the lease obligates defendant to pay prejudgment interest for his failure to pay rent. Accordingly, prejudgment interest, if any, should not be considered in the calculation of the amount in controversy. See,e.g. Brashich, 1984 WL 1059, at * 1 (excluding prejudgment interest in the calculation of the amount in controversy where the interest was not the basis of the suit or an essential ingredient of the principal claim).
Since it cannot be ascertained from the face of the complaint and the notice of removal that the amount in controversy, inclusive of attorney's fee but exclusive of prejudgment interest, would result in a claim against defendant in excess of the seventy-five thousand dollar ($75,000.00) jurisdictional amount, this Court lacks subject matter jurisdiction over this action. Accordingly, plaintiffs' motion to remand is granted.
C. Attorney's Fees on Motion
This Court has discretion under 28 U.S.C. § 1447(c) to award plaintiffs costs and expenses, including reasonable attorney's fees, incurred as a result of the removal. See Martin v. Franklin Capital Corp., 546 U.S. 132, 126 S.Ct. 704, 709, 163 L.Ed.2d 547 (2005). "Absent unusual circumstances, courts may award attorney's fees under § 1447(c) only where the removing party lacked an objectively reasonable basis for seeking removal. Conversely, when an objectively reasonable basis exists, fees should be denied." Id. 546 U.S. 132, 126 S.Ct. at 711.
Although defendant did not meet his burden of establishing the amount in controversy to support diversity jurisdiction, he had an objectively reasonable basis to seek removal to this Court and no unusual circumstances exists which might otherwise warrant an award of costs and attorney's fees. Accordingly, the branch of plaintiffs' motion which seeks costs and attorney's fees on the motion to remand is denied.
IV. CONCLUSION
The branch of plaintiffs' motion which seeks remand is granted and this action is remanded to the Supreme Court of the State of New York, County of Suffolk; and plaintiffs' motion is otherwise denied. The clerk of the Court is directed to close this case and, pursuant to 28 U.S.C. § 1447(c), to mail a certified copy of this order to the clerk of the Supreme Court of the State of New York, County of Suffolk.
SO ORDERED.