Opinion
19-cv-8585(JSR)
10-16-2019
XINGLING HU, et al., Plaintiffs, v. JERRY OHLINGER'S MOVIE MATERIALS STORE, et al., Defendants.
Anthony Nicholas Iannarelli, Jr., Leonia, NJ, for Plaintiffs.
Anthony Nicholas Iannarelli, Jr., Leonia, NJ, for Plaintiffs.
MEMORANDUM ORDER
JED S. RAKOFF, U.S.D.J.
Plaintiffs Xingling Hu et al. sued defendants Jerry Ohlinger's Movie Materials Store et al. (collectively, JOMMS) for breaching a representation that JOMMS's counsel made at a 2017 hearing before Judge Ramos. In an initial pretrial conference on September 30, 2019, the parties explained that the instant matter arises out of a litigation over control of disputed inventory that began in the federal court for the District of New Jersey in 2014. After mediation, the parties settled that action on September 14, 2015. Subsequently, however, both parties accused the other of breaching the settlement agreement, and JOMMS sued Hu et al. in New York state court, seeking damages of $400,000. Hu et al. removed that action to the federal court for the Southern District of New York under 28 U.S.C. § 1441(b), whereupon the case was assigned to Judge Ramos.
Hu et al. also filed suits in state and federal court in New Jersey. Those suits were dismissed in favor of the New York state court proceeding. See Brief for Defendants, ECF No. 8, at 7-8.
In a hearing before Judge Ramos on February 7, 2017, JOMMS moved for remand back to New York state court. JOMMS argued, in short, that it had discovered new facts that limited its potential damages award to $40,000, thus depriving the court of diversity jurisdiction. See Complaint, ECF No. 1, Ex. 1 at 10-16. JOMMS represented to Judge Ramos that it would seek no more than $40,000 in damages, and in reliance on this representation, Judge Ramos remanded the action to state court. Id., Ex. 2 at 18-20. Upon remand, however, JOMMS filed a complaint in state court on May 17, 2017 seeking damages "in an amount no less than $40,000 but not to exceed $74,999." Id., Ex. 3 at 22-28. JOMMS also added a claim for rescission of the 2015 settlement agreement, which plaintiffs now allege would effectively result in approximately $160,000 worth of harm to them. Id.
At the September 30 initial pretrial conference before this Court, the Court ordered JOMMS's counsel, Gregory L. Smith, Esq., to immediately amend his state court complaint to comply with his representation to Judge Ramos that he would seek no more than $40,000 in damages. He has now done so. The Court also expressed the tentative view that Mr. Smith should pay damages to plaintiffs' counsel, Anthony N. Iannarelli, Esq., for the breach of the representation in the amount of $7,000, representing compensation at Mr. Iannarelli's typical hourly rate for the time spent preparing the complaint in this action. The Court invited additional briefing from both parties on this issue and on the issue of damages, which the parties have now submitted. ECF Nos. 8 & 10. The Court was also somewhat skeptical whether it would have jurisdiction and/or venue over the underlying breach of settlement dispute, but nonetheless invited plaintiffs to amend their complaint in this action by no later than October 11 to add the underlying breach of settlement claims. Plaintiffs have since done so, and they have also added Mr. Smith in his individual capacity as a defendant in this action. ECF No. 11.
For the reasons that follow, the award of damages from Mr. Smith to Mr. Iannarelli is reduced to $1,000, and the action is otherwise dismissed for lack of subject matter jurisdiction.
As to jurisdiction, there is no doubt that plaintiffs could have re-removed the New York state court action to federal court after JOMMS asserted a claim to rescind the settlement agreement, on the ground that the rescission claim raised the amount in controversy above $75,000 even though the monetary damages pled in conjunction with JOMMS's separate breach claim were less than $75,000. There is, however, a limit on the time within which an action in state court may be removed. In general, an action may only be removed within one year of its commencement, 28 U.S.C. § 1446(c)(1), though a plaintiff's decision to amend its pleading may create a further thirty-day window for removal, 28 U.S.C. § 1446(b)(3). JOMMS filed its complaint asserting a rescission claim on May 17, 2017, but Hu et al. did not file the instant action until September 16, 2019, more than two years later. Plaintiffs have not acted within anything even close to the statutory time limits, and they have offered no explanation for this extended delay. This Court, therefore, has no removal jurisdiction over the breach of settlement claims.
Plaintiffs, however, sought to bring these claims into federal court by filing a new lawsuit, rather than by removing the state court action. But the same analysis still applies. Allowing plaintiffs to disregard the statutory time limits on removal by filing a new action would place form ahead of substance and would render the time limits on removal in 28 U.S.C. § 1446 essentially unenforceable. Moreover, even assuming arguendo that this Court could exercise jurisdiction over a new lawsuit asserting the breach of settlement claims, there is a strong case here for abstention under Colorado River Water Conservation District v. United States, 400 U.S. 800, 818-19, 96 S.Ct. 2239, 48 L.Ed.2d 839 (1976), where these same allegations have already been extensively litigated in New York state court (as well as state and federal courts in New Jersey) over a period of several years. Accordingly, the Court dismisses this lawsuit for want of jurisdiction.
On the issue of damages for Mr. Smith's breach of his representation to Judge Ramos, the Court continues to believe that some sanction is appropriate. Nevertheless, the Court now believes that two factors argue in favor of a lower damages award than the Court suggested at the initial pretrial conference. First, Mr. Smith has reassured the Court that he had no intention of actually seeking monetary damages in excess of $40,000. While he included boilerplate language in the state court complaint – which Mr. Smith concedes was "inartful," ECF No. 8 at 7, and which he has now amended — the only documentation on the issue of damages JOMMS provided to the state court asserted damages of $37,950, which was consistent with Mr. Smith's representation to Judge Ramos. See ECF No. 8, Ex. J at 11. Furthermore, it appears that much of the state court litigation since 2017 has focused on JOMMS's rescission claim, which does not seek monetary damages.
Mr. Iannarelli has repeatedly asserted that rescission of the settlement agreement would cost his clients approximately $160,000, but an adverse holding on a rescission claim is not the same as an award of monetary damages, and the Court does not read Mr. Smith's representation to Judge Ramos to preclude the rescission claim.
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Second, the Court now perceives some troubling indications that Mr. Iannarelli may have brought this action as a bad faith attempt to harass his adversary. The excessive delay before bringing this action suggests bad faith, especially when viewed in conjunction with Mr. Iannarelli's apparent refusal to comply with several discovery orders in the New York state action, as well as his repeated pursuit of appeals in the New Jersey state courts, potentially as a means to avoid an adverse judgment in the New York state proceeding. See ECF No. 8 at 1, 7-8 & Exs. N & O. The Court is also puzzled as to why Mr. Iannarelli could not simply have argued judicial estoppel on the issue of damages in the state court proceeding, as this tactic would have saved him the trouble of filing this lawsuit.
Despite all this, it is true that Mr. Smith filed a complaint in state court that breached his representation to Judge Ramos that he would not seek monetary damages in excess of $40,000. Some sanction on Mr. Smith, and some compensation to Mr. Iannarelli for his time, remains appropriate. The Court will therefore award damages of $1,000 to Mr. Iannarelli from Mr. Smith.
For the foregoing reasons, Mr. Smith is directed to pay Mr. Iannarelli the sum of $1,000, to be paid by no later than October 31, 2019. The case is otherwise dismissed for lack of jurisdiction. The Clerk of the Court is directed to enter final judgment and close the case.
SO ORDERED