By Kevin M. Hogan and Sean C. McPhee  |  The Daily Record  |  Friday, May 17, 2019

Western District Case Notes

Subject Matter Jurisdiction—Amount in Controversy

In Estate of Gallo v. Bob Evans Rest., No. 17-CV-118-LJV-JJM (Jan. 29, 2019), an action initially commenced in state court but removed by defendants based on diversity of citizenship, the Magistrate Judge issued an order to show cause why the action should not be remanded based on defendants’ failure to demonstrate that the amount in controversy was sufficient to establish the Court’s subject matter jurisdiction. Thereafter, the Magistrate Judge found that less than $75,000 was in controversy and recommended remand. Defendants objected on the ground that plaintiff’s settlement demand exceeded $75,000, but the District Judge adopted the recommendation and remanded the action to state court. In doing so, the Court first observed that federal courts have a duty to inquire about their subject matter jurisdiction sua sponte, even where the parties do not contest the issue. The Court then noted that settlement offers can often be “wildly unrealistic and constitute mere puffery or posturing rather than a fair or realistic appraisal of a party’s damages.” And, although defendants had the option of requesting discovery to develop the record, they did not do so. Thus, their reliance on plaintiff’s settlement demand was insufficient to carry their burden to establish the amount in controversy. Finally, the Court found that defendants’ request to limit plaintiff’s damages to $75,000 on remand was moot in light of plaintiff’s stipulation to that fact.

Personal Jurisdiction

In irth Solutions, LLC v. Apex Data Solutions & Servs, LLC, No. 18-CV-6884-FGP-JWF (Jan. 22, 2019), plaintiff sought damages, a temporary restraining order and a preliminary injunction, contending that defendants misappropriated its trade secrets. In response, defendants moved to dismiss based on lack of personal jurisdiction and also opposed plaintiff’s request for injunctive relief. The Court first considered whether it had personal jurisdiction over defendants and determined that it did. In reaching this conclusion, the Court agreed with defendants that long arm jurisdiction under CPLR 302(a)(2)—the basis articulated in plaintiff’s complaint—was lacking because, under that subsection, defendants must have committed a tortious act within New York and their contact with plaintiff’s computer server located here did not amount to physical presence in New York. Nonetheless, the Court found that long arm jurisdiction was proper under CPLR 302(a)(1) because defendants transacted business in New York and plaintiff’s claims arose from those business transactions. The Court then found that the due process inquiry required when exercising long arm jurisdiction was satisfied because “the same facts that establish the transaction of business also establish minimum contacts here.” Plaintiff’s request for injunctive relief was denied, however, because: (i) plaintiff failed to show a likelihood of success on the merits of its trade secrets claims since it did not adequately identify the trade secrets it sought to protect; (ii) its claims were speculative; and (iii) it did not demonstrate any hardship beyond the speculative threat of loss of customers. As a result, both motions were denied.

FDCPA and Article III Standing

In Leonard v. Capital Mgmt. Servs., No. 18-CV-90-GWC (Feb. 4, 2019), an action brought under the Fair Debt Collection Practices Act (“FDCPA”), plaintiff claimed that defendant sent her a deceptive and misleading consumer debt collection letter because it provided that “[s]ettling a debt for less than the balance owed may have tax consequences and [the creditor] may file a 1099C form.” Defendant moved to dismiss, arguing that plaintiff lacked Article III standing because there was no concrete injury. It also sought dismissal because the challenged language was true and accurate, and thus not deceptive or misleading under the FDCPA. Turning first to the standing requirement, the Court observed that a plaintiff must establish that an “injury in fact” which is both “concrete and particularized” and “actual and imminent” was suffered; that the injury was caused by the defendant’s act or omission; and that a favorable resolution of the case is likely to redress the injury. The Court then found that plaintiff established her Article III standing by alleging that she suffered an “informational injury” that caused her to reject defendant’s settlement offer for fear of being reported to the IRS. In other words, by alleging that defendant violated her right to be free from “false, deceptive, or misleading practices” by a debt collector, plaintiff satisfied the injury-in-fact requirement of Article III. The Court then found that, when applying the “least sophisticated consumer” standard underlying the FDCPA, plaintiff stated a plausible claim that the challenged statement in defendant’s letter was misleading or deceptive. In reaching this conclusion, the Court found that a reasonable interpretation of the language in defendant’s letter is that settling the debt for less than the total due could expose plaintiff to adverse tax consequences, which might be false because a creditor is not required to issue a form 1099-C if the cancelled debt is under $600. As such, defendant’s motion was denied.

Class Actions

In Haag, et al v. Hyundai Motor America, No. 12- CV-6521-DGL (Mar. 5, 2019), a putative class action of car buyers seeking damages under New York’s General Business Law Section 349, based on allegations that defendant misrepresented and omitted material facts about an alleged vehicle defect at the time of purchase, plaintiff moved for certification of the class pursuant to Rule 23. The Court first found that plaintiff established the four prerequisites to certification under Rule 23(a), of numerosity, commonality, typicality, and fair and adequate representation of the class. The Court also found that plaintiff had shown by a preponderance of the evidence that the allegation of a defect, the defendant’s conduct with respect to that defect, and the materiality of any alleged omissions by defendant were common questions that could be expected to predominate over any individual ones, as required by Rule 23(b). The Court, however, denied refused to certify the class because plaintiff did not also demonstrate that common issues predominated with respect to the injuries allegedly suffered by the class members, which the Court determined was also required by Rule 23(b). The Court held that plaintiff had not produced any evidence of an injury common to the class under her diminution in value/overpayment damages theory, and therefore denied the motion.

Rule 41 Stay

In Thompson, et al v. Spin the Planet, Inc., et al., No. 18-CV-6755-CJS (Feb. 11, 2019), a class action alleging violations of New York and Massachusetts labor laws, defendants moved to dismiss the complaint and, alternatively, to stay the action pending payment of costs from a prior action. The Court granted the motion to dismiss in part, ruling that the complaint did not establish a basis for specific personal jurisdiction over the claims arising from activities in Massachusetts under Massachusetts law. The Court then considered the motion to stay under Rule 41(d), which provides that, if a plaintiff who previously dismissed an earlier action files a second action based on or including the same claims against the same defendant, the Court may order the plaintiff to pay all or part of the cost of that prior action and stay the new proceedings until the plaintiff has complied. Here, the Court found that the instant action was based on the same operative claims as a prior action between the same parties. The Court therefore held that the New York labor law claims should be stayed pending submission of proof that plaintiff had paid the prior action’s costs.

Stay of Discovery

In Reyes,et al v. W.D. Henry & Sons, Inc., et al., No. 18-CV-1017-LJV-LGF (Feb. 7, 2019), a class action alleging violations of the Migrant and Seasonal Agricultural Workers Protection Act, the Fair Labor Standards Act, and New York’s labor law, and breach of contract, plaintiff served voluminous discovery on defendants prior to the Rule 26(f) conference. Before responding, defendants filed a motion for summary judgment and a motion to stay discovery pending a decision. The Court first observed that a stay of discovery was vested in its sound discretion, and required it to consider such relevant factors as whether the pending motion based on substantial grounds, potential prejudice to the opposing party, the extensiveness of the requested discovery, and the burden of such discovery on the other parties. Here, the Court found that defendants’ motion for summary judgment had substantial merit, plaintiffs would not suffer substantial prejudice if permitted to serve only targeted discovery directed solely at the pending summary judgment motion, and otherwise the significant discovery served by plaintiffs would impose a significant burden on defendants. The Court thus concluded that the balance of the relevant factors weighed in favor of defendants and, for that reason, granted their motion to stay the proceeding pending consideration of the summary judgment motion.

Kevin M. Hogan is the Managing Partner at Phillips Lytle LLP. He concentrates his practice in litigation, intellectual property and environmental law. He can be reached at or (716) 847-8331. Sean C. McPhee is a partner with Phillips Lytle LLP where he focuses his practice on civil litigation, primarily in the area of commercial litigation. He can be reached at or (716) 504-5749.