United States District Court, Southern District of New York
February 11, 2002
PADUANO & WEINTRAUB LLP AND ANTHONY PADUANO, PLAINTIFF,
WACHOVIA SECURITIES, DEFENDANT.
The opinion of the court was delivered by: VICTOR Marrero, united States District Judge.
DECISION AND ORDER
On January 11, 2002, plaintiffs Paduano & Weintraub LLP and Anthony
Paduano ("Paduano") filed this action in the New York State Supreme
Court, New York County. Paduano sought "a declaratory judgment stating
that there is no conflict of interest under the Code of professional
Responsibility in the present or future representation by Petitioners of
clients opposing Wachovia Securities based on the alleged prior
representation of Wachovia Securities or IJL" and an order that "Wachovia
Securities cease threatening or making motions to disqualify
petitioners." (Petition at ¶¶ A & B.) According to Paduano, this
action is necessitated by defendant Wachovia Securities's ("Wachovia")
"frivolous" motion to disqualify Paduano from representing Prudential
Securities, Inc. ("Prudential") that Wachovia filed in an on-going
arbitration between prudential and Wachovia commenced in July 2001.
Neither party has sought a stay of that arbitration proceeding between
prudential and Wachovia.
On January 14, 2002, the State Supreme Court issued an ex parte order
to show cause and granted Paduano leave to conduct expedited discovery.
Wachovia's opposition papers and discovery responses were due on January
24, 2002. Rather than responding to that order, Wachovia removed the
matter to this Court on January 22, 2002, invoking diversity jurisdiction
under 28 U.S.C. § 1332.
Paduano resubmitted the petition for an order to show cause that it had
to the state court. This Court ordered additional briefing and
held a hearing in the matter on February 7, 2002, to determine whether it
has jurisdiction. On the record before it, the Court concludes that it
lacks jurisdiction over the present dispute.
A removable civil action is one over which a United States district
court would "have original jurisdiction." 28 U.S.C. § 1441. Removal
jurisdiction, therefore, may be founded on either subject matter or
diversity jurisdiction.*fn1 See 28 U.S.C. § 1331 and 1332. The
burden of establishing that a case falls within the Court's removal
jurisdiction falls upon the removing party, here, Wachovia. See New York
v. Lutheran Ctr. for the Aging, 957 F. Supp. 393, 397 (E.D.N.Y. 1994);
Rossbach v. Lorillard, Inc., 71 F. Supp.2d 221, 222 (S.D.N.Y. 1999);
28 U.S.C. § 1446(a) (Subject to Fed. R. Civ. P. 11, the party seeking
removal of an action to the federal courts shall file "a short and plain
statement of the grounds for removal."). To meet its burden, Wachovia
must "support [jurisdictional] facts with `competent proof' and "justify
[its] allegations by a preponderance of evidence.'" United Food &
Commercial Workers Union, Local 919, AFL-CIO v. CenterMark Properties
Meriden Square, Inc., 30 F.3d 298, 304-05 (2d Cir. 1994) (quoting McNutt
v. General Motors Acceptance Corp. of Indiana, 298 U.S. 178, 189
Because federal courts are courts of limited jurisdiction, courts must
police subject matter delineations on their own initiative. See Ruhrgas AG
v. Marathon Oil Co., 526 U.S. 574, 583 (1999) (citing Fed. R. Civ. P.
12(h)); Lyndonville Savings Bank & Trust Co. v. Lussier, 211 F.3d 697,
700 (2d Cir. 2000) ("[F]ailure of subject matter jurisdiction is not
waivable and may be raised at any time by a party or by the court sua
sponte."); Creaciones Con Idea, S.A. de C.V. v. Confecciones, S.A. de
C.V., 75 F. Supp.2d 279, 280-81 (S.D.N.Y. 1999) (sua sponte dismissal for
lack of subject matter jurisdiction under 28 U.S.C. § 1332).
Likewise, in this Circuit, courts "construe the removal statute
narrowly, resolving any doubts against removability." Somlyo v. J. Lu-Rob
Enters., Inc., 932 F.2d 1043, 1046 (2d Cir. 1991); see also Rossbach,
71 F. Supp. 2d at 222; Negrin v. Alza Corp., No. 98 Civ. 4772, 1999 WL
144507 at *1 (S.D.N.Y. March 17, 1999)). As such, if "it appears that the
district court lacks subject matter jurisdiction, the case shall be
remanded." 28 U.S.C. § 1447; Lutheran Center for the Aging, 957 F.
Supp. at 393 (ordering remand where defendant failed to establish subject
Diversity jurisdiction is appropriate where "the matter in controversy
exceeds the sum or value of $75,000, exclusive of interests and costs,
and is between . . . citizens of different States." 42 U.S.C. § 1332.
There is no dispute that Paduano and Wachovia have diversity of
citizenship under 28 U.S.C. § 1332. However, based on the parties'
written submissions and oral arguments, Wachovia has not established by a
preponderance of the evidence that Paduano's claims meet the amount in
Where injunctive relief is at issue, the value of the right protected
injury sought to be avoided, constitutes the measure of the amount
in controversy. Kheel v. Port of New York Authority, 457 F.2d 46, 49 (2d
Cir.), cert. denied, 409 U.S. 983 (1972). If it appears to a legal
certainty that the amount in controversy requirement cannot be met, the
district court lacks jurisdiction. See Saint Paul Mercury Indemnity Co.
v. Red Cab Co., 303 U.S. 283, 288-89 (1938); McLaughlin v. NASD,
733 F. Supp. 694, 697 (S.D.N Y 1990). It follows that a party may not
rely upon a claim for damages that may not be legally awarded under state
law in order to meet the threshold amount in controversy requirement.
See Schwartz v. Victory Container Corp., 294 F. Supp. 866, 867 (S.D.N Y
Paduano filed this action for a declaratory judgment and an
injunction. Accordingly, the value of the controversy must be measured by
the underlying rights Paduano seeks to vindicate. At oral argument,
Wachovia argued that the rights at issue consist of: (1) the value of the
underlying arbitration between Wachovia and Prudential; and (2) the total
sum of all attorneys fees Paduano will earn for its representation of
prudential in the underlying arbitration and may earn for legal services
that it might render in the future, on behalf of clients adverse to
Wachovia. According to Wachovia, the cumulative pecuniary value of these
rights would clearly exceed the $75,000 threshold.
At best, Wachovia's assertions are speculative. At worst, they raise
serious constitutional questions. First, the only dispute before this
Court is the action filed by Paduano, on its own behalf, against
Wachovia. For the purposes of § 1332, these parties are the "citizens
of different states" which have a "controversy" before this Court.
42 U.S.C. § 1332. The underlying arbitration between Prudential and
Wachovia is not before this Court. Accordingly, the Court will not
consider the monetary value involved in that arbitration in calculating
the amount in controversy at stake in this separate and distinct
Wachovia's citation to Hough v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., 757 F. Supp. 283 (S.D.N.Y. 1991) is unavailing. It is entirely
correct that the court in Hough assessed the amount in controversy by
reference to the amount at stake in the underlying arbitration. Id. at
285-86. That assessment, however, was based on the fact that plaintiffs
in the subsequent district court action were the original claimants in
the arbitration who were effectively seeking to vacate the arbitration
The facts in the present dispute are distinguishable in several
material respects. First, the merits of the underlying arbitration are
not and cannot be at issue here. Neither party has moved to stay the
arbitration, and it is doubtful that there would be sufficient grounds to
impose such a stay. Second, the controversy before the Court is an action
between Paduano, not a party to the arbitration, and Wachovia based on
legal claims that are separate and distinct from those at issue in the
arbitration. Thus, Hough does not support the amount in controversy
assessment advanced by Wachovia here.
Second, the Court finds no legal authority on which to support a grant
of the prospective relief in the declaratory judgment sought by Paduano.
"The existence of a real case or controversy is an irreducible minimum of
the jurisdiction of the federal courts" even where the relief requested
is declaratory. United States v. City of New York, 972 F.2d 464, 469 (2d
Cir. 1992) (citations omitted); Hansel v. U.S. Supreme Court, No.
97-6107, 1998 WL 88045, at *1 (2d Cir. Jan. 29, 1998); see also
28 U.S.C. § 2201 (permitting declaratory judgments to be issued only
"in a case of actual controversy"). A declaration of
rights may only be sought where an actual case or controversy exists, that
is "definite and concrete," not abstract or hypothetical. Aetna Life
Ins. Co. v. Haworth, 300 U.S. 227, 241 (1937).
The only case or controversy before the Court is that of Paduano's
current representation of prudential. To the extent that Paduano seeks a
"going-forward" declaration of its right to represent any and all clients
adverse to Wachovia in any and all future matters, Paduano's interests
are remote and speculative. It would require the Court to make
unsupported assumptions not only as to the amount of fees Paduano would
charge, but more significantly that under whatever facts and
circumstances prevailing in every such case, Paduano's representation of
the client involved would not conflict with Paduano's past representation
of Wachovia. Any such declaration would be in excess of this Court's
authority under Article III, Section 2 of the United States
Constitution. Accordingly, the Court excludes from the calculation of
amount in controversy the value of any future attorneys fees that Paduano
might possibly bill in the future for its representation of clients
adverse to Wachovia.
Thus more narrowly tailored, a district court legally could award a
declaratory judgment only with respect to the controversy immediately
before it. On the record before the Court, Wachovia has not shown a
reasonable probability that Paduano would stand to gain in excess of
$75,000 for the legal services it will render to prudential in connection
with the underlying arbitration. At oral argument on February 7, 2002,
Wachovia opined that Paduano would enjoy billing prudential five times
the jurisdictional amount, but provided no factual substantiation that
the underlying arbitration might be worth $75,000 to Paduano in fees.*fn2
By affidavit, Wachovia indicated that Paduano had charged
Interstate/Johnson Lane $70,000 over four years of legal representation.
(Affidavit of Pamela P. Warnement, at ¶ 12.) This figure, however,
has no direct relationship to the underlying arbitration. Wachovia,
therefore, asks the Court to infer jurisdiction; such an inference would
be both unreasonable on the record before the Court and
Despite being afforded an "`appropriate and reasonable opportunity to
show good faith in believing that a recovery in excess of [the
jurisdictional amount] is reasonably possible,`" A.F.A. Tours, Inc. v.
Whitchurch, 937 F.2d 82, 88 (2d Cir. 1991) (quoting Arnold v. Troccoli,
344 F.2d 842, 846 (2d Cir. 1965)), Wachovia did not meet its burden. On
the record before it, the Court must conclude that Wachovia did not
properly invoke diversity jurisdiction. As such, the matter must be
remanded to the state courts.
For all of the foregoing reasons, it is hereby
ORDERED that the Clerk of Court remand this action pursuant to
28 U.S.C. § 1447 to the State Supreme Court, New York County, and
transfer all necessary documents and records to that court; and it is
ORDERED, that the Clerk of Court's directed to close this case.