Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_10-cv-00525/USCOURTS-azd-2_10-cv-00525-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition for Removal- Breach of Contract

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Charles Court Construction, Inc., an

Arizona corporation, 

Plaintiff, 

vs.

Geri Scott and Charles Thomas Scott,

husband and wife, 

Defendants. 

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No. CV-10-00525-PHX-NVW

ORDER

On June 18, 2010, the Court ordered Defendants to show cause why this action

should not be remanded for lack of removal jurisdiction (Doc. 21). As Defendants have

not successfully demonstrated the existence of removal jurisdiction, the case will be

remanded.

I. Legal Standard

Federal courts may exercise removal jurisdiction over a case only if subject matter

jurisdiction existed over the action as originally brought by the plaintiff. 28 U.S.C. §

1441(a); Toumajian v. Frailey, 135 F.3d 648, 653 (9th Cir. 1998). If at any time before

final judgment it appears that the district court lacks subject matter jurisdiction over a

case removed from state court, the case must be remanded. 28 U.S.C. § 1447(c). There is

a strong presumption against removal jurisdiction. See Gaus v. Miles, Inc., 980 F.2d 564,

566 (9th Cir. 1992). Therefore, the removing party bears the burden of establishing

Case 2:10-cv-00525-NVW Document 30 Filed 08/24/10 Page 1 of 4
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subject matter jurisdiction as a basis for removal. Emrich v. Touche Ross & Co., 846

F.2d 1190, 1195 (9th Cir. 1988). All ambiguities are resolved in favor of remand. 

Hunter v. Philip Morris USA, 582 F.3d 1039, 1042 (9th Cir. 2009). 

In order to establish federal subject matter jurisdiction, the removing party must

demonstrate that either diversity or federal question jurisdiction existed at the time of

removal. Id. (citing 28 U.S.C. § 1441). District courts have diversity jurisdiction over

civil actions between citizens of different states where the amount in controversy exceeds

$75,000, exclusive of interest and costs. 28 U.S.C. § 1332(a). Diversity of citizenship

exists only where there is complete diversity, that is, “where the citizenship of each

plaintiff is different from that of each defendant.” Hunter, 582 F.3d at 1043. 

Furthermore, if the only basis for removal is diversity jurisdiction, the action is removable

only if none of the defendants is a citizen of the state in which the action was brought. 28

U.S.C. § 1441(b). 

In addition to diversity of citizenship, the amount in controversy must exceed

$75,000 for diversity jurisdiction to exist. In the removal context, the inquiry into the

amount in controversy is not confined to the face of the complaint. See Valdez v. Allstate

Ins. Co., 372 F.3d 1115, 1117 (9th Cir. 2004). The Court may also consider facts

presented in the removal petition and “summary-judgment-type evidence relevant to the

amount in controversy at the time of removal.” Id. If the amount in controversy is not

facially evident from the complaint, the removing party must prove by a preponderance of

the evidence that the amount in controversy exceeds the jurisdictional threshold. 

Matheson v. Progressive Specialty Ins. Co., 319 F.3d 1089, 1090 (9th Cir. 2003); Sanchez

v. Monumental Life Ins. Co., 102 F.3d 398, 404 (9th Cir. 1996). “Conclusory allegations

as to the amount in controversy are insufficient.” Matheson, 319 F.3d at 1090-91. 

III. Analysis

Here Defendants have removed solely on the basis of diversity jurisdiction. 

Diversity of citizenship is satisfied because, as indicated in both the Notice of Removal

(Doc. 1) and the Complaint (Doc. 1-1), Plaintiff is a citizen of Arizona and Defendants

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are citizens of Texas. The amount-in-controversy requirement, however, has not been

met. The amount sought by Plaintiff is not apparent from the face of the Complaint,

which alleges that Plaintiff “had to pay a significant amount in interest and penalties to

the Internal Revenue Service” because Defendant Geri Scott allegedly redesignated

approximately $700,000 from accounts receivable to undeposited funds. Rather than

stating the actual amount Plaintiff had to pay in interest and penalties, the Complaint

merely seeks damages “in an amount to be proven at trial.” Therefore, Defendants must

prove by a preponderance of the evidence that the amount in controversy exceeds the

jurisdictional threshold. 

The only evidence submitted by Defendants is an estimate from Mr. Gary Leonard

Woodard, II, J.D., C.P.A., that Defendant Geri Scott’s redesignation of approximately

$700,000 from accounts receivable to undeposited funds “would constitute a clear case of

tax fraud” that would subject Plaintiff to a penalty in the approximate amount of

$178,500. Mr. Woodard, II, further estimates that in addition, Plaintiff will likely incur

more than $30,000 in attorneys’ and accountants’ fees throughout this litigation. These

estimates are insufficient to demonstrate, by a preponderance of the evidence, that the

amount in controversy exceeds $75,000.

First, the amount in controversy is determined as of the date of removal. See

Valdez, 372 F.3d at 1117 (court may consider summary-judgment-type evidence relevant

to the amount in controversy “at the time of removal”). That Plaintiff may be liable for

tax fraud does not mean that the IRS actually found Plaintiff liable or that Plaintiff has

already paid anything remotely close to $178,500 in interest and penalties. The estimate

is no more than a mere possibility at this stage. The same goes for the estimate of future

attorneys’ fees, which are entirely speculative, may be avoided, and are therefore not “in

controversy” at the time of removal. Even if attorneys’ fees incurred after the date of

removal are properly included in the amount in controversy, Defendants have presented

no evidence of Plaintiff’s counsel’s hourly rates or the tasks that will more likely than not

be performed throughout the litigation. Therefore, this case must be remanded.

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IT IS THEREFORE ORDERED that the Clerk remand this case to the Arizona

Superior Court, Maricopa County.

DATED this 23rd day of August, 2010.

Case 2:10-cv-00525-NVW Document 30 Filed 08/24/10 Page 4 of 4