Memorandum Opinion and Order - Page 1

IN THE UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

EXCELERON SOFTWARE, INC., §

§

Plaintiff, §

§

v. § Civil Action No. 3:05-CV-2007-L

§

TGEC COMMUNICATIONS COMPANY, §

LLC., et al., §

§

Defendants. §

MEMORANDUM OPINION AND ORDER

Before the court is Plaintiff’s Motion to Remand, filed October 21, 2005. After careful

consideration of the motion, response, briefs, reply, record and applicable law, the court grants

Plaintiff’s Motion to Remand.

I. Procedural and Factual Background

Plaintiff Exceleron Software, Inc. (“Plaintiff” or “Exceleron”) initially filed this action in the

14th Judicial District of Dallas County, Texas on August 8, 2005 against Defendants TGEC

Communications Company, LLC (“TGEC”), Pacific Centrex Services (“Pacific”), and Devin Semler

(“Semler”) (collectively, “Defendants”). Exceleron contends that it entered into an agreement with

TGEC (the “Access Agreement”) to provide TGEC billing software for an initial term of three years.

According to Exceleron, soon after the Access Agreement was executed, Pacific purchased TGEC,

and Exceleron consented to the transfer of the Access Agreement from TGEC to Pacific based upon

representations by Semler (president and chief executive officer of Pacific and TGEC) that he and

Pacific would use their best efforts to comply with the terms of the Access Agreement. Exceleron

contends TGEC and Pacific breached the Access Agreement prior to the expiration of its initial term,

 

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Although the actual demand letter is not part of the record, the parties agree that a demand letter was

sent on this date, stating that the damages allegedly incurred by Exceleron were at least $230,000.

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and that Pacific and Semler fraudulently induced it to consent to the sale of TGEC to Pacific.

Exceleron terminated the Access Agreement and accelerated the remaining payments due according

to the terms of the Access Agreement. Exceleron asserts a claim for breach of contract against

TGEC and Pacific and one for fraudulent inducement against Pacific and Semler. Exceleron also

asserts a claim for attorney’s fees against Defendants pursuant to Tex. Civ. Prac. & Rem. Code Ann.

§ 38.001 (Vernon 1997).

Defendants contend that they are not liable to Plaintiff on any of its claims and that this court

lacks personal jurisdiction over the Defendants in this case. Defendants also contend that Plaintiff

breached the Access Agreement first and that any purported liquidated damages clause is

inapplicable and unenforceable. Defendants further contend that Plaintiff was not fraudulently

induced into signing the Access Agreement. Finally, Defendants contend that Plaintiff is not entitled

to an award of attorney’s fees. Defendants removed the state court action to federal court on

October 11, 2005.

Exceleron sets forth evidence that Defendants were served on August 15, 2005 with respect

to the state law suit. Defendants do not dispute this evidence, and therefore the court accepts it as

true. On September 28, 2005, Defendants received a demand letter from Plaintiff’s counsel stating

that damages of at least $230,000 were due as a result of Defendants’ alleged breach of the Access

Agreement.1

 From what the court can ascertain from the record, the parties agreed to extend the

 

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Exceleron states that there were three extensions, although the record itself does not reflect that three

extensions occurred. In any event, in the final analysis, the extension of time is of no moment, as Defendants

do not assert it as a basis that their removal is timely.

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time for Defendants to file their answer in state court to October 4, 2005.2 Defendants filed no

answer in state court and removed this action on October 11, 2005.

Exceleron contends that the removal of this action was not timely pursuant to 28 U.S.C. §

1446(b) because it was not removed within thirty days of Defendants’ receipt of the summons and

complaint. Defendants contend that the action was timely removed because it was removed within

thirty days after the receipt of an “other paper” (the demand letter) from which they could first

ascertain that the case was removable to federal court. The issues for the court to decide are whether

Defendants timely removed this action pursuant to 28 U.S.C. § 1446(b) and whether the action

should be remanded to state court.

II. Plaintiff’s Motion to Remand

A. Applicable Law

The procedure that a defendant must follow in removing an action from state to federal court

is set forth in 28 U.S.C. § 1446. This statute provides in relevant part: 

The notice of removal of a civil action or proceeding shall be

filed within thirty days after the receipt by the defendant, through

service or otherwise, of a copy of the initial pleading setting forth the

claim for relief upon which such action or proceeding is based, or

within thirty days after the service of summons upon the defendant

if such initial pleading has then been filed in court and is not required

to be served on the defendant, whichever period is shorter.

If the case stated by the initial pleading is not removable, a

notice of removal may be filed within thirty days after receipt by the

defendant, through service or otherwise, of a copy of an amended

pleading, motion, order or other paper from which it may first be

ascertained that the case is one which is or has become removable,

except that a case may not be removed on the basis of jurisdiction

 

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A federal court has subject matter jurisdiction over cases arising under the Constitution, laws, or

treaties of the United States, or in cases where the matter in controversy exceeds $75,000, exclusive of interest

and costs, and diversity of citizenship exists between the parties. See 28 U.S.C. §§ 1331, 1332(a). The

parties do not dispute that diversity of citizenship exists between the parties or that the amount in controversy

exceeds the jurisdictional threshold. The only disputed issue is when Defendants were sufficiently put on

notice that the amount in controversy exceeded $75,000 to start the running of the removal clock.

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conferred by section 1332 of this title more than 1 year after

commencement of the action.

28 U.S.C. § 1446(b).

B. Analysis

Exceleron takes the position that August 15, 2005, the date Defendants were served with the

summons and Plaintiff’s Original Petition (“Petition”), started the running of the removal clock.

According to Exceleron, Defendants had until September 14, 2005, thirty days from the date of

service, to remove the state action to federal court. Defendants, on the other hand, contend that the

thirty-day period for removal did not commence to run until they received the demand letter on

September 28, 2005 from Exceleron and could first ascertain that the case was removable. Stated

another way, Defendants contend that September 28, 2005 was when they could first determine that

the amount in controversy, exclusive of interest and costs, exceeded $75,000 and was therefore

removable.3

 Defendants thus contend that the thirty days did not run until October 28, 2005.

The time limit for removal of an action depends on which paragraph of section 1446(b) is

applicable. The first paragraph of section 1446(b) relates solely to removals based on “an initial

pleading setting forth the claim for relief upon which such action or proceeding is based.” 28 U.S.C.

§ 1446(b). The second paragraph, by the plain language of the statute, comes into play only if “the

case stated by the initial pleading is not removable.” Id. With respect to an initial pleading, “[t]he

time limit in the first paragraph of section 1446(b) is triggered ‘only when that pleading

 

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“Establish” means “to put beyond doubt” or “prove.” MERRIAM-WEBSTER’S COLLEGIATE

DICTIONARY 427 (11th ed. 2004).

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affirmatively reveals on its face that the plaintiff is seeking damages in excess of the minimum

jurisdictional amount of the federal court.’ ” Bosky v. Kroger Texas, LP, 288 F.3d 208, 210 (5th Cir.

2002) (quoting Chapman v. Powermatic, Inc., 969 F.2d 160, 163 (5th Cir. 1992)) (emphasis in

original and footnote omitted). The court must therefore determine whether the Petition, the initial

pleading, affirmatively reveals on its face that the amount in controversy exceeds $75,000.

A cursory review of the Petition readily reveals or discloses that the amount that Exceleron

seeks exceeds $75,000, the jurisdictional threshold. There is nothing indeterminate, nebulous, or

vague about the amount of damages sought in the Petition. Indeed, the Petition does not just

“reveal” on its face that the amount Exceleron seeks is greater than $75,000; it establishes4

 that

Exceleron seeks more than $75,000 against Defendants. The Petition states unequivocally that the

term of the Access Agreement was for three years or until May 1, 2007; that the monthly license fee

started at $6,000 and increased by $2,000 after each six-month interval, with the maximum monthly

license fee not to exceed $10,000 for the remainder of the duration of the Access Agreement; that

Defendants have failed to pay the monthly fee since June 1, 2005 and have been in breach since this

date; and that all amounts owed under the Access Agreement are due and payable immediately.

Plaintiff’s Original Petition ¶¶ 10-12, 19-20. Upon review of the Petition, a modicum of effort and

a couple of simple mental calculations immediately reveal and establish that Exceleron is seeking

at least $230,000 ($10,000 per month multiplied by the 23 remaining months under the terms of the

Access Agreement). Even if one were to accept the beginning monthly fee of $6,000 per month (see

Plaintiff’s Original Petition ¶ 11) as the basis for the alleged monthly loss, the amount of damages

 

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Since the court has determined that the initial pleading affirmatively reveals on its face that the

amount Exceleron seeks is in excess of $75,000, the second paragraph of section 1446(b) is of no moment

in this case. Accordingly, the court will not address Defendants’ arguments related to the receipt of the “other

paper” (demand letter).

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claimed would be $138,000 ($6,000 x 23 months), far greater than the jurisdictional threshold of

$75,000.

The Petition sets forth on its face express allegations as to the monetary amount of damages.

Since the initial pleading affirmatively reveals and establishes on its face that the amount in

controversy exceeds $75,000, the thirty-day time limit under the first paragraph of section 1446(b)

began to run on August 15, 2005, the date on which Defendants were served with the Petition. The

thirty-day time period expired on September 14, 2005. As Defendants did not remove this action

until October 11, 2005, the removal is untimely.5

In light of arguments made by the parties, the court believes several other matters warrant

its attention. The court finds it interesting that Exceleron would use as support for its position a

Michigan case, Mielke v. Allstate Ins. Co., 472 F.Supp. 851 (E.D. Mich. 1979), which has been

rejected by the Fifth Circuit. See Chapman, 969 F.2d at 163. In Mielke, the initial pleading did not

contain a specific demand or request for damages; however, the plaintiff sent the defendant copies

of medical expenses which revealed that he sought damages in excess of the jurisdictional threshold.

Because of the initial pleading and the other documents submitted to the defendant, the court in

Mielke determined that the removal was untimely, as the defendant should have known or

ascertained from the original complaint and medical bills and expenses that the amount sought by

the plaintiff was in excess of the jurisdictional threshold. See Mielke, 472 F.Supp. at 853. In

rejecting the holding in Mielke and establishing a rule that a pleading affirmatively reveal on its face

that the amount sought exceeds the jurisdictional threshold, the Fifth Circuit did so because such a

 

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rule “promotes certainty and judicial efficiency by not requiring [a court] to inquire into what a

particular defendant may or may not subjectively know.” Chapman, 969 F.2d at 163. In adopting

this rule, the Fifth Circuit rejected the requirement in Mielke that a defendant exercise “due

diligence.” Id. Due diligence, however, is not an issue in this case, as Defendants were not required

to do any investigation or research to determine whether the amount sought by Exceleron exceeded

$75,000; they only had to read the express allegations of the Petition to know that the amount in

controversy exceeded $75,000.

Although Mielke is of no assistance to Exceleron, this is of no moment, as both Chapman

and Bosky provide all the legal support necessary to establish that Defendants did not timely remove

this case. Chapman and Bosky, as previously demonstrated, require that the initial pleading reveal

on its face that a case is removable. For the reasons previously discussed by the court, the Petition

satisfies this rule. 

Defendants take the position that Exceleron was required to plead a specific allegation that

the damages were in excess of the jurisdictional threshold. This argument takes applicable circuit

precedent out of context, constitutes an overly restrictive reading of Chapman and Bosky, and

ignores key provisions of both opinions. Defendants hang on the following passage from Chapman:

We believe the better policy is to focus the parties’ and the court’s

attention on what the initial pleading sets forth, by adopting a bright

line rule requiring the plaintiff, if he wishes the thirty-day time period

to run from the defendant’s receipt of the initial pleading, to place in

the initial pleading a specific allegation that damages are in excess of

the federal jurisdictional amount.

Chapman, 969 F.2d at 163. This language cannot be read in a vacuum. If it literally means what

Defendants contend, it is wholly inconsistent with the earlier statement of the rule that the initial

pleading must only affirmatively reveal on its face that the amount sought exceeds the jurisdictional

 

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Addo v. Globe Life and Accident Ins. Co., 230 F.3d 759, 761 (5th Cir. 2000) (citing Chapman to show

that the Fifth Circuit had not previously decided whether a post-complaint letter concerning settlement terms

constituted an “other paper” within the meaning of 28 U.S.C. § 1446(b)); S.W.S. Erectors, Inc. v. Infax, Inc.,

72 F.3d 489, 494 (5th Cir. 1996) (citing Chapman for the proposition that a defendant’s subjective knowledge

in a removal case under 28 U.S.C. § 1446(b) cannot convert it into a removable action); and Leffall v. Dallas

Indep. Sch. Dist., 28 F.3d 521, 525 (5th Cir. 1994) (reaffirming the “affirmatively reveal” language of

Chapman). 

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threshold. Further, this passage is “sandwiched” between the initial pronouncement of the rule and

the summation of the court’s holding in Chapman. As part of its summation, the court reiterated the

requirement that an initial pleading reveal on its face that the amount in controversy exceeds the

jurisdictional threshold, Chapman, 969 F.2d at 165; however, the court restated no requirement that

the initial pleading contain a specific allegation that the amount sought exceeds the jurisdictional

threshold. Id. To avoid inconsistency with the stated rule, the language in Chapman requiring a

plaintiff to plead specifically that damages exceed the jurisdictional threshold comes into play only

if the allegations of the initial pleading do not affirmatively reveal or establish that the amount in

controversy exceeds $75,000.

Moreover, the quoted passage on which Defendants rely heavily does not enjoy widespread

application or utility by the Fifth Circuit. Since the Chapman decision in 1992, Bosky and three

other cases6

 are the only published Fifth Circuit cases that even discuss or mention Chapman. None

of these three cases makes any mention of the language in Chapman that requires a plaintiff to plead

specifically that the amount in controversy exceeds the jurisdictional threshold. Bosky, however,

makes it unequivocally clear that a specific allegation in the initial pleading that the amount in

controversy exceeds the jurisdictional threshold is not required in every instance.

The court finds illustrative and informative language in Bosky that eviscerates Defendants’

rigid and draconian interpretation that the initial pleading must contain a specific allegation that the

 

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amount sought exceeds the jurisdictional threshold. Subsequent to the holding in Chapman, the

Fifth Circuit stated: “We have since held that specific damage estimates that are less than the

minimum jurisdictional amount, when combined with other unspecified damage claims, can provide

sufficient notice that an action is removable so as to trigger the time limit for filing a notice of

removal.” Bosky, 288 F.3d at 210 (footnote omitted). Literal and strict interpretation of Chapman

simply “does not hold water.” If the Fifth Circuit can hold that “specific damage estimates,”

“combined with the other unspecified damage claims” can start the running of the removal clock,

this court simply cannot fathom why specifically pleaded allegations regarding damages (not

estimates or unspecified damage claims), set forth in the Petition, that obviously exceed the

jurisdictional threshold, do not start the removal clock for Defendants. A district court should

always use a common-sense approach to determine whether it is “facially apparent” that the amount

sought exceeds the jurisdictional threshold. See Allen v. R & H Oil & Gas Co., 63 F.3d 1326, 1337

(5th Cir. 1995). The Petition provides more than sufficient notice to Defendants that the amount

sought exceeds $75,000. The court determines that the allegations in the Petition regarding damages

sought are clear and specific, and affirmatively reveal and establish on the face of the Petition that

the amount in controversy exceeds the jurisdictional threshold. To hold otherwise would be fatuous,

cause an obviously absurd result, and abandon a common-sense approach. Defendants did not file

their notice of removal within thirty days of service of the Petition, and therefore their removal is

untimely under section 1446(b). Since the removal is untimely, this action must be remanded to

state court.

III. Attorney’s Fees

 

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Exceleron requests the court to require “Defendants to pay Exceleron its costs, expenses and

attorneys’ fees incurred in connection with this improper removal.” Plaintiff’s Motion to Remand

at 9. Section 1447(c) provides that “[a]n order remanding the case may require payment of just costs

and any actual expenses, including attorney fees, incurred as a result of the removal.” 28 U.S.C. §

1447(c). There is no “automatic entitlement to an award of attorney’s fees.” Valdes v. Wal-Mart

Stores, Inc., 199 F.3d 290, 292 (5th Cir. 2000). In applying section 1447(c), the court must consider

“whether the defendant had objectively reasonable grounds to believe the removal was legally

proper.” Id. at 293.

The issue of attorney’s fees is a close call. In hindsight and in light of this opinion, one

could make a strong argument that the conduct of Defendants was objectively unreasonable;

however, there is that part of the Chapman opinion which states that the initial pleading must

contain a specific allegation that damages exceed the jurisdictional threshold before the removal

clock commences to run. Defendants had a right to rely on this language. Although the court did

not agree with Defendants, it had to “slice some awfully thin sausage” in reaching its conclusion,

given the confusing language in Chapman. That a court ultimately disagrees with a party is not a

basis to determine that an initial act or strategy is objectively unreasonable. After consideration of

all the circumstances, the court is persuaded that Defendants had objectively reasonable grounds to

remove this action to federal court.

 

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IV. Conclusion

For the reasons stated herein, the court determines that Defendants did not timely remove

this action to federal court within thirty days as required by 28 U.S.C. § 1446(b). The court

therefore grants Plaintiff’s Motion to Remand, and remands this action to the 14th Judicial District

Court, Dallas County, Texas. The clerk of the court shall effect the remand in accordance with the

usual procedure. As the case is remanded, the court does not consider Defendants’ Rule 12(b)(2)

Motion to Dismiss for Lack of Personal Jurisdiction.

It is so ordered this 23rd day of December, 2005.

_________________________________

Sam A. Lindsay

United States District Judge

 

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