Opinion ID: 563800
Heading Depth: 2
Heading Rank: 1

Heading: The Jurisdictional Amount

Text: 33 The district courts have jurisdiction over civil diversity suits where the matter in controversy exceeds the sum or value of $50,000, exclusive of interest and costs. 28 U.S.C. Sec. 1332 (1988). The test for determining whether a plaintiff meets the jurisdictional amount, established by the Supreme Court in St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 58 S.Ct. 586, 82 L.Ed. 845 (1938), is as follows: 34 The rule governing dismissal for want of jurisdiction in cases brought in the federal court is that, unless the law gives a different rule, the sum claimed by the plaintiff controls if the claim is apparently made in good faith. It must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify a dismissal. 35 303 U.S. at 288-89, 58 S.Ct. at 590 (emphasis added). 36 The amount of damages recoverable in an action for misappropriation of trade secrets may be measured either by the plaintiff's losses, see, e.g., Timely Products Corp. v. Arron, 523 F.2d 288, 304 (2d Cir.1975); see generally 2 R. Milgrim, Milgrim on Trade Secrets (Milgrim) Sec. 7.08[a], at 7-314 to 7-318 (1990), or by the profits unjustly received by the defendant, see id.; Electro-Miniatures Corp. v. Wendon Co., 771 F.2d 23, 27 (2d Cir.1985). In addition, if punitive damages are permitted under the controlling law, the demand for such damages may be included in determining whether the jurisdictional amount is satisfied. See generally 14A C. Wright & A. Miller, Federal Practice and Procedure Sec. 3702, at 44 (1985) (Wright & Miller). New York law apparently allows the recovery of punitive damages in a trade secrets case if the defendant's conduct has been sufficiently gross and wanton. See, e.g., Huschle v. Battelle, 33 A.D.2d 1017, 308 N.Y.S.2d 235 (1st Dep't 1970), aff'd, 31 N.Y.2d 767, 338 N.Y.S.2d 622, 290 N.E.2d 823 (1972). 37 Further, in appropriate circumstances, the owner of trade secrets may obtain an injunction against their use or disclosure by another in breach of his confidential relationship with the owner. See Bridge C.A.T. Scan Associates v. Technicare Corp., 710 F.2d 940, 946 (2d Cir.1983). Where the plaintiff seeks injunctive relief, the value of his claim is generally assessed with reference to the right he seeks to protect and measured by the extent of the impairment to be prevented by the injunction. See generally 1 Moore's Federal Practice p 0.96 (2d ed. 1991); 14A Wright & Miller Sec. 3708, at 143-44. In calculating that impairment, the court may look not only at past losses but also at potential harm. See generally id. at 146-49. 38 Before making a determination that the plaintiff's claim does not meet the jurisdictional minimum, the court must afford the plaintiff an appropriate and reasonable opportunity to show good faith in believing that a recovery in excess of [the jurisdictional amount] is reasonably possible. Arnold v. Troccoli, 344 F.2d 842, 846 (2d Cir.1965). Under these substantive and procedural principles, although the record indicates that AFA has not yet suffered actual damages even approaching $50,000, we have difficulty with the district court's decision. 39 First, though AFA did not make an evidentiary showing in support of its contention that the value of its claims exceeded $50,000, it was not afforded a proper opportunity to do so. The issue of the jurisdictional amount was first raised by the district court sua sponte at the argument on the summary judgment motion, and the court rendered its decision at the end of that argument. To the extent that the court thought AFA could not meet the jurisdictional minimum, it should not have dismissed without giving AFA an opportunity to present substantiation directed toward that issue. 40 Second, despite AFA's lack of an opportunity to present evidence addressed directly to the jurisdictional question, there was evidence in the record to suggest that the matter could not be conclusively resolved against it, for the oral arguments made by AFA's attorney to show that its claims were worth more than $50,000 had some support from documents already before the court. For example, he said Whitchurch had the names of some 1,500 AFA customers; this was consistent with (a) Whitchurch's own statement that in the 17 years he was employed by AFA he had led approximately seven tours each year (thus totaling some 119 tours) and (b) his attorney's statement that there were usually 10-15 people per tour. If there were no repeat customers among the persons Whitchurch escorted, he could have escorted some 1,785 AFA tour participants (119 X 15). As to AFA's attorney's estimate that a single tour of this type [i]s about seven to ten thousand dollars per customer, the evidence in the record as to the destination and deluxe nature of the tours, including evidence that some participants traveled first class and reserved preferred hotel accommodations, supports an inference that a 28-day tour could well cost $10,000 per person. 41 What this means in terms of loss of earnings to a tour operator, however, is not revealed by the present record. AFA's suggestion that the tour operator himself would earn $10,000 per tourist (i.e., that such a tour would produce more than fifty thousand dollars to Mr. Whitchurch  (Tr. 19 (emphasis added))) does not have the same record support and seems questionable. The district court was also undoubtedly correct in its assumption that many of the persons who traveled to the South Pacific with Whitchurch during the 17 years he was with AFA are not likely to travel to that area again. But it could not be said to a legal certainty that no one would return to that area. There was ample support in the record for the proposition that AFA has the prospects for repeat customers. For example, AFA had submitted from one of its brochures two pages excerpting comments from participants in a recent AFA tour (the commenters being identified only by their initials and city of residence); nearly one-third of those quoted indicated that they either had been on other AFA tours or would hope to go on future AFA tours. Indeed, an exhibit submitted by Whitchurch stated that one of the couples in a group he was to escort had been on 11 AFA tours. And two of the 100-200 former AFA South Pacific tour participants contacted by Whitchurch signed up for Whitchurch's proposed tour to the same area. If a tour operator could earn 17% of the price of a tour, and if Whitchurch were eventually successful in soliciting even 30 of the approximately 1,500 AFA participants he has escorted (i.e., 2%, which may reflect the ratio of his success on his first attempt), the profit he could siphon from AFA would total $51,000. Thus, on the present record, the court could not conclude to a legal certainty that the value of AFA's claims did not exceed the jurisdictional minimum. 42 Further, AFA requested injunctive relief not just against Whitchurch's solicitation of its customers but also against any use of the information. Presumably such an injunction would include a prohibition against Whitchurch's sale or disclosure of the names and addresses of AFA's customers to other tour operators who might be better equipped than Whitchurch to exploit the information and attract more than 2% of the persons whose names Whitchurch could provide them. In addition, AFA's request for punitive damages in the amount of $250,000 might provide a basis for satisfaction of the jurisdictional amount. Whether or not AFA will be able to prove that Whitchurch's conduct was gross and wanton and warrants the recovery of such damages under New York law is an open question. But the present record does not foreclose that possibility. 43 In all the circumstances, we conclude that the record as it existed in the district court did not permit the court to find with legal certainty that the value of AFA's claims did not exceed $50,000.