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Jet AirParts, LLC v. Regional One, Inc.

United States District Court, D. Kansas

October 30, 2018

JET AIRPARTS, LLC, Plaintiff,
v.
REGIONAL ONE, INC., Defendant.

          MEMORANDUM AND ORDER

          ERIC F. MELGREN UNITED STATES DISTRICT JUDGE.

         Defendant Regional One, Inc. removed this case on June 28, 2018, and filed a motion to stay litigation and compel arbitration on the following day. Plaintiff Jet AirParts, LLC did not initially respond to Defendant's motion to stay and compel arbitration, but instead filed a motion to remand arguing that this Court lacks subject-matter jurisdiction because the amount in controversy does not exceed $75, 000. On September 11, 2018, Plaintiff filed a motion to stay Defendant's motion to compel arbitration and for leave to file its response to Defendant's motion to stay litigation and compel arbitration out of time. The Court granted Plaintiff's request for leave to file its response out of time, but did not rule on Plaintiff's motion to the extent it sought to stay Defendant's motion to compel arbitration. This matter comes before the Court on Plaintiff's Motion to Remand (Doc. 10), Defendant's Motion to Stay Case, including Answer Date and Jury Trial Demand, Application for Arbitration, and Motion for Relief under 28 U.S.C. § 1927 (Doc. 6), and Plaintiff's Motion to Stay (Doc. 14). For the reasons stated below, the Court denies Plaintiff's motion to remand, denies Defendant's motion to stay and compel arbitration and for relief under 28 U.S.C. § 1927, and denies as moot Plaintiff's motion to stay.

         I. Factual and Procedural Background

         A. March 2018 lawsuit

         On March 26, 2018, Plaintiff filed a petition in the Cowley County District Court alleging that Defendant breached its contract with Plaintiff and committed tortious interference with a contract Plaintiff had with a vendor. Plaintiff alleged that it had an opportunity to purchase airplane parts (“Material”) from a vendor, with an understanding that the vendor would buy back parts from the Material once inspected and certified. The vendor's intended purchases were expected to cover a significant portion of the purchase price of the Material. Defendant financed the purchase of the Material under the parties' Consignment Agreement. Under the Consignment Agreement, Plaintiff agreed to a commission schedule of 10% of the net proceeds of the Material parts sales up to $3.4 million and then 40% thereafter. Plaintiff agreed to this commission schedule in reliance on the fact that a significant portion of the Material would be sold back to the vendor. Prior to execution of the Consignment Agreement, the vendor sold or scrapped parts from the Material and only delivered part of the Material to Plaintiff in Kansas. Defendant entered into a separate agreement with the vendor to receive airplane parts of equivalent value to replace the missing parts from the Material. The vendor delivered those parts to Defendant's place of business in Florida and Defendant did not make those parts available to Plaintiff for inspection, evaluation, repair, overhaul, or sale. Instead, Defendant sold some or all of the parts, but did not credit the sales under the Consignment Agreement or pay Plaintiff a commission.

         Plaintiff's tortious interference claim alleged that it had an agreement with the vendor to buy back inspected and certified parts as needed from the Material, that the vendor's intended purchases were expected to account for a substantial part of the $3.4 million in sales required for Plaintiff to reach the 40% commission on further sales, and that Defendant engaged in several arguments and disputes with the vendor such that the vendor refused to purchase parts from the Material so long as Defendant owned the Material. Plaintiff alleged that Defendant's actions caused it to suffer damages in lost commissions from anticipated sales to the vendor as well as reduced commissions on sales of the Material.

         Plaintiff's breach of contract claim alleged that Defendant received parts to replace those that were to be included in the Material and that Defendant failed to make them available to Plaintiff for sale. Plaintiff sought damages in the amount of a 40% commission on the net proceeds from the sale of these parts.[1]

         On May 2, 2018, Defendant removed the action to federal court on the basis of diversity jurisdiction. It filed a motion to stay deadlines and compel arbitration six days later.[2] On May 22, 2018, Plaintiff filed a Notice of Voluntary Dismissal Pursuant to Fed.R.Civ.P. 41(a)(1)(A)(i), and dismissed the case without prejudice.

         B. May 2018 lawsuit

         On the same day that Plaintiff voluntarily dismissed the first federal lawsuit, it filed a second state court action in Cowley County District Court. Plaintiff's second petition repeated several of the factual allegations contained in the first. Plaintiff again alleges that it had an opportunity to purchase Material from a vendor, with an understanding that the vendor would buy back parts from the Material once inspected and certified by Plaintiff. Defendant financed the purchase of the Material under the Consignment Agreement, which provided a commission schedule that the parties agreed to recognizing that a significant portion of the Material would be sold back to the vendor. Defendant engaged in several disputes with the vender such that the vendor refused to purchase any parts from the Material. While the second petition contains several of the same factual allegations, it does not repeat all of the allegations contained in the first petition, it contains additional allegations, and it contains different claims for relief.

         Plaintiff alleges that the Consignment Agreement expired on February 7, 2016, that the Consignment Agreement shall not automatically renew unless by agreement between the parties in writing, and that the parties did not agree to renew the Consignment Agreement. After the Agreement expired Plaintiff continued to sell parts of the Material. From February 2016 through December 2017, Plaintiff sold parts from the Material to third parties for $857, 048 without any objection from Defendant. Plaintiff retained 40% of the sales on these parts as commission, with the remainder payable to Defendant. In January 2018, a third party offered to purchase the remaining Material in Plaintiff's possession for $180, 000. Defendant objected to this sale and will not allow Plaintiff to consummate the transaction.

         While the first petition briefly notes that Plaintiff is storing the Material for Defendant, the second petition adds additional factual allegations relating to storage. It claims that Plaintiff stores parts for other customers and charges a storage fee unless it receives commissions on the sale of the parts, and claims that its average storage charge for the number of parts in the remaining Material was $2, 500 per month for the 27 preceding months.

         Plaintiff's second petition does not allege that Defendant committed a tortious interference with contract, and does not allege that Defendant breached the Consignment Agreement. Its prayer for relief seeks an order either (1) directing Defendant to approve the sale of the Material or for a judgment in amount of the lost commission on the sale Defendant allegedly refused to approve in 2018, or alternatively, (2) judgment in an amount equal to the alleged storage fees incurred since the expiration of the Consignment Agreement.

         Defendant removed the second state court action to federal court on June 28, 2018, again on the basis of diversity jurisdiction. In support of removal, Defendant included an affidavit from its general counsel, Joseph Schwantes. The affidavit states that, “the claims Jet Airparts, LLC made in its petition, if proven true, would meet or exceed $75, 000.00 in claimed damages.” Specifically, Schwantes alleges that the Material Plaintiff seeks to sell is worth considerably more than $180, 000 and “if Jet AirParts LLC's allegation that it is entitled to a 40% commission were proven true, it would be entitled to $75, 000 or more in damages.” It also claims that if Jet Airparts “is entitled to recover $2, 500 per month in storage fees, . . . then it would be entitled to $75, 000 or more in damages.”

         On August 2, 2018, Plaintiff filed a motion to remand asserting that this Court lacks subject-matter jurisdiction over the claims. Specifically, Plaintiff argues that the amount in controversy necessary for diversity jurisdiction has not been met, and accordingly, this case must be remanded to state court.[3]

         C. Motion to compel arbitration and for relief under 28 U.S.C. § 1927

         Shortly after removing the second state court petition, Defendant filed a motion to stay litigation and compel arbitration of Plaintiff's claims. Defendant argues that the claims in this lawsuit fall under the parties' agreement to arbitrate contained in the Consignment Agreement. The Consignment Agreement includes a dispute resolution provision, which states:

16. DISPUTE RESOLUTION. If a dispute arises relating to the Agreement and related damages, if any, (the “Dispute”) the Parties shall first seek to resolve the Dispute amicably.
16.1. If the Parties are unable to resolve the Dispute amicably within thirty (30) days of one Party giving notice to the other of the Dispute then either Party may request that the Dispute be settled and finally determined by binding arbitration in Dallas County, Texas, or other location as agreed by the Parties, in accordance with Commercial Arbitration Rules of the American Arbitration Association, by one or more arbitrators appointed in accordance with said Rules. The arbitrator(s) may hold pre-hearing conferences or adopt other procedures. Reasonable examination of opposing witnesses in an oral hearing will be permitted. Each Party will bear its own cost of presenting or defending its position in the arbitration. The award of the arbitrator(s) shall be final, binding, and non-appealable and judgment may be entered thereon in any court having jurisdiction hereof. The Agreement shall be interpreted and applied in accordance with the substantive laws of the State of Florida, without giving effect to its conflict of law provisions, rules, or procedures (except to the extent that the validity, perfection, or creation of any lien or security interest hereunder and the exercise of rights or remedies with respect of such lien or security interest for a particular item of the Material are governed by the laws of a jurisdiction other than Florida).
16.2. Each of the Parties intend that the dispute resolution process set forth in this Article shall be the Parties' exclusive remedy for any Dispute. All statements made in connection with the dispute resolution process set forth in this Article shall not be disclosed to any third party except as required by law or subpoena.
16.3. Either Party may at any time, without inconsistency with this Article, seek from a court of competent jurisdiction any equitable, interim, or provisional relief to avoid irreparable harm or injury.

         The Consignment Agreement also includes provisions regarding its term and termination that state:

9. TERM. The term of this Agreement shall remain in effect for thirty-six (36) months commencing on the date first written above. This Agreement shall not automatically renew unless by agreement between the Parties in writing.
. . . .
9.2. Winding Down Upon Conclusion of Agreement. Upon conclusion, through either expiration, termination or cancellation, of this Agreement, the Parties shall cooperate in the orderly winding down of the terms and conditions of this Agreement to the mutual satisfaction of both Parties. Jet AirParts shall notify Regional One in writing when the Material is available for re-delivery to Regional One and shall ship such Material to Regional One's facilities or to another location to be advised by Regional One at Jet AirParts' expense.
9.3. Survival. Section 10 (“Warranties”), 11 (“Taxes”), 13 (“Governing Law”), 15 (“Compliance with Laws”), and 17 (“Excusable Delay”) shall survive termination, whether through expiration or cancellation, of this Agreement for as long as necessary to accomplish the purposes of the provisions.

         The Agreement calls for the application of Florida law to “[t]he terms of this Agreement and the transactions hereunder.” Defendant argues that the arbitration agreement in the Consignment Agreement covers the claims in the current lawsuit and that Plaintiff must submit those claims to arbitration. Plaintiff argues that its current claims arose after the Consignment Agreement expired, that no written agreement to arbitrate existed at the time the claims in this case arose, and that its claims are not subject to the Consignment Agreement's arbitration provision. In a separate filing, it also asked that the Court stay ruling on the request to compel arbitration until after ruling on the motion to remand.[4]

         Defendant's motion also seeks relief under 28 U.S.C. § 1927 for Plaintiff's alleged unreasonable and vexatious multiplication of proceedings. Defendant asserts that Plaintiff acted improperly in dismissing its first lawsuit and filing a second lawsuit, and argues that Plaintiff should have simply amended his claims in the first lawsuit and its failure to do so stems from an overt attempt to avoid federal jurisdiction. Plaintiff's actions allegedly resulted in a duplication of efforts on the part of Defendant and extended Plaintiff's time to seek remand and respond to the motion to compel. Plaintiff argues that it did not multiply proceedings because the claims in the two lawsuits relate to different events and that the claims in the second lawsuit did not arise until after the first lawsuit had been filed.

         II. Discussion

         A. Motion to Remand

         1. Legal Standard

         Generally, “any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.”[5] “Federal removal jurisdiction is statutory in nature and is to be strictly construed.”[6] “ ‘There is a presumption against removal,' . . . [and] doubts about the validity of removal are resolved in favor of remand.”[7] The Court must remand the action “[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction.”[8] “Subject matter jurisdiction under 28 U.S.C. § 1332(a) requires, in addition to diversity of citizenship, an amount in controversy in excess of ‘$75, 000, exclusive of interest and costs.' ”[9]

         Title 28, U.S.C. § 1446 governs the procedures for removing a civil action. It addresses removal when the state court pleading identifies a specific damages request:

(2) If removal of a civil action is sought on the basis of the jurisdiction conferred by section 1332(a), the sum demanded in good faith in the initial pleading shall be deemed to be the amount in controversy, except that--
(A) the notice of removal may assert the amount in controversy if the initial pleading seeks--
(i) nonmonetary relief; or
(ii) a money judgment, but the State practice either does not permit demand for a specific sum or permits recovery of damages in excess of the amount demanded; and
(B) removal of the action is proper on the basis of an amount in controversy asserted under subparagraph (A) if the district court finds, by the preponderance of the evidence, that the amount in controversy ...

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