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June 30, 1999


The opinion of the court was delivered by: Brewster, Senior District Judge.


I. Introduction

The Court considers whether it should stay or dismiss the case pending before it based on the arbitration provision contained in the contract between Plaintiff and Defendant. In short, the Court decides the arbitrability of the case.

II. Background

Plaintiff is Ken Bosinger ("Bosinger"), the sole owner of K-Tronics. Defendant is Phillips Plastics Corp. ("PPC"). Prior to his termination, Bosinger dba K-Tronics acted as the exclusive sales representative for PPC in the San Diego market on an independent contractor basis. Compensation was solely in the form of commissions.

The parties signed the contract in question, one of an apparent series of such agreements, on September 1, 1997. The parties' relationship began in March, 1993. Shortly after this signing, on approximately October 10, 1997, Plaintiff alleges PPC arbitrarily designated certain lucrative accounts he had been working to establish for PPC as "house accounts" for which he was no longer entitled to commission. (Compl. ¶ 15-19.) Four months later, PPC notified Bosinger that he would be terminated as its manufacturer's sales representative, and he was terminated on May 3, 1998. (Compl. ¶ 16.) Plaintiff alleges that PPC deliberately took these actions to deprive him of commissions resulting from the large volume of sales subsequently made to certain customers. Plaintiff specifically asserts the following causes of action: fraud, breach of contract, breach of the covenant of good faith and fair dealing, conversion, unfair business practices, unjust enrichment, accounting, and quantum meruit.

Over the course of their relationship, PPC had Bosinger sign approximately fifteen new or amended sales representative agreements. A review of the pleadings indicates that the last, and perhaps last two, of these agreements contained an arbitration clause, requiring that "[a]ny dispute, controversy, or claim arising out of or relating to this Agreement or the relationship between the parties shall be settled by binding arbitration in accordance with the rules of the American Arbitration Association ("AAA")." (Emphasis added.) Defendant PPC argues that the clause mandates that this Court dismiss, or, at minimum, stay this litigation until the parties have taken their dispute to arbitration.

In his Complaint, Bosinger claims that his signature on the agreement at issue was the result of coercion from PPC. In particular, Plaintiff notes: "The agreements or amendments were usually forced upon K-TRONICS weeks before a substantial client contracted with PPC." (Compl. ¶ 11.) Plaintiff also disputes the applicability of this arbitration agreement on the basis that the agreement(s) are illusory and void on their face because PPC could avoid paying commissions by the simple means of designating an account a "house account." (Compl. ¶ 14.)

III. Jurisdiction

The Court first considers its jurisdiction. This case was removed to federal court by Defendant on the grounds of diversity jurisdiction. See 28 U.S.C. § 1332, 1441. However, the Complaint does not allege a specific amount in controversy. Thus, the Court must first consider whether the amount in controversy requirement contained in Section 1332 is met.

The party seeking to invoke the jurisdiction of the federal courts has the burden of proving the existence of jurisdiction, see NcNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189, 56 S.Ct. 780, 80 L.Ed. 1135 (1936), and the burden of proof in removal cases is on the defendant. See Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 97, 42 S.Ct. 35, 66 L.Ed. 144 (1921); Gaus v. Miles, Inc., 980 F.2d 564, 566-67 (9th Cir. 1992) (per curiam) ("[T]he defendant bears the burden of actually proving the facts to support jurisdiction, including the jurisdictional amount."). The removal statute is strictly construed against removal jurisdiction. See Boggs v. Lewis, 863 F.2d 662, 663 (9th Cir. 1988). "[I]n cases where a plaintiff's state court complaint does not specify a particular amount of damages, the removing defendant bears the burden of establishing, by a preponderance of the evidence, that the amount in controversy exceeds [$75,000]." Sanchez v. Monumental Life Ins. Co., 102 F.3d 398, 404 (9th Cir. 1996). The burden is one of "actually proving the facts to support jurisdiction." Gaus, 980 F.2d at 567.

Defendant asserts only that "Plaintiff is seeking damages in excess of the amount of $75,000, exclusive of interest and costs. Although no dollar amount appears on the face of the Complaint, plaintiff has indicated in writing that he values his claim against defendant at almost $2,000,000.00." (Notice of Removal, ¶ 6(b).) Without submitting an affidavit or documents to support that allegation, the allegation verges on the conclusory.

In the situation where a defendant does not meet its burden of proof, a federal court has several options. It may either: "(1) look to the petition for removal, (2) make an independent appraisal of the amount of the claim, or suggest that the defendant is free to do so, or (3) remand the action." Chapman v. Powermatic, Inc., 969 F.2d 160, 163 n. 6 (5th Cir. 1992). Ninth Circuit case law suggests that a district court may follow either options (2) or (3). In Gaus, involving the same basic fact pattern in the instant matter, the court enunciated a standard that imposed a strict requirement on a defendant to prove that the amount in controversy was satisfied. With a plaintiff not alleging an amount of damages in his or her complaint, the defendant must actually prove the facts supporting the jurisdictional basis for removal. Id. at 567. Simple allegations — i.e., "the amount in controversy exceeds $75,000" — are insufficient; instead, the underlying facts supporting removal must be stated in the removal notice itself. Id. With only a conclusory statement regarding amount before it, the Gaus court vacated defendants' judgment and remanded the matter to the district court with instructions to remand the case to the state court.

This case is not Gaus. Here, as noted, Defendant does point to — though does not provide — specific evidence upon which bases its conclusion that the amount in controversy exceeds $75,000. The better practice would be to submit an affidavit or documentary evidence of this belief with the notice of removal. However, as such evidence may not always be available to a removing defendant, to require such proof might defeat removal in an instance where a plaintiff declined to plead a specific amount of damages and a defendant could not readily ascertain the approximate amount of damages a plaintiff seeks within thirty days. Moreover, while it ...

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