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Interface Security Systems, L.L.C. v. Edwards

March 30, 2006

INTERFACE SECURITY SYSTEMS, L.L.C., PLAINTIFF/COUNTER-DEFENDANT,
v.
JEFFREY R. EDWARDS, DEFENDANT/COUNTER-PLAINTIFF.



The opinion of the court was delivered by: Joe Billy McDADE United States District Judge

ORDER

Before the Court is Plaintiff/Counter-Defendant, Interface Security Systems, L.L.C.'s ("Interface") Motion to Vacate Arbitrator's Award [Doc. #28]; Defendant/Counter-Plaintiff, Jeffery R. Edwards' ("Edwards") Motion to Strike and Dismiss the Motion to Vacate Arbitrator's Award [Doc. #31]; Edwards' Motion for Attorney's Fees and Costs [Doc. #33]; Edwards' Motion for Sanctions [Doc. #37]; Interface's Motion to Strike Reply [Doc. #47]; and Interface's Motion to Strike Edwards' Response to Information Regarding Arbitration Decision [Doc. #48].

Normally parties agree to arbitration as a means of avoiding complex, time-consuming and costly litigation in court. See Hasbro, Inc., v. Catalyst USA, Inc., 367 F.3d 689, 690 (7th Cir. 2004). This, however, has not been the fate of the parties in the instant case. Instead, this case serves as a striking example of what the Federal Arbitration Act ("FAA"), 9 U.S.C. 1 et seq., was intended to avoid. "What initially appeared to have been a relatively uncomplicated lawsuit has now escalated into an extraordinarily complex matter, which has consumed the resources of not only the parties, but also commanded a considerable amount of the attention of this Court . . . ." Great American Trading Corp. v. I.C.P. Cocoa, Inc., 629 F.2d 1282, 1288 (7th Cir. 1980).

Rather than simply file a response to Interface's Motion to Vacate Arbitrator's Award or, better yet, file a counter-motion to confirm the arbitration award, Edwards filed a series of frivolous motions creating a complex web of litigation that reads no different than Alice's Adventures in Wonderland. This Court is mind-boggled as to why Edwards' counsel chose to proceed in such a manner, and, even more troubled with the arguments he chose to advance in support thereof. In fact, counsel appears to be a bit like Alice, tumbling down the rabbit hole with no clue as to how deep he has actually fallen.

I. BACKGROUND

Interface is a limited liability company organized and existing under the laws of the State of Louisiana, with its principle place of business in St. Louis County, Missouri. Interface is in the business of developing, selling, installing, and monitoring electronic security systems. Edwards, on the other hand, resides in Rock Island, Illinois, and was employed as a sales representative for Interface from August 1998 until June 16, 2003, when he voluntarily resigned.

On August 8, 2003, Interface filed a complaint in this Court against Edwards seeking temporary, preliminary and permanent injunctive relief as well as other damages for breach of contract, violation of the Lanham Act -- 15 U.S.C. § 1125, common law unfair competition, tortuous interference with prospective economic relations, and misappropriation of trade secrets [Doc. #1]. On August 21, 2003, the Court entered a temporary restraining order against Edwards. The following day, Edwards denied Interface's allegations and filed a counterclaim seeking recovery of unpaid commissions, bonus pay, vacation pay, sick leave and expense allowances [Doc. #13].

At a hearing conducted on September 4, 2003, regarding Interface's motion for a preliminary injunction against Edwards, the parties entered into an oral settlement agreement partially resolving the disputes that were pending before this Court. The settlement agreement was then reduced to writing on October 7, 2003, and filed with this Court the following day as a signed "Stipulation" by the parties [Doc. #15]. The Stipulation contained the following provision:

4. That the parties hereto stipulate and agree that

[t]he counterclaim of [Edwards] in this case, with any amendments thereto or thereof, shall be submitted to binding arbitration by the parties before a United States Magistrate Judge on a mutually agreed upon date in Rock Island, Illinois.

As a result of the Stipulation, the Court entered the following Order on October 8, 2003:

1. That the stipulation of the parties is reasonable, and the parties are hereby ordered to comply with its terms.

2. The Temporary Restraining Order entered against the defendant on August 21, 2003, in this cause of action is hereby dissolved and vacated.

3. That the Complaint of plaintiff should be and is hereby dismissed with prejudice, each party to bear its own costs and attorney's fees.

4. The parties are ordered to inform the court of the biding arbitration decision entered as to the counterclaim, so that the court can enter an order dismissing the counterclaim in this case.

5. This case is referred to Magistrate Judge Gorman for all further pretrial proceedings. [Doc. #16] (emphasis added). Magistrate Judge John A. Gorman later instructed the parties that he lacked the authority to hear the counterclaim as an arbitrator. The parties eventually agreed to have retired State Court Judge Ronald Taber arbitrate the counterclaim and, on November 8, 2004, this case was stayed pending the arbitration decision. The parties were again instructed to return to this Court upon the completion of the arbitration decision.

On June 2, 2005, an arbitration hearing was held before Judge Taber, and on June 30, 2005, he entered an award in favor of Edwards for $66,206 in damages and attorney's fees. In reaching his decision, the arbitrator made the following relevant findings:*fn1

1) Edwards was the procuring agent of contracts with the Corps of Engineers worth $690,135.38 for commission purposes. Of that amount commissions on $555,583.43 were governed by the 2001 Sales Plan. The remaining $135,555 of commissions was governed by the 2002 Sales Plan.

2) Edwards was the procuring agent of a contract with Koehler Company worth $55,419. For commission purposes the 2002 Sales Plan governed.

3) That Interface's authorized agents agreed with Edwards that both the Corps of Engineers contracts and the Koehler contract were 45% gross margin contracts.

4) That there was no bonus plan under the 2001 Sales Plan but Edwards was due $2,681.48 under the 2002 Sales Plan.

5) Edwards is not entitled to any further unpaid vacation or sick leave amounts.

6) That the 1/3, 1/3, 1/3 requirements under the "commissions eligibility" terms of both plans determine "when" commissions are due but do not determine the amount due.

7) That proper notice and demand was made by Edwards pursuant to Illinois law and therefore attorney's fees are assessed in the amount of $12,225.00.

As a result of the arbitration decision, Interface filed a Motion to Vacate the Arbitrator's Award on July 29, 2005. That same day, this Court lifted the stay on these proceedings. It did not take Edwards long, however, to respond by filing a series of motions: (1) Motion to Strike and Dismiss the Motion to Vacate the Arbitrator's Award; (2) Motion for Attorney's Fees and Costs; and (3)Motion for Sanctions. In turn, Interface filed two motions to strike responses filed by Edwards in violation of the Local Rules of this Court.

II. ANALYSIS

As an initial matter, Edwards' contends that this Court lacks subject matter jurisdiction to review the arbitrator's award. Therefore, before turning to the merits of Interface's Motion to Vacate the Arbitrator's Award, this Court will first address Edwards' Motion to Strike and Dismiss the Motion to Vacate the Arbitrator's Award. See Illinois v. City of Chicago, 137 F.3d 474, 478 (7th Cir. 1998) ("Subject-matter jurisdiction is the first question in every case, and if the court concludes that it lacks jurisdiction it must proceed no further.").

A. EDWARDS' MOTION TO STRIKE AND DISMISS THE MOTION TO VACATE THE ARBITRATOR'S AWARD.

In his Motion to Strike and Dismiss, Edwards inexplicably argues that this Court lacks jurisdiction to review the arbitrator's award for two reasons. First he argues that the Court lacks subject matter jurisdiction over his counterclaim and the resulting arbitration award because the "amount-in-controversy" requirement has not been met. Second, he argues that the FAA does not apply to the arbitration award and, therefore, this Court lacks jurisdiction or authority to review Interface's Motion to Vacate the Arbitrator's Award.

1). Subject Matter Jurisdiction Exists Over Edwards' Counterclaim And The Resulting Arbitration Award.

Because federal district courts are courts of limited jurisdiction, there are two basic kinds of controversies over which this Court has original jurisdiction to hear: (1) suits "arising under the Constitution, laws, or treaties of the United States" --- federal question jurisdiction; and (2) suits "between citizens of different states" --- diversity of citizenship jurisdiction. U.S. Const. art. III, §§ 1-2; 28 U.S.C. §§ 1331-32. In addition to original jurisdiction, this Court has supplemental jurisdiction "over all other claims that are so related to claims in the action within [the Court's] original jurisdiction that they form part of the same case or controversy . . . ." 28 U.S.C. § 1367(a).

The parties agree that Edwards' counterclaim does not raise a substantial federal question; therefore, this Court's must determine whether either diversity or supplemental jurisdiction exists. A court normally, however, will not invoke its authority to review a claim under supplemental jurisdiction if an independent basis for original jurisdiction can be found.*fn2

For this Court to have diversity jurisdiction over the instant matter, two basic requirements must be met: (1) the parties must be citizens of different states; and (2) the amount-in-controversy must exceed the sum or value of $75,000, exclusive of interest and costs. 28 U.S.C. § 1332(a); Neuma, Inc. v. AMP, Inc., 259 F.3d 864, 881 (7th Cir. 2001). It is the amount-in-controversy requirement that is at issue in this case.

In support of its claim that this Court lacks diversity jurisdiction over the instant matter, Edwards makes two simple, but very flawed arguments: (1) that because the arbitration decision did not result in a monetary award of greater than $75,000, the jurisdictional "amount-in-controversy" requirement has not been met; and (2) that despite his pleadings, his counterclaim never met the amount-in-controversy requirement because it was never actually worth in excess of $75,000.

However, it has been "long-established" that the jurisdictional amount is based on the sum or value placed in controversy at the time the complaint is filed, not the amount of the eventual recovery. Grinnell Mut. Reinsurance Co. v. Shierk, 121 F.3d 1114, 1116-17 (7th Cir. 1997) ("the requirements for diversity jurisdiction must be satisfied only at the time the suit is filed"). A party seeking to invoke diversity jurisdiction need not prove that the amount-in-controversy exceeds $75,000; rather, he need only plead in good faith that there is a reasonable possibility that he can recover this amount. See Neuma, 259 F.3d at 881. As the Supreme Court summed up:

The general federal rule has long been to decide what the amount in controversy is from the complaint itself, unless it appears or is in some way shown that the amount stated in the complaint is not claimed in good faith. In deciding this question of good faith we have said that it must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal.

Horton v. Liberty Mut. Ins. Co., 367 U.S. 348, 353 (1961) (internal quotations omitted). Thus, courts will not second-guess the amount placed in controversy if apparently made in good faith.

But once a federal court determines that the amount-in-controversy exceeds the jurisdictional requirement based on the claimant's good faith pleading, "the fact that subsequent events reduce the total amount in controversy will not divest the court of diversity jurisdiction." Shierk, 121 F.3d at 1116. As the Seventh Circuit carefully explained:

A defect in diversity jurisdiction exists, if at all, only when a case is filed in a federal court . . . . If a jurisdictional defect in existence when a suit is filed remains uncured, then any judgment in the case must be vacated and the case must be dismissed. But events occurring subsequent to the filing . . . ---whether one party changes its residence, thereby destroying complete diversity, or the amount in controversy drops below the jurisdictional [requirement] -- are not 'defects' in the court's jurisdiction; these subsequent events do not affect a federal court's diversity jurisdiction at all.

Shierk, 121 F.3d at 1117 (emphasis added).

Here, Edwards originally filed his counterclaim against Interface on August 22, 2003, alleging in Count I damages for unpaid commissions - $23,299.93, bonuses - $14,056, vacation pay - $1,384, sick leave - $3,598, and other expense allowances -$1,200. [Doc. #13]. In Count II of his counterclaim, he pled a cause of action for exemplary damages in an amount not to exceed three times the amount of his unpaid commissions pursuant to 820 ILCS 120/3 ($23,299.93 x 3 = $69,899.79). Id. Therefore, the total amount-in-controversy was $90,137.79 ($69,899.79 $14,056 $1,384 $3,598 $1,200 = $90,137.79), well above the jurisdictional requirement. Edwards later amended his counterclaim on January 21, 2004, dropping Count II, but pleading damages in the amount of $84,776.37 in Count I. [Doc. 19]. This, again, was above the jurisdictional requirement.

Thus, relying on the amount-in-controversy pled in Edwards' complaint, and without any indication "that the amount stated in the complaint [was] not claimed in good faith[,]" it cannot be said that, when Edwards filed his counterclaim, "it appear[ed] to a legal certainty that the claim [was] really for less than the jurisdictional amount . . . ." Horton, 367 U.S. at 353 (internal quotations omitted). As a result, it is without question that this Court had diversity jurisdiction over Edwards' counterclaim at the time it was first filed. Accordingly, "jurisdiction once gained is not defeated by subsequent events . . . . Otherwise . . . the jurisdictional rug might be pulled out from under [a party] at any time." Chicago Typographical Union No. 16 v. Chicago Sun-Times, Inc., 935 F.2d ...


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