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United States of America Chess Federation, Inc. v. Polgar

June 26, 2009

UNITED STATES OF AMERICA CHESS FEDERATION, INC., AN ILLINOIS NOT FOR PROFIT CORPORATION, PLAINTIFF,
v.
SUSAN POLGAR, AN INDIVIDUAL, AND HOAINHAN TRUONG, A/K/A PAUL TRUONG, AN INDIVIDUAL, DEFENDANTS.



The opinion of the court was delivered by: Jeanne E. Scott, U.S. District Judge

OPINION

This matter is before the Court on Plaintiff United States of America Chess Federation, Inc.'s (the USCF) Motion to Remand (d/e 4). In February 2009, the USCF filed a two-count Complaint in Sangamon County, Illinois Circuit Court, seeking a court order removing Defendants Susan Polgar and Hoainhan Truong from the USCF Executive Board pursuant to § 108.35(d) of the Illinois General Not for Profit Corporation Act. Notice of Removal (d/e 1), Attachments 2-7, Complaint & Exhibits; 805 ILCS 105/108.35(d). Polgar and Truong filed a Notice of Removal on March 13, 2009, asserting that this Court has subject matter jurisdiction over the action under both 28 U.S.C. § 1331 and 28 U.S.C. § 1332(a). Plaintiff subsequently filed the instant Motion to Remand, asserting that the action does not present a federal question under 28 U.S.C. § 1331 and further that the amount in controversy does not exceed $75,000.00, as required for diversity jurisdiction under 28 U.S.C. § 1332(a). For the reasons set forth below, the Motion to Remand is allowed.

The following facts are taken from the allegations of the Complaint. The USCF is an Illinois not-for-profit corporation with its principal place of business in Crossville, Tennessee. The USCF is the official membership organization for chess players and supporters in the United States. It is governed by a Board of Delegates, which consists of a seven-member Executive Board, Delegates at Large, and 125 Delegates apportioned among U.S. states. The seven-member Executive Board functions as a board of directors and is tasked with managing the affairs of the USCF. Defendants Polgar and Truong are members of the USCF Executive Board. They were elected to the Executive Board in June 2007 and seated on or about August 5, 2007. Polgar and Truong are married and have resided in Lubbock, Texas, since 2007.

Count I of the Complaint seeks an order removing Truong from the USCF Executive Board pursuant to 805 ILCS 105/108.35(d), and Count II seeks an order removing Polgar from the Executive Board under the same section. USCF also seeks an order indefinitely prohibiting Truong and Polgar from running for re-election to the Executive Board and an award of its reasonable costs incurred in connection with this action. Section 105/108.35(d) allows the Circuit Court to remove a director of a not-for-profit corporation from office in a proceeding commenced by the corporation "if the court finds (1) the director is engaged in fraudulent or dishonest conduct or has grossly abused his or her position to the detriment of the corporation, and (2) removal is in the best interest of the corporation." The statute further provides that "[i]f the court removes a director, it may bar the director from re-election for a period prescribed by the court." 805 ILCS 105/108.35(d).

According to the Complaint, Sam Sloan, a New York resident, was elected to the USCF Executive Board in July 2006, but was not reelected to the Board in July 2007. Count I alleges that, during and after the 2007 Executive Board election, Defendant Truong impersonated Sam Sloan and others in over 2,500 separate internet postings on USCF member forums, which disparaged the purported authors as well as present and former USCF officers, committee members, employees, volunteers, and sponsors. According to the Complaint, digital footprints conclusively show that Truong was the author of the postings at issue. As a result of the postings, Sloan filed suit in the United States District Court for the Southern District of New York against Truong, Polgar, and the USCF, among others. Additionally, the USCF launched an investigation into the allegations against Truong and Polgar. The Executive Board designated a "Litigation Committee," which excluded Truong and Polgar, to permit confidential communications about the investigation and USCF's legal options. The USCF hired the law firm of Kronenberger Burgoyne, LLP (Kronenberger) to review and investigate the allegations against Truong and Polgar.

On November 29, 2007, counsel for the USCF sent Truong a letter asking him: (1) to admit or deny whether he was involved in the postings or had knowledge of who made the postings, (2) to provide IP addresses for his home and work computers since 2005 or to consent for the USCF to obtain such information, and (3) to provide any information to support his claim that he was not at his computers at the time of the postings. In response, Truong provided: (1) copies of two pay stubs from Texas Tech University for the periods ending July 31, 2007, and August 31, 2007, and (2) a Southwest Airlines ticketless travel confirmation, dated June 2, 2007, in Truong's name for a one-way flight from Las Vegas, Nevada, to Lubbock, Texas, on June 12, 2007. Complaint, Ex. I.

The Complaint further alleges that, after the 2007 Executive Board election, the USCF discovered that Truong made numerous misleading and dishonest representations during his Executive Board campaign, including false representations that he had earned a Ph.D. and an M.B.A. and had held high-level marketing positions with billion dollar companies. Additionally, it is alleged that Truong failed to reveal that he was married to Polgar, who was also running for the Board, despite being questioned about it on the USCF Issues Forum prior to the election. Finally, the Complaint alleges that Truong engaged in bankruptcy fraud in June 2007 by swearing in his bankruptcy petition that he was unemployed, despite the fact that he was employed by Texas Tech University. According to the USCF, Truong's actions are inconsistent with the values' and mission statement of the USCF and have had significant adverse consequences on the ability of the USCF to operate efficiently and achieve its corporate objectives.

Count II seeks Polgar's removal from the USCF Executive Board. Count II alleges that, from November 2007, through June 2008, Kronenberger performed a significant review of the Truong/Polgar controversy and sent a number of emails to the Litigation Committee, which included an Executive Board member named Randall Hough. According to the Complaint, Polgar was aware that the USCF had engaged Kronenberger as counsel. The USCF alleges that, between November 26, 2007, and June 24, 2008, Defendant Polgar and an accomplice unlawfully accessed Hough's email account at least 111 times, and that Polgar read and unlawfully copied numerous confidential communications regarding the USCF's investigations of her and Truong, including emails sent between members of the Litigation Committee and attorney-client privileged communications. The USCF further alleges that Polgar and an accomplice distributed these confidential communications to the public via an internet blog and a website owned by Polgar.

Paragraph 53 of the Complaint alleges that "[i]n hacking into Hough's e-mail account, Defendant Polgar violated the federal Electronic Communications Privacy Act, the Computer Fraud and Abuse Act, in addition to violating California computer crimes laws." Complaint, p. 9.

According to ¶ 54, "[t]hese allegations are the subject of a pending federal action by the USCF against Polgar in the United States District Court for the Northern District of California, originally filed in June 2008 . . . ." Id. Count II further asserts that, in August 2008, when Polgar realized that her misconduct was about to be discovered, she preemptively sued the USCF, including all remaining Executive Board members and several USCF members who were critical of her conduct, in state court in Texas.*fn1 According to the USCF, Polgar's actions are inconsistent with the values and mission statement of the USCF and have had significant adverse consequences on the ability of the USCF to operate efficiently and achieve its corporate objectives.

ANALYSIS

Removal is proper in any action that could have originally been filed in federal court. 28 U.S.C. § 1441. Defendants, as the proponents of federal jurisdiction, bear the burden of proof on the issue of jurisdiction. See McNutt v. General Motors Acceptance Corp., 298 U.S. 178 (1936). As previously noted, Polgar and Truong assert that this Court has subject matter jurisdiction over the action under both 28 U.S.C. § 1331 and 28 U.S.C. § 1332(a). The Court addresses each proffered basis for jurisdiction separately.

I. FEDERAL QUESTION JURISDICTION

District courts have original jurisdiction in cases involving a "[f]ederal question," i.e., cases "arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. "Ordinarily, determining whether a particular case arises under federal law turns on the 'well-pleaded complaint' rule." Aetna Health Inc. v. Davila, 542 U.S. 200, 207 (2004) (quoting Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U.S. 1, 9-10 (1983)). The Supreme Court has instructed on several occasions that a case arises under federal law for purposes of ยง 1331, "if 'a well-pleaded complaint establishes either that federal law creates the cause of action or that the plaintiff's right to relief necessarily ...


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