A recent Alabama federal court decision discusses how to determine the “amount in controversy” when a state court trade secret misappropriation case is removed to federal court based on diversity of citizenship, but the complaint is silent as to the amount of damages demanded.
In order to place a value on the allegedly misappropriated trade secrets, courts take into account such factors as a reasonable royalty the plaintiff might have charged for licensing the trade secrets, the plaintiff’s lost income resulting from the alleged misappropriation, and the defendant’s gross or net revenue received because of the claimed misconduct. In addition, consideration may be given to the estimated amount of the plaintiff’s attorneys’ fees that might be awarded, and an estimate of potential exemplary damages if the applicable statute permits such an award.
Plaintiffs Molex Company, LLC, an Alabama corporation, and its Cayman Islands marketing subsidiary Pacific Mining Reagents, Ltd., filed a trade secrets misappropriation suit in an Alabama state court against a Texas resident. The defendant was a former consultant to, and later the business manager of, Pacific. The complaint did not specify the amount of damages sought. Asserting that there was complete diversity of citizenship and an amount in controversy in excess of $75,000 exclusive of interest and costs, the defendant removed the case to federal court. Molex and Pacific conceded that diversity was complete but moved to remand on the ground that the amount in controversy did not meet the jurisdictional minimum.
The Alabama trade secrets misappropriation statute provides for an award of actual damages plus the defendant’s profits and other benefits attributable to the wrongdoing. The defendant’s profits equal its gross revenues from the misconduct, unless the defendant demonstrates deductible expenses and elements of profit attributable to factors other than the misappropriation. If the defendant engaged in willful and malicious misconduct, exemplary damages of not less than $10,000, plus attorneys’ fees, may be awarded. The “amount in controversy” is the estimated sum of these amounts.
In determining whether it has subject-matter jurisdiction, courts consider whether the plaintiff could be entitled to more than $75,000 if liability is established. An assertion by the defendant in its removal petition that the “amount in controversy” exceeds the jurisdictional minimum usually will suffice unless it appears to have been pleaded “in bad faith” because, for example, the suit “obviously,” or “to a legal certainty,” cannot involve that much.
Although Molex and Pacific did not quantify their damages in the complaint, they did claim that the defendant used the misappropriated trade secrets to develop a product for sale to — that is, to “steal” — plaintiffs’ $300,000 per year customer. The court concluded that, therefore, even if the plaintiffs’ lost business were the only relevant criteria, the amount in controversy more likely than not exceeded $75,000. With the possibility of punitive damages and attorneys’ fees awards added, the requirements for diversity jurisdiction were held to be satisfied, and so the motion to remand was denied. Molex Co. v. Andress, Civil Ac. No. 5:12-cv-2098-CLS (N.D. Ala., Aug. 10, 2012).
The defendant also challenged the Alabama court’s personal jurisdiction over him since he maintained no office or residence in Alabama, he never set foot in that state or attempted to make sales to customers there, all face-to-face meetings with the plaintiffs’ personnel took place in Texas, and he was paid by the Cayman Islands company (Pacific), not by the Alabama corporation (Molex). However, the plaintiffs countered that in the course of doing business the defendant regularly communicated by phone, fax and email with Molex’s headquarters staff in Alabama. On balance, the court concluded that he purposefully conducted activities in Alabama, and that the alleged trade secret violations clearly were based in substantial part on his relationship with Molex. Therefore, he had sufficient “minimum contacts” with Alabama to warrant personal jurisdiction.
The opinion in this case provides a roadmap for supporting a claim that the “amount in controversy” meets the federal diversity jurisdiction standard when the complaint lacks specificity.