MICROMETL CORP. v. TRANZACT TECHNOLOGIES (August 24, 2011)

Micrometl and Tranzact were parties to a services agreement that went sour. Micrometl brought suit in state court, alleging that Tranzact had over-billed it by more than $100,000. Tranzact removed the case to federal court. In discovery, Tranzact learned that Micrometl had received funds from third parties that reduced Tranzact's liability to less than $40,000. It also learned that Micrometl received those funds prior to the time it filed suit. Although Tranzact knew that this information brought diversity jurisdiction into question because of the amount in controversy requirement, it did nothing. Discovery closed five months later and the parties participated in a settlement conference five months after that. It was only after the unsuccessful settlement conference that Tranzact moved to remand the case to state court. Magistrate Judge Nolan (N.D. Ill.) concluded that the plaintiff could not meet the amount in controversy requirement and remanded the case to state court. She denied, however, Tranzact's motions for fees and costs. Transact appeals from the order denying fees.

In their opinion, Seventh Circuit Judges Flaum, Wood, and Tinder affirmed. The Court noted that the removal statute allows a district court to award fees and costs when a case is improperly removed. Usually, it is a plaintiff who seeks a fee award against a defend who improperly removed. Here, it is the defendant seeking fees. Although the Court noted the unusual situation, it concluded that there is no barrier to awarding fees to a defendant under the statute. The Court also concluded, however, that the district court did not err in refusing to award fees. The district court correctly concluded that Micrometl knew or should have known that it could not satisfy the amount in controversy requirement and should have alerted the court at the time of the removal petition. Equally troubling to the district court, however, was Tranzact's conduct. It waited 10 months after it discovered the truth to alert the district court to the situation. The Court rejected Tranzact’s nonsensical argument that it could not alert the court because of an order to participate in mediation. It also rejected the argument that the fact that a case can be remanded "any time" means that its delay in informing the court should not be considered. Tranzact's conduct wasted judicial resources and imposed costs on both parties. The district court did not abuse its discretion in refusing to award fees under § 1447(c). Tranzact also sought fees under § 1927. But § 1927 is a sanctions statute that requires a finding of bad faith. The Court deferred to the magistrate judge's finding of no bad-faith. It pointed out, for example, that Micrometl did not exaggerate its damages in order to get into federal court. It originally filed in state court and had no jurisdictional reason to overstate its damages.