In a recent order issued in the case of PNC Capital LLC v. TCode, Inc., the trial court swatted down the plaintiff’s excuses for refusing to answer jurisdictional discovery sought by the defendant and ultimately awarded sanctions against the plaintiff after finding that it lacked any substantial justification for its refusal to respond to essential jurisdictional discovery in order to thwart plaintiff’s constitutional right to remove the case to federal court based on diversity of citizenship. The order provides a cautionary tale for plaintiffs who wish to object to discovery issued by another party.
On September 4, 2020, the plaintiff in the case, PNC Capital LLC, which does business under the names Procuretechstaff Consulting Services and PTS Consulting Services, filed a three-count complaint against the defendant, TCode, Inc., in the Cook County state court alleging Breach of Restrictive Covenant (Count I), Tortious Interference with Contract (Count II), and Breach of Non-compete Agreement (Count III). The plaintiff has sought monetary damages of $104,000.
In response, the defendant requested that the plaintiff disclose the plaintiff’s members’ identity and state of citizenship. The purpose of the discovery was to determine if the case was eligible for removal to federal court. To be eligible for removal, the defendant would need to establish a valid basis for federal jurisdiction. In this case, the defendant sought to determine if the requirements for diversity jurisdiction under 28 U.S.C. §1332 were met. This requires establishing that the parties are completely diverse (i.e. citizens of different states) and an amount in controversy of more than $75,000. Plaintiff refused to comply, relying on a purported agreement with the defendant’s former counsel to exclusive jurisdiction in state court and venue in the Circuit Court of Cook County.
The requirements for removal of a lawsuit from state court to federal court are found in 28 U.S.C. §1446 and provides that a defendant seeking removal must file its notice of removal within 30 days following service of the complaint. However, if the pleadings do not make it clear whether the requirements for removal are met, a defendant must promptly investigate whether the case may be removed. Under such circumstances, the 30-day clock for removal does not begin to count down until the defendant receives information “from which it may first be ascertained that the case is one which is or has become removable.” 28 U.S.C. § 1446(b)(3).
In this case, the plaintiff was a limited liability company. For the purposes of invoking federal diversity jurisdiction, the citizenship of a limited liability company is based on the citizenship of each of its members. Thus, determining whether the case was removable required the defendant to identify each of the plaintiff’s members and their respective citizenships. Jurisdictional discovery is designed to obtain just this sort of information. A plaintiff is not at liberty to conceal facts necessary to the determination of whether the suit is removable or engage in a scheme to preclude the defendant’s timely removal. Rooflifters, LLC v. Nautilus Ins. Co., 13 C 3251, 2013 WL 3975382, at *3–6 (N.D. Ill. Aug. 1, 2013).
PNC refused to respond to the jurisdictional discovery relying on purported email correspondence between its counsel and the defendant’s former counsel in which the plaintiff claimed the defendant’s former counsel agreed to try the case in state court. The Court rejected this basis for refusing to respond to valid discovery requests finding that “a party’s mere assertion that certain material is exempt from discovery is not sufficient to confer upon such material a privilege against document production.” Despite withholding any finding of whether such an agreement existed (which it nevertheless found was not supported by the materials provided by the plaintiff), the Court concluded that such a finding was not necessary as “the purported existence of such an agreement is no justification for withholding the requested discovery.” Finding that the “defendant is entitled to receive an answer to its jurisdictional inquiry,” the Court granted the defendant’s motion to compel responses to its jurisdictional discovery.
After this finding, the Court turned to consider the issue of whether to impose sanctions against the plaintiff for refusing to answer the discovery. The Court noted that Illinois Supreme Court Rule 219 grants it authority to impose sanctions against a party that refuses to respond to valid discovery requests “without substantial justification.” In making the determination of whether substantial justification existed, a court may consider a party’s good faith (or lack thereof). Here, the Court concluded that PNC failed to offer substantial justification for its failure to participate in discovery in good faith. Consequently, the Court granted the defendant’s request for imposition of sanctions, which the Court explained could include requiring the offending party to pay to the aggrieved party the amount of the reasonable expenses, including reasonable attorney’s fees, incurred in obtaining the order.
The Court’s entire order is available here.
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