IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
April 13, 2012
MCKEE MANAGEMENT ASSOCIATES, INC., ET AL., PLAINTIFFS AND COUNTERCLAIM-DEFENDANTS,
JOSEPH A. SANTANGELO, DEFENDANT AND COUNTERCLAIM-PLAINTIFF.
The opinion of the court was delivered by: Rufe, J.
This case involves an employment dispute between Plaintiffs, McKee Management Associates, Inc. ("MMA" or "the Company") and Frank McKee, and Defendant Joseph Santangelo, who worked as MMA's Chief Financial Officer. Before the Court is Plaintiffs' Motion to Remand, wherein Plaintiffs request that the Court remand this case to state court pursuant to its discretion to do so under the Declaratory Judgment Act. *fn1 For the following reasons, the Motion will be denied.
I. F ACTUAL AND P ROCEDURAL B ACKGROUND
The facts are highly contested by the parties. The Court therefore provides only those facts which are necessary to provide context for the Opinion.
Plaintiff MMA manages a group of companies operating under the name "The McKee Group," which operates residential communities, apartment complexes, mobile home parks, office buildings, storage facilities, and marina. Plaintiff Frank McKee is MMA's President and has a controlling ownership interest in the McKee Group.
In January 2007, McKee hired Santangelo as MMA's Chief Financial Officer ("CFO"). Santangelo and MMA entered into an employment agreement on January 26, 2009; the employment agreement set forth Santangelo's salary, annual bonuses, and benefit information and was retroactive to January 2007. MMA also established an Individual Supplemental Retirement ("ISR") Plan for Santangelo at that time.
In late 2010, MMA began to experience a lack of liquidity. Both parties appear to concede that the economic recession was at least a part to blame for this; however, Plaintiffs allege that the Company's financial trouble was a result of Santangelo's financial mismanagement as CFO, while Santangelo avers that McKee incurred substantial Company debt to finance his personal expenses. The disagreement over the cause of the Company's financial trouble culminated on September 27, 2011, when McKee fired Santangelo, for cause according to McKee, and without cause according to Santangelo.
Plaintiffs commenced this action on October 12, 2011, by filing a complaint in the Court of Common Pleas for Delaware County. The one-count complaint sought a declaratory judgment that Santangelo was terminated for cause and was therefore not entitled to benefits under the employment agreement and the ISR Plan. On November 2, 2011, Santangelo removed the case to this Court, asserting diversity of citizenship as the basis for the Court's jurisdiction. Santangelo answered the Complaint on November 9, 2011. On November 18, 2011, Plaintiffs filed the Motion to Remand now before the Court.
Five days later, Santangelo filed an Amended Answer and asserted six counterclaims. Plaintiffs filed an Answer to the Counterclaims and a Motion to Dismiss on January 13, 2011. Santangelo filed an Amended Counterclaim in response, rendering the initial motion to dismiss the counterclaims moot. On March 1, 2012, Plaintiffs again filed a Motion to Dismiss in Part Santangelo's Amended Counterclaims. This motion is pending.
The Amended Counterclaim alleges a violation of Pennsylvania's
Wage Payment and Collection Law ("WPCL"), *fn2
breach of contract, and violations of the Employee
Retirement Income Security Act ("ERISA"). *fn3
II. S TANDARD OF R REVIEW
"[A]ny civil action brought in a State court of which the district
courts of the United States have original jurisdiction, may be removed
by the defendant or the defendants, to the district court of the
United States for the district and division embracing the place where
such action is pending." *fn4 United States
district courts have original jurisdiction over "all civil actions
where the matter in controversy exceeds the sum or value of $75,000,
exclusive of interest and costs, and is between . . . citizens of
different States." *fn5 A defendant who
removes a case from state to federal court has the burden of showing
that the action is properly before the federal court. *fn6
Removal statutes "are to be strictly construed against
removal and all doubts should be resolved in favor of remand."
Although Plaintiffs have moved to remand the case, they do not do so on the basis that removal was improper. To the contrary, it is undisputed that this Court has original jurisdiction over this action because the amount in controversy exceeds $75,000 and the dispute is between citizens of different states (Plaintiffs are citizens of Pennsylvania, Defendant is a citizen of New Jersey). Instead, Plaintiffs argue that while the Court has diversity of citizenship jurisdiction, the Court should exercise its discretion under the Declaratory Judgment Act and remand the case to state court. However, Plaintiffs repeatedly conflate jurisdictional remand pursuant to 28 U.S.C. §1447(c) with discretionary remand under the Declaratory Judgment Act.*fn8
In making this argument Plaintiffs rely upon
standards which a federal district court applies in determining
whether it has subject-matter jurisdiction over a case, i.e. whether
the claims "depend on resolution of a substantial question of
federal law." *fn9 These standards simply do
not apply to discretionary remand pursuant to the DJA, where it is
undisputed that the Court has diversity jurisdiction. In this context,
the Court must consider the entire context of the litigation to
determine whether the court should remand a case. *fn10
In assessing whether discretionary remand is appropriate,
the Court is not limited to considering whether the Complaint contains
a substantial question of federal law; rather, the Court considers
whether discretionary remand is warranted by issues raised in the
action as a whole.
III. D ISCUSSION
Under the Declaratory Judgment Act ("DJA"), "[i]n a case of actual
controversy within its jurisdiction, . . . any court of the United
States, upon the filing of an appropriate pleading, may
declare the rights and other legal relations of any
interested party seeking such declaration." *fn11
This permissive language "contemplates that district courts will
exercise discretion in determining whether to entertain such
actions." *fn12 "[I]n declaratory judgment
actions Congress has afforded the federal courts a freedom not present
in ordinary diversity suits to consider the state interest in having
the state courts determine questions of state law." *fn13
"[T]he normal principle that federal courts
should adjudicate claims within their jurisdiction yields to
considerations of practicality and wise judicial administration."
*fn14 The DJA "confers a discretion on the courts
rather than an absolute right upon the litigant." *fn15
However, a district court's discretion to decline jurisdiction is not open-ended; a court should not decline jurisdiction when the issues in the action include "federal statutory interpretation, the government's choice of a federal forum, an issue of sovereign immunity, or inadequacy of the state proceeding. "*fn16
Here, Santangelo's counterclaims allege violations of ERISA, therefore requiring federal statutory interpretation, and directly relate to Plaintiffs' request for a declaration that MMA is not obligated to pay Santangelo retirement benefits. Additionally, to determine whether the ISR Plan is exempt from ERISA, as Plaintiffs allege in the Complaint, the Court will have to interpret ERISA. *fn17
Third Circuit courts have exercised their discretion to remand cases where the declaratory judgment action is restricted to areas of state law, where the state law issues are firmly established, close, or unsettled, and where there is a parallel or underlying state court proceeding. *fn18 This action is not limited to issues of state law, there is no underlying state court proceeding, and the issues presented require the Court to interpret and apply the statutory provisions on ERISA and thus implicate federal interests. *fn19
To the extent the Court has the discretion to remand the declaratory claim contained in the Complaint and retain the federal coercive counterclaims, the Court finds no justification for bifurcating the claims in this way. In cases such as this one, where federal interests compel the Court to exercise jurisdiction over a coercive claim, "the paramount consideration in deciding whether to dismiss or stay declaratory claims is whether, as a matter of 'practicality and wise judicial administration,' doing so will be more efficient and convenient for the court and the litigants." *fn20 The declaratory and coercive claims are so interrelated so as to require that they be tried in the same action. Judicial economy and the policy of avoiding duplicative and piecemeal litigation do not support bifurcation in this case. *fn21
IV. C ONCLUSION
For the foregoing reasons, the Court finds that remand is not appropriate here. This case requires interpretation of federal law and the issues presented cannot be better settled in state court. Accordingly, the Motion to Remand will be denied.
An appropriate Order follows.