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US Mortgage Protection Inc. v. Foster

United States District Court, N.D. Indiana

May 29, 2018

HEATHER L. FOSTER., Defendant.



         This matter is before the Court on Plaintiff U.S. Mortgage Protection Inc. d/b/a Tradewell Tax and Financial LLC's Emergency Motion to Remand to State Court [ECF No. 6], filed on May 23, 2018, to which the Defendant responded [ECF No. 16] on May 24, 2017, at the Court's direction. On May 16, 2018, the Plaintiff filed its Complaint [ECF No. 9] in state court against Defendant Heather L. Foster, alleging breach of contract, breach of fiduciary duty, and tortious interference with business and contractual relations, and requesting damages, disgorgement, and injunctive relief.[1]

         The Defendant filed a Notice of Removal on May 22, 2018 [ECF No. 1], pursuant to 28 U.S.C. §§ 1441 and 1446 on the basis of federal question jurisdiction under 28 U.S.C. § 1331. The Plaintiff argues that there is no basis for federal question jurisdiction and requests that the Court remand this case to state court.


         The instant case is a dispute between an employer and a former employee. The Defendant formerly worked for the Plaintiff, providing financial planning services for the Defendant's clients. (Compl. ¶ 5.) On January 28, 2012, the Defendant signed a “Noncompetition Agreement” [Compl. Ex. 1, ECF No. 11], [2] which prohibited her from undertaking certain actions if she left the Plaintiff's employ, including contacting the Plaintiff's clients, informing the Plaintiff's clients of her intention to leave the Plaintiff's employ, inducing or attempting to induce the Plaintiff's clients to cease doing business with the Plaintiff, and soliciting business from the Plaintiff's clients. (Id. at ¶ 6, 10).

         While employed by the Plaintiff, the Defendant had access to accounting and financial data, business plans and strategies, client lists and identities, and other confidential information belonging to the Plaintiff. (Id. at ¶ 8.) The Defendant left the Plaintiff's employ on May 8, 2018, and incorporated a new Indiana limited liability company called Foster Financial Services LLC the next day. (Id. at ¶¶ 9, 13.) The Plaintiff alleges that prior to the Defendant's departure, she downloaded confidential information regarding clients for whom she did not previously provide services as well as information regarding prospective clients. (Id. at ¶ 11.) The Plaintiff also alleges that the Defendant has contacted and solicited the Plaintiff's customers and used confidential information in violation of her covenant not to compete. (Id. at ¶¶ 15-21.)

         The Plaintiff's Complaint states only state law causes of action and asserts no claims under federal law. However, the Defendant argues that because of the nature of her work and the Plaintiff's business, this case requires the Court to interpret federal law and therefore involves a substantial federal question. Specifically, this substantial federal question involves “the offering of investment advisory services and sale of federally registered securities by individuals and entities that are expressly subject to the Investment Adviser's Act of 1940, 15 U.S.C.A. § 80b-1, et seq.” (See Def. Resp. Br. 1, ECF No. 16.) The Defendant asserts that her Noncompetition Agreement prohibits the Defendant from providing services that are exclusively governed by the Investment Adviser's Act (IAA). (Id. at 2.) And, because the Plaintiff must show a legitimate business interest in order to succeed on its claims, the Court will have construe the IAA to determine what activities and services the Plaintiff may perform by law. (Id.) Therefore, the Defendant asserts that this case “arises under” federal law. On May 25, 2018, the Court held a telephone conference and confirmed that neither party had arguments to make regarding this issue other than those already of record.


         Federal courts are courts of limited jurisdiction. See U.S. Const. Art. III. A defendant may remove a case that was originally filed in state court to federal court if the case satisfies certain jurisdictional requirements as provided by statute. See 28 U.S.C. § 1441-55. Under 28 U.S.C. § 1441,

Except as otherwise expressly provided by Act of Congress, any 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.

28 U.S.C. § 1441(a). Here, the Defendant alleges that she may properly remove the action because the Court has jurisdiction under 28 U.S.C. § 1331. Section 1331 provides that federal district courts have original jurisdiction over “all civil actions arising under the Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331.

         The law is well settled in this area. “The presence or absence of federal-question jurisdiction is governed by the ‘well-pleaded complaint rule, ' which provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint.” Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987) (citing Gully v. First Nat'l Bank, 299 U.S. 109, 112-13 (1936). “This rule makes the plaintiff the master of the claim; he or she may avoid federal jurisdiction by exclusive reliance on state law.” Id.

         As the Supreme Court has made clear, “a case may not be removed to federal court on the basis of a federal defense . . . even if the defense is anticipated in the plaintiff's complaint, and even if both parties concede that the federal defense is the only question truly at issue.” Id. at 393 (citing Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for S. Cal., 463 U.S. 1, 12 (1983)). The “complete preemption corollary” is an exception to this rule where “the preemptive force of a statute is so ‘extraordinary' that it ‘converts an ordinary state common-law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule.'” Id. (quoting Metrop. Life Ins. Co. v. Taylor, 481 U.S. 58, 65 (1987)).

         In Caterpillar, the plaintiffs filed a state law claim against Caterpillar for breach of individual employment contracts. Id. at 390. Caterpillar removed the case to federal court on the basis of federal question jurisdiction, arguing that individual employment contracts were merged into collective bargaining agreements, which are governed by § 301 of the Labor Management Relations Act (LMRA). Id. Caterpillar thus argued that the LMRA completely preempted the state law claim. The Supreme Court disagreed, finding that the cause of action was not substantially dependent upon interpretation of the collective-bargaining agreement, and “it would be inconsistent with congressional intent under [§ 301] to pre-empt state rules that proscribe conduct, or establish rights and obligations, independent of a labor contract.” Id. at 395 (quoting Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 212 (1985)). “The fact that a defendant might ultimately prove that a plaintiff's claims are pre-empted under the [federal statute] does not establish that they are removable ...

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