Commercial Litigation and Arbitration

Removal — State Court Pre-Suit Discovery Proceeding Not Removable Based on Diversity

From In re Enable Commerce, Inc., 2009 U.S. Dist. LEXIS 18019 (N.D. Tex. Mar. 10, 2009), a proceeding for pre-suit discovery brought by Petitioner Enable pursuant to Texas Rule of Civil Procedure 202:

[Prospective Defendant] United maintains that Enable's petition is removable based on diversity jurisdiction. The merit of United's position turns on whether it has established "both that the parties are diverse and that the amount in controversy exceeds $ 75,000." ***

As a threshold matter, the inherent difficulty in determining the amount in controversy in a Rule 202 petition offers a compelling rationale for concluding that such a petition is not removable based on diversity. As several courts have explained, "a Rule 202 petition does not assert any claim or cause of action upon which a court could grant relief." *** It merely seeks authority to take a deposition for use in an anticipated lawsuit. *** "The Rule 202 Request is merely a pre-suit request for depositions to investigate a potential claim or suit." *** "A Rule 202 petition may never lead to a civil lawsuit, as the resulting deposition could just as easily indicate that the petitioner has no legal claim against the deponent or any other person or entity." *** The Supreme Court of Texas has in fact characterized such a petition as an ancillary proceeding, not a separate lawsuit. *** Federal courts have therefore recognized the difficulty in determining whether there is subject matter jurisdiction when a Rule 202 petition is removed. "[I]t would be difficult for a federal court to determine, with any certainty, that it has federal question or diversity jurisdiction over a Rule 202 petition, since the petition articulates no specific claims against any particular civil defendants." *** This difficulty confirms that Rule 202 petitions are not removable based on diversity of citizenship. And "[b]ecause any doubts as to whether removal was proper must be resolved against federal jurisdiction, these difficulties also counsel in favor of remanding [the] petition to state court." ***

There is still another problem that highlights the difficulty of allowing removal of Rule 202 petitions based on diversity. When this court's jurisdiction is based on diversity of citizenship, the Supreme Court's decision in Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), requires that the court apply state substantive law and federal procedural law. "Under Erie, federal courts apply state substantive law to any issue or claim which has its source in state law. *** Because a Rule 202 proceeding is by nature procedural (it arises under a Texas procedural rule), the law to be applied after removal is unclear. Like other Rule 202 petitions, Enable's does not seek substantive relief; it simply seeks discovery from, and to perpetuate the testimony of, two witnesses. If substantive law applies at all, it would appear to be confined to such matters as whether certain requested testimony is privileged. Otherwise, a Rule 202 petition is inherently a procedural mechanism to which federal procedure would apply following removal. Although Fed. R. Civ. P. 27(a) does provide a procedure for perpetuating testimony before a case is filed, it is not precisely coterminous with a Rule 202 petition. Rule 202.1(b) permits deposition discovery "to investigate a potential claim or suit." Rule 27(a)(1)(A) is narrower in scope. It requires that the petitioner show "that the petitioner expects to be a party to an action cognizable in a United States court but cannot presently bring it or cause it to be brought[.]" Therefore, if federal procedure controls following removal, it would appear to deprive the petitioner of one essential role that a Rule 202 petition performs: its function of allowing depositions to be taken to investigate potential claims or lawsuits that may never be brought. ***

United maintains that the amount in controversy should be equivalent to what Enable's principal (Wood) estimated to be the value of the business ($ 12 million) "that is subject of this potential action." ***

But Enable has not yet filed a lawsuit against United that seeks this relief, and it has made no claim for damages that corresponds to this sum. Enable's petition alleges no amount in controversy and seeks only to take pre-suit depositions under Rule 202. Because no lawsuit has been filed and Enable merely seeks to take two depositions, it is not clear what the scope of any future litigation will be, much less what will be the amount in controversy. And as other courts have explained, a Rule 202 petition is merely a pre-suit request for depositions to investigate a potential claim or suit, *** and it may never lead to a civil lawsuit…. Enable in fact confirms the speculative nature of the amount in controversy, noting in its Rule 202 petition that it desires to obtain the testimony of Davis and Brooks "to determine whether a claim should be pursued or if litigation should be instituted." ***

Although the court recognizes that jurisdiction can be established when a claimant seeks non-monetary relief, the controversy must still be capable of monetary valuation to satisfy the amount in controversy requirement. *** In equitable relief cases, "it is well established that the amount in controversy is measured by the value of the object of the litigation." *** In this case, United has failed to establish the value of the object of Enable's Rule 202 petition because no litigation may result, and, assuming that a lawsuit will be filed, its nature and scope are presently unknown.1 And because any "doubts regarding whether removal jurisdiction is proper should be resolved against federal jurisdiction," ***this uncertainty supports remanding the case.

Held, “placing the burden of establishing subject matter jurisdiction on United, presuming that Enable's Rule 202 petition lies outside this court's limited jurisdiction, and resolving all doubts against removal and in favor of remand, the court holds that it lacks subject matter jurisdiction over the petition.”

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