Free Speech

Why Suing for Less Money Might Be Better

If you want to stay out of federal court when suing someone from another state, ask for $75,000 or less at the outset -- as Eric Wedgewood / Heiko Julien, the creator of the Content Zone meme pages, has learned.

|The Volokh Conspiracy |

From yesterday's decision by U.S. District Court Judge John Z. Lee in Wedgewood v. Daily Beast Co.:

Plaintiff Eric Wedgewood sued Defendant The Daily Beast Co., LLC ("TDB") in Illinois circuit court, alleging that TDB published a defamatory article about him on its website. TDB removed the action to federal court, asserting diversity jurisdiction …. Wedgewood has now moved to remand the action back to the Illinois courts…. Wedgewood's motion is denied….

TDB is a media company headquartered in New York; its members are citizens of Delaware and New York. Wedgewood is a citizen of Illinois.

TDB posted an article on its website on April 24, 2018, entitled "'He Started Messaging Me When I Was 16': Female Members Slam 'Content Zone's' Creator." In the article, Wedgewood alleges, journalist Taylor Lorenz "makes a variety of unsupported and defaming allegations" about him. In particular, the article cites anonymous sources who claim to have been "hit on" by Wedgewood while they were underage. Wedgewood claims that Lorenz did nothing to confirm the veracity of these anonymous accounts and did not interview him for his side of the story. In fact, Wedgewood alleges, the article cites an anonymous Instagram account that had been created to harass him and that Instagram disabled for violating the site's terms of service on April 22, 2019. Still, despite what Wedgewood characterizes as the obvious falsity of TDB's article, it has been "widely disseminated and is currently indexed on the first page of several search engine results." …

Federal courts are courts of limited jurisdiction…. One basis for federal jurisdiction is diversity jurisdiction, which gives federal courts authority to adjudicate civil actions "where the matter in controversy exceeds the sum or value of $75,000 … and is between citizens of different States." … When a plaintiff files a civil action in state court, the defendant may remove the action to federal court as long as the federal court would have had jurisdiction to hear the case at the time it was filed…. If a federal court lacks jurisdiction over a case removed from state court, the case must be remanded….

Wedgewood argues that the amount in controversy does not exceed $75,000. In support of this assertion, he submits an affidavit in which he declares: "In order to remain in state court, which would be a more efficient venue to resolve this present matter, I hereby affirm that damages will not exceed seventy-five thousand dollars ($75,000) It is my understanding that with my clarification of damages, this present matter does not qualify for diversity jurisdiction, and it should be removed back to state court." …

Wedgewood cannot, through an affidavit filed after removal, limit the amount in controversy to a sum below the jurisdictional threshold. As TDB recognizes, "[a] plaintiff in Illinois can limit the relief to an amount less than the jurisdictional minimum, and thus prevent removal, by filing a binding stipulation or affidavit with the complaint." … But, at the same time, "events after the date of removal do not affect jurisdiction, and this means in particular that a declaration by the plaintiff following removal does not permit remand." … "[T]he amount in controversy is evaluated as of the time of removal," and once the jurisdictional amount has been satisfied, "jurisdiction will be defeated only if it appears to a legal certainty that the stakes of the lawsuit do not exceed $75,000." Accordingly, the only relevant question is whether, based on the allegations of Wedgewood's complaint at the time of removal, it is legally impossible for him to recover more than $75,000 in this suit.

As to that question, TDB points out that Wedgewood seeks punitive damages in the amount of $50,000 for each of his five claims, as well as compensatory damages for loss of income, loss of reputation, and emotional harm. The Court is not limited to assessing the amount in controversy for each individual claim; rather, "[i]t is the case, rather than the claim, to which the $75,000 minimum applies." …

TDB concedes that Count III, Wedgewood's claim for intentional infliction of emotional distress, cannot support punitive damages under Illinois law. The Court further notes the oddity of Wedgewood's request for punitive damages within Counts IV and V, which seek declaratory and injunctive relief.

But TDB points out that Wedgewood also requests $50,000 in punitive damages for each of his claims for defamation and false light (Counts I & II). Punitive damages are available for these causes of action under Illinois law. Accordingly, aggregated together, Wedgewood's claims seek at least $100,000 in punitive damages. Wedgewood cannot point to any reason it would be legally impossible for him to obtain such damages, particularly where he also seeks compensatory damages for, among other things, loss of income. Accordingly, the Court concludes that the jurisdictional threshold is satisfied…. [T]he Court [therefore] denies Wedgewood's motion to remand….

In his Complaint, Wedgewood also asked for "a seal of this present matter," but I expect he won't succeed on that score, either.

UPDATE: Commenter Eddy remarks, "The more money you ask for, diverse it gets."

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  1. The more money you ask for, diverse it gets.

    1. Thank you. I’ll be here all week. Don’t forget to tip the waitstaff.

  2. Couldn’t this guy just dismiss the federal case under Rule 41 and file again in state court with the affidavit? Seems like that would be cheaper and faster than litigating this?

  3. How can we be sure that LLCs in every state are different in the same way from corporations in every state, such that we can have a general rule for diversity citizenships for all LLC in every state? What if LLC formation rules in some state A are essentially identical to corporation formation rules in some state B? Does the mere use of the “LLC” suffix change the determination of diversity citizenship?

    (In a state that has no state income tax, the LLC rules would not mention state income tax, so that distinction between a corporation and an LLC would not exist.)

    The seminal case Cosgrove v. Bartolotta (1998) defines “LLC” quite vaguely. You can barely even call it a definition. How can something as important as diversity be dependent on such a vague non-definition?

    Excerpt:

    “This animal is like a limited partnership; the principal difference is that it need have no equivalent to a general partner, that is, an owner who has unlimited personal liability for the debts of the firm. See generally Larry E. Ribstein Robert R. Keatinge, Ribstein and Keatinge on Limited Liability Companies (1998). Given the resemblance between an LLC and a limited partnership …”

    1. The nature of LLC’s are pretty uniform, though states compete on matters such as how secret the ownership may be and rules for derivative actions by members. There is no reason why a state would make LLC’s the functional equivalent of corporations. The whole point is to provide a limited liability entity that is not a corporation. It is essentially a partnership that has limited liability unconstrained by the traditional requirements of corporate, partnership and limited partnership law. Unlike a corporation, its organization and management are governed by an operating agreement, not state law (board of directors, shareholder rights, etc) and unlike a limited partnership, it shields all members from liability. Since, by definition, an LLC is member-defined–even if it is operated like a corporation–for diversity purposes it is treated in the same manner as a partnership–which has always been governed based on the agreement of the members.

  4. I was wondering why Antonio Brown’s accuser is only asking for $75k. Now I know.

  5. Missing from this article: Any explanation of why plaintiff might prefer to stay in state court rather than federal.

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