7th Circuit Tackles Registering State Court Judgments In Fed. Court, Removal Jurisdiction

GE Betz, Inc. v. Zee Company, Inc., 2013 WL 1846541 (7th Cir. 2013) examines Federal jurisdiction and removal practice and how those rules impact creditors’ rights in post-judgment proceedings. 

Facts and Procedural History: Plaintiff obtained a multi-million dollar judgment in North Carolina state court against Defendant.  

The defendant then secretly transferred several million dollars to a Chicago bank that recorded liens against the funds and all other defendant assets.

When plaintiff found out about the transfer, it registered the NC judgment in Illinois and issued a third-party citation against the bank to whom defendant transferred its assets.

The judgment debtor (and defendant in the NC state court case) moved to transfer the case to the Northern District of Illinois under diversity jurisdiction rules.  

Plaintiff objected to removal based on lack of subject matter jurisdiction and sought remand back to NC state court.  The Northern District denied Plaintiff’s remand attempt and kept the case. 

Held: Reversed.  The District Court should have granted plaintiff’s motion for remand based on the “forum defendant” rule.  See 28 U.S.C. § 1441(b)(2). 

Rules/Reasoning: The Northern District had original jurisdiction over the action since there was complete diversity  among the parties: plaintiff is a Pennsylvania corporation, defendant is a Tennessee corporation, and the third-party respondent bank is a Delaware corporation whose principal place of business is in Illinois. 

The Seventh Circuit also held that the District Court had jurisdiction to enforce a state court judgment under section 28 U.S.C. § 1963, which permits a Federal court to register the judgment of another “district court.” 

Giving a broad reading to Section 1963, the Court noted that several state courts use the “district court” moniker.  Because of this, the Court held that the Illinois Northern District could register the NC state court judgment.  *8

But the argument that carried the day for the Plaintiff was the “forum defendant” rule.  This rule states that “a civil action otherwise removable solely on the basis of [diversity jurisdiction] may not be removed if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.”  28 U.S.C. § 1441(b)(2). 

But the forum defendant rule involves a statutory defect rather than a jurisdictional one: meaning that the defect is waived if not objected to within 30 days of the removal notice. (*9), 28 U.S.C. § 1447(c)(motion to remand – other than for lack of subject matter jurisdiction – must be brought within 30 days after filing the notice of removal). 

Since the bank’s principal place of business was Illinois, it clearly met the “forum” component of the “forum defendant” test.  The Court also held that the bank was a “defendant” within the rule because its interest in the defendants assets were completely opposed to the plaintiff’s interest. (*11-14). 

Lastly, the Court found that Plaintiff properly objected to removal within 30 days – as evidenced by its motion to reconsider filed 16 days after the Northern District denied its remand motion. 


– If an Illinois party is sued by a foreign plaintiff and the damages exceed $75K, removal isn’t proper.  However, if the plaintiff fails to timely seek a remand, he will have waived the defect and the removal will stand;

a foreign state court judgment can arguably be registered in a Federal District Court.



The Fifield Case: Two Years of Continuous Employment = Sufficient Consideration to Enforce Restrictive Covenants

In Fifield v. Premier Dealer Services, Inc. 2013 IL App (1st) 120327, http://www.state.il.us/court/Opinions/AppellateCourt/2013/1stDistrict/1120327.pdf the Court squarely held that two years of continued employment is required to uphold a noncompetition or nonsolicitation provision.

 Facts and Procedural History

Plaintiff resigned about three months after starting his job as an insurance salesman and went to work for a competing firm.  He preemptively sued his former employer seeking a declaration that the noncompete he signed wasn’t enforceable. employment contract were unenforceable.  The trial court agreed and granted summary judgment   for the plaintiff.  The employer appealed.

Held: Affirmed. 


Court rejected the employer’s two main arguments: that (1) the two-year consideration rule didn’t apply because the Plaintiff signed the restrictive covenants before he was hired (and so this wasn’t really a post-employment restriction at all); and (2) the offer of employment itself was sufficient consideration to support the noncompete and nonsolicitation provisions – since Plaintiff was free to refuse to sign the employment contract and go work somewhere else. 

The Court held it didn’t matter whether Plaintiff signed the covenants before or after he was hired since at-will employment can constitute an “illusory benefit” as the employer can fire (and the employee can quit) at any time for any reason.

The Court also held that the two years of continued employment consideration rule applies even where an employee resigns on his own (like Plaintiff).  Fifield, ¶ 19.  And since Plaintiff was only employed for a little more than 3 months after he signed the noncompete, this fell far chronologically short of the requisite two-year period.  Fifield, ¶ 19.  In addition, the “first-year provision” (Plaintiff’s firing without cause during first employment year nullifies restrictive covenants) didn’t affect the Court’s analysis: “at most, [Plaintiff’s] employment was only protected for one year, which is still inadequate under Illinois law.”  Id.

 Take-away: Fifield could spell trouble for employers because it seems to open the door for employees to breach restrictive covenants with impunity – so long as they resign within two years of their start date.  The case also shows that courts may view at-will employment as “illusory benefit” and deem such employment insufficient consideration to enforce post-employment restrictions.  In addition, based on the Court’s discussion of the “first year provision”, employers may be well-served by providing that restrictive covenants won’t bind the employee if he’s fired without cause within two years of his start date.  This would seem to make it easier for an employer to argue that post-employment restrictions are enforceable.     


Does the Computer Fraud Act Apply to ‘Dumbphones’?

While this Court does not disagree that unwanted text messages, like spam e-mail, are an annoyance, whether receipts of such messages can establish a civil action under the CFAA is, of course, a different question.

Czech v. Wall Street on Demand, Inc. 674 F.Supp. 1102, 1106 (N.D.Minn. 2009).

Anti-spam (e-mail and text) lawsuits and legislation are legion: a flurry of Federal and state laws govern junk e-mails and texts.  This post briefly discusses one case which examined whether sending unwanted texts can subject the texter to Federal Computer Fraud liability. 

In Czech v. Wall Street on Demand, 674 F.Supp. 1102 (N.D. Minn. 2009) a Minnesota plaintiff (representing a proposed class of spam texts recipients) was so fed up with unwanted texts that she literally made a Federal case out of it.  She sued in Minn. District Court under the Computer Fraud and Abuse Act, 18 U.S.C. s. 1030 et seq. (CFAA) after receiving unsolicited texts from an online trading company that mass-texted financial information to phone numbers in its database.  The Court granted the defendant’s 12(b)(6) motion to dismiss the Complaint. 

The basis for the court’s dismissal was that the plaintiff – who owned a cellphone which only made and received calls and texts (colloquially, a “dumbphone”)  – was unable to show (1) that defendant obtained information from plaintiff’s phone; or (2) that defendants intentionally tried to damage plaintiff’s phone; or (3) any statutory “damage” or “loss” due to the unwanted texts.  Id.  As noted in an earlier post, damage and loss are terms of art under the CFAA: damage denotes physical damage to a computer or data; while loss refers to the monetary expense incurred in ameliorating a CFAA violation.  See http://paulporvaznik.com/eagle-i-hijacking-a-linkedin-account-and-the-computer-fraud-act/803 (discussion of CFAA damage and loss under 18 U.S.C. s. 1030(e)).

While the Czech Court ultimately dismissed the plaintiff’s CFAA claims, it also applied the CFAA’s expansive definition of “computer” by acknowledging that the plaintiff’s no-frills cell phone qualified as a “computer” under the CFAA.  674 F.Supp.2d at 1107 (“there is no dispute that [plaintiff’s] cell phone (as well as the various similar wireless devices used by the proposed class members) would constitute…a ‘computer’ as further defined in [the CFAA]).  The CFAA defines a computer as any high-speed data processing device performing logical, arithmetic and storage functions – but that is not a calculator or typewriter.  18 U.S.C. s. 1030(e)(1).  The 8th Circuit Court of Appeals also held that a cell phone that only made calls and texts qualified as a protected computer under the CFAA in a criminal case setting in  U.S. v. Kramer, 631 F.3d 900 (8th Cir. 2011)(defendant used cell phone to entice minor across state lines to engage in criminal sexual conduct).

Declining to extend the Act to unwanted texts, the Czech Court stated succinctly that unwanted texts may be annoying, but they do not give rise to CFAA civil liability: “An annoyance? Quite possibly.  The basis for a civil action under [the CFAA]?  The Court thinks not.”  674 F.Supp.2d at 1105.

Take-away: Czech provides a very detailed analysis of CFAA information (defendant obtained information from a protected computer) transmission (defendant transmitted a virus or worm that damaged plaintiff’s computer), and access (defendant accessed plaintiff’s computer and caused damage or loss to plaintiff)claims.  All three of these claims are predicate acts under CFA sections 1030(a)(2)(C), (a)(5)(A) and (a)(5)(C).  The Court describes the elements and the damage and loss requirements for each of the three claims.  The Court also engages in an intricate and interesting (at least I think so) discussion of the difference between obtaining information from a plaintiff’s website as opposed to a plaintiff’s cell number.  But for this post’s purposes, the case is representative of the CFAA’s expansive definition of a “protected computer” and shows that virtually any mechanical device, wired or not, will qualify for coverage under the statute.