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INDEPENDENT MACH. CO. v. INTERNATIONAL TRAY PADS &

January 5, 1998

INDEPENDENT MACHINE CO., Plaintiff,
v.
INTERNATIONAL TRAY PADS & PACKAGING, INC. (Successor to National Converting Co., Inc.), Defendant.



The opinion of the court was delivered by: CHESLER

 CHESLER, MAGISTRATE JUDGE

 I. INTRODUCTION

 This matter was opened by the Court sua sponte by an Order to Show Cause why the above captioned action should not be remanded to the New Jersey Superior Court, Law Division, Essex County, for lack of federal subject matter jurisdiction. The Order to Show Cause was filed on November 14, 1997, and was returnable on November 24, 1997. Plaintiff's response was ordered to be by written submission and no oral argument was permitted. For the reasons stated below, the above captioned action will be remanded.

 II. BACKGROUND

 This lawsuit arises out of the sale by Plaintiff to Defendant of a laminator/coater machine to be used in the manufacture of sealed-edge absorbent meat tray pads (the "Machine"). The full purchase price for the Machine was approximately $ 132,000. Shortly after accepting delivery of the Machine, Defendant discovered that the Machine had numerous defects that prevented it from functioning to produce the product for which it was designed. Numerous communications concerning the defects took place between Plaintiff and Defendant and Defendant subsequently made several attempts to repair the machine.

 On October 16, 1996, Defendant wrote to Plaintiff, memorializing Defendant's revocation of its prior acceptance of the Machine, and requesting that Defendant accept the return of the machine and refund the purchase price. On October 19, 1996, Plaintiff responded in writing to Defendant's demand but did not mention that there were outstanding contract balances owed by Defendant.

 Subsequent to this exchange of communications, Defendant's North Carolina counsel wrote Plaintiff demanding a refund of the $ 132,000 purchase price. On February 28, 1997, Plaintiff responded to the letter and stated that it refused to issue a refund. In response, on March 5, 1997, Defendant's attorneys advised Plaintiff that they had been directed to file a lawsuit on behalf of Defendant if the dispute could not be resolved. On April 16, 1997, Plaintiff commenced this action by filing a "Complaint on Contract" (the "Complaint") with the New Jersey Superior Court, Law Division, Essex County. The Complaint alleged that Defendant failed to pay for certain goods sold and services performed by Plaintiff and sought to recover the sum of $ 2970.90 from Defendant.

 On June 4, 1997, Defendant answered Plaintiff's Complaint and filed numerous compulsory counterclaims involving various breach of contract and warranty claims. Through their counterclaims, Defendant sought to be reimbursed for the full price of the Machine.

 On that same date, Defendant filed its Notice of Removal (the "Notice") with this Court. Defendant asserted in its Notice that this Court has jurisdiction through "diversity of citizenship." See Notice of Removal PP 4-8. In support of this contention, Defendant averred that Plaintiff is a New Jersey corporation, with its principal place of business in New Jersey, and that Defendant is a North Carolina corporation, with its principal place of business in North Carolina. See Notice of Removal PP 4-5. Additionally, Defendant contends that the "amount-in-controversy" requirement is satisfied because Defendant's counterclaims seek damages in excess of $ 120,000. See Notice of Removal P 6. Therefore, Defendant concluded that there is complete diversity and federal jurisdiction. See Notice of Removal P 7.

 Based upon Defendant's use of damages pled in compulsory counterclaims, this Court issued an Order to Show Cause on November 14, 1997, directing Defendant to show cause why this case should not be remanded to state court for lack of federal subject matter jurisdiction. Defendant submitted a written response to the Order to Show Cause and argued that damages pled in compulsory counterclaims can satisfy the amount-in-controversy requirement of 28 U.S.C. § 1332, as amended. Defendant filed a supplemental response on December 15, 1997, reiterating its prior arguments.

 A. Removal and Remand

 Civil actions filed in a state court can generally be removed to a federal court in that state if the district courts of the United States have original jurisdiction. *fn1" See 28 U.S.C. § 1441 (1992). Once removed, however, a case may be remanded to the state court if the court determines that it lacks adequate federal subject matter ...


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