Johnston v. Johnston

Background

The case was opened in the Northern District of California after Tedan Surgical Innovations, Inc., formerly known as Tedan Surgical Innovations, LLC, filed a notice of removal. The removed matter was pending in the Family Law Division of the San Mateo Superior Court under Case Number FAM-0122515. It began eight years earlier as a petition to dissolve the marriage of Kari Johnston and Terry Johnston.

After Kari Johnston filed a first amended complaint, she asserted claims against Terry James Johnston and Tedan relating to alleged fraud involving company stock and patent applications that she contended were marital property. Kari Johnston moved to remand, meaning to return the case to state court, and requested sanctions for what she described as improper removal. Tedan moved to stay, or pause, the case while a request for declaratory relief was considered in bankruptcy court in the District of Nevada.

Removal Arguments

Tedan relied on federal-question and diversity jurisdiction as grounds for removal. The court rejected the federal-question argument because the amended complaint and the underlying marriage-dissolution petition were based exclusively on state law. Although the pleadings described proceedings in bankruptcy court, those allegations did not concern the elements of Kari Johnston’s claims or issues that needed to be resolved in this litigation. The court also noted that federal-question jurisdiction cannot be based on a counterclaim or affirmative defense.

The court likewise rejected removal based on diversity jurisdiction. It assumed that the parties might be diverse and that the amount in controversy might otherwise be sufficient, but held that the domestic-relations exception prevented federal jurisdiction. That exception reflects the principle that matters involving the legal relationship between spouses and the division of marital assets generally belong in state court.

The court rejected Tedan’s arguments that the exception did not apply because Kari Johnston was not seeking a divorce or support from Tedan, and that Tedan had removed only civil claims between itself and Kari Johnston. Tedan had expressly argued that it removed the entire case. The court also rejected Tedan’s argument that the amended complaint had been separated from the rest of the dissolution case. A later state-court ruling reassigned the amended complaint to another judge after Tedan challenged the original judge, but the ruling did not use language of separation and did not assign a new case number.

Rulings

The court granted Kari Johnston’s motion to remand. It stated that Tedan’s belief that the bankruptcy proceedings barred Kari Johnston’s recovery was an argument to be made in the Family Law Court or Bankruptcy Court, not in the federal district court.

The court denied Kari Johnston’s request for sanctions and declined to award attorney fees, despite describing the removal notice as “dubious at best.” The court also denied Tedan’s motion to stay. The opinion therefore returned the matter to state court without deciding whether Kari Johnston’s underlying claims were legally or factually valid.