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Total Automotive, Inc. v. Supply Line International, LLC

United States District Court, D. Minnesota

December 29, 2016

TOTAL AUTOMOTIVE, INC., Plaintiff,
v.
SUPPLY LINE INTERNATIONAL, LLC, GLOBAL PARTS CONNECTION, LLC, AUTO SOURCE NETWORK, LLC, SUPPLY LINE INTERNATIONAL MEDICAL, LLC, MEDVENDLLC, LLC, JOSH KAPLAN, and SCOTT BRUNO, Defendants.

          Jodi L. Johnson and Marc A. Al, STOEL RIVES LLP, and Justin H. Evans, ZELLE LLP, for plaintiff.

          Marshall H. Tanick and Brian N. Niemczyk, HELLMUTH & JOHNSON PLLC, and Ari B. Berris, BERRIS LAW FIRM, P.C., for defendants.

          MEMORANDUM OPINION AND ORDER ADOPTING REPORT AND RECOMMENDATION OF MAGISTRATE JUDGE

          JOHN R. TUNHEIM CHIEF JUDGE

         This issue before the Court is whether complete diversity between the parties exists to satisfy the requirements for federal subject matter jurisdiction under 28 U.S.C. § 1332. Plaintiff Total Automotive, Inc. ("Total") is a Minnesota corporation. Defendants Supply Line International, LLC ("SLI"), Global Parts Connection, LLC ("GPC"), Auto Source Network, LLC, Supply Line International Medical, LLC, MedVendLLC, LLC ("Medvend"), Josh Kaplan, and Scott Bruno, are seven interrelated parties (collectively, “Defendants”) who are based in Michigan, except for Defendant Bruno who resides in Florida.

         After Total originally filed this action in Minnesota state court, Defendant Bruno removed based on diversity. In response to Total's subsequent motion to remand, on August 31, 2016, United States Magistrate Judge Franklin Noel issued a Report and Recommendation (“R&R”) recommending remand for lack of diversity and due to deficiencies in the notice of removal. Defendants timely objected to the R&R on both grounds.

         Because the Court finds that pursuant to a contractual agreement and under the applicable common law, a Minnesota citizen became a member of GPC before the filing of this action and any subsequent attempt to verbally terminate that membership interest unilaterally failed as a matter of law, there was not complete diversity at the time of removal. Thus the Court will overrule the Defendants' objections, adopt the Magistrate Judge's R&R, and remand this action to Minnesota state court.

         BACKGROUND AND PROCEDURAL HISTORY

         I. FACTUAL BACKGROUND

         Total is a Minnesota corporation that distributes vehicle parts and supplies and does business primarily with vehicle dealerships and repair shops. (Defs.' Objs. to R&R at 2, Sept. 15, 2016, Docket No. 54; Aff. of Josh A. Kaplan (“Kaplan Aff.”) ¶ 4, June 21, 2016, Docket No. 33.) Early in 2015, Eric Schilling, a Minnesota citizen who was a Total employee at the time, approached SLI, an LLC operating in Michigan that distributes vehicles supplies, about the possibility of starting his own automotive sales business with SLI's assistance. (Kaplan Aff. ¶¶ 3-4, 8; Aff. of Eric J. Schilling (“Schilling Aff.”) ¶ 2, July 1, 2016, Docket No. 42.) Schilling expressed dissatisfaction with his employment at Total and sought out SLI because his friend, Bruno, had set up his own auto parts company with SLI's assistance. (Kaplan Aff. ¶¶ 3, 9.)

         Pursuant to their negotiations, on July 13, 2015, Schilling and SLI entered into a Partnership and Employment Agreement (the “Agreement”) calling for creation of a new Michigan LLC to be known as GPC.[1] (See Id. ¶ 17; Decl. of Jodi L. Johnson in Supp. of Pl.'s Mot. to Remand, Ex. A (“Agreement”), May 26, 2016, Docket No. 13.) The Agreement took effect on September 1, 2015. (Agreement at 1.) Under the terms of the Agreement, “[u]pon the establishment of [GPC], [SLI] shall receive eighty-one (81%) percent of the initial outstanding membership interest and [Schilling] shall receive nineteen (19%) percent of the initial membership interest.” (Agreement ¶ 1(b).) The Agreement outlines Schilling's status as an employee of GPC, his duties, terms of employment, compensation, and benefits. (Agreement ¶¶ 2-6.) The Agreement's written modification clause states: “[n]o modifications, terminations or attempted waiver shall be valid unless in writing and signed by the party against whom the same is sought to be enforced.” (Id. ¶ 15.) On September 10, 2015, GPC's Articles of Organization were filed with the State of Michigan. (Kaplan Aff. ¶ 18; id., Ex. A at 1.)

         In “mid-September 2015, ” SLI became concerned that Schilling had taken confidential information from Total, and SLI told Schilling that his employment was “on hold.” (Kaplan Aff. ¶¶ 20-22.) Schilling never received any salary or benefits from GPC. (Id. ¶ 23.) He also did not receive a K-1 tax form, which is used to reflect a membership interest in an LLC. (Aff. of Todd Bartlett ¶ 3, June 21, 2016, Docket No. 36; Aff. of Jeff Ellis ¶ 3, June 21, 2016, Docket No. 34.) Schilling submitted an affidavit stating that “[s]ince GPC's formation, neither GPC, nor SLI, nor I have taken any action whatsoever to terminate or otherwise change my status as a member of GPC. Accordingly, it is my understanding that I am still a member of GPC.” (Schilling Aff. ¶ 8.)

         II. PROCEDURAL POSTURE

         On December 21, 2015, Total commenced an action in Carver County District Court against SLI and GPC alleging a variety of state-law claims including tortious interference with Schilling's employment agreement with Total, unfair competition, and conspiracy. (Pl.'s Mem. in Supp. of Mot. to Remand at 5, May 26, 2016, Docket No. 12.) Total subsequently amended its complaint on April 21, 2016, to add claims against the remaining named Defendants. (Def.'s Notice of Removal, Ex. A, May 17, 2016, Docket No. 1.) Defendant Bruno removed this action to the District of Minnesota on May 17, 2016, invoking the Court's diversity jurisdiction under 28 U.S.C. § 1332. (Def.'s Notice of Removal.) On May 26, 2016, Total filed a motion to remand, arguing complete diversity between the parties does not exist. (Pl.'s Mot. to Remand, May 26, 2016, Docket No. 12.) Bruno amended his notice of removal on July 13, 2016. (Def.'s Am. Notice of Removal, July 13, 2016, Docket No. 48.)

         The Magistrate Judge concluded that Schilling became a GPC member by September 10, 2015 - the day GPC's Articles of Incorporation were filed - because the Agreement unambiguously states Schilling would become a member of GPC upon GPC's “establishment”. (R&R at 5, Aug. 31, 2016, Docket No. 53 (citing Agreement ¶ 1(b)).) The Magistrate Judge rejected the Defendants' argument that the Agreement never went into effect due to conversations between SLI and Schilling in mid-September 2015, because the executed Agreement went into effect on September 1, 2015 and Schilling became a GPC member before “mid-September.” (Id.) Furthermore, the Magistrate Judge concluded Schilling's membership interest was not terminated prior to December 21, 2015 - the date of this action's commencement - because there was no “clear and convincing evidence” of “affirmative conduct establishing mutual agreement to modify or waive the particular original contract, ” as required by Michigan law to amend a contract notwithstanding the existence of a written modification clause. (Id. at 6 (citing Quality Prods. & Concepts Co. v. Nagel Precision, Inc., 666 N.W.2d 251, 253-54 (Mich. 2003)).) The Magistrate Judge noted Schilling believes he is still a GPC member and GPC's decision to put his ...


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