United States District Court, D. Minnesota
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
MEMORANDUM OPINION AND ORDER ADOPTING REPORT AND
RECOMMENDATION OF MAGISTRATE JUDGE
R. TUNHEIM CHIEF JUDGE
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.
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.
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.
AND PROCEDURAL HISTORY
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.)
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. (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.)
“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.)
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.
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 ...