United States District Court, D. Minnesota
Adrianna Shannon, SHANNON LAW, LLC, for plaintiff.
William Skolnick, Andrew Bardwell, and Samuel Johnson,
SKOLNICK & JOYCE, P.A., 527 for defendant.
MEMORANDUM OPINION AND ORDER ADOPTING REPORT &
R. TUNHEIM CHIEF JUDGE
diversity action arises out of business dispute between
Defendants Daniel Sachs, DSC Products, Inc., and DSC Products
Holding, LLC and Plaintiff 4Brava, LLC, the members of Three
Two Eight LLC, a business venture that is no longer
operational. Plaintiffs assert multiple claims against
Defendants, including civil theft, fraud, breach of fiduciary
duty, and unjust enrichment. Defendants removed the case to
federal court in 2015, and now bring a motion to undo the
removal and remand this action back to state court, arguing
that the Court lacks jurisdiction.
States Magistrate Judge David T. Schultz issued a Report and
Recommendation (“R&R”), concluding that the
Court lacks subject-matter jurisdiction over some of
4Brava's claims, and therefore recommending that the
Court remand those claims to state court; the Magistrate
Judge recommended that the Court retain jurisdiction over the
other claims. Defendants filed objections to the R&R.
Because the Court will conclude that it lacks subject-matter
jurisdiction over some of 4Brava's claims, the Court will
overrule the Defendants' objections, adopt the R&R,
and remand the claims to state court for which the Court
lacks subject-matter jurisdiction.
case arises out of a dispute between the members of
non-operational Three Two Eight, a business venture formed to
sell plastic tumblers to retailers such as Walmart.
(See Compl. ¶¶ 19-26, June 17, 2015,
Docket No. 1-1.) Three Two Eight's sole two members are
4Brava, a citizen of Minnesota and Florida, and Defendants,
all of whom are citizens of California. (See Notice
of Removal ¶ 3, June 17, 2015, Docket No. 1.) As the
case is currently captioned, there is complete diversity
between the parties. (See id.)
originally brought this action in Minnesota state court,
alleging multiple causes of action against the Defendants,
including civil theft, fraud, breach of fiduciary duty,
unjust enrichment, and for the statutory dissolution of Three
Two Eight. (Compl. ¶¶ 88-141.) 4Brava did not name
Three Two Eight as a party in its initial Complaint.
(Id. ¶¶ 1-4.) Defendants removed the case
to federal court, asserting complete diversity. (Notice of
Removal.) In their Answer, Defendants denied that Sachs or
DSC Products Holding had any managerial or membership control
in Three Two Eight. (Answer ¶¶ 23-24, June 22,
2015, Docket No. 3.)
sought a preliminary injunction, to which Sachs responded by
denying, under penalty of perjury, that an agreement was ever
reached on the business venture; denying that he was ever an
officer, director, or manager of Three Two Eight; and denying
that Three Two Eight had the role in the venture that 4Brava
alleged. (See Decl. of Daniel Sachs ¶¶
5-9, 19-20, 23-25, Aug. 17, 2015, Docket No. 26.) 4Brava
sought summary judgment in both this case and a related one.
(Pl.'s Mot. for Summ. J., Aug. 15, 2016, Docket No. 102;
see Pl.'s Mot. for Summ. J., Aug. 15, 2016, No.
15-2743, Docket No. 112.) In opposition to both motions,
Defendants asserted that Three Two Eight “was never
formed.” (Defs.' Opp'n to Mot. for Summ. J. at
3, Oct. 19, 2016, Docket No. 121; Defs.' Opp'n to
Mot. for Summ. J. at 4, Oct. 19, 2016, No. 15-2743, Docket
No. 143.) Sachs repeated his sworn statements that an
agreement was never reached on the business venture; that he
was never an officer, director, or manager of Three Two
Eight; and that Three Two Eight did not have the role in the
venture that 4Brava alleged. (See Decl. of Daniel
Sachs ¶¶ 19-20, Oct. 19, 2016, Docket No. 122.) The
Court, however, disagreed and found Three Two Eight to be an
existing entity, albeit a non-operational one. (Mem. Op.
& Order at 34, Mar. 30, 2017, Docket No. 131.)
parties have litigated this action for almost three years.
The proceedings have involved discovery motions, settlement
conferences that were abandoned, and other conferences and
letters to the Magistrate Judges. (See R&R at
4-5, Dec. 27, 2017, Docket No. 341.) Defendants twice filed
for bankruptcy and abandoned each one. (Id. at 4.)
And Defendants' counsel has filed motions to withdraw
without substitution. (Id. at 4, 25.) At no time
before or during any of the aforementioned proceedings did
any party assert that the Court lacks subject-matter
jurisdiction over any claim.
in October 2017, Defendants moved to remand this case to
state court, asserting for the first time that Three Two
Eight was an indispensable party to the lawsuit and therefore
(because 4Brava and Defendants together make up its
membership) its joinder destroys complete diversity
jurisdiction and thus requires remand. (Defs.' Mot. to
Remand, Oct. 5, 2017, Docket No. 296.) Defendants'
assertion is contrary to the position that they have taken
throughout the proceedings and conflicts with statements made
by Sachs under penalty of perjury. Instead, the position
Sachs now takes is that DSC Products Holding, an entity to
which Sachs is the sole member, was formed precisely for the
purpose of holding membership interest in Three Two Eight.
(Decl. of Daniel Sachs ¶ 1, Oct. 5, 2017, Docket No.
Magistrate Judge concluded that the Court lacks
subject-matter jurisdiction over some of 4Brava's claims,
and therefore recommended that the Court remand them: the
claim for breach of fiduciary duties, in part, civil theft,
conversion, accounting, illegal distribution, and unjust
enrichment. (R&R at 29-30.) The Magistrate Judge
recommended that the Court retain jurisdiction over the
remainder of 4Brava's claims: breach of fiduciary duties,
misrepresentation/fraud, statutory dissolution, promissory
estoppel, and breach of contract. (Id.)
same R&R, the Magistrate Judge also held Defendants in
contempt for failure to produce financial documents, and
awarded 4Brava's attorney fees under 28 U.S.C. §
1447 for Defendants' removal and remand of 4Brava's
claims to and from federal court. (R&R at 22-28.)
timely objected to the R&R; 4Brava did not. (Defs.'
Objs., Jan. 10, 2018, Docket No. 349.) On jurisdiction,
Defendants' object only to the Magistrate Judge's
recommendation that the Court retain jurisdiction over
4Brava's statutory-dissolution claim. (Id.)
Defendants also argue that the Magistrate Judge's order
finding Defendants in contempt should be overturned for lack
of jurisdiction. Finally, Defendants object to the Magistrate
Judge's award of attorney fees to 4Brava for the claims
to be remanded to state court.
Court will overrule Defendants' objections and adopt the
R&R. While Three Two Eight might be an indispensable
party to the statutory-dissolution claim, it is a nominal
party and therefore its citizenship is not considered for
determining diversity jurisdiction. Furthermore, because the
Court is retaining jurisdiction over a portion of
4Brava's claims - a conclusion to which Defendants do not
object - the contempt order against Defendants stands.
Finally, awarding ...