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LLC v. Sachs

United States District Court, D. Minnesota

May 17, 2018

4BRAVA, LLC, Plaintiff,
v.
DANIEL SACHS, DSC PRODUCTS, INC. and DSC PRODUCTS HOLDING, LLC, Defendants.

          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 & RECOMMENDATION

          JOHN R. TUNHEIM CHIEF JUDGE

         This 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.

         United 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.

         BACKGROUND

         This 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.)

         4Brava 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.)

         4Brava 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.)

         The 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.

         Then, 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. 299.)

         The 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.)

         In the 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.)

         Defendants timely objected to the R&R; 4Brava did not. (Defs.' Objs., Jan. 10, 2018, Docket No. 349.)[1] 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.

         The 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 ...


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