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Merchant & Gould, P.C. v. Stephenson

United States District Court, D. Minnesota

August 28, 2019

Merchant & Gould, P.C., Plaintiff,
John Stephenson, Defendant.



         This is a breach of contract action for nonpayment of legal fees. Plaintiff Merchant & Gould, P.C. (Merchant) moves to amend its complaint to add a new defendant, Leonard Anderson, and three new claims entitled Joint Venture, Joint Enterprise, and Third-Party Beneficiary. Revised Motion, Docket No. 66. Unlike the first proposed amended complaint, the revised version does not seek to add any defendants whose presence would destroy the Court's diversity jurisdiction. Defendant John Stephenson opposes the motion on the basis of futility, stating that Merchant's proposed amended complaint fails to plead facts that support its new legal claims. The Court agrees and denies the motion.


         Merchant sued Stephenson in Hennepin County District Court to recover $944, 654.40 in unpaid legal bills incurred in connection with patent infringement matters including two lawsuits in which Stephenson was the sole named plaintiff. See Compl., Docket No. 1-1; Proposed Am. Compl. (PAC) ¶ 12, Second Chad Decl. Ex. A, Docket No. 69-1. Stephenson removed the case to this Court alleging federal jurisdiction based on diversity of citizenship. Notice of Removal, Docket No. 1.

         On March 14, 2019 Merchant moved to amend its complaint seeking to add additional claims and defendants. Motion to Amend, Docket No. 33. However, its proposed amended complaint did not properly plead the citizenship of several potential additional defendants, whose joinder could have destroyed the Court's diversity jurisdiction. Chad Decl. Ex. A (original proposed amended complaint), Docket No. 37-2. In response to the Court's direction, the parties filed a Joint Statement on April 25, 2019 in which they acknowledged that granting Merchant's then-current motion to amend would destroy complete diversity because three proposed defendants - Mega Internet Tournaments, L.L.C., Internet Tournament Games, Inc., and GoldenCare USA, Inc. - are citizens of Minnesota. Docket No. 56.

         On May 13, 2019 the Court found the existing motion to amend would deprive the Court of subject matter jurisdiction and ordered Merchant to inform the Court whether it wanted a ruling on that motion as presented or whether it intended to file a revised motion. Order, Docket No. 64. On May 20, 2019 Merchant filed a revised motion to amend that named Leonard Anderson, a Nevada resident, as the only additional defendant, thereby preserving complete diversity of citizenship. Docket No. 66.

         In its revised Proposed Amended Complaint (PAC), Merchant alleges that Stephenson signed a Retainer Agreement dated June 1, 2011 for legal services with Merchant to pursue patent enforcement litigation. PAC ¶ 8-11, Second Chad Decl. Exs. A, B, C, and D, Docket No. 69-1. Stephenson owns the patent and was the sole named plaintiff in the two patent lawsuits. Id. ¶¶ 11-12. Merchant asserts that Anderson and Stephenson were engaged in a joint venture or enterprise to prosecute the patent infringement matters. Id. ¶ 15. It alleges Anderson agreed to pay some of Stephenson's legal fees in exchange for a share of any profits from the litigation, and that it was an intended third-party beneficiary of this agreement. Id. ¶¶ 16, 47-51. Merchant states that, after being retained by Stephenson, it “began providing legal services at the direction of Defendant John Stephenson and Defendant Leonard Anderson for their benefit.” Id. ¶ 12.

         To support its claims of joint venture, joint enterprise, and third-party beneficiary, Merchant alleges:

Upon information and belief, both Mr. Stephenson and Mr. Anderson were contributing money, property, time, and/or skill under an express or implied agreement whereby they exercised joint proprietorship and control, and shared or hoped to share profits, in a joint venture or enterprise with respect to the [Retainer] Agreement. Defendants' intent to share profits is demonstrated by an email from Defendant Stephenson from Defendant Anderson on July 13, 2011. This email, produced by Defendant Stephenson, provides for Defendant Anderson to share in the revenues of Defendants' efforts to enforce the ‘237 patent.
Defendants, individually and collectively, have disregarded any distinctions between them and commingled their funds as relevant to the payment of services under the [Retainer] Agreement. For example, Mr. Stephenson acted as the sole owner of the ‘237 patent in all pertinent Patent Office proceedings and as the sole individual plaintiff in the litigations. Despite this, Mr. Anderson, individually or as CEO of GoldenCare USA, Inc., at various times, treated invoices submitted by [Merchant] under the [Retainer] Agreement as his own, having paid the invoices by check directly to [Merchant] (and in many cases referenced the invoice numbers on the checks). Moreover, Mr. Stephenson and Mr. Anderson both participated in decisions relating to litigation strategy in connection with the ‘237 patent.

Id. ¶¶ 16-17.

         Merchant states that “[o]n at least one occasion, Defendant Leonard G. Anderson personally made payment to Plaintiff for legal services provided under the [Retainer] Agreement, ” “[o]n at least a dozen occasions, GoldenCare USA, Inc. made” such payments, and “[u]pon information and belief, Mr. Anderson was the Chief Executive Officer of GoldenCare USA, Inc., at the time” the payments were made. Id. ¶¶ 13-14. Merchant claims this conduct “has created a joint liability [between Anderson and Stephenson] for the sums due to [Merchant] under [its Retainer] Agreement [with Stephenson].” Id. ¶ 18.


         I. Rule 15 Standard

         Under Federal Rule of Civil Procedure 15(a), a court should freely give leave to amend a complaint when justice so requires. The decision whether to grant leave to amend is entrusted to the sound discretion of the district court. Niagara of Wis. Paper Corp. v. Paper Indus. Union-Mgmt. Pension Fund, 800 F.2d 742, 749 (8th Cir. 1986). There is no absolute right to amend, and a court may deny the motion in circumstances such as when the amendment will cause or is the result of undue delay, bad faith, dilatory motive, repeated failure to cure deficiencies in previous amendments, undue prejudice to the non-moving party, or futility. Baptist Health v. Smith, 477 F.3d 540, 544 (8th Cir. 2007).

         “Denial of a motion for leave to amend on the basis of futility means the district court has reached the legal conclusion that the amended complaint could not withstand a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure.” Zutz v. Nelson, 601 F.3d 842, 850 (8th Cir. 2010) (internal quotation marks omitted). Thus, in assessing futility under Rule 15, all well-pleaded factual allegations in the proposed amended complaint must be accepted as true. Butler v. Bank of Am., N.A., 690 F.3d 959, 961 (8th Cir. 2012). However, mere “labels and conclusions” or “a formulaic recitation of the elements of a cause of action” need not be credited. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The well-pleaded factual allegations must nudge the complaint over the line from the merely possible to the plausible. See Id. (citing Twombly, 550 U.S. at 556-57). In determining whether a plaintiff has stated a plausible claim, the Court considers only the materials that are necessarily embraced by the pleadings and exhibits attached to the complaint. Cox v. Mortgage Elect. Registration Sys., Inc., 685 F.3d 663, 668 (8th Cir. 2012); see also Kushner v. Beverly Enterprises, Inc., 317 F.3d 820, 831 (8th Cir. 2003) (court may consider the complaint and documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading).

         II. Analysis

         A. The ...

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