United States District Court, D. Minnesota
T. SCHULTZ UNITED STATES MAGISTRATE JUDGE
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.
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.
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.
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.
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.
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.
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.
Rule 15 Standard
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).
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