Sterling Select II Advisory LLC v. Argus Information and Advisory Services, LLC

Background

Sterling Select II Advisory, LLC (“Select”) filed a ten-count commercial action in New York state court against Argus Information & Advisory, Inc. (“Argus”). Select alleged that Argus failed to perform its obligations under a joint venture to develop and market consumer analytics software and diverted business opportunities to other companies. The claims included breach of contract, breach of the implied duty of good faith and fair dealing, gross negligence, fraudulent inducement, and interference with a prospective business advantage.

Argus removed the case to federal court based on diversity jurisdiction, which generally permits federal courts to hear qualifying disputes between citizens of different states. Select moved to send the case back to state court, arguing that both Select and Argus were citizens of New York. Argus opposed remand and submitted evidence that it was a citizen of Delaware and Illinois. The court later denied the remand motion without prejudice and allowed Select to seek permission to amend its complaint.

Motion to Amend

Select proposed adding five defendants: Nielsen, Commerce Signals, Predict, Verisk, and TransUnion. Select’s proposed complaint alleged that Nielsen, Commerce Signals, and Predict were citizens of New York. The court noted that the proposed complaint did not adequately allege the citizenship of Nielsen and Predict, both limited liability companies, but assumed for purposes of the ruling that both were New York citizens.

Federal law permits a court, after removal, to deny the addition of parties whose presence would eliminate federal jurisdiction, or to allow the addition and send the case to state court. The court evaluated the proposed addition of Nielsen, Commerce Signals, and Predict under factors addressing delay, prejudice to Argus, the risk of multiple lawsuits, and Select’s motivation.

Proposed Non-Diverse Defendants

The court denied Select’s motion as to Nielsen, Commerce Signals, and Predict. It found that Select waited about four and a half months after removal before taking the first step toward adding those defendants, and that Select provided no adequate explanation for the delay. The court also noted that Select’s original complaint already described the entities’ alleged involvement.

The court found little likely prejudice to Argus from allowing the amendment, because the case remained at an early stage and Argus had not shown how its defense would be harmed. The possibility of multiple lawsuits weighed only slightly in favor of adding the defendants because Select could have named them in the original state-court action and the litigation was still early enough for discovery to be coordinated.

The court treated Select’s motivation as the most important factor. It found that Select’s filings and the timing of its request showed that the principal purpose of adding the three entities was to defeat federal diversity jurisdiction, particularly after Argus submitted evidence challenging Select’s position about Argus’s citizenship. The court concluded that allowing the joinder would not serve fundamental fairness and justice.

Verisk, TransUnion, and Additional Claims

Argus also argued that the proposed claims against Verisk and TransUnion, as well as additional claims against Argus, were futile. A futile claim is one that could not survive a motion to dismiss for failure to state a legally sufficient claim.

The court declined to decide futility at the amendment stage. It explained that Argus’s arguments concerned the merits and the adequacy of Select’s allegations and would be better addressed through a later motion to dismiss or, where appropriate, a motion for summary judgment. The court also found that allowing the amendment would not unfairly prejudice Argus because Argus could raise those arguments in a later motion.

The court therefore granted Select’s motion as to adding Verisk and TransUnion and asserting the proposed additional causes of action against Verisk, TransUnion, and Argus. The court did not decide whether those claims ultimately state valid causes of action.

Disposition

The court granted Select’s motion in part and denied it in part. Select may file an amended complaint adding Verisk and TransUnion and asserting the new claims against those entities and Argus. Select may not add Nielsen, Commerce Signals, or Predict or assert claims against them. The court directed the parties to file a joint letter proposing next steps.