Davis v. Mack

Background

James L. Davis and the Davis and Associates, Inc. 401K Profit Sharing Plan sued Jeffrey Mack and Larry Blaney in Hennepin County court in August 2018. They alleged that Mack, Blaney, and others participated in a fraudulent scheme to inflate the revenue of Digiliti Money Group, Inc. The complaint identified National Check Consolidators of Florida, Inc., and its employees Andy Benjamin and Louis Skenderis as participants but did not name them as defendants.

Blaney removed the case to federal court on September 4, 2018, asserting diversity jurisdiction. The removal papers alleged that Davis was a citizen of Florida, the Plan had an address in Minnesota, Mack was a citizen of Texas, and Blaney was a citizen of Illinois. Mack consented to removal but had not answered or otherwise responded to the complaint.

Davis had separately sued National Check Consolidators of Florida, Inc., Benjamin, Skenderis, Erasmo Pineda, and Rodolfo Angulo in state court. In that separate case, some defendants moved to dismiss based on the alleged failure to join Mack, Blaney, and others as necessary parties. The motion remained pending. Davis did not add Mack and Blaney to that case, instead filing the separate action that Blaney later removed.

The Motion

The plaintiffs asked to amend the complaint to add the defendants from the separate state-court case and to remand, or return, the action to state court. They argued that adding the proposed defendants would destroy diversity jurisdiction. They also said that consolidation of the two lawsuits was a reason for the amendment.

At a hearing, the court separately raised whether the Securities Act of 1933’s anti-removal provision, 15 U.S.C. § 77v(a), affected the case. That provision generally bars removal of certain Securities Act cases filed in state court. The court concluded that violating the provision would be a procedural defect in removal rather than a lack of subject-matter jurisdiction. Because the plaintiffs had not filed a motion seeking remand on that specific ground, the court did not order remand on that basis.

Legal Standard

Under federal procedural rules, courts generally allow amendments to pleadings when fairness requires. But when a plaintiff seeks to add a nondiverse defendant to a removed case, and the addition would eliminate federal jurisdiction, the court may deny the joinder or allow it and remand the case under 28 U.S.C. § 1447(e).

The court applied factors required by the Eighth Circuit: whether the proposed joinder was sought to defeat federal jurisdiction, whether the plaintiff delayed seeking amendment, whether denying amendment would significantly injure the plaintiff, and any other equitable considerations. The court also noted that the parties agreed the proposed defendants were permissive rather than necessary and indispensable parties.

Court’s Analysis

The court found that the first factor weighed against amendment. The plaintiffs were already aware of the proposed defendants and relied on essentially the same claims and factual allegations against both groups. The court concluded that the plaintiffs’ primary, if not only, purpose in adding the proposed defendants was to destroy diversity, obtain remand, and potentially consolidate the lawsuits.

The second factor favored amendment because the plaintiffs filed their motion 10 days after removal. The third factor weighed against amendment. The plaintiffs said they might lose the ability to litigate their claims against the proposed defendants if the separate state-court case were dismissed for failure to join Mack and Blaney. The court considered that possibility speculative and noted the plaintiffs’ concession that they could refile in state court naming all necessary parties if needed. The court also reasoned that the alleged parties were joint tortfeasors, so denying joinder would not establish significant injury on the record presented.

The court found that the other equitable considerations also weighed against amendment. It concluded that the plaintiffs’ decision to maintain separate lawsuits, and their failure to seek consolidation with Mack and Blaney before removal, contributed to the risk of parallel litigation. The court acknowledged concerns about efficiency but determined that those concerns carried less weight because the separate lawsuits resulted from the plaintiffs’ litigation strategy.

Disposition

The court concluded that Blaney’s interest in maintaining a federal forum outweighed the competing interest in avoiding parallel lawsuits. It therefore denied the plaintiffs’ Motion to Amend to Join Parties and to Remand to State Court. The court did not decide the plaintiffs’ request for remand based on the Securities Act anti-removal provision because that request was not made through a proper motion.