CSM Corporation v. HRI Lodging, LLC

Background

CSM Corporation alleged that HRI Lodging, LLC; HRI Properties, Inc., doing business as HRI Properties; Urban Minneapolis Plymouth Building, LLC; and Urban Minneapolis Plymouth Tenant, LLC worked with CSM’s former senior executive, Michael Coolidge, to take business opportunities from CSM and develop the Plymouth Building Embassy Suites in downtown Minneapolis. CSM asserted claims including tortious interference with contract, aiding and abetting, unjust enrichment, and civil conspiracy.

The defendants removed the case from state court based on diversity jurisdiction, which allows a federal court to hear certain state-law disputes between citizens of different states. CSM moved to remand, or return, the case to state court because CSM and the two Urban Minneapolis Plymouth defendants were Minnesota citizens. The defendants argued that those two defendants had been fraudulently joined, meaning CSM had no reasonable basis for asserting claims against them and they should be disregarded when determining federal jurisdiction. The defendants also moved to dismiss CSM’s amended complaint based on res judicata, a rule that can bar claims already resolved in an earlier case.

Court’s Analysis

The court explained that federal diversity jurisdiction requires complete diversity: no defendant may share citizenship with any plaintiff. It also explained that an LLC has the citizenship of each of its members. Because CSM and the two Urban Minneapolis Plymouth defendants were not diverse, the defendants had to prove fraudulent joinder to keep the case in federal court. That burden was substantial, and the relevant question was whether state law might impose liability based on the alleged facts—not whether CSM had satisfied the stricter standard for plausibly pleading a claim.

The court found that CSM’s tortious-interference claims against the Urban Minneapolis Plymouth defendants met that standard. Minnesota law requires a contract, the alleged wrongdoer’s knowledge of it, intentional procurement of its breach, lack of justification, and damages. CSM alleged that the defendants knowingly induced and encouraged Coolidge to violate an employment-agreement provision barring him from pursuing CSM opportunities for one year after leaving CSM. The court concluded that this allegation reasonably implied that the defendants knew about the agreement. It did not decide whether all of CSM’s claims had a reasonable basis or whether any claim would ultimately succeed.

Ruling

The court held that the defendants had not met their burden of proving fraudulent joinder. It granted CSM’s motion to remand to state court. Because the federal court lacked subject-matter jurisdiction, it did not consider the defendants’ res judicata-based motion to dismiss and denied that motion as moot. The clerk was directed to send a certified copy of the order to the clerk of Hennepin County District Court.