United States Securities and Exchange Commission v. Collector's Coffee Inc.

Background

The Securities and Exchange Commission sued Collector’s Coffee Inc., doing business as Collectors Café, and Mykalai Kontilai, alleging violations of federal securities laws through investor fraud. Secured creditors of Collector’s Coffee—SDJ Investments, LLC, Adobe Investments, LLC, and Darren Sivertsen, as trustee of the Sivertsen Family Trust—intervened and brought claims against several parties, including Collector’s Coffee and the Jackie Robinson Foundation.

The creditors’ Count Two sought a declaratory judgment that Collector’s Coffee, rather than the Jackie Robinson Foundation, owned two Major League Baseball contracts signed by Jackie Robinson in 1945 and 1947. The creditors alleged that Collector’s Coffee acquired the contracts in 2013 and later obtained $5.95 million in loans from certain creditors. The Los Angeles Dodgers later asserted ownership, and in November 2019 transferred their ownership interest to the Jackie Robinson Foundation.

Collector’s Coffee was named in Count One but not Count Two. Count One, which concerned the creditors’ security interests in the contracts, had been stayed pending arbitration. Count Two involved only the creditors and the Jackie Robinson Foundation.

Collector’s Coffee’s Motion to Dismiss

Collector’s Coffee moved to dismiss Count Two under Federal Rule of Civil Procedure 19, arguing that it was a required and indispensable party. Rule 19 concerns when a person must be joined to a lawsuit and when a case must be dismissed if joining that person is not feasible.

The court explained that a motion to dismiss for failure to join a required party is brought under Rule 12(b)(7), and that the moving party must be a party to the claim for which dismissal is requested. Collector’s Coffee was not a party to Count Two. The court stated that if Collector’s Coffee believed it was already a party to that claim, its rights would be protected through its participation; if not, it could seek to intervene under Rule 24.

The court declined to treat Collector’s Coffee’s motion as a request to intervene because Collector’s Coffee had made clear that it did not wish to intervene. It therefore concluded that Collector’s Coffee’s motion to dismiss Count Two had to be denied. The court also denied Collector’s Coffee’s request to strike the Securities and Exchange Commission’s brief, exercising discretion to keep the brief in the record.

Jackie Robinson Foundation’s Motion to Amend

The Jackie Robinson Foundation moved under Rule 15 to amend its answer by adding a cross-claim against Collector’s Coffee. The proposed cross-claim sought a declaration that the Foundation was the rightful owner of the contracts and that Collector’s Coffee did not have good title.

The court considered delay, bad faith, futility, and prejudice. Although the Foundation could have brought the claim earlier, the court found no evidence of bad faith. It also rejected Collector’s Coffee’s argument that the amendment would be futile because the court lacked subject-matter jurisdiction; the court had previously decided that it had jurisdiction over the ownership dispute.

The court found no undue prejudice. It noted that Collector’s Coffee had already conducted extensive discovery about ownership, including document requests and depositions involving the Foundation and the Dodgers. The court also concluded that Collector’s Coffee’s contemplated contract and tortious-interference claims would not require those claims to be litigated in this case.

The court rejected the argument that the amendment would improperly evade arbitration. It explained that the arbitration concerned the creditors’ security interests and assumed that Collector’s Coffee owned the contracts. The Foundation was not a party to the arbitration agreement, so its ownership claim could be decided in court.

Disposition

The court recommended that Collector’s Coffee’s motion to dismiss Count Two, Docket No. 955, be denied. It granted the Jackie Robinson Foundation’s motion to amend, Docket No. 984, and directed that the proposed amended cross-claim be filed within seven days of the decision. The ruling also stated that parties had fourteen days after service to object to the report and recommendation before Judge Marrero. The opinion was written by United States Magistrate Judge Gabriel W. Gorenstein.