Drelick v Innovative Development Co

2008 DNH 118

• Court: District Court, D. New Hampshire
• Decided: June 13, 2008
• Docket: CV-08-112-JL
• Status: Published

Opinion

Drelick v Innovative Development Co CV-08-112-JL 6/13/08 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Stephen Drelick, and Drelick Holdings, LLC

v. Civil No. 08-cv-112-JL Opinion No. 2008 DNH 118

Innovative Development Company, LLC, John Powers Associates, Inc. John Powers, and Ryan Byther

MEMORANDUM AND ORDER

The plaintiffs, Stephen Drelick and his company Drelick

Holdings, LLC, brought an action in New Hampshire state court

against the defendants, a mortgage brokerage firm and its

principals, alleging the unlawful refusal to disburse over

$122,000 in loan proceeds. The defendants removed the action to

this court, see 28 U.S.C. § 1441, invoking its diversity

jurisdiction. Id. § 1332(a). The plaintiffs have responded with

a motion t o : (1) amend the complaint to join additional non-

diverse defendants, and (2) remand the action to the state court

based on the resulting lack of diversity jurisdiction. After a

hearing, and for the reasons that follow, the plaintiffs’ motions

to amend and to remand are denied. I. BACKGROUND1

In 2005, the plaintiffs, Stephen Drelick and Drelick

Holdings, LLC (collectively “Drelick”), both residents of New

Hampshire, obtained a $3.2 million loan from UPS Capital Business

Credit to finance the construction of the Rockingham Athletic

Club in Plaistow. Drelick hired John Powers and John Powers

Associates, Inc., Maine residents, to do the architectural work,

and Shawn Meuse and Advanced Design and Construction, New

Hampshire residents, as his general contractor.

After financial difficulties stalled the construction

project, Drelick retained Alpine Mortgage and began working with

one of its agents, Ryan Byther, a resident of Maine, to secure

additional financing. Soon thereafter, Byther left Alpine

Mortgage to form a new mortgage brokerage firm, Innovative

Development Company, LLC--a named defendant and resident of

Maine2--with Powers and Meuse. With the assistance of Byther and

1 The background information is taken from the plaintiff’s complaint and the parties’ pleadings. 2 For purposes of diversity jurisdiction, the citizenship of a limited liability company is determined by the citizenship of its individual members. See Pramco, LLC v . San Juan Bay Marina, Inc., 435 F.3d 5 1 , 54 (1st Cir. 2006). Byther and Powers, the members of the LLC, are both residents of Maine.

2 Innovative Development,3 Drelick obtained a $589,000 loan

commitment (“the second loan”) from UPS Capital to complete

construction of the project.

On December 2 8 , 2007, Drelick closed on the second loan and

turned over the loan proceeds to Innovative Development to cover

a variety of construction costs and outstanding debts. Several

months later Byther presented Drelick with a proposed schedule

which outlined how he intended to disburse the money. Upon

review of the schedule, Drelick discovered $122,231.55 in

proposed payments that he had not approved--including a $25,000

payment to Meuse and Advanced Design for construction work.

Drelick notified the defendants of these disputed payments, but

they nonetheless sent him a check for $17,314.88, representing

the balance of the second loan after all of the proposed

payments, including those in dispute, had been made.

On March 1 4 , 2008, Drelick filed suit against the

defendants--Innovative Development, John Powers Associates, John

Powers, and Ryan Byther--in Rockingham County Superior Court,

seeking damages in the amount of the disputed payments and

injunctive relief. Less than two weeks later, on the morning of

3 In addition to assisting Drelick obtain secondary financing, the defendants made a series of loans to Drelick to allow him to stay current on the primary loan.

3 the state court injunction hearing, defense counsel called

counsel for Drelick and notified him of their intent to remove

the case to federal court. In response, Drelick’s counsel stated

his intent to join two residents of New Hampshire, Shawn Meuse

and Advanced Design, thereby eliminating the basis for diversity

jurisdiction under 28 U.S.C. § 1332. After their conversation,

defendants removed the case to federal court. Two days after

removal, Drelick moved: (1) to amend the complaint to add Shawn

Meuse and Advanced Design as additional non-diverse defendants,

and (2) to remand the case to state court on the ground that

there was no longer complete diversity of citizenship.

II. APPLICABLE LEGAL STANDARD

A single statute governs both issues before the court. As

part of the Judicial Improvements and Access to Justice Act of

1998, Congress enacted 28 U.S.C. § 1447(e), which provides:

If after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to State court.4

4 Section 1447(e) supersedes Federal Rule of Civil Procedure 1 5 , which specifically allows a plaintiff to “amend its pleading once as a matter of course at any time before a response pleading is served.” Fed. R. Civ. P. 1 5 ; see also Mayes v . Rapoport, 198 F.3d 457, 462 n.11 (4th Cir. 1999); Doe v . Soc’y for Creative Anachronism, Inc., Nos. 1439-1440, 2007 WL 2155553,

4 Section 1447(e) grants courts the discretion to determine whether

or not to permit joinder of non-diverse defendants. See Casas

Office Machs. v . Mita Copystar Am., 42 F.3d 668, 674-75 (1st Cir.

1994); Kelley v . V t . Mut. Ins. Co., 407 F. Supp. 2d 301, 305 (D.

Mass. 2005) (observing that the permissive language of § 1447(e)

“makes clear that Congress granted the courts broad discretionary

power”); see also Hensgens v . Deere & Co., 833 F.2d 1179, 1182

(5th Cir. 1987). The court’s discretion is not restricted by the

status of the party to be joined as “indispensable” or

“necessary,” see Casas, 42 F.3d at 673-75,5 but is instead guided

by a variety of “equitable factors that depend upon the

circumstances.” Schrepfer v . Framatome Connectors USA, Inc., 115

F. Supp. 2d 182, 186 (D.N.H. 1999).

at *3 (E.D. Pa. July 2 5 , 2007). Therefore, the plaintiff “may not rely on Rule 15(a) to amend the pleading without leave of court and such an amendment must be analyzed pursuant to § 1447(e).” See Schindler v . Charles Schwab & Co., N o . 05-0082, 2005 WL 1155862, at *2 (E.D. La. May 1 2 , 2005). 5 See also Irizarry v . Marine Powers Int’l, 153 F.R.D. 1 2 , 14 (D.P.R. 1994) (“Virtually every court confronted with this issue has unanimously agreed that the statute compels a court to focus on whether joinder would be ‘equitable’ instead of being based on whether a party is indispensable.”); Fed. R. Civ. P. 19 (required joinder of necessary parties); 14C Charles Alan Wright, et a l . , Federal Practice and Procedure § 3739, at 445 (3d ed. 1998) (“Section 1447(e) gives the court more flexibility than a strict Rule 19 analysis”).

5 While the categorization of a party as indispensable “does

not affect the Court’s weighing of the equities,” Maille v .

United States Postal Serv., Inc., N o . 08-cv-66-GZS, 2008 WL

2164566, at *1 (D. M e . May 2 1 , 2008), it does affect the court’s

options on disposition of the motion. Where the party proposed

to be added is indispensable, the court may deny joinder and

dismiss the case, see Fed. R. Civ. P. 1 9 , or allow joinder and

remand the case to the state court. See Casas, 42 F.3d at 675.

If the party is dispensable, however, the court may either deny

joinder and retain jurisdiction over the case, or permit joinder

and remand the case to state court. Id. The court cannot both

allow joinder of a non-diverse party and retain jurisdiction.

Id.

Where a plaintiff seeks to join a non-diverse party after

removal on the basis of diversity jurisdiction, the court “should

scrutinize that amendment more closely than an ordinary

amendment” in order “to balance the defendant’s interest in

maintaining the federal forum with the competing interests in not

having parallel lawsuits.” Hensgens, 833 F.2d at 1182. When

balancing the equities of a proposed joinder, courts consider a

number of factors, including “the extent to which the purpose of

the amendment is to defeat federal jurisdiction, whether

plaintiff has been dilatory in asking for amendment, whether

6 plaintiff will be significantly injured if amendment is not

allowed, and any other factors bearing on the equities.” Id.

(cited with approval in Casas, 42 F.3d at 675 n . 8 ) .

III. ANALYSIS

Here, Drelick argues that these factors weigh in favor of

the amendment, and specifically that his motive is not to destroy

diversity, but to join Meuse as an associate of Byther and Powers

at Innovative Development whose involvement renders him similarly

culpable. Moreover, at oral argument, Drelick asserted that

under Righetti v . Shell Oil C o . his motive is irrelevant to the

joinder analysis so long as he is able to state a bona fide claim

against the non-diverse defendant. See 711 F.Supp. 531 (N.D.

Cal. 1989). Finally, Drelick argues that he cannot obtain

adequate relief without the joinder as Meuse and Advanced Design

possess $25,000 in unauthorized payments made by Innovative

Development. The defendants counter that Drelick is merely

trying to divest the court of its jurisdiction by adding non-

diverse defendants who, if they were as integral to the case as

Drelick now suggests, would have been named in the original state

court complaint. They argue that “[t]he very quick filing of the

motion to amend following the Defendants’ removal of this action

to federal court confirms this conclusion.”

7 The record before the court suggests that the defendants are

correct; Drelick appears to be partially, and likely primarily,

motivated by a desire to divest the court of jurisdiction by

destroying diversity. Drelick’s state court complaint repeatedly

refers to Meuse and Advanced Design and discusses the extent of

their involvement with Innovative Development over a number of

years,6 yet fails to name either party as a defendant. Nowhere

in the pleadings in support of his motion has Drelick provided a

persuasive explanation for the failure to sue Meuse and Advanced

Design in state court, explained what changed circumstance makes

joinder necessary, or pointed to a unique state procedure or

remedy necessary to protect their interests against Meuse and

Advanced Design.7 Indeed, Drelick’s proposed amended complaint

is factually identical t o , and alleges no conduct occurring

subsequent to the filing o f , the earlier state court writ.

Instead, Drelick describes at length the extent of Advanced

Design and Meuse’s entanglement with Innovative Development,

6 In the state court complaint, Shawn Meuse and Advanced Design are specifically referred to by Drelick at least twelve times, and Meuse’s involvement in the underlying facts of the case is described throughout. 7 Drelick’s counsel explained at the hearing that these parties were not named in the original complaint through inadvertence resulting from the “time pressure to get into court as quickly as possible to get an injunction.”

8 stating they were “integrally involved in the transactions and

events giving rise to Plaintiffs’ claims” and that Meuse “was

directly involved in the operation of Defendant IDC.” Even if

accurate, these assertions fail to convince the court that the

primary purpose of the amendment is other than to destroy the

court’s diversity jurisdiction. See Schindler v . Charles Schwab

& Co., Inc., N o . 05-0082, 2005 WL 1155862, at *2 (E.D. La. May

1 2 , 2005) (where plaintiffs “knew of a non-diverse defendant’s

identify and activities suggests that the purpose of the

amendment is to destroy diversity jurisdiction”). In fact, from

the sequence of events established at the hearing on the motion,

Drelick was prepared to go forward on the injunction hearing in

state court on March 2 7 , 2008, the day after the defendants

removed, without Meuse or Advanced Design--parties he now claims

are necessary for him to obtain adequate relief.

Nor is the court persuaded by Drelick’s argument that

Righetti stands for the legal proposition that motive (in seeking

the proposed amendment) is irrelevant where he has stated a bona

fide claim against Meuse and ADC. To the contrary, the same

court that decided Righetti nearly twenty years ago, has

repeatedly rejected this position, recently stating--in a case

where the plaintiff stated a legitimate claim against the

defendant he sought to join--that “the motive of a plaintiff in

9 seeking the joinder of an additional defendant is relevant to a

trial court’s decision to grant the plaintiff leave to amend his

original complaint.” Walsh v . Home Depot U.S.A., Inc., N o . C-06-

4207, 2006 WL 2884411, at *4 (N.D. Cal. Oct. 1 0 , 2006) (emphasis

added); see also Gunn v . Wild, N o . C-01-4320, 2002 WL 356642, at

*3 (N.D. Cal. Feb. 2 6 , 2002) (treating the validity of the claim

as one of six factors to be considered, in addition to motive,

when analyzing a proposed joinder).

As for whether Drelick has been dilatory in seeking the

amendment, he moved to join the non-diverse parties shortly after

defendants removed to federal court. See Rapoport, 198 F.3d at

463 (noting that courts carefully scrutinize attempts to add a

non-diverse defendant after removal). While the diligence with

which Drelick sought this amendment could weigh in favor of

joinder, that factor cuts both ways in the context of a post

removal request. Compare Hensgens, 833 F.2d at 1182 (dilatory

tactics in seeking amendment weigh in favor of allowing joinder),

with Rapoport, 198 F.3d at 463 (careful scrutiny of amendment

sought immediately after removal) and Sutton v . Hollywood Entm’t

Corp., 181 F. Supp. 2d 504, 508 (D. Md. 2002) (relevant time

period is that which elapses between removal and the proposed

amendment, not the filing of the complaint and the amendment).

10 Denial of the amendment will have little or no prejudicial

effect on Drelick’s claims, as they can be pursued against Meuse

and Advanced Design in state court. Indeed, as Stephen Drelick,

Drelick Holdings, and the parties they seek to join are all

residents of New Hampshire, and their dispute involves claims

grounded in state law, the New Hampshire Superior Court is

ideally suited to adjudicate their dispute. In any event, should

Drelick desire to pursue the claims against these defendants that

he neglected to include in his state court writ of summons, he

will have “an opportunity to bring [his] claims against the

individual defendants in state court, [and] denying [his] motion

to join them in this action would not cause [him] significant

injury.” Schrepfer, 115 F. Supp. 2d at 187.

IV. CONCLUSION

After considering the equitable factors relating to the

proposed joinder, Drelick’s motion to join Shawn Meuse and

Advanced Design as defendants is denied without prejudice to the

filing of any future dispositive motions. As Drelick concedes

that the non-diverse defendants are not indispensable within the

meaning of Rule 1 9 , the court shall retain jurisdiction and

Drelick may proceed with his claims against the already named

11 defendants in this court. Therefore, Drelick’s motion to remand

the case to state court is also denied.

SO ORDERED.

Joseph N. Laplante ipla United States District Judge

Date: June 1 3 , 2008

cc: Christopher H.M. Carter, Esq. Daniel Miville Deschenes, Esq. David A . Anderson, Esq.