JOHN E. OTT, Magistrate Judge.
David G. Byker, Robert Przybysz, Global Asset Management Holdings, LLC ("GAM") (collectively, "Plaintiffs") filed this suit against defendant Nannette Smith, invoking this court's diversity jurisdiction under 28 U.S.C. § 1332(a). (Doc. 1). Plaintiffs assert that Ms. Smith breached a settlement agreement between the parties. Ms. Smith filed a motion to dismiss, contending that this court lacks subject matter jurisdiction based on Plaintiffs' failure to join an indispensable party who would destroy the court's diversity jurisdiction. (Doc. 21). Plaintiffs responded in opposition to Ms. Smith's motion (doc. 31), and Ms. Smith has filed a reply (doc. 32). Also pending before the court are Ms. Smith's motion to strike (doc. 40), Plaintiffs' motions for leave to file a subpoena on an out-of-state third-party (docs. 41, 43), Plaintiffs' motion for a status conference (doc. 44), and Plaintiff's motion to lift the stay on discovery (doc. 45).
In broad strokes, this case arises out of a dispute between the parties regarding computer software that is designed to run payment systems in gas stations and convenience stores (the "B2K Software"). Ms. Smith developed the B2K Software and owned a business to market and implement the Software. (Doc. 23-1, ¶ 2). In 2012, Mr. Przybysz, the managing member of Ingenuity International, LLC ("Ingenuity"), approached Ms. Smith about purchasing her business, and Ms. Smith agreed to the sale. (See Doc. 23-1, ¶¶ 3-4; Doc. 31-1, ¶ 1). As part of that agreement, Ingenuity formed a new company called B2K Systems, LLC ("B2K LLC") to purchase the assets of Ms. Smith's business, including the B2K Software, and Ms. Smith became an employee of B2K LLC. (Doc. 23-1, ¶ 4). Ms. Smith held a 20% interest in B2K LLC, and Ingenuity held the remaining 80% interest in the company. (Doc. 23-1, ¶ 4).
B2K LLC experienced financial difficulties and took several loans from GAM, which were secured by the B2K Software. (See Doc. 1, ¶ 8; Doc. 23-1, ¶¶ 7-8; Doc. 31-2, ¶ 1).
As B2K LLC was foundering, the relationship between Ms. Smith and B2K LLC deteriorated. B2K LLC terminated Ms. Smith's employment in 2014 and then sued Ms. Smith in Michigan state court. (Doc. 31-2, ¶ 2). Ms. Smith reciprocated by suing B2K LLC, GAM, Ingenuity, Mr. Byker, and Mr. Przybysz in Alabama state court. (Doc. 23-1, ¶ 12; Doc. 31-1, ¶ 1; Doc. 31-2, ¶ 2).
The parties in the Alabama state court action reached a settlement on November 15, 2016, the second day of pre-trial motions. (Doc. 31-1, ¶ 14). Counsel read the terms of the settlement on the record, and the settlement contained the following six essential terms:
(Doc. 1-1, pp. 4-9; Doc. 23-1, ¶ 14). Because the settlement agreement required payments over time, the Circuit Court of Jefferson County retained jurisdiction over the matter until payment under the agreement was complete, but moved the action to its administrative docket. (Doc. 1-1, pp. 16-17).
The parties' settlement broke down approximately a month after they entered the agreement. According to the plaintiffs in this case, Ms. Smith did not deliver the promised B2K Software to the third-party expert. They contend that Ms. Smith delivered a "read only" version of the B2K Software rather than a functional and operational copy of the software. (Doc. 1, ¶ 14; Doc. 31-2, ¶ 8). Ms. Smith, on the other hand, contends that she fully complied with her obligation under the parties' settlement agreement. (Doc. 23-1, ¶¶ 15-16). While Ms. Smith does not dispute that she delivered a "read only" version of the B2K Software to the third party expert, she asserts that it was exactly the same as the software the expert reviewed during the litigation and that the read only software was functional and operational. (Doc. 23-1, ¶¶ 16-17).
Mr. Byker, Mr. Przybysz, and GAM filed this action against Ms. Smith based on Ms. Smith's alleged breach of the parties' settlement agreement. (Doc. 1). They assert claims against Ms. Smith for breach of contract, promissory estoppel, fraudulent misrepresentation, and fraudulent suppression based upon her alleged failure to deliver functional and operational B2K Software to GAM. (Id.). Plaintiffs request monetary damages and seek preliminary and permanent injunctions ordering Ms. Smith to provide GAM with a functional and operational copy of the B2K Software. (Id.).
Under Rule 12(b)(7) of the Federal Rules of Civil Procedure, a defendant may move to dismiss an action for "failure to join a party under Rule 19." FED. R. CIV. P. 12(b)(7). A district court undergoes a two-step inquiry when deciding a motion to dismiss under Rule 12(b)(7) and Rule 19. First, the court must determine "whether the absent part is a `required party' within the meaning of Rule 19." Auto-Owners Ins. Co. v. Morris, 191 F.Supp.3d 1302, 1303 (N.D. Ala. 2016) (citing Molinos Valle Del Cibao v. Lama, 633 F.3d 1330, 1344 (11th Cir. 2011)). Then, "if the absent party is `required' but cannot be joined in the action, the court must consider if, `in equity and good conscience, the action should proceed among the existing parties or should be dismissed.'" Id. (quoting FED. R. CIV. P. 19(b)).
The moving party bears the burden of proving that the absent party is a required and indispensable party under Rule 19. Barrow v. OM Fin. Life Ins. Co., 2011 WL 2659987, at *1-2 (M.D. Fla. July 6, 2011) (citing Am. Gen. Life & Accident Ins. Co. v. Wood, 429 F.3d 83, 92 (4th Cir. 2005)). Finally, when deciding a motion to dismiss under Rule 12(b)(7), the court may look to matters outside of the pleadings and consider evidence presented by the parties. Auto-Owners Ins. Co., 191 F. Supp. 3d at 1303 (citing Estes v. Shell Oil Co., 234 F.2d 847, 849 n.5 (5th Cir. 1956)).
Plaintiffs invoke this court's diversity jurisdiction under 28 U.S.C. § 1332. (Doc. 1, ¶ 5). Plaintiffs, Mr. Byker, Mr. Pryzbysz, and GAM, are citizens of Michigan, while the defendant, Ms. Smith, is a citizen of Alabama. (Doc. 1, ¶¶ 1-4; Doc. 31-1, p. 2); see also Rolling Greens L.P. v. Comcast SCH Holdings LLC, 374 F.3d 1020, 1022 (11th Cir. 2004) ("a limited liability company is a citizen of any state of which a member of the company is a citizen."). As a result, complete diversity exists between Plaintiffs and Ms. Smith. Additionally, the amount of controversy exceeds $75,000, (see Doc. 1), and Ms. Smith does not dispute that fact. Thus, based on the current parties, the court has diversity jurisdiction over this action.
Ms. Smith moves to dismiss under Rule 12(b)(7) based on the plaintiffs' failure to join B2K LLC, an entity she contends is a required and indispensable party under Rule 19. (See Docs. 21, 22). B2K LLC is a citizen of both Alabama and Michigan. (Doc. 23-1, ¶ 4; Doc. 31-1, ¶ 7, p. 5); see also Rolling Greens L.P., 374 at 1022. Therefore, B2K LLC cannot be joined in this action because its joinder would destroy the complete diversity between the parties and this court's subject matter jurisdiction over this matter. See Groves v. Rogers, 547 F.2d 898, 900 (5th Cir. 1977).
To rule on Ms. Smith's motion, the court first must determine whether B2K LLC is a required party. See Molinos Valle, 633 F.3d at 1344. Rule 19(a)(1) sets out the standard for determining if a party is required:
FED. R. CIV. P. 19(a)(1). According to Ms. Smith, both B2K LLC and Ingenuity
As an initial matter, the parties dispute whether B2K LLC is a party to the settlement agreement. (See Doc. 22, p. 11; Doc. 31, pp. 6-8).
Ms. Smith argues that in B2K LLC's and Ingenuity's absence, the court cannot enforce the settlement agreement as a whole and afford complete relief to the parties in this action. (Doc. 22, pp. 11-12; Doc. 32, p. 1). The court is not persuaded. Plaintiffs allege that Ms. Smith breached the settlement agreement by failing to provide GAM with a functional and operational copy of the B2K Software, and Plaintiffs seek monetary damages from Ms. Smith for her alleged breach along with an injunction ordering Ms. Smith to provide functional and operational software to GAM. (Doc. 1, pp. 7-15). Neither Plaintiffs' claims nor the relief they seek involve B2K LLC or Ingenuity. Accordingly, the court may afford complete relief among the existing parties even if B2K LLC and Ingenuity are not joined in this action.
Ms. Smith attempts to avoid that conclusion that arguing that "[i]f the court were to order the relief that Plaintiffs seek, it does not protect the remainder of [her] contractual interests, and deprives [her] of the ability to enforce the benefit of her bargain . . . ." (Doc. 22, p. 12). However, Plaintiffs do not seek to void or nullify any portion of the settlement agreement; therefore, Ms. Smith's citation to In re Delta Air Lines, Inc., 374 B.R. 516, 523 (S.D.N.Y. 2007), is inapposite. In addition, even though Plaintiffs seek to enforce only certain provisions of the settlement agreement in this case, Ms. Smith has not shown how enforcement of those provisions could impact the remaining provisions of the settlement agreement or impede her ability to protect her interest in those provisions. Indeed, if a dispute arises regarding the remaining provisions of the settlement agreement, Ms. Smith could seek enforcement of those provisions in this or another forum, including in the Alabama state court. Thus, Ms. Smith's argument does not persuade the court that it cannot order complete relief to the parties in the absence of B2K LLC and Ingenuity.
Ms. Smith also argues that disposing of this action in the B2K LLC's or Ingenuity's absence may impair or impede their ability to protect their interest in the settlement agreement. (See Doc. 22, p. 12). The provision of the settlement agreement that Plaintiffs seek to enforce does not involve B2K LLC or Ingenuity, and Ms. Smith has not shown that enforcement of the provision would have any effect on the remainder of the agreement. Moreover, if necessary just like Ms. Smith, B2K LLC and Ingenuity could enforce other provisions of the settlement agreement in another forum if necessary. Thus, Ms. Smith has not shown that an order disposing of this action would impact B2K LLC's and Ingenuity's interests in the settlement agreement or impair their ability to protect their interests.
Finally, nothing before the court suggests that Ms. Smith or Plaintiffs could be subject to multiple or inconsistent obligations under the settlement agreement due to the absence of B2K LLC and Ingenuity in this action. As a result, and for the reasons stated above, the court finds that B2K LLC and Ingenuity are not required parties in this action under Rule 19(a). Thus, Ms. Smith's motion to dismiss is due to be denied. Additionally, even assuming that B2K LLC is a required party in this action, Ms. Smith's motion would still be denied because B2K LLC is not an indispensable party Rule 19(b).
If B2K LLC was a required party, the court next would have to "determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed." Fed. R. Civ. P. 19(b). To make that determination, "[t]he factors for the court to consider include:
Id. The four factors identified in Rule 19(b) are nonexclusive, and determining whether a case should proceed without a required party is a case-specific inquiry. Republic of the Philippines v. Pimental, 553 U.S. 851, 862-64 (2008).
With respect to the first and second factors, Ms. Smith contends that she and B2K LLC will both be prejudiced by B2K LLC's and Ingenuity's absence in this matter because Plaintiffs only seek an order enforcing certain provisions of the settlement agreement, rather than all of the agreement. (Doc. 22, p. 13). Ms. Smith also contends that the court cannot take any measures, or shape the relief in this action, to lessen the potential prejudice to her and B2K LLC because the Court (1) cannot order dismissal of B2K LLC's lawsuit against her, (2) cannot order B2K LLC to use best efforts and good faith to conclude its bankruptcy action, (3) cannot order Ingenuity to indemnify her for potential claw backs from the bankruptcy court, and (4) cannot order mutual releases between all the parties to the state court action. (Doc. 22, pp. 13-14).
First, the bankruptcy court terminated B2K LLC's bankruptcy action on October 13, 2017. Text Order of Final Decree, In re B2K Systems, LLC, Case No. 14-07179, Docket Entry 193, (Bankr. W.D. Mich. Oct. 13, 2017).
With respect to the third factor identified in Rule 19(b), i.e., "whether a judgment rendered in [B2K LLC's] absence would be adequate," FED. R. CIV. P. 19(b)(3), "adequacy refers to the `public stake in settling disputes by wholes, whenever possible.'" Republic of the Philippines, 553 U.S. at 870 (quoting Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 111 (1968)). Ms. Smith argues that this factor weighs in favor of dismissal because the court cannot enforce the underlying settlement agreement as a whole. (See Doc. 22, p. 14). While the settlement agreement contains multiple provisions, the parties' dispute here only pertains to the provisions involving Mr. Byker or GAM's payment to Ms. Smith, and Ms. Smith's requirement to provide the B2K Software to a third-party expert who would send it to Mr. Byker or GAM. (See Doc. 1; see also Doc. 1-1). Based on the record before the court, the parties do not have a dispute regarding the other provisions of the settlement agreement, including the provisions involving B2K LLC. Thus, the court could resolve the parties' entire dispute even if B2K LLC is not a party to this action, and the third factor does not weigh in favor of dismissal.
Last, Ms. Smith argues that the court should dismiss this action because the Alabama state court retained jurisdiction over the parties and the settlement agreement. (Doc. 22, p. 15). Therefore, according to Ms. Smith, Plaintiffs have an adequate remedy if this case is dismissed because they can bring their claims in the state court. (Id., p. 15). Indeed, Plaintiffs could have chosen to bring their breach of contract claims against Ms. Smith in the action before the Alabama state court. However, Plaintiffs chose to bring their claims in this court, and dismissing this case would deny Plaintiffs the ability to invoke this court's diversity jurisdiction over their claims. See New Orleans Public Service, Inc. v. Council of City of New Orleans, 491 U.S. 350, 358-59 (1989) ("`When a Federal court is properly appealed to in a case over which it has by law jurisdiction, it is its duty to take such jurisdiction . . . . The right of a party plaintiff to choose a Federal court where there is a choice cannot be properly denied.") (quoting Willcox v. Consolidated Gas Co., 212 U.S. 19, 40 (1909). On balance, therefore, the court concludes that the fourth Rule 19(b) factor does not weigh in favor of either dismissing this action or allowing it to proceed.
Based on the foregoing, and because the first three Rule 19(b) factors weigh in favor of allowing the action to proceed, the court finds that even if B2K LLC was a required party under Rule 19(a), it is not an indispensable party to this action. As a result, the court concludes that this action should proceed in B2K LLC's absence, and Ms. Smith's motion to dismiss is due to be denied.
Also pending before the court are Ms. Smith's motion to strike (doc. 40), Plaintiffs' motions for leave to serve subpoena (docs. 41, 43), Plaintiffs' request for status conference (doc. 44), and Plaintiff's motion to lift the stay on discovery (doc. 45). First, Ms. Smith's motion to strike, which pertains to material Plaintiffs filed in advance of a July 10, 2017 telephone status conference, is moot. Next, Plaintiffs ask the court for leave to serve a subpoena on Yusuf Musaji, Ms. Smith's third-party expert who evaluated the B2K Software during the Alabama state court litigation and for purposes of the underlying settlement agreement. (Docs. 41, 43). Ms. Smith objected to service of the subpoena on the grounds that discovery should not take place in this action until the court rules on her motion to dismiss (doc. 42), but Ms. Smith's objections are now moot. Accordingly, the court finds that Plaintiffs' motions for leave to serve a subpoena (docs. 41, 43) are due to be granted. Finally, Plaintiffs' motion for a status conference to address their motions for leave to serve a subpoena on Mr. Musaji, (doc. 44), and to lift the stay (doc. 45) are moot.
For the reasons discussed above, the court finds that B2K LLC is not a required or indispensable party under Rule 19, and Ms. Smith's motion to dismiss (doc. 21) is due to be denied. Ms. Smith's motion to strike (doc. 40), Plaintiffs' motion for a status conference (doc. 44), and Plaintiffs' motion to lift the stay of discovery (doc 45) are due to be denied as moot. Plaintiffs' motion for leave to serve a subpoena (doc. 41) and renewed motion for leave to serve a subpoena (doc. 43) are due to be granted. The parties are to meet and confer to determine a schedule for discovery, including experts and dispositive motions.
