Caudill and Caudill v. N. Am. Media Corp.

• Decision Date: 12 August 1999
• Docket Number: No. 98-2131,98-2131
• Citation: 200 F.3d 914
• Parties: (6th Cir. 2000) LeRoy Caudill and Viera Caudill, Plaintiffs-Appellees, v. North American Media Corporation, a Delaware Corporation, LifeSoft Corporation, a Delaware Corporation, and Peter J. Christiano, Defendants-Appellants, Christopher J. Christiano, Manuel S. Yatooma, and Gary Eberhardt, Defendants, Fidelity Bank, Garnishee. Argued:
• Court: U.S. Court of Appeals — Sixth Circuit

Page 914

200 F.3d 914 (6th Cir. 2000)

LeRoy Caudill and Viera Caudill, Plaintiffs-Appellees, v. North American Media Corporation, a Delaware Corporation, LifeSoft Corporation, a Delaware Corporation, and Peter J. Christiano, Defendants-Appellants, Christopher J. Christiano, Manuel S. Yatooma, and Gary Eberhardt, Defendants, Fidelity Bank, Garnishee.

No. 98-2131

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: August 12, 1999

Decided and Filed: January 10, 2000

Appeal from the United States District Court for the Eastern District of Michigan at Detroit. No. 95-75492--Lawrence P. Zatkoff, Chief District Judge.

Dennis E. Moffett, Madison Heights, Michigan, Carlene A. Caudill, Rochester, Michigan, for Plaintiffs-Appellees.

J. Mark Cooney, Noreen L. Slank, Theresa M. Asoklis, COLLINS, EINHORN, FARRELL & ULANOFF, Southfield, Michigan, for Appellants.

David H. Oermann, Norman Yatooma, Butzel Long, Birmingham, Michigan, for Defendants

Before: KRUPANSKY and RYAN, Circuit Judges; HULL, District Judge^*

OPINION

KRUPANSKY, Circuit Judge.

Appellants, North American Media Corporation, LifeSoft Corporation, and Peter Christiano, challenge denial of Defendants' motion for Judgment Not Withstanding the Verdict pursuant to Fed. R. Civ. P. 50 and/or a Motion for a New Trial pursuant to Fed. R. Civ. P. 59 subsequent to a jury award of damages against them in a diversity action that charged wrongful cancellation of stock. Appellants also challenge the district court subject matter jurisdiction.

Defendant-Appellant LifeSoft Corporation ("LifeSoft") is a successor corporation to Co-Defendant-Appellant North American Media Corporation ("North American Media"). Defendant-Appellant Peter Christiano, along with Defendant Christopher Christiano and Defendant Manuel Yatooma, were officers and directors of North American Media. Plaintiff-Appellee LeRoy Caudill is a former President of North American Media. During his term as North American Media's president, LeRoy and his wife Viera Caudill jointly acquired 1,400,000 shares of North American Media stock. Prior to the instant case, on July 15, 1991, Peter Christiano, Christopher Christiano and Manuel Yatooma commenced a derivative shareholders action on behalf of themselves and North American Media in the United States District Court for the Eastern District of Michigan against LeRoy Caudill, North American Media, and other defendants, charging federal wire and securities fraud, federal civil RICO violations, together with state law charges of, misrepresentation, conspiracy to defraud, and breach of fiduciary duty in violation of Michigan's Blue Sky Law (The 1991 Derivative Action). On May 5, 1992, The 1991 Derivative Action was settled and dismissed "pursuant to the terms of the parties' settlement agreement."¹

On September 18, 1995, LeRoy and Viera Caudill filed the instant action in the United States District Court for the Eastern District of Michigan against Defendant-Appellant North American Media, Defendant-Appellant Peter Christiano, Defendant Christopher Christiano, Defendant Manuel Yatooma, Defendant-Appellant LifeSoft Corporation, and Defendant Gary Eberhardt, the President of LifeSoft, alleging that North American Media wrongfully canceled the Caudills' shares in North American Media, in violation of the agreement settling The 1991 Derivative Action. The Caudills sought declaratory relief, damages, and an order to reissue the stock to them.

The complaint invoked federal diversity jurisdiction pursuant to 28 U.S.C. § 1332, while alleging that all of the plaintiffs and all of the defendants were Michigan residents and that the LifeSoft had its primary place of business in Michigan.

On February 9, 1998, prior to trial, Defendant Yatooma filed a motion to dismiss Caudill's complaint for lack of subject matter diversity jurisdiction. See Safeco Ins. Co. of America v. City of Whitehouse, 36 F.3d 540, 545 (6th Cir. 1994). On March 13, 1998, relying upon the precedent announced in Kokkonen v. Guardian Life Insurance Company of America, 511 U.S. 375 (1994), wherein the Supreme Court defined the scope of ancillary jurisdiction granted to United States district courts, the trial court concluded that its jurisdiction over the instant controversy was ancillary to its jurisdiction in The 1991 Derivative Action, denied the defendants' motion to dismiss the complaint and proceeded to conduct a jury trial on the merits of the issues joined by the pleadings in Caudills' action.

Subsequent to trial, on May 15, 1998, a jury awarded the Caudills $832,275 from North American Media, $832,275 from LifeSoft, and $335,450 from Peter Christiano. No damages were awarded against Christopher Christiano or Manuel Yatooma who are not parties to this appeal. Defendants North American, LifeSoft, and Peter Christiano filed a timely notice of appeal, challenging, inter alia, the subject matter jurisdiction of the district court.

"The first and fundamental question presented by every case brought to the federal courts is whether it has jurisdiction to hear a case ." Douglas v. E.G. Baldwin & Associates, 150 F.3d 604, 607 (6th Cir. 1998). This forum reviews a district court's subject matter jurisdiction de novo. Hilliard v. United States Postal Serv., 814 F.2d 325, 326 (6th Cir. 1989). Article III, Section 1 of the United States Constitution prescribes that "the judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish." Pursuant to 28 U.S.C. § 1332 Congress extended the federal judicial authority granted pursuant to 28 U.S.C. § 1331 to civil actions involving citizens of different states. Section 1332's congressionally conferred diversity jurisdiction has been interpreted to demand complete diversity, that is, that no party share citizenship with any opposing party. See Safeco Ins. Co. of America v. City of Whitehouse, 36 F.3d 540, 545 (6th Cir. 1994); and Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L. Ed. 435 (1806). The complaint here on appeal, facially reflects a lack of complete diversity between the adversaries.

Ancillary jurisdiction as defined by the Supreme Court in Kokkonen was designed (1) to permit a court to dispose of factually independent claims and/or (2) to enable a court to manage its proceedings, vindicate its authority, and effectuate its decrees. Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 379-80 (1994). The trial court in the instant case misconceived that ancillary jurisdiction derived from its earlier jurisdiction in The 1991 Derivative Action. The facts underlying the derivative shareholders action upon which the trial judge relied for ancillary jurisdiction are, upon examination, unrelated to...