Demartini v. Demartini
| Decision Date | 06 July 2020 |
| Docket Number | Nos. 17-16400,18-15882,s. 17-16400 |
| Parties | Timothy P. DEMARTINI; Margie DeMartini, Plaintiffs-Appellees, v. Michael J. DEMARTINI; Renate DeMartini, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Kathryn M. Davis (argued), Law Office of Kathryn M. Davis, Pasadena, California, for Defendants-Appellants.
David B. Dimitruk (argued), Law Offices of David B. Dimitruk, Tustin, California, for Plaintiffs-Appellees.
Before: Diarmuid F. O'Scannlain and Richard A. Paez, Circuit Judges, and Michael H. Simon,* District Judge.
This case originated in state court, was removed to federal court, and subsequently was remanded back to state court. We are called upon to decide whether we have jurisdiction, nevertheless, to review the district court remand order that also amended the complaint to add a diversity-destroying defendant and severed the affected claim for disposition in state court.
Timothy and Michael DeMartini are brothers who, along with their wives, co-own adjacent commercial properties in Grass Valley, California. The first parcel, 12731 Loma Rica Drive ("the 12731 parcel"), is held by DeMartini & Sons, an oral partnership formed in the late 1970s by Timothy, Michael, and their father, James Paul DeMartini. The nature of the brothers’ joint ownership of the second parcel, 12759 Loma Rica Drive ("the 12759 parcel"), is contested. Michael and his wife Renate DeMartini claim that the parcel is also held by a partnership, but Timothy and his wife Margie DeMartini claim that the parcel is held by the couples as tenants in common.
Seeking to fund further development of the 12759 parcel, Timothy, Margie, Michael, and Renate took out a $250,000 loan from Westamerica Bank in 1998. When the loan came due in 2014, Michael and Renate wanted to extend the due date but Timothy and Margie did not. After a short extension, Timothy and Margie unilaterally paid the loan's $137,212.51 outstanding balance. Claiming that the couples had an agreement to share the burden of the loan fifty-fifty, Timothy and Margie demanded that Michael and Renate pay their share. Michael and Renate refused, asserting that the 12759 parcel was held by a partnership and that Timothy and Margie's unilateral action breached the partnership agreement. Michael and Renate also claimed that Timothy and Margie had closed a partnership bank account and diverted income from the 12759 parcel to their personal account. Hence, in Michael and Renate's view, Timothy and Margie were required to apply the diverted accrued income from the 12759 parcel to the outstanding debt before asking Michael and Renate to cover half of the remainder.
Timothy and Margie DeMartini filed this lawsuit against Michael and Renate in California Superior Court on September 15, 2014. Michael and Renate promptly removed the case to federal district court, citing diversity jurisdiction. See 28 U.S.C. §§ 1332, 1441(a). The parties are completely diverse. Timothy and Margie are citizens of California, which is also where the Loma Rica Drive parcels are located, while Michael and Renate are citizens of Nevada.
A year after this case was filed and removed, the district court granted Timothy and Margie leave to amend their original complaint. Timothy and Margie now assert three claims for relief: (1) dissolution of the partnership that owns the 12731 parcel, (2) partition of the 12759 parcel, which they alleged was owned by the couples as tenants in common rather than as partners, and (3) damages for Michael and Renate's alleged breach of the contract to share half the obligation of the Westamerica loan. In response, Michael and Renate amended their answer and counterclaim, asserting several affirmative defenses and seeking declaratory relief and damages.
The case proceeded to discovery. In late 2016, Timothy and Margie received a litigation guarantee report for the 12731 parcel that showed that the property was held by a partnership consisting of three titled partners: Timothy, Michael, and their deceased father, James Paul DeMartini. This revelation contradicted the first amended and then-operative complaint, which had alleged that Timothy and Michael had succeeded to their father's one-third share of the partnership assets. After further research, Timothy and Margie's attorneys determined that the James Paul DeMartini testamentary trust retained an interest in the partnership. On February 17, 2017—less than a week before the discovery cut-off—Timothy and Margie moved further to amend their complaint to join the trustees of their father's estate as defendants to the partnership dissolution claim. One such trustee is Michael and Timothy's brother, James C. DeMartini, a citizen of Colorado and, thus, not a threat to the district court's diversity jurisdiction. The other trustee, however, is Timothy. Adding him as a defendant not only causes a curious scenario in which Timothy in his individual capacity is potentially adverse to himself in his capacity as trustee; it also destroys the previously complete diversity of the parties.
The district court concluded that, due to the trust's interest in the 12731 parcel, it could not "in equity and good conscience" allow the partnership dissolution claim to proceed without joining the trustees as parties, thus destroying diversity. The other claims could proceed without joinder. Neither party claimed the trustees had an interest in the adjacent 12759 parcel, which was the subject of Timothy and Margie's partition action. Nor did they claim the trust to be a party to the alleged contract that formed the basis of Timothy and Margie's breach of contract claim or to the alleged broader partnership that formed the basis of Michael and Renate's counterclaims.
Rather than dismiss the action or remand the entire case upon the joinder of the trustees, the district court decided on a third option. Noting that the case had been "vigorously litigated" and "a significant amount of judicial resources [had] been invested" during the two years before Timothy and Margie's attorneys received the litigation guarantee report, the district court determined that the "means best suited to accommodate the interests of all parties, and proposed parties," would be to sever the partnership dissolution claim from the rest of the case and to remand only that claim for resolution in state court.
Accordingly, in a single decree, the district court granted the motion to amend to add the trustees, severed the partnership dissolution claim, and remanded that claim to California Superior Court.
Michael and Renate appeal the order amending, severing, and remanding the partnership dissolution claim ("the Order") (No. 17-16400). On its own, of course, such an order is not immediately appealable as either a final decision within the meaning of 28 U.S.C. § 1291 or under the collateral order exception. Stevens v. Brink's Home Sec., Inc. , 378 F.3d 944, 947–48 (9th Cir. 2004).
However, after the summary judgment on all three counterclaims had been entered and a jury verdict on the breach of contract claim rendered, the district court directed entry of a Rule 54(b) partial final judgment. Michael and Renate now also appeal from that judgment and from the denial of their post-trial motion for judgment as a matter of law or a new trial (No. 18-15882). This court then consolidated the appeal from the Order (No. 17-16400) with the subsequent appeal from the Rule 54(b) judgment and denial of the post-trial motion (No. 18-15882).
Before us, then, is the district court's order amending the complaint to add the trustees, severing the dissolution claim, and remanding it to state court. We address Michael and Renate's appeal from the entry of judgment on their three counterclaims and on Timothy and Margie's breach of contract claim in a memorandum disposition filed concurrently with this opinion. See DeMartini v. DeMartini , Nos. 17-16400 & 18-15882, 964 F.3d 813 (9th Cir. 2020).
The parties dispute whether we have jurisdiction to review the Order. Timothy and Margie assert that 28 U.S.C. § 1447(d) bars our review of the Order, while Michael and Renate contend that we have jurisdiction over it in its entirety.
Section 1447(d) states that "[a]n order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise," with certain defined exceptions not relevant here. 28 U.S.C. § 1447(d).
In addition, § 1447, which governs procedure after removal, provides two separate authorizations for a district court's remand of a removed case. First, § 1447(c) stipulates that:
A motion to remand the case on the basis of any defect other than lack of subject matter jurisdiction must be made within 30 days after the filing of the notice of removal .... If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.
Id. § 1447(c). In other words, the district court may remand to state court only upon timely motion, unless there appears to be a defect in subject-matter jurisdiction, in which case the court must remand no matter the stage of the proceedings.
Second, § 1447(e) 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 the State court.
Id. § 1447(e). Section 1447(e) addresses a lacuna in Federal Rule of Civil Procedure 19. When the joinder of a required party is not feasible because it would deprive the district court of subject-matter jurisdiction, Rule 19 directs the court 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). Section 1447(e) allows a third option: remand back to state court. See Yniques v. Cabral , 985 F.2d 1031, 1034 (9th Cir. 1...
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