Foslip Pharmaceuticals, Inc. v. Metabolife Intern.
| Decision Date | 03 April 2000 |
| Docket Number | No. C 99-4108-MWB.,C 99-4108-MWB. |
| Citation | 92 F.Supp.2d 891 |
| Parties | FOSLIP PHARMACEUTICALS, INC., Foslip of California, Inc., Jay W. Hansen, and William D. Hansen, Plaintiffs, v. METABOLIFE INTERNATIONAL, INC., Michael J. Ellis, William R. Bradley, Joseph M. Ellis, Jr., ST & T, Inc., Michael J. Scott, James Cameron, and Ron Sanculi, Defendants. |
| Court | U.S. District Court — Northern District of Iowa |
David P. Matthews, Abraham, Watkins, Nichols, Sorrels, Mathes & Friend, Houston, TX, Robert W. Sackett, Local Counsel, Milford, IA, for plaintiffs.
Roger T. Stetson (argued remand issue), Michael R. Reck (argued support of motion to dismiss by Joseph Ellis), Belin Lamson McCormick Zumbach Flynn, P.C., Des Moines, IA, for Metabolife 356, Michael Ellis, William R. Bradley, Joesph M. Ellis, Jr.
Alan E. Fredegrill, Heidman, Redmond, Fredregrill, Patterson, Plaza, Dykstra & Pahl, L.L.P., Souix City, IA, for ST&T, Inc., Michael Scott.
Donald J. Hemphill, Hemphill Law Office, Spencer, IA, for Ron Sanculi.
TABLE OF CONTENTS
I. INTRODUCTION ...........................................................894
A. Factual Background ..................................................894
B. Procedural Background ...............................................895
II. LEGAL ANALYSIS .........................................................898
A. Subject Matter Or Personal Jurisdiction First? ......................898
B. The Motions To Dismiss ..............................................899
1. Long-arm authority ...............................................900
2. Minimum Contacts .................................................900
C. The Plaintiffs' Motion To Remand ....................................900
1. Removal and remand ...............................................900
2. Removal and diversity ............................................901
a. "Complete diversity" and "fraudulent joinder" .................901
b. Test for fraudulent joinder of a defendant ....................902
c. Test for fraudulent joinder of a plaintiff ....................903
d. Waiver ........................................................905
3. The "fraudulently joined" parties here ...........................907
a. Foslip of California ..........................................907
b. Ron Sanculi ...................................................909
III. CONCLUSION .............................................................909
Rather fail with honor than succeed by fraud.
Each side here accuses the other of succeeding by fraud: The plaintiffs claim they were induced into an inequitable settlement of a prior lawsuit by the defendants' fraudulent misrepresentations and non-disclosures of the financial status of a disputed business, and the defendants contend that the plaintiffs have fraudulently joined one of the plaintiffs and one of the defendants simply to defeat federal diversity jurisdiction. Into this tangled web of allegations of fraud, the court necessarily walks with some trepidation. In the first motion now before the court, the plaintiffs seek remand of this action to state court, contending that the defendants have failed to carry their burden to prove fraudulent joinder in order to sustain removal of this action to federal court. In the other two motions presently before the court, some of the defendants seek dismissal of the action against them on the grounds of lack of personal jurisdiction and failure to plead fraud with sufficient particularity.
Although the procedural footing of this action is complicated, the present motions require only a relatively abbreviated statement of the factual background. In the early 1990s, plaintiff Jay Hansen and defendant Michael Ellis developed an herbal dietary supplement known as "Nepegen." These two parties, with others, formed Foslip Pharmaceuticals, Inc., and Foslip of California, Inc., to market and distribute Nepegen and other products. Defendant Ron Sanculi was hired as an independent distributor by the Foslip entities. However, Jay Hansen and Michael Ellis apparently went their separate ways without Nepegen ever having enjoyed significant marketing success. The corporate status of Foslip Pharmaceuticals, Inc., was allowed to lapse.
The story was different thereafter for Michael Ellis. Michael Ellis, with others, including some of the defendants here, pursued the marketing of a product called "Metabolife 356," which Jay Hansen contends is simply Nepegen under a different name. Ron Sanculi became a distributor for Metabolife 356. Unlike Nepegen, the marketing of Metabolife 356 has been very successful, with annual sales in the millions or hundreds of millions of dollars. However, therein lies the bone of contention: Jay Hansen contends that Michael Ellis usurped the Nepegen product, simply renaming it, and usurped business opportunities that belonged to the Foslip entities.
Consequently, Jay Hansen, along with the other plaintiffs in the present action, brought suit in the Iowa District Court for Clay County on June 4, 1998, against Michael Ellis and all of the defendants in the present action, with the exception of James Cameron. In that lawsuit, referred to herein as the "Original State Court Action," the plaintiffs asserted claims of breach of fiduciary duty, theft and misuse of trade secrets and proprietary information, tortious interference with contracts and business relations, and negligence and gross negligence. The relief sought in the Original State Court Action included establishment of an equitable trust, as well as actual and punitive damages.
The Original State Court Action was settled in the fall of 1998, pursuant to a settlement agreement negotiated and entered into by and between Jay Hansen, William Hansen, Foslip Pharmaceuticals, Inc., and Foslip of California, Inc., on the one hand, and Metabolife International, Inc., Michael J. Ellis, and William R. Bradley, on the other. However, the plaintiffs in the present action contend that, in those settlement negotiations, Michael Ellis represented that sales by Michael Ellis's new company, Metabolife International, Inc., had amounted to only $27 million in 1997 and that Metabolife 356 was not in fact identical to Nepegen. Thus, the plaintiffs agreed to settle the Original State Court Action for only $4 million, transferring to the defendants any interest the plaintiffs had in the Foslip entities, Nepegen, Metabolife 356, and certain trademarks. Michael Ellis agreed not to use the marketing slogan "Feel the Energy." The settlement agreement called for the dismissal of the Original State Court Action, with prejudice, as to all defendants in that action, even though only Metabolife International, Michael Ellis, and William Bradley had been involved in negotiating the settlement or were identified as parties to it. Pursuant to the settlement agreement, the Original State Court Action was dismissed with prejudice as to all defendants on February 11, 1999.
The plaintiffs in the present action allege that they subsequently learned that Michael Ellis had misrepresented that there were differences between Nepegen and Metabolife 356, although the products were in fact identical, and had grossly misrepresented the sales of Metabolife 356 during 1997, which had in fact amounted to several hundred million dollars. Therefore, on November 3, 1999, the plaintiffs brought the present action in the Iowa District Court for Clay County (the "Present Action"). With this brief recitation of the factual background to the present dispute, the court turns to the procedural background to the Present Action.
As mentioned just above, plaintiffs Foslip Pharmaceuticals, Inc.,1 Foslip of California, Inc., Jay W. Hansen, and William D. Hansen, filed the Present Action on November 3, 1999. The defendants in the Present Action are Metabolife International, Inc., Michael J. Ellis, William R. Bradley, Joseph M. Ellis, Jr., ST & T, Inc., Michael Scott, James Cameron, and Ron Sanculi. The only party to the Present Action who was not a party in the Original State Court Action is defendant James Cameron.
Plaintiff Foslip Pharmaceuticals, Inc., is an Iowa corporation with its principal place of business in Iowa, and William D. Hansen is a resident of Iowa. Plaintiff Foslip of California, Inc., is a California corporation with its principal place of business in San Diego, California, and plaintiff Jay W. Hansen is now a resident of Missouri. On the other side of things, only defendant Ron Sanculi is a resident of the State of Iowa. Defendant Metabolife International, Inc., is a California corporation, with its principal place of business in San Diego, California. Michael J. Ellis, William R. Bradley, Joseph M. Ellis, Jr., and Michael Scott are all alleged to be and concede that they are residents of California, and ST & T, Inc., is also a California corporation. James Cameron resides in Colorado, while Ron Sanculi resides in Iowa.
The plaintiffs allege that the individual defendants "reside" in California, Colorado, and Iowa, respectively, while the defendants assert in their notice of removal that they both "reside" and are "domiciled" in the states indicated. The court finds that these defendants are in fact "citizens" of the states indicated in the absence of any specific allegations to the contrary. See 28 U.S.C. § 1332 (); 28 U.S.C. § 1441(a) (...
To continue reading
Request your trial
-
Wells' Dairy v. American Indus. Refrigeration
...A. General Principles Of Diversity Jurisdiction And Fraudulent Joinder As the parties recognize, in Foslip Pharmaceuticals, Inc. v. Metabolife Int'l, Inc., 92 F.Supp.2d 891 (N.D.Iowa 2000), this court summarized the principles of subject matter jurisdiction implicated by removal and remand ......
-
Estate of Rick v. Stevens
...Dairy, Inc. v. Estate of J.P. Richardson, 89 F.Supp.2d 1042, 1047-49 (N.D.Iowa 2000); see also Foslip Pharmaceuticals, Inc. v. Metabolife Int'l, Inc., 92 F.Supp.2d 891, 899-900 (N.D.Iowa 2000) (quoting Wells' Dairy). In this case, the parties agree that the long-arm authority in question is......
-
Van Beek v. Ninkov
...II. LEGAL ANALYSIS A. The Iowa Case 1. Standards And Procedures Of Removal Jurisdiction In Foslip Pharmaceuticals, Inc. v. Metabolife Int'l, Inc., 92 F.Supp.2d 891 (N.D.Iowa 2000), this court summarized the principles of subject matter implicated by removal and remand of cases originally fi......
-
Sheppard v. Tex. Roadhouse, Inc.
...joinder.” Filla v. Norfolk S. Ry. Co., 336 F.3d 806, 810 (8th Cir. 2003) (citing Foslip Pharm., Inc. v. Metabolife Int'l, Inc., 92 F.Supp.2d 891, 903 (N.D. Iowa 2000)). In predicting whether the state law might impose liability, the court “should resolve all facts and ambiguities in the cur......