James L. Davis & Davis & Assocs., Inc. v. Mack, Case No. 18-cv-2581 (PJS/ECW)

CourtUnited States District Courts. 8th Circuit. United States District Court of Minnesota
Writing for the CourtELIZABETH COWAN WRIGHT United States Magistrate Judge
PartiesJames L. Davis and Davis and Associates, Inc. 401K Profit Sharing Plan, Plaintiffs, v. Jeffrey Mack and Lawrence Blaney, Defendants.
Docket NumberCase No. 18-cv-2581 (PJS/ECW)
Decision Date23 October 2018

James L. Davis and Davis and Associates, Inc. 401K Profit Sharing Plan, Plaintiffs,
Jeffrey Mack and Lawrence Blaney, Defendants.

Case No. 18-cv-2581 (PJS/ECW)


October 23, 2018


This matter is before the Court on Plaintiffs' Motion to Amend Complaint to Join Parties and to Remand to State Court (Dkt. No. 6) ("Motion"). For the reasons stated below, the Motion is denied.


Plaintiffs James L. Davis and Davis and Associates, Inc. 401K Profit Sharing Plan (the "Plan") brought this action against Defendants Jeffrey Mack and Larry Blaney in Hennepin County court in August 2018.1 (Dkt. No. 1-1.) Plaintiffs allege they were victims of a fraudulent scheme to inflate the revenue of Digiliti Money Group, Inc. ("Digiliti") perpetrated by Defendants and "others." (Dkt. No. 1-1 ¶¶ 1-4.) The Complaint identifies Digiliti customer National Check Consolidators of Florida, Inc. ("NCC") and NCC employees Andy Benjamin and Louis Skenderis as participants in the

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scheme, but does not name them as defendants.2 (E.g., Dkt. No. 1-1 ¶¶ 35-38, 51-56.) On September 4, 2018, Blaney removed the case to federal court based on diversity jurisdiction. (Dkt. No. 1.) The Notice of Removal alleged that "Davis was and is a resident and citizen of Florida," the Plan has "an address in Minnesota" where the trustee (Davis) "is a resident and citizen of Florida," Mack "is a resident and citizen of Texas," and "Blaney is a resident and citizen of Illinois." (Dkt. No. 1 ¶ 6.) Mack, who has not answered or otherwise responded to the Complaint, consented to the removal. (Dkt. No. 1-2.)

Plaintiffs' Complaint against Blaney and Mack is not the only lawsuit relating to the alleged Digiliti fraud. First, in March 2018, investors in Digiliti filed an action in Minnesota federal court against Davis and other officers and directors of Digiliti alleging violations of the Securities Act of 1933. (Tiburon Opportunity Fund LP v. Digiliti Money Grp., Inc., Case No. 18-cv-637-WMW-KMM (D. Minn. filed Mar. 7, 2018).) That action was dismissed with prejudice on August 21, 2018 pursuant to a stipulation. (Tiburon Opportunity Fund LP v. Digiliti Money Grp., Inc., Case No. 18-cv-637-WMW-KMM, Dkt. No. 14 (Aug. 21, 2018).) Second, Davis filed an action in Hennepin County court against NCC, Benjamin, and Skenderis, along with Erasmo Pineda and Rodolfo Angulo (collectively, the "NCC Defendants") on April 13, 2018 (the "NCC Action"). (Dkt. No. 10 ¶ 2.) The complaint in the NCC Action did not name Mack or Blaney as

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defendants, although it alleged both participated in the alleged fraud. (E.g., Dkt. No. 14-2 ¶¶ 2-8, 29-45.)

The NCC Action was assigned to Judge Edward T. Wahl. (Dkt. No. 14-5.) NCC, Angulo, Pineda, and Skenderis filed motions to dismiss for failure to join Mack, Blaney, and several others as indispensable parties. (See Dkt. No. 14-8.) In their opposition, Plaintiffs argued that Mack, Blaney, and the others were not necessary to the case because "with torts and analogous statutory claims, it is well-established that a plaintiff is not required to join all tortfeasors in a single suit." (Dkt. No. 14-8 at 7 (quoting Riley v. MoneyMutual, LLC, 863 N.W.2d 789, 796 (Minn. App. 2015).) The motion to dismiss is still pending.

The Hennepin County court set an August 13, 2018 deadline for Plaintiffs to join additional parties in the NCC Action. (Dkt. No. 14-7, Ex. 7 ¶ 1.) Plaintiffs did not join Blaney and Mack as additional parties in the NCC Action. Instead, Plaintiffs served a separate complaint on Blaney and Mack on August 5, 2018 and August 22, 2018, respectively, and filed that complaint in Hennepin County court on August 8, 2018. (Dkt. No. 1 ¶ 1; Dkt. No. 1-1; Dkt. No. 14-11.) In their brief and during the hearing, Plaintiffs asserted several reasons for filing the separate lawsuit instead of joining Blaney and Mack, including uncertainty about whether they could be served with process, questions about whether they could pay a judgment, and a desire not to undermine Plaintiffs'

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position that Blaney and Mack are not necessary parties in the NCC Action. This separate action was originally assigned to Judge Susan Robiner.3 (Dkt. No. 14-11.)

Although Plaintiffs filed that separate action "with the expectation that the two actions could be consolidated if Mack and Blaney could be located and served with process" (Dkt. No. 8 at 2), Plaintiffs did not move to consolidate the two state court actions before Blaney removed this action on September 4.4 Instead, on August 13, 2018—the joinder deadline in the NCC Action—Plaintiffs sent a letter to Judges Wahl and Robiner stating they did not oppose consolidation of the two actions but reiterating Plaintiffs' position that Blaney, Mack, and the others were not necessary and indispensable parties to the NCC Action. (Dkt. No. 14-9.) On August 31, 2018, Plaintiffs filed an amended complaint in the NCC Action that did not name Blaney and Mack as defendants. (Dkt. No. 10 ¶ 2.)

On September 4, 2018, Blaney removed this action to federal court on diversity jurisdiction grounds. (Dkt. No. 1.) On September 14, 2018, Plaintiffs filed the present Motion to add the NCC Defendants as defendants in this lawsuit and assert additional claims. (Dkt. No. 6; Dkt. No. 10-3.) Plaintiffs also asked the Court to "remand this action to the state court where it was filed, for some of the additional defendants are citizens of the state of Florida, as is Plaintiff James L. Davis," if the Court permits

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amendment.5 (Dkt. No. 6; Dkt. No. 8 at 5.) On the same day, Plaintiffs' counsel filed a declaration "Concerning Default of Defendant Jeffrey Mack," which counsel explained during the October 1 hearing was intended to set up the basis for the Court to enter default against Mack. (Dkt. No. 7.)

The Court held a hearing on the Motion on October 1, 2018. During the hearing, because the Complaint asserted a count under Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k, the Court asked the parties to file supplemental letter briefs addressing whether the Court lacked subject matter jurisdiction over this action in view of 15 U.S.C. § 77v(a).6 (See Dkt. No. 1-1 ¶¶ 127-33; Dkt. No. 18.) The Court also asked the parties to address the question of whether any claims are severable in view of 28 U.S.C. § 1441(c) if the Court were to deny the Motion. (Id.) The parties timely filed letters with the Court. (Dkt. Nos. 19, 20.)


A. Subject Matter Jurisdiction

"Subject-matter jurisdiction is a threshold requirement which must be assured in every federal case." Kronholm v. Fed. Deposit Ins. Corp., 915 F.2d 1171, 1174 (8th Cir. 1990). Moreover, federal courts "are under an independent obligation to examine their own jurisdiction." FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231 (1990).

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Count 1 in this action asserts a claim against Mack under 15 U.S.C. § 77k. (Dkt. No. 1-1 ¶¶ 127-133.) At the October 1 hearing, the Court raised the issue of whether 15 U.S.C. § 77v(a), which provides: "Except as provided in section 77p(c) of this title, no case arising under this subchapter and brought in any State court of competent jurisdiction shall be removed to any court of the United States," deprived the Court of subject matter jurisdiction over this action. Plaintiffs did not raise this issue in their Motion or supporting documents; rather the Court raised the issue sua sponte due to the federal courts' "independent obligation to examine their own jurisdiction." FW/PBS, 493 U.S. at 231.

The Eighth Circuit does not appear to have addressed the question of whether the "anti-removal" provision of 15 U.S.C. § 77v(a) is jurisdictional in nature.7 However, the Eighth Circuit has found a similar anti-removal statute, 28 U.S.C. § 1445, is non-jurisdictional.8 See In re Norfolk So. Ry. Co., 592 F.3d 907, 912 (8th Cir. 2010). In so holding, the Eighth Circuit relied on two earlier cases where it had noted that plaintiffs, by failing to timely seek remand based on § 1445(c)'s prohibition against removal of actions arising under workers' compensation state law, had waived removal based on that prohibition. Id. at 911-912 (citing Bloom v. Metro Heart Grp. of St. Louis, Inc., 440 F.3d 1025 (8th Cir. 2006) and Phillips v. Ford Motor Co., 83 F.3d 235 (8th Cir. 1996)). The Eighth Circuit reasoned "[i]f § 1445 truly involved subject matter jurisdiction, it could

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not be waived, as parties cannot waive subject matter jurisdiction." In re Norfolk, 592 F.3d at 912. The Southern District of Iowa recently relied on In re Norfolk when finding "the anti-removal provision in 15 U.S.C. § 77v(a) does not implicate this Court's subject matter jurisdiction." Christians v. KemPharm, Inc., 265 F. Supp. 3d 971, 975-76 (S.D. Iowa 2017). In view of this Eighth Circuit law, the Court concludes that 15 U.S.C. § 77v(a) does not implicate subject matter jurisdiction. Rather, violation of § 77v(a)'s anti-removal prohibition is a procedural defect in removal.

"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 under section 1446(a)." 28 U.S.C. § 1447(c). The Motion pending before the Court is a motion to amend that also seeks remand based on the lack of diversity jurisdiction if amendment is permitted. Plaintiffs have not filed a motion to remand based on § 77v(a). Instead, Plaintiffs "ask[ed]" at the end of their...

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