Schnabel v. Lui
| Decision Date | 05 September 2002 |
| Docket Number | No. 01-55038.,01-55038. |
| Citation | 302 F.3d 1023 |
| Parties | Peter R. SCHNABEL; Premier Rides; Inc., a Maryland Corporation; Steven Marble; and Catalyst Entertainment, Inc., Plaintiffs-Appellees, v. Kevin Y. LUI; Froyer Holdings Development & Trading Co.; Froyer Holdings USA, Inc., a California Corporation; and FSN Top Secret Productions, Inc., a California corporation, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Scott Warmuth and William L. Niu, Warmuth and Niu, Monterey Park, CA, for the defendants-appellants.
Michael D. Morin and Margaret Egler, Margolis & Morin, Los Angeles, CA, for the plaintiffs-appellees.
Appeal from the United States District Court for the Central District of California; Dean D. Pregerson, District Judge, Presiding. D.C. No. CV-98-02198-DDP (AIJx).
Before: FERNANDEZ and RAWLINSON, Circuit Judges, and SHEA,* District Judge.
This action arises from a partnership gone awry. Peter Schnabel, Steven Marble, Kevin Lui, and the various entities respectively controlled by them entered a partnership agreement to produce "simulation" attractions for an amusement park in mainland China. As the project progressed, Schnabel and Marble became increasingly disenchanted with the acts and omissions taken of Lui and the entities associated with him. Schnabel and Marble, et al., filed suit in the United States District Court for the Central District of California. Shortly thereafter, Lui and various entities filed suit against Marble, et al., in California Superior Court, in and for Los Angeles County. Marble removed the state court action to federal court, based on diversity jurisdiction. The two suits were consolidated, as the removed action was essentially a counterclaim to the claims initially brought in federal court. After an extensive history of discovery abuses by Lui and his entities, the district court dismissed the claims in the removed complaint, struck the defendants' answer to the original complaint, and deemed admitted all of the original plaintiffs' requests for admission. At a bench trial on damages, defendants failed to present any evidence. The trial court awarded damages to Schnabel, Marble, and several entities, for claims including breach of contract and fraud in the inducement. Defendants Lui, Froyer Holdings Development & Trading Co., Froyer Holdings USA, Inc., and FSN Top Secret Productions, Inc., brought this appeal, primarily raising jurisdictional issues. We have jurisdiction pursuant to 28 U.S.C. § 1291, and affirm.
In 1995, Premier Rides, Inc. ("Premier") began negotiations with Suzhou Amusement Land ("Suzhou") to build two amusement park rides in the People's Republic of China. The two attractions contemplated were "Time Machine" and "Top Secret," which would entail film footage presented in a 360 degree theater on fixed screens with a central motion base for seats. Premier and its President, Peter Schnabel ("Schnabel") began to work with Catalyst Entertainment, Inc. ("Catalyst") and its President, Steven Marble ("Marble") to develop, market, and sell the attractions to Suzhou. Catalyst and Marble had prior experience developing this type of ride for Universal Studios in Los Angeles, California, and Orlando, Florida. Premier and Catalyst agreed to work as equal partners to obtain the contracts necessary to build the attractions for Suzhou.
In the summer of 1995, Premier successfully negotiated agreements with Suzhou to sell it the two attractions. After signing contracts with Suzhou, Premier discovered that the proposed funding for the project — by letters of credit from a Chinese bank — was unacceptable to its financial institutions in the United States. As a result, Premier sought alternative sources of financing. In early 1996, Marble introduced Premier and Schnabel to Kevin Lui ("Lui"). Lui is fluent in Mandarin Chinese, had prior experience building attractions in China, and asserted that he had sufficient financial resources available to solve any problems in financing the project. Schnabel, Marble, and Lui executed partnership agreements in Los Angeles in February of 1996.
The primary partnership agreement provided, in relevant part, that the parties would "work together as partners in the development, financing and installation of the two Simulation Attractions," and would divide all profits equally. Lui and one of his companies, Froyer Holdings Development & Trading Co. ("Froyer Trading") assumed responsibility for financing the project. Premier and Schnabel were project managers responsible for reviewing costs and budgets, while Catalyst and Marble agreed to produce the projects, including fabrication, installation, and training. Under the agreement, Lui was to provide the partners with an accounting, and permit inspection of books and records. The partners also agreed to produce a "first class product," which would enable them to resell the ride concepts to other amusement parks.
As the project progressed, Lui, Froyer Trading and other companies controlled by Lui, including Froyer Holdings USA, Inc. ("Froyer USA"), and FSN Top Secret Productions, Inc. ("FSN Top Secret") increasingly alienated the other partners by their acts and omissions. Premier, Schnabel, Catalyst, and Marble complained that Lui failed to provide them with financial records and records of communication with third parties. Lui and his entities contracted with third parties directly, misappropriated designs, failed to pay vendors, and generally engaged in conduct which was harmful to the business reputations of the remaining partners. Lui also engaged in cost-cutting and elimination of various aspects of the attractions as designed, sacrificing quality. The rides were completed, but Premier, Catalyst, Schnabel and Marble found it impossible to resell the ride concepts due to the inferiority of the rides produced.
In March of 1998, Plaintiffs Premier, Schnabel, Catalyst, and Marble filed a complaint in the United States District Court for the Central District of California, against Lui and Froyer Trading (the "original action"). Less than four months later, Lui, Froyer USA, and FSN Top Secret filed a complaint in Los Angeles County Superior Court, against Marble and Catalyst (the "removed action").1 The state court complaint alleged five causes of action, including breach of contract and an accounting. Around the same time, Plaintiffs in the original action filed their First Amended Complaint. On August 6, 1998, Marble and Catalyst removed the state action to federal court, pursuant to 28 U.S.C. § 1441(b), based on diversity jurisdiction. Later that month, Defendants in the original action filed their answer, which included a counterclaim for breach of contract.
The notice of removal in the removed action alleged the following citizenship as a basis for diversity jurisdiction: (1) that Lui was a citizen of Australia; (2) that Froyer USA was a California corporation, with its principal place of business in California; (3) that FSN Top Secret was a California corporation, with its principal place of business in California; (4) that Marble was a citizen of New Mexico; and (5) that Catalyst was a Delaware corporation with its principal place of business in New Mexico.
The same counsel represented Lui and Froyer Trading as defendants in the original action, and Lui, Froyer USA, and FSN Top Secret as plaintiffs in the removed action. Plaintiffs in the removed action did not move for remand, but did file a jury demand in the removed case. On April 14, 1999, the district court consolidated the two cases, as the removed case "appears to be a counterclaim to [the original action]." After consolidation, Schnabel, Premier, Marble, and Catalyst were denominated the "Plaintiffs," while Lui, Froyer Trading, Froyer USA, and FSN Top Secret and were denominated "Defendants." The court added the notation "and related counterclaims" to the caption. The parties proceeded in the consolidated case as realigned, but defense counsel continued to sign many papers and motions as counsel for Lui and Froyer USA. Counsel occasionally also signed papers as counsel for Froyer Trading and FSN Top Secret.
On December 7, 1999, Plaintiffs filed a motion for leave to file a second amended complaint or, in the alternative, a counterclaim. On December 20, 1999, Defendants Lui, Froyer USA, and Froyer Trading filed a motion to dismiss for lack of jurisdiction. As part of the briefing filed on this motion, plaintiffs proposed a Third Amended Complaint, to cure any jurisdictional defect in the pleading of the proposed Second Amended Complaint. The district court heard the Plaintiffs' motion in conjunction with Defendants' motion to dismiss for lack of subject matter jurisdiction on January 10, 2000. Defendants sought dismissal of Plaintiffs' Proposed Second Amended Complaint for failure to plead the basis for diversity jurisdiction, and the court granted the motion. However, because Defendants "only challenged the allegations in the complaint, not the factual basis for diversity," the court granted leave to amend, and accepted the proposed Third Amended Complaint for filing.
The Third Amended Complaint added claims against Defendants Froyer USA and FSN Top Secret, and alleged thirteen causes of action. The Third Amended Complaint alleged citizenship of the Plaintiffs: that Schnabel was a citizen of Germany domiciled in the British West Indes; that Premier was a Maryland corporation with its principal place of business in Maryland; that Marble was a United States citizen domiciled in New Mexico; and that Catalyst was a Delaware corporation with its principal place of business in New Mexico. For citizenship of the Defendants, the Third Amended Complaint alleged that Lui was a citizen of Australia domiciled in Australia, that Froyer Trading was...
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