Symes v. Harris

Decision Date20 December 2006
Docket NumberNo. 06-1014.,06-1014.
Citation472 F.3d 754
PartiesKim SYMES and Christopher Paul Northcott, Plaintiffs-Appellants, v. Stephen R. HARRIS, Magdalen J. Harris, and Rotaloc Int'l, LLC, a Colorado limited liability company, Defendants-Appellees.
CourtU.S. Court of Appeals — Tenth Circuit

Benjamin D. Pergament (Keith P. Ray, Lathrop & Gage, LC, and Marc D. Flink, with him on the briefs), Baker & Hostetler LLP, Denver, CO, for Plaintiffs-Appellants.

Joseph A. Davies, Joseph A. Davies, P.C., Greenwood Village, CO, for Defendants-Appellees.

Before BRISCOE, HOLLOWAY, and LUCERO, Circuit Judges.

HOLLOWAY, Circuit Judge.

Plaintiffs Kim Symes and Christopher Northcott, United Kingdom citizens, filed a complaint in the United States District Court for the District of Colorado, naming Stephen Harris, Magdalen Harris, and Rotaloc Int'l LLC (RIL), Colorado citizens, as defendants. The district court dismissed the plaintiffs' action for lack of subject matter jurisdiction and for failure to join a necessary party, Rotaloc (Europe) LTD (REL). We exercise jurisdiction pursuant to 28 U.S.C. § 1291 and reverse the district court's order and remand to the district court with directions to exercise jurisdiction over this action and permit joinder of REL.


On November 13, 2003, Kim Symes and Christopher Paul Northcott, both United Kingdom citizens, filed this federal action against Stephen R. Harris, Magdalen J. Harris, and RIL, all Colorado citizens. Appellants' Appendix (App.) at 6-7.

The action is based upon a series of negotiations that plaintiffs allege resulted in a binding contract between Mr. Harris and Mr. Northcott to establish a business venture with U.S. and U.K.-based operations. Id. at 7-8. In late 1999, as part of this venture, the Harrises formed RIL as a Colorado limited liability company, the founding documents of which reflect that Mr. and Ms. Harris are each 50% owners of RIL. Id. at 8. Subsequently, Mr. Symes incorporated REL in the United Kingdom. Id. at 8, 23. The businesses were to distribute and sell metal bonding fasteners to businesses in the molding industry. Id. at 8.

In an effort to further develop the venture, Messrs. Symes, Harris, and Northcott allegedly agreed that Mr. Symes would become an investor and part owner of the business venture, splitting the ownership between Mr. Symes, Mr. Northcott, and the Harrises. Id. at 9. Relying upon this agreement, Mr. Symes allegedly paid a total of $250,000 to RIL, REL, and Messrs. Harris and Northcott. Id. at 10. Notwithstanding Mr. Symes' investment, Mr. Harris allegedly believes that Mr. Symes has no ownership interest in the business and that Mr. Northcott has no interest in RIL's revenues or profits. Id.

Based upon Mr. Harris' refusal to recognize the alleged agreement, plaintiffs' complaint asserts the following causes of action: declaratory relief declaring that until Mr. Symes became an owner, the business venture was a partnership "owned 50/50 by Northcott and the Harrises"; an accounting of RIL's business affairs and assets; declaratory relief declaring Mr. Symes to be a 30% owner of the business; specific performance requiring the Harrises to recognize Mr. Symes and Mr. Northcott's ownership interests in RIL and to pay Mr. Symes and Mr. Northcott their share of RIL's profits; breach of contract; and breach of the fiduciary duty that Mr. Harris owed to Mr. Symes and Mr. Northcott as a partner in their business venture. Id. at 10-14.

After receiving several motions relating to these claims, the district court issued an order to show cause why the action should not be dismissed for lack of subject matter jurisdiction. Id. at 142-145. The Plaintiffs' Response to the Order to Show Cause prayed that the district court discharge the Order to Show Cause and exercise subject matter jurisdiction. Id. at 152. The Defendants' Response stated that Defendants did not oppose dismissal for lack of jurisdiction. Id. at 164. Following the responses from both parties, the district court held that it lacked jurisdiction because the remedy the plaintiffs sought, if granted, would render the plaintiffs part owners of RIL, thereby destroying diversity. Id. at 171. Separately, the district court reasoned that REL was a necessary party that could not be joined without destroying diversity jurisdiction. Thus, the court's order separately relied upon Fed.R.Civ.P. 19 as an additional ground for dismissal.


The plaintiffs appeal the district court's order based upon two assignments of error: first, the district court erroneously found diversity jurisdiction wanting because of events that might occur after the complaint was filed; and second, the district court erroneously dismissed the action pursuant to Fed.R.Civ.P. 19 even though REL could be joined without destroying diversity.

The appellees have taken two inconsistent positions on this appeal. The appellees' appellate brief takes no position on the legal issues presented and therefore does not address the district court's holdings. See Aplee. Br. at 2, 5. Later at oral argument, however, the appellees asserted that the district court's holdings should be affirmed on the same rationales set forth by the district court.

A. Diversity Jurisdiction

We review de novo a dismissal for lack of subject matter jurisdiction. US West, Inc. v. Tristani, 182 F.3d 1202, 1206 (10th Cir.1999).

Under 28 U.S.C. § 1332, a party must show that complete diversity of citizenship exists between the adverse parties and that the amount in controversy exceeds $75,000. See also Radil v. Sanborn W. Camps, Inc., 384 F.3d 1220, 1225 (10th Cir.2004). The question presented to us is whether the district court lacked jurisdiction when the remedy the plaintiffs seek, if granted, would retroactively render them part owners of the defendant RIL and thereby destroy complete diversity. We hold that the district court had jurisdiction.

It has long been the rule that "the jurisdiction of the Court depends upon the state of things at the time of the action brought, and that after vesting, it cannot be ousted by subsequent events." Mullan v. Torrance, 9 Wheat. 537, 22 U.S. 537, 539, 6 L.Ed. 154 (1824). In Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 571, 124 S.Ct. 1920, 158 L.Ed.2d 866 (2004), the Supreme Court explained that "all challenges to subject-matter jurisdiction premised upon diversity of citizenship [are to be measured] against the state of facts that existed at the time of filing...." Put otherwise, "jurisdiction depending on the condition of the parties, is governed by that condition as it was at the commencement of the suit." Id. at 571, 124 S.Ct. 1920 (quoting Conolly v. Taylor, 27 U.S. 556, 2 Pet. 556, 565, 7 L.Ed. 518 (1829)). The district court reasoned that the subject matter of the action is a dispute over the composition of RIL's membership — "the very `condition' that determines RIL's citizenship." App. at 171. Consequently, the court reasoned, accepting the plaintiffs' allegations as true would require a finding that they were members of RIL earlier when the complaint was filed, thereby destroying diversity. Id.

While the broad question is whether the district court's retroactivity rationale squares with the rule that diversity is determined by the facts existing when the complaint was filed, the underlying question concerns the framework through which a district court may view the pleadings when determining whether the parties are diverse. In the instant case, the district court circumvented the fact that the plaintiffs were not members of RIL when the suit was filed by erroneously assuming that the allegations in the plaintiffs' complaint were true and subsequently dismissing the action based on a potential remedy available upon final judgment.

Specifically, the district court found that the subject matter of the litigation (whether the plaintiffs are entitled to membership in RIL) was intertwined with the jurisdictional issue (the composition of RIL's membership for determining citizenship). App. at 171 (stating in his order of dismissal that "[t]he subject matter of this action is a dispute over the composition of RIL's membership — the very `condition' that determines its citizenship"). The district court then assumed the truth of the plaintiffs' well-pleaded facts and concluded that the plaintiffs' allegations would require a remedy rendering them part owners of RIL, thereby destroying diversity. Yet the essence of the time-of-filing rule is that the district court must determine the jurisdictional facts as they are when the complaint is filed, not as they might be upon final judgment. The district court's finding that the subject matter of the litigation is intertwined with a jurisdictional fact does not obviate this basic principle and duty.

The district court's failure to abide by this principle also highlights the district court's error in determining the parties' places of citizenship in light of the remedy that would apply if the plaintiffs' well-pleaded facts were proved at trial. The district court's speculation that a post-filing event could destroy diversity by virtue of the plaintiffs' retroactive ownership of RIL directly conflicts with the general rule that the court determines the parties' citizenship as of the time when the complaint was filed. The plaintiffs were not members of RIL when the complaint was filed—a fact explicitly alleged in the plaintiffs' complaint. App. at 8 (alleging in paragraph 13 of the complaint that "Magdalen Harris, the wife of Harris, and Harris are both member and managers of RIL and each own a 50% interest in RIL"). The only way plaintiffs could become members of RIL is for the plaintiffs to prevail and obtain relief in the district court. We note that the district court framed its citizenship analysis prospectively: "[i]f the court were to grant the plaintiffs' partnership motion, giving them the relief...

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