U.S. Sec. & Exch. Comm'n v. Collector's Coffee Inc.

• Decision Date: 01 April 2020
• Docket Number: 19 Civ. 4355 (LGS)
• Citation: 451 F.Supp.3d 294
• Parties: UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. COLLECTOR'S COFFEE INC., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

451 F.Supp.3d 294

UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff,

v.COLLECTOR'S COFFEE INC., et al., Defendants.

19 Civ. 4355 (LGS)

United States District Court, S.D. New York.

Signed April 1, 2020

ORDER

LORNA G. SCHOFIELD, District Judge:

WHEREAS, on February 28, 2020, Judge Gorenstein issued a Report and Recommendation to grant the motion brought by Intervenor-Defendant Los Angeles Dodgers, LLC ("the Dodgers") to substitute the Dodgers with the Jackie Robinson Foundation, Inc. (Dkt. No. 230);

WHEREAS, as stated in Judge Gorenstein's February 28, 2020, Report and Recommendation, the deadline for any objections was March 13, 2020;

WHEREAS, no objections were timely filed;

WHEREAS, in reviewing a Magistrate Judge's Report and Recommendation, a District Judge "may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1)(C). "When no timely objection is filed, the court need only satisfy itself that there is no clear error on the face of the record in order to accept the recommendation." FED. R. CIV. P. 72(b) Advisory Committee Notes; accord Niles v. O'Donnell , No. 17 Civ. 1437, 2019 WL 1409443, at *1 (S.D.N.Y. Mar. 28, 2019) ;

WHEREAS, the Court finds no clear error on the face of the record. It is hereby

ORDERED that the Report and Recommendation is ADOPTED in its entirety as the opinion of the Court. For the reasons stated in the Report and Recommendation, the Dodgers' motion is GRANTED and the Jackie Robinson Foundation, Inc. shall be substituted as an intervenor-defendant in place of the Dodgers.

The Clerk of Court is respectfully requested to close the motion at Dkt. No. 178.

REPORT AND RECOMMENDATION

GABRIEL W. GORENSTEIN, UNITED STATES MAGISTRATE JUDGE

I. BACKGROUND

SDJ INVESTMENTS, LLC, ADOBE INVESTMENTS, LLC, AND DARREN SIVERTSEN, TRUSTEE OF THE SIVERTSEN FAMILY TRUST U/A/D 10/01/2002, Intervenor-Plaintiffs,

-v.-

COLLECTOR'S COFFEE, INC. (D/B/A COLLECTORS CAFÉ), MYKALAI KONTILAI, LOS ANGELES DODGERS, LLC, DOE INDIVIDUALS 1 THROUGH 50 AND ROE CORPORATIONS 1 THROUGH 50, Intervenor-Defendants.

This lawsuit was brought by the Securities and Exchange Commission ("SEC") against Collector's Coffee, d/b/a Collectors Café ("CC"), and Mykalai Kontilai alleging that the defendants defrauded investors in violation of federal securities laws. See Amended Complaint, filed Nov. 4, 2019 (Docket # 134). In soliciting money from investors, defendants told investors that CC owned the original contracts signed between Jackie Robinson and the Brooklyn Dodgers baseball team. Id. ¶¶ 29, 62-69. At the time the SEC brought suit, the Dodgers, now incorporated as "Los Angeles Dodgers, LLC," claimed ownership of the contracts. Id. ¶ 151.

After this suit was filed, a group of entities (consisting of SDJ Investments, LLC; Adobe Investments, LLC; and Darren Siversten, Trustee of the Siversten Family Trust U/A/D 10/01/2002), who refer to themselves as the "Holders," intervened in this action seeking a declaratory judgment that they are in fact the rightful owners of the contracts and that they have a "first position perfected security interest" in the contracts. See Intervenor Complaint, filed Sept. 10, 2019 (Docket # 92) ¶¶ 1, 32-40. The Holders' complaint named the Dodgers as an intervenor-defendant. Id.

The Dodgers answered on November 18, 2019, asserting that while they were originally the owners of the contracts, "[t]he Dodgers are not a real party in interest as they have transferred any and all of their rights, title and interests in the Contracts to [the Jackie Robinson] Foundation by deeds of gift on November 14, 2019." Answer, filed Nov. 18, 2019 (Docket # 149) ("Answer") ¶¶ 44-45.

The Dodgers have now filed the instant motion to substitute the Jackie Robinson Foundation in their place as an intervenor-defendant.¹ As part of the motion, the Dodgers included copies of the deeds of gift under which the Dodgers transferred to the Jackie Robinson Foundation "all of Los Angeles Dodgers LLC's right, title, and interest" to the contracts "including all claims, defenses and causes of action with respect to" the contracts. See Deed of Gift, dated Nov. 14, 2019 (Docket # 108-1) ("Deed").

II. GOVERNING LAW

Substitution of parties upon transfer of an interest is governed by Federal Rule of Civil Procedure 25(c), which provides:

If an interest is transferred, the action may be continued by or against the original party unless the court, on motion, orders the transferee to be substituted in the action or joined with the original party.

" Rule 25(c) substitution is a procedural mechanism designed to facilitate the continuation of an action when an interest in a lawsuit is transferred and does not affect the substantive rights of the parties." Travelers Ins. Co. v. Broadway W. St. Assocs., 164 F.R.D. 154, 164 (S.D.N.Y. 1995). The purpose of Rule 25(c) is to allow a case to continue even when an interest changes hands without requiring a new suit because the "successor in interest is bound by a judgment against its predecessor even if substitution is not effected." Software Freedom Conservancy, Inc. v. Best Buy Co., 2010 WL 4860780, at *2 (S.D.N.Y. Nov. 29, 2010) (quoting Koehler v. Bank of Bermuda Ltd., 2002 WL 1766444, at *2 (S.D.N.Y. July 31, 2002) ).

Courts will frequently grant substitution where a party has fully transferred its interest to another person or entity. See, e.g., Potvin v. Speedway LLC, 891 F.3d 410, 416-17 (1st Cir. 2018) ; Arnold Graphics Indus., Inc. v. Ind. Agent Ctr., Inc., 775 F.2d 38, 39 (2d Cir. 1985) ; Bank of Am., N.A. v. RJ Dooley Realty, Inc., 2011 WL 3251593, at *1 (S.D.N.Y. July 25, 2011) ; Greystone Bank v. Peralta, 2010 WL 3767619, at *2 (S.D.N.Y. Sept. 20, 2010) ; Levin v. Raynor, 2010 WL 2106037, at *3 (S.D.N.Y. May 25, 2010) ; AAIPharma Inc. v. Kremers Urban Dev. Co., 2010 WL 11570154, at *3-4 (S.D.N.Y. Feb. 16, 2010) ; Nat'l Credit Mang. Corp. v. W. Union Fin. Servs., Inc., 1998 WL 730345, at *1 (S.D.N.Y. Oct. 19, 1998). Nonetheless, "[s]ubstitution of a successor in interest or its joinder as an additional party under Rule 25(c) is generally within the sound discretion of the trial court." Organic Cow, LLC v. Center of New England Dairy Compact Research, 335 F.3d 66, 71 (2d Cir. 2003) (quoting Prop-Jets, Inc. v. Chandler, 575 F.2d 1322, 1324 (10th Cir. 1978) ). Thus, "[i]t is not mandatory that a substitution be made in every case of a transfer of interest." Panther Pumps & Equip. Co. v. Hydrocraft, Inc., 566 F.2d 8, 16 (7th Cir. 1977) (citing McComb v. Row River Lumber Co., 177 F.2d 129, 130 (9th Cir. 1949) ).

After substitution, "[t]he merits of the case and the disposition of the property are still determined with respect to the original parties." Software Freedom Conservancy, 2010 WL 4860780, at *2 (quoting Koehler, 2002 WL 1766444, at *2 ).

In deciding a substitution or joinder motion under Rule 25(c), a court should consider "whether substitution will expedite and simplify the action." In re Rates - Viper Patent Litig., 2011 WL 856261, at *1 (S.D.N.Y. March 10, 2011) (quoting Banyai v. Mazur, 2009 WL 3754198, at *3 (S.D.N.Y. Nov. 5, 2009) ); see also Potvin, 891 F.3d at 416 ("a district court has considerable leeway to allow the substitution of parties in order to facilitate the conduct of the litigation" (internal quotation marks and citation omitted)).

III. DISCUSSION

The Dodgers have put into the record the deeds of gift that transferred their interest in the contracts to the Jackie Robinson Foundation. See Deed. While the Holders assert that the Dodgers never had any interest in the contracts, they do not contest that there has been a transfer of whatever interest the Dodgers may have had to the Jackie Robinson Foundation. Holders Mem. at 3. As a result, it is within the Court's power "to continue the action in its original posture, to order substitution of the party to whom interest has been transferred, or to join the transferee as a party" based on "how the conduct of the lawsuit will be most facilitated." Fed. Deposit Ins. Corp. v. Tisch, 89 F.R.D. 446, 448 (E.D.N.Y. 1981) (citations omitted). There is little law governing how a court should exercise its discretion.

The Holders make essentially two arguments why substitution should be denied, neither of which we find persuasive.

The Holders' first argument is that substitution will "complicate the action as the Jackie Robinson Foundation will not have information with which to prove that the Dodgers had an interest in the Contracts prior to the purported transfer." Holders Mem. at 7. This argument might have some force if the Jackie Robinson Foundation had made it. But the Jackie Robinson Foundation in fact has not objected to the substitution and thus it is obviously content to bear whatever burden may be placed on it to obtain information from the Dodgers as a nonparty.

The Holders' second argument is that their need for discovery from the Dodgers justifies denying substitution. See id. at 7-9. Certainly, a critical issue in discovery will be the Dodgers' former claim to ownership of the contracts. There has been no suggestion, however, that the Dodgers will not be amenable to discovery as a nonparty through the Rule 45 subpoena process. Moreover, the Dodgers have agreed that they will (1) accept service compliant with Fed. R. Civ. P. 5(b)(2) of any Rule 45 subpoena if served on their attorney, thus obviating the need for personal service; and (2) agree to transfer any application relating to compliance with a subpoena to this district as permitted by Fed. R. Civ. P. 45(f). See Feb. 5 Ltr.

The Holders make few arguments as to why the Rule 45 process, coupled with the Dodgers' agreements, would cause them any real problems in obtaining the discovery they need. While they suggest that the Dodgers have been recalcitrant in providing discovery to date, see Holders Mem. at 4-5; Feb. 10 Ltr., their only support for this statement is that the Dodgers have engaged...