Wells Fargo Bank, N.A. v. Mesh Suture, Inc.

• Citation: 31 F.4th 1300
• Decision Date: 19 April 2022
• Docket Number: 21-1262
• Parties: WELLS FARGO BANK, N.A., Plaintiff - Appellee, v. MESH SUTURE, INC.; Mark A. Schwartz, Defendants - Appellants, v. Randa Dumanian; Gregory A. Dumanian; Adom Dumanian, Defendants - Appellees, and Zabelle Crosson, Intervenor Defendant - Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

31 F.4th 1300

WELLS FARGO BANK, N.A., Plaintiff - Appellee,

v.MESH SUTURE, INC.; Mark A. Schwartz, Defendants - Appellants,

v.Randa Dumanian; Gregory A. Dumanian; Adom Dumanian, Defendants - Appellees,andZabelle Crosson, Intervenor Defendant - Appellee.

No. 21-1262

United States Court of Appeals, Tenth Circuit.

FILED April 19, 2022

Submitted on the briefs:^*

Mark A. Schwartz, MS Law Group, LLC, Dorado, Puerto Rico, for Defendants-Appellants.

Christopher J. Dawes, Esther H. Lee, Fox Rothschild LLP, Denver, Colorado, for Plaintiff-Appellee Wells Fargo Bank, N.A.

Matthew E. Johnson, Dowd Bennett LLP, Denver, Colorado, for Defendants-Appellees Gregory Dumanian, Randa Dumanian, and Adom Dumanian.

Kenzo Kawanabe, Claire Mueller, Davis Graham & Stubbs LLP, Denver, Colorado, for Intervenor Defendant-Appellee Zabelle Crosson.

Before HARTZ, BACHARACH, and McHUGH, Circuit Judges.

HARTZ, Circuit Judge.

Plaintiff Wells Fargo Bank filed this statutory-interpleader action after facing conflicting demands for access to the checking account of Mesh Suture, Inc. Mark Schwartz, an attorney who founded Mesh Suture with Dr. Gregory Dumanian, was named as a claimant-defendant in the interpleader complaint but was later dismissed from the case after the district court determined that he had disclaimed all interest in the checking account. The district court ultimately granted summary judgment to cofounder Dr. Dumanian as the sole remaining claimant to the bank account, thereby awarding him control over the funds that remained.

Mr. Schwartz appeals, contending (1) that the district court lacked jurisdiction over the case because (a) there was not diversity of citizenship between him and Dr. Dumanian and (b) the funds in the checking account were not deposited into the court registry, (2) that he did not disclaim his fiduciary interest in the checking account, and (3) the award of funds to Dr. Dumanian violated various rights of Mesh Suture. Wells Fargo contends that Mr. Schwartz's disclaimer deprives him of standing to appeal under Article III of the United States Constitution. We reject all these contentions by Mr. Schwartz and Wells Fargo. We have appellate jurisdiction because Mr. Schwartz has standing to pursue his assertions that he did not disclaim his interest in the Wells Fargo account and that he was improperly denied rights of control over that account. We hold that the district court had jurisdiction because there was the requisite diversity of citizenship and the funds in the checking account were in effect deposited into the court registry when the court appointed a receiver as its agent to handle the funds. And on the merits we hold that the district court did not abuse its discretion when it held that Mr. Schwartz disclaimed all his interests in the checking account. As for the claim that the rights of Mesh Suture were violated, we hold that Mr. Schwartz cannot challenge the alleged violations of Mesh Suture's rights because the district court refused to allow him to act as Mesh Suture's attorney, and he has not challenged that decision on appeal. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.

I. BACKGROUND

Mesh Suture was founded to develop and commercialize Duramesh Suturable Mesh, a surgical technology used to suture injuries. In August 2017 Mr. Schwartz opened an account for Mesh Suture at a Wells Fargo branch in Colorado. He was the sole signatory on the account and was listed on the account application as being the sole owner of Mesh Suture. By 2019 Mr. Schwartz had assumed the role of Mesh Suture's chief executive officer and Dr. Dumanian served as the company's chief medical officer and chair of the board of directors.

The record does not explain the origins of the dispute between Mr. Schwartz and Dr. Dumanian. It is sufficient for our purposes to note that on August 31, 2019, Dr. Dumanian purported to fire Mr. Schwartz as CEO. Three days later, Mr. Schwartz, allegedly to extract a concession from Dr. Dumanian, transferred the entire balance of Mesh Suture's Wells Fargo account ($3,929,135.89) into a non-Wells Fargo account held by Sulion LLC, which he controlled. After another three days, allegedly having obtained the concession, Mr. Schwartz transferred the same amount back into Mesh Suture's account from a non-Wells Fargo account held by Tax Lien Law Group LLP, which Mr. Schwartz also controlled. Wells Fargo learned of the control dispute and restricted the access of all parties to the account on September 17. To enable Mesh Suture to continue to operate, seven payments totaling more than $460,000 were made from the restricted account with the parties’ joint permission.

In November 2019 Wells Fargo filed an interpleader complaint under 28 U.S.C. § 1335 in the United States District Court for the District of Colorado. Wells Fargo sought to deposit the remaining account balance of $3,363,839.40 into the registry of the court to allow Mr. Schwartz and Dr. Dumanian to litigate control of the funds.¹ When Wells Fargo filed suit, there were separate (non-interpleader) actions relating to the dispute that were pending in Illinois federal district court and Colorado state court.²

Later that month Dr. Dumanian filed an emergency motion to appoint a receiver to manage the Mesh Suture bank account during the pendency of the interpleader action. Mr. Schwartz did not file a timely response. The magistrate judge issued a written order granting the motion in February 2020, crediting Dr. Dumanian's allegation "that there has been mismanagement or diversion of funds from the Account and there is an imminent danger that the funds will be lost, concealed, or diminished in value if a receiver is not appointed." Aplt. App. at 93. The court directed the receiver to "take physical possession of, manage, and operate the Mesh Suture Account that resides at Wells Fargo." Id. at 94. It also ordered the receiver to "pay essential bills and invoices which are necessary to keeping the headquarters running until the control dispute is resolved." Id. at 95. The court stated that the receiver was to discharge his duties "subject to the supervision and exclusive control of this Court," and "as an officer of this Court." Id. at 95–96.

On April 10, 2020, Wells Fargo filed a motion to interplead funds in which it sought to either deposit the remaining account balance into the court's registry or disburse the funds to a financial institution selected by the receiver, and thereby be discharged from any liability with respect to the disputed funds. The motion noted that Mr. Schwartz opposed depositing the funds in the court's registry, quoting him as saying in an email that "there is no way to make day to day payments from a court registry." Aplee. App. (Wells Fargo Bank (WFB)) at 156 (internal quotation marks omitted). The magistrate judge denied Wells Fargo's motion without prejudice on the ground that "depositing the funds into the Court's registry would significantly hinder Mesh Suture's ability to function and annihilate the Receiver's ability to manage Mesh Suture's daily financial affairs while the parties continue the corporate governance dispute." Aplt. App. at 120–21.

On April 24 Mr. Schwartz filed a disclaimer of interest in which he "disclaim[ed] any and all personal rights, title, lien, claim or interest in Mesh Suture's Wells Fargo bank account ..., for the reason that the Account belongs to a single claimant, ... Mesh Suture ." Aplee. App. (WFB) at 227. That same day he filed two other pleadings. One was an answer to the interpleader complaint in which he said that he had "disclaimed interest in the Account which belongs to a single claimant, ... Mesh Suture," id. at 241, and therefore "denies that there is any possibility for Wells [Fargo] to face multiple liability over the Account," id. at 244 (emphasis omitted). The second additional pleading was a motion in opposition to Wells Fargo's motion to interplead funds, which was also based on his disclaimer and the assertion that the only claimant was Mesh Suture. In early May, Mr. Schwartz pursued the same point by moving to dismiss the interpleader suit for lack of subject-matter jurisdiction. Again he argued that, by reason of his disclaimer, he was no longer a claimant to the funds in the Wells Fargo account, that the sole claimant was Mesh Suture, and that therefore the statutory requirement of two or more adverse claimants with diverse citizenship was no longer satisfied.

In March 2021 the district court dismissed Mr. Schwartz from the action on the ground that he had disclaimed all interest in the Wells Fargo account through his answer to the interpleader complaint. Because of his dismissal, the court dismissed as moot his motion to dismiss for lack of subject-matter jurisdiction. The court later granted summary judgment to Dr. Dumanian as the "only remaining claimant identified by Wells Fargo in this interpleader action." Aplt. App. at 168. By order dated July 21, 2021, the district court directed the court-appointed receiver to deliver all remaining funds—after paying outstanding fees and costs of the receiver and his attorney—to the court registry. The court further instructed the court clerk, upon the interpleading of the funds, to disburse the funds to Dr. Dumanian. The court ordered the case closed. On July 23 the receiver tendered $1,151,751.05 as a "Treasury Registry Deposit" for Mesh Suture. Id. at 217.

II. DISCUSSION

A. Appellate Standing

Wells Fargo argues that because of Mr. Schwartz's disclaimer of interest filed in the district-court proceedings, he has no further interest or legal standing in the action. We disagree.

"The standing Article III requires must be met by persons seeking appellate review, just as it must be met by persons appearing in courts of first instance." Arizonans for Off. Eng. v. Arizona , 520 U.S. 43, 64, 117 S.Ct. 1055, 137 L.Ed.2d 170 (1997). The three elements of constitutional standing are injury, causation, and redressability. Devlin v....