Consumers Supply Distributing, LLC v. Brands
4:17-cv-04048
D.S.D.Aug 1, 2017Background
- Plaintiff Consumer Supply Distributing, LLC (CSD) sues former employees Ted Brands and Larry Steinkamp for misappropriation of trade secrets, breach of fiduciary duty and loyalty, conversion, unjust enrichment, tortious interference, and unfair competition after they resigned and joined or worked with NewStar.
- CSD seeks to amend its complaint to add a third former employee, Jeff Reinders (a South Dakota resident), and NewStar Sourcing and Services, LLC as defendants; adding Reinders would destroy diversity jurisdiction.
- Brands and Steinkamp removed the original action to federal court based on diversity; CSD moved to amend the complaint and to remand to state court.
- The court applies the Eighth Circuit’s adoption of the Hensgens balancing test (Bailey v. Bayer) for post-removal joinder of a nondiverse defendant and also considers futility under Rule 12(b)(6).
- The court finds CSD filed promptly after discovering new evidence, that joinder is primarily to litigate related claims together (avoiding parallel litigation), and that the proposed claims against Reinders and NewStar are plausible and not futile.
- The court grants CSD’s motion to amend and (implicitly) remands the case to state court to avoid parallel litigation and promote judicial efficiency.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether joinder of nondiverse defendants (Reinders, NewStar) should be allowed post-removal under Hensgens/Bailey balancing | Joinder is sought to assert viable claims arising from the same facts, not to destroy diversity; avoids parallel suits | Joinder is a bad-faith tactic to defeat federal jurisdiction and CSD should have known earlier | Court allowed joinder — balanced factors favor amendment (plaintiff timely, primary purpose legitimate, judicial efficiency) |
| Whether CSD’s proposed claims are futile (i.e., would fail a Rule 12(b)(6) challenge) | The amended complaint alleges sufficient factual matter to plausibly state claims (aiding/abetting, conspiracy, misappropriation, breach of fiduciary duty, unfair competition, tortious interference) | Defendants contend allegations are legally insufficient and thus amendment would be futile | Court held claims are plausible and would survive a motion to dismiss; amendment is not futile |
| Whether permitting amendment would cause significant prejudice or require denying joinder to preserve federal forum | CSD would face parallel state suits if joinder denied and would be prejudiced; judicial efficiency favors joinder | Defendants prefer to retain federal forum and avoid remand | Court favored avoiding parallel litigation and granted amendment/remand |
| Whether Reinders/NewStar are indispensable or merely permissive/joint tortfeasors | CSD treats them as necessary to resolve common claims | Defendants note joint tortfeasors need not all be joined | Court found them joint tortfeasors/permissive; joinder nonetheless appropriate for efficiency |
Key Cases Cited
- Bailey v. Bayer CropScience L.P., 563 F.3d 302 (8th Cir. 2009) (adopts Hensgens balancing test for post-removal joinder of nondiverse defendants)
- Hensgens v. Deere & Co., 833 F.2d 1179 (5th Cir. 1987) (articulates factors district courts should weigh when plaintiff seeks to join a nondiverse defendant after removal)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility pleading standard under Rule 12(b)(6))
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (Twombly pleading standard informing Iqbal)
- Temple v. Synthes Corp., Ltd., 498 U.S. 5 (1990) (not all joint tortfeasors must be named in one suit)
- Maples v. Thomas, 565 U.S. 266 (2012) (discusses duty of loyalty and agency principles)
- Chem–Age Indus., Inc. v. Glover, 652 N.W.2d 756 (S.D. 2002) (recognizes aiding-and-abetting breach of fiduciary duty under South Dakota law)
- Williams v. Little Rock Mun. Water Works, 21 F.3d 218 (8th Cir. 1994) (standards for denying leave to amend: futility, undue delay, bad faith, prejudice)