127 F. Supp. 3d 105
S.D.N.Y.2015Background
- Walpert, an IP/transactional lawyer, alleges he agreed in 2010 to be general counsel for Wingate Capital, Inc. (and related entities) for $900,000/year but received only $65,500 over ~3 years and partial payments; he worked on formation of funds (including USDFM) and on Jaffrey’s personal and other company matters.
- Plaintiff signed a written Employment Agreement with Wingate; a separate agreement with USDFM was also executed. Originals were not produced; Walpert says originals were in his Wingate office and were removed when Wingate was evicted.
- Walpert sued Jaffrey, Wingate, and USDFM asserting breach of contract (against Wingate and Jaffrey), quantum meruit, unjust enrichment, NY Lab. Law §193 wage claim, and conversion (removal of office furnishings/papers). Wingate counterclaimed for unjust enrichment (rent/facilities fees).
- Defendants repeatedly failed to comply with discovery orders, changed/failed to retain counsel, and Jaffrey left the U.S. shortly before his deposition with an expired visa; the Court found this conduct was willful and intended to frustrate the litigation.
- Walpert moved for default judgment and turnover (or attachment); defendants moved to dismiss under Rule 12(b)(1) arguing lack of complete diversity because Walpert is a member of USDFM. Walpert moved to drop USDFM under Rule 21.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Subject-matter jurisdiction (diversity) given Walpert is a member of defendant LLC USDFM | Court can drop non-diverse USDFM under Rule 21 to preserve diversity | Presence of USDFM (an LLC of which plaintiff is a member) destroys complete diversity | Court granted Rule 21 dismissal of USDFM and denied Rule 12(b)(1) dismissal; USDFM not indispensable under Rule 19(b) |
| Sanctions / Default for discovery abuse (Rule 16(f), 37(b), inherent power) | Walpert sought default judgment given prolonged, willful obstruction and evasion (including Jaffrey’s departure) | Defendants cite visa issues and request depositions abroad/remote; argue arbitration clause and due process for Wingate | Court found willful, bad-faith misconduct; default judgment against Jaffrey and Wingate entered; lesser sanctions deemed ineffective |
| Liability on contract and related claims (breach, quantum meruit, unjust enrichment, NYLL §193) | Walpert: valid Employment Agreement with Wingate; performed services; is owed contract wages and alternative quasi-contract relief; NYLL claim applies | Defendants deny performance, challenge authenticity/enforceability of agreement, raise unconscionability, and arbitration | Court accepted Walpert’s factual allegations (defaulted defendants); Employment Agreement deemed valid; alter-ego/veil-piercing allegations supported holding Jaffrey liable; quantum meruit/unjust enrichment & NYLL claims sustained; damages reserved for inquest |
| Conversion (removal of office property) | Walpert: Jaffrey/ Wingate removed and exercised control over his office furnishings/docs after eviction | Defendants disputed eviction and sought to blame plaintiff for discovery delays | Court found prima facie conversion by Jaffrey; Wingate liable for actions within scope of employment; claim sustained |
Key Cases Cited
- Sinochem Int’l Co. Ltd. v. Malaysia Int’l Shipping Corp., 549 U.S. 422 (U.S. 2007) (federal courts must determine they have jurisdiction before deciding merits)
- CP Solutions PTE, Ltd. v. Gen. Elec. Co., 553 F.3d 156 (2d Cir. 2009) (Rule 21 may drop nondiverse parties if Rule 19(b) indispensable-party factors do not require dismissal)
- Krause v. Forex Exch. Mkt., Inc., 356 F. Supp. 2d 332 (S.D.N.Y. 2005) (LLC citizenship is the citizenship of all its members)
- Agiwal v. Mid Island Mortg. Corp., 555 F.3d 298 (2d Cir. 2009) (factors for assessing discovery sanctions)
- Chambers v. NASCO, Inc., 501 U.S. 32 (U.S. 1991) (courts have inherent power to sanction for bad-faith conduct)
- Bambu Sales, Inc. v. Ozak Trading Inc., 58 F.3d 849 (2d Cir. 1995) (default judgment can be appropriate when defendants deliberately obstruct discovery)