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A. Kraus & Son v. Benjamin Moore & Co.

June 7, 2006

A. KRAUS & SON, PLAINTIFF,
v.
BENJAMIN MOORE & CO., JAMES S. GORMAN, ET AL. DEFENDANTS.



The opinion of the court was delivered by: Pohorelsky, Magistrate Judge

DECISION AND ORDER

Judge Ross has referred to me for a decision, pursuant to 28 U.S.C § 636(b)(1)(A), the plaintiff's motions to remand and amend the complaint in this breach of contract and tort action. The defendants, Benjamin Moore & Co. and James Gorman (hereinafter "removing defendants"), removed the instant action to this court on the basis of diversity jurisdiction. The plaintiff seeks to remand the case on the ground that removal was improper because non-diverse parties are present, and also requests attorneys' fees and costs incurred as a result of its efforts to remand this case. In opposition, the removing defendants argue that those non-diverse parties were fraudulently joined by the plaintiff to defeat diversity, and should therefore be overlooked for purposes of subject matter jurisdiction. For the reasons discussed below, the motion to remand is GRANTED and the motion to amend is DENIED.

BACKGROUND

I. Facts

This case arises from the unsuccessful sale of a third-generation, family-owned paint supply business and certain actions taken by parties involved in negotiations to purchase the business. The plaintiff, A. Kraus & Son ("Kraus"), is a New York partnership, which operates a retail store that sells paint products, wall coverings, carpeting, and related tools and accessories. (Am. Compl. ¶¶ 1, 8.) Kraus negotiated with prospective buyers from 2003 to June 2005 to sell the store. (Id. ¶ 30.) Two of the defendants here, Tony Kostoulas and Gus Mantikas were directly involved with Kraus in the negotiations. (Id. ¶ 34.) Prior to negotiations, Kraus asked Kostoulas and Mantikas to sign a non-disclosure agreement prohibiting them from disclosing details of the negotiations for any purpose except to evaluate the merits of the Kraus offer. (Id. ¶ 33, 72-73.)

To effectuate a potential sale, Kraus also engaged in negotiations with the defendant, Benjamin Moore & Co. ("Benjamin Moore"), a manufacturer of paint products and Kraus' main supplier in that product area. (Id. ¶ 37.) The negotiations between Kraus and Benjamin Moore concerned the transfer of rights under a retailer agreement, previously entered between Kraus and Benjamin Moore, to a potential buyer of the Kraus paint shop. (Id. ¶¶ 15-16.) Benjamin Moore's consent was contractually required before such a transfer could take place. (Id. ¶ 24.) The terms of the agreement, in part, stipulated that (1) Benjamin Moore would not sell its products to Kraus' competitors within Kraus' "primary geographic market area," and (2) Kraus would sell only Benjamin Moore paint products in its store. (Id. ¶¶ 17-19.) The negotiations concluded with defendant, James Gorman, a Benjamin Moore employee, giving Kraus a sixty-day window in which to negotiate a sale which would include the retailer agreement rights.

(Id. ¶ 42.) The only condition interposed by Gorman was that any potential buyer have good credit and an existing retailer agreement with Benjamin Moore. (Id. ¶ 43.)

While discussions were ongoing with defendants Kostoulas and Mantikas, the plaintiff met again with Gorman to discuss an extension of the sixty-day period. (Id. ¶ 53.) An agreement as to an extension could not be reached, however. (Id.) Shortly afterwards, Kostoulas and Mantikas informed Kraus that they had been contacted by Gorman and told that the retailer agreement rights would not be transferred in a prospective sale unless they, as potential buyers, also agreed to either a five-year lease with a five-year option to purchase, or a ten-year lease of the premises upon which the Kraus paint store was situated. (Id. ¶ 57.)

Upon receipt of this news, Kraus met with Gorman for a third time, expressing his concern over Gorman's interference with the sale negotiations. (Id. ¶ 58.) Gorman admitted to telling Kostoulas and Mantikas about the additional conditions and informed Kraus that a new Benjamin Moore retailer would be opening up in Little Neck, which was within the "primary marketing area" of the Kraus paint store. (Id. ¶¶ 59-60.) Gorman instructed Kraus to disclose this fact in future sale negotiations. (Id. ¶ 60.)

Unbeknownst to Gorman or the other defendants, Kraus was also engaged in discussions during the same period with another interested buyer, Gene Park, a proprietor of numerous other paint shops in Nassau and Queens counties. (Id. ¶¶ 61-62.) Through his contact with Park, Kraus learned that Kostoulas and Mantikas would be opening their own store, Bayside Paint Place, Inc., a couple of blocks from the Kraus store, giving them marketing rights to Benjamin Moore products in what was Kraus' primary marketing area. (Id. ¶¶ 63, 74-75.) Park also disclosed to Kraus that Benjamin Moore, similar to what it had done with Kostoulas and Mantikas, contacted Park with its own condition for the purchase of the Kraus retail business, namely, that Park enter into a ten-year lease for the premises. (Id. ¶ 64.)

Ultimately, the plaintiff was unable to consummate a deal with either Kostoulas and Mantikas or Park. (Id. ¶ 69.) The plaintiff now charges that various contracts and agreements had been breached as a result of behind-the-scenes dealings among the defendants. In addition, the plaintiff alleges that Kostoulas and Mantikas conspired with Benjamin Moore to undermine the sale of the Kraus retail business, an allegation which the plaintiff contends is substantiated by Bayside Paint Place having opened a few blocks from Kraus' retail location with marketing rights to Benjamin Moore products. (Id. ¶¶ 70-73.)

II. Procedural History

The present action is actually an outgrowth of one that had been initiated by the plaintiff but voluntarily withdrawn after having been removed to this court. In the first action, the plaintiff sued only Benjamin Moore, Gorman, and a "John Doe" corporation which the plaintiff believed conspired with Benjamin Moore to undermine the plaintiff's efforts at selling its painting supplies business. (See Summons with Notice, filed July 5, 2005, attached to Defs.' Opp'n Pl.'s Mot. to Remand as Ex. C.) That action was originally filed in Queens County Supreme Court and subsequently removed to this court by Benjamin Moore and Gorman. (See Notice of Removal, filed Sept. 9, 2005, attached to Defs.' Opp'n Pl.'s Mot. to Remand as Ex. D.)*fn1 Subsequent to removal, the plaintiff withdrew the matter pursuant to Rule 41(a)(1) of the Federal Rules of Civil Procedure. (Notice of Dismissal, dated Oct. 18, 2005, attached to Defs.' Opp'n Pl.'s Mot. to Remand as Ex. E.)

On or around October 18, 2005, the plaintiff initiated another action against Benjamin Moore and Gorman in Queens County Supreme Court, but adding as additional defendants, Bayside Paint Place, Inc. ("Bayside Paint"), Tony Kostolous, and Gus Mantikas.*fn2 (See Summons and Compl., dated Oct. 18, 2005, attached to Soloman Aff. Supporting Pl.'s Mot. to Remand as Ex. 7.) While still in Queens County Supreme Court, the plaintiff amended the complaint once. (See Amended Summons and Compl., dated Nov. 14, 2005, attached to Soloman Aff. Supporting Pl.'s Mot. to Remand as Ex. 7.) The Benjamin Moore and Gorman defendants then removed the case to ...


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