In this case, plaintiff Scott Ziegler brings breach of contract claims against Twenty Two Degree Energy Corp. ("TTD"), Echo Power International, Inc. ("EPI"), and two individuals connected with those companies, Joseph Fuda and Dan Amadori. Also named as defendants are Corinthian Partners LLC and two persons connected with that company, Richard Calabrese and Mitchell Manoff. Defendant Amadori has not been served with process.
Ziegler initially filed this action in Supreme Court, New York County. TTD, EPI, and Fuda removed the action to federal court based on alleged diversity jurisdiction.
Ziegler moves to remand the action to the state court, and further moves to have the removing defendants pay expenses.
The motion to remand is granted. The motion regarding the expenses is denied.
Plaintiff Ziegler resides in New York. Defendants TTD, EPI, and Fuda are located in Canada. Defendants Corinthian, Calabrese, and Manoff are located in New York. These circumstances would normally mean that there is not the complete diversity required for federal jurisdiction. However, the removing defendants contend that plaintiff has no possible viable claim against the New York defendants and that they were joined to fraudulently defeat diversity jurisdiction.
To show that a named, non-diverse defendant was fraudulently joined to defeat diversity jurisdiction, a defendant must demonstrate, "by clear and convincing evidence, either that there has been outright fraud committed in the plaintiff's pleadings, or that there is no possibility, based on the pleadings, that a plaintiff can state a cause of action against the non-diverse defendant." Pampillonia v. RJR Nabisco, Inc., 138 F.3d 459, 461 (2d Cir. 1998). A defendant seeking removal bears a heavy burden of proving fraudulent joinder, and all factual and legal issues must be resolved in favor of the plaintiff. Id.
An analysis of the issue at hand requires a review of certain litigation that occurred prior to the commencement of the case now before the court.
On August 21, 2009, Ziegler brought suit against TTD, EPI, Fuda, and Amadori (collectively, the "Canadian defendants"); and Corinthian, Calabrese, and Manoff (collectively, the "New York defendants") in Supreme Court, New York County. The complaint alleged that TTD was engaged in developing an area on Lake Huron to support a wind-powered energy generation plant, and that TTD's Chief Executive Officer was Fuda. The complaint further alleged that Fuda controlled EPI. Plaintiff Ziegler was a shareholder in TTD, owning approximately 14% of its shares.
In the complaint, Ziegler alleged various acts of wrongdoing by Fuda and TTD in connection with the management of TTD and its assets. The complaint also included allegations that Corinthian, Calabrese, and Manoff assisted in either the planned merger, or actual merger, of TTD with EPI, much to the detriment of TTD, and alleged that Corinthian, Calabrese, and Manoff received, or were scheduled to receive, a million warrants for the purchase of shares in the merged EPI entity, worth in excess of $2,000,000.
While this action was pending, an opportunity arose for TTD to enter into an asset purchase agreement with an entity known as AWA TTD Development LLC ("AWA"). The AWA agreement was apparently most desirable, and the parties to the lawsuit believed that the pendency of the lawsuit would be an impediment to the closing of the AWA agreement. They therefore decided to discontinue the 2009 action, and entered into a contract entitled "Discontinuance and Forbearance Agreement" (the "Contract"), dated September 21, 2009. The parties to the Contract were all the parties to the 2009 case, that is Ziegler, TTD, EPI, Fuda, Amadori, Corinthian, Calabrese, and Manoff.
Under the terms of the Contract, TTD agreed not to incur any new trade debt prior to closing the asset purchase agreement with AWA. The Contract also obligated TTD not to incur any debt or other expenditures beyond CDN $175,000 after closing the asset purchase agreement without Ziegler's prior written approval. Further, the Contract required TTD to distribute the proceeds of the sale of its assets to TTD's shareholders on a pro rata basis.
On September 23, 2010, Ziegler commenced a new action in Supreme Court, New York County naming as defendants TTD, EPI, Fuda, and Amadori, and also a Canadian accounting firm by the name of Collins Barrow Toronto LLP. The complaint in that action did not name Corinthian, Calabrese, and Manoff as defendants. The complaint contained numerous allegations of wrongdoing, which echoed the 2009 complaint. Oddly enough, it contained essentially the same allegations that the 2009 complaint had made against Corinthian, Calabrese, and Manoff but did not refer to them by name and only referred to the "brokerage firm and its principals." Moreover, as already stated, Corinthian, Calabrese, and Manoff were not named as defendants in the September 10, 2010 complaint.
On November 18, 2010, TTD, EPI, and Fuda removed this action to the federal court. On November 30, 2010, Ziegler ...