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Chase v. Merson

United States District Court, D. Maine

October 22, 2019

JOHN F. CHASE, Plaintiff
ARTHUR MERSON, et al., Defendants



         This is a decision about subject matter jurisdiction. The plaintiff John F. Chase, a Maine citizen, sued Maine defendants and out-of-state defendants in this court, pleading several state and federal counts all relating in one way or another to fraud. At the time he filed the complaint, he did not assert diversity-of-citizenship jurisdiction. Instead, he claimed federal subject matter jurisdiction, 28 U.S.C. § 1331, based upon his federal Racketeer Influenced and Corrupt Organizations Act (RICO) claims, 18 U.S.C. § 1961 et seq., Compl. ¶ 12 (ECF No. 1), and supplemental jurisdiction, 28 U.S.C. § 1367, over his state law claims, Compl. ¶ 13. The Clerk's Office has entered default against some of the defendants.

         In February, I granted two Maine-citizen defendants' (the Cloutiers') Rule 12(b)(6) motion to dismiss a state contractual claim (the only Count against them) and their request in turn for reasonable attorney fees as provided by that contract. I directed that their application for a fee amount be submitted under Local Rule 54.2. Dec. & Order on Cloutier Defs.' Mot. to Dismiss (ECF No. 84). When they subsequently made a fee application, I denied it without prejudice on the basis that it was premature under the Local Rule until there was a final judgment and the time for appeal had run. Order on Cloutier Defs.' Mot. for Att'y Fees (ECF No. 101).

         In May, I granted the remaining defendants' motion to dismiss the federal RICO claims. I ruled that the Private Securities Litigation Reform Act (PSLRA), Pub. L. No. 104-67, § 107, 109 Stat. 737 (1995), amending 18 U.S.C. § 1964(c), had preempted the RICO claims. Dec. & Order on Defs.' Motions to Dismiss (ECF No. 107). In responding to the motion, the plaintiff had said that he would like to plead diversity of citizenship jurisdiction if I dismissed his federal RICO claims[1]; I therefore reserved ruling at that time on the defendants' request that I decline supplemental jurisdiction over the remaining state law claims. See 28 U.S.C. § 1367(c)(3). I conducted a conference of counsel to try to sort out the jurisdictional issues, but to no avail. I also allowed abundant time for the parties to confer, file amended pleadings, and brief the issues. Now, the plaintiff has moved to amend his complaint to dismiss a remaining Maine-citizen defendant (Keith Roy) and has argued that the two previously dismissed Maine-citizen defendants (Cloutiers) do not destroy complete diversity or that they should be dismissed (a second time, but this time on his motion and without prejudice) so that complete diversity exists. The defendants variously moved to dismiss for lack of subject matter jurisdiction and to compel arbitration, and the previously dismissed Maine-citizen defendants (the Cloutiers) renewed their request for a specific amount of attorney fees. Def. Roy's Mot. to Dismiss (ECF No. 104), Defs. Merson's & Endeavor Project Consultant's Mot. to Dismiss (ECF No. 105), Def. Patch's Mot. to Compel Arbitration & Stay or Dismiss (ECF No. 120), and the Cloutier Defs.' Mot. for Att'y Fees (ECF No. 122). The plaintiff says that he has reached a settlement agreement with the Cloutier defendants over the amount of their fees, Pl.'s Response to Cloutier Defs.' Mot. for Att'y Fees (ECF No. 127), but the Cloutier defendants say that he has not paid the agreed amount and ask me to “award attorneys' fees in the amount of $13, 444.00 in their favor and against plaintiff John F. Chase, ” unless he “promptly pays the agreed amount.” Cloutier Defs.' Reply at 1 (ECF No. 128). That is where things stand.

         At this time, I Grant the defendants' motion to decline supplemental jurisdiction over the remaining state law claims and Deny as futile the plaintiff's motion to amend his complaint to achieve diversity of citizenship, see Foman v. Davis, 371 U.S. 178, 182 (1962); Smith v. Jenkins, 732 F.3d 51, 75 (1st Cir. 2013) (both cases listing futility as a ground for denying a motion to amend).

         Here is why.

         Supplemental Jurisdiction

         Under 28 U.S.C. § 1367(c)(3), dismissal of the remaining state law claims is appropriate in a case like this when “the district court has dismissed all claims over which it has original jurisdiction.” It is a discretionary decision. See Delgado v. Pawtucket Police Dep't, 668 F.3d 42, 48 (1st Cir. 2012). “In determining whether to retain jurisdiction on such an occasion, the court must take into account considerations of judicial economy, convenience, fairness to the litigants, and comity. In the end, though, its decision is a ‘pragmatic and case-specific' one . . . .” Id. Here, this Court has dealt with only service of process, defaults, ex parte attachment, preliminary subject matter jurisdiction skirmishing, and a narrow contract interpretation issue, and has not reached the heart or substance of the fraud lawsuit. Thus, judicial economy does not call for keeping the lawsuit here.[2] The merits of the underlying state law claims, including the scope of discovery, remain to be determined and belong in the state courts. “Comity is a particularly important concern in these cases.” Camelio v. Am. Fed'n, 137 F.3d 666, 672 (1st Cir. 1998). “[T]he balance of competing factors ordinarily will weigh strongly in favor of declining jurisdiction over state law claims where the foundational federal claims have been dismissed at an early stage in the litigation.” Id. That is the case here. The other Delgado factors do not outweigh the “particularly important” comity concern so as to justify supplemental jurisdiction.

         Motion to Amend to Support Diversity Jurisdiction

         I turn to the plaintiff's attempt to shift course and ground jurisdiction based upon diversity of citizenship. The First Circuit says: “Dismissal of a nondiverse dispensable party has long been recognized as a way to cure a jurisdictional defect and Rule 21 explicitly vests district courts with authority to allow a dispensable nondiverse party to be dropped at any time.” Caso v. Puerto Rico Elec. Power Auth'y, 770 F.3d 971, 977 (1st Cir. 2014).[3] The plaintiff has fraud and contract claims against Maine-citizen defendant Roy. The plaintiff has only a contract claim against the Maine Cloutier defendants, a claim that has already been dismissed. Roy is agreeable to being dropped as a defendant, as the plaintiff's motion to amend complaint proposes, but another defendant, Donald Patch, argues that Roy is an indispensable party and cannot be dropped. Def. Patch's Opp'n to Mot. to Dismiss at 8 & n.9 (ECF No. 123). As for the fraud claims, it is a general principle that joint tortfeasors are not indispensable, see Gorfinkle v. U.S. Airways, Inc., 431 F.3d 19, 22 (1st Cir. 2005); 7 Wright, Miller & Kane, Federal Practice & Procedure § 1623 (3d ed. 2019), and that is the nature of the tort claim against Roy. There is also nothing about the plaintiff's contract claim against the remaining defendants to make Roy or the Cloutiers indispensable in this lawsuit.[4] Instead, the Maine citizen defendants are dispensable.

         Fed. R. Civ. P. 21 says that “the court may at any time, on just terms, . . . drop a party.” There is no injustice to the defendant Patch (or others) in allowing the plaintiff to drop the Maine-citizen defendants at this early stage of the case. Patch highlights the complexity of the plaintiff's litigation claims against the several defendants and his fear that the claims may be pursued in several jurisdictions. But he does not show how any complexity the plaintiff may confront will result in injustice to Patch.[5]

         I conclude that dropping Maine-citizen defendants is thus a permissible way to achieve complete diversity at this stage of this lawsuit. But the two previously dismissed Maine-citizen defendants (the Cloutiers) are not in the same position as Roy, and they destroy complete diversity unless they are finally out of the case, an event that has not happened. The plaintiff believes otherwise. He states:

Given Mr. Chase's efforts to resolve this issue, and its ancillary nature relative to the broader case, the Court should not allow the question of attorney fees awarded to the Cloutier Defendants to hold up the dropping of non-diverse parties.
If it wishes, the Court can resolve the attorney fee issue on its own, either by ruling that it did not have jurisdiction to make the award in the first place or by exercising its supplemental jurisdiction and rendering an attorney fee award based on the previously submitted briefs. Alternatively, the Court can simply leave the issue be. Dismissal of the Cloutier Defendants under Rule 21 would be without prejudice, and the parties could continue to ...

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