Moss v. Princip
Opinion of the Court
This case sits at the unusual intersection of federal subject-matter jurisdiction and a district court's exercise of its discretion to dismiss a partnership as a dispensable party when all its partners were parties in the case. We conclude that the district court had subject-matter jurisdiction to try the case and did not err in dismissing a nondiverse partnership as dispensable, nor err in its entry of judgment upon the jury's verdict. We affirm and remand to the district court for the sole purpose of fashioning any appropriate protective measures to prevent duplicative litigation.
I
The four parties to this appeal entered into an overlapping series of agreements regarding management and revenue of a YouTube channel-YouTube.com/VideoGames, featuring reviews of video games and digital recordings of players' screens. This was a lucrative undertaking, but their relationship soured.
A
Defendant-appellee Marko Princip was an entrepreneur in the YouTube arena. In 2012, Princip entered into a "membership agreement" with plaintiff-appellant Brandon Keating where Keating agreed to invest $1500 in exchange for a 30% financial stake and right to make decisions in "Game Guide LLC," a yet-unformed company run by Princip. The agreement also provided that "[a]ny other Youtube Channel, sponsorship, or project, with the exception of TEAMNOBLE, will be considered directly related to" the LLC.
Two months later, Princip reached out to plaintiff-appellant David Tyler Moss to solicit an investment in a new YouTube channel. Princip and Moss signed a partnership *512agreement where they agreed to "become legal partners in business." Moss agreed to invest $1500 into the "VideoGames Youtube Channel," in exchange for 30% ownership of the company, 30% of brand, channel, website, and app revenue, equal say in partnership decisions, and the ability to log in to the channel at any point. By its terms, the partnership was to be governed by Texas law.
Moss alleges that Princip consistently failed or refused to make timely payments by the fifteenth day of each month, while Princip states that he "dutifully" paid Moss as the money came in. Princip claims that he approached Moss to terminate their partnership agreement, for which Moss demanded an "outrageous" price. Princip says that he then stopped paying Moss to put aside money for negotiating a dissolution of the partnership. Princip and defendant-appellee Brian Martin contacted Moss in November 2012; introducing himself as Princip's business partner, Martin accused Moss of extortion, and informed Moss that his contract with Princip was "void."
Around the same time, Princip entered into an agreement with a minor child, A.L., to assist the VideoGames Channel. Princip failed to disburse promised revenues and A.L. took control of the channel.
But the treaty was not long lived. In June 2014, Princip emailed Keating confirming that Keating owned 30% of the channel, for reasons the record does not clarify. Some months later, Moss and Keating filed a petition and application for a temporary restraining order in Texas state court against Princip, Martin, Game Guide LLC, and the unnamed partnership, which they called "Videogames Youtube Channel." Moss and Keating alleged common-law fraud, breach of fiduciary duty, breach of the partnership agreement, conversion, and money had and received. They sought damages for lost earnings and profits and mental anguish, exemplary damages for breach of fiduciary duty, access to the partnership's books and records, and judicial expulsion of Princip from the partnership. They also sought to enjoin Princip from withholding revenue or taking actions to harm the value of the partnership.
B
The defendants removed the case to the United States District Court for the Northern District of Texas, pleading federal diversity jurisdiction. The notice of removal, even after an amendment, did not state the citizenship of each of the parties to the lawsuit. It stated only that Keating was a resident of Illinois and Martin was a *513resident of California. No one challenged removal.
Ensconced in federal court, the plaintiffs amended their complaint, adding claims for conspiracy and tortious interference with existing contract; seeking Martin and Princip's expulsion as partners; and requesting declaratory relief "to determine the identities and rights of the partners, owners, and investors in the [partnership]."
A jury found a partnership among Moss, Keating, Princip, and Martin-with Moss and Keating each owning 30% of the partnership, and Princip and Martin each 20%. It also awarded Moss and Keating $2,100,000 each in compensatory damages from Princip and Martin, jointly and severally; $5,000,000 each in exemplary damages from Martin; and $3,000,000 each in exemplary damages from Princip.
When the plaintiffs moved for entry of judgment, the defendants moved to dismiss the case for lack of subject matter jurisdiction. They argued that while the four individuals were citizens of different states, there was incomplete diversity because the partnership was included as a defendant.
The district court granted the plaintiffs' motion to dismiss the partnership as a dispensable party, denied Princip and Martin's motion for reconsideration, determined that the channel was partnership property, not Princip's individual property, and expelled Princip and Martin from the partnership. It stayed the entry of amended judgment reflecting the expulsion pending appeal. Princip and Martin argue here that the district court lacked jurisdiction over the case and alternatively for a new trial.
II
As federal courts have limited jurisdiction,
We review the district court's subject matter jurisdiction de novo as a matter of law,
A
To remove the case to federal court, the defendants invoked the district court's diversity jurisdiction under
There was complete diversity between Moss and Keating and the two individual defendants, Princip and Martin.
B
Diversity jurisdiction rests on "the state of facts that existed at the time of filing-whether the challenge to jurisdiction is brought shortly after filing, after the trial, or even for the first time on appeal."
1
Federal Rule of Civil Procedure 19 directs federal courts to join "required" parties when feasible. The parties do not dispute that the partnership should have been joined if feasible. When joining a required party is not feasible, such as when joining that party would destroy diversity, the court must determine whether the party is "merely necessary" to the litigation, or in fact "indispensable."
(1) the extent to which a judgment rendered in the person's absence might prejudice that person or the existing parties;
(2) the extent to which any prejudice could be lessened or avoided by:
(A) protective provisions in the judgment;
(B) shaping the relief; or
(C) other measures;
(3) whether a judgment rendered in the person's absence would be adequate; and
(4) whether the plaintiff would have an adequate remedy if the action were dismissed for nonjoinder.18
The Supreme Court has cautioned that "whether a particular lawsuit must be dismissed in the absence of [a party] ... can only be determined in the context of particular litigation."
2
Princip and Martin argue that the partnership was indispensable because Moss and Keating sought declaratory and injunctive relief impacting the structure of the partnership, and pursued claims for damages deriving from and affecting partnership interests. They argue that this case is indistinguishable from our prior decisions in Whalen v. Carter
In Whalen , a shareholder and creditor of a Louisiana corporation brought RICO, federal securities, and state law claims against multiple defendants, including a *516real estate partnership in commendam in which the plaintiff was also a partner.
In Bankston , a limited partner in a Hawaii limited partnership sued the general partner in Texas state court, claiming fraud or negligent misrepresentation, breach of fiduciary duty, mismanagement and waste of partnership assets, and breach of contract.
Princip and Martin observe that like the state partnership law governing Whalen and Bankston , under Texas law, a partnership is a distinct entity from its individual *517partners.
But while there are parallels between this case and Whalen and Bankston , Rule 19 requires courts to be "flexible and pragmatic" in evaluating a party's indispensability,
3
Both Whalen and Bankston hinged on threatened prejudice to the partnership if the case proceeded in its absence.
Several circuits have found non-diverse partnerships to be dispensable where all partners, or all general partners, were parties to the litigation and could adequately represent partnership interests. Most recently, the Sixth Circuit considered litigation brought by a limited partner in a real estate partnership against the general partner and its sole shareholder, seeking to recoup assets that the general partner had allegedly diverted and to enforce an agreement for an equal split of profits.
The Third Circuit reached the same conclusion where two of the three members of a partnership sued the third, seeking a declaratory judgment that the third partner breached the partnership agreement and had therefore lost its status as a limited partner.
Finally,
"[G]uided by common sense," as we must be under Rule 19,
Our decision reflects the unique relationship between the partnership's interests and the interests of each of its partners. Although a partnership is legally treated as a separate entity, "its interests can only be known" through the constituent partners who control its actions.
4
There is one final wrinkle. Princip and Martin argue that apart from whether the partnership is an indispensable party, it was required to be joined as a "real party in interest" under Federal Rule of Civil Procedure 17(a). To the extent that Princip and Martin argue that only the partnership as an entity could sue them, this misapprehends the real-party-in-interest requirement under Rule 17, which recognizes that "a party authorized by statute" may "sue in their own name[ ] without joining the person for whose benefit the action is brought."
This said, Rule 17"insure[s] generally that the judgment will have its proper effect as res judicata."
* * *
In sum, the partnership was not an indispensable party or otherwise required to be joined; the district court did not err in dismissing it, and the court had diversity jurisdiction. We remand for the district court to consider protective provisions to guard Princip and Martin against the risk of future duplicative litigation, in keeping with the goals of Rules 17 and 19(b). Sufficient protection may include an injunction prohibiting Moss and Keating from suing Princip and Martin on behalf of the partnership on any claims the partnership could have raised in this suit, as well as requiring them to cause the partnership to release the claims as a condition of judgment.
*521Princip and Martin raise essentially the same challenge based on the presence of Game Guide LLC, the limited liability company initially formed between Princip and Keating. They do not argue that the LLC should be treated differently from the partnership in our jurisdictional inquiry. Our analysis extends to the LLC, which the district court also properly dismissed.
III
Having determined that the district court had jurisdiction to try the case, we will now address Princip and Martin's objections to the outcome. They raise two sets of challenges: that the jury reached inconsistent conclusions in its responses to the Rule 49 submissions, and that insufficient evidence supported several of the jury's responses.
As a preliminary matter, Princip and Martin did not object to the jury instructions, contest the jury's answers to the Rule 49 submissions, or challenge the sufficiency of the evidence at the close of Moss and Keating's evidence or even after the jury returned its answers to the Rule 49 submissions. Following a post-trial substitution of counsel, Princip and Martin argued that the court should delay entry of judgment to allow them to challenge the jury's findings, but the court did not delay judgment and there is no indication that they filed any post-trial motions challenging the trial outcome.
A
Princip and Martin first contend that the jury reached inconsistent conclusions in its responses to the Rule 49 submissions. Although they failed to object to these alleged inconsistencies before the district court, we have observed that "[i]f answers to jury interrogatories are in irreconcilable conflict, then the judge has no authority to enter judgment based upon those answers," so litigants "d[o] not waive their right to complain of inconsistent answers by failing to object."
The court submitted the Rule 49 interrogatories to the jury, asking it to determine separately the defendants' contract and tort liability and any damages that followed for each and instructing it not to "increase or reduce the amount in one answer because of [its] answer to any other question about damages." The jury found that each plaintiff lost $725,000 in *522past contract royalties and $731,700 in predicted future royalties as a result of the defendants' failure to comply with the partnership agreement, but lost $600,000 in past contract royalties and $1,500,000 in predicted future royalties as a result of the defendants' tortious conduct.
There is nothing conflicting about the judgment entered upon the verdict, for having submitted different theories of liability to the jury the district court required the plaintiffs to elect one theory of damages; the plaintiffs elected damages attributable to the defendants' tortious conduct. To the extent that the jury's answers differed, this reflects the different theories of liability. The appellants' suggestion that the plaintiffs' contract and tort theories should have produced the same amount of damages does not acknowledge the differences between the two.
B
Princip and Martin also contend that there was insufficient evidence to support the jury's finding of causation as to future damages; its calculation of both past and future damages; and its liability findings as to Martin.
It is settled that "a party is not entitled to pursue a new trial on appeal unless that party makes an appropriate postverdict motion in the district court."
When a challenge to the sufficiency of the evidence is not preserved for appellate review, "[w]e review ... for plain error and will not reverse if any evidence supports the jury verdict."
*523We do "not look with favor upon tardy arguments that are brought to the [district] court's attention post-trial after counsel has had the opportunity to salvage what she may from the record."
IV
We remand to the district court for the sole purpose of fashioning appropriate injunctive relief to limit any found risks of duplicate litigation, as we have discussed, and affirm its judgment.
Moss's attorney sent Princip a demand letter in February 2013, claiming that Princip failed to pay Moss his full share of revenues in a timely manner and that Moss did not have complete access to his channel because A.L. had changed the password to lock out Princip.
This was based on one measure of damages connected to the plaintiffs' tort claims. The district court reduced Martin's exemplary damages to $4,200,000 in accordance with a statutory cap.
As we will discuss, the defendants also argued that Game Guide LLC was a nondiverse, jurisdiction-destroying party.
Quinn v. Guerrero ,
See, e.g. , Settlement Funding, L.L.C. v. Rapid Settlements, Ltd. ,
Arena v. Graybar Elec. Co. ,
See HS Resources, Inc. v. Wingate ,
Harvey ,
Specifically, Moss was a citizen of North Carolina, Keating was a citizen of Illinois, Princip was a citizen of Texas, and Martin was a citizen of California.
This raises an ancillary issue: because one of the properly joined and served defendants was a Texas citizen, they did not satisfy the requirements of the removal statute. See
See Grupo Dataflux v. Atlas Glob. Grp., L.P. ,
We have previously recognized the somewhat counterintuitive interaction between the complete-diversity rule and the established principle that a partnership is a citizen of all states where its partners are citizens, but have declined to carve out an exception for such cases. See Whalen v. Carter ,
Grupo Dataflux ,
See GlobeRanger Corp. v. Software AG U.S. of Am., Inc. ,
Grupo Dataflux ,
Provident Tradesmens Bank & Trust Co. v. Patterson ,
Fed. R. Civ. P. 19(b).
Provident Tradesmens ,
Whalen ,
Id. at 1097. The court acknowledged that Whalen might still be able to obtain an adequate remedy through the exercise of supplemental jurisdiction. Id. n.9.
Bankston ,
See
Tex. Bus. Orgs. Code § 152.056.
Their claims for breach of fiduciary duty alleged that Princip "deal[t] with the partnership in a manner adverse to the partnership," and "ma[de] managerial decisions and directional decisions without [the plaintiffs'] knowledge or consent."
They later amended their complaint in federal court to also seek judicial expulsion of Martin.
Determination by the Court Whenever Joinder Not Feasible , 7 Fed. Prac. & Proc. Civ. § 1608 (3d ed.) ("[T]o a substantial degree the effective operation of the rule depends on the careful exercise of discretion by the district court.").
Whalen ,
See Hooper v. Wolfe ,
HB Gen. Corp. v. Manchester Partners, L.P. ,
We note Delta Fin. Corp. v. Paul D. Comanduras & Associates ,
Curley v. Brignoli, Curley & Roberts Assocs. ,
HB Gen. ,
See Fed. R. Civ. P. 19(b)(1).
Princip and Martin suggest that the partnership's presence afforded the plaintiffs a tactical advantage. We do not suggest that the district court ought not pragmatically consider such advantage when present. We see none here.
Provident Tradesmens ,
See HB Gen. ,
See Hooper ,
HB Gen. ,
Fed. R. Civ. P. 17(a)(1)(G).
Tex. Bus. Orgs. Code §§ 152.210, 152.211. As Moss and Princip observe, some Texas courts have construed § 152.211 to limit partners' ability to personally sue for actions that diminished the general value of the partnership. See Hodges v. Rajpal ,
We cannot conclude that the partnership was required to be joined as a plaintiff. Any interest of the partnership was fully represented and vindicated, and there was no need to "preserve assets for the benefits of all partners," cf. In re Fisher ,
Tex. Bus. Orgs. Code § 152.501(b)(5).
See Real Party in Interest-In General , 6A Fed. Prac. & Proc. Civ. § 1543 (3d ed.) (explaining that the purpose of the real-party-in-interest requirement is to require that "the action ... be brought by the person who, according to the governing substantive law, is entitled to enforce the right").
6A Fed. Prac. & Proc. Civ. § 1543 ; see also HB Gen. ,
Fed. R. Civ. P. 17 advisory committee's note to 1966 amendment.
Cf. HB Gen. ,
Princip and Martin made clear that they were not asking the district court to pass judgment on the sufficiency of the evidence or other potential inconsistencies at the time they raised the issues, but rather were asking for more time to review the record prior to filing any motions.
In addition, Princip and Martin waived portions of their argument on appeal by failing to cite adequate authority to support their positions. See Sindhi v. Raina ,
See Brunner v. Maritime Overseas Corp. ,
Cf. Alverez ,
The district court only entered judgment for the damages the jury found to be connected to the defendants' tortious conduct, which avoided any overlap between the two measures of damages.
Unitherm Food Sys., Inc. v. Swift-Eckrich, Inc. ,
United States ex rel. Wallace v. Flintco Inc. ,
Bueno v. City of Donna ,
NewCSI, Inc. ,
For example, Princip and Martin argue that the only evidence of the channel's profits came from Princip's tax forms, but the jury apparently rejected their argument at trial that the tax forms were the best indicator of the channel's profits, in favor of the plaintiffs' argument that Princip and Martin had represented the channel as earning significantly more.
Risher v. Aldridge ,
Reference
- Full Case Name
- David Tyler MOSS Brandon Keating v. Marko PRINCIP, Doing Business as Videogames YouTube Channel, Individually, Doing Business as Achievement Guide, Doing Business as Game Guide L.L.C. Bryan Martin
- Cited By
- 46 cases
- Status
- Published