Opinion
Case No. 01-CV-72765
October 31, 2001
Defendants Lawrence Levine, Karlar, Inc. and Larkav, Inc. move to dismiss based on lack of subject matter jurisdiction. In response, plaintiff MSX International Engineering Services, Inc. moves for leave to file a First Amended Complaint dropping defendants Karlar, Inc. and Larkav, Inc. from this lawsuit. Defendant Levine has also filed a motion for change of venue. The facts and legal arguments presented in the parties' briefs are sufficient to adjudicate defendants' motion to dismiss and plaintiffs motion to file a First Amended Complaint. Oral argument would not significantly aid the decisional process. Pursuant to E.D. Mich. Local R. 7.1(e)(2), it is ORDERED that these motions be resolved without oral argument. For the reasons set forth below, plaintiffs motion for leave to file a First Amended Complaint will be GRANTED. Defendant's motion to dismiss based on of venue will be set for hearing as set forth below.
I. Background
Plaintiff MSX, a Delaware corporation with its principal place of business in Michigan, provides computer consultants, systems analysts and computer network support personnel to businesses. Plaintiff filed its initial Complaint on July 24, 2001 alleging that defendants Karlar, Inc. and Larkav, Inc. are New York corporations with their principal places of business in New York, and that defendant Levine is a citizen of New York. Plaintiff bases federal subject matter jurisdiction on diversity of citizenship, alleging damages in excess of $75,000.00. See 28 U.S.C. § 1332 (a)(1).
Plaintiff MSX alleges it purchased the assets of professional placement businesses Lexus Temporaries, Inc. and Lextra International, Inc. from defendant Levine and non party Karen Suss under the terms of an October 23, 1998 Asset Purchase Agreement. Plaintiff alleges Levine and Suss have owned Lexus and Lextra since 1992. Plaintiff alleges that the most important assets purchased were Lexus' and Lextra's client relationships, and that Levine's continued employment with plaintiff MSX was a "central component of the asset purchase"; plaintiff alleges Levine has been an MSX employee since October 31, 1998. Plaintiff alleges that Levine and Suss were obligated to promote the purchased client relationships for the benefit of MSX, and that plaintiff agreed to pay Lexus and Lextra "Earnouts" for the years 1998, 1999 and 2000 as a function of the financial performance of the business associated with the asset purchase. Plaintiff alleges Lexus and Lextra changed their names, respectively, to Karlar, Inc. and Larkav, Inc., the two corporate defendants named in the Complaint. Plaintiff MSX alleges Karlar and Larkav remain owned by Levine and Suss for the sole purpose of receiving the 1998, 1999 and 2000 "Earnouts".
Plaintiff MSX continues by alleging that Levine, in his capacity as President of both Karlar and Larkav, has failed to promote MSX client relationships, has failed to relinquish control of former Karlar Larkav clients to MSX, and has indeed undermined client relationships with MSX. Plaintiff alleges that Levine's non-cooperation intensified after MSX discharged Levine's daughter in June 2000 following threats by Suss that she would quit MSX if Levine's daughter was not fired. Plaintiff MSX alleges Levine's daughter formed a competing company in December 2000 known as "Dogwood Hill Associates", which Levine has since helped compete with MSX. Plaintiff MSX alleges Levine's actions have, in effect, deprived MSX of its bargain under the October 23, 1998 Asset Purchase Agreement. Plaintiff MSX alleges Karlar and Larkav agreed under the Asset Purchase Agreement to indemnify MSX for any losses suffered by MSX as a result Levine's breach, and to set-off any amounts owing to defendants Karlar and Larkav. Count I of the initial July 24, 2001 Complaint seeks a declaratory judgment that, as a consequence of its rights to indemnity and set-off against corporate defendants Karlar and Larkav, plaintiff MSX owes no payment of "Earnouts" to Karlar or Larkav. Count II alleges breach of fiduciary duties against Levine. Count III alleges fraud against Levine. Count IV alleges breach of contract against Levine.
In lieu of filing an answer, defendants Levine, Karlar and Larkav filed a motion to dismiss for lack of subject matter jurisdiction on August 30, 2001 asserting corporate defendants Karlar and Larkav are in fact incorporated in Delaware, as is plaintiff MSX. Defendants maintain the court therefore lacks diversity jurisdiction as there is not complete diversity of citizenship. In response, plaintiff filed a motion on September 24, 2001 seeking leave to amend its complaint to drop Karlar and Larkav as non-indispensable party defendants, thus curing any jurisdictional defect. Defendants in turn responded to the motion to amend arguing Karlar and Larkav are indispensable parties and, thus, pursuant to Federal Rule of Civil Procedure 19(b), this lawsuit must be dismissed. In reply, plaintiff argues that, because defendants have yet to file a responsive pleading, plaintiff has the right under Federal Rule of Civil Procedure 15(a) to file an amended complaint as a matter of course. In anticipation that amendment might be permitted, defendant Levine filed a motion for change of venue on October 12, 2001 arguing this lawsuit should be transferred to the United States District Court for the Southern District of New York pursuant to 28 U.S.C. § 1404.
II. Plaintiff's Motion For Leave To File First Amended Complaint and Defendants' Motion to Dismiss
If the plaintiff has a right to amend its complaint under the Court Rules and nonetheless petitions for leave to file an amended complaint, a district court should grant the motion to amend. Zaidi v. Ehrlich, 732 F.2d 1218, 1220 (5th Cir. 1984) (citing Rogers v. Girard Trust Co., 159 F.2d 239 (6th Cir. 1947)). Under Rule 15(a), a party may amend its pleading once as a matter of course at any time before a responsive pleading is served, if a responsive pleading is permitted. A complaint is a pleading for which a responsive pleading is permitted in the form of an answer. See Fed.R.Civ.P. 7(a). In contrast, a motion to dismiss is not a "pleading". Id; Zaidi, 732 F.2d at 1220.
Defendants have yet to file a "responsive pleading" to the July 24, 2001 Complaint. Consequently, plaintiff MSX has the right as a matter of course to file a First Amended Complaint. Fed.R.Civ.P. 15(a); Fed.R.Civ.P. 7(a); Zaidi, 732 F.2d at 1220. With the filing of the First Amended Complaint, defendants' motion to dismiss for lack of diversity jurisdiction becomes moot as it is undisputed that plaintiff MSX is a Delaware corporation with its principal place of business in Michigan, and the remaining defendant Levine is a citizen of New York. With the filing of the First Amended Complaint, defendant Levine is not precluded from moving to dismiss based on the plaintiff's failure to join Larkav and Karlav as indispensable party-defendants. Here, however, plaintiff MSX is entitled to file its First Amended Complaint as a matter of course. Fed.R.Civ.P. 15(a).
III. Defendant Levine's Motion For Change of Venue
With the filing of the First Amended Complaint, defendant Levine will be the only remaining defendant. Defendant Levine has moved for a change of venue pursuant to 28 U.S.C. § 1404. The motion for change of venue will be set for hearing as ordered herein.
IV. Conclusion
For the reasons set forth above, plaintiff MSX's motion for leave to file a First Amended Complaint is hereby GRANTED. Defendants' motion to dismiss based on lack of diversity jurisdiction is hereby DENIED as MOOT. Defendant Levine's motion for change of venue is hereby scheduled for hearing on Wednesday, November 28, 2001 at 3:00 p.m., PROMPTLY, in Courtroom #242, Theodore Levin U.S. Courthouse, 231 W. Lafayette, Detroit, Michigan.