Opinion
19 Civ. 4355 (LGS)
2020-04-01
UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. COLLECTOR'S COFFEE INC., et al., Defendants.
ORDER
: WHEREAS, on February 28, 2020, Judge Gorenstein issued a Report and Recommendation to grant the motion brought by Intervenor-Defendant Los Angeles Dodgers, LLC ("the Dodgers") to substitute the Dodgers with the Jackie Robinson Foundation, Inc. (Dkt. No. 230);
WHEREAS, as stated in Judge Gorenstein's February 28, 2020, Report and Recommendation, the deadline for any objections was March 13, 2020;
WHEREAS, no objections were timely filed;
WHEREAS, in reviewing a Magistrate Judge's Report and Recommendation, a District Judge "may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1)(C). "When no timely objection is filed, the court need only satisfy itself that there is no clear error on the face of the record in order to accept the recommendation." FED. R. CIV. P. 72(b) Advisory Committee Notes; accord Niles v. O'Donnell , No. 17 Civ. 1437, 2019 WL 1409443, at *1 (S.D.N.Y. Mar. 28, 2019) ;
WHEREAS, the Court finds no clear error on the face of the record. It is hereby
ORDERED that the Report and Recommendation is ADOPTED in its entirety as the opinion of the Court. For the reasons stated in the Report and Recommendation, the Dodgers' motion is GRANTED and the Jackie Robinson Foundation, Inc. shall be substituted as an intervenor-defendant in place of the Dodgers.
The Clerk of Court is respectfully requested to close the motion at Dkt. No. 178.
REPORT AND RECOMMENDATION
GABRIEL W. GORENSTEIN, UNITED STATES MAGISTRATE JUDGE
I. BACKGROUND
SDJ INVESTMENTS, LLC, ADOBE INVESTMENTS, LLC, AND DARREN SIVERTSEN, TRUSTEE OF THE SIVERTSEN FAMILY TRUST U/A/D 10/01/2002, Intervenor-Plaintiffs,
-v.
COLLECTOR'S COFFEE, INC. (D/B/A COLLECTORS CAFÉ), MYKALAI KONTILAI, LOS ANGELES DODGERS, LLC, DOE INDIVIDUALS 1 THROUGH 50 AND ROE CORPORATIONS 1 THROUGH 50, Intervenor-Defendants.
This lawsuit was brought by the Securities and Exchange Commission ("SEC") against Collector's Coffee, d/b/a Collectors Café ("CC"), and Mykalai Kontilai alleging that the defendants defrauded investors in violation of federal securities laws. See Amended Complaint, filed Nov. 4, 2019 (Docket # 134). In soliciting money from investors, defendants told investors that CC owned the original contracts signed between Jackie Robinson and the Brooklyn Dodgers baseball team. Id. ¶¶ 29, 62-69. At the time the SEC brought suit, the Dodgers, now incorporated as "Los Angeles Dodgers, LLC," claimed ownership of the contracts. Id. ¶ 151.
After this suit was filed, a group of entities (consisting of SDJ Investments, LLC; Adobe Investments, LLC; and Darren Siversten, Trustee of the Siversten Family Trust U/A/D 10/01/2002), who refer to themselves as the "Holders," intervened in this action seeking a declaratory judgment that they are in fact the rightful owners of the contracts and that they have a "first position perfected security interest" in the contracts. See Intervenor Complaint, filed Sept. 10, 2019 (Docket # 92) ¶¶ 1, 32-40. The Holders' complaint named the Dodgers as an intervenor-defendant. Id.
The Dodgers answered on November 18, 2019, asserting that while they were originally the owners of the contracts, "[t]he Dodgers are not a real party in interest as they have transferred any and all of their rights, title and interests in the Contracts to [the Jackie Robinson] Foundation by deeds of gift on November 14, 2019." Answer, filed Nov. 18, 2019 (Docket # 149) ("Answer") ¶¶ 44-45.
The Dodgers have now filed the instant motion to substitute the Jackie Robinson Foundation in their place as an intervenor-defendant. As part of the motion, the Dodgers included copies of the deeds of gift under which the Dodgers transferred to the Jackie Robinson Foundation "all of Los Angeles Dodgers LLC's right, title, and interest" to the contracts "including all claims, defenses and causes of action with respect to" the contracts. See Deed of Gift, dated Nov. 14, 2019 (Docket # 108-1) ("Deed").
See Motion to Substitute Party, filed Dec. 9, 2019 (Docket # 178); Memorandum of Law in Support of Motion to Substitute Party, filed Dec. 9, 2019 (Docket # 179); Declaration of Seth E. Spitzer in Support of Motion to Substitute Party, filed Dec. 9, 2019 (Docket # 180); Response to Motion to Substitute Party, filed Dec. 23, 2019 (Docket # 185); Memorandum of Law in Opposition to Motion to Substitute Party, filed Dec. 23, 2019 (Docket # 186) ("Holders Mem."); Declaration of Richard A. Schonfeld in Opposition to Motion to Substitute Party, filed Dec. 23, 2019 (Docket # 187); Reply Memorandum of Law in Support of Motion to Substitute Party, filed Dec. 30, 2019 (Docket # 189).
Following the initial briefing, the Court sought the Dodgers' position on whether they would (1) agree to accept service of any Rule 45 subpoena if served on their attorney pursuant to Fed. R. Civ. P. 5(b)(2) ; and (2) agree to transfer any application relating to compliance with a subpoena to this Court, see Fed. R. Civ. P. 45(f). See Order, dated Jan. 29, 2020 (Docket # 208). The Dodgers agreed they would do so. See Letter from Seth E. Spitzer, dated Feb. 5, 2020 (Docket # 213) ("Feb. 5 Ltr."). The parties then submitted further letters on the import of the Dodgers' agreement. See Letter from Richard A. Schonfeld, dated Feb. 10, 2020 (Docket # 214) ("Feb. 10 Ltr."); Letter from Seth E. Spitzer, dated Feb. 13, 2020 (Docket # 217).
II. GOVERNING LAW
Substitution of parties upon transfer of an interest is governed by Federal Rule of Civil Procedure 25(c), which provides:
If an interest is transferred, the action may be continued by or against the original party unless the court, on motion, orders the transferee to be substituted in the action or joined with the original party.
" Rule 25(c) substitution is a procedural mechanism designed to facilitate the continuation of an action when an interest in a lawsuit is transferred and does not affect the substantive rights of the parties." Travelers Ins. Co. v. Broadway W. St. Assocs., 164 F.R.D. 154, 164 (S.D.N.Y. 1995). The purpose of Rule 25(c) is to allow a case to continue even when an interest changes hands without requiring a new suit because the "successor in interest is bound by a judgment against its predecessor even if substitution is not effected." Software Freedom Conservancy, Inc. v. Best Buy Co., 2010 WL 4860780, at *2 (S.D.N.Y. Nov. 29, 2010) (quoting Koehler v. Bank of Bermuda Ltd., 2002 WL 1766444, at *2 (S.D.N.Y. July 31, 2002) ).
Courts will frequently grant substitution where a party has fully transferred its interest to another person or entity. See, e.g., Potvin v. Speedway LLC, 891 F.3d 410, 416-17 (1st Cir. 2018) ; Arnold Graphics Indus., Inc. v. Ind. Agent Ctr., Inc., 775 F.2d 38, 39 (2d Cir. 1985) ; Bank of Am., N.A. v. RJ Dooley Realty, Inc., 2011 WL 3251593, at *1 (S.D.N.Y. July 25, 2011) ; Greystone Bank v. Peralta, 2010 WL 3767619, at *2 (S.D.N.Y. Sept. 20, 2010) ; Levin v. Raynor, 2010 WL 2106037, at *3 (S.D.N.Y. May 25, 2010) ; AAIPharma Inc. v. Kremers Urban Dev. Co., 2010 WL 11570154, at *3-4 (S.D.N.Y. Feb. 16, 2010) ; Nat'l Credit Mang. Corp. v. W. Union Fin. Servs., Inc., 1998 WL 730345, at *1 (S.D.N.Y. Oct. 19, 1998). Nonetheless, "[s]ubstitution of a successor in interest or its joinder as an additional party under Rule 25(c) is generally within the sound discretion of the trial court." Organic Cow, LLC v. Center of New England Dairy Compact Research, 335 F.3d 66, 71 (2d Cir. 2003) (quoting Prop-Jets, Inc. v. Chandler, 575 F.2d 1322, 1324 (10th Cir. 1978) ). Thus, "[i]t is not mandatory that a substitution be made in every case of a transfer of interest." Panther Pumps & Equip. Co. v. Hydrocraft, Inc., 566 F.2d 8, 16 (7th Cir. 1977) (citing McComb v. Row River Lumber Co., 177 F.2d 129, 130 (9th Cir. 1949) ).
After substitution, "[t]he merits of the case and the disposition of the property are still determined with respect to the original parties." Software Freedom Conservancy, 2010 WL 4860780, at *2 (quoting Koehler, 2002 WL 1766444, at *2 ).
In deciding a substitution or joinder motion under Rule 25(c), a court should consider "whether substitution will expedite and simplify the action." In re Rates - Viper Patent Litig., 2011 WL 856261, at *1 (S.D.N.Y. March 10, 2011) (quoting Banyai v. Mazur, 2009 WL 3754198, at *3 (S.D.N.Y. Nov. 5, 2009) ); see also Potvin, 891 F.3d at 416 ("a district court has considerable leeway to allow the substitution of parties in order to facilitate the conduct of the litigation" (internal quotation marks and citation omitted)).
III. DISCUSSION
The Dodgers have put into the record the deeds of gift that transferred their interest in the contracts to the Jackie Robinson Foundation. See Deed. While the Holders assert that the Dodgers never had any interest in the contracts, they do not contest that there has been a transfer of whatever interest the Dodgers may have had to the Jackie Robinson Foundation. Holders Mem. at 3. As a result, it is within the Court's power "to continue the action in its original posture, to order substitution of the party to whom interest has been transferred, or to join the transferee as a party" based on "how the conduct of the lawsuit will be most facilitated." Fed. Deposit Ins. Corp. v. Tisch, 89 F.R.D. 446, 448 (E.D.N.Y. 1981) (citations omitted). There is little law governing how a court should exercise its discretion.
The Holders make essentially two arguments why substitution should be denied, neither of which we find persuasive.
The Holders' first argument is that substitution will "complicate the action as the Jackie Robinson Foundation will not have information with which to prove that the Dodgers had an interest in the Contracts prior to the purported transfer." Holders Mem. at 7. This argument might have some force if the Jackie Robinson Foundation had made it. But the Jackie Robinson Foundation in fact has not objected to the substitution and thus it is obviously content to bear whatever burden may be placed on it to obtain information from the Dodgers as a nonparty.
The Holders' second argument is that their need for discovery from the Dodgers justifies denying substitution. See id. at 7-9. Certainly, a critical issue in discovery will be the Dodgers' former claim to ownership of the contracts. There has been no suggestion, however, that the Dodgers will not be amenable to discovery as a nonparty through the Rule 45 subpoena process. Moreover, the Dodgers have agreed that they will (1) accept service compliant with Fed. R. Civ. P. 5(b)(2) of any Rule 45 subpoena if served on their attorney, thus obviating the need for personal service; and (2) agree to transfer any application relating to compliance with a subpoena to this district as permitted by Fed. R. Civ. P. 45(f). See Feb. 5 Ltr.
The Holders make few arguments as to why the Rule 45 process, coupled with the Dodgers' agreements, would cause them any real problems in obtaining the discovery they need. While they suggest that the Dodgers have been recalcitrant in providing discovery to date, see Holders Mem. at 4-5; Feb. 10 Ltr., their only support for this statement is that the Dodgers have engaged them in the "meet-and-confer" process required by the Court's Individual Practices to resolve various discovery disputes. Following that process, at least one of the disputes was resolved. See Holders Mem. at 4-5. Thus, the Dodgers' conduct gives no indication that they are not prepared to properly respond to discovery.
The Holders also point to the fact that they would not be able to serve interrogatories on the Dodgers as nonparties, that the Holders would have a more limited ability to require the appearance of Dodgers witnesses at trial, and that there would be some other relatively minor advantages if they were seeking discovery from the Dodgers as a party. See Feb. 10 Ltr. With respect to the interrogatories, the Holders have not explained what additional interrogatories would be required in this case. And as for trial testimony, any deposition testimony of Dodgers witnesses can be introduced at trial if they cannot be supboenaed. See Fed. R. Civ. P. 32(a)(4)(B).
The cases cited by the Holders do not support the relief they request. In none of them was ease of discovery from the movant as a party the sole basis for denying substitution. Two cases they cite, Kloster Speedsteel AB v. Crucible Inc., 793 F.2d 1565, 1582 (Fed. Cir. 1986), and Fed. Sav. & Loan Ins. Corp. as Receiver for Vernon Sav. & Loan Ass'n, FSA v. McLean, 1988 WL 220584, at *2 (N.D. Tex. Nov. 14, 1988), did not even involve a motion to substitute. Other cases cited by the Holders do not mention discovery as a basis for denying substitution. See In re Rates - Viper Patent Litig., 2011 WL 856261, at *1 ; Banyai, 2009 WL 3754198, at *3. While discovery concerns were raised in Greystone Bank, 2010 WL 3767619, at *2, and Jazzland, Ltd. v. Bordenave, 1999 WL 243820, at *1-2 (E.D. La. Apr. 22, 1999), they played no role in determining the motions for substitution. In Barker v. Jackson Nat'l Life Ins. Co., 163 F.R.D. 364, 366 (N.D. Fla. 1995), the denial of the motion to substitute was not based on the relative ease of obtaining discovery from a party but rather on doubts about the disclaimer of the party's interest and also because the substitution, requested on the "eve of trial," would require postponing the trial and re-opening discovery. Finally, although the advantage of party discovery is discussed in Eastman Chem. Co. v. Alphapet Inc., 2011 WL 13054223 (D. Del. Dec. 9, 2011), doubts about the extent of the party's transfer of interest factored heavily into the denial of substitution. See id. at *4-*5. As Eastman Chem Co. noted, case law recognizes that ‘[w]hen there is uncertainty regarding the nature and extent of the alleged transfers of interest from a named party to a third party, it is more appropriate to join the alleged transferees, rather than to substitute them." Id. at *4 (citing cases). There is no such uncertainty here, however
In the end, although there is undoubtedly some advantage to having the Dodgers in the case as a party for purposes of conducting discovery, we believe that it would be inappropriate to keep the Dodgers in the case merely for the purpose of requiring them to respond to discovery as a party rather than as a nonparty. See Roxane Lab. v. Abbott Lab., 2012 WL 5511138, at *2 (S.D. Ohio Nov. 14, 2012) (noting in dictum that "it would be imprudent to maintain Abbott as a party simply for the ease of discovery"). Moreover, determining the ownership of the contracts is the sole issue raised in the Holders' complaint against the Dodgers. The Dodgers have conceded that they have no ownership interest in the contracts. See Answer ¶ 45 ("The Dodgers are not a real party in interest as they have transferred any and all of their rights, title and interests in the Contracts to Foundation by deeds of gift on November 14, 2019."). The Holders obviously do not contest the Dodgers' lack of ownership interest. Thus, there is an element of unfairness in requiring the Dodgers to participate in a proceeding as a defendant that seeks solely to determine the ownership of contracts when all parties agree that the Dodgers have no such ownership interest.
Additionally, this is not a case where a party defendant has been accused of causing injury to the plaintiff and where discovery from that defendant is needed to prove its misconduct. See, e.g., Fashion G5 LLC v. Anstalt, 2016 WL 7009043, at *3 (S.D.N.Y. Nov. 29, 2016) (denying substitution in part because of the hurdles that would be placed on discovery and noting that substitution would "leav[e] Plaintiff without recourse for [defendant's] alleged prior breaches."). Finally, the Dodgers are strongly incentivized to fully participate in discovery because they claim to have been at one time "the lawful owners of the Contracts," Answer ¶ 44, and they plainly desire to ensure that their gift of those contracts to Jackie Robinson Foundation is not rendered factitious.
In the end, the Jackie Robinson Foundation is the only party that is a proper defendant to the Holders' claim. The Dodgers have no further interest in this lawsuit. For all the reasons stated above, we conclude that the Jackie Robinson Foundation should be substituted as an intervenor-defendant in place of the Dodgers.
IV. CONCLUSION
The motion to substitute the Jackie Robinson Foundation for intervenor-defendant Los Angeles Dodgers LLC (Docket # 178) should be granted.
PROCEDURE FOR FILING OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties have fourteen (14) days including weekends and holidays from service of this Report and Recommendation to serve and file any objections. See also Fed. R. Civ. P. 6(a), (b), (d). Such objections (and any responses to objections) shall be filed with the Clerk of the Court, with a copy sent to the Hon. Lorna G. Schofield at 40 Foley Square, New York, New York 10007. Any request for an extension of time to file objections must be directed to Judge Schofield. If a party fails to file timely objections, that party will not be permitted to raise any objections to this Report and Recommendation on appeal. See Thomas v. Arn, 474 U.S. 140, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985) ; Wagner & Wagner, LLP v. Atkinson, Haskins, Nellis, Brittingham, Gladd & Carwile, P.C., 596 F.3d 84, 92 (2d Cir. 2010).
Dated: February 27, 2020