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Byker v. Smith

United States District Court, N.D. Alabama, Southern Division

May 25, 2018

DAVID G. BYKER, ROBERT PRZYDYSZ, GLOBAL ASSET MANAGEMENT HOLDINGS, LLC, Plaintiffs,
v.
NANNETTE SMITH, Defendant.

          MEMORANDUM OPINION

          JOHN E. OTT CHIEF UNITED STATES MAGISTRATE JUDGE.

         David G. Byker, Robert Przybysz, Global Asset Management Holdings, LLC (“GAM”) (collectively, “Plaintiffs”) filed this suit against defendant Nannette Smith, invoking this court's diversity jurisdiction under 28 U.S.C. § 1332(a). (Doc. 1). Plaintiffs assert that Ms. Smith breached a settlement agreement between the parties. Ms. Smith filed a motion to dismiss, contending that this court lacks subject matter jurisdiction based on Plaintiffs' failure to join an indispensable party who would destroy the court's diversity jurisdiction. (Doc. 21). Plaintiffs responded in opposition to Ms. Smith's motion (doc. 31), and Ms. Smith has filed a reply (doc. 32). Also pending before the court are Ms. Smith's motion to strike (doc. 40), Plaintiffs' motions for leave to file a subpoena on an out-of-state third-party (docs. 41, 43), Plaintiffs' motion for a status conference (doc. 44), and Plaintiff's motion to lift the stay on discovery (doc. 45).[1] Ms. Smith has filed a response in opposition to the motion to lift the stay discovery. (Doc. 47). Upon consideration, the court[2] finds that Ms. Smith's motion to dismiss is due to be denied, Ms. Smith's motion to strike is due to be denied as moot, Plaintiffs' motions for leave to file a subpoena are due to be granted, Plaintiffs' motion for a status conference and to lift the stay are due to be denied as moot.

         I. BACKGROUND

         In broad strokes, this case arises out of a dispute between the parties regarding computer software that is designed to run payment systems in gas stations and convenience stores (the “B2K Software”). Ms. Smith developed the B2K Software and owned a business to market and implement the Software. (Doc. 23-1, ¶ 2). In 2012, Mr. Przybysz, the managing member of Ingenuity International, LLC (“Ingenuity”), approached Ms. Smith about purchasing her business, and Ms. Smith agreed to the sale. (See Doc. 23-1, ¶¶ 3-4; Doc. 31-1, ¶ 1). As part of that agreement, Ingenuity formed a new company called B2K Systems, LLC (“B2K LLC”) to purchase the assets of Ms. Smith's business, including the B2K Software, and Ms. Smith became an employee of B2K LLC. (Doc. 23-1, ¶ 4). Ms. Smith held a 20% interest in B2K LLC, and Ingenuity held the remaining 80% interest in the company. (Doc. 23-1, ¶ 4).

         B2K LLC experienced financial difficulties and took several loans from GAM, which were secured by the B2K Software. (See Doc. 1, ¶ 8; Doc. 23-1, ¶¶ 7-8; Doc. 31-2, ¶ 1).[3] B2K LLC defaulted on the loans, and GAM eventually sued B2K in Michigan state court to collect on the loans. (Doc. 23-1, ¶ 9; Doc. 31-2, ¶ 3). Ms. Smith attempted to intervene in GAM's action against B2K LLC to protect her interest in the B2K Software, but the Michigan state court denied her request. (Doc. 23-1, ¶ 10; Doc. 23-2). GAM won a default judgement against B2K LLC in the Michigan lawsuit, and B2K LLC subsequently filed for bankruptcy protection in the Western District of Michigan. (Doc. 23-1, ¶ 10; Doc. 31-2, ¶¶ 3-4). As a secured creditor, GAM filed a proof of claim in B2K LLC's bankruptcy proceedings. (Doc. 31-2, ¶ 4). In 2016, the bankruptcy administrator abandoned B2K LLC's assets that had been disclosed to the bankruptcy court, and GAM succeeded to control of those assets. (Doc. 31-2, ¶ 5).

         As B2K LLC was foundering, the relationship between Ms. Smith and B2K LLC deteriorated. B2K LLC terminated Ms. Smith's employment in 2014 and then sued Ms. Smith in Michigan state court. (Doc. 31-2, ¶ 2). Ms. Smith reciprocated by suing B2K LLC, GAM, Ingenuity, Mr. Byker, and Mr. Przybysz in Alabama state court. (Doc. 23-1, ¶ 12; Doc. 31-1, ¶ 1; Doc. 31-2, ¶ 2).[4] The Alabama state court action is based on Ms. Smith's allegations that the defendants in that action conspired to steal the B2K Software. (See Doc. 31-3). After B2K LLC filed bankruptcy, the Alabama court severed and stayed all of Ms. Smith's claims against the company, and Ms. Smith's claims against the remaining defendants proceeded to trial on November 14, 2016. (Doc. 31-1, ¶ 2; Doc. 31-4, pp. 4-5; see also Doc. 31-5, pp. 25-26).[5]

         The parties in the Alabama state court action reached a settlement on November 15, 2016, the second day of pre-trial motions. (Doc. 31-1, ¶ 14). Counsel read the terms of the settlement on the record, and the settlement contained the following six essential terms:

(1) GAM or Mr. Byker would pay Ms. Smith $500, 000 in installments over a period of time;
(2) Ms. Smith would send the B2K Software to a third-party expert, who would verify the software was the same functional and operational software that he previously reviewed in the course of the state court action, and the software would then be sent to GAM or Mr. Byker after they paid the first settlement installment to Ms. Smith;
(3) The parties would “use their good faith, best efforts” to conclude the B2K LLC bankruptcy, and Mr. Byker, GAM, Mr. Przybysz or Ingenuity will indemnify Ms. Smith if the bankruptcy court claws back any payment from B2K LLC to her or her son;
(4) The parties would enter full mutual releases of any and all claims up through the date of the settlement agreement;
(5) GAM would void its judgment against B2K LLC, or mark it as satisfied; and
(6) The B2K LLC's Michigan lawsuit against Ms. Smith “will be dismissed with prejudice.”

(Doc. 1-1, pp. 4-9; Doc. 23-1, ¶ 14). Because the settlement agreement required payments over time, the Circuit Court of Jefferson County retained jurisdiction over the matter until payment under the agreement was complete, but moved the action to its administrative docket. (Doc. 1-1, pp. 16-17).

         The parties' settlement broke down approximately a month after they entered the agreement. According to the plaintiffs in this case, Ms. Smith did not deliver the promised B2K Software to the third-party expert. They contend that Ms. Smith delivered a “read only” version of the B2K Software rather than a functional and operational copy of the software. (Doc. 1, ¶ 14; Doc. 31-2, ¶ 8). Ms. Smith, on the other hand, contends that she fully complied with her obligation under the parties' settlement agreement. (Doc. 23-1, ¶¶ 15-16). While Ms. Smith does not dispute that she delivered a “read only” version of the B2K Software to the third party expert, she asserts that it was exactly the same as the software the expert reviewed during the litigation and that the read only software was functional and operational. (Doc. 23-1, ¶¶ 16-17).

         Mr. Byker, Mr. Przybysz, and GAM filed this action against Ms. Smith based on Ms. Smith's alleged breach of the parties' settlement agreement. (Doc. 1). They assert claims against Ms. Smith for breach of contract, promissory estoppel, fraudulent misrepresentation, and fraudulent suppression based upon her alleged failure to deliver functional and operational B2K Software to GAM. (Id.). Plaintiffs request monetary damages and seek preliminary and permanent injunctions ordering Ms. Smith to provide GAM with a functional and operational copy of the B2K Software. (Id.).[6] Ms. Smith asks this court to dismiss the action, arguing that B2K LLC is an indispensable party whose joinder would destroy the court's diversity jurisdiction in this matter. (Doc. 22).

         II. STANDARD OF REVIEW

         Under Rule 12(b)(7) of the Federal Rules of Civil Procedure, a defendant may move to dismiss an action for “failure to join a party under Rule 19.” Fed.R.Civ.P. 12(b)(7). A district court undergoes a two-step inquiry when deciding a motion to dismiss under Rule 12(b)(7) and Rule 19. First, the court must determine “whether the absent part is a ‘required party' within the meaning of Rule 19.” Auto-Owners Ins. Co. v. Morris, 191 F.Supp.3d 1302, 1303 (N.D. Ala. 2016) (citing Molinos Valle Del Cibao v. Lama, 633 F.3d 1330, 1344 (11th Cir. 2011)). Then, “if the absent party is ‘required' but cannot be joined in the action, the court must consider if, ‘in equity and good conscience, the action should proceed among the existing parties or should be dismissed.'” Id. (quoting Fed.R.Civ.P. 19(b)).

         The moving party bears the burden of proving that the absent party is a required and indispensable party under Rule 19. Barrow v. OM Fin. Life Ins. Co., 2011 WL 2659987, at *1-2 (M.D. Fla. July 6, 2011) (citing Am. Gen. Life & Accident Ins. Co. v. Wood, 429 F.3d 83, 92 (4th Cir. 2005)). Finally, when deciding a motion to dismiss under Rule 12(b)(7), the court may look to matters outside of the pleadings and consider evidence presented by the parties. Auto-Owners Ins. Co., 191 F.Supp.3d at 1303 (citing Estes v. Shell Oil Co., 234 F.2d 847, 849 n.5 (5th Cir. 1956)).

         III. DISCUSSION

         A. Ms. Smith's ...


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