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Orpheum Property, Inc. v. Coscina

United States District Court, E.D. Louisiana

March 28, 2018

ORPHEUM PROPERTY, INC.
v.
COSCINA, ET AL.

         SECTION “L” (2).

          ORDER AND REASONS

          ELDON E. FALLON, United States District Judge.

         Pending before the Court is Defendants Alfred Coscina and AF Coffee Inc.'s motion to dismiss or transfer. Rec. Doc. 9. Defendants request the Court to dismiss the case based on numerous grounds, including Plaintiff Orpheum Property, Inc.'s alleged failure to join a necessary party, lack of subject matter jurisdiction, lack of personal jurisdiction, improper venue, and failure to file a Rule 23.1 verification required for a derivative action. Alternatively, Defendants request the case be transferred to the District of Hawaii. Having considered the parties' arguments, submissions, and applicable law, the Court now issues this Order and Reasons.

         I. BACKGROUND

         This derivative action arises from allegations of corporate mismanagement and fraudulent activities, inter alia, asserted by Plaintiff Orpheum Property, Inc. (“Orpheum”) against Defendants Alfred F. Coscina (“Coscina”) and Mr. Coscina's individual company, AF Coffee, Inc. (“AF Coffee”). Plaintiff Orpheum is a Delaware corporation with its principal place of business in New Orleans, Louisiana. Rec. Doc. 1 at 2. Orpheum appears as a derivative plaintiff as the sole member of Coscina Brothers Coffee Company, LLC (“Coscina Brothers”). Rec. Doc. 1 at 2. Defendant Alfred Coscina is a resident of Hawaii and was President/Chief Operating Officer of Coscina Brothers before his termination in 2016. Rec. Doc. 1 at 2. Mr. Coscina's company, AF Coffee, is a Hawaii corporation with its principal place of business in Hawaii, and has been named as a defendant in the instant litigation. Rec. Doc. 1 at 2.

         This chronicle began seven years ago. In January 2011, Defendant Alfred Coscina formed Coscina Brothers, a company that produced coffee products, in Honolulu, Hawaii. Rec. Doc. 1 at 3. In March 2011, Rampant Leon Financial Corporation (“RLFC”), a Louisiana corporation with offices in New Orleans purchased Coscina Brothers from Mr. Coscina. Id. As part of the transaction, Mr. Coscina agreed to continue working at Coscina Brothers as its President/Chief Operating Officer. Id. In March 2013, RLFC sold Coscina Brothers to Orpheum, a Louisiana corporation and the Plaintiff in this case. Id. Once again, Mr. Coscina agreed to stay with the company as its President/Chief Operating Officer. Id.

         After the 2011 transaction, however, Plaintiff asserts that Defendant Mr. Coscina began to undermine the business and finances of Coscina Brothers. Id. at 4. According to Plaintiff, in June 2011, Mr. Coscina formed his own company, AF Coffee, to import and export coffee products. Id. Plaintiff claims that Mr. Coscina never informed it of this action. Moreover, Plaintiff alleges that Mr. Coscina began using his new company to broker green (raw) coffee beans that Coscina Brothers had previously purchased directly from local vendors. Id. Plaintiff further asserts that Mr. Coscina then directed Coscina Brothers to purchase the green coffee beans directly from AF Coffee at a higher price. Id.

         Additionally, Plaintiff claims that Mr. Coscina wrongfully used Coscina Brothers' funds to benefit AF Coffee. Id. According to Plaintiff, Mr. Coscina opened a new bank account in January 2015-in the name of Coscina Brothers-without informing Orpheum. Id. at 5. Plaintiff asserts that this account was in fact used to pay invoices for AF Coffee. Id. Plaintiff further claims Mr. Coscina began sending invoices in November 2015 from AF Coffee to customers of Coscina Brothers for products sold by Coscina Brothers. Id. Plaintiff represents that these customers were unaware that the companies-Coscina Brothers and AF Coffee-were separate and unrelated, and therefore sent their payments to AF Coffee instead of Coscina Brothers. Id. In late-2015, Plaintiff became aware that Mr. Coscina was allegedly selling coffee beans from AF Coffee to Coscina Brothers' customers in order to deprive the company of income. Id. at 6.

         By spring 2016, Plaintiff avers that Coscina Brothers was unable to pay its operating expenses and rent. Id. Mr. Coscina was subsequently terminated from his position as President/Chief Operating Officer of Coscina Brothers. Id. Plaintiff asserts that due to the actions of Mr. Coscina, Coscina Brothers stopped operating in June 2016. Rec. Doc. 1 at 6. Nonetheless, Plaintiff states that Mr. Coscina continues to take advantage of Coscina Brothers' business and reputation. Rec. Doc. 1 at 6. For instance, according to Plaintiff, Mr. Coscina took over Coscina Brothers' website and rebranded it for AF Coffee. Rec. Doc. 1 at 6. Accordingly, Plaintiff has filed the instant derivative action as the sole shareholder and member of Coscina Brothers Coffee Company, LLC, seeking to recover damages it suffered as a result of Mr. Coscina's alleged fraudulent scheme. Rec. Doc. 1 at 1.

         In response to Plaintiff's complaint, Defendants have filed the instant motion to dismiss or transfer. The Court addresses Defendants' arguments for dismissal below.

         II. PRESENT MOTION

         Before the Court is Defendants' motion to dismiss or transfer. Defendants argue that Plaintiff's claims should be dismissed based on (1) failure to join a necessary party, (2) lack of subject matter jurisdiction, (3) lack of personal jurisdiction, (4) improper venue, and (5) failure to file a Rule 23.1 verification required for a derivative action. Rec. Doc. 9.

         First, regarding their arguments based on failure to join a necessary party and lack of subject matter jurisdiction, Defendants argue that Plaintiff failed to add Coscina Brothers as a necessary party and defendant to this derivative action under Federal Rule of Civil Procedure 23.1. Rec. Doc. 9-1 at 6. If Coscina Brothers is added as a defendant, Coscina Brothers' citizenship is then determined by the citizenship of its member: Orpheum, a corporation deemed as a Louisiana citizen for diversity jurisdiction purposes. According to Plaintiff, adding Coscina Brothers would thus destroy this Court's subject matter jurisdiction over the instant action. Id. at 7-8.

         Next, Defendants assert this Court lacks personal jurisdiction over Defendants Coscina and AF Coffee. Rec. Doc. 9-1 at 8. Defendants claim that neither Mr. Coscina nor AF Coffee has sufficient minimum contacts with Louisiana to establish personal jurisdiction; thus, Defendants argue that litigation in Louisiana is unreasonable. Id. at 8-10.

         Furthermore, Defendants claim that venue is improper, asserting that no substantial events giving rise to the dispute occurred in Louisiana. Id. at 11. Thus, if Plaintiff survives jurisdictional challenges, Defendants request, alternatively, this case be transferred to the District of Hawaii.

         Finally, Defendants assert that Plaintiff failed to file a Rule 23.1 verification required for derivative actions. Id. at 12.

         III. LEGAL STANDARDS

         A. Federal Rule of Civil Procedure 12(b)(1)

         To start with the basics, Federal Rule of Civil Procedure 12(b)(1) governs challenges to the court's subject matter jurisdiction. “A case is properly dismissed for lack of subject matter jurisdiction when the court lacks the statutory or constitutional power to adjudicate the case.” Home Builders Ass'n of Miss., Inc. v. City of Madison, 143 F.3d 1006, 1010 (5th Cir. 1998). “Courts may dismiss for lack of subject matter jurisdiction on any one of three bases: (1) the complaint alone; (2) the complaint supplemented by undisputed facts in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts.” Clark v. Tarrant County, 798 F.2d 736, 741 (5th Cir. 1986) (citing Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir.1981)). Furthermore, a plaintiff bears the burden of demonstrating that subject matter jurisdiction exists. See Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir. 1981).

         In this case, the relevant basis for jurisdiction is diversity jurisdiction under 28 U.S.C. § 1332. Diversity jurisdiction exists only when there is complete diversity of citizenship and the amount in controversy exceeds $75, 000, exclusive of interests and costs. See 28 U.S.C. § 1332(a); Felton v. Greyhound Lines, Inc., 324 F.3d 771, 773 (5th Cir. 2003). Complete diversity “requires that all persons on one side of the controversy be citizens of different states than all persons on the other side.” Harvey v. Grey Wolf Drilling Co., 542 F.3d 1077, 1079 (5th Cir. 2008) (citing McLaughlin v. Mississippi Power Co., 376 F.3d 344, 353 (5th Cir. 2004)).

         When examining a factual challenge to subject matter jurisdiction under Rule 12(b)(1), which does not implicate the merits of plaintiff's cause of action, the district court has substantial authority “to weigh the evidence and satisfy itself as to the existence of its power to hear the case.” Garcia v. Copenhaver, Bell & Assocs., 104 F.3d 1256, 1261 (11th Cir. 1997); see also Clark, 798 F.2d at 741. Moreover, a court's dismissal of a case for lack of subject matter jurisdiction is not a decision on the merits, and the dismissal does not prevent the plaintiff from pursuing the claim in another forum. See Hitt v. City of Pasadena, 561 F.2d 606, 608 (5th Cir. 1977).

         B. Federal Rules of Civil Procedure 12(b)(7) & 19

         Rule 12(b)(7) allows dismissal for “failure to join a party under Rule 19.” Fed.R.Civ.P. 12(b)(7). Rule 19 provides for the joinder of all parties whose presence in a lawsuit is required for the fair and complete resolution of the dispute at issue. Fed.R.Civ.P. 19(a); Pulitzer-Polster v. Pulitzer, 784 F.2d 1305, 1308 (5th Cir. 1986) (“The federal rules seek to bring all persons that may have an interest in the subject of an action together in one forum so that the lawsuit can be fairly and completely disposed of. In accord with this goal, Rule 19 seeks to bring into a lawsuit all those persons who ought to be there by requiring joinder.” (citations omitted)). It further provides for the dismissal of litigation that should not proceed in the absence of parties that cannot be joined. Fed.R.Civ.P. 19(b); Pulitzer-Polster, 784 F.2d at 1308.

         Rule 12(b)(7) analysis entails two inquiries under Rule 19. First, the Court must determine under Rule 19(a) whether a person should be joined to the lawsuit. Under Rule 19(a), joinder of a party is necessary if:

(1) in the person's absence complete relief cannot be accorded among those already parties, or
(2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reasons of the claimed interest.

Fed. R. Civ. P. 19(a).

         If joinder is warranted, then the person will be brought into the lawsuit. But if such joinder would destroy the court's jurisdiction, then the court must determine under Rule 19(b) whether to press forward without the person or to dismiss the litigation. Id.; see HS Res., Inc. v. Wingate, 327 F.3d 432, 439 (5th Cir. 2003); see also 5A Charles Alan Wright & Arthur R. Miller, FederalPra ...


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