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Consumer Supply Distributing, LLC v. Brands

United States District Court, D. South Dakota, Southern Division

August 1, 2017

CONSUMER SUPPLY DISTRIBUTING, LLC, Plaintiff,
v.
TED M. BRANDS and LARRY STEINKAMP, Defendants.

          ORDER GRANTING PLAINTIFF'S MOTION TO AMEND FIRST AMENDED COMPLAINT AND REMAND CASE TO STATE COURT

          KAREN E. SCHREIER UNITED STATES DISTRICT JUDGE

         Plaintiff, Consumer Supply Distributing, LLC (CSD), brings this action against defendants, Ted M. Brands and Larry Steinkamp. CSD alleges seven counts against Brands and Steinkamp in its amended complaint: misappropriation of trade secrets, breach of fiduciary duty and duty of loyalty, conversion, unjust enrichment, tortious interference with contracts and business relationships, and unfair competition. CSD moves to amend the amended complaint to add Jeff Reinders and NewStar Sourcing and Services, LLC as additional parties and to remand the case back to the Circuit Court of Union County, South Dakota. Brands and Steinkamp resist CSD's motion to amend. For the reasons stated below, the court grants CSD's motion.

         FACTUAL BACKGROUND

         The facts alleged by CSD in its proposed second amended complaint are as follows:

         CSD manufactures, develops, sells, and distributes agricultural feed products throughout the United States. Docket 11-1 at 3. Brands, Steinkamp, and Reinders were all employees of CSD. Id. at 3-4. Brands, Steinkamp, and Reinders had access to confidential information including stock status reports, sales reports, customer lists, volume orders, key venders, key suppliers, and pricing information. Id. Due to the time and resources used to assemble this information, CSD considers this data important. Id. at 4. CSD limits its employees' access to this information to those that need it. Id. This information is not public information. Id. Keeping this information confidential is important to prevent a competitor from gaining an unfair advantage. Id.

         On or about January 15, 2017, Brands resigned from his role as Business Development Manager without giving notice to CSD. Id. at 5. Several other members of CSD's sales team resigned and became employed by NewStar including Greg Lawfer, Keith Prohaska, Richard Pearl, Bill McPherson, Ron Roering, and Keith Snyder. Id.

         Steinkamp resigned without notice as a distribution salesperson for CSD, on or about March 9, 2017, and Reinders resigned on December 15, 2016. Id. at 2. After Brands and Steinkamp resigned, they took confidential, proprietary, and trade secret information, including customer lists. Id. at 5. When all three employees resigned, they accepted positions or developed a business relationship with NewStar, another company that sells agricultural feed products. Id. at 5-6.

         CSD commenced this action against Brands and Steinkamp in state court on March 7, 2017. Docket 1-1. The first amended complaint was dated March 15, 2017. Id. Brands and Steinkamp filed a notice of removal on April 11, 2017. Id. Removal was based on diversity jurisdiction. Id. CSD is a corporation with its principal place of business in North Sioux City, South Dakota, and is incorporated under the laws of Minnesota. Docket 11-1 at 1. Brands resides in Oakland, Nebraska, and Steinkamp resides in Lake View, Iowa. Id. CSD now moves to amend its amended complaint to add parties and claims. Docket 11. One of the defendants CSD seeks to add is Reinders, a South Dakota resident. Id. Because Reinders is from Pickstown, South Dakota, and CSD's principal place of business is South Dakota, diversity jurisdiction would be destroyed if the motion to amend is granted.

         LEGAL STANDARD

         CSD moves to amend its complaint for a second time, arguing that there are additional defendants subject to similar claims. “A party may amend its pleading once as a matter of course within . . . 21 days after serving it.” Fed.R.Civ.P. 15(a)(1)(A). “In all other cases, a party may amend its pleading only with the opposing party's written consent or the court's leave.” Fed.R.Civ.P. 15(a)(2).

         Generally, motions to amend are freely granted when justice so requires. Fed.R.Civ.P. 15(a). This standard changes, however, when the plaintiff seeks to amend its complaint and the amendment would destroy the court's subject matter jurisdiction. In this situation, the Eighth Circuit Court of Appeals has adopted the rationale of the Fifth Circuit Court of Appeals in Hensgens v. Deere & Co., 833 F.2d 1179, 1182 (5th Cir. 1987):

‘The district court, when faced with an amended pleading naming a new nondiverse defendant in a removed case, should scrutinize that amendment more closely than an ordinary amendment. . . . In this situation, justice requires that the district court consider a number of factors to balance the defendant's interests in maintaining the federal forum with the competing interests of not having parallel lawsuits.' Bailey v. Bayer CropScience L.P., 563 F.3d 302, 309 (8th Cir. 2009) (quoting Hensgens, 833 F.2d at 1182).

         “If after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the State court.” 28 U.S.C.§ 1447(e). If the plaintiff can show that the new parties are indispensable, joinder is required. Fed.R.Civ.P. 19. When the potential defendant is dispensable, the district court may ...


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