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Sodibar Systems, Inc. v. Simon

United States District Court, D. Maryland, Southern Division

March 26, 2014

SODIBAR SYSTEMS, INC., et al., Plaintiffs,
MARK SIMON, et al., Defendants.


PAUL W. GRIMM, District Judge.

A decades-old family business, which spans Maryland, Virginia, and Washington, D.C. and currently is embroiled in a no-holds barred struggle for control involving two brothers and their father, [1] is the subject of the lawsuit before me. Before reaching the merits, I must decide whether this Court has diversity jurisdiction, given that Plaintiffs are citizens of Maryland and Virginia, among other jurisdictions; the original Defendant is a citizen of Virginia; and the Defendant joined in the Amended Complaint is a citizen of Maryland.[2] Because Virginian Defendant Mark Simon has not established fraudulent joinder of the Virginian Plaintiff or shown that joinder of Maryland Defendant Alvin Simon is not necessary, I conclude that this Court does not have jurisdiction, and remand this case to state court.


Alvin Simon founded Sodibar, a beverage dispenser and beverage syrup supply company, in 1948. Compl. ¶¶ 8, 10, ECF No. 4. After almost forty years, Alvin entered into a shareholders' agreement with his wife, Elva Jacqueline Simon (now deceased), and his sons, Brett and Mark Simon, id. ¶ 8, and they expanded the Washington, D.C. based-business into Maryland and Virginia with the addition of Sodibar of Richmond and Calevas, id. ¶ 9. The Corporations now "supply businesses with beverage dispensers and syrup for the beverages, " as well as "wine, beer, liquor, juice and condiment equipment." Id. ¶¶ 10-11.

Sodibar is incorporated in Delaware, Sodibar of Richmond is incorporated in Virginia, and Calevas is incorporated in Washington, D.C. Id. ¶¶ 3-5. Each of the Corporations has its principal place of business in Maryland. Id. At the time he filed the original Complaint, Brett, a citizen of Maryland, was "a shareholder in each of the Companies" and "is also the Trustee of the Voting Trust, " under which he had "the exclusive right to vote the shares of stock held by Alvin and Elva Jacqueline Simon." Id. ¶¶ 6 & 13. Mark, a Virginia citizen, was a shareholder and a director of the Corporations. Id. ¶ 7. He was "Vice-President and co-Treasurer of Sodibar, Vice President of Sodibar of Richmond, and President of Calevas, " until September 27, 2013, when he "was stripped of his positions... for engaging in self-dealing, waste of corporate assets, breaching his fiduciary duties, and failing to fulfill his duties as a corporate officer." Id.

The Corporations and David Brett Simon, derivatively on behalf of the Corporations, filed suit against Mark Simon in the Circuit Court for Prince George's County, Maryland on October 17, 2013. Compl. 1. Mark removed the case to this Court, insisting that the parties in fact were diverse, despite Plaintiff Sodibar of Richmond's and Defendant Mark Simon's Virginian citizenship, because "Sodibar of Richmond... has been fraudulently joined or alternatively misjoined as a plaintiff." Am. Notice of Removal ¶¶ 3, 5 & 7. Mark contends that "Sodibar of Richmond ceased operations on or about July 31, 2012, after its assets were sold to Tidewater Beverage, " and that "it has received no income" since that time, and no assets remain. Id. Alternatively, Mark asserts that he was not involved in Sodibar of Richmond's "business or financial operations (except to transfer funds from Sodibar to Sodibar of Richmond to cover the company's losses), " and that Plaintiffs do not claim that Mark engaged in misconduct with regard to Sodibar of Richmond. Id. Mark also argues that, "with respect to David Brett Simon's derivative suit, .... [t]he citizenship of the corporate Plaintiffs [should be] disregarded for purposes of determining diversity of citizenship, " and this lawsuit should be "regarded as one between David Brett Simon, a citizen of Maryland, and Mark Simon, a citizen of Virginia, " because "there is antagonism between the proper management of the corporate Plaintiffs and David Brett Simon." Id. ¶¶ 7 & 9.

Following removal, Plaintiffs filed an Amended Complaint, adding Alvin Simon, a citizen of Maryland, as a defendant. Am. Compl. 1, ECF No. 26. According to Plaintiffs, Alvin is a necessary defendant because he "challenged Brett Simon's exercise of Alvin Simon's voting rights under the February 23, 2010 Voting Trust agreement" by, inter alia, allegedly "demand[ing] and obtain[ing] the resignation of Brett Simon from all trusts associated with Elva J. Simon." Pls.' Resp. ¶ 4. Plaintiffs also contend that Alvin "knew about Mark's improper use of corporate funds" and "directed Mark to ignore Brett Simon's demand letter." Id. ¶¶ 5 & 14. Indeed, Alvin wrote Brett a letter on November 5, 2013, asserting that "as President of Sodibar Systems of the District of Columbia, Sodibar Systems of Richmond and Calevas Laboratories, " he did not "believe it to be in the best interest of the companies that [Brett] be placed in charge of the business." Pls.' Resp. Ex. 1, ECF No. 27-2. Alvin insisted that Brett's "attempt[] to remove [Alvin] as President was not effective, as [Brett did] not have voting rights over any of the shares of any of the companies other than the shares [he] own[ed] directly, " because the Shareholders' Agreement "prohibits conveyances of any shares without the advance written consent of all of the shareholders." Id. In the letter, Alvin "terminate[d] [Brett's] employment with Sodibar Systems effective immediately, " revoked all privileges and access to the Corporations' offices, and agreed for Sodibar to purchase Brett's shares in the Corporation's stock. Id.

As for Sodibar of Richmond, Plaintiffs state that "it is currently registered as an active Virginia corporation according to the Commonwealth's Corporation Commission's website, " and Plaintiffs "believed it had assets in Virginia" when they filed suit. Pls.' Resp. ¶ 11. Plaintiffs concede that "most of [Sodibar of Richmond's] assets ha[ve] been sold several years ago, " but insist that it is "still a valid legal entity" of which Mark Simon is a shareholder. Id. ¶ 15. Plaintiffs assert that "Alvin Simon is still taking action on behalf of Sodibar of Richmond, " based on Alvin's November 5, 2013 letter to Brett, regarding the businesses. Id. ¶ 14. Plaintiffs also maintain that they pleaded that "Mark Simon had engaged in inter-company transactions between the three corporate entities" that were not "adequately documented.'" Id. ¶ 12 (quoting Compl. ¶ 24). Thus, Plaintiffs insist that diversity jurisdiction does not exist because both Alvin Simon and David Brett Simon are citizens of Maryland and both Sodibar of Richmond and Mark Simon are citizens of Virginia. Id. ¶¶ 4-5, 11-18. On that basis, Plaintiffs move to remand the case to state court. Id. ¶¶ 10, 16-20.

Mark counters that, although Sodibar of Richmond "can legally conduct business, it has been effectively out of business since [the June 2012] sale of assets, " such that it "does not have any right to relief from Mark Simon." Def.'s Opp'n 5. Alternatively, Mark argues that, even if Sodibar of Richmond is a proper plaintiff, its citizenship should be disregarded for diversity purposes because "[i]n shareholder derivative suits, the citizenship of a nominal, but indispensable corporation [i.e., Sodibar of Richmond] is ignored if there exists antagonism between the management of the corporation [i.e., Alvin Simon and Mark Simon] and the shareholder bringing suit [i.e., David Brett Simon]." Id. at 6 (citing Doctor v. Harrington, 196 U.S. 579, 587 (1905); Beck v. CKD Prana Holding, A.S., 999 F.Supp. 652 (D. Md. 1998)). Additionally, Defendant challenges Plaintiffs' Amended Complaint, contending that "[c]ourts have the authority to deny joinder even though a plaintiff has the right to amend the complaint without leave of court." Id. at 7-8. Defendant argues that this Court should "deny[] joinder of Alvin Simon and keep[] jurisdiction of this case, " which this Court would lose if it permitted joinder. Id. at 8.


A. Jurisdiction over the Original Complaint: Whether Sodibar of Richmond is a Proper Plaintiff

Under 28 U.S.C. § 1332(a), federal district courts "have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75, 000, exclusive of interest and costs, and is between-(1) citizens of different States." When a plaintiff files such an action in state court, the action "may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending." 28 U.S.C. § 1441(a). Diversity jurisdiction "applies only to cases in which the citizenship of each plaintiff is diverse from the citizenship of each defendant." Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996). Further, even an action that normally would fall under this Court's diversity jurisdiction "may not be removed if any of the parties in interest properly joined and served as defendants is a citizen of the State in which the action is brought." 28 U.S.C. § 1441(b)(2). Whether removal is proper must "be determined according to the plaintiffs' pleading at the time of the petition for removal." Pullman Co. v. Jenkins, 305 U.S. 534, 537 (1939).

The doctrine of fraudulent joinder, which the Fourth Circuit has adopted, is relevant to determining whether a court has subject matter jurisdiction over a removed case. Larson v. Abbott Labs., No. ELH-13-554, 2013 WL 5937824, at *11 (D. Md. Nov. 5, 2013) (citing Mayes v. Rapoport, 198 F.3d 457, 464 (4th Cir. 1999)).

Fraudulent joinder occurs when "there is no possibility that the plaintiff would be able to establish a cause of action against the in-state defendant in state court; or [when] there has been outright fraud in the plaintiff[']s pleading of jurisdictional facts.'" In such a case, the doctrine permits a court to "disregard, for jurisdictional purposes, the citizenship of certain non-diverse defendants, ...

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