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PS Kids, LLC v. Paymaster Business Services Inc.

United States District Court, E.D. Missouri, Eastern Division

February 21, 2018

PS KIDS LLC, individually and on behalf of all other similarly situated persons and entities, Plaintiffs,
v.
PAYMASTER BUSINESS SERVICES, INC; PAYMASTER BUSINESS SOLUTIONS, INC.; PAYMASTER PAYROLL SERVICES, INC.; BRAD FERGUSON; and MPAY INC.. Defendants.

          MEMORANDUM AND ORDER

          AUDREY G. FLEISSIG, UNITED STATES DISTRICT JUDGE

         This putitive class action alleging the misappropriation of payroll funds is before the Court on the motions of Defendant MPay Inc. (“MPay”) to dismiss the four Missouri (diversity-destroying) Defendants (ECF No. 3) and to dismiss MPay for lack of personal jurisdiction (ECF No. 11), and the motion of Plaintiff PS Kids LLC to remand the case to the state court in which it was filed (ECF No. 7). For the reasons set forth below, the motion to dismiss the Missouri Defendants will be granted, and the two other motions will be denied.

         BACKGROUND

         Plaintiff filed this action in Missouri state court on July 24, 2017, against five Defendants: (1) Paymaster Business Services, Inc., a Missouri company that ceased operations in 2013; (2) Paymaster Business Solutions, Inc., a former Missouri company that was administratively dissolved in 2011; (3) Paymaster Payroll Services, Inc., a former Missouri company that was administratively dissolved in 2011; (4) Brad Ferguson, a Missouri resident currently incarcerated in a federal prison, who at all relevant times was an employee and agent of the three above-named “Paymaster Defendants”; and (5) MPay, a citizen of Massachusetts and Virginia.

         Plaintiff alleges in its complaint that during 2013, the Paymaster Defendants provided payroll services to Plaintiff and other businesses, and misappropriated Plaintiff's and the other businesses' funds rather than paying the funds to taxing authorities on the businesses' behalf. Plaintiff alleges that MPay, through its contractual and agency relationship with the Paymaster Defendants, contracted for and conducted payroll processing services for the Plaintiff and the putative class members, which are entities located in Missouri. Plaintiff states this Court has personal jurisdiction over MPay because MPay “purposely directed its activities toward the State of Missouri generally by offering its goods and services systemically throughout Missouri.” ECF No. 4 at 5. Plaintiff further asserts that MPay is subject to personal jurisdiction in Missouri because it committed torts in Missouri; specifically, MPay continued to provide services payroll processing services even after being told that the Paymaster Defendants were misappropriating client payroll funds and were going out of business.

         The complaint asserts state law claims of negligence against the Paymaster Defendants (Count I), misrepresentation against the Paymaster Defendants and Ferguson (Count II), breach of contract against the Paymaster Defendants (Count III), negligent misrepresentation and negligence against MPay, Inc. (Counts IV and V), and conversion against the Paymaster Defendants and Ferguson (Count VII). Plaintiff stated in the complaint that the compensatory and punitive damages sought by the putative class, which consisted of “dozens of persons or entities, ” would not exceed $5, 000, 000. Id. at 8-9. Plaintiff's negligence claim against MPay is premised on the theory that the Paymaster Defendants' clients, such as Plaintiff, were third-party beneficiaries of the software licensing agreement between MPay and the Paymaster Defendants, and that MPay was negligent in failing to stop the Paymaster Defendants' misappropriation of their clients' money, which Plaintiff alleges MPay had a right, duty, and obligation to do under the licensing agreement.

         It is undisputed that on January 24, 2014, Plaintiff filed an action in Missouri state court against all five Defendants based on the same conduct sued upon here. MPay filed a crossclaim against the Missouri Defendants, as well as a motion for summary judgment. Plaintiff obtained an order of default against the Missouri Defendants, but did not proceed to seek default judgment against them; rather, on June 13, 2017, shortly before trial against MPay, and before the trial court ruled on MPay's motion for summary judgment, Plaintiff filed a notice of dismissal dismissing its claims against MPay without prejudice. The trial court ordered such dismissal on June 14, 2017.

         As noted above, Plaintiff filed the present action in state court on July 24, 2017, this time as a class action. Plaintiff states in its complaint that it is a Missouri company and MPay does not refute this. MPay removed the action on September 7, 2017, invoking the Court's diversity jurisdiction pursuant to 28 U.S.C. § 1332(a), and the Court's jurisdiction under the Class Action Fairness Act (“CAFA”), 28 U.S.C. § 1332(d). In the Notice of Removal, MPay asserted that there was complete diversity of citizenship because the Paymaster Defendants were fraudulently joined as Defendants. The Notice of Removal included the following statement:

By filing this Notice of Removal, Defendant MPay does not waive any defenses which may be available to it, including but not limited to lack of personal jurisdiction. Defendant will be raising the issue of lack of personal jurisdiction within the time period allowed under Federal Rule of Civil Procedure 81.

ECF No. 1 at 5. At the time of removal, MPay was the only Defendant that had been served.

         On the same day that it removed the action from state court, MPay filed a “Motion to Dismiss and to Remove for Improper and Pretensive Joinder” directed to the Missouri Defendants (the Paymaster Defendants and Ferguson). MPay argues that it is evident from Plaintiff's past litigation history against these same Defendants in state court, that Plaintiff has no real intention of prosecuting the present action against them, and joined them here solely to defeat diversity jurisdiction. In this motion to dismiss, MPay did not mention personal jurisdiction.

         On September 14, 2017, MPay filed (1) a motion to dismiss the complaint, or in the alternative, a stay, pending Plaintiff's payment of the costs assessed in the first state action; (2) a motion to dismiss the complaint against MPay for lack of personal jurisdiction; and (3) a general entry of appearance by two attorneys on behalf of MPay.

         In addition to responding to MPay's motion to dismiss the Missouri Defendants, Plaintiff filed a motion to remand the case to state court. In support of that motion, as well as in response to MPay's motion to dismiss, Plaintiff argues that the complaint states a claim against the Missouri Defendants, something MPay does not contest, and the fact that Plaintiff voluntarily dismissed the claims against them without prejudice, rather than pursuing a default judgment against them, in the previous state lawsuit is of no consequence.

         With respect to MPay's motion to dismiss the complaint for lack of personal jurisdiction, Plaintiff responds that MPay has waived the defense of lack of personal jurisdiction (1) by participating fully in the 2014 state court action involving the same conduct and parties and availing itself of the Missouri courts in connection with that action by filing a crossclaim, as well as a motion for summary judgment; and (2) by not raising lack of personal jurisdiction in MPay's motion to dismiss the diversity-destroying Defendants. Plaintiff points to Federal Rule of Civil Procedure 12(h)(1), which states that “a party waives any defense listed in Rule 12(2)-(5) by . . . omitting it from a motion in the circumstances described in Rule 12(g)(2) . . . .” Rule 12(g)(2) provides: “[A] party that makes a motion under this rule must not make another motion under this rule raising a defense or objection that was available to the party but omitted from its earlier motion.” On the merits of the personal ...


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