David Peterson, Voicebox Techs. Corp. v. Kennewick

DAVID PETERSON, as an individual and derivatively on behalf of VOICEBOX TECHNOLOGIES CORPORATION, Plaintiff, v. MICHAEL KENNEWICK, an individual; RICHARD KENNEWICK, an individual;ROBERT KENNEWICK, an individual; NUANCE COMMUNICATIONS, INC.,a Delaware corporation; and VOICEBOX TECHNOLOGIES CORPORATION, a Delaware corporation, Defendants.

Civil Action No. 2:18-cv-1302-BJR

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WASHINGTON AT SEATTLE

December 13, 2018

ORDER GRANTING PLAINTIFF'S MOTION TO REMAND TO STATE COURT, DENYING PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT, AND DENYING THE KENNEWICK DEFENDANTS' MOTION TO DISMISS

Plaintiff David Peterson, a Washington State resident, brought the present action in the Superior Court of Washington for King County, asserting one claim against Defendants Michael, Richard, and Robert Kennewick ("the Kennewicks"), and three claims against Defendants Voicebox Technologies Corporation ("Voicebox") and Nuance Communications, Inc. ("Nuance") (collectively the "Corporate Defendants"). Doc. 1-1. The Corporate Defendants removed the matter, maintaining that, unlike the Kennewicks, they are not Washington State residents; and that Plaintiff "misjoined" and/or fraudulently joined his claims against the diverse corporations with his claim against the nondiverse Kennewicks. See Doc. 1. Thus, the Corporate Defendants argue, the Court should sever and remand to state court Plaintiff's claim against the Kennewicks, and exercise jurisdiction over the claims against the Corporate Defendants. See id. Plaintiff, in turn, moved to remand the entirety of the case. Doc. 13. The Corporate Defendants oppose Plaintiff's motion. DOC. 19. Separately, the Kennewicks moved to dismiss the sole claim against them for, inter alia, failure to state a claim upon which relief can be granted. Doc. 15. Also pending is Plaintiff's motion for default judgment against the Kennewicks, which Plaintiff filed before the Kennewicks moved to dismiss, but which Plaintiff insists should still be granted. Doc. 10; see Doc. 23.

Having reviewed the parties' briefs together with all relevant materials, the Court finds that this matter should be remanded to state court. Thus, the Court grants Plaintiff's motion to remand and denies for lack of subject matter jurisdiction—and as moot—Plaintiff's motion for default judgment against the Kennewicks (Doc. 10) and the Kennewicks' motion to dismiss (Doc. 15). The Court's reasoning follows.

I. BACKGROUND

A. Factual Background

Plaintiff David Peterson, a Washington resident, is a former employee and common shareholder of Voicebox. Compl., Doc. 1-1 ¶ ¶ 1.1, 2.1. Voicebox, a voice recognition technology company, was founded in the early 2000s by the Kennewicks, who are also Washington residents. See id. ¶ ¶ 1.1, 2.2-2.4. During the relevant period, the Kennewicks occupied three of the five Voicebox directorship seats. Id. ¶ 4.3.

According to Plaintiff's Complaint, in or about 2012, the Kennewicks "began pursuing an exit strategy to monetize their interests" as well as the investments of "Voicebox Insiders,"who Plaintiff defines as "closely-aligned parties and/or preferred shareholders." Id. ¶ ¶ 4.3, 4.9. To that end, Plaintiff asserts, the Kennewicks "used their control and dominion over Voicebox to gift or issue stock and restricted stock options" to family and friends who "did not make any significant contribution to Voicebox." Id. ¶ 4.10.

On April 2, 2018, Voicebox was acquired by Nuance, a company also involved in voice recognition technology. Id. ¶ 4.11. The Complaint is ambiguous as to the precise structure and timing of the series of transactions involved in the acquisition. See, e.g., id. ¶ 4.13-4.21 (failing to explain the timing of the payment(s) from Nuance, and through which entities and/or persons this money flowed); Compare id. ¶ ¶ 1.1, 4.10, 4.11 (referring, generally, to the "Nuance Transaction" that closed on April 2, 2018 as a "sale") and id. 1.2, 4.11 (referring, generally, to the "Nuance Transaction" as a "merger") and Doc. 13 at 13 (asserting that all Defendants "entered into a purchase and sale transaction") with United States v. Philadelphia Nat. Bank, 374 U.S. 321, 345 (1963) (describing the "important differences between merger and a pure purchase of assets"). As best the Court the can tell from Plaintiff's version, the broad strokes are as follows.

The Nuance Transaction was structured as a reverse triangular merger that resulted in Voicebox becoming a wholly-owned subsidiary of Nuance. Id. ¶ 4.11. Despite Voicebox becoming a wholly-owned subsidiary, only some of Voicebox's numerous patents and licensing agreements were transferred to Nuance. See id. ¶ ¶ 4.5-4.6, 4.11. Voicebox's remaining patents and licensing agreements were—at some point before the April 2, 2018 merger date—placed into a trust controlled by a single trustee: Michael Kennewick ("the Kennewick Trust"). See id. ¶ 4.11. In consideration for the merger, Nuance paid a total of $80 million. Id. ¶ 4.12. Pursuant to the liquidation preferences of Voicebox's preferred shareholders, approximately $60 of this$80 million was distributed to the preferred shareholders. Id. ¶ 4.14. Of the approximately $20 million remaining, $18.9 million went to the Kennewicks pursuant to non-compete agreements worth $6.3 million each, which each of the three Kennewicks signed. Id. ¶ 4.16.¹ Thus, "only approximately $1 million was left" to be distributed to the common shareholders such as Plaintiff. Id. ¶ 4.20. Plaintiff, "nominally a holder of 0.75% of [Voicebox] on a fully diluted basis, received approximately $43,000, or approximately 0.06% of the proceeds of the Nuance Transaction." Id. ¶ 4.21.

On April 17, 2018, approximately two weeks after the merger, Nuance terminated Plaintiff's employment without cause. Id. ¶ 4.31.

B. Procedural Background

On August 8, 2018, Plaintiff served on all Defendants his unfiled Complaint and a Summons, thereby initiating this action in state court. Doc. 11, Ex. A-E.²

In Count 1 of his Complaint, Plaintiff, individually and derivatively on behalf of Voicebox, claims that the Kennewicks breached their fiduciary duties to Voicebox "by and through their self-interested actions before and during the Nuance Transaction." Compl. ¶ ¶ 5.1-5.8.³ In Count 2, Plaintiff alleges that Nuance and Voicebox "have refused to provide [Plaintiff] with the severance payment due" under a 2015 Separation Agreement between Plaintiff and Voicebox. Id. ¶ ¶ 6.1-6.3.⁴ Thus, Plaintiff claims, the Corporate Defendants are in breach of contract. Id. Similarly, in Count 3, Plaintiff alleges that the Corporate Defendants' failure to provide Plaintiff with the severance pay owed to him under the Separation Agreement violates RCW 49.48.010, which requires employers to pay all wages due to a terminated employee by the end of the next established pay period. Id. ¶ ¶ 7.1-7.4. In Count 4, Plaintiff claims that the Corporate Defendants willfully withheld these wages, in violation of RCW 49.52.050. Id. ¶ ¶ 8.1-8.6.

On August 31, 2018, the Corporate Defendants filed a notice of removal, maintaining that the Court has diversity jurisdiction pursuant to 28 U.S.C. § 1332. Specifically, the Corporate Defendants contend that they are not citizens of Washington State; and that Plaintiff fraudulently joined the nondiverse Kennewicks and/ or fraudulently "misjoined" the claim against the nondiverse Kennewicks with the claims against the Corporate Defendants. Doc. 1. Thus, the Corporate Defendants argue, the Court should sever and remand to state courtPlaintiff's claim against the Kennewicks, and exercise jurisdiction over Plaintiff's claims against the companies. Id.

On September 12, 2018, Plaintiff moved for default judgment against the Kennewicks, asserting that the Kennewicks had not appeared, pleaded, or answered Plaintiff's Complaint in either court. Doc. 10.

On September 13, 2018, the Kennewicks entered their appearance. Doc. 12.

On October 1, 2018, Plaintiff moved to remand this matter in its entirety, arguing that Plaintiff's claims are not fraudulently or otherwise "mis-" joined; and, in any event, that diversity jurisdiction as to Plaintiff's claims against the Corporate Defendants is "unclear" given that certain "facts suggest that Voicebox's nerve center remained in Washington" even after its merger with Nuance. Doc. 13; Doc. 21 at 10-12. The Corporate Defendants timely opposed Plaintiff's motion. Doc. 19.

On October 9, 2018, the Kennewicks moved to dismiss, arguing that "[i]nstead of determining whether remand or severance of the claim against the Kennewicks is warranted," the Court should "simply" dismiss it. See Doc. 15 at 2.

C. Resolving the Parties' Motions

As indicated above, there are three motions before the Court: Plaintiff's motion to remand (Doc. 13); Plaintiff's motion for default judgment against the Kennewicks (Doc. 10); and the Kennewicks' motion to dismiss (Doc. 15). As to the latter two motions, Plaintiff, in his briefing, insists that without ruling on jurisdiction, the Court can (and should) enter a default judgment against the Kennewicks (see Doc. 23 at 8-9), while the Kennewicks insist that the Court can (and should) dismiss Plaintiff's claim against them for, inter alia, failure to state a claim (see generally Doc. 10). Both parties are incorrect. "To avoid entering a default [or other]judgment that can be later successfully attacked as void, a court should determine whether it has the power, i.e., the jurisdiction, to enter the judgment [or order] in the first place." In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999); see also Fed. R. Civ. P. 12(h)(3) ("If the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action."). Indeed, a district court has an "affirmative duty to look into its jurisdiction over both the subject matter and the parties." In re Tuli, 172 F.3d at 712.

In its motion to remand, Plaintiff, of course, maintains that the Court does...