Court Opinion

ID: 9384619
Source: CourtListenerOpinion
Date Created: 2023-04-04 16:00:33.669641+00
Date Added: 2024-06-11T17:17:55.206820
License: Public Domain

United States Court of Appeals
                            For the Eighth Circuit
                        ___________________________

                                No. 22-1478
                        ___________________________

                       Eric Sorenson; Melanie Ann Forner

                       lllllllllllllllllllllPlaintiffs - Appellants

                                           v.

                              Joanne Marie Sorenson

                       lllllllllllllllllllllDefendant - Appellee
                                      ____________

                    Appeal from United States District Court
                         for the District of Minnesota
                                 ____________

                          Submitted: December 13, 2022
                              Filed: April 4, 2023
                                 ____________

Before LOKEN, MELLOY, and KOBES, Circuit Judges.
                           ____________

LOKEN, Circuit Judge.

       After David Sorenson (Decedent) died, Eric Sorenson and Melanie Forner, two
of his three adult children, brought this pro se diversity action in the District of
Minnesota against Joanne Sorenson, Decedent’s second wife. They asserted multiple
claims arising from Joanne’s alleged use of her power as Decedent’s attorney-in-fact
to close two Certificates of Deposit and keep funds that Decedent intended would
benefit his children. Joanne1 moved to dismiss, alleging lack of diversity jurisdiction
because Decedent’s third child, Paul Sorenson, like Joanne a resident of California,
is an indispensable, non-diverse party. See Fed. R. Civ. P. 19. Paul then assigned to
his sister Melanie all his potential claims against Decedent’s estate and a variety of
claims against Joanne. Plaintiffs -- still proceeding pro se -- filed a First Amended
Complaint (FAC) eliminating many of the factual allegations and claims in the
original complaint, and alleging that Joanne committed fraudulent misrepresentation
and statutory civil theft, see Minn. Stat. § 604.14, by abusing her role as Decedent’s
attorney-in-fact in transferring certificate of deposit (CD) funds to herself.

       Joanne filed a second motion to dismiss, arguing that Paul’s incomplete
assignment did not establish diversity jurisdiction, and renewing her arguments that
the FAC failed to state a claim, see Fed. R. Civ. P. 12(b)(6), and that Plaintiffs are not
real parties in interest, see Fed R. Civ. P. 17(a). The district court2 determined it has
diversity subject matter jurisdiction and dismissed the FAC claims with prejudice
because they fail to state a claim and Plaintiffs are not real parties in interest.
Plaintiffs appeal the district court’s dismissal. We review a Rule 12(b)(6) dismissal
de novo, applying Minnesota law, accepting as true the well-pleaded allegations in
the FAC, and drawing all reasonable inferences in favor of Eric and Melanie, the
non-moving parties. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Joanne renews her
challenge to the court’s diversity jurisdiction, arguing for the first time on appeal that
Paul’s assignment manufactured diversity jurisdiction in violation of 28 U.S.C.
§ 1359. We review this issue for plain error. We affirm.

      1
      For convenience, we will refer to Decedent’s three children and second wife
Joanne by their first names.
      2
      The Honorable Michael J. Davis, United States District Judge for the District
of Minnesota

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                      I. Background and Procedural History

      Decedent married Joanne in 1996. In the fall of 2001, Decedent signed a
durable statutory short form power of attorney, naming Joanne his Attorney-in-Fact
and son Eric his successor Attorney-in-Fact.3 Decedent checked the box on the form
authorizing Joanne as Attorney-in-Fact to transfer Decedent’s property to herself. In
2010, Decedent began experiencing symptoms of dementia. When Decedent died
from lymphoma on November 14, 2015, his dementia had progressed to late-stage
Alzheimer’s Disease.

       In response to Joanne’s first motion to dismiss for lack of diversity jurisdiction,
Paul executed an “Assignment of Claims for Damages.” In exchange for $1, Paul
assigned to sister Melanie all claims against Decedent’s estate and a variety of claims
against Joanne, including all claims against Joanne individually and in her roles as
Decedent’s spouse and Attorney-in-Fact, and as executor of Decedent’s estate. The
Assignment excluded claims against any future estate of Joanne or her heirs, and
claims regarding Joanne’s estate planning. Joanne’s second motion to dismiss argued
that Paul was still an indispensable party who defeats diversity jurisdiction because
the Assignment “does not assign all claims Paul Sorenson may have against
[Joanne].” Plaintiffs then acquired pro bono counsel and opposed Joanne’s motion
to dismiss.

      The district court ruled that it had subject matter jurisdiction because, by
executing an Assignment that assigned Paul’s “interest in the assets that are the
subject of the present litigation to Melanie Forner . . . Plaintiffs effectively dismissed
Paul Sorenson as an indispensable party and complete diversity exists between the

      3
      Decedent used the statutory short form power of attorney form set forth in
Minn. Stat. § 523.23, subd. 1. When used, this form “must be construed in
accordance with sections 523.23 and 523.24.”

                                           -3-
parties.” Sorenson v. Sorenson, No. CV 20-2121 (MJD/DTS), 2022 WL 329678, at
*4-5 (D. Minn. Feb. 3, 2022). Turning to the merits of Joanne’s Rule 12(b)(6) and
Rule 17(a) motions to dismiss, the court concluded that Plaintiffs failed to state
plausible Minnesota state-law claims for relief because, at most, the FAC showed
only that Joanne had committed civil fraud and theft against Decedent. Id. at *5-7.
Therefore, Plaintiffs lacked “standing” and are not real parties in interest because the
claims they assert belong to Decedent or his estate. Id. at *7-8. The court dismissed
the entire action with prejudice. Id. at *8. Plaintiffs appeal; on appeal, Joanne
renews her challenge to the district court’s subject matter jurisdiction.

                                    II. Discussion

        A. Subject Matter Jurisdiction. On appeal, Joanne argues for the first time
that Paul’s Assignment did not cure the absence of diversity jurisdiction because it
was done solely to “create diversity” in violation of 28 U.S.C. § 1359. Therefore, the
Assignment did not eliminate a non-diverse indispensable party. We note two aspects
of this contention before we review the issue of subject matter jurisdiction for plain
error. First, Joanne did not file a cross appeal challenging the district court’s finding
that Paul’s assignment of his “interest in the assets that are the subject of the present
litigation to Melanie Forner” was effective to dismiss Paul as an indispensable party.
Therefore, that finding is binding on appeal, subject to the § 1359 issue.

       Second, this new argument is not a challenge to our appellate subject matter
jurisdiction. It is presented as an alternative argument -- the grant of Joanne’s motion
to dismiss must be affirmed because the district court lacked subject matter
jurisdiction over the case. “In general, dismissal for lack of subject matter
jurisdiction is without prejudice” so that plaintiffs may reassert their claims in a
competent court. Missouri ex rel. Koster v. Harris, 847 F.3d 646, 656 (9th Cir. 2017).
We must of course consider the issue because subject matter jurisdiction is a
threshold inquiry at any stage of a lawsuit brought in federal court. See, e.g., Slater

                                          -4-
v. Republic-Vanguard Ins. Co., 650 F.3d 1132, 1134 (8th Cir. 2011). But if Joanne’s
interpretation of § 1359 is correct, then we should not affirm. We should remand
with directions to dismiss the action without prejudice.

       Section 1359, enacted as part of the 1948 revision of the Judicial Code,
replaced two prior statutes regulating the use of devices to create diversity
jurisdiction. In Kramer v. Caribbean Mills, Inc., 394 U.S. 823 (1969), the Supreme
Court considered an assignment of one party’s interest in a contract to a Texas
attorney to create diversity jurisdiction with the other party to a contract dispute.
Observing that only a small number of cases decided under § 1359 involve diversity
based on an assignment, the Court held that both precedent and the statute’s purpose
compelled the conclusion that “this assignment was ‘improperly or collusively made’
within the meaning of § 1359.” Id. at 828. Assignee Kramer had a “total lack of
previous connection with the matter and [reassigned] a 95% interest back to [the
assignor].” Id. at 827. Therefore, “the District Court lacked jurisdiction to hear this
action, and [] petitioner must seek his remedy in the state courts.” Id. at 830.

       Our recent case applying § 1359 in the assignment context involved, like
Kramer, an assignment by merger to a newly-formed out of state corporation to create
diversity jurisdiction for breach of contract litigation. Branson Label, Inc. v. City of
Branson, 793 F.3d 910 (8th Cir. 2015). Without discussing the text of the statute, we
affirmed the district court’s dismissal of the assignee’s federal lawsuit because the
assignee “collusively manufactured subject-matter jurisdiction in violation of 28
U.S.C. § 1359.” Id. at 912. We approved the district court’s use of a multi-factor test
for determining “whether an assign[ee] of a legal claim is precluded from invoking
diversity jurisdiction under § 1359.” Id. at 916 (emphasis added).

       On appeal, Joanne cites no case applying § 1359 in a similar situation. She
simply relies on her conclusory assertion that the Assignment was improperly
collusive because Paul’s “sole intent was to create diversity in order to put what

                                          -5-
should be a state court matter into federal court.” In our view, on the facts of this
case, Joanne’s argument is contrary to the plain language of § 1359, which her brief
ignores:

      A district court shall not have jurisdiction of a civil action in which any
      party, by assignment or otherwise, has been improperly or collusively
      made or joined to invoke the jurisdiction of such court [emphasis
      added].

Here, Paul’s Assignment did not result in a party being “made” or “joined” to create
diversity jurisdiction. Eric and Melanie, the initial Plaintiffs, are diverse from Joanne
and possess a substantial interest in the outcome of the lawsuit as named beneficiaries
of the CDs whose funds they seek to recover.4 The purpose of Paul’s Assignment
was to preserve diversity jurisdiction, which was apparent on the face of the
complaint Eric and Melanie filed, against Joanne’s Rule 19 motion to destroy
diversity jurisdiction based on Plaintiffs’ alleged failure to join a non-diverse
indispensable party. This is not a collusive joinder proscribed by § 1359. As the
District of Columbia Circuit has observed:

      We realize that burgeoning dockets are burdening federal courts. Yet
      Congress has so far proscribed only collusive joinder meant to invoke
      federal jurisdiction, see 28 U.S.C. § 1359; parties may still obtain a
      federal forum by colluding not to join.

Western Md. Ry. v. Harbor Ins. Co., 910 F.2d 960, 964 (D.C. Cir. 1990); cf. Grupo
Dataflux v. Atlas Glob. Grp., L.P., 541 U.S. 567, 572 (2004) (dismissal of
non-diverse party to cure jurisdictional defect is longstanding exception to the rule
that diversity jurisdiction must exist when complaint is filed).

      4
          The amount-in-controversy requirement in 28 U.S.C. § 1332(a) is not at issue.

                                           -6-
       Of course, an attempt to create diversity jurisdiction “by colluding not to join”
will not succeed if it results in failure to join an indispensable non-diverse party. As
the district court recognized in addressing this issue, determining whether a non-party
is an indispensable party is a two-step process. First, the court must determine
whether the non-joined party is a “required” (necessary) party under Rule 19(a)(1).
Sorenson, 2022 WL 329678, at *4. If the non-party is necessary under Rule 19(a)(1),
the court must conduct a multi-factor analysis under Rule 19(b) to “determine
whether, in equity and good conscience,” the action should proceed or be dismissed.
Id. “[O]nly if the non-party is necessary pursuant to Rule 19(a)(1) does the court
analyze the matter under Rule 19(b).” Id. (quotation omitted).

        On appeal, Joanne argues the district court lacked diversity jurisdiction because
Paul’s incomplete Assignment left Joanne facing the possibility of multiple or
inconsistent obligations. See Rule 19(a)(1)(B)(ii). But the district court found that
Paul’s Assignment transferred to Melanie his entire interest in the assets at issue in
this litigation; Paul “no longer is an indispensable party and diversity jurisdiction now
exists.” Sorenson, 2022 WL 329678, at *4. That is the essential Rule 19(a)(1)
finding. Joanne did not cross appeal that finding. Therefore, it is established for
purposes of this appeal that Paul was not a required party, so we need not consider
the equitable Rule 19(b) factors.

       For these reasons, the district court did not commit plain error in deciding that
it had diversity subject matter jurisdiction without considering § 1359 sua sponte.

       B. The Merits. Eric and Melanie argue the district court erred in dismissing
the FAC with prejudice under Rule 12(b)(6) and Rule 17(a) because, as the intended
third party beneficiaries of non-probate assets (CD1 and CD2), they have standing to

                                          -7-
assert claims for civil fraud and civil theft.5 We review de novo the district court’s
Rule 12(b)(6) dismissal, accepting as true the well-pleaded allegations in the FAC
and drawing all reasonable inferences in favor of Plaintiffs as non-moving parties.
Iqbal, 556 U.S. at 678. Our first task is to determine what claims of fraud and civil
theft were asserted in the FAC.

       The FAC alleges that in December 2015 the wife of Joanne’s son told Eric that
Decedent wanted his children to have a $108,000 Certificate of Deposit (“CD1”)
Decedent had saved. Eric was told by a Twin Cities bank manager that the CD
account was current but could not be paid to the named beneficiaries because
Joanne’s name “is still on it.” Joanne told Eric she added herself as joint holder to
some of Decedent’s accounts to keep them “safe” and to shield the funds from
“Veterans Hospice Care” if Decedent used that program. Joanne eventually paid the
Sorenson siblings $84,000 ($28,000 each) for CD1 and told Eric they would receive
the remaining $24,000 ($8,000 each) if they waived any rights to Joanne’s future
estate. Eric refused to do so. The FAC also alleges that Eric learned that Decedent
opened another Certificate of Deposit account (“CD2”) at a Twin Cities credit union
in 2009 worth $108,000 or more. Joanne has not paid the $24,000 allegedly owed to
the siblings on CD1; she maintains that CD2 does not exist.

       The FAC alleges it is “highly likely” that Joanne used her Power of Attorney
to put her name on Decedent’s bank accounts, acting as Decedent’s agent before his
death. As the Power of Attorney ended when Decedent died, if “any property the
Defendant has attached her name to as Attorney in Fact . . . should go to her. . . . The
plaintiffs can only call this Civil Theft.” The FAC further alleges that Joanne
disclosed CD1 and offered Plaintiffs part payment “in a fraudulent manner to make

       5
       Plaintiffs brief this issue as though it is a constitutional question of Article III
standing. It is not. It is simply the Rule 12(b)(6) issue of who, under substantive
Minnesota law, possesses the right Plaintiffs seek to enforce.

                                           -8-
them think that it was all that existed . . . while keeping the larger [CD2] for her own
use.” The FAC alleges “Plaintiffs believe that CD2 has been taken and possibly
converted with the use of Power of Attorney,” and that “Plaintiffs now own one-
hundred percent of all claims in this case.” The FAC seeks damages “for any and all
property . . . found to have the Plaintiffs name . . . as beneficiaries and where [Joanne]
has attached her name to it as an Agent after mid-2010.”

       Plaintiffs’ fraud and civil theft claims are expressly based upon Joanne’s
alleged abuse of her power as Decedent’s Attorney-in-Fact under a statutory short
form power of attorney -- (i) making herself a joint holder of CD1 and CD2 before
Decedent’s death, (ii) withdrawing the Certificate of Deposit funds after his death,
and (iii) refusing to turn over the CD proceeds to Plaintiffs, the P.O.D. (payable on
death) beneficiaries named by Decedent in the instruments. Construing the applicable
Minnesota statutes, the district court concluded that the claims asserted in the FAC
are claims that belong to Decedent, for actions by Joanne before his death, and to
decedent’s estate, for actions taken as Attorney-in-Fact after his death. We agree.

          (i) Plaintiffs’ primary complaint is that Joanne made herself a joint holder of
the CD accounts during Decedent’s lifetime. But Decedent checked the box in the
power of attorney form that authorized Joanne as Attorney-in-Fact “to transfer my
property to the attorney in fact.” Minn. Stat. § 523.23, subd. 1, Form, part Third.
Checking that box gave Joanne authority “to make gifts on behalf of the principal
[Decedent] . . . to the attorney-in-fact . . . for purposes which the attorney-in-fact
deems to be in the best interest of the principal, specifically including minimization
of . . . taxes.” Minn. Stat. § 523.24, subd. 8(2). We agree with Plaintiffs that Joanne
when acting as Attorney-in-Fact owed Decedent as principal a fiduciary duty to act
in his best interest. See Minn. Stat. § 523.21; State v. Campbell, 756 N.W.2d 263,
271 (Minn. App. 2008). Breach of that duty, for example by impermissible
self-dealing, is actionable. See Hertzog v. Purcell, No. C7-02-120, 2002 WL
31371949, at *3, 5 (Minn. App. Oct. 22, 2002). But so long as the alleged CD1 and

                                           -9-
CD2 accounts were still in effect, any civil claim alleging that Joanne breached her
fiduciary duty as Attorney-in-Fact by exercising her authority to become a joint
holder could only be asserted by Decedent during his lifetime. “A P.O.D. account
belongs to the original purchasing or depositing party during the party’s lifetime and
not to the P.O.D. payee or payees.” Minn. Stat. § 524.6-203, subd. (b).

       (ii) Plaintiffs further claim that Joanne committed civil theft when she
withdrew funds from the CD accounts after Decedent’s death. At that moment,
Plaintiffs allege they were the P.O.D. beneficiaries named on CD1 and CD2 and
therefore “owned” the funds. But under Minnesota law, “the death of any party to a
multiple-party account has no effect on beneficial ownership of the account other than
to transfer the rights of the decedent as part of the estate.” Minn. Stat. § 524.6-204,
subd. (c). The FAC alleged that the manager of the bank that issued CD1 would not
pay the account funds to the P.O.D. beneficiaries because Joanne, a joint account
holder, was “still on it.” This confirms that, after Decedent’s death, Joanne had the
unfettered right to withdraw the funds as joint owner and as personal representative
of the estate of the other joint owner. There was no civil theft from Plaintiffs when
she did so; the P.O.D. account did not belong to Plaintiffs so long as any joint account
holder survived. Cf. TCI Bus. Cap., Inc. v. Five Star Am. Die Casting, LLC, 890
N.W.2d 423, 431 (Minn. App. 2017). Therefore, if withdrawal breached Joanne’s
fiduciary duties as Attorney-in-Fact, as Plaintiffs allege, the claim belonged to
Decedent’s estate. Plaintiffs argue this principle does not apply because the
Certificates of Deposit are non-probate assets. They cite no authority for this
assertion. A non-probate asset is still part of a decedent’s estate. See Minn. Stat.
§ 524.1-201, subd. (17). Decedent’s estate included probate assets.

      (iii) Plaintiffs allege that Joanne committed fraud and civil theft when she put
the withdrawn CD funds to her personal use. That was not action taken by Joanne as
Attorney-in-Fact under the expired power of attorney. It may be that, if Joanne did
keep money Decedent intended his children to have, they would have a third party

                                         -10-
beneficiary claim for conversion or unjust enrichment. Joanne’s payment of $84,000
and offer to pay $24,000 more in exchange for broad releases seems like recognition
of some obligation to Decedent’s children that extended beyond her actions as
Decedent’s Attorney-in-Fact. But those claims were not asserted.

       For these reasons, we conclude the district court properly granted Joanne’s
Rule 12(b)(6) motion because Plaintiffs’ FAC failed to state plausible claims of
fraudulent misrepresentation and civil theft. Therefore, we need not separately
consider the district court’s alternative ruling that Eric and Melanie are not “real
parties in interest” under Rule 17(a).6

       (iv) Finally, Plaintiffs allege the district court abused its discretion in
dismissing the FAC with prejudice, leaving them unable to assert additional or
amended claims in an amended pleading. In a footnote in Plaintiffs’ brief to the
district court opposing Joanne’s second motion to dismiss, counsel stated: “Plaintiffs
intend to request leave of the Court to amend their [FAC] to add additional causes of
action that are supported by the facts currently alleged, including but not limited to
breach of fiduciary duty, unjust enrichment, conversion, and conversion of a
negotiable instrument.” No motion for leave to amend was ever filed, despite nearly
a year passing between submission of that brief and the district court’s ruling on
Joanne’s motion to dismiss. The district court dismissed the FAC with prejudice.
Briefly responding to Plaintiffs’ statement of their intent to amend, the district court
stated, “all of these proposed claims suffer from the same defect . . . they are based
on the legal rights of Decedent, not Plaintiffs.” Sorenson, 2022 WL 329678, at *7.
Plaintiffs did not file a motion for post-judgment leave to amend, properly supported

      6
        “The ‘real party in interest’ is the person who, under governing substantive
law, is entitled to enforce the right asserted, and in a diversity case, the governing
substantive law is ordinarily state law.” Iowa Pub. Serv. Co. v. Med. Bow Coal Co.,
556 F.2d 400, 404 (8th Cir. 1977).

                                         -11-
by a proposed amended complaint. See United States v. Mask of Ka-Nefer-Nefer,
752 F.3d 737, 743 (8th Cir. 2014).

       In these circumstances, we conclude the district court did not abuse its
discretion in dismissing with prejudice the claims asserted in the FAC. For reasons
explained above, we do not agree that additional claims regarding Joanne’s use of the
CD proceeds after she was done acting as Attorney-in-Fact would necessarily have
been futile. But without a proposed amended complaint to consider, the district court
did not abuse its discretion by assuming they would be. See Pet Quarters, Inc. v.
Depository Tr. & Clearing Corp., 559 F.3d 772, 782 (8th Cir. 2009). Now, of course,
any assertion of allegedly new claims in a new state or federal lawsuit will be subject
to principles of claim preclusion.

      The judgment of the district court is affirmed.
                     ______________________________

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