Nark et al v. Martin Engineering Company et al

Filing 36

ORDER. Plaintiff's 19 Motion to Remand and Supporting Brief is granted. Defendants' 10 , 11 , 12 Motions to Dismiss are denied as moot. Pursuant to 28 U.S.C. § 1447(c) and due to this Courts' lack of subject matter juri sdiction, this case is remanded to the District Court for the City and County of Denver, Colorado, where it was originally filed as Case No. 2012CV7086. This case is closed in its entirety. Within 14 days of this Order, plaintiff Malcolm B. Nark may file his bill of costs with the Clerk of the Court. By Judge Philip A. Brimmer on 7/24/13.(mnfsl, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 12-cv-03369-PAB-KLM
MALCOLM B. NARK, d/b/a High Tech Associates,
Plaintiff,
v.
MARTIN ENGINEERING COMPANY, an Illinois corporation,
HOT EDGE, INC., an Illinois corporation,
HOTEDGE, INC., a Colorado corporation, and
BRONSON RUMSEY, individually,
Defendants.

ORDER

This matter is before the Court on the Motion for Remand [Docket No. 19] filed
by plaintiff Malcolm B. Nark. In his motion, plaintiff requests that the Court remand this
case to the District Court for the City and County of Denver, Colorado.
I. BACKGROUND1
Nark is the designer and inventor of snow and ice melting devices used on roof
structures to enhance roof drainage. Docket No. 7 at 2, ¶ 7. Nark’s inventions are
known collectively as the Hot Edge Ice Melt System products.2 Id. In the winter of
2008, Edwin Peterson, chairman of the board of directors for Martin Engineering
Company (“Martin Engineering”), hired Nark to install a snow and ice melting system on
1

2

The following facts are taken from plaintiff’s complaint [Docket No. 7].

Nark alleges that he designed the following products: HotEdge Rail, HotShingle,
HotSheet, HotSeam, HotFlashing, HotDrip Edge, and HotValley. Docket No. 7 at 2,
¶ 7.

Peterson’s home in Aspen, Colorado. Id. at ¶ 8. Because of Nark’s successful
installation of the ice melting products on Peterson’s home, Peterson suggested that
Nark allow Martin Engineering to patent Nark’s Hot Edge Ice Melt System products. Id.
at ¶ 9. On April 27, 2009, after successful contract negotiations, Nark and Martin
Engineering entered into an Intellectual Property Assignment Agreement (“IPAA”).
Docket No. 7 at 8-16.
Under the terms of the IPAA, Nark transferred his intellectual property rights to
the Hot Edge Ice Melt System products to Martin Engineering. Id. at 2, ¶ 9. Nark
alleges that he transferred his intellectual property rights to the ice melting products
based on his understanding that Martin Engineering would acquire patents for the ice
melting products and that Martin Engineering would sell or license Nark’s patents to a
third party manufacturer. Id. Nark asserts that, under the terms of the IPAA, Martin
Engineering was not authorized to manufacture or distribute the Hot Edge Ice Melt
System products. Id.
Pursuant to Nark’s agreement, Martin Engineering filed U.S. Patent Application
No. 12/547,227 on August 25, 2009 and U.S. Patent Application No. 12/685,578 on
January 13, 2010. Id. at ¶ 10. These patent applications embodied Nark’s HotEdge
Rail, HotShingle, and HotSheet products. Id.
While Martin Engineering worked to secure patents for Nark’s inventions,
Peterson, Bronson Rumsey (Peterson’s son-in-law), and Nark began discussing the
possibility of using a means other than the third party manufacturer contemplated by
the IPAA to distribute and manufacture the Hot Edge Ice Melt System products. Id. at

2

2-3, ¶ 11. Specifically, Nark, Peterson, and Rumsey discussed the possibility of starting
a Colorado-based company to manufacture and distribute Nark’s Hot Edge Ice Melt
System products. Id. According to these preliminary discussions, Rumsey would
manage the Colorado-based company and Nark would provide Rumsey with technical
and marketing support. Id.
To market Nark’s ice melting products, Martin Engineering, Rumsey, and Nark
presented several Hot Edge Ice Melt System products at the International Builders
Trade Show in Las Vegas, Nevada in January 2010. Id. at 3, ¶ 12. After receiving a
positive response at the trade show, Peterson, Rumsey, and Nark created HotEdge,
Inc. (“HotEdge-CO”), a Colorado company operated by Rumsey to which Nark would
provide technical, sales, and marketing support. Id. at ¶ 13.
On April 7, 2010, after the creation of HotEdge-CO, Martin Engineering and Nark
signed an Addendum to the IPAA (the “Addendum”). Docket No. 7 at 17-21. Pursuant
to the terms of the Addendum, Nark would receive royalty payments in connection with
the sale of any Hot Edge Ice Melt System products manufactured and sold by Martin
Engineering or any of its affiliates. Id. at 18, ¶ 8.3 Nark also entered into a Consulting
3

The Addendum provides, in relevant part, that:

“(a) If Martin Engineering: (i) manufactures and sells a “Covered Product”,
(ii) contracts with another party to manufacture a “Covered Product” to be
sold by Martin Engineering or (iii) contracts with another party to sell a
“Covered Product” manufactured by Martin Engineering, then Martin shall
be obligated to make a “Royalty Payment” to High Tech based upon the
sale of “Covered Products[.]” Royalty payments shall be made in arrears
with the first payment due thirty (30) days after the end of the first
quarterly period when Martin Engineering receives “Net Sales” of Covered
Products, and each quarterly period thereafter. For the purpose of this
Agreement the term “Royalty Payment” shall be ten percent (10%) of “Net
3

Agreement with Martin Engineering, id. at 22-27, whereby Martin Engineering would
pay Nark $6,000 per month for technical, sales, and marketing support. Id. Throughout
2010, Nark and Martin Engineering filed additional patent applications for Nark’s
HotSeam, HotFlashing, HotDrip Edge, Hot Valley, and other products. Id. at 3, ¶ 16.
Nark alleges that, beginning in December 2010, Martin Engineering, Hot Edge,
Inc. (“HotEdge-IL”), an Illinois corporation, and HotEdge-CO began manufacturing and
selling various Hot Edge Ice Melt System products. Id. at 4, ¶ 19. Nark asserts that
Martin Engineering, HotEdge-IL, HotEdge-CO, and Rumsey sold over $1,000,000.00
worth of Hot Edge Ice Melt System products between December 1, 2010 and
December 31, 2011, as well as an additional $400,000.00 worth of Hot Edge Ice Melt
System products between January 1, 2012 and September 30, 2012. Id. at ¶¶ 19-20.
Nark claims that, on September 30, 2011, Martin Engineering cancelled the Consulting
Agreement and ceased payment of his consulting fee, id. at ¶ 22, and that he has not
received a royalty payment from any of the defendants since that time. Id. at ¶ 23.
Nark asserts that he has not been able to determine the value of the royalties owed to
him under the terms of the Addendum because, despite his repeated requests, none of
the defendants have provided a full and complete accounting of the Hot Edge Ice Melt
System products sold in 2011 and 2012. Id. at ¶ 22.
On November 21, 2012, Nark commenced this action in the District Court for the
City and County of Denver, Colorado. Docket No. 7. In his complaint, Nark asserts

Sales” of each “Covered Product.”
Docket No. 7 at 18, ¶ 8.
4

three claims for relief. First, Nark brings a claim for breach of contract against Martin
Engineering, HotEdge-IL, and HotEdge-CO. Id. at 4-5. Second, Nark raises breach of
implied contract and interference with contractual obligations claims against Rumsey.
Id. at 5-6. Third, Nark requests that the Court order that defendants provide an
accounting of the sales of all the Hot Edge Ice Melt System products sold since
December 2010. Docket No. 7 at 6-7.
On November 26, 2012, Nark served defendants with the summons and
complaint. Docket No. 1 at 2-3, ¶ 5. On December 28, 2012, Martin Engineering and
HotEdge-IL removed this action, asserting that this Court has subject matter jurisdiction
over the case based on diversity of citizenship pursuant to 28 U.S.C. § 1332. Docket
No. 1 at 1, ¶ 1. In the notice of removal, Martin Engineering and HotEdge-IL claim that
the Court has subject matter jurisdiction because Nark fraudulently joined defendants
HotEdge-CO and Rumsey in order to defeat diversity jurisdiction. Id. at 8, ¶ 26. On
January 28, 2013, Nark filed the present motion for remand. Docket No. 19. In his
motion, Nark requests that the Court remand the case to state court because
defendants HotEdge-CO and Rumsey are citizens of Colorado and, therefore, their
presence in this case divests the Court of diversity jurisdiction. Id. at 2. On February
19, 2013, defendants Martin Engineering and HotEdge-IL filed a response to plaintiff’s
motion. Docket No. 25. Because only two of the defendants responded to plaintiff’s
motion, all references to “defendants” in this Order, unless otherwise indicated, are to
Martin Engineering and HotEdge-IL.

5

II. STANDARD OF REVIEW
A party may remove “any civil action brought in a State court of which the district
courts of the United States have original jurisdiction.” 28 U.S.C. § 1441(a). Generally,
in a removal case, such as this one, the removing party has the burden of establishing
that the jurisdictional prerequisites have been satisfied by a “preponderance of the
evidence.” Martin v. Franklin Capital Corp., 251 F.3d 1284, 1290 (10th Cir. 2001)
(Martin I). Moreover, when a case is originally filed in state court, there is a strong
presumption against removal and all ambiguities must be resolved against removal. Id.
at 1289.
In this case, removal is premised on diversity jurisdiction under 28 U.S.C.
§ 1332(a). Diversity jurisdiction exists when the case involves a dispute between
citizens of different states and the amount in controversy exceeds $75,000. 28 U.S.C.
§ 1332(a)(1). To meet the diversity requirement, there must be complete diversity
between plaintiff and all defendants, meaning that no defendant can be from the same
state as any plaintiff. Lincoln Prop. Co. v. Roche, 546 U.S. 81, 89 (2005). Moreover,
the Court is required to remand a case to state court “[i]f at any time before final
judgment it appears that the district court lacks subject matter jurisdiction.” 28 U.S.C.
§ 1447(c); see Miller v. Lambeth, 443 F.3d 757, 759 (10th Cir. 2006) (“[t]he two
categories of remand within § 1447(c) . . . are remands for lack of subject matter
jurisdiction and for defects in removal procedure”).

6

III. ANALYSIS
In this case, no party disputes that the amount in controversy requirement is
satisfied. In addition, the parties do not dispute that Nark is a citizen of Colorado, that
Rumsey is a citizen of Colorado, and that HotEdge-CO is a corporation incorporated in
Colorado with its principal place of business in Colorado. See Docket Nos. 19-2, 19-3;
Docket No. 25-1 at 1, ¶ 4. As noted above, when any plaintiff and defendant have the
same citizenship, as Nark, Rumsey, and HotEdge-CO do here, diversity jurisdiction
fails. Ravenswood Inv. Co., L.P. v. Avalon Corr. Servs., 651 F.3d 1219, 1223 (10th Cir.
2011) (noting that, when jurisdiction is premised on diversity of citizenship under 28
U.S.C. § 1332(a), as is the case here, each plaintiff must be diverse from each
defendant to have what is known as “complete diversity”). To avoid this outcome,
defendants allege that Nark “fraudulently joined” Rumsey and HotEdge-CO for the sole
purpose of defeating diversity jurisdiction. Docket No. 25 at 1-5.
A. Fraudulent Joinder
A “fraudulent joinder analysis [is] a jurisdictional inquiry.” Albert v. Smith’s Food
& Drug Ctrs., Inc., 356 F.3d 1242, 1247 (10th Cir. 2004). To prove that a non-diverse
defendant was joined to defeat federal jurisdiction, defendants must show either (1) that
there is “no possibility” that plaintiff will be able to establish a cause of action against
the non-diverse defendant or (2) outright fraud in the pleading of jurisdictional facts.
Hale v. MasterSoft Int’l Pty. Ltd., 93 F. Supp. 2d 1108, 1113 (D. Colo. 2000); Frontier
Airlines, Inc. v. United Air Lines, Inc., 758 F. Supp. 1399, 1404 (D. Colo. 1989). The
burden of proving fraudulent joinder is extremely high and, “[i]f there is even a

7

possibility that the state court would find that the complaint states a cause of action
against the resident defendant, the federal court must find that the joinder was proper
and remand the case to state court.” Hale, 93 F. Supp. 2d at 1113 (citation omitted).
Additionally, the removing party claiming fraudulent joinder must “prove the non-liability
of the defendant as a matter of fact or law.” Blackwood v. Thomas, 855 F. Supp. 1205,
1207 (D. Colo. 1994).
In cases where fraudulent joinder is claimed, courts must “pierce the pleadings,
consider the entire record, and determine the basis of joinder by any means available.”
Dodd v. Fawcett Publ’ns, Inc., 329 F.2d 82, 85 (10th Cir. 1964) (citations omitted);
Smoot v. Chicago, Rock Island & Pac. R.R. Co., 378 F.2d 879, 881-82 (10th Cir. 1967).
In so doing, courts must decide whether there is a reasonable basis to believe the
plaintiff might succeed on at least one claim against a non-diverse defendant. Nerad v.
Astrazeneca Pharms., Inc., 203 F. App’x 911, 913 (10th Cir. 2006). For a claim to have
a reasonable basis, it must have a basis in the alleged facts and the applicable law. Id.
Defendants argue that Nark fraudulently joined Rumsey in order to divest the
Court of diversity jurisdiction.4 Docket No. 25 at 5. In support, defendants claim that
the complaint does not sufficiently allege that Rumsey induced Martin Engineering and
HotEdge-IL to breach the terms of the Addendum. Id. Defendants state that the
Addendum required Martin Engineering to make royalty payments only for “the invoice
price actually received by Martin Engineering from the sale of ‘Covered Product.’” Id. at

4

Pursuant to the terms of the IPAA and the Addendum, construction of the
parties’ agreements is governed by the substantive laws of the State of Illinois. Docket
No. 7 at 13, ¶ 19; id. at 25, ¶ 7.7; see also Docket No. 25 at 1 n.1.
8

5 (citing Docket No. 7 at 18, ¶ 8(d)). Defendants further contend that Rumsey’s alleged
failure to “report or account for. . . sales [of the Hot Edge Ice Melt System products] to
Defendants Martin [Engineering] and HotEdge[-IL,]” Docket No. 7 at 6, ¶ 37, did not
prevent Martin Engineering or HotEdge-IL from paying royalties on all of their sales.
Docket No. 25 at 5. As such, defendants contend that Rumsey’s actions did not cause
a breach of the Addendum, but only reduced the amount of the royalties Martin
Engineering and HotEdge-IL paid Nark. Id.
In response, Nark claims that his allegations are sufficient to establish a claim for
interference with contractual relations. Docket No. 19 at 13. Nark also argues that he
does not have to prove his case in the complaint and that defendants’ arguments do not
show that “as a matter of law” Nark has no possibility of success on his claims. Id. at
14; Docket No. 29 at 3-4.
Before addressing defendants’ argument, the Court notes that, in the notice of
removal, defendants claim that Rumsey was fraudulently joined to this action because
Nark’s second claim for relief against Rumsey does not arise out of the same
transaction or occurrence as Nark’s first claim for breach of contract. Docket No. 1 at 6,
¶¶ 15-16. Defendants, however, do not mention this argument in their response to the
motion for remand. To the extent defendants still assert this argument, the Court finds
that Nark’s second claim for relief against Rumsey satisfies the joinder requirements set
forth in Rule 20 of the Colorado Rules of Civil Procedure. Both the contract and the
intentional interference with contract claims arise out of Martin Engineering’s failure to
make royalty payments. Moreover, there are common questions of fact and law
surrounding both claims, namely, whether the Addendum compels Martin Engineering
9

to pay Nark royalty payments for the sales of products even if Martin Engineering does
not receive invoices for the sales and whether Rumsey’s failure to report his sales
caused Martin Engineering to breach the terms of the Addendum. All of these issues
share the same background facts, will likely involve testimony from the same witnesses,
and therefore arise out of the same transactions and occurrences. Colo. R. Civ. P.
20(a); City of Aurora ex rel. Utility Enter. v. Colo. State Eng’r, 105 P.3d 595, 623 (Colo.
2005) (noting that, under Colorado law, Rule 20 is given “the broadest possible
reading”).
With regard to Nark’s second claim for relief, under Colorado law, the elements
of the tort of intentional interference with existing contracts are: (1) the existence of a
valid and enforceable contract between the plaintiff and a third party; (2) the
defendant’s awareness of this contractual relation; (3) intent by the defendant to induce
a breach of contract with the third party; (4) action by defendant which induces a breach
of contract; and (5) damages. Galleria Towers, Inc. v. Crump Warren & Sommer, Inc.,
831 P.2d 908, 912 (Colo. App. 1991).5 In addition, the defendant must have acted
“improperly” in causing the result. Krystkowiak v. W. O. Brisben Cos., Inc., 90 P.3d
859, 871 (Colo. 2004).6

5

Nark does not present arguments in support of his claim against Rumsey for a
breach of an implied contract. See Docket No. 7 at 5; Docket No. 25 at 5.
6

In determining whether a defendant has acted improperly, courts consider the
following: (a) the nature of the actor’s conduct; (b) the actor’s motive; (c) the interests of
the other with which the actor’s conduct interferes; (d) the interests sought to be
advanced by the actor; (e) the social interests in protecting the freedom of action of the
actor and the contractual interests of the other; (f) the proximity or remoteness of the
actor’s conduct to the interference; and (g) the relation between the parties.
Krystkowiak v. W. O. Brisben Cos., Inc., 90 P.3d 859, 871 n. 13 (Colo. 2004).
10

In this case, defendants argue that Nark’s allegations do not satisfy the third and
fourth elements of an intentional interference with contract claim.7 In order to satisfy the
third and fourth elements of this claim, Nark must sufficiently allege that Rumsey acted
improperly and caused Martin Engineering to breach the terms of the Addendum.
Krystkowiak, 90 P.3d at 871. In his complaint, Nark claims that Rumsey “knew” that
Nark was entitled to royalty payments for sales of the Hot Edge Ice Melt System
products, Docket No. 7 at 5-6, ¶ 35, yet Rumsey “failed” to report a significant amount
of his sales to Martin Engineering and HotEdge-IL. Id. at 6, ¶ 37. The Court finds that
these allegations are sufficient, for the purposes of a motion to remand, to establish the
third element of an intentional interference with contract claim, namely, that Rumsey
acted improperly when withholding the sales reports. Krystkowiak, 90 P.3d at 871.
In addition, Nark asserts that Martin Engineering “owned” HotEdge-CO, that this
company was operated by Rumsey, Docket No. 7 at 5, ¶ 32, and that Rumsey’s failure
to report his sales “interfered” with Martin Engineering’s obligation under the Addendum
to pay Nark “royalty payments of ten percent (10%) of the net sales of such products.”
Id. at 6, ¶ 38. The Court finds that these allegations are sufficient, for the purposes of a
motion to remand, to establish the fourth element of an intentional interference of
contract claim. Because the Addendum requires Martin Engineering to pay royalties for
sales of Nark’s products, id. at 18, ¶ 8(a) (“Martin shall be obligated to make a ‘Royalty
7

The Court notes that Nark has sufficiently alleged the first, second, and fifth
elements of an intentional interference with a contract claim. Specifically, Nark avers
that Martin Engineering and Nark had a valid and enforceable contract (i.e., the IPAA
and the Addendum); Rumsey had knowledge of the IPAA and the Addendum; and Nark
suffered damages in the loss of royalty payments due to Rumsey’s failure to report
sales. See Galleria, 831 P.2d at 912.
11

Payment’ to High Tech based upon the sale of ‘Covered Products’”), it is plausible that
Rumsey’s failure to report his sales of Nark’s products caused Martin Engineering to
breach its obligation to pay royalties for the sale of “Covered Products.” Id.
Although defendants argue that their obligation under the contract was to pay
Nark royalty payments only after Martin Engineering “actually” received “the invoice
price,” the Court finds that the parties’ Addendum is susceptible to multiple
interpretations. Defendants interpret the Addendum to mean that Martin Engineering’s
obligation to pay Nark royalty payments for the sales of covered products is only
triggered after Martin Engineering actually receives invoices. Docket No. 25 at 5. Thus,
defendants claim, because Martin Engineering did not receive an invoice of Rumsey’s
sales, Martin Engineering did not breach the terms of the Addendum, and Rumsey’s
actions only reduced the amount of the royalties paid to Nark. Id. This argument,
however, is unconvincing. The Addendum requires that Martin Engineering “make”
royalty payment based upon the “sale of ‘Covered Products.’” Docket No. 7 at 18,
¶ 8(a). Based on this language, it is plausible that a state court could interpret the
Addendum to mean that Martin Engineering has a duty to pay royalties for all the sales
of Nark’s products, not just for some of those sales or only for the sales of which Martin
Engineering is aware. Assuming this is the interpretation given to the contractual terms,
a reduction in the amount of royalties Martin Engineering paid Nark because of
Rumsey’s failure to report sales would constitute a breach of the terms of the
Addendum. The determination of whether the Addendum requires Martin Engineering
to pay for all sales of Nark’s products or only for the sales of which Martin Engineering
has knowledge necessarily requires a construction of the terms of the Addendum.
12

However, because the Court must not pre-try the issue of liability during a fraudulent
joinder analysis, and the Addendum is susceptible to multiple interpretations, the Court
finds that there is a reasonable basis here to believe that a state court could find that
Nark’s complaint sufficiently states a claim for intentional interference with contractual
relations.8 See Hale, 93 F. Supp. 2d at 1113; Smoot, 378 F.2d at 882 (noting that
courts should not “pre-try, as a matter of course, doubtful issues of fact to determine
removability; the issue must be capable of summary determination and be proven with
complete certainty”); Slater Numismatics, LLC v. Driving Force, LLC, --- P.3d ----, 2012
WL 2353847, at *9-10 (Colo. App. June 21, 2012) (noting that a defendant may be
liable for an intentional interference with contract claim for causing “a third party to fail
in some significant aspect of performance which the third party owes to the plaintiff”).
Accordingly, viewing these facts in the light most favorable to Nark – the non-removing
party – the Court finds that defendants have failed to show that there is “no possibility”
that a state court will find that Nark asserts a claim against Rumsey. See Hale, 93 F.
Supp. 2d at 1113.

8

The outcome of this motion would be the same under Illinois law given that the
elements of the tort of intentional interference with contractual relations are similar in
both states. See, e.g., HPI Health Care Servs., Inc. v. Mt. Vernon Hosp., Inc., 545
N.E.2d 672, 676 (Ill. 1989) (noting that the elements of an intentional interference with
contractual relations tort under Illinois law are: “‘(1) the existence of a valid and
enforceable contract between the plaintiff and another; (2) the defendant’s awareness
of this contractual relation; (3) the defendant’s intentional and unjustified inducement of
a breach of the contract; (4) a subsequent breach by the other, caused by the
defendant’s wrongful conduct; and (5) damages’”) (citation omitted). In addition, for a
plaintiff to establish the tort of intentional interference with contract, a plaintiff must
provide evidence of a breach of contract caused by the defendant. Strosberg v.
Brauvin Realty Servs., Inc., 691 N.E. 2d 834, 845 (Ill. App. Ct. 1998).
13

In addition to the argument above, defendants claim that Rumsey’s alleged
diversion of sales constitutes tortious conduct towards the other defendants, and not
Nark. Docket No. 25 at 5. In support of this argument, defendants cite three cases:
Hales v. Ashland Oil, Inc., 342 So. 2d 984 (Fla. Dist. Ct. App. 1977), Williamson Picket,
Gross, Inc. v. 400 Park Ave. Co., 405 N.Y.S. 2d 709 (N.Y. App. Div. 1978), and Ethyl
Corp. v. Balter, 386 So. 2d 1220, 1224 (Fla. Dist. Ct. App. 1980). However, none of
these cases support defendants’ argument or interpret Colorado law. First, the plaintiffs
in Hales were customers who had contracted with Pickard to buy 200 trawlers. 342 So.
2d at 986. Pickard, in turn, had contracted with Ashland Oil, Inc. and Ashland’s wholly
owned subsidiaries (collectively, the “Ashland group”) to produce and sell the trawlers.
Id. at 985. After Pickard’s business relationship with the Ashland group deteriorated,
Pickard sued the Ashland group for deceit and breach of contract. Id. Pickard secured
a jury award on its claim that the Ashland group never intended to fulfill their contractual
obligations and sought only to “take advantage of Pickard’s expertise in outfitting the
hulls.” Id. at 985. Because Pickard could not deliver plaintiffs’ trawlers due to the
Ashland group’s breach, plaintiffs sued the Ashland group for intentional interference
with plaintiffs’ contractual relationship with Pickard. Id. at 986. The court rejected
plaintiffs’ claim, finding that the agreement between Pickard and the Ashland group was
not designed to benefit plaintiffs, but was “solely for the mutual profit of Pickard and the
Ashland [ ] group.” Id. at 986. Thus, the court in Hales held that the plaintiffs in that
case did not suffer a direct injury because, even though the Ashland group’s fraudulent
breach of its contract with Pickard resulted in the unavailability of plaintiffs’ trawlers, the

14

plaintiffs were not intended third party beneficiaries of the contract between Pickard and
the Ashland group. Id. Nark’s claims in this case, however, are of a different nature.
Nark is a signatory to the Addendum and, because the Addendum specifically provides
for Nark’s receipt of royalties, Nark is a direct beneficiary of it. Moreover, Rumsey’s
intentional failure to provide the sales reports caused Nark a direct injury in the loss or
diminution of royalty payments. Docket No. 7 at 6, ¶ 37.
Second, Williamson is a New York case that deals with a claim of “[i]nterference
with precontractual relations.” 405 N.Y.S. 2d at 710. The court in that case found that
the defendant was entitled to “interfere[ ] with relations which are merely prospective”
because the defendant had a privilege to disturb potential contractual negotiations to
protect its own property. Id. at 711 (citation omitted). As noted in Harris Group, Inc. v.
Robinson, 209 P.3d 1188, 1196-97 (Colo. App. 2009), the elements of the tort of
interference with prospective business relations are similar to the elements of the tort of
intentional interference with an existing contract. Id. However, when the conduct in
question involves intentional interference with prospective contractual relations, the
factors usually considered when determining whether the interference was improper do
not apply, as an individual’s privilege to engage in business and compete with others
implies a privilege to induce third persons to do business with that individual rather than
with a competitor. Id. Thus, “greater protection is given to the interest in an existing
contract than to the interest in acquiring prospective contractual relations” and, as a
result, business competition is a permissible interference with prospective contractual

15

relations. Id. at 1197. Given that the privilege of lawful competition is not at issue in
this case, the Court finds defendants’ reliance on Williamson inapposite.9
Third, Ethyl is a Florida case related to an appellee’s claim that a creditor’s
refusal to accept a plan of reorganization constituted interference with contractual
relations. 386 So. 2d at 1223-24. The court in Ethyl overturned the jury verdict in favor
of the appellee because there was a “lack of proof of [the creditor’s] direct interference”
with the contract, id. at 1223, and the creditor was privileged, as a matter of law, to act
in the manner that it did. Id. In this case, Nark has sufficiently alleged Rumsey’s direct
interference based on Rumsey’s intentional failure to report sales and defendants do
not argue that Rumsey’s failure to report the sales was privileged. Therefore,
defendants’ reliance on Ethyl is also misplaced.
In light of the foregoing discussion, the Court concludes that, under Colorado
law, Nark asserts a potentially viable claim against Rumsey for intentional interference
with contractual relations.10 Thus, because Rumsey is not fraudulently joined,
Rumsey’s Colorado citizenship destroys complete diversity and divests the Court of
subject matter jurisdiction over this case. Lincoln, 546 U.S. at 89; 28 U.S.C. § 1332.
9

The Court notes that Illinois law applies the same distinction. See, e.g., Belden
Corp. v. InterNorth, Inc., 413 N.E. 2d 98, 101-02 (Ill. App. Ct. 1980) (noting that the
“elements of the tort of interference with prospective advantage are similar [to the
elements of an intentional interference with contractual relations claim], but not
identical.” Unlike the “right to receive the benefits of a contract, the right to engage in a
business relationship is not absolute, and must be exercised with regard to the rights of
others” to engage in “lawful competition, which constitutes a privileged interference with
another’s business”).
10

Because the Court finds that Nark asserts a viable claim against Rumsey – a
non-diverse defendant – the Court need not address defendants’ arguments with
regard to Nark’s claim against HotEdge-CO.
16

Accordingly, because the Court lacks subject matter jurisdiction, the Court will remand
the case to state court pursuant to 28 U.S.C. § 1447(c). See Lambeth, 443 F.3d at
759; Martin I, 251 F.3d at 1290 (noting that, when a defendant removes a case from
state court, the removing defendant has the burden of establishing that the jurisdictional
prerequisites of § 1332 have been satisfied).
B. Attorneys’ Fees Award
Nark requests an award of attorneys’ fees incurred as a result of defendants’
removal. Docket No. 19 at 14-15. Under 28 U.S.C. § 1447(c), “[a]n order remanding
[a] case may require payment of just costs and any actual expenses, including attorney
fees, incurred as a result of the removal.” Generally, “courts may award attorney’s fees
under § 1447(c) only where the removing party lacked an objectively reasonable basis
for seeking removal.” Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005) (Martin
II).
In this case, the Court concludes that defendants had objectively reasonable
arguments in support of their claims that HotEdge-CO and Rumsey were fraudulently
joined because there are reasonable doubts about HotEdge-CO’s status as an
assignee, as well as Martin Engineering’s obligations under the Addendum. Although
defendants were unable to demonstrate fraudulent joinder, defendants presented
plausible arguments regarding deficiencies in Nark’s complaint and Nark has not
identified “unusual circumstances” that warrant an award of attorneys’ fees. See Martin
II, 546 U.S. at 140 (noting that the appropriate test for awarding fees should not
undermine Congress’ basic decision to afford defendants a right to remove). Given that

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defendants presented objectively reasonable arguments, the Court will deny Nark’s
request for attorneys’ fees. Id. at 141
IV. CONCLUSION
Accordingly, it is
ORDERED that Plaintiff’s Motion to Remand and Supporting Brief [Docket No.
19] is GRANTED. It is further
ORDERED that Defendants’ Motions to Dismiss [Docket Nos. 10, 11, 12] are
DENIED as moot. It is further
ORDERED that, pursuant to 28 U.S.C. § 1447(c) and due to this Court’s lack of
subject matter jurisdiction, this case is REMANDED to the District Court for the City and
County of Denver, Colorado, where it was originally filed as Case No. 2012CV7086. It
is further
ORDERED that this case is closed in its entirety. It is further
ORDERED that, within 14 days of this Order, plaintiff Malcolm B. Nark may file
his bill of costs with the Clerk of the Court.

DATED July 24, 2013.
BY THE COURT:

s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge

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