Michelson v. Enrich International, Inc.

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
MAR 14 2001
TENTH CIRCUIT
PATRICK FISHER
Clerk
JACOB MICHELSON,
Plaintiff-Appellant,
v. No. 00-4047
ENRICH INTERNATIONAL, INC., (D.C. 97-CV-765-K)
(C.D. Utah)
Defendant-Appellee.
ORDER AND JUDGMENT *
Before KELLY, BRISCOE, Circuit Judges, and MURGUIA, District Judge **.
This is a diversity case in which plaintiff Jacob Michelson appeals a district
court order granting dismissal for lack of subject matter jurisdiction to defendant
Enrich International, Inc. We exercise jurisdiction under 28 U.S.C. § 1291 and
affirm.
*
This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. The court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
the terms and conditions of 10th Cir. R. 36.3.
**
The Honorable Carlos Murguia, United States District Judge, District of Kansas,
sitting by designation.
I.
On March 1, 1995, Michelson became an independent distributor of
Enrich’s products. When Michelson initially became an Enrich distributor, he
used his personal social security number as his “Enrich Distributor ID” number.
Michelson subsequently formed a corporation called Welles, Inc.
Michelson was the sole owner of Welles. In April 1996, Michelson added Welles
to the Enrich distributorship. Following this addition, Michelson used Welles’s
federal tax ID number as the “Enrich Distributor ID” for the distributorship.
Also, following the addition of Welles to the distributorship, all bonus checks
issued by Enrich were made payable to “Welles, Inc. or Jacob Michelson.” All of
these jointly payable bonus checks were deposited into the corporate account of
Welles.
At his deposition, Michelson testified that he entered into an agreement
with Welles to the effect that all income generated by the Enrich distributorship
belonged to Welles, rather than Michelson. Pursuant to the agreement, the
income generated from the Enrich distributorship was deposited into the account
of Welles and reported on Welles’s federal tax return. None of the income from
the Enrich distributorship was reported on Michelson’s personal tax returns.
On October 31, 1997, Michelson filed this action based upon Enrich’s
decision to terminate the independent distributorship agreement with Michelson.
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In his suit, Michelson sought damages for income allegedly lost by the Enrich
distributorship. Michelson did not include Welles as a named party.
On January 26, 1999, Enrich filed a motion to join Welles as a necessary
party, to which Michelson filed no opposition. On March 22, 1999, Magistrate
Judge Alba granted Enrich’s motion. Subsequently, on March 29, 1999, Judge
Alba ordered Welles to join the action within twenty days as an indispensable
party plaintiff. The order further provided that if Welles failed to join, it would
be “precluded from thereafter asserting any cause of action against Enrich arising
out of any transaction or occurrence alleged in the Complaint filed herein.”
Welles failed to join the action.
Enrich then filed a motion to dismiss for lack of subject matter jurisdiction,
asserting that Michelson had no standing to pursue the instant action. Enrich
asserted that, based upon Michelson’s deposition testimony and upon the content
of Michelson and Welles’s tax returns, Michelson had assigned his interest in the
Enrich distributorship to Welles. Finding that there “was an agreement that all
income from Enrich belonged to Welles[,] Inc.” and that “Welles, Inc., is the true
party in interest and Mr. Michelson does not have standing to bring this action,”
the district court granted Enrich’s motion to dismiss for lack of subject matter
jurisdiction.
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The district court certified its order dismissing Michelson’s complaint for
lack of standing for immediate interlocutory appeal pursuant to 28 U.S.C. §
1292(b). This Court granted Michelson’s petition for permission to appeal,
providing that the issues for appeal shall be: “(a) whether Welles, Inc., is the true
party in interest; and (b) whether Mr. Michelson has standing to bring this
action.”
II.
We review de novo the district court’s dismissal for lack of subject matter
jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1). Holt v. United States, 46 F.3d
1000, 1002-03 (10 th Cir. 1995). We review the district court’s findings of
jurisdictional facts for clear error. Id.In its motion to dismiss, Enrich challenged the existence of subject matter
jurisdiction based upon facts developed through discovery. Enrich did not mount
a challenge to jurisdiction based upon the face of Michelson’s complaint.
Therefore, the district court considered materials outside the pleadings and made
factual findings when granting the motion to dismiss.
Where the resolution of the jurisdictional question is not intertwined with
the merits of plaintiff’s case, a district court may consider evidence outside the
pleadings and resolve factual disputes without converting a Rule 12(b)(1) motion
into a Rule 56 motion. Wheeler v. Hurdman, 825 F.2d 257, 259 n.5 (10 th Cir.
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1987). In examining the jurisdictional issue, the district court considered
Michelson’s deposition testimony that he had agreed with Welles that income
generated by the Enrich distributorship would belong to Welles. The district
court also considered the tax returns of Michelson and Welles to determine
whether the agreement between Michelson and Welles was carried out.
In essence, to resolve the jurisdictional questions, the district court
determined who was entitled to the income from the Enrich distributorship. This
inquiry demonstrates that the district court’s review of the jurisdictional question
is not intertwined with the merits of Michelson’s case. Michelson’s case centers
on whether Welles, acting through Michelson, breached the distributorship
agreement, and whether Enrich acted properly in terminating the distributorship.
Accordingly, the district court properly treated Enrich’s motion as one brought
pursuant to Rule 12(b)(1).
III.
Our independent determination of the issues uses the same standard
employed by the district court. Olguin v. Lucero, 87 F.3d 401, 403 (10 th Cir.
1996). A party who seeks to invoke federal jurisdiction bears the burden of
establishing that such jurisdiction is proper. See Basso v. Utah Power & Light
Co., 495 F.2d 906, 909 (10 th Cir. 1974). When a Rule 12(b)(1) motion challenges
the substance of a complaint’s jurisdictional allegations, the plaintiff must
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“‘present affidavits or any other evidence necessary to satisfy its burden of
establishing that the court, in fact, possesses subject matter jurisdiction.’” New
Mexicans for Bill Richardson v. Gonzales, 64 F.3d 1495, 1499 (10 th Cir. 1995)
(quoting St. Clair v. City of Chico, 880 F.2d 199, 201 (9 th Cir. 1989)).
A. Real Party in Interest
On appeal, Michelson contends that both he and Welles are the true parties
in interest under Fed. R. Civ. P. 17(a), as they are joint owners of the Enrich
distributorship at issue.
Rule 17(a) provides that “[e]very action shall be prosecuted in the name of
the real party in interest.” Fed. R. Civ. P. 17(a). In diversity cases, a federal
district court must examine the substantive law of the state in which it is located
to determine whether a plaintiff is the real party in interest. Swanson v. Bixler,
750 F.2d 810, 813 (10 th Cir. 1984). Where the issue of whether an assignor or an
assignee of an assigned claim or right is the real party in interest—giving him the
right to maintain an action on the claim or right—is determined by reference to
the substantive law of the state in which the federal court sits. Hoeppner Constr.
Co. v. United States for Use of Mangum, 287 F.2d 108, 111 (10 th Cir. 1960)
(citing Taylor Co. v. Anderson, 275 U.S. 431, 437 (1928)).
Pursuant to Utah law, where an account, claim, interest, or debt has been
effectively assigned, the general rule is that an assignee is the real party in
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interest. Rule 17(a), Utah Rules of Civil Procedure; Lynch v. MacDonald, 367
P.2d 464, 468 (Utah 1962) (assignee is the real party in interest); Empire Land
Title, Inc. v. Weyerhaeuser Mortgage Co., 797 P.2d 467, 470 (Utah Ct. App.
1990) (same).
The district court determined by reference to transcripts of Michelson’s
deposition and to Michelson and Welles’s tax returns that Michelson had assigned
his rights to income from the Enrich distributorship to Welles. We review the
court’s factual findings for clear error. Holt, 46 F.3d at 1002-03.
1. Deposition Testimony and Tax Returns
In his deposition, Michelson clearly states that there was an agreement that
the income from the Enrich distributorship belonged to Welles. During the
deposition, the following exchanges took place:
Question: Did you report all of your–all of the income from
the Enrich distributorship through Welles, Inc. for ‘96?
Answer: I believe so, yes.
Question: And so, as between you and Welles, Inc. there was
an agreement that the income belonged to Welles, Inc., and
that’s why your (sic) reported it that way?
Answer: Yes.
Question: ... As between you and Welles, Inc. there was an
agreement that the income from the Enrich distributorship was
to go to Welles, Inc. [a]nd therefore be reported on Welles
Inc.’s tax return?
Answer: I believe so, yes.
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Michelson also testified in his deposition that the agreement between
himself and Welles never changed.
The tax returns of Welles and Michelson for the years 1996 and
1997 confirm that beginning in 1996, the year Welles became a part of the Enrich
distributorship, all income from the distributorship was reported to the Internal
Revenue Service as income to Welles, rather than Michelson. Further,
Michelson’s testimony confirmed that beginning in 1996, the income from the
Enrich distributorship was reported on Welles’s return, rather than his own
personal return.
Based upon Michelson’s deposition testimony, and a review of the relevant
tax returns, the court finds no clear error in the district court’s factual finding that
Michelson assigned his interest in the distributorship agreement to Welles.
Furthermore, because Michelson assigned his rights to the Enrich distributorship
to Welles, the court affirms the district court’s finding that under Utah law,
Welles, rather than Michelson, was the true party in interest in this action.
2. Michelson’s Affidavit
Michelson submitted an affidavit to the district court stating that he did not
assign the Enrich distributorship’s income to Welles. Michelson argues it was
error for the district court to not consider his affidavit when issuing its order of
dismissal. We find no clear error in disregarding Michelson’s affidavit.
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In his affidavit, presumably submitted to the district court in response to
defendant’s motion to dismiss for lack of subject matter jurisdiction, Michelson
makes statements in direct conflict with his prior deposition testimony. As noted,
Michelson testified that he had entered into an agreement with Welles that the
income from the Enrich distributorship would be given to Welles and reported on
Welles’s tax returns. Michelson’s affidavit, asserting no assignment took place,
is in direct conflict with his prior testimony.
Where an affidavit attempts to create a sham fact issue by contradicting
sworn deposition testimony, it may be properly disregarded by the court. Rios v.
Bigler, 67 F.3d 1543, 1551 (10 th Cir. 1995). Here, Michelson was represented by
counsel at his deposition. However, Michelson’s counsel made no objections to
questions asked during the deposition, nor did he attempt to cure any errors by
cross examination at the close of direct examination. Following his deposition,
Michelson had an opportunity to review and correct his testimony. Although he
made corrections, Michelson did not make changes to the testimony at issue here.
We note that Michelson did not come forward with his contradictory affidavit
until after Enrich filed its motion seeking dismissal. Furthermore, Michelson did
not assert in his affidavit, or on appeal, that new evidence relevant to the
assignment issue became available following his deposition testimony. See
Franks v. Nimmo, 796 F.2d 1230, 1237 (10 th Cir. 1986) (“Factors relevant to the
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existence of a sham fact issue include whether the affiant was cross-examined
during his earlier testimony, whether the affiant had access to the pertinent
evidence at the time of his earlier testimony or whether the affidavit was based on
newly discovered evidence, and whether the earlier testimony reflects confusion
which the affidavit attempts to explain.”). Under these circumstances, we
conclude that the district court did not commit clear error by disregarding
Michelson’s contradictory affidavit.
B. Standing
Michelson also contends on appeal that he has standing to bring the instant
action. To establish standing under Article III of the Constitution, Michelson
must meet three requirements in order to establish Article III standing. First, he
must demonstrate that he has “suffered an ‘injury in fact’—an invasion of a
legally protected interest which is (a) concrete and particularized, and (b) actual
or imminent, not conjectural or hypothetical.” Lujan v. Defenders of Wildlife,
504 U.S. 555, 560-61 (1992) (internal quotations and citations omitted). Second,
he must establish causation— “a causal connection” between the injury and the
defendant’s conduct. Id. Third, he must demonstrate redressability—it must be
likely, as opposed to merely speculative, that the injury will be redressed by a
favorable decision.” Id. “The party invoking federal jurisdiction bears the
burden of establishing these elements.” Id. at 561.
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Michelson has not established that he has suffered an injury in fact related
to the loss of income from the Enrich distributorship or that a favorable decision
would redress any injury to him. Michelson has failed to demonstrate that
following his assignment of the rights to income in the Enrich distributorship to
Welles, he retained any interest in that income. It is apparent, based upon
Michelson’s testimony, that his agreement regarding the distribution of income
with Welles never changed, and therefore, Michelson’s assignment remained in
effect as of the time this litigation commenced.
Even assuming Enrich breached the independent distribution agreement
entered into with Michelson, thereby resulting in a loss of income to the
distributorship, where Michelson retained no rights to the income from that
distributorship, he cannot establish that he has a “personal stake” in the dispute
and that the alleged injury suffered is particularized as to him. Raines v. Byrd,
521 U.S. 811, 819 (1997). Whatever interest Michelson once had in lost income
resulting from a breach of the Enrich distribution agreement was forfeited when
he agreed with Welles that all income from the distributorship would belong to
Welles. Therefore, even if a favorable decision were entered awarding lost
income, Michelson cannot show entitlement to such award.
Accordingly, because Michelson had no interest in the income from the
Enrich distributorship at the time this action was initiated, he cannot establish
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standing to bring the suit. Lujan, 504 U.S. at 570 n.5 (standing is assessed at the
time the action is commenced). Therefore, the district court had no subject matter
jurisdiction over the action from its inception. Powder River Basin Res. Council
v. Babbitt, 54 F.3d 1477, 1484 (10 th Cir. 1995) (noting the jurisdiction of the
court dependent upon the state of things at the time an action is filed).
The judgment of the district court dismissing plaintiff’s complaint for lack
of subject matter jurisdiction is AFFIRMED.
Entered for the Court
Carlos Murguia
District Judge
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