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Middleton v. Stephenson

United States Court of Appeals, Tenth Circuit

April 24, 2014

BRENT MIDDLETON, in his individual capacity and as Trustee of the National Financial Systems Management, Inc. Employee Stock Ownership Plan; JAMIE SORENSON; MIKE MEDELL, Plaintiffs -- Counter -- Defendants - Appellees,
v.
J. HOYT STEPHENSON, Defendant-Counterclaimant-Third-Party-Plaintiff-Appellant, and ERIC GERDES; BAILEY N. HALL; SCOTT MEE; NATIONAL FINANCIAL SYSTEMS MANAGEMENT, INC.; NATIONAL FINANCIAL SYSTEMS MANAGEMENT, INC. EMPLOYEE STOCK OWNERSHIP PLAN; DARWIN NELSON; BEN STAPLES; THRIVE NATIONAL; THRIVE NATIONAL CORPORATION; THRIVE SYSTEMS; GEORGE ULRICH, Third-Party-Defendants-Appellees

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH. (D.C. No. 2:11-CV-00313-TS).

David K. Isom of Isom Law Firm PLLC, Salt Lake City, Utah, for Defendant-Counterclaimant-Third-Party Plaintiff-Appellant.

David L. Arrington of Durham Jones & Pinegar, Salt Lake City, Utah, and Jason M. Yancey of Helgesen, Waterfall & Jones, P.C., Clearfield, Utah (Richard M. Hymas of Durham Jones & Pinegar, Salt Lake City, Utah, with him on the brief), for Third-Party Defendants-Appellees.

Before KELLY, HOLLOWAY, and PHILLIPS, Circuit Judges.

OPINION

Page 1198

PHILLIPS, Circuit Judge.

Brent Middleton and others--all Utah citizens--brought several federal-law claims against J. Hoyt Stephenson in the United States District Court for the District of Utah. Stephenson fought back with state-law counterclaims and a third-party complaint asserting state-law claims against multiple third-party defendants--also all Utah citizens. But the district court dismissed those counterclaims and third-party claims, concluding that it lacked diversity jurisdiction to hear them because Stephenson also was from Utah. We must decide whether the district court committed clear error in finding that Stephenson was a Utah citizen. We conclude that it did not because its finding has

Page 1199

factual support in the record, and we lack a definite and firm conviction that the district court got it wrong. We therefore affirm the district court's judgment.

FACTS

Several years ago, J. Hoyt Stephenson incorporated National Financial Systems Management, Inc. (NFSM) in Utah. The same day, the NFSM Employee Stock Ownership Plan (Plan) came into existence. The Plan has always owned 100% of NFSM's stock. Stephenson was one of the Plan's trustees.

In June 2006, Stephenson, along with his wife and children, moved from Utah to Wyoming, and the parties don't dispute that Stephenson became a Wyoming citizen as a result. About a year later, Stephenson sold one of his companies, National Financial Systems, Inc. (NFS) to NFSM for $2.9 million. Then he sold another one, Metronomics, Inc. to NFSM for about $10.3 million.

In June 2009, Stephenson and his family went back to Utah and, as discussed below, the nub of this appeal is whether Stephenson became a Utah citizen when he did so.

Meanwhile, around the same time, things weren't going smoothly for Stephenson on the business front. According to him, NFSM failed to fulfill its payment obligations for the NFS and Metronomics sales. In fact, NFSM recognized as much, so it entered into a default agreement with Stephenson in which it transferred all of the NFS and Metronomics stock back to Stephenson. A few days later, Stephenson sold all that stock to a business associate named Bailey ...


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