The court remanded this case to the state court because the requirements for removal were not met. First, the amount in controversy was $10,000, far less than the $75,000 required for diversity jurisdiction. Second, all the parties appear to be California citizens so there was no diversity of citizenship. Because there was no basis for federal jurisdiction, the court remanded the case to the state court. 28 USC § 1447(c), which provides “If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.”
Category: Diversity Jurisdiction
Defendants sued in the state court have a right to remove a case to federal court if there is diversity of citizenship and all defendants join the removal petition. Here, the Defendants removed the lawsuit from the California courts to federal court before they determined the citizenship of each of the parties. Diversity must be complete. In other words, if a citizen of California sues another citizen of California, there is no diversity and no jurisdiction. Here, the court issued a rule to show cause to require the Defendants to justify the removal petition. They did not respond, but instead sought additional time. The court remanded the case back to state court.
By failing to respond to the Order to Show Cause Defendants have not assuaged the Court’s concerns regarding jurisdiction. In order to invoke this Court’s diversity jurisdiction, Defendants must demonstrate there is complete diversity of citizenship between the parties and that the amount in controversy exceeds $75,000. Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996). To meet their burden to establish complete diversity, Defendants must allege the actual citizenship of all of its members/partners. Provincial Gov’t of Marinduque v. Placer Dome, Inc., 582 F.3d 1083, 1087 (9th Cir. 2009). Here, the vague assurances provided that all entities related to Defendants are Delaware entities with their principal places of business in New York, NY are not sufficient. Furthermore, the myriad of reasons provided by Defendants for needing more time to comply with the OSC is evidence that Defendants have not determined the existence of complete diversity between the parties. Thus, although being given the opportunity to do so, Defendants have not met their burden of demonstrating there is complete diversity of citizenship.
Because Defendants fail to establish diversity jurisdiction as required by 28 U.S.C. § 1332 and 1441 removal was improper and the Court sua sponte REMANDS this action back to the San Diego Superior Court for lack of subject matter jurisdiction.
An Illinois attorney filed suit against a former client and asked the court for guidance as to who should receive sanctions awarded against him and in favor of Jeanine Stevens and John Cushing. Why he filed the case in Wisconsin is a mystery since the lawyer and the defendants he sued are all citizens of Illinois.
Result: case dismissed for lack of subject matter jurisdiction; there being no diversity of citizenship between the parties.
I’m surprised that a veteran and experienced lawyer did not take the time to consider and evaluate the diversity of citizenship before filing a case.
The case is David Alan Novoselsky v. Christine Zvunca, 17-cv-427, pending in the United States District Court for the Eastern District of Wisconsin. The decision is by Judge Stadtmueller.
Edward X. Clinton, Jr.
If you sue your lawyer for failing to prosecute your ADA (American’s with Disabilities Act) claim, you do not have federal question jurisdiction. Instead, the claim arises under state law. The explanation:
And, the court explained, plaintiff’s legal malpractice claims arise under state law, not federal law, even though she attempts to invoke the Americans with Disabilities Act (“ADA”). See id. (citing Creamer v. Gen. Motors, Nos. 16-4045-SAC, et al., 2016 WL 3197379, at *5 (D. Kan. May 18, 2016) (concluding that plaintiff failed to allege federal question jurisdiction because her citation to the ADA “has no plausible application to plaintiff’s claims that defendant committed legal malpractice” and “absent diversity of citizenship and an amount in controversy over $75,000—which do not exist here—plaintiff’s state law claims of legal malpractice, assuming of course they have any merit, belong in state court”)).
Plaintiff submitted a response to the Show Cause Order. Doc. 5. But, like her Complaint, her response failed to provide any colorable basis for this court to invoke its limited subject matter jurisdiction. Instead, plaintiff reiterated that she was asserting legal malpractice claims against defendants. Id. at 1-4. She provided no basis for the court to exercise federal question or diversity jurisdictAnd, the court explained, plaintiff’s legal malpractice claims arise under state law, not federal law, even though she attempts to invoke the Americans with Disabilities Act (“ADA”). Sion. See generally id. So, the court dismissed her lawsuit without prejudice for lack of subject matter jurisdiction. Doc. 6.
LLCs can cause problems for any lawyer attempting to determine if there is diversity jurisdiction. The LLC is a citizen of each state in which one of its members is a citizen. If one LLC owns another LLC, citizenship must be verified through both layers of the LLC.
If there is no diversity, there is no subject matter jurisdiction, and the proceedings in federal court are essentially null and void.
In the Bluestern case, the problem did not become apparent until the case had been pending in federal court for some time, almost two years. Bluestern, the defendant, was sued in Georgia State Court in December 2011. Bluestern, believing that there was diversity jurisdiction, promptly removed the case to federal court. Later, discovery requests were served, but the parties did not notice the problem. Only in late 2012, did the parties and the court fully comprehend the problem. The case was remanded back to state court.
The Court explained the problem in this way:
This case demonstrates the difficulty of applying established diversity jurisdiction principles to 21st-century business organizations. When determining citizenship of the parties for diversity jurisdiction purposes, a limited liability company (LLC) is a citizen of every state that any member is a citizen of. And it is common for an LLC to be a member of another LLC. Consequently, citizenship of LLCs often ends up looking like a factor tree that exponentially expands every time a member turns out to be another LLC, thereby restarting the process of identifying the members of that LLC. The simplest misstep has the potential to derail years of litigation and result in a massive financial sanction, as happened here. It is in everyone’s best interest, both the litigants’ and the courts’, to verify that diversity jurisdictionexists before proceeding with the case. Everyone involved in this case trusted that diversity jurisdiction existed, but no one verified it. The law firms involved trusted their clients. The clients trusted their lawyers. The law firms trusted each other, and the district court trusted them. But there was no verification.
Pursuant to its inherent authority, the district court sanctioned one of the parties in the amount of $550,000 in legal fees. The Eleventh Circuit reversed on the ground that the sanction an abuse of discretion because the party that made the jurisdictional mistake did not abuse the legal process. The court explained that the sanction was a misapplication of the doctrine of the inherent power of the court. Again, a thoughtful explanation from the court:
If a district court is unsure whether to sanction a party under its inherent powers, it should look to the guidance of the Supreme Court in Chambers. The purpose of the inherent power is both to vindicate judicial authority without resorting to contempt of court sanctions and to make the non-violating party whole. See Chambers, 501 U.S. at 45-46, 111 S. Ct. at 2133. The inherent power must be exercised with restraint and discretion. This power is not a remedy for protracted litigation; it is for rectifying disobedience, regardless of whether such disobedience interfered with the conduct of the trial. See id. at 44, 111 S. Ct. at 2132. Courts considering whether to impose sanctions under their inherent power should look for disobedience and be guided by the purpose of vindicating judicial authority. None of these concerns are present here.
In the end, the court concluded that no party engaged in any bad faith conduct. Instead, the court noted that the case was a colossal waste of time and money. The Eleventh Circuit chose to be merciful to the lawyers involved in the case, reasoning that the wasted legal fees and embarrassment were enough punishment.
This case was decided in 2003. However, it is worth posting again as these issues seem to come up all the time. The citizenship of an LLC is determined by the citizenship of each member. If you have a member from Illinois, the LLC is an Illinois citizen. If the defendant is from Illinois, there is no diversity of citizenship and no subject matter jurisdiction federal court. 28 USC 1332.
As I have indicated before, the diversity jurisdiction issues relating to LLCs can be more complicated than they seem. In this case, the diversity error was not uncovered until the case had been tried and was on appeal before the Seventh Circuit. The Seventh Circuit did not take kindly to the error. It explained:
Counsel and the magistrate judge assumed that a limited liability company is treated like a corporation and thus is a citizen of its state of organization and its principal place of business. That is not right. Unincorporated enterprises are analogized to partnerships, which take the citizenship of every general and limited partner. See Carden v. Arkoma Associates, 494 U.S. 185, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990). In common with other courts of appeals, we have held that limited liability companies are citizens of every state of which any member is a citizen. See Cosgrove v. Bartolotta, 150 F.3d 729 (7th Cir.1998). So who are Champaign Market Place LLC’s members, and of what states are they citizens? Our effort to explore jurisdiction before oral argument led to an unexpected discovery: Belleville Catering, the corporate plaintiff, appeared to be incorporated in Illinois rather than Missouri!
At oral argument we directed the parties to file supplemental memoranda addressing jurisdictional details. Plaintiffs’ response concedes that Belleville Catering is (and always has been) incorporated in Illinois. Counsel tells us that, because the lease between Belleville Catering and Champaign Market Place refers to Belleville Catering as “a Missouri corporation,” he assumed that it must be one. That confesses a violation of Fed. 693*693 R.Civ.P. 11. People do not draft leases with the requirements of § 1332 in mind — perhaps the lease meant only that Belleville Catering did business in Missouri — and counsel must secure jurisdictional details from original sources before making formal allegations. That would have been easy to do; the client’s files doubtless contain the certificate of incorporation. Or counsel could have done what the court did: use the Internet. Both Illinois and Missouri make databases of incorporations readily available. Counsel for the defendant should have done the same, instead of agreeing with the complaint’s unfounded allegation.
One more subject before we conclude. The costs of a doomed foray into federal court should fall on the lawyers who failed to do their homework, not on the hapless clients. Although we lack jurisdiction to resolve the merits, we have ample authority to govern the practice of counsel in the litigation. See, e.g., Willy v. Coastal Corp., 503 U.S. 131, 112 S.Ct. 1076, 117 L.Ed.2d 280 (1992); Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393-98, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990); Szabo Food Service, Inc. v. Canteen Corp., 823 F.2d 1073 (7th Cir.1987). The best way for counsel to make the litigants whole is to perform, without additional fees, any further services that are necessary to bring this suit to a conclusion in state court, or via settlement. That way the clients will pay just once for the litigation. This is intended not as a sanction, but simply to ensure that clients need not pay for lawyers’ time that has been wasted for reasons beyond the clients’ control.
The judgment of the district court is vacated, and the proceeding is remanded with instructions to dismiss the complaint for want of subject-matter jurisdiction.
One of the more simple yet frustrating requirements for establishing diversity jurisdiction is to prove that the parties are from different states. Here, a case was filed in federal court and summary judgment was granted to the defendant. Only then, when it reached the 11th Circuit, did that court determine that the parties were from the same state – Florida. How did this happen?
It happened because Thermoset, a Florida corporation, sued RGSO, an LLC. Most people don’t know this, but an LLC’s citizenship is determined by the citizenship of its members. In this case, RGSO had a Florida member. Therefore, citizens of Florida were on both sides of the litigation and there was no diversity of citizenship.
So, if you sue an LLC, make sure you know the citizenship of each member of the LLC. One way to avoid problems is to write a letter to the LLC and request that the LLC inform you of the citizenship of each member.
LLCs cause painful diversity jurisdiction issues all the time, sometimes leading to sanctions against the lawyers who fail to figure out citizenship. This is a danger area for every lawyer who practices in federal court. It is a trap for the unwary and can lead to embarrassment and sometimes worse.