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NA Wellness -- Series LLC and Diversity

PostPosted: Fri Mar 27, 2015 10:47 am
by JDA
N. Am. Wellness Ctr., LLC v. Holmes, 2015 WL 1291372 (S.D.Cal., Mar. 23, 2015)

United States District Court, S.D. California.

NORTH AMERICAN WELLNESS CENTER, LLC, a series of North America n Wellness Center Holdings, LLC, a Delaware Series LLC, Plaintiff,

v.

Patricia HOLMES, as trustee of Patricia D. Holmes Charitable Remainder Trust; Patricia Holmes, individually; Does 1–100, Defendants.

No. 3:14–CV–2584–CAB–BGS.

Signed March 23, 2015.



ORDER OF DISMISSAL FOR LACK OF SUBJECT MATTER JURISDICTION

CATHY ANN BENCIVENGO, District Judge.

*1 The matter is before the Court pursuant to a sua sponte review of the pleadings to determine whether the Court has subject matter jurisdiction. After an initial review, the Court issued an order for Plaintiffs to show cause as to why this matter should not be dismissed for lack of subject matter jurisdiction. [Doc. No. 14.] As discussed below, because neither the First Amended Complaint ("FAC") nor Plaintiffs' response to the order to show cause provide allegations or evidence sufficient to invoke this Court's diversity jurisdiction, this case is dismissed.

I. Background

On October 29, 2014, Plaintiff North American Wellness Center LLC ("NAWC") filed the original complaint in this action. The original complaint stated that this court has subject matter jurisdiction under 28 U.S.C. sec. 1332 because there is diversity in citizenship between the parties and more than $75,000 is at stake. More particularly, the complaint alleged that NAWC "is a Delaware Limited Liability Company and does business in more than one state and Defendant is a resident of this state and resides in San Diego county." [Doc. No. 1 at para. 6.] The original complaint further stated that California law applied to all of NAWC's claims and asserted a host of contract and tort claims against Defendant.

Defendant moved to dismiss the original complaint on several grounds, including because NAWC lacked standing in that it does not exist as a Delaware limited liability company. [Doc. No. 3–1 at 2–3 .] NAWC did not file an opposition to the motion and instead filed the FAC. The FAC named two plaintiffs: (1) NAWC; and (2) North American Wellness Center Holdings, LLC ("Holdings").1 The FAC also explained that Holdings is a Delaware "series" limited liability company ("LLC") and that NAWC is a "member" of Holdings. As in the original complaint, the FAC alleges diversity subject matter jurisdiction, but this time it alleged diversity because Holdings is a Delaware LLC, while Defendant "is a resident of [California] and resides in San Diego county." [Doc. No. 7 at para. 7.]

Defendant then moved to dismiss the FAC on several grounds. That motion has been fully briefed and is under submission to the Court. However, before reaching the merits of that motion, the Court must determine whether it has jurisdiction to do so. Thus, because diversity jurisdiction is not apparent from the allegations in the FAC, the Court ordered Plaintiffs to show cause why this case should not be dismissed for lack of subject matter jurisdiction. This order to show cause ("OSC") explained that the FAC is silent as to the identity and citizenship of the owners or members of Holdings and NAWC and instructed Plaintiffs' to include such information in their response.

On March 13, 2015, NAWC filed a response to the OSC. This response stated that NAWC "is owned by two irrevocable trusts, Subuh Trust and Pasha Trust." [Doc. No. 15 at 2.] The response goes on to explain that the "Office of the Trustee serves on both [trusts], and the Office of the Trustee is made up of Dr. Bhadauria2 and Mr. Shailendra Sharma." Id. Finally, the response states that "[b]oth trustees are citizens and residents of India." Id. These statements are supported by a declaration signed in Riverside, California, from Nupur Nagar, Esq., who states that that she is the beneficiary of the two trusts. NAWC's response is silent as to the identity and citizenship of the owners or members of Holdings, and Holdings did not file a separate response to the OSC.

II. Legal Standard

*2 "Federal Rule of Civil Procedure 12(h)(3) provides that a court may raise the question of subject matter jurisdiction, sua sponte, at any time during the pendency of the action ...." Snell v. Cleveland, Inc., 316 F.3d 822, 826 (9th Cir.2002). Thus, although neither party has disputed subject matter jurisdiction, the Court must confirm its existence before reaching the merits of the dispute. "A party invoking the federal court's jurisdiction has the burden of proving the actual existence of subject matter jurisdiction." Thompson v. McCombe, 99 F.3d 352, 353 (9th Cir.1996).

III. Discussion

Plaintiffs argue that this Court has subject matter jurisdiction on the basis of diversity. Diversity jurisdiction exists when (1) opposing parties are citizens of different states, and (2) the amount in controversy exceeds $75,000. 28 U.S.C. sec. 1332(a). The Court is satisfied that the amount in controversy requirement for diversity jurisdiction is satisfied by the FAC. Thus, the only question is whether the parties are diverse.

Where a plaintiff seeks to invoke diversity jurisdiction, that plaintiff "should be able to allege affirmatively the actual citizenship of the relevant parties" to confirm that all parties are diverse. Kanter v. Warner–Lambert Co., 265 F.3d 853, 857 (9th Cir.2001). Here, the FAC alleges that Defendant is a resident of California. This is insufficient for the determination of diversity. "[T]he diversity jurisdiction statute, 28 U.S.C. sec. 1332, speaks of citizenship, not of residency." Id. A "natural person's state citizenship is ... determined by her state of domicile, not her state of residence. A person's domicile is her permanent home, where she resides with the intention to remain or to which she intends to return. A person residing in a given state is not necessarily domiciled there, and thus is not necessarily a citizen of that state." Id. Because Plaintiffs have the burden of proof, and neither the FAC nor the response to the OSC specify the state of Defendant's citizenship, this failure alone is fatal to Plaintiffs' assertion of diversity jurisdiction. Id. at 858.

That being said, it may very well be that this failure to allege Defendant's citizenship is a result of careless pleading and not because Defendant is not in fact a citizen of California. Thus, for the purpose of the instant analysis, the Court assumes that Plaintiffs could remedy this deficiency by amending the complaint again to allege that Defendant is a California citizen. As a result, the only remaining variable is Plaintiffs' citizenship.

Both Plaintiffs—NAWC and Holdings—are alleged to be LLC's (or at least a member of a series LLC). For diversity purposes, LLC's are treated like partnerships, meaning "an LLC is a citizen of every state of which its owners/members are citizens." Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir.2006).3 The FAC alleges only that Delaware is the state of formation of Holdings and that NAWC is a member of Holdings. [Doc. No. 7 at para. 2.] No information is alleged as to the citizenship of the owners or members of Holdings and NAWC. Moreover, the OSC response fails to provide all of the missing information. Although the OSC identifies the citizenship of the trustees of the trusts that own NAWC,4 it does not identify the owners or members of Holdings and their citizenship. Plaintiffs' failure to provide this information about Holdings is fatal to their assertion of diversity jurisdiction because it is impossible to determine whether there is complete diversity of citizenship, as is required under 28 U.S.C. sec. 1332. See Abrego Abrego v. The Dow Chem. Co., 443 F.3d 676, 679 (9th Cir.2006) ("In a case with multiple plaintiffs and multiple defendants, the presence in the action of a single plaintiff from the same State as a single defendant deprives the district court of original diversity jurisdiction over the entire action.") (quoting Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 553, 125 S.Ct. 2611, 162 L.Ed.2d 502 (2005)).

IV. Disposition

*3 Plaintiffs have already amended their complaint once, and the Court has given them the opportunity to establish diversity jurisdiction via their response to an order to show cause. Despite these three opportunities to satisfy their burden of establishing subject matter jurisdiction, Plaintiffs have failed to do so. Accordingly, it is hereby ORDERED that this case is DISMISSED for lack of subject matter jurisdiction. The pending motion to dismiss [Doc. No. 10] is therefore DENIED AS MOOT.

It is SO ORDERED.

Footnotes

1

In reality, the FAC is less than clear as to the identity of the actual plaintiff or plaintiffs. The caption implies that only NAWC is a plaintiff, but the first line of the FAC states that "Plaintiff [Holdings] complains, alleges and avers as follows ...", implying that Holdings is the only plaintiff. Then paragraph 2 of the FAC refers to NAWC as a plaintiff. The remainder of the FAC adds to the confusion by alternating between referring to "Plaintiff" and "Plaintiffs." In any event, the first line of the FAC indicates that at a minimum, Holdings is a plaintiff in this case.

2

No first name is provided for Dr. Bhadauria.

3

There is virtually no authority concerning how to determine the citizenship of a series LLC or member thereof. However, because Holdings is itself a party and Plaintiffs provide no information about Holdings' citizenship, the Court need not determine whether a different standard applies to series LLC's.

4

The response to the OSC cites to out of circuit authority for the proposition that the citizenship of a trust is based on the citizenship of the trustees. Although the Ninth Circuit has also stated that "[a] trust has the citizenship of its trustee or trustees" (Johnson, 437 F.3d at 899), more recent case law reveals uncertainty as to whether the citizenship of the beneficiary to a trust is also relevant to diversity jurisdiction. See e.g., PDP La Mesa LLC v. LaSalle Med. Office Fund II, No. 10cv1536 DMS (RBB), 2010 WL 3988598, at *3 (S.D.Cal. Oct. 12, 2010) (discounting Johnson and adopting a rule "that the citizenship of both the trustee and the beneficiary should control in determining the citizenship of a trust."); Nomura Asset Acceptance Corp. v. Nomura Credit & Capital, Inc., 27 F.Supp.3d 487, 489 (S.D.N.Y.2014) (noting that courts are split on the question of how to determine the citizenship of a trust, and concluding that the citizenship of the beneficiary controls when a suit is brought in the name of the trust); Mills 2011 LLC v. Synovus Bank, 921 F.Supp.2d 219, 226 (S.D.N.Y.2013) (holding that the citizenships of both the trustee and beneficiary are relevant to diversity jurisdiction); but see France v. Thermo Funding Co., LLC, 989 F.Supp.2d 287, 291 (S.D.N.Y.2013) (holding that for testamentary trusts, as opposed to a business or statutory trust, "only the trustees' citizenships are considered for diversity purposes.") (emphasis in original); In re Mortgages Ltd., 452 B.R. 776, 782 (Bankr.D.Ariz.2011) (holding that Johnson is controlling authority in the Ninth Circuit that the citizenship of the trustees is controlling). Because Plaintiffs fail to provide any information concerning Holdings' members or owners, the Court need not reach the issue of whether the information concerning NAWC's trust owners is sufficient to create diversity between NAWC and Defendant. See generally Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 373, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978) ("[D]iversity jurisdiction does not exist unless each defendant is a citizen of a different State from each plaintiff.") (emphasis in original).