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United States District Court, N.D. New York

January 8, 2004.

PRISCILLA STEELE, et. al., Plaintiffs,
JOHN B. ANDERSON, et. al., Defendants

The opinion of the court was delivered by: THOMAS McAVOY, District Judge


Plaintiffs commenced the instant shareholders' derivative action in New York State Supreme Court. Defendants, former officers or directors of Dunes Hotels and Casinos, Inc., removed the action to this Court, invoking diversity jurisdiction. Plaintiffs now move to remand to state court. The burden is on Defendants to establish that removal is proper and this Court has subject matter jurisdiction. United Food and Commercial Workers Union. Local 919. AFL-CIO v. Centermark Properties Meriden Square. Inc., 30 F.3d 298, 301 (2d Cir. 1994); Rothaupt v. Unum Provident Corp., 2003 WL 21755811, at *2 (N.D.N.Y. 2003) (Mordue, J.).

I. Whether The Non-Diverse Defendants Should Be Disregarded Because the Claims Against Them Are Barred By The Statute Of Limitations

  Defendants first contend that diversity is lacking because there essentially has been a fraudulent joinder. Defendants argue that the non-diverse parties should be Page 2 disregarded for purposes of determining subject matter jurisdiction because the statute of limitations has run as to the claims against them.

  The statute of limitations in New York for claims of unjust enrichment, breach of fiduciary duty, corporate waste, and for an accounting is six years. See N.Y.C.P.L.R. §§ 213(1), (7); Golden Pacific Bancorp, v. F.D.I.C., 273 F.3d 509, 518 (2d Cir. 2001). As the Second Circuit has stated:

Under New York law, the limitations period for claims arising out of a fiduciary relationship does not commence "until the fiduciary has openly repudiated his or her obligation or the relationship has been otherwise terminated." Westchester Religious Inst. v. Kamerman, 262 A.D.2d 131, 691 N.Y.S.2d 502, 503 (1st Dep't 1999)); accord 196 Owners Corp. v. Hampton Mgmt. Co., 227 A.D.2d 296, 642 N.Y.S.2d 316, 316 (1st Dep't 1996); Bd. of Educ. v. Thompson Const. Corp., 111 A.D.2d 497, 488 N.Y.S.2d 880, 882 (3d Dep't 1985). In such cases, the "statutory period [is] tolled between the alleged fiduciary misconduct" and the date on which the fiduciary relationship is openly repudiated or otherwise ended, so that any misconduct alleged before that end date "falls within the permissible temporal scope." Kamerman, 691 N.Y.S.2d at 503. . . .
The reason for such a tolling rule is that the beneficiary should be entitled to rely upon a fiduciary's skill without the necessity of interrupting a continuous relationship of trust and confidence by instituting suit.
Golden Pacific Bancorp, 273 F.3d at 519.

  Here, according to the Complaint, Defendants are alleged to have continued in their positions as officers or directors of Dunes through April 2000. Compl. at ¶¶ 15-24. Officers and directors of a company owe a fiduciary duty to the company and its minority stockholders. See Blank v. Blank, 256 A.D.2d 688, 694-95 (3d Dep't 1998); Fedele v. Seybert, 250 A.D.2d 519, 521 (1st Dep't 1998). Because the fiduciary relationship does not appear to have been openly repudiated or otherwise ended prior to April 2000, the statute of limitations did not begin to run until that date. Golden Pacific Bancorp, 273 F.3d at 519; Page 3 Kamerman, 691 N.Y.S.2d at 503 ("[S]ince defendants cannot have been said to have openly repudiated their fiduciary obligations prior to leaving their positions of trust . . . the statutory period did not begin to run in defendants' favor until that time."). At the very least, there are factual issues concerning when the fiduciary relationship was openly repudiated. See Matter of Barabash, 31 N.Y.2d 76, 80 (1972). Accordingly, based on the facts as alleged in the Complaint, the instant claims are timely and the statute of limitations does not provide a basis for disregarding any of the non-diverse Defendants for purposes of determining subject matter jurisdiction.


  Defendants next contend that the individual Plaintiff shareholders are "nominal" parties and, therefore, should not be considered for purposes of determining diversity jurisdiction. The claimed basis for this is that the individual Plaintiffs failed to make a legitimate demand upon the board to have the corporation proceed against its former directors. According to Defendants, the demand process was a sham because the controlling shareholder of Plaintiff General Financial Services, Inc.,*fn1 Steven Miller, manipulated the Dunes's board of directors's voting process to manufacture a refusal by the board to proceed against the former directors. Specifically, Miller apparently was in a position to control the board's decision whether to proceed against the former directors, but Page 4 did nothing. As the Eastern District of California Court found in connection with the prior lawsuit:

It is undisputed that GFS, which is wholly owned by Steven Miller, controls in excess of 92% of eligible voting stock in Dunes and is able to decide all matters at shareholder meetings. Miller is Chairman of the board, can elect and dismiss other directors and has been, at times, the sole director of Dunes. The Dunes' board's refusal to initiate this suit was effected without representation from its Chairman and controlling shareholder. There can be no doubt that Miller approves of the Board's decision, put the matter into a posture where the board would render such a decision, and has permitted the decision to stand even though he could easily overturn it. The entire course of events smacks of manipulation. Boulia Aff. at Ex. D, p. 7.
Without question, Miller's motives appear to be less than pure. While it appears that Miller may have intentionally became uninvolved in this matter to permit the refusal to initiate suit to stand,*fn2 Defendants offer no legal basis for deeming Plaintiffs' demand on the board ineffectual or illegitimate. Whether a demand was a necessary condition precedent to this litigation and, if so, whether that condition has been met, go more to the substantive merits of the underlying litigation than the Court's jurisdiction over this claim. In practical terms, if sustained, Defendants' argument in this regard would result in the dismissal of this action on the merits; not on jurisdictional grounds. Of course, the Court is not in a position to entertain the merits of an action over which it has no subject matter jurisdiction. The Complaint alleges that Plaintiffs made a demand on the board and the demand was refused. It, thus, cannot be said that there is no possibility, based on the pleadings, that Plaintiffs can state a Page 5 cause of action against the non-diverse defendant in state court. See Whitakerv. Am. Telecasting. Inc., 261 F.3d 196, 207 (2d Cir. 2001) (discussing fraudulent joinder).

 III. Whether Dunes Has A Principal Place of Business In California

  Finally, Defendants argue that Plaintiffs pleadings only state that Dunes is a domestic corporation incorporated in the State of New York; not that it has a principal place of business in California.*fn3 Defendants are judicially estopped from claiming that Dunes does not have a principal place of business in California. See New Hampshire v. Maine, 532 U.S. 742, 749-51 (2001) (discussing application of judicial estoppel); Mulvaney Mechanical. Inc. v. Sheet Metal Workers Int'l Ass'n. Local 38, 288 F.3d 491, 504-05 (same), vacated on other grounds, 123 S.Ct. 1572 (2003); Mitchell v. Washinqtonville Cent. Sch. Dist., 190 F.3d 1, 6 (2d Cir. 1999) (holding that a party may be estopped from asserting a position if "(1) the party . . . took an inconsistent position in a prior proceeding and (2) that position was adopted by the first tribunal in some manner, such as by rendering a favorable judgment."). In the prior litigation in California, Defendants represented that "Dunes is domiciled in Davis, California." Boulia Aff. at Ex. E, p. 9. This factual representation was adopted by the Eastern District of California. Id. at Ex. D. Accordingly, Defendants may not now deny this fact.*fn4 Because Dunes is domiciled in California as are some of the Defendants, diversity jurisdiction is lacking. Page 6

 IV. Defendants' Motion to Dismiss

  Certain Defendants also have moved to dismiss on the grounds of lack of personal jurisdiction. Because the Court does not have subject matter jurisdiction, it may not entertain this other motion.


  For the foregoing reasons, Plaintiffs motion to remand is GRANTED. Defendants' motion to dismiss for lack of personal jurisdiction is DENIED because the Court does not have subject matter jurisdiction to entertain that motion.


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