The opinion of the court was delivered by: Robert P. Patterson, Jr., U.S.D.J.
This matter comes before the Court on Defendant Sheraton Operating Corporation's ("Sheraton" or "Defendant") motion to dismiss for lack of subject matter jurisdiction and Defendant's motion to dismiss for improper venue. For the reasons discussed herein, this Court finds it lacks subject matter jurisdiction over this action and Defendant's motion to dismiss is granted.
On July 21, 2006, Plaintiff Castillo Grand LLC ("Castillo" or "Plaintiff") filed a complaint against Sheraton (Case No. 06 CV 5526) alleging a variety of claims arising out of a management contract between Castillo and Sheraton related to the construction, promotion and management of a luxury hotel in Fort Lauderdale, Florida (the "First Action").*fn1 Since the filing of the First Action, the parties have engaged in extensive discovery and motion practice. On July 8, 2009, after nearly three years of litigation, this Court granted in part and denied in part Sheraton's motion for partial summary judgment.
On August 5, 2009, five weeks before this matter was scheduled to go to trial, Sheraton moved to dismiss the First Action for lack of subject matter jurisdiction. Federal court jurisdiction over the First Action was based solely on diversity of citizenship pursuant to 28 U.S.C. § 1332.*fn2 For diversity purposes, it is undisputed that Sheraton is a citizen of both Delaware and New York. In its amended complaint dated July 8, 2006 (the "First Action Complaint"), Castillo described itself as "a Florida limited liability company, with its principal place of business in Clearwater, Florida." (First Action Complaint ¶ 25.) For purposes of assessing diversity jurisdiction, an unincorporated entity such as a partnership or a limited liability company is deemed to be a citizen of all states of which its partners or members are citizens. See Carden v. Arkoma Assocs., 494 U.S. 185, 195-96 (1990); Handelsman v. Bedford Village Assocs. Ltd. P'ship, 213 F.3d 48, 51-52 (2d Cir. 2000).
In its motion to dismiss the First Action, Sheraton argued that two indirect, part-owners of Castillo, Barbara Santangelo ("Santangelo") and Rochester Jacksonville Inc. ("RJI"), were citizens of New York and that therefore complete diversity was lacking. By letter dated August 7, 2009, Castillo did not oppose Sheraton's motion on the merits. Instead, counsel for Castillo proposed to cure the alleged diversity jurisdiction infirmity, re-file a new action between the same parties, alleging the same claims, and then proceed directly to trial on the previously-set trial date of September 8, 2009. (See August 7, 2009 Letter from Todd E. Soloway, attached to the Declaration of Eric P. Haas dated September 8, 2009 ("Haas Decl.") as Ex. 26 ("8/7/09 Letter").) In its letter and during a telephone conference with the Court on August 10, 2009, Castillo argued that Santangelo was a citizen of Florida but conceded that RJI was a New York corporation. (See id.; Transcript of August 10, 2009 teleconference, Haas Decl. Ex. 1 ("8/10/09 Tr.").) At the August 10, 2009 teleconference, the Court, based on Castillo's proposed course of action, did not adjourn the September 8, 2009 trial date. (8/10/09 Tr. at 21:9-10; 22:4-9.) Also at the August 10, 2009 teleconference, counsel for Sheraton indicated that, based on their research, any attempt by Castillo to cure the diversity defects would violate 28 U.S.C. § 1359. (Id. at 2:19-3:13; 11:4-8.) Counsel for Sheraton further indicated that it would need an opportunity to take discovery on the transactions Castillo planned to undertake in order to cure the diversity defects and that Sheraton would likely make a motion to dismiss any re-filed action, again for lack of subject matter jurisdiction. (Id. at 3:6-13; 10:25-11:8; 21:11-16; 23:12-17.)
By order dated August 13, 2009, the Court dismissed without prejudice the First Action for lack of subject matter jurisdiction. On August 14, 2009, Castillo commenced the instant action (Case No. 09 CV 7197) by filing a new complaint against Sheraton alleging the same claims contained in the First Action Complaint. On August 20, 2009, the Court issued an order in this action vacating all previously-set dates from the First Action, including the September 8, 2009 trial date, in light of the fact that the First Action had been dismissed. Between August 14, 2009 and September 8, 2009, Sheraton conducted discovery on the issue of subject matter jurisdiction, and on September 8, 2009, Sheraton filed the instant motions to dismiss for lack of subject matter jurisdiction based on lack of diversity and for improper venue pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. On September 25, 2009, Castillo filed its opposition papers, and on October 5, 2009, Sheraton filed its reply papers. The Court heard argument from the parties on October 23, 2009.
In its motion, Sheraton argues first that at all times relevant to the First Action and this action, both Santangelo and RJI were citizens of New York. Sheraton further argues that at the time of filing of the First Action, Santangelo and RJI were both entities whose citizenship had to be assessed in order to determine the citizenship of Castillo for diversity purposes. Finally, Sheraton argues that between August 10 and August 14, 2009, Castillo attempted to eliminate the indirect ownership interests of Santangelo and RJI. Because these transactions were undertaken for the sole purpose of creating federal diversity jurisdiction where no such jurisdiction existed before, Sheraton argues that Castillo's reorganization of its citizenship violated 28 U.S.C. § 1359 and this Court therefore lacks subject matter jurisdiction over the instant action.
Section 1359, titled "Parties collusively joined or made," states: A district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court.
28 U.S.C. § 1359. It is apparent from the exhibits submitted as part of Defendant's moving papers and Plaintiff's opposition papers that the sole purpose of Castillo's reorganization between August 10 and August 14, 2009 was to remain in federal court. The record is replete with instances of Castillo admitting that it took affirmative steps in order to cure the alleged diversity defects and then re-file its complaint in the same court.*fn3 Castillo does not contest this point in its opposition papers. It is beyond dispute, therefore, that Castillo's reorganization was undertaken in order "to invoke the jurisdiction" of this Court as contemplated by the plain language of § 1359.
Courts in this circuit "construe section 1359 broadly to bar any agreement whose 'primary aim' is to concoct federal diversity jurisdiction." Airlines Reporting Corp. v. S&N Travel, Inc., 58 F.3d 857, 862 (2d Cir. 1995). See also Prudential Oil Corp. v. Phillips Petroleum Co., 546 F.2d 469, 474-75 (2d Cir. 1976) (construing § 1359 to bar "agreements whose primary aim was to vest the court with a jurisdiction it had not formerly enjoyed." (quoting O'Brien v. AVCO Corp., 425 F.2d 1030, 1034 (2d Cir. 1969))). In explaining its interpretation of § 1359, the Second Circuit has noted that "there can be no excuse for engulfing the already burdened federal courts with cases involving controversies between citizens of the same state, who seek to invoke federal jurisdiction through sham transactions. Section 1359 is merely the last of a series of enactments embodying that clear and salutary principle." O'Brien, 425 F.2d at 1033. Indeed, "[s]uch 'manufacture of Federal jurisdiction' was the very thing which Congress intended to prevent when it enacted § 1359 and its predecessors." Prudential Oil, 546 F.2d at 474 (quoting Kramer v. Caribbean Mills, Inc., 394 U.S. 823, 829 (1969)). The law is clear in this circuit that transactions engineered by a party for the purpose of creating federal diversity jurisdiction are precisely the sort of conduct prohibited by § 1359.
Castillo argues that § 1359 should not apply to the facts of this case for two reasons. First, Castillo asserts that § 1359 has traditionally applied to situations where a non-diverse real party in interest pursues a claim through a diverse proxy and that this Court should hold § 1359 only applicable to those narrow circumstances. Second, Castillo argues that the purpose of reorganizing its citizenship was to avoid three years of wasted litigation costs and that this desire to avoid waste is not improper ...