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Smith v. Manhattan Club Timeshare Association

May 10, 2013


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


Two years ago, Kelly J. Sheppard and several others brought a putative class action asserting claims against The Manhattan Club Timeshare Association, Inc. and others arising out of their purchase and ownership of flexible timeshare interests in The Manhattan Club. See Sheppard v. Manhattan Club Timeshare Ass'n, inc., No. 11 Civ. 4362(PKC) (S.D.N.Y. filed June 28, 2011. In a Memorandum and Order, this Court dismissed the claims in the Second Amended Complaint because they failed to state a claim for relief. Sheppard v. Manhattan Club Timeshare Ass'n, 11 Civ. 4362(PKC), 2012 WL 1890388 (S.D.N.Y. May 23, 2012). No appeal was taken. Instead, fifteen days after the order of dismissal, Sheppard's co-owner of the timeshare interest, Corinne Smith, represented by the same lawyers who represented Sheppard, commenced a putative class action in state court making largely the same allegatios and clains against the same defendants.

As explained herein, the doctrine of rest judicata forecloses this action brought by Sheppard's co-owner because the two are in privity and every claim asserted here was already adjudicated on the merits in Sheppard. Therefore, the Court grants the defendants' motions to dismiss and for judgment on the pleadings. But, before reaching this conclusion, the Court must first assess whether removal of the action from state court was proper and whether this Court has subject matter jurisdiction. The Court concludes that removal was proper and denies the plaintiff's motion to remand. The Court also denies the defendants' motion for sanctions.


This action is in all material respects a mirror image of Sheppard. Familiarity with the Court's Memorandum and Order in that case is assumed. See Sheppard v. Manhattan Club Timeshare Ass'n, Inc., No. 11 Civ. 4362(PKC), 2012 WL 1890388 (S.D.N.Y. May 23, 2012).

To summarize: the plaintiffs in Sheppard brought a putative class action alleging that they were unlawfully induced by the defendants into the purchase of ownership interests in The Manhattan Club. Specifically, they alleged that they were misled about the unit reservation process and reservation availability because The Manhattan Club unlawfully rented rooms to members of the general public. The plaintiffs asserted five causes of action under New York law: fraud, breach of fiduciary duty, violation of New York General Business Law ("GBL") § 349, breach of implied covenant of good faith and fair dealing, and "Injunctive Relief." See id.

On May 23, 2012, before a class was certified, this Court granted the defendants' motion to dismiss the Second Amended Complaint pursuant to Rules 12(b)(6) and 9(b), Fed.R.Civ.P. Id. Because the plaintiffs had filed three complaints and did not seek leave to replead in the event the motion to dismiss the Second Amended Complaint was granted, the Court directed the Clerk to enter judgment for the defendants. See id. at *9.

Roughly two weeks later, on June 7, 2012, Plaintiff Smith commenced the instant putative class action in New York Supreme Court, New York County, asserting claims against The Manhattan Club Timeshare Association, Inc., New York Urban Ownership Management LLC, T. Park Central LLC, O. Park Central LLC (incorrectly named in the caption as "O. Central Park LLC"), Ian Bruce Eichner, and Stuart P. Eichner (collectively, the "Defendants"). On August 21, 2012, Defendants removed this action to federal court. (Notice of Removal (Docket # 1).) The allegations and claims in the case now before me are, to a great extent, word-for-word copies of the allegations and claims asserted in Sheppard. The claims are based on the same facts and theory of the case, and are asserted against the same defendants. Other than the identity of the class representative, the definition of the purported class in each case is, in all material respects, identical.

Subject matter jurisdiction is premised on the Class Action Fairness Act, 28 U.S.C. §§ 1332(d), 1453 ("CAFA"). Smith moves to remand the action to state court, arguing that CAFA does not provide a basis for jurisdiction in this case. Defendants, contending that removal was proper, move to dismiss the Complaint pursuant to Rule 12(b)(6), Fed.R.Civ.P., and move for judgment on the pleadings pursuant to Rule 12(c), Fed.R.Civ.P.*fn1 Defendants also move for sanctions against Plaintiff and her counsel pursuant to Rule 11, Fed.R.Civ.P., and/or the Court's inherent authority.


I. PLAINTIFF'S MOTION TO REMAND IS DENIED. "CAFA amended the federal diversity jurisdiction statute to confer federal jurisdiction over class actions where: (1) the proposed class contains at least 100 members (the 'numerosity' requirement); (2) minimal diversity exists between the parties, (i.e., where 'any member of a class of plaintiffs is a citizen of a State different from any defendant'); and (3) the aggregate amount in controversy exceeds $5,000,000." Purdue Pharma L.P. v. Kentucky, 704 F.3d 208, 213 (2d Cir. 2013) (quoting 28 U.S.C. § 1332(d)(2)-(6)). CAFA also "expanded federal jurisdiction to permit a defendant to remove to federal court a class action . . . notwithstanding the absence of the complete diversity . . . otherwise required for removal." BlackRock Fin. Mgmt. Inc. v. Segregated Account of Ambac Assur. Corp., 673 F.3d 169, 175 (2d Cir. 2012) (citing 28 U.S.C. §§ 1332(d), 1453(b)); Greenwich Fin. Servs. Distressed Mortg. Fund 3 LLC v. Countrywide Fin. Corp., 603 F.3d 23, 26 (2d Cir. 2010)).

There are several exceptions to the federal jurisdiction conferred by CAFA. 28 U.S.C. § 1332(d)(3)-(4). Under the mandatory "home state exception," a district court must decline to exercise jurisdiction over a class action in which two-thirds or more of the putative class members, and the primary defendants, are citizens of the state in which the action was originally filed. 28 U.S.C. § 1332(d)(4)(B). Under the "discretionary exception," a district court "may, in the interests of justice and looking at the totality of the circumstances," decline to exercise jurisdiction over a class action in which greater than one-third but less than two-thirds of the putative class members, and the primary defendants, are citizens of the state in which the action was originally filed, based upon consideration of the enumerated factors. 28 U.S.C. § 1332(d)(3).

"Under CAFA, as under the traditional rule, the party asserting subject matter jurisdiction has the burden of proving it." Blockbuster, Inc. v. Galeno, 472 F.3d 53, 59 (2d Cir. 2006). Accordingly, the removing defendant bears the burden of establishing the existence of federal jurisdiction. Id. at 57. "However, once the general requirements of CAFA jurisdiction are established, plaintiffs have the burden of demonstrating that remand is warranted on the basis of one of the enumerated exceptions." Greenwich, 603 F.3d at 26.

Smith argues that Defendants have failed to sustain their burden of establishing federal jurisdiction under CAFA. Smith does not dispute that the first and second jurisdictional elements under CAFA -- numerosity and minimal diversity -- are met. (Pl. Reply Mem. Supp. Mot. to Remand 3 (Docket #25).) Instead, Smith contends that jurisdiction is lacking because Defendants have failed to satisfy CAFA's amount-in-controversy requirement. Smith further argues that remand is warranted on the basis of the home-state and/or discretionary exceptions.

a. Defendants Have Established CAFA Jurisdiction.

To satisfy CAFA's amount-in-controversy requirement, a removing defendant "must show that it appears to a 'reasonable probability' that the aggregate claims of the plaintiff class are in excess of $5 million." Blockbuster, 472 F.3d at 58. When the complaint fails to allege a specific damages amount, and facts relating to the jurisdictional amount are challenged by the plaintiff, the defendant must establish the requisite amount in controversy "with 'competent proof' and 'justify [its] allegations by a preponderance of evidence.'" United Food & Commercial Workers Union, Local 919, AFL-CIO v. CenterMark Properties Meriden Square, Inc., 30 F.3d 298, 305 (2d Cir. 1994) (alteration in original) (quoting McNutt v. General Motors Acceptance Corp. of Indiana, 298 U.S. 178, 189 (1936)). In determining whether the removing defendant has met this burden, courts "look first to the plaintiffs' complaint and then to [the defendant's] petition for removal." Mehlenbacher v. Akzo Nobel Salt, Inc., 216 F.3d 291, 296 (2d Cir. 2000) (citing Davenport v. Procter & Gamble Mfg. Co., 241 F.2d 511, 514 (2d Cir. 1957)). "Where the pleadings themselves are inconclusive as to the amount in controversy . . . courts may look outside those pleadings to other evidence in the record." United Food, 30 F.3d at 305.

The Complaint does not make any specific damages demand, and the aggregate value of the claims is not clear from the face of the Complaint. Accordingly, on March 15, 2013, the Court ordered Defendants to submit to the Court evidence establishing an amount in controversy above the CAFA threshold, and provided Smith an opportunity to respond. (See Docket #38.) On April 2, 2013, Defendants submitted the sworn affidavit of Scott L. Lager, Vice President of The Manhattan Club, with five exhibits annexed thereto. (See Affidavit of Scott Lager, sworn to on April 1, 2013 (Docket #40).)

Having considered the evidence submitted by Defendants as well as the allegations in the Complaint, the Court finds that Defendants have shown by a preponderance of evidence that the amount in controversy exceeds the $5 million threshold.*fn2 The Complaint alleges a class that includes all persons who purchased timeshare interests in The Manhattan Club from its inception in 1997 through the present. (Notice of Removal, Ex. A (Verified Complaint, filed June 7, 2012) ("Compl.") ΒΆΒΆ 16, 59 (Docket #1).) According to computer records maintained by The Manhattan Club in the ordinary course of business, during the period beginning January 1, 2001 (the earliest date for which The Manhattan Club has readily accessible, reliable computer records) and ending June 7, 2012 (the date the instant action was commenced), The Manhattan Club sold ...

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