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Castillo Grand, LLC v. Sheraton Operating Corporation

United States Court of Appeals, Second Circuit

June 18, 2013

CASTILLO GRAND, LLC, Plaintiff-Appellant,
v.
SHERATON OPERATING CORPORATION, Defendant-Appellee.

Heard: June 25, 2012

Appeal from the December 23, 2010, order of the United States District Court for the Southern District of New York (Robert P. Patterson, Jr., District Judge), awarding $200, 000 in attorney's fees and $30, 000 in costs for refiling a lawsuit after non-diverse members of a limited liability corporation were dropped in an attempt to invoke diversity of citizenship jurisdiction.

Todd Evan Soloway, (Joshua D. Bernstein, on the brief), Pryor Cashman LLP, New York, N.Y. for Appellant.

Alexander Widell, (William A. Brewer, James S. Renard, on the brief), Bickel & Brewer, New York, N.Y., for Appellee.

Before: NEWMAN, WINTER, and RAGGI, Circuit Judges.

JON O. NEWMAN, Circuit Judge:

This appeal presents two issues concerning an award of attorney's fees. The first is whether the "just costs" authorized by 28 U.S.C. § 1919 when an action is dismissed for lack of jurisdiction include attorney's fees. The second, arising if a statutory basis for attorney's fees is lacking, is whether, on the facts of this case, fees were properly awarded for a litigant's maneuvering to re-assert diversity jurisdiction after failure of an initial attempt. These issues arise on an appeal by Plaintiff-Appellant Castillo Grand, LLC, ("Castillo") from the December 23, 2010, order of the District Court for the Southern District of New York (Robert P. Patterson, Jr., District Judge), awarding attorney's fees of $200, 000 and costs of $30, 000 to Defendant-Appellee Sheraton Operating Corporation ("Sheraton"). Castillo does not challenge the award of costs.

We conclude that section 1919 does not authorize an award of attorney's fees and that, although such fees may be awarded on a non-statutory basis for bad faith in the conduct of litigation, fees were not warranted under the circumstances of this case. We therefore vacate the order and remand with directions to delete the award of attorney's fees.

Background

Castillo filed a complaint ("the first action") against Sheraton in the District Court, alleging state law claims and invoking subject matter jurisdiction based on diversity of citizenship pursuant to 28 U.S.C. § 1332(a). Castillo alleged that it is a Florida limited liability company with its principal place of business in Florida and that Sheraton is a Delaware corporation with its principal place of business in New York. Sheraton filed an answer and eight counterclaims, also invoking diversity jurisdiction. Discovery proceeded for three years, during which the parties took thirty-four fact depositions and eight expert witness depositions. Sheraton filed a motion for partial summary judgment on an affirmative defense, which the District Court denied.

One month before the scheduled start of the trial, Sheraton moved to dismiss for lack of subject matter jurisdiction on the ground that two of the members of Castillo's limited liability company were New York citizens at the time Castillo filed its complaint. Sheraton, relying on Carden v. Arkoma Associates, 494 U.S. 185, 195-96 (1990), which held that the citizenship of all members of a limited liability corporation (like the partners of a partnership) controls for diversity purposes, contended that complete diversity did not exist. In response, Castillo conceded that one of its constituent members was a New York citizen at the time Castillo had filed its complaint and did not oppose Sheraton's motion to dismiss. The District Court dismissed the first action without prejudice for lack of jurisdiction. Prior to dismissal of the first action, Castillo's counsel advised the Court that Castillo intended to "cure" the jurisdictional defect by dropping the non-diverse member of its company and filing a "new action" alleging the same claims between the same parties. Castillo contended that it was entitled to pursue this course on the authority of Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567 (2004), which we discuss below. Thereafter, Sheraton advised the Court that any attempt by Castillo to alter the citizenship of the company would violate 28 U.S.C. § 1359. Section 1359 provides: "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."

Castillo then filed in the District Court a new complaint ("the second action") against Sheraton, which contained almost identical substantive claims. Castillo paid a new docketing fee, and the second action was assigned a docket number different from that of the first action. On Sheraton's motion, the District Court dismissed the second action for lack of subject matter jurisdiction. Castillo Grand LLC v. Sheraton Operating Corp., No. 09 CV 7197, 2009 WL 4667104 (S.D.N.Y. Dec. 9, 2009) ("Dismissal Op."). The Court stated that Castillo's reorganization was undertaken to invoke the jurisdiction of the Court and that "[t]he 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." Id. at *2. An appeal from that dismissal was withdrawn with prejudice by stipulation, pursuant to Rule 42(b) of the Federal Rules of Appellate Procedure. No. 09-5143 (2d Cir. Apr. 28, 2010).

Sheraton thereafter moved for "just costs" including attorney's fees pursuant to 28 U.S.C. § 1919. Section 1919 provides: "Whenever any action or suit is dismissed in any district court . . . for want of jurisdiction, such court may order the payment of just costs." Sheraton contended that Castillo had filed the second action in violation of section 1359, causing Sheraton to incur legal fees and costs in moving for dismissal.

The District Court granted the motion pursuant to section 1919, awarding Sheraton its requested attorney's fees of $200, 000 and costs of $30, 000. See Castillo Grand LLC v. Sheraton Operating Corp., No. 09 Civ. 7197, ...


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