United States District Court, E.D. New York
PAUL ATANASIO, individually and derivatively on behalf of SOMERSET PRODUCTION COMPANY, LLC, Plaintiff,
THOMAS O'NEILL, Defendant.
County Supreme Court, Index, 502769/2016
ORDER OF REMAND
VITALIANO, United States District Judge
Paul Atanasio brought this action, both individually and
derivatively on behalf of Somerset Production Company, LLC
("Somerset") against Thomas O'Neill, a
constituent member of Somerset. The case was originally filed
in New York Supreme Court, Kings County. The short journey
from state court to blocks away comes by way of the
lawsuit's removal to federal court under 28 U.S.C.
§§ 1332 and 1441, with subject matter jurisdiction
based on alleged diversity of citizenship. Plaintiff now
moves to remand it. For the reasons that follow, his motion
is granted, though plaintiffs demand for attorney's fees
April 2016 complaint that Atanasio filed in Kings County
Supreme Court alleged, among other things, that O'Neill
had breached fiduciary duties owed to Somerset by withdrawing
$4.7 million from Somerset's accounts in order to fund
his extravagant personal lifestyle. (Compl. ¶¶
22-28, ECF No. 1-1). The complaint raised claims (1) seeking
rescission, (2) for breach of fiduciary duty, (3) charging
abuse of control, (4) for conversion, (5) of unjust
enrichment and (6) for an accounting. (Compl. ¶¶
41-77). Dispositively with respect to this motion, the
complaint also alleged that both Atanasio and O'Neill
were members of Somerset. (Compl. ¶¶ 5-6).
2016, defendant filed a notice of removal, which alleged that
removal was proper based on the parties' diversity of
citizenship. (Notice of Removal ¶ 8, ECF No. 1 (citing
28 U.S.C. §§ 1332 and 1441)). Specifically,
O'Neill alleged that Atanasio was a citizen of New York,
while he was a citizen of Florida. (Notice of Removal ¶
2016, Atanasio filed a motion to remand, which O'Neill
formally opposed. (PL's Mot. Remand, ECF No. 11;
Def.'s Mem., ECF No. 12). On December 6, 2016, the Court
ordered additional briefing to address a discrete
jurisdictional point that had gone unaddressed, (12/6/16
Order), and the parties filed simultaneous responses on
December 20, 2016, (PL's Second Mem., ECF No. 17;
Def.'s Second Mem., ECF No. 16).
courts are courts of limited subject matter jurisdiction.
Citibank, N.A. v. Swiatkoski, 395 F.Supp.2d 5, 8
(E.D.N.Y. 2005). The statutory provision invoked here as
authorization for removal of a case filed in state court to
federal court does not expand those limitations. See
28 U.S.C. § 1441(a) (permitting "any civil action
brought in a State court of which the district courts of the
United States have original jurisdiction" to be removed
to federal court); see also Martin v. Franklin Capital
Corp., 546 U.S. 132, 134, 126 S.Ct. 704, 707, 163
L.Ed.2d 547 (2005) ("A civil case commenced in state
court may, as a general matter, be removed by the defendant
to federal district court, if the case could have been
brought there originally." (citing 28 U.S.C. §
1441)). "A federal court's entertaining a case that
is not within its subject matter jurisdiction is no mere
technical violation; it is nothing less than an
unconstitutional usurpation of state judicial power."
Martin v. Wal-Mart Stores, Inc., 709 F.Supp.2d 345,
346 (D.N.J. 2010) (quoting Charles Alan Wright et al., 13
Federal Practice & Procedure § 3522 (3d ed. 2008)).
Accordingly, if a federal court lacks subject matter
jurisdiction over the removed action, the case must be
remanded from whence it came. See 28 U.S.C. §
1447(c). Removal statutes are, moreover, to be strictly
construed, and any doubts are to be resolved in favor of
remand. See Beatie & Osborn LLP v. Patriot Sci.
Corp., 431 F.Supp.2d 367, 382-83 (S.D.N.Y. 2006);
Codapro Corp. v. Wilson, 997 F.Supp. 322, 324-25
(E.D.N.Y. 1998). The party seeking removal "bears the
burden of demonstrating the propriety of removal."
Cal. Pub. Emps. Ret. Sys. v. WorldCom, Inc., 368
F.3d 86, 100 (2d Cir. 2004) (quoting Grimo v. Blue
Cross/Blue Shield of Vt, 34 F.3d 148, 151 (2d Cir.
asserts that removal was proper under § 1441 because,
had Atanasio filed his case in federal court, federal subject
matter jurisdiction over the action would have been present
on the basis of diversity of citizenship, (Notice of Removal
¶ 8 (citing 28 U.S.C. §§ 1332 and 1441)) -
Jurisdiction which exists when the plaintiffs and defendants
are citizens of different states and the amount in
controversy exceeds $75, 000,  28 U.S.C. § 1332(a). But, a
case qualifies for diversity jurisdiction under §
1332(a) only when there is complete diversity between the
adverse parties, i.e., only when no plaintiff is a citizen of
the same state as any defendant. Lincoln Prop. Co. v.
Roche, 546 U.S. 81, 89, 126 S.Ct. 606, 613, 163 L.Ed.2d
initial briefs sparring over diversity jurisdiction filed by
each side focused on Atanasio's citizenship. (PL's
Mem., ECF No. 11-20; Def.'s Mem.). Specifically, because
it is undisputed that O'Neill is a citizen of Florida,
the parties framed the question of whether Atanasio was also
a citizen of Florida as the sole dispositive issue on the
motion to remand. (PL's Mem. 3-8; Def.'s Mem. 3-7).
The circumscription of their focus, however, overlooked a
second issue. When that oversight became apparent,
supplemental briefing was ordered on the question of whether
Somerset's citizenship, independent of Atanasio's,
destroyed complete diversity. (12/6/16 Order). As the
supplemental briefing makes plain, the question of
Atanasio's citizenship is academic. Indeed, on the
strength of that briefing, O'Neill consents to remand-
though begrudgingly so. (Def.'s Second Mem. 34). Yet,
since Atanasio now seeks to punish O'Neill by demanding
attorney's fees, it is important to show the analytical
underpinnings for the Court's request for supplemental
briefing and defendant's decision to consent to remand.
derivative action commenced on behalf of a limited liability
company ("LLC"), the LLC itself is a necessary
party under Rule 19 of the Federal Rules of Civil Procedure.
See Cook v. Toidze, 950 F.Supp.2d 386, 390 (D. Conn.
2013) (noting that, in "a derivative suit, the limited
liability company is not a nominal party");
Bartfield v. Murphy, 578 F.Supp.2d 638, 650
(S.D.N.Y. 2008) (concluding that a LLC was a necessary party
to "derivative claims raised on its behalf). That, of
course, is precisely the case here, and, in conformity with
this stricture, Atanasio has styled Somerset as a plaintiff.
(See Notice of Removal; PL's Mot. Remand). In a
derivative suit, more importantly, it is the rule that the
LLC's citizenship should be taken into account for
purposes of determining the presence of diversity
jurisdiction. See, e.g., Cook, 950 F.Supp.2d at 390;
Bartfield, 578 F.Supp.2d at 650. Critically, a LLC
takes the citizenship of all its members. Bayerische
Landesbank, N.Y.Branch v. Aladdin Capital Mgmt. LLC, 692
F.3d 42, 49 (2d Cir. 2012). There appears to be no reason to
except derivative suits from the ambit of this general rule,
and no such exception will be created here.
the analytical framework sketched out above in order to
detail the legal landscape forming the backdrop for
defendant's consent to remand, because Atanasio's
complaint alleged that both he and O'Neill are members of
Somerset (Compl. ¶¶ 5-6), Somerset takes the
citizenships of both members. As currently styled, then,
Somerset and Atanasio are listed as plaintiffs, with
O'Neill named as the sole defendant. In this arrangement
of the parties, complete diversity is lacking since at least
one plaintiff (Somerset) and the sole defendant (O'Neill)
are citizens of Florida. This alignment does not necessarily
end the analysis, however, because, in derivative actions, a
court has some flexibility to align the collective entity as
a defendant rather than a plaintiff. See DirecTV Latin
Am., LLC v. Park 610, LLC, No. 08 Civ. 3987 (VM)(GWG),
2009 WL 692202, at *5 ...