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Atanasio v. O'Neill

United States District Court, E.D. New York

January 15, 2017

PAUL ATANASIO, individually and derivatively on behalf of SOMERSET PRODUCTION COMPANY, LLC, Plaintiff,
THOMAS O'NEILL, Defendant.

         Kings County Supreme Court, Index, 502769/2016


          ERICTN VITALIANO, United States District Judge

         Plaintiff 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 is denied.


         The 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).

         In May 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 ¶ 9).

         In July 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).

         Standard of Review

         Federal 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. 1994)).


         O'Neill 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, [1] 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 415 (2005).

         The 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.

         In a 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.[2]

         Applying 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 ...

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