Plush Lounge Las Vegas, LLC v. Amin Lalji et al, No. 2:2008cv08394 - Document 62 (C.D. Cal. 2010)
Court Description: DECISION AND ORDER regarding Application for Remand by Judge George H Wu: Plaintiffs application for a remand of this matter back to state court is granted as there was not complete diversity of the parties. This action is remanded forthwith. (cc Copy of Order, Docket Sheet and Letter of Remand to Los Angeles County Superior Court, Case number BC 402028) (Case Terminated. Made JS-6) (Attachments: # 1 Letter of Remand, CV 103) (ir)
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Plush Lounge Las Vegas, LLC v. Amin Lalji et al Doc. 62 REMAND/MADE JS-6 1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 CENTRAL DISTRICT OF CALIFORNIA 8 9 PLUSH LOUNGE LAS VEGAS, LLC, ) 10 11 12 13 14 15 16 ) Plaintiff, ) ) v. ) ) ADMIN LALJI, STEPHEN J. ) ROUGHLEY, THADDAS L. ALSTON, ) LARCO INVESTMENTS LTD., ) MAPLE LEAF PROPERTY ) MANAGEMENT INC., HOTSPUR ) GLOBAL LTD., HOTSPUR RESORTS ) NEVADA, INC., ) ) Defendants. ) ) No CV 08-8394-GW (JTLx) DECISION AND ORDER re APPLICATION FOR REMAND 17 18 I. Introduction 19 On November 4, 2008, plaintiff Plush Lounge Las Vegas, LLC (“Plaintiff” or 20 “Plush Lounge”) filed this action against defendants Amin Lalji, Stephen J. Roughley, 21 Thaddas L. Alston, Larco Investments Ltd., Maple Leaf Property Management Inc., 22 Hotspur Global Ltd., and Hotspur Resorts Nevada, Inc. (“Hotspur Resorts”) (collec23 tively “Defendants”) for fraud, negligent misrepresentation, intentional interference 24 with contract, conversion and unfair competition. On December 19, 2008, Defendants 25 removed this matter to federal court on the basis of diversity of the parties. 26 A number of motions have been filed. Plaintiff has applied to have the case 27 remanded back to state court because there is a lack of complete diversity. See Docket 28 Item Number (“Doc. No.”) 23. Defendants have filed: 1) a motion to dismiss the -1Dockets.Justia.com 1 Complaint pursuant to Federal Rule of Civil Procedure (“FRCP”) 12(b)(6) and a 2 motion to strike under FRCP 12(f) (see Doc. No. 9); 2) a motion to transfer this action 3 to the District of Nevada pursuant to 28 U.S.C. § 1404(a) (see Doc. No. 26); and 3) 4 except for Hotspur Resorts, a motion to dismiss for lack of personal jurisdiction 5 pursuant to FRCP 12(b)(2) (see Doc. No. 10). 6 As this Court finds that there is not complete diversity herein, it will remand the 7 matter back to state court. Consequently, it need not address Defendants’ motions. 8 II. Legal Standard 9 A suit filed in state court may be removed to federal court by the defendant or 10 defendants if the federal court would have had original subject matter jurisdiction over 11 that suit. 28 U.S.C. § 1441(a); Snow v. Ford Motor Co., 561 F.2d 787, 789 (9th Cir. 12 1977). A motion to remand is the proper procedure for challenging removal. See 28 13 U.S.C. § 1447(c). Courts construe the removal statute strictly against removal, and any 14 doubts must be resolved in favor of remand. Boggs v. Lewis, 863 F.2d 662, 663 (9th 15 Cir. 1988). The defendant always bears the burden of establishing that removal is 16 proper. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). “Federal juris-diction 17 must be rejected if there is any doubt as to the right of removal in the first instance.” 18 Id. 19 III. Discussion 20 A. Background 21 The Complaint herein avers that Plush Lounge “is a limited liability company, 22 duly organized and validly existing under the laws of the state of California.” See ¶ 23 3 of Complaint attached as Exhibit A to Notice of Removal, Doc. No. 1. Defendant 24 Roughley is alleged to be “an individual residing in Nevada and doing business in 25 Angeles County [sic], California” (Id. at ¶ 5), and Hotspur Resorts “is a purported 26 corporation allegedly organized and existing under the laws of Nevada . . . .” See Id. 27 at ¶ 10. 28 In support of its application for remand, Plush Lounge submitted the Declaration -2- 1 of John C. Kirkland (the general outside counsel for Plush Lounge) who states (and 2 provides documentary evidence from the State of Nevada Secretary of State) that 3 “since October 2008, the managing member of Plush [Lounge] has been PLLV 4 Holdings, LLC, a Nevada limited liability company.” See ¶ 2 of Doc. No. 24-2. 5 Plaintiff has also included the Declaration of Roland Katavic who states he is a citizen 6 of Nevada and has been a member of PLLV Holdings, LLC, since October 2008. See 7 Doc. No. 25, at ¶ 3. Plaintiff argues that since there are Nevada citizens on both sides 8 of this litigation, there is no diversity jurisdiction. 9 A little litigation history is appropriate here. Prior to this action, Plush Lounge 10 had brought a lawsuit against Hotspur Resorts. See Plush Lounge Las Vegas, LLC, v. 11 Hotspur Resorts Nevada, Inc., Case No. CV-06-2626 (C.D. Cal.). In that case, Hotspur 12 Resorts took the position that Plush Lounge had to be treated as a Nevada citizen 13 because it was (at that time) a limited liability company with one or more members 14 who were citizens of Nevada. See e.g. Hotspur Resorts’ Notice of Motion and Motion 15 to Dismiss Supplemental Claims in CV-06-2626, which is attached as Exhibit 1 to 16 Plaintiff’s Reply Memorandum herein, Doc. No. 32-2. 17 B. Analysis 18 The parties’ respective arguments regarding the existence of diversity juris- 19 diction (and, specifically, the question of Plaintiff’s citizenship) are now diametrically 20 opposed to the positions they took in the prior action. In the previous lawsuit, Plaintiff 21 alleged that it was a limited liability company, “duly organized and validly existing 22 under the laws of the State of California,” and that it had no members that were citizens 23 of the state of Nevada. Hotspur Resorts asserted that it had learned during discovery 24 that at least two members of Plush Lounge were citizens of Nevada at the time the 25 action was filed, although both members were subsequently bought out by Plush 26 Lounge. 27 There is an explanation for the parties’ shifts in positions. In its moving papers, 28 Plaintiff asserts that “[s]ince October 2008, the managing member of Plush has been -3- 1 PLLV Holdings, LLC [“PLLV”], a Nevada limited liability company.” Kirkland Decl. 2 ¶ 2. A copy of PLLV’s charter is attached as Ex. 1 to the Kirkland Declaration. Also 3 submitted with Plaintiff’s moving papers is the Declaration of Roland Katavic, who 4 states that he is a citizen of Nevada and a member of PLLV. Katavic Decl. ¶¶ 2 and 5 3. Both Plaintiff and PLLV are limited liability companies whose citizenship is 6 determined by the citizenship of their members (and their members’ members). See 7 Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006); see 8 also Hicklin Eng'g, L.C. v. Bartell, 439 F.3d 346, 347-48 (7th Cir. 2006) (“The 9 citizenship of a limited liability company is that of its members, and its members may 10 include partnerships, corporations, and other entities that have multiple citizenships. 11 A federal court thus needs to know each member’s citizenship, and if necessary each 12 member’s members’ citizenships.”) (citations omitted). Thus, it would appear that 13 Plaintiff is non-diverse from at least Defendant Hotspur Resorts, and that there cannot 14 be removal jurisdiction based on diversity. 15 Defendants, writing that “any addition of Mr. Katavic . . . is nothing more than 16 a collusive and improper attempt to interfere with diversity jurisdiction” (see Opp. 8:817 9), urge this Court to ignore Katavic’s citizenship for the purpose of determining 18 whether diversity exists. Defendants have cited a small array of cases in which courts 19 have “looked through” attempts to avoid federal jurisdiction by disregarding assign20 ments of claims, appointments of administrators, and joinders of sham defendants in 21 order to find that diversity jurisdiction exists. Not a single case has been cited in which 22 a court was permitted to ignore the citizenship of a member of a LLC party, 23 partnership, or unincorporated association, which is what is presented here. 24 Defendants would have the Court analogize to the “assignment” line of cases 25 exemplified by Kramer v. Carribean Mills, 394 U.S. 823 (1963). It is doubtful, for the 26 reasons discussed below, that this analogy is a fruitful one. Nevertheless, the question 27 merits a brief discussion whether a court may, in order to find diversity jurisdiction, 28 examine the motivation behind an assignment of a claim that ostensibly destroys -4- 1 diversity. 2 In Kramer, a Panamanian corporation assigned its cause of action under a 3 contract to a Texas attorney in order to create diversity jurisdiction. Kramer would 4 appear to be distinguishable from this case, if for no other reason, in that a federal 5 statute specifically provides that “[a] district court shall not have jurisdiction of a civil 6 action in which any party, by assignment or otherwise, has been improperly or 7 collusively made or joined to invoke the jurisdiction of such court.” 28 U.S.C. § 1359. 8 In Oakley v. Goodnow, 118 U.S. 43, 45 (1886), the Supreme Court wrote: “While . . 9 . the courts of the United States have under the act of 1875 the power to dismiss or 10 remand a case, if it appears that a colorable assignment has been made for the purpose 11 of imposing on their jurisdiction, no authority has as yet been given them to take 12 jurisdiction of a case by removal from a State court when a colorable assignment has 13 been made to prevent such a removal.” See also Provident Savings Life Assurance 14 Society v. Ford, 114 U.S. 635, 641 (1885) (colorable assignment of a complete cause 15 of action to defeat removal is effective to give the state court exclusive jurisdiction). 16 Neither Oakley nor Provident has ever been expressly overruled or superseded. 17 Courts, however, have questioned the continuing validity of the Provident line 18 of cases to disregard an administrator appointment which destroyed diversity, see 19 Grassi v. Ciba-Geigy, Ltd., 894 F.2d 181, 184 (5th Cir.1990) (citing Miller v. Perry, 20 456 F.2d 63 (4th Cir.1972)). In Grassi, the Fifth Circuit wrote that Provident and its 21 progeny “stand . . . for two propositions: First, that federal courts lack the power to 22 look beyond the pleadings in determining the existence of diversity jurisdiction absent 23 specific statutory authorization; and second, that state law and the state court systems 24 will adequately defend a defendant’s right to removal jurisdiction against devices 25 designed to defeat it.” Id. at 183. Writing that (1) subsequent cases have permitted 26 courts to look beyond pleadings, and (2) the proposition that state courts will 27 adequately defend diversity jurisdiction “has proved untrue in practice,” the Fifth 28 Circuit endorsed the Fourth Circuit’s view that “the difference between devices -5- 1 creating and devices destroying diversity was now immaterial.” Id. at 184 (citing 2 Miller, 456 F.2d at 66). 3 The Ninth Circuit, in dicta, has tentatively embraced the Fifth Circuit’s rea- 4 soning. In Attorneys Trust v. Videotape Computer Prods., 93 F.3d 593, 598 (9th 5 Cir.1996), it wrote: 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 In reaching our conclusion that the nature of the assignment [destroying diversity] must be considered, we do not overlook older Supreme Court decisions regarding removal. See, e.g., Provident Sav. Life Assur. Soc'y v. Ford, 114 U.S. 635, 5 S. Ct. 1104, 29 L. Ed. 261 (1885); see also Carson v. Dunham, 121 U.S. 421, 7 S. Ct. 1030, 30 L. Ed. 992 (1887); Leather Mfrs.' Nat'l Bank v. Cooper, 120 U.S. 778, 7 S. Ct. 777, 30 L. Ed. 816 (1887); Oakley v. Goodnow, 118 U.S. 43, 6 S. Ct. 944, 30 L. Ed. 61 (1886). In those cases, the Court refused to allow removal of an action filed in state court after a diversity-destroying colorable assignment was made, even if it was for collection only. In each of those cases, the Supreme Court indicated that it was loath to interfere with state court jurisdiction, that nothing in the removal statutes referred to removal in such an instance, and that the parties could present their real party in interest objections and their assertions about destruction of federal court jurisdiction as defenses in the state court. See, e.g., Provident, 114 U.S. at 640-41, 5 S. Ct. at 1107. The Fifth Circuit has expressed doubt about the continuing validity of the underlying rationales of those cases. See Grassi, 894 F.2d at 182-85. While the Fifth Circuit’s doubts are well grounded, we need not recite them here, nor need we rely upon them. Even if the Court were to accept the premise that the Court may look behind the collusive assignment of a claim in order to find diversity (and it may well be true that the Provident line of cases is obsolete in that limited scenario), it would require a quantum leap in logic to conclude from this that it can examine the motivation behind the assignment of an interest in an LLC (or the addition of a diversity destroying new member into the LLC). All the two scenarios really have in common is the word “assignment.” In the “assignment” cases cited by Defendants, the jurisdictional question is answered by deciding who is the real party in interest. See, e.g., Attorneys Trust, 93 F.3d at 599. Here, there is no question that Plush Lounge is the proper party. It is not obvious that any of the cases cited by Defendants even support their argument 28 -6- 1 that Plaintiff’s motivation in adding PLLV Holdings, LLC, as a managing member is 2 relevant to the determination whether diversity jurisdiction exists.1 This would 3 especially be true here where Plush Lounge was originally a Nevada limited liability 4 company that unsuccessfully attempted to transform itself into a California citizen for 5 purposes of the prior litigation. 6 IV. Conclusion and Order For the reasons stated above, Plaintiff’s application for a remand of this matter 7 8 back to state court is granted as there was not complete diversity of the parties. This action is remanded forthwith. 9 10 11 DATED: This 7th day of December, 2010 12 13 GEORGE H. WU United States District Judge 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 In Go Computer Inc. v. Microsoft Corp., 2005 U.S. Dist. LEXIS 31404 (N.D. Cal. Nov. 21, 2005), it was noted that the decisions in Grassi and Attorneys Trust involved (and were properly limited to) partial claim assignment situations, especially where the lawsuits were originally filed in federal court. Id. at *6-7. In rejecting Microsoft’s contention that diversity was still present even though plaintiff Go Computer was a citizen of the same state as Microsoft because Go Computer been assigned the claim upon which its lawsuit was based, the court stated: [B]ecause the Court cannot find that the assignment in question was a partial assignment, because Provident and its progeny have not been overruled, because this case was not originally filed in federal court, see Attorney’s [sic] Trust, 93 F.3d at 599, and because the Court must resolve any doubts against removal, the Court concludes that Microsoft has not met its burden to establish that removal jurisdiction exists on the basis of diversity. Id. -7-
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