-WMC Tschakert v. Hart Energy Publishing, LLLP et al, No. 3:2010cv02598 - Document 37 (S.D. Cal. 2011)
Court Description: ORDER granting 27 Motion for Expedited Discovery: All other proceedings in this action are stayed for 90 days or until the resolution of this jurisdictional discovery issue. Signed by Magistrate Judge William McCurine, Jr on 8/12/2011. (pdc)
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-WMC Tschakert v. Hart Energy Publishing, LLLP et al Doc. 37 2 3 4 5 6 7 8 9 UNITED STATES DISTRICT COURT 10 SOUTHERN DISTRICT OF CALIFORNIA 11 12 NORBERT TSCHAKERT, 13 CASE NO. 10cv2598-L (WMc) Plaintiff, ORDER GRANTING REQUEST FOR EXPEDITED DISCOVERY [Doc. No. 27] vs. 14 15 HART ENERGY PUBLISHING, LLLP, et aI., 16 ]7 18 Defendant. INTRODUCTION 19 Plaintiff Norbert Tschakert ("'Tschakert") filed an action against several Defendants to set 20 aside an alleged fraudulent transfer pursuant to California law. Plaintiff alleges that the court has 21 subject matter jurisdiction pursuant to 28 U .S.C. Section 1332( a) (1 ). 22 On June 8, 2011, Tschakert filed a motion for limited discovery on the citizenship of two 23 specific defendants: Hart Energy Publishing Limited Liability Limited Partnership C'LLLP") and 24 Hart Energy Mapping and Data Services Limited Liability Company ("LLC"). J Also, Tschakert 25 moved to stay all proceedings in this action, other than proceedings on jurisdictional discovery, for 26 90 days. [Doc. No. 27]. The Hart Defendants object to Tschakert's discovery request and, 27 28 1 The Court will refer to Hart Energy Publishing LLLP and Hart Energy Mapping and Data Services LLC collectively as the Hart Defendants for ease of reference. 1- 1Ocv2598-L (WMc) Dockets.Justia.com assuming the Court grants Tschakert's request, seek clarification and limitation on the scope of 2 disclosure. [Doc. No. 27-1]. After reviewing the papers and based on the following analysis, the 3 Court finds good cause to grant Tschakert's request. 4 5 6 PROCEDURAL AND FACTUAL BACKGROUND Tschakert's Prior Request On January 6,2011, District Judge Lorenz issued an order sua sponte dismissing without 7 prejudice the above captioned case for lack of subject matter jurisdiction. [Doc. No.3]. On 8 January 18, 2011, Tschakert submitted an ex parte motion for expedited discovery. [Doc. No.4]. 9 Specifically, Tschakert sought "to learn the citizenship of Defendants HART ENERGY 10 PUBLISHING, LL[L]P AND HART ENERGY MAPPING AND DATA SERVICES, LLC 11 (collectively 'Hart') in order to determine this Court's subject matter jurisdiction..." Id. 12 Judge Lorenz dismissed this case for a lack of subject matter jurisdiction because the 13 complaint failed to allege the facts necessary to establish diversity as required by 28 U.S.C. Section 14 1332. [Doc. No.3 at 2]. Because Tschakert filed his ex parte motion after Judge Lorenz dismissed 15 the case, the Court lacked the authority to consider the motion and consequently denied it as moot. 16 [Doc. No.8]. Tschakert objected to Magistrate Judge McCurine's order denying expedited 17 discovery and Judge Lorenz overruled Tschakert's objection. [See Doc. Nos. 9 & 10]. 18 Subsequently, Tschakert filed an amended complaint [Doc. No. 22] to which the Hart 19 Defendants filed a motion to dismiss for lack ofjurisdiction [Doc. No. 23] and Defendants Mauer 20 and Silva filed a motion to dismiss pursuant to Rules 9(b) and 12(b)(6) [Doc. No. 24]. Both 21 motions to dismiss are currently pending before Judge Lorenz. 22 Tschakert's Current Request 23 Tschakert seeks to discover the citizenship of the Hart Defendants so he can establish 24 proper subject matter jurisdiction or dismiss the complaint. [Doc. No. 27-1 at 3,5]. Tschakert's 25 proposed discovery includes "a few written interrogatories and requests for production of 26 documents, and maybe the deposition of Hart's person most qualified to answer citizenship 27 questions, all limited to the question of the Hart [D]efendants' citizenship." Id. at 5. Tschakert also 28 requests a 90 day stay of proceedings so he may conduct jurisdictional discovery. Id. Tschakert -2 IOcv2598-L (WMc) 1 asserts he knows of no other practical measures or available information to determine the Hart 2 Defendants' citizenship. Id. at 4. 3 Hart Defendants' Opposition 4 The Hart Defendants contend jurisdictional discovery during a pending subject matter 5 jurisdiction challenge is not appropriate unless a party challenges the pleading's accuracy. [Doc. 6 No. 32 at 2]. Here, the Hart Defendants accept Tschakert's allegations as true and contend the 7 citizenship allegations fail for lack of specificity. Id. at 5. Thus, Defendants assert their attack on 8 the sufficiency of Tschakert's allegations, as opposed to the accuracy of the allegations, renders 9 jurisdictional discovery inappropriate. [d. 10 If the Court grants jurisdictional discovery, the Hart Defendants contend the Court should 11 balance the privacy rights of the Hart Defendants' members against Tschakert's discovery 12 interests.Id. at 7. The Hart Defendants propose limiting the scope of the discovery to prevent the 13 identification of individual members to Tschakert. Id. STANDARDS 14 15 Expedited Discovery 16 In accordance with Federal Rule of Civil Procedure 26(d), discovery does not commence 17 until parties to an action meet and confer as prescribed by Federal Rule of Civil Procedure 26(f), 18 unless by court order or agreement of the parties. A court order permitting early discovery may be 19 appropriate "where the need for expedited discovery, in consideration of the administration of 20 justice, outweighs the prejudice to the responding party." Semitool, Inc. v. Tokyo Electron America, 21 Inc., 208 F.R.D. 273,276 (N.D.Cal. 2002). 22 Discovery on the Citizenship ofLLCs and Partnerships 23 Federal courts are courts of limited jurisdiction and thus hear cases involving federal 24 questions or diverse parties. See Rasul v. Bush, 542 U.S. 466, 489 (2009). Diversity requires a 25 matter in controversy between citizens of different States that exceeds $75,000. 28 U.S.C. § 26 1332(a)(1). If litigants are entities rather than individuals, the form of entity dictates citizenship. 27 See Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894,899 (9thCir. 2006). An 28 unincorporated association possesses the citizenship of all of its menlbers whereas a corporation's -3- lOcv2598-L{WMc) 1 citizenship includes the state of its principal place of business and the state of incorporation. 2 Johnson, 437 F.3d at 899. Therefore, the citizenship of an unincorporated association, such as an 3 LLC or partnership, extends to every state in which its members are citizens. Id. 4 To determine the citizenship of an LLC, courts look to the citizenship of the LLC's 5 members and, if necessary, the LLC's members' members. Plush Lounge Las Vegas, LLC v. Lalji, 6 No. CV 08-8394-GW (JTLx), 2010 WL 5094238, at *2 (C.D. Cal. Dec. 7,2010). Courts may 7 consider the citizenship of the members' members, and then the melnbers' members' members and 8 so on, because an LLC's members may include other entities, such as partnerships, corporations, or 9 even additional LLCs. See id. Each of these subsequent entities possess their own constituent 10 citizenship. See id. (citing Hicklin Eng'g, L.C. v. Bartell, 439 F.3d 346,347-48 (7th Cir. 2006); 11 Lindley Contours, LLC v. AABB Fitness Holdings, Inc., 414 Fed. Appx. 62,64 (9th Cir. 2011). 12 Therefore, courts determine an LLC's citizenship by tracing the layers of membership to decide if 13 diversity jurisdiction exists. See, e.g., Gladys McCoy Apartments, Ltd. P'ship v. State Farm Fire 14 & Cas. Co., No. CV 09-981-PK, 2010 WL 1838941, at *2 (D. Or. Mar. 30,2010) (determining 15 diversity by looking into third layer of membership of plaintiff limited partnership). 16 17 DISCUSSION The Citizenship ofthe Hart Defendants 18 Following the Ninth Circuit standard for complete diversity and other district courts' 19 application of that standard in the context of unincorporated associations, this Court will review 20 the constituent layers of the defendant LLC and LLLP, sequentially by constituent-layer. This 21 systematic approach minimizes Defendants' pdvacy concerns while allowing the Court to ascertain 22 its jurisdiction. 23 Here, Defendants have already provided Plaintiff with information concerning several 24 layers of its merrlbership: Hart Energy Mapping & Data Services, LLC's, sole member is Hart 25 Energy Publishing LLLP. [Doc. No. 32 at 6]. The LLLP has two partners, both of which are LLCs 26 ("Partner LLCs"). Id. Each Partner LLC is owned by another LLC ("Owner LLC"). Owner LLCs 27 are ultimately "owned by individuals and other business associations, including partnerships." Id. 28 at 7. - 4- I Ocv2598-L (WMc) 1 Therefore, the Court designates the following layers of the Hart Defendants' constituency. 2 Layer 1 includes Hart Energy Mapping & Data Services, LLC. Layer 2 includes Hart Energy's sole 3 constituent, Hart Energy Publishing LLLP. Layer 3 includes Hart Energy Publishing's two 4 constituents which the Court designates as Partner A and Partner B (both LLCs). Layer 4 includes 5 two constituents which the Court designates as Owner 1 and Owner 2 (both LLCs). Owner 1 is the 6 sole constituent of Partner A whereas Owner 2 is the sole constituent of Partner B. Finally, Layer 5 7 includes the potentially numerous constituents of Owner 1 and Owner 2, both of which include 8 allegedly unknown business associations and individuals. 2 9 Given the constituent-layers outlined above, the Court finds the citizenship of the Hart 10 Defendants can only be determined by analyzing the citizenship of the allegedly unknown 11 individuals and business associations in Layer 5. The citizenship of the LLLP Hart Defendant is 12 necessarily the citizenship of the LLC Hart Defendant because the LLLP is the sole constituent of 13 the LLC. Furthermore, the citizenship of one individual or corporation in Layer 5 could determine 14 this jurisdictional puzzle. Indeed, any Layer 5 constituent that is a citizen of Massachusetts will 15 defeat diversity. Likewise, limited discovery on the citizenship of the Layer 5 individuals or 16 corporations may prove dispositive of diversity jurisdiction whereas discovery on the citizenship of 17 any Layer 5 LLCs or LLLPs will only further the Court and parties descent into the citizenship 18 rabbit hole. 19 The Equities Also Favor Discovery ofDefendants , Citizenship 20 The Court finds Tschakert's need for limited discovery great and the prejudice to the Hart 21 Defendants minimal. Indeed, if Tschakert cannot establish the citizenship of the Hart Defendants, 22 he will likely fail to establish complete diversity and his First Amended Complaint may be 23 dismissed for lack of subject matter jurisdiction. Tschakert has faced this predicament before; this 24 Court denied Tschakert's previous motion for discovery because Judge Lorenz had dismissed the 25 complaint and thus the Couli had no operative complaint from which to grant Tschakert's motion. 26 [See Doc. No.8]. Now, with an operative complaint present, the Court finds Tschakert's need for 27 discovery great because the complaint risks dismissal for lack of subject matter jurisdiction and 28 2 See Exhibit A, attached. -5- lOcv2598-L (WMc) 1 Tschakert appears to have exhausted other methods of obtaining the information, including 2 3 informal discovery and meet and confer. Likewise, the Court finds minimal prejudice to the Hart Defendants in submitting to limited 4 discovery on the question of the Hart defendants' citizenship. Although the Hart Defendants 5 characterize this request as requiring "substantial additional investigation," the Defendants do not 6 argue the task is impossible or beyond their means. After balancing the equities, the Court 7 concludes the Defendants should bear this burden. Here, the Hart Defendants' chose LLC or LLLP 8 status, enjoy the benefits of that status including the anonymity of its' members, used that 9 anonymity to defeat Tschakert's allegations of complete diversity in the original complaint, and 10 now argue the burden on Defendants' in disclosing the citizenship of its' members places the issue 11 of subject matter jurisdiction beyond the Court's scrutiny. With all the equities thus far favoring 12 Defendants, the Court finds minimal prejudice to Defendants in producing the citizenship 13 information of their own members sequentially as needed. Finally, because Tschakert intends to 14 dismiss this action upon evidence of a lack of complete diversity, the burden on the Hart 15 Defendants could be minimal. 16 Moreover, to accept Defendants' implied argument that their alleged ignorance of their 17 members' citizenship creates a substantial burden which prejudices their interests, would require 18 the Court to accept the proposition that federal subject matter jurisdiction in the present case is 19 beyond judicial scrutiny. See Greentech Capital Advisors Securities, LLC, v. Enertech 20 Environmental, Inc., 2011 WL 1795318 *1 (S.D.N.Y. Apri129, 2011). This is a proposition the 21 Court will not accept. See Schwarzer, Tashima & Wagstaffe, Cal. Prac. Guide: Fed. Civ. Pro. 22 Before Trial, ch. 2:2052 (The Rutter Group 2011) ("Where appropriate, the court may order 23 discovery limited to the question of its own jurisdiction. "). 24 Furthermore, the Court finds the Hart Defendants' reliance on Valentin v. Hospital Bella 25 Vista, 254 F.3d 358 (1 st Cir. 2001) unpersuasive. Specifically, the Court disagrees with the 26 Defendants' conclusion that the dichotomy between facial and factual complaint-challenges set 27 forth in Valentin necessarily implies early discovery is permissible in factual but not facial 28 challenges. Indeed, Defendants' conclusion ignores this Court's "obligation" to investigate and - 6- lOcv2598-L (WMc) 1 ensure its own jurisdiction and ignores the long-held jurisdictional maxim that jurisdiction cannot 2 depend on stipulation or waiver of the parties. See lanakes v. United States Postal Service, 768 3 F.2d 1091, 1095 (9th Cir. 1985); see also, Truck Insurance Exchange v. The Manitowoc Company, 4 2010 WL 4961618 *1 (D.Ariz. Dec. 1,2010) citing United States v. Ceja-Prado, 333 F.3d 1046, 5 1049 (9th Cir. 2003). Jurisdiction cannot depend on the stipulation or waiver of the parties. ld. 6 Likewise, jurisdiction should not depend on how Defendants characterize their jurisdictional 7 challenge or on Defendants' alleged ignorance of the citizenship of its own members. See 8 Greentech, 2011 WL 1795318 at *1. 9 To allay Defendants' fears of the disclosure of their members private information and 10 burden of complying with Tschakert's proposed discovery, and to expedite the entire process, the 11 Court Orders the following discovery schedule: 12 1. The Hart Defendants must file a notice with the Court, supported by the affidavit or 13 declaration of an appropriate official or officials, setting forth whether any of Owner 1's Layer 5 14 corporate or individual constituents were citizens of Massachusetts as of the date of the filing of 15 the complaint. Defendants must submit this notice on or before August 26,2011. The Court 16 instructs Defendants to file, under seal, the name, address and phone number of any corporate or 17 individual citizen of Massachusetts. The notice and affidavit must not be filed under seal. 18 2. If diversity still exists after the first submission, the Hart Defendants must file a 19 notice with the Court, supported by the affidavit or declaration of an appropriate official or 20 officials, setting forth whether any of Owner 2's Layer 5 corporate or individual constituents were 21 citizens of Massachusetts as of the date of the filing of the complaint. Defendants must submit this 22 notice on or before September 2, 2011. The Court instructs Defendants to file, under seal, the 23 name, address and phone number of any corporate or individual citizen of Massachusetts. The 24 notice and affidavit must not be filed under seal. 25 3. If diversity still exists after the second submission, Defendant must notify the Court 26 and identify any Layer 5 unincorporated associations and identify the entity make-up of those 27 unincorporated associations (i.e., corporate, individual, or unincorporated association) on or 28 before September 9, 2011. At that time, the Court will issue another order as to discovery -7- IOcv2598-L (WMc) regarding the Layer 6 constituents. 2 3 4 Conclusion Tschakert's motion for lin1ited discovery [Doc. No. 27] is GRANTED consistent with this Order. All other proceedings in this action are stayed for 90 days or until the resolution of this 5 jurisdictional discovery issue. The parties shall forthwith comply with this order. 6 7 IT IS SO ORDERED. DATED: August 12, 2011 8 9 10 Hon. William McCurine, Jr. U.S. Magistrate Judge United States District Couli 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -8- 1Ocv2598-L (WMc) Tschakert v. Hart Energy Publishing LLLP lO-cv-2598 L (Wmc) LLC/Partnership Membership Structure for Diversity Jurisdiction Determination Purposes Hart Energy Mapping & Data Services. LLC ] First Layer i Hart Energy Publishing LLLP ] Second Layer K / I - - - - - - - - - - - - - - T h i r d Layer Owner LLC: /- Ir-U-nkn--own--B-us-in-e-ss-A-ss-o-ci..att'... /--·o-n--'sII Unknown Individuals I I ] Fourth Layer I-6'nknown Business Associations I }--- Fifth Layer
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