D.B. Zwirn Special Opportuniti v. Mehrotra

Filing

OPINION issued by Jeffrey R. Howard, Appellate Judge; Kenneth F. Ripple and Bruce M. Selya, Appellate Judge. Per Curiam. Published.; Directing parties to file a statement as directed by the Court's previous order given at Oral Argument. Response due 12/5/11. [11-1172]

Case: 11-1172

Document: 00116293500

Page: 1

Date Filed: 11/18/2011

Entry ID: 5597064

United States Court of Appeals
For the First Circuit
No. 11-1172
D.B. ZWIRN SPECIAL OPPORTUNITIES FUND, L.P.,
n/k/a FORTRESS VALUE RECOVERY FUND 1 LLC,
Plaintiff, Appellant,
v.
VIKAS MEHROTRA,
Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Rya W. Zobel, U.S. District Judge]

Before
Howard, Ripple,* and Selya,
Circuit Judges.

Eric S. Rein, with whom Michelle K. Schindler, Dykema Gossett
PLLC, Allison O’Neil and Craig and Macauley Professional
Corporation, were on brief for appellant.
John A. Shope, with whom Thomas J. Bone, Benjamin F. Nardone
and Foley Hoag LLP, were on brief for appellee.

November 18, 2011

*

Of the Seventh Circuit, sitting by designation.

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Document: 00116293500

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Entry ID: 5597064

Per Curiam. D.B. Zwirn Special Opportunities Fund, L.P.,
now known as Fortress Value Recovery Fund I, LLC (“Zwirn”), brought
this action against Vikas Mehrotra, an investment fund manager.
The suit was brought originally in Massachusetts state court on May
7,

2010.

The

complaint

alleged

various

fraud

claims

under

Massachusetts law against Mr. Mehrotra, specifically, that he
assisted an associate, Dinesh Dalmia, in defrauding Zwirn of
approximately $7.5 million. On June 11, 2010, Mr. Mehrotra removed
the action to the United States District Court for the District of
Massachusetts, contending that the district court had jurisdiction
because the parties were citizens of different states and the
amount in controversy exceeded $75,000.
1441.

On

January

31,

2011,

the

See 28 U.S.C. §§ 1332,

district

court

granted

Mr.

Mehrotra’s motion to dismiss, holding that Zwirn’s complaint was
filed after the statute of limitations had expired and that Zwirn
had not alleged facts sufficient to support tolling the limitations
period.

Zwirn then appealed the district court’s judgment to this

court.1
Mr. Mehrotra is a citizen of the State of Rhode Island.
The notice of removal alleged that the plaintiff, Zwirn, “is a
Delaware limited liability company with a principal place of
business in New York, New York.”

At oral argument, we noted that

the allegations in the notice of removal were insufficient to

1

Our jurisdiction is predicated on 28 U.S.C. § 1291.
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establish that the parties were diverse for purposes of diversity
jurisdiction because the citizenship of a limited liability company
“is determined by the citizenship of all of its members.”

Pramco,

LLC ex rel. CFSC Consortium, LLC v. San Juan Bay Marina, Inc., 435
F.3d 51, 54 (1st Cir. 2006) (citing Carden v. Arkoma Assocs., 494
U.S. 185, 195-96 (1990)).

We therefore instructed counsel for

Zwirn to file “an affidavit of jurisdictional facts describing the
identities

and

place

of

citizenship

of

each

and

all

of

the

[members]2 as of the date of removal, which is the date that
controls.”

This filing was to be under seal.

We then instructed

counsel for Mr. Mehrotra to advise us if he contested the contents
of that affidavit.
Zwirn did not comply with our instruction that the
identity and citizenship of each member be provided.

Instead, it

attempted to establish diversity in the negative.

The affidavit

that it filed in response to our request recited:

“[A]s of June

11, 2010, according to the Fund’s records, there were no members of
the limited liability company who were citizens of Rhode Island.”
In his response, Mr. Mehrotra’s counsel did not contest these
allegations.

He further assented to the constructive amendment of

2

At oral argument, we instructed Zwirn to inform us of its
“limited partners” rather than its “members.” As the caption of
this matter indicates, Zwirn was once a limited partnership. At
the time of removal, however, Zwirn was a limited liability
company.
The parties understood that we were inquiring about
Zwirn’s members, as their responsive filings discuss LLCs and
members rather than LPs and partners.
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Case: 11-1172

the

Document: 00116293500

pleadings

to

reflect

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them

Date Filed: 11/18/2011

and

asserted

that

Entry ID: 5597064

diversity

jurisdiction had been established.
Putting aside for the moment the non-compliance with our
order, these allegations are insufficient to invoke diversity
jurisdiction under 28 U.S.C. § 1332.

That Mr. Mehrotra is a

citizen of Rhode Island and that Zwirn is not considered a citizen
of Rhode Island “is not sufficient to give jurisdiction in a . . .
Court of the United States.”
(1888).

Cameron v. Hodges, 127 U.S. 322, 324

In Cameron, the defendant was an Arkansas citizen who

sought to remove an action from Tennessee state court.
324-25.

Id. at

He attempted to invoke diversity jurisdiction by alleging

“‘that none of the complainants are or were at that time citizens
of said State of Arkansas.’”

Id. at 324.

In rejecting this

attempt, the Supreme Court reasoned:
That the defendant, Hodges, was a citizen of
Arkansas, in connection with the fact that
none of the complainants were citizens of that
State, is not sufficient to give jurisdiction
in a Circuit Court of the United States.
Brown v. Keene, [33 U.S.] (8 Pet.) 112, 115
[(1834)].
The adverse party must be a citizen of
some other named State than Arkansas, or an
alien.
All the complainants might be
residents and citizens of the District of
Columbia, or of any Territory, and they might
not be citizens of the State of Tennessee
where the suit was brought, or indeed, of any
State in the Union. . . .
This
court
has
always
been
very
particular in requiring a distinct statement
of the citizenship of the parties, and of the
particular State in which it is claimed, in
order to sustain the jurisdiction of those
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courts; and inasmuch as the only citizenship
specifically averred and set out in the case
before us is that of the defendant, Hodges, at
whose instance the cause was removed, and as
that is the only ground upon which the removal
was placed, it seems clear that the Circuit
Court did not have jurisdiction of it, and
that the suit should have been dismissed or
remanded for that reason.
Cameron, 127 U.S. at 324-25.
Cameron remains the governing precedent.

Although the

word “States” is now defined to include the Territories and the
District of Columbia, see 28 U.S.C. § 1332(e), citizens of the
United States and other entities still might be citizens of no
state at all under the diversity statute.

For instance, United

States citizens who are domiciled abroad are citizens of no state;
their “‘stateless’

status

destroy[s]

complete

diversity

under

§ 1332(a)(3), and [their] United States citizenship destroy[s]
complete diversity under § 1332(a)(2).”

Newman-Green, Inc. v.

Alfonzo-Larrain, 490 U.S. 826, 829 (1989).

Furthermore, Indian

tribes are treated as stateless for purposes of the diversity
statute.

See Ninigret Dev. Corp. v. Narragansett Indian Wetuomuck

Hous. Auth., 207 F.3d 21, 27 (1st Cir. 2000).
treated similarly.

Other entities are

See, e.g., Petroleum Exploration, Inc. v. Pub.

Serv. Comm’n of Kentucky, 304 U.S. 209, 217 (1938) (noting that
states are not “citizens” for purposes of the diversity statute).
If, therefore, any member of Zwirn is a stateless person, or an

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entity treated like a stateless person, we would lack diversity
jurisdiction.
We note as well that this jurisdictional issue has the
potential to be iterative.

If even one of Zwirn’s members is

another unincorporated entity, the citizenship of each of that
member’s members (or partners, as the case may be) must then be
considered. See Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412,
420 (3d Cir. 2010); Delay v. Rosenthal Collins Grp., LLC, 585 F.3d
1003, 1005 (6th Cir. 2009); Meyerson v. Harrah’s E. Chi. Casino
(Meyerson I), 299 F.3d 616, 617 (7th Cir. 2002) (per curiam).
Therefore, if even one of Zwirn’s members is another unincorporated
association, and if that association has one member or partner that
is either a stateless person or an entity treated like a stateless
person, we would not have diversity jurisdiction over this matter.
An issue similar to the one before us arose in Meyerson
v. Showboat Marina Casino Partnership (Meyerson II), 312 F.3d 318
(7th Cir. 2002) (per curiam).

When Meyerson first reached the

appellate court, the court determined that the complaint was
insufficient to support diversity jurisdiction because, among other
reasons,

the

complaint

defendants’ citizenship.

contained

no

allegations

Meyerson I, 299 F.3d at 617.

about

the

Although

the complaint did allege that one of the defendants was “an
unincorporated business licensed by the State of Indiana,” the
court noted that the citizenship of the unincorporated entity’s

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owners determined the business’s citizenship.

Id.

remanded the case for further jurisdictional inquiry.

Entry ID: 5597064

The court
Id.

The

district court, on remand, relied on the defendant partnership’s
assertion that none of its partners was a citizen of Michigan,
which was the plaintiff’s state of citizenship.
F.3d at 320.

Meyerson II, 312

When the matter returned to the appellate court, the

defendant partnership’s jurisdictional statement provided:
Showboat . . . is an Indiana general
partnership whose partners/members are two
additional
Indiana
general
partnerships,
Showboat Marina Partnership and Showboat
Marina
Investment
Partnership.
Neither
Showboat nor any of its aforementioned
constituent members are citizens of the state
of Michigan. . . . Showboat's citizenship is
in no other state but Indiana.
Thus,
diversity is complete.
Id. (alterations in original).

The Seventh Circuit concluded that

this “statement does not tell us the identity and citizenship of
the partners in the two entities that own Showboat.

Far from

showing jurisdiction, this statement multiplies the questions by
increasing

from

one

to

two

the

partners’ citizenship matters.”

number

of

partnerships whose

Id. at 320-21.

The approach in Meyerson is compatible with the Supreme
Court’s instruction in Cameron.

Consequently, we cannot permit

this case to proceed to judgment without the additional information
that we ordered at oral argument.

As noted earlier, the parties

have failed to comply with that order. Accordingly, within fifteen
days of the date of this order, Zwirn shall file a statement in
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compliance with this court’s previous order.
must

not

only

identify

its

members

and

Entry ID: 5597064

In doing so, Zwirn
their

respective

citizenship, but must also trace the citizenship of any member that
is an unincorporated association through however many layers of
members or partners there may be. This filing will be under seal.
Mr. Mehrotra shall inform us whether he contests Zwirn’s affidavit
within ten days of the filing of Zwirn’s affidavit.
IT IS SO ORDERED.

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