Mortenson Family Dental Center, et al v. Heartland Dental Care, Inc.

Filing

OPINION: the district court's judgment is AFFIRMED, decision not for publication. Richard Allen Griffin, Circuit Judge; Raymond M. Kethledge, AUTHORING Circuit Judge and Lawrence P. Zatkoff, U.S. District Judge for the Eastern District of Michigan, sitting by designation.

Case: 12-5494

Document: 006111686997

Filed: 05/13/2013

Page: 1

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 13a0475n.06
No. 12-5494
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

MORTENSON FAMILY DENTAL CENTER, INC.
and MORHEART DENTAL MANAGEMENT
SERVICES, LLC,
Plaintiffs/Appellants,
v.
HEARTLAND DENTAL CARE, INC.,
Defendant/Appellee.

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FILED
May 13, 2013
DEBORAH S. HUNT, Clerk
ON APPEAL FROM THE UNITED
STATES DISTRICT COURT FOR
THE WESTERN DISTRICT OF
KENTUCKY

Before: GRIFFIN and KETHLEDGE, Circuit Judges; ZATKOFF, District Judge.*
KETHLEDGE, Circuit Judge. The plaintiffs appeal the district court’s determination that
diversity jurisdiction exists in this case. We affirm.
I.
Mortenson Family Dental Center, Inc. is a holding company with interests in over 40 dental
practices in Kentucky and Indiana. It was incorporated in Kentucky and has its principal place of
business in Louisville. Heartland Dental Care, Inc. operates hundreds of dental practices throughout
the United States. It was incorporated in Delaware and has its principal place of business in Illinois.

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The Honorable Lawrence P. Zatkoff, Senior United States District Judge for the Eastern
District of Michigan, sitting by designation.

Case: 12-5494

Document: 006111686997

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No. 12-5494
Mortenson Family Dental Center, Inc., et al v. Heartland Dental Care, Inc.
In 2007, Mortenson and Heartland went into business together. Heartland gave capital funds
to Mortenson to acquire more dental practices, and in exchange, Mortenson agreed to share the
profits of the new businesses with Heartland. Rather than sell an equity stake in itself, however,
Mortenson created Morheart Dental Management Services, LLC and sold a 40 percent interest in the
LLC to Heartland. Under the terms of an operating agreement, profits from the new businesses
would flow to the LLC and then out to the members in proportion to their ownership interest. If
Mortenson needed more funding, the LLC would make a capital call on the members for
contributions and distribute those capital funds to Mortenson.
The relationship was successful for a few years, but then Mortenson and Heartland began to
distrust each other. Heartland alleges that Mortenson stopped providing timely and accurate
financial statements. Mortenson responds that Heartland became hostile after Mortenson refused
Heartland’s buyout offer. Matters came to a head in 2010, when Heartland refused a capital call
from the LLC. According to Mortenson, the refusal diluted Heartland’s ownership interest in the
LLC under the terms of the operating agreement.
In May 2011, Mortenson and the LLC filed a declaratory action in Kentucky state court to
determine Heartland’s ownership interest in the LLC. In response, Heartland filed suit against
Mortenson in Illinois state court, alleging breach of contract, breach of fiduciary duty, and negligent
misrepresentation. Heartland also removed the Kentucky suit to federal court and filed a motion to
dismiss the action in favor of the Illinois suit. Mortenson and the LLC filed a motion to remand.
The district court denied the motion to remand, finding that it had diversity jurisdiction over the

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Case: 12-5494

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Mortenson Family Dental Center, Inc., et al v. Heartland Dental Care, Inc.
matter, and granted Heartland’s motion to dismiss. Mortenson and the LLC now appeal the district’s
denial of their motion to remand.
II.
We review de novo the district court’s denial of a motion to remand. Paul v. Kaiser Found.
Health Plan of Ohio, 701 F.3d 514, 519 (6th Cir. 2012).
Diversity jurisdiction requires that no defendant share citizenship with any of the plaintiffs.
Peters v. Fair, 427 F.3d 1035, 1038 (6th Cir. 2005). For jurisdiction purposes, a corporation is a
citizen of its state of incorporation and principal place of business. Delay v. Rosenthal Collins
Group, LLC, 585 F.3d 1003, 1005 (6th Cir. 2009). A limited liability company has the citizenship
of each of its members. Id. Thus, Mortenson is a citizen of Kentucky, Heartland is a citizen of
Delaware and Illinois, and the LLC is a citizen of all three of those states.
Although the LLC’s presence as a plaintiff appears to destroy diversity jurisdiction, the
district court held that the LLC is a nominal party. When determining whether diversity jurisdiction
exists, a federal court must disregard nominal parties and decide jurisdiction only on the citizenship
of the real parties in interest. Certain Interested Underwriters at Lloyd’s v. Layne, 26 F.3d 39, 42
(6th Cir. 1994). Here, the district court held that, since Mortenson and Heartland are the only real
parties in interest, diversity jurisdiction exists in this case.
A real party in interest is one who is entitled to enforce the right asserted in the suit, that in
turn depends on whether the party could actually obtain substantive relief. Id. at 42–43. In contrast,
a nominal party has no interest in the result of the suit and need not be made a party. Maiden v. N.

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No. 12-5494
Mortenson Family Dental Center, Inc., et al v. Heartland Dental Care, Inc.
Am. Stainless, L.P., 125 F. App’x 1, 3 (6th Cir. 2004) (quoting Grant Cnty. Deposit Bank v.
McCampbell, 194 F.2d 469, 472 (6th Cir. 1952)).
Here, Mortenson and Heartland dispute their ownership percentages in the LLC under the
terms of the operating agreement. The LLC itself, however, does not seek to enforce any duty owed
by Heartland. Indeed, the LLC is not even a party to the operating agreement. And neither
Mortenson nor Heartland has claimed that the LLC paid its members incorrectly under the terms of
the agreement. Thus, the LLC has not asserted any rights and will not get any relief from the
outcome of the suit.
Mortenson argues that the LLC is a real party in interest because it is responsible for
distributing profits and thus needs to know its members’ ownership percentages. But that only
makes the LLC a nominal party here. See Prudential Real Estate Affiliates, Inc. v. PPR Realty, Inc.,
204 F.3d 867, 873 (9th Cir. 2000) (owners of stock were nominal parties in a declaratory action
because their only interest was to know to which party they should transfer their stock); Matchett v.
Wold, 818 F.2d 574, 576 (7th Cir. 1987) (“The addition to a lawsuit of a purely nominal party—the
holder of the stakes of the dispute between the plaintiff and the original defendant—does not affect
diversity jurisdiction”). The LLC would be a real party in interest if, for example, it had a right to
any of the money it had paid to Heartland. See S.E.C. v. Ross, 504 F.3d 1130, 1141 (9th Cir. 2007).
But the LLC asserts no such right here.
Mortenson says that, since the operating agreement grants certain rights to the LLC (such as
the ability to prevent Heartland from competing with it) and allows the LLC to recover attorney’s
fees if it is successful in a suit, the parties contemplated the LLC as a potential litigant. Whether the
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Case: 12-5494

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Mortenson Family Dental Center, Inc., et al v. Heartland Dental Care, Inc.
LLC could assert certain rights against its members, however, makes no difference here. What
matters is that the LLC is not doing so in this case.
Mortenson also argues that the LLC is a real party in interest because the suit will determine
who manages the LLC. But that too does not amount to an assertion of any right by the LLC.
Finally, Mortenson argues that the LLC is not a nominal party because the suit will determine the
LLC’s future payments to its members, not just a one-time payment. Cf. DiBella v. Carpenter, No.
2:10-cv-174, 2010 WL 2605824 (S.D. Ohio June 25, 2010) (a corporation was a nominal party
where its liquidated assets were the subject of the suit between the owners). But that argument
emphasizes that the LLC is simply a money holder and therefore a nominal party.
The real dispute in this case is between Mortenson and Heartland. The LLC is only a
spectator on the sideline. That it will give a trophy to the winner does not make it a player in the
game.
The district court’s judgment is affirmed.

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