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