KILGORE et al v. ACADEMY LTD

Filing 44

ORDER regarding determination of whether Defendant Academy Ltd. should be sanctioned. Ordered by U.S. District Judge MARC THOMAS TREADWELL on 2/9/2015. (tlh)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF GEORGIA
MACON DIVISION
GREG KILGORE and HOPE KILGORE,
Plaintiffs,
v.
ACADEMY LTD.,
Defendant.

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CIVIL ACTION NO. 5:14-CV-7 (MTT)

ORDER
Although the Court dismissed this case on October 17, 2014, the Court retained
jurisdiction for the determination of whether Defendant Academy Ltd. should be
sanctioned. After careful review, the Court enters this Order.
Plaintiffs Greg and Hope Kilgore filed a complaint against Defendant Academy
Ltd. in this Court on January 7, 2014, asserting claims based on the alleged malfunction
of a “Game Winner Climbing Stick” purchased from one of the Defendant’s stores.
(Doc. 1). On July 2, 2014, the Court Ordered the Plaintiffs to show cause why their
complaint should not be dismissed for lack of subject matter jurisdiction because,
though the Plaintiffs alleged the basis for the Court’s jurisdiction was diversity of
citizenship, they did not properly plead Academy’s citizenship. (Doc. 17). Specifically,
the Plaintiffs alleged Academy was a limited partnership and that both its general and
limited partners were limited liability companies1 but did not allege the citizenship of
each member of the LLCs as required to show diversity.

1
The Plaintiffs actually alleged Academy’s limited partner was a limited liability corporation,
which the Court interpreted to mean limited liability company. (Docs. 1, ¶ 1; 17).

In response to the Court’s Order, the Plaintiffs moved to dismiss their complaint
on September 16 pursuant to Fed. R. Civ. P. 41(a)(2). (Doc. 21). The Plaintiffs
explained that they had propounded interrogatories in an attempt to discover Academy’s
ownership structure and respond to the Court’s Order, but they received answers that
were clearly unresponsive:
INTERROGATORY NO. 1
Please identify the members of Academy Managing Co., LLC. Also
identify each such member[’]s citizenship by identifying: (1) any individual
member's state of citizenship and residence; (2) any corporate member's
state of incorporation and principal place of business; (3) any LLC
member's members; and (4) any partnership member's partners.
RESPONSE:
Defendant is a Texas limited partnership. The sole limited partner of
Defendant is Associated Investors, L.L.C., a Texas limited liability
company, and the sole general partner of Defendant is Academy
Managing Co., L.L.C., a Texas limited liability company, neither of which is
publicly traded. Each of Associated Investors, L.L.C. and Academy
Managing Co., L.L.C. is indirectly controlled by an affiliate of Kohlberg
Kravis Roberts & Co. L.P. (NYSE: KKR), which is publicly traded.
Defendant's subsidiaries include Academy Finance Corporation, a
Delaware corporation, Academy.com, LLC, a Texas limited liability
company, Academy Administrative Services LLC, a Virginia limited liability
company, Brazos Sports Retail Management, LLC, a Delaware limited
liability company, and Academy International Limited, a Hong Kong limited
liability company.2

2
In the hearing held on October 15, Academy’s general counsel explained this answer as
follows:
When it got around to responding to the interrogatories, [Milton Karfis (the
attorney of record for Academy)] believed and thought that they both agreed that
the case would just go back to state court because Academy couldn't help him
establish diversity jurisdiction, and so [Karfis] simply took our corporate
disclosure statement and popped it into the interrogatory response, thinking that
that just simply showed all that Academy knew and that plaintiff in his motion to
dismiss would take that and say, hey, look, Academy can't show diversity,
therefore we need to go back to state court. So he wasn't intending to mislead.
He put truthful information, he just wasn't as complete as he should have been.
(Doc. 32 at 4:23-5:10).
-2-

(Doc. 21 at 5-6). Because the statute of limitations was about to run, the Plaintiffs’
counsel was understandably concerned about being able to timely file the action in state
court if diversity of citizenship was lacking and thus moved to dismiss the case without
prejudice.
The Court, however, was not willing to let Academy’s apparent nose-thumbing
pass so easily. On September 17, the Court ordered Academy to submit the
information the Plaintiffs requested in their interrogatories within seven days, citing
Bouvier v. Academy Ltd., 2:13-cv-3002 (E.D. La.), a case Academy removed to federal
court on the basis of diversity jurisdiction. (Doc. 22). Academy requested a telephone
conference, which was held on September 24. During the conference, Milton Karfis,
then the attorney for Academy, informed the Court that Academy does not have access
to its entire ownership structure due to the confidential nature of its private equity
ownership. Karfis said the best Academy could do—and what it did in this case—was
ask the four primary companies that own Academy whether any of their members are
citizens of Georgia. According to Karfis, there was a Georgia corporation with an
indirect ownership interest in Academy, and thus, complete diversity did not exist.
However, Karfis said he could provide neither the name of the corporation nor the date
on which it acquired its ownership interest. Karfis never removed a case to federal
court on behalf of Academy, but it was his understanding that if Academy wanted to
remove a case it would ask its investment groups whether any of their owners were
citizens of the particular state where Academy was trying to remove the case.3

3
According to Academy’s general counsel, Academy has a policy of not removing cases to
federal court due to its inability to establish the citizenship of all its owners. See infra p. 9. It is
interesting that, despite this alleged no-removal policy, Karfis came away from his discussion
with Academy’s in-house counsel with the impression that Academy sometimes removes cases.
-3-

The Court then ordered Academy to inform the Court by September 26: (1) when
the Georgia corporation obtained its ownership interest and (2) the basis for keeping the
identity of the corporation secret from the Court. (Doc. 23).
On September 25, the Court scheduled an evidentiary hearing for October 16,
during which Academy would produce witnesses to testify regarding the information the
Court requested in its September 17 Order. (Doc. 24). The Court informed Academy
that in lieu of an evidentiary hearing, it could file the requested information under seal
no later than October 3. Id. On September 26, Academy filed a response under seal.4
Academy first acknowledged that its response to the Plaintiffs’ interrogatories regarding
its ownership structure was “true and correct but not as detailed as it should have
been.” (Doc. 25 at 3). Academy also stated that it explained to the Plaintiffs it could not
help them establish diversity because it was partially owned by Allstar LLC, a company
controlled by an affiliate of Kohlberg Kravis Roberts & Co. L.P. (“KKR”), which “does not
provide Academy with visibility” into its ownership structure. (Doc. 25 at 4). Somehow,
this visibility problem did not make its way into Academy’s interrogatory responses.
The bulk of Academy’s September 26 response explained its ownership
structure and attached an organizational chart. According to the chart, Academy is a
limited partnership. Both its general and limited partners are LLCs with the same single
member—New Academy Finance Company, LLC. This LLC’s sole member is another

Also, as discussed below, examination of cases removed by Academy suggests Karfis was
telling the truth. Academy removed cases based on the bare representation that “[n]one of the
members of the foregoing limited liability companies are residents of or have their principal
places of business in” the state at issue after giving an incomplete list of its owners. Or it would
identify its owners to a point and then state the identity of the remaining owners or members
was “proprietary and confidential” but none were citizens of the state where the action was
pending.
4

Given that the response did not include any of the purportedly confidential information, the
Court is unsure why Academy felt the need to file this response under seal.
-4-

LLC: New Academy Holding Company LLC. New Academy Holding Company LLC has
four members: MSI 2011 LLC, MG Family Limited Partnership, Allstar Managers LLC,
and Allstar LLC. Academy provided the ownership information for Allstar Managers
LLC but claimed it has “limited visibility into the other three members.” However,
Academy has previously spoken to the individuals who own MSI 2011 LLC and MG
Family Limited Partnership, and they advised Academy that the ownership structures of
these two entities include only New York and Texas residents.
Allstar LLC has the majority ownership interest in New Academy Holding
Company LLC, and it is controlled by a KKR affiliate. Since the August 2011
acquisition, KKR has “provided Academy with very limited information about Allstar
LLC’s organizational structure.” (Doc. 25 at 9). According to Academy, the basis for
keeping investor information confidential is:
(1) KKR’s own confidentiality agreements with, and fiduciary obligations
to, Allstar LLC’s direct and indirect members/investors, among other
reasons, prevents it from sharing this information; (2) the direct and
indirect member/investor information for Allstar LLC rests solely with KKR;
and (3) Academy has no right to this information and KKR has no duty or
obligation to Academy to provide it to Academy.
(Doc. 25 at 9-10). However, KKR did reveal to Academy that one investor in Allstar
LLC’s chain of ownership is a Georgia corporation and that this investor obtained its
ownership interest on August 3, 2011.
Finally, the September 26 response stated that “Academy’s removal in Bouvier
was erroneous, but unintentional.” Academy claimed “[a]t the time of the Bouvier
removal [in 2013], the law regarding pleading ownership of limited liability [companies]
for jurisdictional purposes was less well-known, and Academy erroneously believed that
the citizenship of a limited liability company was the same as a corporation and
depended on place of incorporation and principal place of business.” (Doc. 25 at 10).
-5-

That claim of ignorance would be more believable if, in Bouvier, Academy had pled its
citizenship as a corporation. But the notice of removal in Bouvier did not plead the
citizenship of the LLCs in Academy’s ownership structure simply as if they were
corporations (though their states of organization and principal places of business were
included). Academy listed the members of each LLC in its ownership structure until it
reached New Academy Holding Company, LLC, at which point it asserted, “None of the
members of the foregoing limited liability companies are residents of or have their
principal places of business in the State of Louisiana.” 5 Bouvier, 2:13-cv-3002, at Doc.
1, ¶ 4. Clearly, it seems, Academy was not as ignorant as it claimed; it knew the
difference between corporations and LLCs and the significance of that difference to
jurisdictional analysis. This is also consistent with Karfis’s understanding after talking
with in-house counsel that if Academy wanted to remove a case it would find out
whether any of the members in its LLC chain of ownership were citizens of the state
where Academy was trying to remove the case.
In light of this response, the Court ordered Academy to disclose every lawsuit it
filed in federal court or removed to federal court on the basis of diversity jurisdiction
since January 1, 2011. (Doc. 27). Academy responded on October 8. (Doc. 28). This
response grouped Academy’s lawsuits into three categories:
1) Cases filed in 2011 while Academy was indirectly but wholly owned by
a corporation, and diversity jurisdiction was proper;
2) Cases removed in ignorance before Academy discovered that the
diversity pleading rules for corporations did not apply to limited liability
corporations (“LLCs”), in which no one noticed the error, and all of which
have been resolved or are being dismissed; and

5
According to Academy’s October 29 supplemental response, one law firm that handled many
of Academy’s cases during this time also represented KKR and thus knew more about KKR’s
chain of ownership than Academy did. Based on this information, the law firm believed there
were no Louisiana citizens in Academy’s chain of ownership. (Doc. 35 at 4).
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3) Cases during the time period after Academy discovered that the
diversity pleading rules for corporations do not apply to LLCs and it could
not prove diversity of citizenship—in which, to Academy’s knowledge,
Academy’s counsel have never invoked the diversity jurisdiction of the
federal courts.
(Doc. 28 at 1-2).
Prior to August 2011 when its ownership structure chained, Academy claimed not
to have removed cases to federal court where there was not complete diversity.
Academy asserted that after the August 2011 acquisition “some outside counsel
continued to remove cases by applying the standards for corporations to the LLCs in
Academy’s chain of ownership, even though they properly disclosed Academy’s LLCbased structure and the KKR-affiliated investment funds in their Corporate Disclosure
Statements.” (Doc. 28 at 3). Academy claimed it first learned the pleading rule for
LLCs in August 2013 when the Middle District of Louisiana ordered Academy to amend
its notice of removal in Wise v. Academy, Ltd. to properly allege the citizenship of the
LLCs in its chain of ownership. 3:13-cv-569 (M.D. La.), at Doc. 3. The court cited
Harvey v. Grey Wolf Drilling Co., a 2008 Fifth Circuit case that clearly sets forth the
citizenship pleading requirements for LLCs. 542 F.3d 1077, 1080 (5th Cir. 2008).
According to Academy, it has not invoked diversity jurisdiction since its
“discovery” in August or September 2013 of the pleading rules for LLCs and its inability
to discern the citizenship of all its owners. The one exception is a product liability case
in which Sketchers, the manufacturer contractually obligated to defend Academy,
removed the case to federal court. Kelley v. Sketchers, 2:14-cv-123 (M.D. Ala.); In re
Sketchers Toning Shoe Prods. Liab. Litig., 3:11-md-2308 (W.D. Ky.). Academy said it
has informed Sketchers “that it mistakenly described Academy’s citizenship.” (Doc. 28
at 8). The only other pending case in which Academy incorrectly invoked diversity
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jurisdiction is Cleland v. Academy, Ltd. d/b/a Academy Sports & Outdoors, No. 1360838, which was then on appeal in the Fifth Circuit after Academy prevailed in the
district court.6
Wise was not the epiphany Academy claims it was. A look at the dockets in
other lawsuits disclosed by Academy shows that courts have pointed out the LLC
pleading requirements to Academy prior to the Wise case. In Loland v. Academy Ltd.,
Academy was ordered via a text-only entry dated October 11, 2011, to “file
documentation necessary for the court to determine the citizenship of every one of the
members of the limited liability companies and limited liability partnerships within 10
days in order for the court to ascertain that diversity jurisdiction exists.” 6:11-cv-236
(W.D. La.). The Harvey case from 2008 was cited in this order. Though Loland was
removed before Academy’s August 2011 ownership change, Academy was still put on
notice of the correct pleading standard for LLCs.
Academy was again reminded of the pleading requirements for LLCs in another
case it removed after its ownership change, Armstrong v. Academy, Ltd., 3:12-cv-741
(M.D. La.). On April 16, 2013, the defendants, including Academy, were ordered to file
an amended notice of removal because they did not name the members of New
Academy Holding Company, LLC in their original notice. Id. at Doc. 8. Again, Harvey
was cited. On May 10, 2013, the defendants filed a response consenting to have the

6
Academy filed a notice in the Fifth Circuit on October 7 informing the court that subject matter
jurisdiction was lacking. (Doc. 30-1). After this Court’s hearing on October 15, Academy
supplemented its notice in Cleland to further explain what prompted Academy to file the notice
in the first place and why it did not discover the problem sooner. (Doc. 35-1). The Fifth Circuit
vacated the district court’s order and remanded the case with instructions for the district court to
remand the case to Mississippi state court and determine whether Cleland is entitled to
attorneys’ fees. Cleland v. Academy, Ltd. d/b/a Academy Sports & Outdoors, No. 13-60838,
(5th Cir. Jan. 15, 2015). Academy then reached a settlement with the plaintiff to pay the
attorneys’ fees, and the district court closed the case on February 3, 2015. Cleland v. Academy
Sports and Outdoors, et al., 2:13-cv-9 (S.D. Miss.), at Doc. 41.
-8-

case remanded to state court because of settlement discussions but nevertheless
“asserting that there is complete diversity of citizenship.” Id. at Doc. 9. The magistrate
judge recommended remanding the case on June 21, 2013. Id. at Doc. 10. That
recommendation was not ruled on, but the court did grant a subsequent joint motion to
remand on August 21, 2013.7 Id. at Docs. 14; 15.
After Academy filed its October 8, 2014 response in the present case, the Court
held a hearing on October 15.8 Academy’s general counsel and executive vice
president Wade Turner was present for the hearing, but Karfis, who handled the case
for Academy up until this point, was absent. During the hearing, Turner reiterated that
Academy did not know the pleading rule for LLCs until the Wise case and further stated
that Academy’s policy is—and has been since September 2013—not to remove cases
to federal court on the basis of diversity because it cannot establish diversity of
citizenship. The Court pointed out and Turner acknowledged that courts had informed
Academy about the LLC pleading requirement prior to Wise. But Turner explained that
Academy’s outside counsel handled those cases and that Academy did not know about
the courts’ orders at the time. Outside counsel got information about Academy’s
ownership from charts Academy provided each time its structure changed.

7
The court in Wise noted that Academy had previously been put on notice of the pleading rule
for LLCs when the court denied Academy’s motion for an extension of time to amend its notice
of removal. Wise, 3:13-cv-569, at Doc. 6 (“Defendant should know its own organizational
structure, and its attorneys should know what information is required to sufficiently allege the
defendant’s citizenship.”).
8

The hearing was rescheduled from its original October 16 date.

-9-

Turner also claimed Academy told its outside counsel in September 2013 not to
remove any more cases and to check their dockets for any pending cases.9 Cleland,
the case currently on appeal in the Fifth Circuit, did not show up in Academy’s internal
screening process. According to Turner, Cleland managed to slip through because
there was a final order of dismissal in the district court that had not yet been appealed.
The present case also managed to slip through the cracks. Turner explained that
Karfis is a specialist called in for tree stand cases. Thus, he did not get the notice sent
to outside counsel about Academy’s inability to be in federal court on the basis of
diversity. Turner also acknowledged that this issue could have been resolved much
sooner if Academy had pointed out the deficiency of the Plaintiffs’ jurisdictional
allegations in its answer. However, he also disclosed that Academy offered and the
Plaintiffs accepted payment of attorneys’ fees for having to litigate the jurisdictional
issue.
DISCUSSION
For reasons that may or may not be grounded in reality, corporate defendants
believe they generally fare better in federal court. This is particularly true with regard to
corporate defendants defending tort claims and it is almost universally true for
defendants with large retail operations. It is only necessary to search Pacer for WalMart to confirm this. As Academy’s counsel here repeatedly said, he wants and likes to
be in federal court when defending companies like Academy.

9
Specifically, Academy “put out a mandate to all of our outside counsel to, one, not remove any
more cases on diversity grounds … and … two, … review all [their] pending cases and make
sure that we don’t any jurisdictional problems that exist.” (Doc. 32 at 8:17-23). The Court
assumed that this mandate was in writing and at the conclusion of the hearing asked Academy
to produce all such notices it sent to outside counsel. Some notices were subsequently
provided but not this one. When the Court inquired, Academy responded that the mandate was
oral, not written. (Doc. 43).
-10-

In the Court’s experience, there are several reasons defendants believe the
ability to remove to federal court is an effective weapon. There seems to be a belief
among many civil defense attorneys that plaintiffs’ attorneys would rather not be in
federal court. In many districts, federal juries are thought to be more financially
conservative, particularly where, as in this District, jurors are summoned from well
beyond the county in which the Court sits. Thus, a case removed from Bibb Superior
Court would be heard by jurors drawn from the 21, mostly rural, counties that make up
the Macon Division of this Court other than more urban Bibb County. Many civil
defense attorneys seem to believe that they stand a better chance of securing summary
judgment in federal court than in state court.10 It has also been argued that plaintiffs’
lawyers prefer state court, at least in the states this judge is familiar with, because of the
demise of lawyer voir dire in federal court.
But whatever the reason corporate defendants yearn to be in federal court, the
parties often engage in fierce skirmishing to get into or out of federal court. A savvy
plaintiff’s lawyer may sue a store employee when he brings a premises liability claim
against a retailer in an effort to destroy diversity jurisdiction. Defendants often counter
with claims of fraudulent joinder. Sometimes plaintiffs’ lawyers carefully draft their
complaints to avoid any appearance that they seek more than $75,000 in damages.
Some plaintiffs’ lawyers are so desperate to stay out of federal court that, after removal,

10
For a critique of the overuse of summary judgment in federal courts, see Judge Bill Young’s
stinging opinion in United States v. Massachusetts, 781 F. Supp. 2d 1 (D. Mass. 2011). This
also brings to mind the observation that a sure way to address the “problem” would be to reduce
the number of law clerks allowed federal judges.

-11-

they will stipulate that their clients seek and will accept no more than $75,000, and then
the parties consent to remand.11
In short, the ability to remove is seen as a valuable right that is worth fighting for.
Given that, it is difficult to believe that Academy was nearly as ignorant of the law as it
claimed to be. Indeed, as discussed above, its claim of ignorance directly conflicts with
its pleadings to establish diversity jurisdiction. Also, the Court was particularly
unimpressed with Academy’s efforts to blame its outside counsel. It makes no
difference who perpetrates a fraud; Academy is responsible for it. The Court doubts
seriously that, if the tables were somehow turned, Academy would accept the argument
that it was all the lawyers’ fault. Giving Academy every possible benefit of the doubt, it
is apparent to the Court that Academy, at the very least, turned a blind eye to outside
counsel’s improper removal efforts.
Thus, the Court is satisfied that sanctions would be justified. No doubt in an
effort to head off sanctions, Academy appropriately agreed to pay the Plaintiffs’
expenses in this case. The Court also notes that the Fifth Circuit recently taxed the
costs of appeal against Academy and directed the district court on remand to assess
whether Academy is responsible for attorney’s fees in Cleland, No. 13-60838 (5th Cir.
Jan. 15, 2015). Because it appears that the Plaintiffs aggrieved by Academy’s conduct
will be compensated,12 the Court does not believe that it would be appropriate for this
Court to assess additional monetary penalties.

11
This is a tactic that Academy used. In Tipton v. Academy, Ltd., it improperly removed a case
to federal court and the plaintiff moved to remand, filing an affidavit stating she would seek no
more than $75,000. 2:12-cv-12 (N.D. Ala.), at Doc. 8.
12

There is one glaring exception to this. In McElwain v. Academy.com, LLC d/b/a Academy
Sports, Academy improperly removed the case and then secured a defense verdict. 1:12-cv-52
-12-

Another potential sanction would be to order Academy to engage in some
educational activity. An example of this is found in The Security National Bank of Sioux
City, Iowa v. Abbott Laboratories, 2014 WL 3704277 (N.D. Iowa) (sanctioning counsel
who engaged in obstructionist tactics during depositions by requiring counsel to “write
and produce a training video in which [c]ounsel, or another partner in [c]ounsel’s firm,
appears and explains … and provides specific steps lawyers must take to comply with
[this opinion’s] rationale in future depositions in any federal and state court.”). Thus, for
example, the Court could order Academy to prepare a continuing legal education
presentation for corporate counsel. But although the Court considers Academy’s
conduct egregious, it does not believe that it rises to a level that requires the sort of
public embarrassment ordered in Security National Bank of Sioux City, Iowa.
In the end, the Court decides to leave this matter where it is. This opinion will be
published and knowledge of Academy’s transgressions will be bare for all who believe
they may be relevant in other cases.
The clerk is directed to close this matter.
SO ORDERED, this 9th day of February, 2015.

S/ Marc T. Treadwell
MARC T. TREADWELL, JUDGE
UNITED STATES DISTRICT COURT

(S.D. Miss.), at Doc. 43. Academy’s response is essentially “too bad,” a judgment is a
judgment.
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