Frantz v. Midland Corporate Tax Credit III Limited Partnership

Filing 36

MEMORANDUM DECISION AND ORDER. IT IS HEREBY ORDERED that the Motion to Remand 8 is GRANTED. The above-entitled action is remanded to the District Court of the First Judicial District of the State of Idaho, in and for the County of Kootenai, No. C V-14-2425. IT IS FURTHER ORDERED that all remaining pending motions be resolved, if appropriate, by the state court. Signed by Judge Edward J. Lodge. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (st)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
KENNETH FRANTZ, an individual,
Case No. 2:14-cv-00138-EJL
Plaintiff,
MEMORANDUM DECISION AND
ORDER

vs.
MIDLAND CORPORATE TAX CREDIT III
LIMITED PARTNERSHIP, a Delaware
Limited Partnership,
Defendant.
____________________________________
_
MIDLAND CORPORATE TAX CREDIT III
LIMITED PARTNERSHIP, a Delaware
Limited Partnership,
Counterclaimant/
Third-Party Plaintiff,
vs.
KENNETH FRANTZ, an individual;
HUMAN RESOURCES INVESTMENT
CORPORATION, a Idaho corporation;
MARTY FRANTZ, an individual;
SUNDANCE CONSTRUCTION
COMPANY, INC., an Alaska corporation;
and GARY E. SOUJA, an individual,
Counterdefendant and
Third-Party Defendants.

MEMORANDUM DECISION AND ORDER -1

FACTUAL AND PROCEDURAL BACKGROUND
On March 13, 2014, Plaintiff Kenneth Frantz (“Frantz”) filed a Complaint in the
District court of the First Judicial District of the State of Idaho. The complaint names
Midland Corporate Tax Credit III Limited Partnership (“Midland”) as the Defendant. The
Complaint sought a declaratory judgment against Midland for its actions under the
Partnership Agreement between the parties. Midland did not file an answer in state court.
Pursuant to 28 U.S.C. § 1446, Midland removed this action from state court following its
Notice of Removal to United States District Court filed on April 11, 2014. In its removal,
Midland invoked this Court’s jurisdiction on the basis of original jurisdiction under 28
U.S.C. § 1332(a) and 1441. On April 23, 2014, Frantz filed a Motion to Remand.
Having fully reviewed the record, the Court finds that the facts and legal arguments
are adequately presented in the briefs and record. Accordingly, in the interest of avoiding
further delay, and because the Court conclusively finds that the decisional process would
not be significantly aided by oral argument, this matter shall be decided on the record
before this Court without oral argument.
STANDARD OF REVIEW
Under 23 U.S.C. § 1441(a), the district courts have removal jurisdiction over any
claim that could have been brought in federal court originally. Hall v. n. Am. Van Lines,
Inc., 476 F.3d 683, 686-687 (9th Cir. 2007). But when a plaintiff institutes a diversity
action in state court, which the defendant removes to federal court, there is a “strong
presumption that the plaintiff has not claimed a large amount in order to confer jurisdiction
MEMORANDUM DECISION AND ORDER -2

on a federal court.” St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 290
(1938). This “strong presumption” against removal jurisdiction means the defendant
bears the burden of proving that removal is proper. Mesa Industries, Inc. v. Eaglebrook
Products, Inc., 980 F. Supp. 323, 325 (D. Ariz. 1997). The removal statute is strictly
construed against removal jurisdiction. Shamrock Oil & Gas Corp. v. Sheets, 313 U.S.
100, 108-09 (1941). Any doubt as to the right of removal is resolved in favor of remand. 1
Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992).
ANALYSIS
Because both parties concede that diversity of citizenship exists in this case, the sole
issue before the Court is whether Midland has satisfied its burden of showing the amount in
controversy satisfies the jurisdictional minimum of $75,000 as required by 28 U.S.C.
§1332(a).
Where, as here, the complaint filed in state court seeks nonmonetary relief, it is “not
facially evident from the complaint that the controversy involves more than $75,000.”
See Matheson v. Progressive Specialty Ins. Co., 319 F.3d 1089, 1091 (9th Cir. 2003). In
such a case, the removing defendant may assert the amount in controversy in the Notice of
Removal and must show by a preponderance of the evidence that the amount in
controversy exceeds the jurisdictional minimum. 28 U.S.C. § 1446(c)(2). The removing
1

This Court immediately reviews each new case before it to confirm that federal jurisdiction
is proper. Sparta Surgical Corp. v. Nat’l Ass’n. Sec. Dealters, Inc., 159 F.3d 1209, 1211 (9th Cir.
1998) (“If a district court lacks subject matter jurisdiction over a removed action, it has the duty to
remand it….).

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defendant must set forth “in the removal petition itself, the underlying facts supporting its
assertion that the amount in controversy exceeds [$75,000].” Gaus, 980 F.2d at 567
(emphasis in original); see also Lupo v. Human Affairs Int’l, Inc., 28 F.3d 269, 273-74 (2d
Cir. 1994) (holding that “if the jurisdictional amount is not clearly alleged in the plaintiff’s
complaint, and the defendant’s notice of removal fails to allege facts adequate to establish
that the amount in controversy exceeds the jurisdictional amount, federal courts lack
diversity jurisdiction as a basis for removing the plaintiff’s action from state court”).
Removal jurisdiction “cannot be based simply upon conclusory allegations.” Singer v.
State Farm Mut. Auto. Ins. Co., 116 F.3d 373, 377 (9th Cir. 1997).
In the Notice of Removal, Midland alleges that the amount in controversy is
satisfied because, “Plaintiff alleges in the Complaint that there is a controversy over the
sale of a multifamily housing development for $3,360,000.” (Notice of Removal, Dkt. 1, p.
3). The Notice of Removal itself does not provide any other underlying facts to support its
assertion that the controversy is over the sale of a multifamily housing development for
$3,360,000. Moreover, Frantz’s Complaint asserts a dispute over the authority necessary
to sell Orca Point’s assets under the Partnership Agreement, not a dispute over the sale of a
multifamily housing development for the specified amount of $3,360,000; the Complaint
includes no such reference to this specific sale. (Complaint for Declaratory Judgment,
Dkt. 1, p. 6-7). Accordingly, Midland failed to make the necessary showing that the
amount in controversy satisfies the jurisdictional minimum.

MEMORANDUM DECISION AND ORDER -4

In the alternative, Midland relies on its Counterclaim to satisfy the amount in
controversy requirement as a means of establishing subject matter jurisdiction.
(Defendant’s Opposition to Plaintiff’s Motion to Remand, Dkt. 14, p. 5). In a diversity
case, the amount in controversy should be derived from the complaint itself. See
Pachinger v. MGM Grand Hotel-Las Vegas, Inc., 802 F.2d 362, 363 (9th Cir. 1986) (“The
amount in controversy is normally determined from the face of the pleadings.”). Where a
complaint seeks declaratory judgment concerning the authority of one of the parties, the
counterclaim is not used to satisfy the amount in controversy requirement. RLA v. Cape
Cod Biolab Corp., No. C-01-3675 PJH, 2001 WL 1563710, at *3 (N.D. CA Nov. 30, 2001)
(“…counterclaims cannot be used to satisfy the amount in controversy requirement in
removed cases.”). “The great weight of the authority favors Plaintiff’s position that the
amount of a counterclaim may not be considered in determining the amount in
controversy.” Mesa Industries, Inc., 980 F. Supp at 326. This Court agrees with the
position that a counterclaim cannot be used to satisfy the amount in controversy
requirement to establish removal jurisdiction in this case.
Midland relies on the Ninth Circuit’s decision in Fenton v. Freedman, 748 F.2d
1358 (9th Cir. 1984) to affirm the right to use its counterclaim to bring the entire matter
within the jurisdiction of the Court. (Defendant’s Opposition to Plaintiff’s Motion to
Remand, Dkt. 14, p. 6). However, Fenton is inapposite to the present matter. In Fenton,
the plaintiffs filed a diversity action in federal court alleging damages in the amounts of
$6,000, $7,850, and $70,000. Fenton, 748 F.2d at 1359. Only after judgment was
entered against them, the defendants appealed on the basis that the court didn’t have
MEMORANDUM DECISION AND ORDER -5

subject matter jurisdiction. Id. Fenton did not involve removal of a state case to federal
court. Mesa Industries, Inc., 980 F. Supp. at 325. To explain its basis for finding that the
district court properly exercised jurisdiction, the Ninth Circuit cited specifically the
plaintiff’s failure to timely object to the district court’s exercise of jurisdiction. Fenton,
748 F.2d at 1359. Unlike the party in Fenton, Frantz did not wait to object to this Court’s
jurisdiction. Rather, Frantz objected to this Court’s jurisdiction immediately, prior to
Midland answering the Complaint. Midland’s reliance on Fenton ignores this
fundamental difference and does not recognize that Fenton is distinguishable.

The

Court need not reach the issue of whether the dispute over the authority to sell Orca Point’s
assets is capable of being reduced to a pecuniary value because Midland’s removal is
procedurally improper.
Because Midland has failed to meet its burden to show that the amount in
controversy requirement is satisfied, this Court lacks subject matter jurisdiction over the
case at bar. Under the circumstances, remand is required.

ORDER
Based on the foregoing, and being fully advised in the premises, IT IS HEREBY
ORDERED that the Motion to Remand (Dkt. 8) is GRANTED. The above-entitled action
is remanded to the District Court of the First Judicial District of the State of Idaho, in and
for the County of Kootenai, No. CV-14-2425.

MEMORANDUM DECISION AND ORDER -6

IT IS FURTHER ORDERED that all remaining pending motions be resolved, if
appropriate, by the state court.
DATED: September 17, 2014

_________________________
Edward J. Lodge
United States District Judge

MEMORANDUM DECISION AND ORDER -7