South Louisiana Ethanol, LLC vs. CHS-SLE Land LLC, et al
Filing
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ORDER & REASONS that the 1 Motion to Withdraw Reference is DENIED. Signed by Judge Jay C. Zainey on 1/23/2012. (gbw, )(copy to Bankruptcy Court, Judge Magner)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
SOUTH LOUISIANA ETHANOL, LLC
CIVIL ACTION
VERSUS
NO: 11-2774
CHS-SLE LAND, LLC, ET AL.
SECTION: "A" (4)
BANKRUPTCY CASE NO.:
09-12676
ADVERSARY PROCEEDING NO.:
11-1074
ORDER AND REASONS
Before the Court is a Motion to Withdraw the Reference (Rec.
Doc. 1) filed by defendant CHS, Inc.
LLC opposes the motion.
South Louisiana Ethanol,
The motion, set for hearing on January
4, 2012, is before the Court on the briefs without oral argument.
This motion involves an adversary proceeding pending in the
captioned bankruptcy case of South Louisiana Ethanol, LLC
(“SLE”).
The case comprising the adversary proceeding was filed
in state court and this Court referred the matter to the
bankruptcy court because the notice of removal alleged that the
removed case was related to SLE’s bankruptcy.
The notice of
removal also alleged diversity jurisdiction.
This motion is one of several pertaining to the SLE
bankruptcy in which a party moves this Court to withdraw the
automatic reference based upon the Supreme Court’s decision in
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Stern v. Marshall, 131 S. Ct. 2594 (2011).
This Court is
persuaded that Stern does not draw the validity of the reference
into question under the facts of this case so as to mandate
withdrawal of the reference.
Moreover, the pre-Stern standards
that govern permissive withdrawal of a reference continue to be
valid, and the movant has not established that withdrawal is
appropriate under those standards.
Further, the Court is not
persuaded that it can exercise diversity jurisdiction over this
matter.
Therefore, the Motion to Withdraw the Reference is
DENIED.
I.
Background
SLE commenced its Chapter 11 bankruptcy case no. 09-12676 on
August 25, 2009.
SLE’s liquidating plan of reorganization was
confirmed on April 19, 2011.
On May 31, 2011, SLE as the
reorganized debtor filed its Petition for Judicial Dissolution
and to Wind Up Affairs of CHS-SLE Land, LLC in state court.
The
named defendants are CHS-Land, LLC (“CHS-SLE”) and CHS, Inc.
(“CHS”).
On June 20, 2011, CHS removed the suit to this Court
alleging diversity jurisdiction under 28 U.S.C. § 1332(a)(1) and
bankruptcy jurisdiction under 28 U.S.C. § 1334(b) (“related to”).
The Court referred the matter to the bankruptcy judge presiding
over SLE’s bankruptcy case.
(11-1455; Rec. Doc. 7).
CHS has filed a Motion to Withdraw the Reference in which it
contends that the case is properly in federal court under
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diversity jurisdiction and that the case should be handled by the
district judge who has sole authority to enter a final judgment
in the case.
CHS also argues that the decision in Stern v.
Marshall constitutes cause for withdrawing the reference to the
bankruptcy court.
II.
Discussion
The Court directs the parties’ attention to the ruling that
the Court entered when the defendant in Adversary Proceeding 111084 (also related to SLE’s bankruptcy) moved to withdraw the
reference.
(11-3059; Rec. Doc. 8).
For the same reasons given
in that case, the Court is not persuaded that the Stern decision
has any impact on whether the reference should be withdrawn.
And
for reasons similar to those given in Adversary Proceeding 111084, movant herein has not demonstrated cause for withdrawal of
the reference under the governing standards.
In contrast to Adversary Proceeding 11-1084, bankruptcy
jurisdiction under § 1334 is not the sole jurisdictional basis
alleged because CHS also contends that diversity jurisdiction is
present.
If diversity jurisdiction provides a basis for
jurisdiction independent of the bankruptcy then CHS’s arguments
to withdraw the reference become much more persuasive.
On the face of the complaint the parties are not of diverse
citizenship because SLE and CHS-SLE are both Louisiana citizens
for diversity purposes.
However, CHS contends that because this
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suit is one to dissolve CHS-SLE, its stands as a mere nominal
party whose citizenship can be ignored pursuant to Wolff v.
Wolff, 768 F.2d 642 (5th Cir. 1985).
CHS’s contention in support of diversity jurisdiction
derives from the now well-settled principle that jurisdiction in
federal court must rest upon the citizenship of the “real”
parties to a controversy.
U.S. 458, 460-61 (1980).
See Navarro Sav. Ass’n v. Lee, 446
A federal court must disregard nominal
or formal parties and rest jurisdiction only upon the citizenship
of the real parties to the controversy.
Id. at 461.
Whether a
party is formal or nominal for jurisdictional purposes depends on
whether in the absence of the party the court can enter a final
judgment consistent with equity and good conscience.
Louisiana
v. Union Oil Co., 458 F.3d 364, 366-67 (5th Cir. 2006) (quoting
Acosta v. Master Maint. & Constr., Inc., 452 F.3d 373, 379 (5th
Cir. 2006)).
An alternate articulation of the test is whether or
not a named party’s “role in the law suit is that of a depositary
or stakeholder.”
Id. (quoting Tri-Cities Newspapers, Inc. v. Tri
Cities Print. Pressmen & Assist. Local 349, 427 F.2d 325, 327
(5th
Cir. 1970)).
The court takes practical considerations into
account when making that determination.
Id.
In its adversary complaint SLE is seeking to judicially
dissolve CHS-SLE, a Louisiana liability company, pursuant to La.
R.S. § 12:1335 and to wind up its affairs in accordance with La.
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R.S. § 12:1336(B).
CHS and SLE each own 50 percent of CHS-SLE.
The sole asset owned by CHS-SLE is a tract of land located in
Plaquemines Parish along the batture of the Mississippi River.
SLE prays for a decree winding up the affairs of CHS-SLE,
distributing the property to CHS and SLE in indivision, and
dissolving the LLC.
Under the facts of this case the Court is not persuaded that
CHS-SLE is a nominal party.
The LLC owns the land at issue
because the land is titled in the name of the LLC.
The relief
sought via the adversary proceeding will eviscerate the LLC and
divest it of its ownership of the property.
Even though the LLC
owns the property at issue for the members, an LLC is not the
equivalent of a mere depositary or stakeholder.
Under Louisiana
law the LLC is a juridical person with a separate legal existence
from the members who comprise the entity.
It is the two diverse
members who are at odds with each other but these parties are not
liable to each other and neither has title to the land owned by
the LLC.
CHS-SLE is a real party in interest to this controversy
notwithstanding that the entity will be a passive party in the
case.
Of course, an LLC is not necessarily going to be a real
party in interest under every set of facts.
Wolff v. Wolff, the
only decision from this circuit upon which CHS relies, involved a
dissolved partnership and a dispute among two of the former
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partners over a piece of land.
partnership as a defendant.
The plaintiff had not joined the
The Fifth Circuit concluded that
even if it had been necessary to add the partnership as a
defendant, its citizenship would be ignored for diversity
purposes because it was not a real party in interest.
F.2d at 645-46.
Wolff, 768
But the land at issue was titled in the diverse
partner’s name, not in the name of the partnership.
And
dissolution in that case had purportedly already occurred due to
a prior state court lawsuit.
Under the Wolff facts it is easy to
see why the partnership entity, assuming that it even continued
to exist, was found to be a nominal party in what was really a
dispute between the two partners.
But Wolff does not stand for
the broad proposition that in an action to dissolve an LLC the
citizenship of the LLC is ignored for diversity purposes.
The Court must balance the real party exception to complete
diversity against the well-settled principle that federal courts
are courts of limited jurisdiction and have no authority to
create jurisdictional law of their own.
Point Landing, Inc. v.
Omni Capital Intern., Ltd., 795 F.2d 415, 423 (5th Cir. 1986)
(quoting Insurance Corp. of Ireland, Ltd. v. Compagnie des
Bauxites de Guinee, 456 U.S. 694 (1982) (Powell, J.,
concurring)).
And any doubts regarding whether removal
jurisdiction is proper are resolved against federal jurisdiction
not in favor of it.
Acuna v. Brown & Root, Inc., 200 F.3d 335,
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339 (5th Cir. 2000) (citing Willy v. Coastal Corp., 855 F.2d
1160, 1164 (5th Cir. 1988)).
Given the facts of this case there
is no controlling authority that permits this Court to exercise
diversity jurisdiction over this dispute.
court cases from other jurisdictions.
CHS has cited district
Not only are those cases
non-binding but other district courts considering those decisions
have declined to reach a similar result.
See, e.g., Skaaning v.
Sorenson, No. 09-364, 2009 WL 3763056 (D. Hawaii Nov. 10, 2009).
Simply, the Court cannot exercise diversity jurisdiction over
this matter.1
Because the Court does not have diversity jurisdiction over
this matter the sole jurisdictional basis currently supporting
its presence in federal court is § 1334(b) “related to”
bankruptcy jurisdiction.
It is not clear to this Court whether
the status of the bankruptcy proceedings is such that bankruptcy
jurisdiction continued to exist when this case was removed to
federal court.
Remand may very well be appropriate in this case
if the bankruptcy court concludes that it no longer has
jurisdiction over cases related to SLE’s bankruptcy or that the
standards governing abstention apply here.
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If Stern concerns
CHS repeatedly points out that SLE does not contest
diversity jurisdiction, (Memo at 4, 7, 8, 10), and that SLE has
made a judicial admission that CHS-Land is a nominal party, (Memo
at 6). But subject matter jurisdiction cannot be based on
concessions or established via default so SLE’s position one way
or the other is irrelevant. Nonetheless, it is apparent from
SLE’s opposition that it does contest diversity jurisdiction.
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prevent the bankruptcy court from taking this action on its own
then the parties should note that this Court would give great
deference to any proposed findings and conclusions pursuant to 28
U.S.C. § 157(c)(1) recommending remand to state court.
Accordingly;
IT IS ORDERED that the Motion to Withdraw the Reference
(Rec. Doc. 1) filed by defendant CHS, Inc. is DENIED.
January 23, 2012
JAY C. ZAINEY
UNITED STATES DISTRICT JUDGE
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