CML-NV East Mountain, LLC v. Quinn et al
Filing
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ORDER Denying 15 Plaintiff CML-NV East Mountain, LLC's Motion for Default Judgment. This action is DISMISSED for lack of jurisdiction. Signed by Judge Gloria M. Navarro on 9/20/12. (Copies have been distributed pursuant to the NEF - EDS)
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UNITED STATES DISTRICT COURT
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DISTRICT OF NEVADA
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CML-NV EAST MOUNTAIN, LLC,
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Plaintiff,
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vs.
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VANDENBERG 8 LLC, et al.,
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Defendants.
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Case No.: 2:11-cv-00187-GMN-RJJ
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INTRODUCTION
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Plaintiff, CML-NV East Mountain, LLC (“East Mountain”), has sued Defendants,
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Vandenberg, LLC, as well as William and Rebecca Quinn both in their individual capacities
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and their capacities as trustees of their family’s living trust. Before the Court is a Motion for
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Default Judgment, wherein Plaintiff requests that this Court “affirmatively determine its
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subject-matter jurisdiction.”1 (Pl.’s Mot. for Default J., ECF No. 15.) For the reasons set forth
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herein, Plaintiff’s Motion for Default Judgment will be denied for lack of subject-matter
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jurisdiction.
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I.
Procedural History
Plaintiff filed this action on February 10, 2011. (Complaint, ECF No. 1.) Defendants
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were each served process on February 21 and February 22, 2011. (Summons, ECF Nos. 8-10.)
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Defendants did not file a response. On December 22, 2011 Plaintiff filed a motion for default
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judgment in the action. (Pl.’s Mot. for Default J.)
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Plaintiff makes this request in light of similar claims which have recently been dismissed due to lack
of subject-matter jurisdiction in the District of Nevada. See Res-NV TVL, LLC v. Town Vistas, LLC, No.
2:10-CV-1084-JCM-PAL (ECF No. 71) (D. Nev. Oct. 21, 2011); RES-NV APC, LLC v. Astoria Pearl
Creel, LLC, No. 2-11-CV-00381-LDG-RJJ (ECF No. 32) (D. Nev Nov. 4, 2011).
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II.
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Background
Plaintiff, East Mountain, is a limited liability company suing Defendant Vandenberg,
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LLC, for defaulting on a loan in the amount of $5,109,398.00. (Pl.’s Mot. for Default J.)
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William and Rebecca Quinn are also named as defendants in the suit as guarantors of the loan.
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(Id. at 2:20-21.) The loan was originally extended by Silver State Bank in 2007. (Id. at 2:10-12.)
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Plaintiff alleges that Defendants did not pay the balance of the loan when it became due. (Id. at
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3:5-7.) In September 2008, Silver State Bank was closed, and the Federal Deposit Insurance
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Corporation (FDIC) became its receiver. (Id. at 3:12-14.) The FDIC, to whom Defendants’ loan
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obligations were now owed, transferred the loan to Multibank 2009-1 RES-ADC Venture, LLC
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(“Multibank”). (Id. at 3:15-16.) Subsequently, a 40% interest in Multibank was sold to RL
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CML 2009-1 Investments, which has since served as Multibank’s entities manager. (Id. at 3:16-
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17.) Multibank then transferred the loan to the Plaintiff in June 2010. (Id. at 3:17-18.)
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Plaintiff is and has been for all of the relevant times solely owned by Multibank. (Id. at
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4:18-19.) Multibank has two owners, the FDIC and RL CML 2009-I, LLC. (Id. at 4:19-21.)
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RL CML 2009-I LLC’s relevant membership includes Lennar Corporation, a Delaware
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Corporation with its principal place of business in Florida, and Jeffrey Krasnoff, an individual
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residing in the state of Florida. (Id. at 5:3-4.) The FDIC is a federally chartered corporation.
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(Id. at 5:6-7.)
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III.
Legal Standard
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Generally, a district court’s decision regarding a motion for default judgment is
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discretionary, and the court may consider a variety of factors: “(1) the possibility of prejudice
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to the plaintiff, (2) the merits of plaintiff’s substantive claim, (3) the sufficiency of the
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complaint, (4) the sum of money at stake in the action, (5) the possibility of a dispute
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concerning material facts, (6) whether the default was due to excusable neglect, and (7) the
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strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the
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merits.” Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986).
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In this circumstance, as Plaintiff acknowledges, there is an inherent question as to
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whether this Court has proper subject-matter jurisdiction over this matter. (Pl.’s Mot. for
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Default J., 1:20-21.) Whenever there is doubt as to the existence of subject matter, the court
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must address it sua sponte. Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274,
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278, 97 S. Ct. 568, 571-72 (1977); see Allstate Ins. Co. v. Hughes, 358 F.3d 1089, 1093 (9th
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Cir. 2004). A district court, finding lack of subject-matter jurisdiction, is entitled to dismiss a
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claim without having to give notice or opportunity to respond. Scholastic Entm’t, Inc. v. Fox
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Entm’t Group, Inc., 336 F.3d 982, 985 (9th Cir. 2003). Subject-matter jurisdiction through
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diversity of citizenship exists in any case: (a) in which the amount in controversy exceeds
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$75,000 and (b) which occurs between citizens of different states. 28 U.S.C. § 1332 (2006).
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The latter factor is a requirement of “complete diversity,” that is, there can be no shared state
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citizenship between any plaintiff and any defendant. Strawbridge v. Curtiss, 7 U.S. 267 (1806).
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IV.
Discussion
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A.
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For the purposes of diversity jurisdiction, a limited liability company is considered a
Doctrinal Analysis
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“citizen of every state of which its owners/members are citizens.” Johnson v. Columbia
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Properties Anchorage, 437 F.3d 894, 899 (9th Cir. 2006). Federally chartered corporations,
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such as the FDIC, are considered to be national citizens, of “no particular state,” Hancock Fin.
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Corp. v. Fed. Sav. & Loan Ins. Corp., 492 F.2d 1325, 1329 (9th Cir. 1974), unless the activities
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of the corporation are confined to a single state. Feuchtwanger Corp. v. Lake Hiawatha Fed.
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Credit Union, 272 F.2d 453, 455 (3d Cir. 1959); see Bankers’ Trust Co. v. Texas & P. Ry. Co.,
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241 U.S. 295, 309-10 (1916). The presence of a party with stateless citizenship has
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consistently been found to eliminate the possibility of diversity jurisdiction. Burton v. U.S.
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Olympic Comm., 574 F. Supp. 517, 522 (C.D. Cal. 1983); Little League Baseball, Inc. v. Welsh
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Pub. Group, Inc., 874 F. Supp. 648, 651 (M.D. Pa. 1995); Federal Deposit Insurance Co. v.
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National Surety Corp., 345 F. Supp. 885 (S.D. Iowa 1972). The FDIC is a federally chartered
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corporation that operates nationwide, and therefore is a citizen of no particular state. Plaintiff,
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as an LLC which counts the FDIC among its members, shares the FDIC’s citizenship status of
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“no particular state.” See Johnson, 437 F.3d at 899. Thus, there is not complete diversity
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among the parties because of Plaintiff’s status as a national citizen, and there is no subject-
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matter jurisdiction under 28 U.S.C. § 1332.
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Nevertheless, Plaintiffs put forth several arguments why this Court has subject-matter
jurisdiction. For the following reasons the Court finds them meritless.
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B.
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Plaintiff argues that this Court should overlook the long line of precedent regarding the
Contentions Regarding the Citizenship of the FDIC
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citizenship of federally chartered corporations, and hold that the FDIC is a citizen only of its
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state of incorporation and principal place of business, in this case the District of Columbia.
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(Pl.’s Mot. for Default J., 9:9-10) (citing Goodyear Dunlop Tires Operations, S.A. v. Brown,
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131 S. Ct. 2846, 2854 (2011); 28 U.S.C. § 1332 (c)(1) (2006) (defining a corporation generally
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as a citizen of its state of incorporation and principle place of business)). Implicitly, Plaintiff
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requests that this Court disregard nearly a century of precedent, initiated by the Supreme Court
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in Bankers Trust Co. v. Texas & P. Ry. Co., specially categorizing federally chartered
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corporations as national citizens of no particular state. See, e.g., Bankers Trust Co. v. Texas &
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P. Ry. Co., 241 U.S. at 309-10; Johnson, 437 F.3d at 899 (9th Cir. 2006). Additionally, the
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Seventh Circuit has specifically rejected the contention that the FDIC should be considered a
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citizen of the District of Columbia, because doing so would create diversity jurisdiction in
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almost every suit against the FDIC, contradicting the clear intent of Congress. Fed. Deposit Ins.
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Corp. v. Elefant, 790 F.2d 661, 666 (7th Cir. 1986). This Court is not persuaded by Plaintiff’s
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request to contradict the undeviating precedent regarding the citizenship of the FDIC and
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adheres to the categorization of the FDIC as a national citizen of no particular state.
Plaintiff also points to provisions of the Federal Deposit Insurance Act (“FDIA”)
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amendments passed by Congress in 1989 which granted United States district courts federal
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agency and federal question jurisdiction over cases in which the FDIC is a party. Financial
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Institutions Reform, Recovery, and Enforcement Act of 1989, Pub. L. No. 101–73, 103 Stat.
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183 (codified as 12 U.S.C. § 1819 (b)(1), (b)(2)(A)). Plaintiff argues that these amendments
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indicate that the Court should find diversity jurisdiction in this case. Indeed, in Kirkbride v.
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Continental Cas. Co. the Ninth Circuit did observe that there was a desire by Congress that
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district courts have federal question jurisdiction over “all suits of a civil nature in which the
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[FDIC] is a party. . . .” 933 F.2d 729, 731 (9th Cir. 1991).
Still, Plaintiff’s argument misses the mark in two ways. First, the statute makes no
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mention of jurisdiction in cases in which the FDIC is not a party, which is the circumstance
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before the Court here. In the eyes of the court, an LLC is considered to have an existence
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separate from its members. See, e.g., Abrahim & Sons Enterprises v. Equilon Enterprises, LLC,
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292 F.3d 958, 962 (9th Cir. 2002). Therefore, it would be inappropriate for the court to treat
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Plaintiff as if it were the FDIC. Moreover, the FDIC is not even Plaintiff’s managing member,
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so it would be quite a stretch indeed for the Court to view the actions of Plaintiff as if the FDIC
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were a party to the suit. (See Pl.’s Mot. for Default J., 3:16-17.)
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Second, the amendments to the FDIA only address changes regarding the FDIC’s
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treatment in terms of federal agency jurisdiction and federal question jurisdiction without any
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mention of changing the treatment of the FDIC for the purposes of federal diversity
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jurisdiction. See 12 USC 1819(b)(1) (extending federal agency jurisdiction under 28 U.S.C. §
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1345 to cases in which the FDIC is a plaintiff); 12 U.S.C. § 1819(b)(2)(A) (defining any suit in
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which the FDIC is a party as “aris[ing] under the laws of the United States”); see also U.S.
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Const. Art. III, § 2. Without a specific directive by Congress to change the manner in which
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the FDIC is viewed as a citizen for the purposes of diversity, this Court declines to contravene
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nearly a century of precedent which treats the FDIC like any federally chartered corporation, as
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a national citizen of no particular state.
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C.
Contentions Regarding Whether this Court can Disregard the
Citizenship of the FDIC
Plaintiff next argues that the FDIC’s citizenship status can be disregarded, and the Court
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need only look to the citizenship of Plaintiff’s other members in determining whether there is
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jurisdiction under § 1332. These arguments draw upon cases in which courts have (1) looked
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past the FDIC’s citizenship when it acts as a receiver, (2) disregarded the citizenship of entities
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that are not yet party to a suit, or (3) overlooked the citizenship of nominal parties. Each of the
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lines of doctrine cited by Plaintiff is inapplicable to this case, and therefore is not persuasive.
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1.
Applicability of Precedents in Which the FDIC Acted as a Receiver
Plaintiff cites to authority in which the court has looked to the citizenship of a bank
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being received by the FDIC instead of the FDIC itself. FDIC v. Lindquist, 702 F. Supp 749,
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750-51 (D. Minn. 1989). Even if Lindquist was found persuasive, its applicability today is
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questionable, as it was decided prior to the 1989 amendments to the FDIA, which granted
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United States district courts federal agency jurisdiction in cases wherein the FDIC acted as the
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plaintiff. 12 U.S.C. § 1819(b)(1) (2006). In Lindquist, the court stated that when the FDIC was
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the plaintiff in a case in which it was acting as a receiver for banks that were themselves
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diverse, then its citizenship could be overlooked. Even if the Court extended Lindquist here, by
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applying the same reasoning even after the FDIC has transferred a loan obtained from a
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received bank to a separate entity, it would see that the FDIC came to hold its interest in
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receivership from Silver State Bank, itself a citizen of Nevada and a nondiverse party.
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Therefore, even if the Court were to find Lindquist persuasive, and magnify the scope of its
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holding to encompass the situation at hand, Plaintiff’s jurisdictional problems would be turned
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around 360 degrees, and this case would still fail to meet the requirement of complete diversity.
2. Applicability of Precedents Disregarding Yet-Unjoined or
Dispensable Parties
Plaintiff argues that courts in the past have been able to achieve diversity jurisdiction by
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disregarding the citizenship of yet-unjoined non-diverse entities. See Lincoln Prop. Co. v.
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Roche, 546 U.S. 81, 94 (2005). Similarly, in order to preserve jurisdiction, district courts have
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the power to dismiss “jurisdictional spoilers,” parties who are dispensable and nondiverse. See
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Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 830-31 (1989). Because of these
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doctrines, Plaintiff argues diversity jurisdiction is not destroyed in this case. However, despite
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Plaintiff’s valiant effort, these doctrinal square pegs cannot be pounded into the round hole of
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the case at hand. The jurisdictional concern before the Court does not include a party that
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could yet be joined, nor one that is conceivably dispensable. The nondiverse party in this case
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is the plaintiff itself, whose citizenship under § 1332 is determined by reference to the
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citizenship of its members. See Johnson v. Columbia Properties Anchorage, 437 F.3d 894, 899
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(9th Cir. 2006). These unrelated doctrines do not support a finding of diversity jurisdiction
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here, because the sole plaintiff is clearly neither an unnamed party nor a dispensable one.
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3. Applicability of Precedents Disregarding Nominal Parties
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Plaintiff next argues that a finding in favor of jurisdiction is supported by precedent
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regarding nominal parties. Indeed, “a federal court must disregard nominal or formal parties
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and rest jurisdiction only upon the citizenship of real parties to the controversy.” Navarro Sav.
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Ass’n v. Lee, 446 U.S. 458, 461 (1980). Nominal parties are those who have “no control of,
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impact on, or stake in the controversy.” Lincoln Prop. Co. v. Roche, 546 U.S. 81, 92, (2005)
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(citing Wood v. Davis, 18 How. 467, 469-470 (1856)). What’s particularly ironic about the
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attempt to classify the FDIC as a nominal party in this case is that the FDIC is, in fact, neither
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merely nominal, nor a party. The FDIC still bears 60% ownership of Plaintiff’s sole member.
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(Pl.’s Mot. for Default J., 3:16.) As such, it will be entitled to a significant amount of relief if
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there is a judgment in Plaintiff’s favor. Thus, it would be peculiar to say that the FDIC has “no
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stake in the controversy.” Furthermore, the Supreme Court has directly rejected the argument
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that courts could disregard the citizenship of some members of a non-corporate partnership
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when determining whether there is jurisdiction under §1332. Carden v. Arkoma Associates, 494
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U.S. 185, 195-96 (1990). Concordantly, the fact that the FDIC is not even a party to this suit
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equally brings it outside the application of the nominal party doctrine. Accordingly, the
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nominal party doctrine is not applicable here because the FDIC has a financial interest in this
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suit and is not a party.
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D.
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Plaintiff’s last line of analysis contends that the Ninth Circuit incorrectly views LLCs as
Contentions Regarding Process for Determining the Citizenship of an LLC
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having the citizenship of each of their members. Plaintiff attempts to call into question the
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Ninth Circuit’s standard that “like a partnership, an LLC is a citizen of every state of which its
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owners/members are citizens.” Johnson v. Columbia Properties Anchorage, 437 F.3d 894, 899
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(9th Cir. 2006) (emphasis added). Plaintiff argues that this standard is in direct conflict with the
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Supreme Court’s decision in Carden v. Arkoma Associates, which held that partnerships are not
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themselves citizens, but should be treated as having the citizenships of each of their members.
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494 U.S. 185, 189 (1990). Indeed, the Supreme Court has stated “a partnership entity . . . does
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not rank as a citizen.” Lincoln Prop. Co. v. Roche, 546 U.S. 81, 84 (2005) (citing Carden, 494
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U.S. at 189).
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Each of the cases they cite in support mirrors the substance of the Ninth Circuit’s
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standard for determining the citizenship of a partnership. See Carden v. Arkoma Associates,
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494 U.S. 185 (1990) (holding that the citizenship of an artificial entity, such as a partnership, is
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equivalent to the citizenships of all of its members); Swiger v. Allegheny Energy, Inc., 540 F.3d
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179, 184 (3d Cir. 2008) (stating that a “partnership’s citizenship as a party is determined by
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reference to all partners”); ISI Int’l, Inc. v. Borden Ladner Gervais LLP, 316 F.3d 731, 733 (7th
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Cir. 2003) (stating that diversity jurisdiction was unavailable because one of the members of
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the defendant partnership was a stateless U.S. citizen).
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This Court would make quite the doctrinal mountain out of a rhetorical molehill if it
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found as Plaintiff claims that the Ninth Circuit’s standard is wholly invalid based on the
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inconsistencies between viewing LLCs as citizens of each place that their members are citizens,
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and the view that an LLC is not a citizen of any state, but should be treated as having the
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citizenship of each of its members. Plaintiff fails to provide adequate justification to reject the
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consensus conclusion of all courts which have considered the issue, that LLCs are citizens of
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every state in which their members are citizens. Johnson, 437 F.3d at 899; Gen. Tech.
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Applications, Inc. v. Exro Ltda., 388 F.3d 114, 120 (4th Cir. 2004); GMAC Commercial Credit
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LLC v. Dillard Dep’t Stores, Inc., 357 F.3d 827, 828-29 (8th Cir. 2004); Rolling Greens MHP,
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L.P. v. Comcast SCH Holdings L.L.C., 374 F.3d 1020, 1022 (11th Cir. 2004); Handelsman v.
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Bedford Village Assocs. Ltd. P’ship, 213 F.3d 48, 51 (2d Cir. 2000); Cosgrove v. Bartolotta,
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150 F.3d 729, 731 (7th Cir. 1998).
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There exist several cases, some contravening the precedent of their respective circuits
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that without discussion, have considered the citizenship of an LLC to be its state of
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incorporation and principal place of business. See Shell Rocky Mountain Prod., LLC v. Ultra
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Res., Inc., 415 F.3d 1158, 1162 (10th Cir. 2005) (finding that the plaintiff was a citizen of its
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principal place of business and state of incorporation for diversity purposes after incorrectly
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referring to it as a “limited liability corporation.”); MacGinnitie v. Hobbs Group, LLC, 420
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F.3d 1234, 1237 (11th Cir. 2005) (inquiring into the state of incorporation and principal place
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of business of an LLC to determine its citizenship); Kalamazoo Acquisitions, L.L.C. v.
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Westfield Ins. Co., Inc., 395 F.3d 338, 341 n. 5 (6th Cir. 2005) (identifying plaintiff LLC’s
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principal place of business when noting that it invoked diversity jurisdiction). However, these
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cases are distinct in that none directly mentioned the issue of the citizenship status of an LLC,
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and no party in any of these cases appears to have contested the issue of an LLC’s citizenship.
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Furthermore, even if these cases were viewed as favoring the corporation-like treatment of
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LLCs for diversity purposes, there exists no similar case in the Ninth Circuit, whose treatment
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of LLCs for diversity remains absolutely clear. See Johnson v. Columbia Properties
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Anchorage, 437 F.3d 894, 899 (9th Cir. 2006).
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In light of the heavy precedent both from the Supreme Court and the Ninth Circuit, this
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Court’s holding mirrors those of two other recent cases before it, that a plaintiff LLC which
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counts the FDIC among its members is not eligible for diversity jurisdiction because of the
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FDIC’s status as a national citizen “of no particular state.” Res-NV TVL, LLC v. Town Vistas,
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LLC, No. 2:10-cv-1084-JCM-PAL, ECF No. 71 (D. Nev. Oct. 21, 2011); RES-NV APC, LLC v.
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Astoria Pearl Creel, LLC, No. 2-11-cv-00381-LDG-RJJ, ECF No. 32 (D. Nev. Nov. 4, 2011).
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Accordingly, this Court does not have subject-matter jurisdiction over this action and must
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therefore be dismissed.
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V.
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CONCLUSION
IT IS HEREBY ORDERED that Plaintiff CML-NV East Mountain, LLC’s Motion for
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Default Judgment (ECF No. 15) is DENIED. The action is DISMISSED for lack of
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jurisdiction. The Clerk of the Court shall close this case.
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DATED this 20th day of September, 2012.
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______________________________
Gloria M. Navarro
United States District Judge
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