Lemper et al v. Legacy IP LLC et al

Filing 23

ORDER Granting 9 Plaintiffs' Motion to Remand to State Court. The case is hereby remanded to the Eighth Judicial District Court. Signed by Judge Gloria M. Navarro on 12/01/2012. (Copies have been distributed pursuant to the NEF - AC)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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DR. BRIAN A. LEMPER, an individual; and
AMERICAN REGENERATIVE
TECHNOLOGIES, LLC; a Nevada limited
liability company;

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Plaintiffs,
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vs.
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LEGACY IP, LLC, a California limited
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liability company; ENNOVA DIRECT, LLC, a )
California limited liability company; PETER )
GARRETT, an individual; PAUL REGAN, an )
individual; DOES I through X, inclusive; and )
ROES I through X, inclusive,
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Defendants.
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Case No.: 2:12-cv-00950-GMN-PAL
ORDER

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Pending before the Court is the Motion to Remand (ECF No. 9) filed by Plaintiffs Dr.

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Brian A. Lemper (“Dr. Lemper”) and American Regenerative Technologies, LLC (“ART” or

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“ART, LLC”) (collectively, “Plaintiffs”). Defendants Legacy IP, LLC (“Legacy”), Ennova

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Direct, LLC, Peter Garret, and Paul Regan (collectively, “Defendants”) filed a Response (ECF

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No. 16) and Plaintiffs filed a Reply (ECF No. 20). For the reasons discussed below, the Court

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GRANTS Plaintiffs’ Motion to Remand.

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I.

BACKGROUND
This case arises from an agreement (“Agreement”) between the parties that “assigned an

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interest in patents and in ART to Defendants.” (Pls.’ Mot. to Remand 3: 5-6, ECF No. 9; see

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also Defs.’ Resp. to Mot. to Remand Ex. A, ECF No. 16-1.) Plaintiffs filed this action in the

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Eighth Judicial District Court on April 26, 2012 asserting eleven causes of action: (1)

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Fraudulent Inducement; (2) Breach of Contract; (3) Breach of Contractual Covenant of Good

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Faith; (4) Negligent Misrepresentation; (5) Tortious Interference of Contractual Relationship;

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(6) Intentional Interference with Prospective Economic Advantage; (7) Breach of Fiduciary

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Duty, Constructive Fraud; (8) Conversion; (9) Rescission; (10) Alter Ego; and (11) Preliminary

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and Permanent Injunction. (Compl. ¶¶ 48-139, ECF No. 1-2.) Thereafter, on June 5, 2012,

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Defendants removed the action to this Court. (Not. of Removal, ECF No. 1.) In its Notice of

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Removal, Defendants asserted that this Court has jurisdiction under 28 U.S.C. § 1338(a)

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because “Plaintiffs’ claims necessarily rely upon determinations under federal patent law.” (Id.

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at 2:9-10.) Additionally, Defendants asserted in its Notice of Removal that this Court has

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jurisdiction under 28 U.S.C. § 1332 because the parties are completely diverse and the amount

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in controversy exceeds $75,000. (Id. at 2:11-4:2.) In response, on June 27, 2012, Plaintiffs

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filed this motion to remand the case back to the Eighth Judicial District Court. (Mot. to

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Remand, ECF No. 9.)

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II.

LEGAL STANDARD
“If at any time before final judgment it appears that the district court lacks subject matter

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jurisdiction, the case shall be remanded.” 28 U.S.C. § 1447(c). If a plaintiff files a civil action

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in state court, the defendant may remove that action to a federal district court if the district

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court has original jurisdiction over the matter. 28 U.S.C. § 1441(a). Removal statutes are

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strictly construed against removal jurisdiction. Ritchey v. UpJohn Drug Co., 139 F.3d 1313,

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1317 (9th Cir. 1998). “Federal jurisdiction must be rejected if there is any doubt as to the right

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of removal in the first instance.” Gaus v. Miles, 980 F.2d 564, 566 (9th Cir. 1992) (quoting

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Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1064 (9th Cir. 1979)). The defendant

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always has the burden of establishing that removal is proper. Gaus, 980 F.2d at 566.

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III.

DISCUSSION

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A.

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Pursuant to 28 U.S.C. § 1332, this Court has original jurisdiction over cases in which the

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parties are completely diverse and the amount in controversy exceeds $75,000. With respect to

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a party’s citizenship, a party’s citizenship is to be determined at the time the complaint was

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filed and the removal effected. See e.g., Strotek Corp. v. Air. Transp. Ass’n of Am., 300 F.3d

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1129, 1131 (9th Cir. 2002). Although the Court agrees with the Defendants that the amount in

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controversy in this case exceeds the jurisdictional amount, the Court nevertheless finds that it

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lacks subject matter jurisdiction due to the incomplete diversity of the parties.

Jurisdiction under 28 U.S.C. § 1332

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Defendants accurately point out that Plaintiff ART is a Nevada limited liability

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company. As a limited liability company, ART is a “citizen of every state of which its

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owners/members are citizens.” Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 599

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(9th Cir. 2006). Defendants argue that Dr. Lemper was the sole member of ART, LLC when

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this suit was commenced. Defendants further assert that, because Dr. Lemper is a citizen of

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Nevada, all Plaintiffs are Nevada citizens and all Defendants are California citizens, thus

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establishing complete diversity. On the other hand, Plaintiffs assert that Legacy, a California

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citizen, was a member of ART at the time the suit was commenced. If Plaintiffs are correct,

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ART is a citizen of both Nevada and California, thus destroying complete diversity. For the

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reasons discussed below, the Court finds that Legacy was a member of ART at the time this

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suit was commenced. Because ART is a citizen of both Nevada and California, there is

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incomplete diversity of citizenship among the parties in this action. Thus, this Court lacks

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subject matter under 28 U.S.C. § 1332.

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Defendants argue that Legacy was not yet a member of ART when this suit was

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commenced by emphasizing language in the Agreement that states that “[ART] agrees to issue

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to [Legacy] a total of fifteen percent (15%) of the membership units in [ART].” (See Defs.’

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Resp. to Mot. to Remand Ex. A, at § 1.1, ECF No. 16-1.) From this language, Defendants draw

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the bare conclusion that ART was required to take some affirmative action before Legacy could

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actually become a member of the LLC. However, this argument fails because Nevada Revised

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Statute 86.326(2) requires no such action in this situation. Specifically, pursuant to Nevada

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Revised Statute 86.326(2)(a), as a person receiving a member’s interest directly from the

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company, Legacy became a member “upon the consent of all the members and as of the time of

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such person’s admission as reflected in the records of the company.” The words of the signed

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Agreement indicate such consent and provide the required record of the consent. Thus, Legacy

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was a member of ART at the time that the Agreement was signed.

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In a related argument, Defendants assert that Legacy could not be a member of ART

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because ART failed to amend its articles of organization with the Nevada Secretary of State to

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include Legacy as a member. However, Defendants fail to provide any legal precedent for this

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bare assertion. In fact, this argument fails because, under Nevada Revised Statute 86.161(1)(d),

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the articles of organization of a manager managed limited liability company need only state that

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name of the initial managers. Because Legacy was not an initial manager, Legacy may still be

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one of ART’s members, even if its name is absent from ART’s articles of organization. Thus,

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ART’s failure to amend its articles of organization to include Legacy does not preclude Legacy

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from becoming a member.

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Finally, Defendants argue that Dr. Lemper lacks standing to assert claims on behalf of

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ART and, thus, ART is a fraudulently joined party. This argument also fails. Specifically,

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Defendants devote nearly four pages to summarizing the law of derivative actions in Nevada.

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However, Defendants fail to recognize that this action is a direct action; ART has brought suit

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against Defendants in its own name, as authorized by Nevada Revised Statute 86.281. See Nev.

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Rev. Stat. 86.281(1) (“A limited-liability company organized and existing pursuant to this

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chapter may exercise the powers and privileges granted by this chapter and may: (1) [s]ue and

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be sued, complain and defend, in its name . . .”).

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For these reasons, the Court finds that it lacks subject matter jurisdiction under 28
U.S.C. § 1332. Thus, diversity of jurisdiction was an improper ground for removal.

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B.

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This Court has “original jurisdiction of any civil action arising under any Act of

Jurisdiction under 28 U.S.C. § 1338(a)

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Congress relating to patents . . ..” 28 U.S.C. § 1338(a). However, under this statute, district

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courts have original jurisdiction only when a cause of action that arises under the federal patent

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law appears on the face of the plaintiff’s well-pleaded complaint. Holmes Grp., Inc. v. Vornado

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Air Circulation Sys, Inc., 535 U.S. 826, 830 (2002) (citing Christianson v. Colt Indus

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Operating Corp., 486 U.S. 800, 809 (1988)). Specifically, “[t]he plaintiff’s well-pleaded

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complaint must ‘establish[h] either that federal patent law creates the cause of action or that the

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plaintiff’s right to relief necessarily depends on resolution of a substantial question of federal

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patent law . . ..’” Holmes, 535 U.S. at 830 (citing Christianson, 486 U.S. at 809).

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Defendants argue that conversion claims in cases that involve patents are always

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preempted by federal patent law. Defendants further assert that due to this preemption,

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Plaintiffs’ conversion claim arises under federal patent law and is, thus, within the limit of this

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Court’s original jurisdiction under 28 U.S.C. § 1338. To support this proposition, Defendants

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rely solely on nonbinding authority that consists of unreported district court cases from the

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Eastern District of California and the District of Oregon. Moreover, Defendants fail to address

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contrary binding authority from the Federal Circuit. See HIF Bio, Inc. v. Yung Shin Pharm.

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Indus. Co., Ltd., 600 F.3d 1347, 1355-56 (Fed. Cir. 2010). In HIF Bio, the Federal Circuit

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determined that a conversion claim arises under federal patent law only when a plaintiff lacks

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“an alternative, non-patent theory” that could entitle the plaintiff to relief. Id. (“[P]laintiffs

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could establish conversion by reference to the defendants’ alleged misappropriation of

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experiments, pre-publication experimental data, and nonpublic, pre-publication drafts of

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paper”). Thus, in that case, patent law was not an essential element of plaintiff’s well-pleaded

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claim. Id.

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In this case, Plaintiffs’ conversion claim is similar to the conversion claim in HIF Bio.

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Defendants have failed to establish that Plaintiffs have no “alternative, non-patent theory” on

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which they would be entitled to relief. See HIF Bio, 600F.3d at 1355-56. Because “[f]ederal

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jurisdiction must be rejected if there is any doubt as to the right of removal in the first

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instance,” Gaus, 980 F.2d at 566, the Court cannot find that Defendants have met their burden

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in establishing that Plaintiffs’ well-pleaded claims arise under federal patent law. For these

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reasons, the Court finds that it also lacks subject matter jurisdiction under 28 U.S.C. § 1338(a).

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Thus, Plaintiffs’ Motion to Remand (ECF No. 9) is GRANTED.

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IV.

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CONCLUSION
IT IS HEREBY ORDERED that Plaintiffs’ Motion to Remand (ECF No. 9) is

GRANTED.

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The case is hereby remanded to the Eighth Judicial District Court.

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December
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DATED this _____ day of _____________, 2012.

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___________________________________
Gloria M. Navarro
United States District Judge

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