Krohn v. Equity Title, LLC et al

Filing 44

ORDER Granting 14 Motion to Dismiss for Lack of Jurisdiction. Amended Complaint deadline: 8/17/2015. Signed by Judge Richard F. Boulware, II on 8/3/15. (Copies have been distributed pursuant to the NEF - TR)

1
2
3
4

UNITED STATES DISTRICT COURT

5

DISTRICT OF NEVADA

6

***

7

Shelley D. Krohn,

8

Plaintiff,

9
10

Case No. 2:14-cv-00620-RFB-PAL
ORDER GRANTING MOTION TO
DISMISS

v.
Equity Title, LLC, et al.,

11

Defendants.

12
13
14
15

I.

Background
Before this Court is Defendant Equity Title LLC’s (“Equity Title”) Motion to Dismiss the

Complaint for lack of subject matter jurisdiction. ECF No. 14.

16

According to the Complaint, Plaintiff Shelley D. Krohn is the Chapter 7 Trustee for the

17

estate of William Walter Plise. Krohn is also the authorized assignee of Clayton Mortgage

18

Company and FNBN-CMLCON 1, LLC. Krohn alleges that, when acting as an escrow holder in

19

four loan transactions, Defendant Equity Title misdirected substantial loan funds to Defendant

20

Aquila Management LLC and that Defendants William Walter Plise, James L. Moore, Robert M.

21

Evans, and John Doe misused funds for their own benefit. Compl., ECF No. 1. Krohn claims

22

that, as a result, Clayton Mortgage and FNBN-CMLCON have lost significant funds. Id.

23

Krohn brought the instant lawsuit in this Court on April 22, 2014. Krohn alleged fifteen

24

claims for relief: Fraud (against Doe and Plise), Fraud (against Doe, Plise, and Eveans), Aiding

25

and Abetting Fraud (against Equity Title re Clayton Mortgage Loans), Aiding and Abetting

26

Fraud (against Equity Title re Bank Loans), Aiding and Abetting Fraud (against Evans), Breach

27

of Fiduciary Duty (Against Equity Title re Clayton Mortgage Loans), Breach of Fiduciary Duty

28

(Against Equity Title re Banks Loans), Aiding and Abetting Breaches of Fiduciary Duty

1

(Against Doe, Plise, and Evans), Aiding and Abetting Breach of Fiduciary Duty (Against Equity

2

Title), Negligence (Against Equity Title), Gross Negligence (Against Equity Title), Breach of

3

Contract (Against Equity Title), Unjust Enrichment (Against Aquila Management, Plise, Evans,

4

and Moore), Fraudulent Transfer pursuant to Nev. Rev. Stat. 112.180(a) and 112.210 (against

5

Aquila Management, Plise, Evans, and Moore), and Fraudulent Transfer pursuant to Nev. Rev.

6

Stat. 112.190 and Nev. Rev. Stat. 112.210 (against Aquila Management, Plise, Evans, and

7

Moore). Id.

8

On May 22, 2014, Defendant Equity Title filed the instant Motion to Dismiss. No other

9

defendants had appeared at that time. Since the filing of the instant Motion, Defendants Evans

10

and Moore have appeared, and the parties stipulated to Evans's and Moore's answers being due

11

twenty-one days after the resolution of the instant Motion to Dismiss. ECF Nos. 31, 37.

12

Defendants Plise and Aquila Management were served on Dec. 13, 2014, ECF Nos. 34, 35, but

13

have not appeared.
Discovery is stayed pending a decision on the instant Motion to Dismiss. ECF No. 24.

14
15
16
17

II.

Legal Standard
“Federal courts are courts of limited jurisdiction.

They possess only that power

18

authorized by Constitution and statute . . . . It is to be presumed that a cause lies outside this

19

limited jurisdiction and the burden of establishing the contrary rests upon the party asserting

20

jurisdiction.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (citations

21

omitted). To invoke a federal court’s limited subject matter jurisdiction, a complaint need only

22

provide “a short and plain statement of the grounds for the court’s jurisdiction.” Fed. R. Civ. P.

23

8(a)(1). Ordinarily, the court will accept the plaintiff’s factual allegations as true unless they are

24

contested by the defendant. Leite v. Crane Co., 749 F.3d 1117, 1121 (9th Cir. 2014). A

25

defendant may move to dismiss a complaint for lack of subject matter jurisdiction. Fed. R. Civ.

26

P. 12(b)(1). If subject matter jurisdiction is challenged, the burden is on the party asserting

27

jurisdiction to establish it. In re Dynamic Random Access Memory Antitrust Litigation, 546

28

F.3d 981, 984 (9th Cir. 2008). Dismissal under Rule 12(b)(1) is appropriate if the complaint,

-2-

1

considered in its entirety, fails to allege facts on its face that are sufficient to establish subject

2

matter jurisdiction. Id. at 984–85.

3

A defendant may challenge jurisdiction under Rule 12(b)(1) in one of two ways. Leite,

4

749 F.3d at 1121. First, the challenge can be “facial,” whereby the defendant contends that the

5

plaintiff’s allegations, even if true, are nonetheless insufficient to invoke jurisdiction in federal

6

court. Id. When presented with a facial attack, the court determines whether, accepting the facts

7

as alleged by the plaintiff and drawing all reasonable inferences in the plaintiff’s favor, the

8

complaint invokes the court’s jurisdiction. Id.; Pride v. Correa, 719 F.3d 1130, 1133 (9th Cir.

9

2013). Second, the challenge may be “factual,” where the defendant “contests the truth of the

10

plaintiff’s factual allegations, usually by introducing evidence outside the pleadings.” Leite, 749

11

F.3d at 1121. “Defective allegations of jurisdiction may be amended, upon terms, in the trial or

12

appellate courts.” 28 U.S.C. § 1653.

13
14

III.

Discussion

15

Defendant Equity Title has moved to dismiss the action, brought originally in this Court,

16

for lack of subject matter jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1). Equity Title argues

17

that the Complaint, which alleges federal question jurisdiction, facially fails to establish subject

18

matter jurisdiction in this Court. Mot. to Dismiss 3:5–9. The Court agrees and accordingly

19

grants the Motion to Dismiss. However, the Court also finds the allegations in the Complaint

20

insufficient to disprove subject matter jurisdiction, so the Court grants Krohn leave to amend the

21

Complaint so she may attempt to cure jurisdictional defects.

22

A.

Federal Question Jurisdiction

23

Krohn has brought this action before this Court on the basis of jurisdiction pursuant to 28

24

USC § 1331 (federal question jurisdiction) as well as supplemental jurisdiction pursuant to 28

25

USC § 1367, only. However, Krohn has alleged nothing which implicated questions of federal

26

law.

27

“The district courts shall have original jurisdiction of all civil actions arising under the

28

Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331. Federal question

-3-

1

jurisdiction is usually the result of federal law creating the cause of action. Grable & Sons Metal

2

Products, Inc. v. Darue Eng'g & Mfg., 545 U.S. 308, 312 (2005). However, “in certain cases

3

federal-question jurisdiction will lie over state-law claims that implicate significant federal

4

issues,” but only “if federal jurisdiction is consistent with congressional judgment about the

5

sound division of labor between state and federal courts . . . .” Id. at 312–14. Supplemental

6

jurisdiction further permits, “in any civil action of which the district courts have original

7

jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are

8

so related to claims in the action within such original jurisdiction that they form part of the same

9

case or controversy.” 28 U.S.C. § 1367(a).

10

Here, the Complaint asserts fifteen state-law claims: two claims of fraud, three claims for

11

aiding and abetting fraud, two claims of breach of fiduciary duty, two claims of aiding and

12

abetting breach of fiduciary duty, two claims for fraudulent transfer, and one claim each of

13

negligence, gross negligence, breach of contract, and unjust enrichment. The Complaint includes

14

no federal law causes of action. Furthermore, the Complaint alleges no relation between any

15

state claim and any federal issues, and the Complaint raises no disputed federal issues that are

16

central to the case.

17

In opposing the Motion to Dismiss, Krohn does not dispute the absence of federal

18

question jurisdiction under 28 U.S.C. § 1331, instead asserting bankruptcy proceeding subject

19

matter jurisdiction pursuant to 28 U.S.C. § 1334(b). Resp. 2, ECF No. 18. However, pursuant to

20

Fed. R. Civ. Proc. 8(a)(1), a pleading must include “a short and plain statement of the grounds

21

for the court's jurisdiction . . . .” See D. Nev. R. 8-1 (“The first allegation of any complaint . . .

22

shall state the statutory or other basis of claimed federal jurisdiction and the facts in support

23

thereof.”). Here, the Complaint alleges only federal question jurisdiction, and, as the factual

24

allegations in the Complaint do not support federal question jurisdiction, allegations of

25

bankruptcy jurisdiction in opposition papers are insufficient. Consequently, the Court finds that

26

Krohn’s Complaint facially fails to demonstrate original subject matter jurisdiction over any

27

claim, and, because the Court lacks original jurisdiction over any claim, supplemental

28

jurisdiction is inapplicable. Accordingly, the action must be dismissed for lack of subject matter

-4-

1
2

jurisdiction.
However, a complaint may, with permission of the Court, be amended to show

3

jurisdictional facts. 28 U.S.C. § 1653.

4

“Plaintiff could amend to include more detail concerning these facts if permitted by the Court to

5

do so. That these claims are so inextricably linked to the bankruptcy proceeding, provides a

6

second way in which those claims ‘arise in or relate to’ a proceeding under title 11, giving this

7

Court original jurisdiction over them.” Resp. ¶ 9. The Court thus considers whether permitting

8

amendment to claim alternative jurisdiction is appropriate.

9
10
11

B.

In her opposition brief, Krohn suggests as much:

Bankruptcy Jurisdiction

In opposing the Motion to Dismiss, Krohn argues this Court’s “Jurisdiction is Proper
Under 28 U.S.C. § 1334(b).” Resp. 2:11.

12

In General, “[T]he district courts shall have original but not exclusive jurisdiction of all

13

civil proceedings arising under title 11, or arising in or related to cases under title 11.” 28 U.S.C.

14

§ 1334. Thus, there are two possible prongs for bankruptcy jurisdiction. “Arising under” and

15

“arising in” jurisdiction is the first of these prongs. “Proceedings ‘arising under’ title 11 involve

16

causes of action created or determined by a statutory provision of that title.

17

proceedings ‘arising in’ title 11 are not those created or determined by the bankruptcy code, but

18

which would have no existence outside of a bankruptcy case.” In re Wilshire Courtyard, 729

19

F.3d 1279, 1285 (9th Cir. 2013) (citations omitted). “[T]he fact that a matter would not have

20

arisen had there not been a bankruptcy case does not ipso facto mean that the proceeding

21

qualifies as an ‘arising in’ proceeding.” Id. at 1287.

Similarly,

22

“Related to” jurisdiction is the second prong. “‘[R]elated to’ jurisdiction is very broad,

23

including nearly every matter directly or indirectly related to the bankruptcy.” Id. at 1287. “The

24

‘close nexus’ test determines the scope of bankruptcy court's post-confirmation ‘related to’

25

jurisdiction. . . . [T]he test encompasses matters ‘affecting the interpretation, implementation,

26

consummation, execution, or administration of the confirmed plan.’

27

‘recognizes the limited nature of post-confirmation jurisdiction but retains a certain flexibility.’”

28

Id. at 1287 (quoting In re Pegasus Gold Corp., 394 F.3d 1189 (9th Cir. 2005).).

-5-

The close nexus test

1

Based on the facts alleged in Krohn’s Complaint and in her Response, the Court is not

2

convinced that bankruptcy jurisdiction is appropriate in the instant case. However, because

3

bankruptcy jurisdiction and supporting facts have been inadequately pled, the Court is also not

4

convinced bankruptcy jurisdiction is inappropriate. Accordingly, the Court need not—and will

5

not—decide presently whether this Court has jurisdiction over the instant case pursuant to 28

6

U.S.C. § 1334. Instead, the Court will grant Krohn fourteen days to amend, and the Court will

7

evaluate bankruptcy jurisdiction as pled in an amended complaint, should one be filed.

8

C.

Diversity Jurisdiction

9

While the Complaint does not allege diversity jurisdiction, Equity Title raises the matter

10

of diversity, presumably to forestall any claims jurisdiction pursuant to 28 U.S.C. § 1332(a).

11

E.g. Mot. to Dismiss 1:4–6 (“This matter involves a complaint for state-law claims filed against

12

non-diverse defendants.”). Therefore, the Court briefly considers diversity jurisdiction, and finds

13

the allegations in the Complaint inconclusive regarding diversity jurisdiction.

14

Diversity jurisdiction is established by statute: “The district courts shall have original

15

jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of

16

$75,000, exclusive of interest and costs, and is between [diverse parties.]” 28 U.S.C. § 1332(a).

17

Courts treat limited liability companies the same as partnerships for diversity jurisdiction

18

purposes, and therefore look to the citizenship of each member of the company. Johnson v.

19

Columbia Properties Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006). Unlike a corporation,

20

an LLC is not a citizen of the state in which it was organized unless one of its members is a

21

citizen of that state. See Carolina Cas. Ins. Co. v. Team Equip., Inc., 741 F.3d 1082, 1085 (9th

22

Cir. 2014). Diversity is thus lacking if any LLC member is a citizen of the same state as an

23

opposing party.

24

The complaint plainly states monetary damages well in excess of $75,000. However, the

25

citizenship of the parties are largely unalleged in the complaint. Defendant William Walter Plise

26

is an individual resident of Nevada. Plise is alleged to own Aquila Investments LLC which in

27

turn owns Aquila Management LLC. Therefore, Defendants Acquilla Management LLC and

28

Plise are citizens of Nevada for diversity jurisdiction purposes. However, Plaintiff Krohn’s

-6-

1

citizenship is not alleged. Similarly, Defendants Robert M. Evans and James L. Moore are

2

individuals, but their citizenship is not alleged in the Complaint. Defendant Equity Title LLC is

3

a Nevada limited liability company whose sole manager is Orange Coast Title Company, but,

4

again, no information regarding citizenship is alleged.

5

As the Complaint alleges facts insufficient to either establish or to preclude diversity of

6

citizenship, the Court can only conclude at this time that the Complaint fails to demonstrate

7

diversity jurisdiction. If Krohn believes she can assert facts sufficient to establish diversity

8

jurisdiction, she may do so in an amended complaint.
D.

9

Tolling

10

Krohn has requested a tolling instruction pursuant to Nev. Rev. Stat. 11.500(1)(b) and 28

11

U.S.C. § 1367(d) in the event this Court dismisses her Complaint. Resp. ¶¶ 16, 17. Under such

12

a saving statute, upon dismissal in this Court for lack of subject matter jurisdiction, Krohn may

13

be able to bring her claim in state court. However, it is unclear how this Court, lacking subject

14

matter jurisdiction, could issue a binding order addressing tolling; that would be a matter to be

15

decided by a court with jurisdiction over the action. Regardless, the Court has given Krohn leave

16

to amend and declines to consider tolling at this time.

17
18

IV.

Conclusion

19

In sum, the Complaint inadequately establishes subject matter jurisdiction, but Krohn will

20

be permitted to amend the Complaint if she believes she can establish subject matter jurisdiction

21

pursuant to 28 U.S.C. § 1334 or other law. Accordingly,

22

IT IS ORDERED that Motion to Dismiss, ECF No. 14, is GRANTED and the action is

23

DISMISSED without prejudice. Plaintiff Krohn may file, by August 17, 2015, an amended

24

complaint.

25

Dated: August 3, 2015.

26
RICHARD F. BOULWARE II
UNITED STATES DISTRICT COURT

27
28

-7-