Old Republic National Tile Insurance Company v. Kelts, et al

Filing 16

///ORDER denying without prejudice 9 defendants' Motion to Dismiss. So Ordered by Judge Steven J. McAuliffe.(lat)

UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
Old Republic National Title
Insurance Company,
Plaintiff
v.

Case No. 12-cv-352-SM
Opinion No. 2013 DNH 051

Donald J. Kelts; Raymond P.
Kloepper II; and Southwest
Federated North Texas, L.P.,
Defendants
O R D E R
Old Republic National Title Insurance Company (“Old
Republic”) brings this action seeking a declaratory judgment that
it is no longer obligated to provide coverage under various title
insurance policies it issued to defendants.

In the alternative,

it seeks to reform the terms of those policies.

Defendants moved

to dismiss Old Republic’s complaint in its entirety.

Old

Republic objects.

Background
According to the complaint, defendants are construction
lenders who made loans to the Chichester Condominium Corporation
(the “borrower”).

Those loans were apparently secured by

mortgage deeds to various condominium units at the “White Birches
of Chichester Condominium.”
28-29.

Complaint (document no. 1) at paras.

When the loans were extended, however, the borrower had

yet to properly create the condominium under state law - that is,
it had failed to record the declaration of condominium and the
condominium’s bylaws in the registry of deeds.

Nevertheless, Old

Republic issued title insurance policies to defendants, insuring
that the borrower held good title to the (non-existent)
condominium units that ostensibly provided security for the
loans.

The borrower did not repay the loans.

Subsequently, a

number of Old Republic’s insureds (including defendants) made
claims against the policies, alleging that because neither the
declaration of condominium nor the condominium bylaws had been
recorded in the registry of deeds, the borrower did not have good
title to any of the “units” in the condominium.

In short, they

say that because they hold mortgage deeds to non-existent (or, at
best, defective) condominium units, they are entitled to recover
their losses under the policies issued by Old Republic.

There is, apparently, ongoing state court litigation in
which Old Republic says it is attempting to cure those title
defects (the “Curative Action”).

In this litigation, Old

Republic alleges that because defendants have not fully
cooperated with its efforts in the Curative Action, it is
entitled to a declaration that it is no longer obligated to honor

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the terms of the underlying title insurance policies issued to
defendants.

Alternatively, it seeks to reform those policies “to

delete the condominium endorsements so as to reflect the intent
of the parties to the transactions.”

Complaint at para. 56.

Discussion
In support of their motion to dismiss, defendants advance
three arguments.

None has merit.

First, they say the court

lacks diversity subject matter jurisdiction over Old Republic’s
claims.

According to defendants, the parties are not diverse

because 1) Old Republic “does business in New Hampshire”; 2)
subject matter jurisdiction is “contrived”; and 3) Old Republic
has “cleverly crafted this Federal District Court action to
create ‘diversity’ where there is none.”
(document no. 10) at 2.

Defendants’ Memorandum

Next, defendants say that under the

“prior exclusive jurisdiction” doctrine, this court either lacks
jurisdiction or should decline to exercise jurisdiction and,
instead, defer to the state superior court, in which the Curative
Action is already pending.

And, finally, defendants assert that

various abstention doctrines (e.g., Colorado River and Younger)
counsel in favor of declining to exercise jurisdiction over Old
Republic’s claims.

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Although defendants’ arguments about “contrived” diversity
jurisdiction lack merit, they touch upon an issue that warrants
discussion.

Old Republic’s complaint alleges that this court has

subject matter jurisdiction over its claims pursuant to 28 U.S.C.
§ 1332.

Complaint at para. 6.

Section 1332(a)(1) provides that

the federal district courts shall have “original jurisdiction of
all civil actions where the matter in controversy exceeds the sum
or value of $75,000, exclusive of interest and costs, and is
between . . . . citizens of different States.”

In support of Old

Republic’s claim that the parties are diverse, the complaint
alleges that Old Republic is a Minnesota corporation, with a
place of business in Minneapolis.

It goes on to allege that

defendant Kelts is a resident of Washington, D.C., defendant
Kloepper is a resident of Florida, and defendant Southwest
Federated North Texas, L.P. (“Southwest Federated”) is “a Texas
limited partnership with a principal place of business” in
Dallas, Texas.

Id. at para. 5.

But, as the court of appeals for this circuit has stated,
“[t]he citizenship of an unincorporated entity, such as a
partnership, is determined by the citizenship of all of its
members.”

Pramco, LLC v. San Juan Bay Marina, Inc., 435 F.3d 51,

54 (1st Cir. 2006).

See also

Carden v. Arkoma Assocs., 494 U.S.

185, 195-96 (1990) (holding that, with respect to a limited

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partnership, the court must consider the citizenship of each
limited partner when determining whether it may properly exercise
diversity subject matter jurisdiction).

Consequently, the

complaint’s reference to Southwest Federated as simply a “Texas
limited partnership” is insufficient; the residency of each of
its partners must be disclosed so the court may determine whether
there is, indeed, complete diversity of citizenship between Old
Republic and the defendants.

See, e.g., Preferred Merchant Hood,

LLC v. Family Dollar, Inc., No. 06-cv-067-JD, 2006 WL 1134915 at
*1 (D.N.H. April 25, 2006) (“the phrase ‘Massachusetts limited
liability company’ is meaningless to the jurisdictional inquiry,
because, again, the citizenship of a limited liability company is
determined by the citizenship of all of its members.) (citation
and internal punctuation omitted); PFIP, LLC v. You-Fit, Inc.,
No. 08-cv-271-JL, 2009 WL 1121359 at *1, n.1 (D.N.H. April 27,
2009) (“Because the plaintiffs have not alleged the citizenship
of any of the members of [the limited liability companies], the
court cannot determine whether they are diverse from the Florida
citizens named as defendants.”); Broady v. Hoppen, No. 12-cv-79SM, 2012 WL 3731339 at *6 (“Because plaintiffs have not pled the
citizenship of the member or members of [the plaintiff limited
liability company], the court cannot determine whether [the LLC]
is diverse from the defendants.”) (citation and internal
punctuation omitted).

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Finally, it probably bears noting that it will not be
sufficient for Old Republic to simply allege that none of the
partners in Southwest Federated is a resident of Minnesota.
Instead, the complaint must affirmatively allege the citizenship
of each partner.

See D.B. Zwirn Special Opportunities Fund, L.P.

v. Mehrotra, 661 F.3d 124, 126-27 (1st Cir. 2001).

And, if any

one of those partners is itself an unincorporated entity, “the
citizenship of each of that member’s members (or partners, as the
case may be) must be [disclosed].”

Id. at 126.

Conclusion
Old Republic’s complaint fails to adequately allege that the
parties are diverse.

Consequently, the court cannot determine

whether it may properly exercise subject matter jurisdiction over
Old Republic’s claims.

Because the grounds advanced by defendants do not warrant
dismissal of Old Republic’s complaint, their motion to dismiss
(document no. 9) is denied, without prejudice.

Nevertheless,

within thirty (30) days of the date of this order, Old Republic
shall either show cause why this case should not be dismissed for
lack of subject matter jurisdiction on grounds that diversity has
not been adequately pled, or, alternatively, file an amended
complaint properly alleging diversity jurisdiction.

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While it may intuitively seem unlikely that a member of a
Texas limited partnership is a resident of Minnesota, it is
nonetheless possible.

It is also possible that one or more of

those partners is, for diversity jurisdiction purposes, a citizen
of no state at all.

See D.B. Zwirn, 661 F.3d at 126.

SO ORDERED.
____________________________
Steven J. McAuliffe
United States District Judge
April 2, 2013
cc:

Michael J. Lambert, Esq.
Gregory T. Uliasz, Esq.

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