SYNC LABS LLC et al v. FUSION-MANUFACTURING et al

Filing 213

OPINION AND ORDER denying 210 Motion to Remand. Signed by Judge William H. Walls on 6/13/17. (sr, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

SYNC LABS LLC and CODRUT RADU
RADULESCU,
Plaintiffs,

OPINION AND ORDER

V.

FUSION MANUFACTURING and
MICHAEL FERCHAK,

:

Civ. No. 11-3671 (WHW)(CLW)

Defendants.

Walls, Senior District Judge

Plaintiff Codrut Radu Radulescu moves to remand this action to the New Jersey Superior
Court. ECF No. 210. Plaintiff opposes the motion in a letter brief under Local Civil Rule
7.1 (d)(4). The Court decides this motion without oral argument under Fed. R. Civ. P. 78.
Plaintiffs motion is denied.
FACTUAL AND PROCEDURAL BACKGROUND

The facts of this case have been recounted in several opinions over the last six years.
See, e.g., ECF Nos. 102, 207. The parties are former business partners in Sync Labs LLC whose
partnership went awry. Following the dissolution of the relationship, Mr. Radulescu filed suit in
New Jersey Superior Court on behalf of himself and Sync Labs LLC, against Mr. Ferchak and
his company, Fusion Manufacturing. ECF No. 1. Defendants removed the case to federal court,
where the matter has continued for far longer than the parties’ joint venture. Id. The past six
years of litigation have been hotly contested. The Court has decided multiple motions to dismiss,
leading to the dismissal with prejudice of Plaintiff Sync Labs LLC on June 11, 2014, ECF No.
129, and two motions for summary judgment, resulting in the entry ofjudgment on nine of the
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ten claims Plaintiff asserts in the Amended Complaint. ECF Nos. 102, 207. During these six
years, the issue of jurisdiction was never contested or even raised, but Plaintiff now moves to
remand this case to state court for lack of subject matter jurisdiction. ECF No. 210.
Plaintiff argues that the case was not removable to federal court because there was not
complete diversity of citizenship among the parties at the time of removal. ECF No. 2 10-4 at 1.
Though Defendants certified in the Notice of Removal that former Plaintiff, Sync Labs LLC, was
a citizen of New Jersey because it was both registered and had its principal place of business in
New Jersey, this certification was incorrect because it used the wrong standard to determine the
citizenship of an LLC. Id. at 6 (citing Lincoln Benefit Life Co. v. AEILfe, LLC, $00 f.3d 99, 105
(3d Cir. 2010)). Plaintiff argues that Sync Labs LLC was actually a citizen of both New Jersey
and Florida because a Limited Liability Company is considered a citizen of the state of each of
its members. Id. at 2. Plaintiff therefore maintains that the complete diversity requirements of 2$
U.S.C.

§ 1332(a) and 28 U.S.C. § 1441(b) were not met at the time of removal because

Defendant Ferchak and Plaintiff Sync Labs LLC were both citizens of Florida. Id. Though Sync
Labs was subsequently dismissed with prejudice as a party, Plaintiff contends that dismissal “is
of no consequence to the merit of this motion to remand” because the “voluntary-involuntary
rule provides that an involuntary dismissal of a non-diverse party does not create diversity
jurisdiction.” Based on the Court’s lack of complete diversity at the case’s inception, Plaintiff
requests that the Court remand the action to the New Jersey Superior Court. Id.
Defendant responds that complete diversity currently exists between the parties to this
lawsuit, and that the issue of Sync Labs’ citizenship is res judicata as a result of the entry of
judgment against it. ECF No. 211 at 2. Defendant further argues that the voluntary-involuntary
rule is irrelevant to the consideration of this motion because “removal in violation of the

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voluntary-involuntary rule is a procedural defect” that “does not affect the subject matter
jurisdiction of the courts,” and because objections based on the voluntary-involuntary rule must
be made within thirty days.
Though the parties do not raise this issue in their briefs, it appears to be uncontested that
Defendant Ferchek resigned as a member of Sync Labs on April 1, 2010. ECF No. 1

¶ 49.

Defendant does not argue in his letter brief that he was not a member of Sync Labs LLC at the
time of the filing of this suit, and the Court has not been provided with any documentation to
allow it to identify the members of Sync Labs LLC at the time the Complaint was filed. The
question of whose citizenship constitutes part of the LLC’ s citizenship is ultimately governed by
the law of the state of incorporation. See, e.g., Dumann Realty, LLC v. Faust, No. 09 CIV. 7651
JPO, 2013 WL 30672, at *2 (S.D.N.Y. Jan. 3, 2013); CR Holding Company, LLP v. Campbell,
No. 11 Civ.2051(JWL), 2011 WL 2357649, at *3 (D.Kan. June 3, 2011). At the time of
Ferchek’s resignation from Sync Labs in April 2010, a member of an LLC could resign upon not
less than 6 months’ prior written notice to the limited liability company and each of its members.
N.J. Stat. Ann.

§ 42:2B-3$ (repealed March 1, 2014). Absent Sync Lab’s operating agreement,

the court cannot determine Sync Lab’s membership as of the filing of the Complaint, but it is
notable that Plaintiff Radulescu, the only other Sync Lab member as of April 2010, asserts that
Ferchak resigned. There is no question that complete diversity would have existed from the
case’s inception if Ferchek’s resignation had been effective.
Setting the issue of Fercheck’s membership in Sync Labs as of the filing of the
Complaint aside, the Court nevertheless denies Plaintiffs motion to remand this matter to New
Jersey Superior Court.

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LEGAL STANDARD AND DICUSSION
28 U.S.C.

§ 1447 provides that, when “it appears that the district court lacks subject

matter jurisdiction, the case shall be remanded.” On a motion to remand, the removing party has
the burden of establishing that jurisdiction exists. Boyer v. Snap-On Tools Corp., 913 F.2d 108,
111 (3d Cir. 1990), cert. denied, 492 U.S. 1085 (1991).
First, Defendants are correct that the voluntary-involuntary rule plays no role in the
determination of this motion, as removal in violation of the voluntary-involuntary rule is a
procedural defect, which must be raised within thirty days of removal. Hoffman v. Metropolitan
Ins. & Annuity Co., Civ. No. 12-2303, 2012 WL 3185953, *5 (D.N.J. Aug. 2,2012). The
question nevertheless remains whether the case should be remanded when subject matter
jurisdiction did not exist at the time of removal, but was created through the involuntary
dismissal of a party that served as an adjudication on the merits, and has existed through the
adjudication of nine of the ten causes of action charged in the Amended Complaint.
The Supreme Court has stated that returning a case to a state court based on a
jurisdictional defect that was cured before the entry ofjudgment by a federal district court places
an “exorbitant cost of our dual court system” and is “incompatible with the fair and unprotracted
administration ofjustice.” Caterpillar Inc. v. Lewis, 519 U.S. 61, 77 (1996). In Lewis, a plaintiff
brought a product liability action in state court against a nonresident manufacturer and an in-state
servicer. Id. at 64—65. An in-state insurer then intervened as plaintiff, asserting subrogation
claims against the manufacturer and the servicer. Id. at 65. The manufacturer learned about a
pending settlement between the plaintiff and in-state servicer defendant, and removed the action
to federal court in order to meet the removal deadline. Id. Plaintiff moved to remand on the
grounds that diversity was defeated by the servicer’s presence, but the district court erroneously

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concluded that complete diversity existed. Id. at 65—66. The servicer and insurer settled before
trial,i and the servicer was dismissed, thereby creating complete diversity. Id. 66—67. Afier the
manufacturer prevailed at trial, the Plaintiff appealed and the Sixth Circuit Court of Appeals
vacated and remanded because diversity was not complete at the time of removal. Id. at 67. The
Supreme Court reversed the Sixth Circuit and upheld the district court judgment, concluding that
though removal was improper, it would pose too great a cost to the dual court system to overturn
an adjudication when federal jurisdictional requirements were met at the time judgment was
entered. See id. at 76—78. In support of this conclusion, the Court relied on a series of cases that
stand for the proposition that remand to state court is unnecessary even ifjurisdiction did not
exist at the time of removal, so long as the district court had subject matter jurisdiction at the
time of removal. See Grubbs v. General Elec. Credit Corp., 405 U.S. 699, 700 (1972) (holding
that an erroneous removal need not cause the destruction of a final judgment if the requirements
of federal subject matter jurisdiction are met at the time judgment is entered); American fire &
Cas. Co.

V.

finn, 341 U.S. 6, 17—18 (1951) (holding that the absence of diversity jurisdiction at

the time ofjudgment required the Court of Appeals to vacate a district court’s judgment).
Here subject matter jurisdiction likely did not exist at the time of removal, but was later
created due to the dismissal of Sync Labs LLC. Sync Labs never challenged the Court’s lack of
jurisdiction over its dismissal, but Plaintiff Radulescu now raises the improper removal as a
means to ignore approximately six years of litigation, which has resulted in the adjudication of
nine of his ten claims. Though this case is distinguishable from Lewis so far as the removal error
has been identified by this district court before final adjudication of all of Plaintiffs claims, the
Lewis Court’s reasoning and the line of cases upon which Lewis relies are pertinent. Remanding

i The non-diverse parties were dismissed nearly three years after the case’s removal from state court, creating
subject matter jurisdiction only four months before trial.

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this matter—with its considerable litigation history and multiple adjudications—would frustrate
finality, efficiency, and judicial economy, especially when subject matter jurisdiction exists now,
has existed for nearly three years, and existed when the Court entered judgment on nine of
Plaintiffs ten claims. See Lewis, 519 U.S. at 77 (“To wipe out adjudication postjudgment, and
return to state court a case now satisfying all federal jurisdictional requirements, would impose
an exorbitant cost on our dual court system, a cost incompatible with the fair and unprotracted
administration ofjustice.”); see also Knop v. McMahon, 872 F.2d 1132, 1139 n.16 (3d Cir. 1989)
(“To permit a case in which there is complete diversity throughout trial to proceed to judgment
and then cancel the effect of that judgment and relegate the parties to a new trial in a state court
because of a brief lack of complete diversity at the beginning of the case would be a waste of
judicial resources.”). For these reasons, it is hereby ORDERED that Plaintiffs motion to
remand, ECF No. 210, is denied.

DATE/3/?

District Court Judge

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