ENCORE CAPITAL FINANCE, INC. v. HEARTLAND PAYMENT SYSTEMS, LLC et al
Filing
27
OPINION filed. Signed by Judge Anne E. Thompson on 6/5/2018. (km)
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NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
ENCORE CAPITAL FINANCE, INC.,
Plaintiff,
Civ. No. 18-8512
v.
OPINION
HEARTLAND PAYMENT SYSTEMS,
LLC; HEARTLAND PAYMENT
SYSTEMS, INC.; GLOBAL PAYMENTS,
INC.; GLOBAL PAYMENTS DIRECT,
INC.; ABC COMPANIES, INC. 1 through
5, and John Does 1 through 5,
RECE~VED
JUN 0 6 2018
Defendants.
AT 8:30
WILLIAM T. WALSH
CLERK
THOMPSON, U.S.D.J.
M
INTRODUCTION
This matter comes before the Court upon a motion to remand by Plaintiff Encore Capital
Finance, Inc. ("Plaintiff'). (ECF No. 18.) Defendants Heartland Payment Systems, LLC
("Heartland, LLC" or "HPS"), Heartland Payment Systems, Inc. ("Heartland, Inc." or "HPS,
Inc."), Global Payments, Inc. ("Global"), and Global Payments Direct, Inc. ("Global Direct")
(collectively, "Defendants") oppose. (ECF No. 21.) The Court has decided this matter based
upon the written submissions of the parties and without oral argument pursuant to Local Civil
Rule 78.l(b). For the reasons stated herein, Plaintiffs Motion to Remand is denied.
BACKGROUND
The facts of this breach of contract action are as follows. Plaintiff, a Delaware
corporation operating in Seattle, WA, is a broker of small business loans. (Compl. 11 1, 9, ECF
No. 1-6.) Heartland, Inc. and Heartland, LLC, which Plaintiff pleads, upon information and
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belief, are Delaware entities operating in Atlanta, GA, specialize in credit card payment systems
for small businesses. (Id.
mf 5-7, 11.) 1
In November 2010, Plaintiff and Heartland entered into a
Note Purchase Agreement, later amended in April 2016, providing Plaintiff $250,000 to operate.
(Id. ~~ 13, 22.) Plaintiff and Heartland also had a Referral Agreement under which they shared
commissions, and Plaintiff operated as Heartland's lending division. (Id.
if, 16-17.) In April
2014, they entered into a Program Manager Agreement ("PMA"), superseding said Referral
Agreement and delineating terms to the relationship. (Id. , 21.)
In April 2016, Global and Global Direct acquired Heartland, Inc.; Heartland, LLC
became the successor in interest, and Heartland, Global, and Global Direct operated as one
entity. (Id.
~,
26-29.) Initially, Plaintiff's relationship remained unchanged, and the parties
sought to renew and extend the PMA. (Id.
mf 30-31, 36, 38.)
According to Plaintiff, Defendants
then entered into a referral and marketing agreement with another company, Biz2Credit. (Id.
,if 39-44.) Defendants subsequently did not renew the PMA and sent Plaintiff a default notice
for unpaid commissions and arrears. (Id. ,, 54, 62, 64.)
On March 28, 2018, Plaintiff filed this action in New Jersey Superior Court, Law
Division, Mercer County, pleading breach of contract and breach of the covenant of good faith
and fair dealing under the PMA. On April 27, 2018, Defendant Heartland, LLC removed to this
Court, "on its own behalf and as Heartland Payment System, Inc. 's successor in interest."
(Notice of Removal at 1 n.l, ECF No. 1.) On May 4, 2018, Defendants answered and filed a
counterclaim. (ECF No. 9.) On May 10, 2018, Plaintiff moved to remand to state court (ECF
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Plaintiff pleads all facts relevant to Heartland, Inc. and Heartland, LLC as generally attributable
to "Heartland." (Id., 7; see also id.~ 11-29.)
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No. 18); Defendants opposed (ECF No. 21), and Plaintiff replied (ECF No. 25). This Motion is
presently before the Court.
LEGAL STANDARD
A defendant may remove a civil action filed in state court to the federal court where the
action might originally have been brought. 28 U.S.C. § 144l(a), (b). However, the federal court
to which the action is removed must have subject matter jurisdiction. Id. § 1441(b). Federal
district courts have subject matter jurisdiction over civil actions that involve a federal question or
diversity of citizenship. 28 U.S.C. §§ 1331, 1332. Diversity jurisdiction exists when the action
arises between citizens of different states, and the amount in controversy exceeds $75,000. 28
U.S.C. §§ 1332, 1441(b). For there to be complete diversity of citizenship between the parties,
each plaintiff must be a citizen of a different state from each defendant. Owen Equip. &
Erection Co. v. Kroger, 437 U.S. 365, 373 (1978).
If at any time before final judgment it appears that the district court lacks subject matter
jurisdiction, the case must be remanded to state court. 28 U.S.C. § 1447(c). The party that
removed the case bears the burden of establishing federal jurisdiction. Frederico v. Home
Depot, 501F.3d188, 193 (3d Cir. 2007). Federal courts must "scrupulously confine their own
jurisdiction to the precise limits" of§ 1441 to give "[d]ue regard [to] the rightful independence
of state governments." Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09 (1941).
Thus, the removal statute is strictly construed against removal and all doubts are to be resolved
in favor ofremand. Entrekin v. Fisher Sci., Inc., 146 F. Supp. 2d 594, 604 (D.N.J. 2001).
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DISCUSSION
The central issue on this Motion is whether the parties are in fact diverse to invoke
federal subject matter jurisdiction.2 Plaintiff argues that "[b]ecause Heartland
Inc. is a Delaware citizen and so is Encore, complete diversity does not exist and ·
the Court lacks subject matter jurisdiction." (See Pl.'s Br. at 13, ECF No. 18-1.) In their Notice
of Removal Defendants assert that the parties are diverse: "[t]his Court should disregard
purported defendant Heartland·Payment Systems, Inc. because it merged into [Heartland
Payment Systems, LLC] in April 2016, and Heartland Payment Systems, Inc. ceased to exist as a
separate entity thereafter." (Notice of Removal, 3.) According to Plaintiff, however,. Heartland,
Inc. survives under Delaware law for the purposes of suit. (See Pl.' s Br. at 7, 11.) In
opposition, Defendants further assert that to the extent Heartland, Inc. may still be said to exist, it
is a nominal party irrelevant to jurisdiction. (See Defs.' Opp 'n at 1, ECF No. 21.)
A corporation's citizenship is determined both based on its state of incorporation and the
situs of its principal place of business or nerve center. 28 U.S.C. § 1332(c)(l); Johnson v.
SmithK/ine Beechman Corp., 724 F.3d 337, 347 (3d Cir. 2013). The citizenship of a limited
liability company ("LLC"), however, is not determined by the state in which it is formed, but
rather the citizenship of its members. See Johnson, 724 F .3d at 348.
When determining diversity jurisdiction, courts should disregard nominal parties and
"rest jurisdiction only upon the citizenship of real parties to the controversy." Bumberger v. Ins.
Co. ofN. Am., 952 F.2d 764, 767 (3d Cir. 1991) (quoting Navarro Sav. Ass'n v. Lee, 446 U.S.
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The parties do not seem to dispute whether the amount in controversy satisfies jurisdictional
requirements. Defendants detailed why it exceeds $75,000 for the amount owed on the notes,
future commissions claimed by Plaintiff under the PMA, punitive damages, and attorneys fees
and costs (as provided for by both the note and PMA). (Notice of Removal,, 11-19.) Plaintiff
has raised no issue with these allegations on its Motion.
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458, 461 (1980)). "Nominal parties are generally those without a real interest in the litigation,"
id., or where ''there is no reasonable basis for predicting that [they] will be held liable," Am.
Asset Fin., LLC v. Corea Firm, 821 F. Supp. 2d 698, 700 (D.N.J. 2011) (internal quotations and
citations omitted). Courts may, but are not bound, to employ the Federal Rule of Civil Procedure
19 analysis for whether a party is necessary and indispensable. See Vollers Excavating &
Constr. Co., Inc. v. AIG Baker Mt. Olive, LLC, 2004 WL 7331448, at *3 (D.N.J. Dec. 22, 2004);
Hippo Fleming & Pertile Law Offices v. Westport Ins. Corp., 2016 WL 1715195, at *2 (W.D. Pa.
Apr. 28, 2016).
Plaintiff raises Delaware law on corporate dissolution, pursuant to which "[a]11
corporations, whether they expire by their own limitation or are otherwise dissolved, shall
nevertheless be continued, for the term of 3 years from such expiration or dissolution ... for the
purpose of prosecuting and defending suits ... against them .... " 8 Del. Ann. Code§ 278. The
Third Circuit has concluded that ''when such a state statute renders a dissolved corporation
'sufficiently alive to sue,' the corporation also retains its citizenship for purposes of diversity
jurisdiction." Johnson, 724 F.3d at 358-59 (quoting Stentor Elec. Mfg. Co. v. Klaxon Co., 115
F.2d 268, 271 (3d Cir. 1940), rev'd on other grounds, 313 U.S. 487 (1941)). Therefore, a
defendant's corporate dissolution does not "standing alone, destroy its [state] citizenship or the
import of that citizenship." Id. at 359; see also McCarthy v. Hamilton Farm Golf Club, LLC,
2011WL1775728, at *3 (D.N.J. May 9, 2011) (finding state statute rendered dissolved
corporation amendable to suit and its citizenship relevant for diversity); Jocz v. Eichleay Eng 'rs,
Inc., 2008 WL 5157503, at *4 (E.D. Pa. Dec. 9, 2008) ("[U]nder the Third Circuit's objective
test, the Eichleay Defendants' dissolution does not render Plaintiffs claims invalid for
jurisdictional purposes.").
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It is true that under Delaware law a corporation ceases to exist and is terminated upon a
merger. See 8 Del. Code Ann. § 259(a); Export-Import Bank ofKorea v. ASI Corp., 2017 WL
3579433, at *2 (C.D. Cal. June 13, 2017) (quoting Beals v. Washington Int'/, Inc., 386 A.2d
1156, 1161 (Del. Ch. 1978)). Yet merged and surviving entities may still be treated differently
than dissolved corporations. See Bank ofAm., N.A. v. Prosser, 2015 WL 1593747, at *3 (D.V.I.
Apr. 6, 2015) ("[W]ith respect to merged companies, it is the surviving entity's citizenship which
is determinative for diversity." (internal citations omitted)); Sentry Mktg., Inc. v. Unisource
Worldwide, Inc., 42 F. Supp. 2d 188, 191(N.D.N.Y.1999) (looking to state statute to determine
whether a merged or surviving corporation's citizenship is determinative for diversity purposes;
finding under NY and CA law only surviving entity matters).
The Court agrees with Defendants' analysis: like in Johnson, "all of [Heartland, Inc.'s]
'debts, liabilities and duties' now lie with [Heartland, LLC]." 724 F.3d at 359 (quoting 6 Del.
Code Ann.§ 18-214)). (See Defs.' Opp'n at 6-7; Lumpkin Deel. if 6, Ex. C, ECF No. 21-1 ("As
a result ofHPS, Inc. merging into HPS in April 2016, HPS, Inc. transferred all of its 'debts,
liabilities, obligations and duties' to HPS." (quoting SEC merger filings)); id.
if 8 ("HPS, Inc.
transferred to HPS all of HPS, Inc.' s rights, duties, liabilities, and obligations to Encore,
including, but not limited to, its rights, duties, and obligations under the Amended Note and
Program Management Agreement with Encore.")) 3 ; SEC Schedule 14A if 2.4, Ex. A, ECF No.
21-1.) Upon merger, Heartland, LLC was in all respects Heartland, Inc.'s successor in interest
and continued relations with Plaintiff (Lumpkin Deel. if 9; Compl. ifif 27, 86), and therefore, it
cannot be said that Heartland, Inc. retains its own real interest in the litigation.
3
Christin Camp Lumpkin is Senior Vice President of Global Payments Inc., Heartland, LLC's
parent company. (Id. if 2.)
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The Court is persuaded that although Heartland, Inc. dissolved under Delaware law and is
thus still amendable to suit, this total merger renders Heartland, Inc. a nominal party. This
conclusion comports with this Court's previous decision in Bank ofAmerica, N.A. v. Prosser and
the general conclusion that "[t]he cases seem to be in agreement that the citizenship of the
surviving entity is controlling; the citizenship of the predecessor company becomes irrelevant."
Charles A. Wright, et al., 13F Fed. Prac. & Proc. Juris.§ 3623 (3d ed.); id. n.52 (collecting
cases). 4 In sum, Heartland, Inc.' s citizenship in Delaware will not be considered for purposes of
diversity jurisdiction. All remaining parties are diverse: Global is a citizen of Georgia and
Global Direct is a citizen of Georgia and New York (Notice of Removal~~ 6-7), and Heartland,
LLC, whose sole member is Global, is also a citizen of Georgia (id.
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8). (See also Compl. ~~ 2-
3, 6.) Therefore, this Court retains subject matter jurisdiction over the action.
CONCLUSION
For the foregoing reasons, Plaintiffs Motion is denied. An appropriate Order-·
follow.
Date:~ r; ~( r/
While there are some cases that have reach~d a contrary conclusion, they all rely on
distinguishable facts. See, e.g., Humana Ins. ofP.R., Inc. v. Gastronomical Workers Union
Local 610 & Metro. Hotel Ass 'n, 2010 WL 11545621, at *2 (D.P.R. Feb. 26, 2010) (finding
merger alone did not render party nominal where surviving company was not a defendant and
merged party had relationship with plaintiff); Bellone v. Roxbury Homes, Inc., 748 F. Supp. 434,
(W.D. Va. 1990) (finding merged party not nominal where it was "principal alleged wrongdoer,"
"critical party," and the merger involved fraudulent transfers).
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