Atanasio v. O'Neill

Filing 20

ORDER OF REMAND re 11 Motion to Remand to State Court, and 18 Motion for Attorney Fees. Plaintiff's motion to remand this case to state court is granted. His motion for attorney's fees, however, is denied. The Clerk of Court is directed to remand the case to Supreme Court, Kings County, and to close this docket for administrative purposes. So Ordered by Judge Eric N. Vitaliano on 1/15/2017. (certified copy of Order of Remand mailed to NYS Court, Kings County Index No. 502769/2016) (Lee, Tiffeny)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
X

PAUL ATANASIO,individually and derivatively on
behalf of SOMERSET PRODUCTION COMPANY,
LLC,
ORDER OF REMAND

Plaintiff,

16-CV-2269(ENV)(RLM)
-against-

Kings County Supreme Court,
Index No. 502769/2016

THOMAS O'NEILL,
Defendant.

VITALIANO,D.J.

Plaintiff Paul Atanasio brought this action, both individually and derivatively on behalf
of Somerset Production Company,LLC("Somerset") against Thomas O'Neill, a constituent
member of Somerset. The case was originally filed in New York Supreme Court, Kings County.

The shortjourney from state court to blocks away comes by way ofthe lawsuit's removal to
federal court under 28 U.S.C. §§ 1332 and 1441, with subject matter jurisdiction based on

alleged diversity of citizenship. Plaintiff now moves to remand it. For the reasons that follow,
his motion is granted,though plaintiffs demand for attorney's fees is denied.
Background

The April 2016 complaint that Atanasio filed in Kings County Supreme Court alleged,
among other things, that O'Neill had breached fiduciary duties owed to Somerset by

withdrawing $4.7 million from Somerset'saccounts in order to fund his extravagant personal

lifestyle. (Compl. 22-28,ECF No. 1-1). The complaint raised claims(1)seeking rescission,
(2)for breach offiduciary duty,(3)charging abuse of control,(4)for conversion,(5)of unjust

enrichment and (6)for an accounting. (Compl.

41-77). Dispositively with respect to this

motion, the complaint also alleged that both Atanasio and O'Neill were members of Somerset.
(Compl.

5-6).

In May 2016, defendant filed a notice of removal, which alleged that removal was proper
based on the parties' diversity of citizenship. (Notice of Removal H 8,EOF No. 1 (citing 28

U.S.C. §§ 1332 and 1441)). Specifically, O'Neill alleged that Atanasio was a citizen ofNew
York, while he was a citizen of Florida. (Notice of Removal H 9).

In July 2016, Atanasio filed a motion to remand, which O'Neill formally opposed. (PL's
Mot. Remand,EOF No. 11; Def.'s Mem.,EOF No. 12). On December 6, 2016,the Court

ordered additional briefing to address a discrete jurisdictional point that had gone unaddressed,

(12/6/16 Order), and the parties filed simultaneous responses on December 20,2016,(PL's
Second Mem.,ECF No. 17; Def.'s Second Mem.,ECF No. 16).
Standard of Review

Federal courts are courts oflimited subject matter jurisdiction. Citibank, N.A. v.

SwiatkosJd, 395 F. Supp. 2d 5,8(E.D.N.Y. 2005). The statutory provision invoked here as
authorization for removal of a case filed in state court to federal court does not expand those

limitations. See 28 U.S.C. § 1441(a)(permitting "any civil action brought in a State court of
which the district courts ofthe United States have original jurisdiction" to be removed to federal

court); see also Martin v. Franklin Capital Corp.,546 U.S. 132,134, 126 S. Ct. 704, 707, 163 L.
Ed. 2d 547(2005)("A civil case commenced in state court may, as a general matter, be removed
by the defendant to federal district court, if the case could have been brought there originally."
(citing 28 U.S.C. § 1441)). "A federal court's entertaining a case that is not within its subject
matter jurisdiction is no mere technical violation; it is nothing less than an unconstitutional

usurpation of state judicial power," Martin v. Wal-Mart Stores, Inc., 709 F. Supp. 2d 345, 346
(D.N.J. 2010)(quoting Charles Alan Wright et al., 13 Federal Practice & Procedure § 3522(3d
ed. 2008)). Accordingly, if a federal court lacks subject matter jurisdiction over the removed
action, the case must be remanded from whence it came. See 28 U.S.C. § 1447(c). Removal

statutes are, moreover,to be strictly construed, and any doubts are to be resolved in favor of
remand. See Beatie & Osborn LLP v. Patriot Sci. Corp., 431 F. Supp. 2d 367, 382-83(S.D.N.Y.

2006); Codapro Corp. v. Wilson,997 F. Supp. 322, 324-25 (E.D.N.Y. 1998). The party seeking
removal "bears the burden of demonstrating the propriety of removal." Cal. Pub. Emps. Ret.

Sys. V. WorldCom, Inc., 368 F.3d 86, 100(2d Cir. 2004)(quoting Grimo v. Blue Cross/Blue
Shield of Vt., 34 F.3d 148, 151 (2d Cir. 1994)).
Discussion

O'Neill asserts that removal was proper under § 1441 because, had Atanasio filed his
case in federal court, federal subject matter jurisdiction over the action would have been present

on the basis of diversity of citizenship,(Notice of Removal H 8(citing 28 U.S.C. §§ 1332 and

1441))_jurisdiction which exists when the plaintiffs and defendants are citizens of different
states and the amount in controversy exceeds $75,000,^ 28 U.S.C. § 1332(a). But, a case

qualifies for diversity jurisdiction under § 1332(a) only when there is complete diversity between
the adverse parties, i.e., only when no plaintiff is a citizen ofthe same state as any defendant.
Lincoln Prop. Co. v. Roche,546 U.S. 81, 89,126 S. Ct. 606,613,163 L. Ed. 2d 415 (2005).
The initial briefs sparring over diversity jurisdiction filed by each side focused on

Atanasio's citizenship. (PL's Mem.,ECF No. 11-20; Def.'s Mem.). Specifically, because it is

^ There is no dispute that the amount-in-controversy requirement of diversity jurisdiction is met
in the present case.

undisputed that O'Neill is a citizen of Florida, the parties framed the question of whether
Atanasio was also a citizen of Florida as the sole dispositive issue on the motion to remand.

(PL's Mem. 3-8; Def.'s Mem. 3-7). The circumscription oftheir focus, however, overlooked a
second issue. When that oversight became apparent, supplemental briefing was ordered on the

question of whether Somerset's citizenship, independent of Atanasio's, destroyed complete
diversity. (12/6/16 Order). As the supplemental briefing makes plain, the question of Atanasio's

citizenship is academic. Indeed,on the strength ofthat briefing, O'Neill consents to remand—

though begrudgingly so. (Def.'s Second Mem. 34). Yet, since Atanasio now seeks to punish
O'Neill by demanding attorney's fees, it is important to show the analytical underpinnings for
the Court's request for supplemental briefing and defendant's decision to consent to remand.
In a derivative action commenced on behalf of a limited liability company LLC ), the
(

LLC itself is a necessary party under Rule 19 ofthe Federal Rules of Civil Procedure. See Cook
V. Toidze,950 F. Supp. 2d 386,390(D. Conn. 2013)(noting that, in "a derivative suit, the

limited liability company is not a nominal party"); Bartfield v. Murphy^ 578 F. Supp. 2d 638,650

(S.D.N.Y. 2008)(concluding that a LLC was a necessary party to "derivative claims raised on its
behalf). That, of course, is precisely the case here, and, in conformity with this stricture,

Atanasio has styled Somerset as a plaintiff. {See Notice of Removal; PL's Mot. Remand). In a
derivative suit, more importantly, it is the rule that the LLC's citizenship should be taken into

account for purposes of determining the presence of diversity jurisdiction. See, e.g., Cook,950

F. Supp. 2d at 390; Bartfield, 578 F. Supp. 2d at 650. Critically, a LLC takes the citizenship of
all its members. Bayerische Landesbank, N.Y. Branch v. Aladdin Capital Mgmt. LLC,692 F.3d
42,49(2d Cir. 2012). There appears to be no reason to except derivative suits from the ambit of

this general rule, and no such exception will be created here.^
Applying the analytical framework sketched out above in order to detail the legal

landscape forming the backdrop for defendant's consent to remand, because Atanasio's

complaint alleged that both he and O'Neill are members of Somerset(Compl.

5-6), Somerset

takes the citizenships of both members. As currently styled, then, Somerset and Atanasio are

listed as plaintiffs, with O'Neill named as the sole defendant. In this arrangement ofthe parties,
complete diversity is lacking since at least one plaintiff(Somerset) and the sole defendant

(O'Neill)are citizens of Florida. This alignment does not necessarily end the analysis, however,
because, in derivative actions, a court has some flexibility to align the collective entity as a

defendant rather than a plaintiff. See DirecTV Latin Am., LLC v. Park 610, LLC,No.08 Civ.

3987(VM)(GWG),2009 WL 692202, at *5 (S.D.N.Y. Mar. 18,2009)(citing Lewis v. Odell,

503 F.2d 445,447(2d Cir. 1974)), report and recommendation adopted by 614 F. Supp. 2d 446

(S.D.N.Y. 2009). Indeed, in the right circumstances, a LLC may be realigned for jurisdictional
purposes. Id.

But the Court need not consider realignment of Somerset for purposes of evaluating

diversity jurisdiction because, even assuming that Somerset ought to be characterized as a
defendant, complete diversity would still be wanting. Simply put, all else notwithstanding, if
Somerset were to be realigned, Atanasio would then be the sole plaintiff, while Somerset and
O'Neill would be defendants. As a consequence of Somerset also taking Atanasio's citizenship

2 O'Neill correctly points out that the question ofthe citizenship of LLCs,for purposes of
diversity jurisdiction, has not been definitively settled by the Supreme Court, cf. Charles Alan
Wright et al., 13F Federal Practice & Procedure § 3630.1 (3d ed. 2009)(noting that "every
federal circuit in the nation ... ha[s] considered the citizenship of all the members [to define the

citizenship] of limited liability companies"), and he represents his good faith that he would be
entitled to press on to seek such consideration. (Def.'s Second Mem. 3-4). He has, he advises,
consented to remand only for reasons of economy. {Id.).

in addition to O'Neill's, the sole plaintiff and at least one defendant(Somerset) would then have

Atanasio's citizenship. Therefore, regardless ofthe state, complete diversity would still be

lacking. In sum,in this case—as in any other where a LLC and squabbling LLC members form
a cohort of adverse parties—^federal diversity jurisdiction over the squabble is not available

under § 1332(a). See Cook,950 F. Supp. 2d at 390 n.4 (concluding, in a derivative suit where
LLC members were adverse parties, that "regardless of where [the LLC]is aligned in this suit,

there is no diversity"); DirecTV,2009 WL 692202, at *5(same); Bar^eld,578 F. Supp. 2d at

650(dismissing derivative claims because joining the LLC as a necessary party would destroy

complete diversity where a plaintiff and a defendant were both members ofthe LLC).
Accordingly, for want of subject matter jurisdiction over this case, it must be remanded to state
court.

Had the hostilities ceased with defendant's concession on plaintiffs motion to remand,

there would have been little reason to develop the litigation history and the Court s reasoning.

But, as previewed earlier, the war between the LLC members did not end there. On January 5,
2017, Atanasio filed a motion for attorney's fees. (PL's Mot. Att'y's Fees, ECF No. 18). He
contends that he should be awarded fees under 28 U.S.C. § 1447(c) because O'Neill did not

possess an objectively reasonable basis for removal. {Id. at 2-3); see Martin, 546 U.S. at 141
("Absent unusual circumstances, courts may award attorney's fees under § 1447(c)only where
the removing party lacked an objectively reasonable basis for seeking removal."). Although the
Court need not, and consequently has declined to, rule on Atanasio's citizenship since it is
academic to the substance ofthe squabble over removal, O'Neill's arguments about Atanasio's

citizenship were initially at the crosshairs ofthe dispute about removal, and the arguments were

not objectively unreasonable as the parties litigated the issue. (Def.'s Mem.). Furthermore,the

Court will not penalize defendant for not recognizing the LLC jurisdictional catch-22. Bluntly, it

provided a ground for remand—^the ground on which the Court grants remand—^that Atanasio
himself neglected to perceive and bring to the Court's attention. Under these exceptional
circumstances, an award of attorney's fees is not appropriate.
Conclusion

For the foregoing reasons, plaintiffs motion to remand this case to state court is granted.
His motion for attorney's fees, however, is denied.

The Clerk of Court is directed to remand the case to Supreme Court, Kings County, and
to close this docket for administrative purposes.
So Ordered.

Dated: Brooklyn, New York
January 15, 2017

s/Eric N. Vitaliano
ERICN. VITALIANO

United States District Judge