United Torah Education & Scholarship Fund, Inc v. Solomon Capital LLC et al
OPINION AND ORDER re: 22 MOTION to Dismiss for Lack of Jurisdiction filed by Solomon Sharbat. IT IS HEREBY ORDERED THAT Defendants' motion to dismiss is GRANTED. The Clerk of the Court is respectfully directed to terminate the motion pending at Doc. No. 22 and to close this case. (Signed by Judge Richard J. Sullivan on 8/13/2014) (cd)
UNITED STA TES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
UNITED TORAH EDUCATION &
SCHOLARSHIP FUND, INC.,
No. 13-cv-3619 (RJS)
OPINION AND ORDER
SOLOMON CAPITAL LLC, et al.,
RICHARD J. SULLIVAN, District Judge:
Plaintiff United Torah Education and Scholarship Fund, Inc. ("United Torah") brings this
diversity action asserting various state Jaw claims against Defendants Solomon Sharbat ("Sharbat"),
Solomon Capital LLC, Solomon Capital 401 (k) Trust, Solomon Capital Living Trust, Solomon Capital
Advisors Inc., Solomon Partners Inc., Advantage Premium Funding LLC (collectively, the "Entity
Defendants"), and potential alter egos of Sharbat and the Entity Defendants. Now before the Court is
Defendants' motion to dismiss the Second Amended Complaint for Jack of subject matter jurisdiction
pursuant to Federal Rule of Civil Procedure 12(b)(l). (Doc. No. 22.) For the reasons set forth below,
the motion is granted.
United Torah filed its Complaint on May 29, 2013, its First Amended Complaint on July 22,
2013, and its Second Amended Complaint on October 23, 2013. (Doc. Nos. 1, 4, 21.) On November
21, 2013, Defendants filed the instant motion to dismiss, arguing that the presence of Sharbat,
U.S.-Israeli citizen domiciled in Israel, defeats complete diversity. (Doc. Nos. 22-26.) United Torah
opposed, contending that Sharbat merely resides in Israel, but is not domiciled there. (Doc. Nos. 2833.) Defendants replied on December 10, 2013. (Doc. Nos. 34-35.)
On December 23, 2013, Defendants (I) advised the Court that in an action filed by United
Torah against Defendants in the United States District Court for the Central District of California, the
Honorable Dale S. Fischer issued an Order, dated December 18, 2013, finding that Sharbat is
domiciled in Israel and granting Defendants' motion to dismiss, and (2) argued that the doctrine of
issue preclusion, or collateral estoppel, requires the Court to grant Defendants' motion in this case.
(Doc. No. 36; id. Ex. B ("December 18 Order").) United Torah filed a letter on December 30, 2013,
arguing that because it did not respond to Defendants' motion in the Central District of California case,
the December 18 Order is not entitled to preclusive effect. (Doc. No. 3 7 .) Defendants replied on
January 3, 2014. (Doc. No. 39.) On February 19, 2014, Defendants advised the Court that Judge
Fischer issued an Order on February 18, 2014 denying United Torah's motion to vacate the December
18 Order and the judgment of dismissal. (Doc. No. 40; id. Ex. A ("February 18 Order").)
II. LEGAL STANDARD
On a motion to dismiss pursuant to Rule 12(b)(l), "[t]he plaintiff bears the burden of proving
subject matter jurisdiction by a preponderance of evidence." Aurecchione v. Schoolman Transp. Sys.,
Inc., 426 F.3d 635, 638 (2d Cir. 2005). "A case is properly dismissed for lack of subject matter
jurisdiction under Rule 12(b)( l) when the district court lacks the statutory or constitutional power to
adjudicate it." Makarova v. United States, 201 F .3d 110, 113 (2d Cir. 2000). In deciding a motion to
dismiss pursuant to Rule l 2(b)(I), the Court "must take all facts alleged in the complaint as true and
draw all reasonable inferences in favor of plaintiff." Morrison v. Nat'! Aust!. Bank Ltd., 547 F.3d 167,
170 (2d Cir. 2008) (citation and internal quotation marks omitted). "Nevertheless, even on a motion to
dismiss, courts are not bound to accept as true a legal conclusion couched as a factual allegation."
Conyers v. Rossides, 558 F.3d 137, 143 (2d Cir. 2009) (citation and internal quotation marks omitted).
The Court may resolve "disputed jurisdictional fact issues by referring to evidence outside of the
pleadings, such as affidavits, and if necessary, hold an evidentiary hearing." Zappia Middle East
Constr. Co. v. Emirate of Abu Dhabi, 215 F.3d 247, 253 (2d Cir. 2000); see also Kamen v. Am. Tel. &
Tel. Co., 791F.2d1006, 1011 (2dCir.1986).
Because the Second Amended Complaint raises no federal questions, the Court has subject
matter jurisdiction only if the requirements for diversity jurisdiction under 28 U.S.C. § 1332 are met.
It is well established that a court may exercise diversity jurisdiction only ifthere is complete diversity
between the adverse parties in the litigation. E.R. Squibb & Sons, Inc. v. Accident & Cas. Ins. Co., 160
F.3d 925, 930 (2d Cir. 1998).
Diversity jurisdiction under 28 U.S.C. § 1332 does not extend to
"United States citizens who are domiciled abroad." Cresswell v. Sullivan & Cromwell, 922 F.2d 60,
68 (2d Cir. 1990). A person is domiciled in the "the place where [he] has his true fixed home and
principal establishment, and to which, whenever he is absent, he has the intention of returning,"
Palazzo ex rel. Delmage v. Corio, 232 F.3d 38, 42 (2d Cir. 2000) (citation and internal quotation marks
Defendants argue that the Court lacks diversity jurisdiction because Sharbat is a United States
citizen domiciled in Israel and his presence in the case defeats complete diversity. United Torah does
not dispute that Sharbat is a United States citizen who has resided in Israel since 2010. 1 (Doc. No. 28
at 6-7.) It argues, however, that Sharbat is not domiciled in Israel because he intends to return to New
York. (Id.) Defendants dispute the contention that Sharbat intends to return to New York. (Doc. No.
25 at 4.)
The fact that Sharbat may be a U.S.-Israeli dual citizen is immaterial, since only the U.S. citizenship
of a dual citizen determines the application of diversity jurisdiction. Action S.A. v. Marc Rich & Co.,
Inc., 951 F .2d 504, 507 (2d Cir. 1991 ).
The Court need not independently decide the issue of Sharbat's domicile because the issue has
already been decided by Judge Fischer in the Central District of California case. In his December 18
Order, Judge Fischer found that "Solomon Sharbat, who formerly resided in New York, moved to Tel
Aviv, Israel on or about January 2010 and is now domiciled in Israel" (emphasis added), and
concluded that "[r]egardless of whether Sharbat is a dual citizen or solely a citizen of the United States,
his presence defeats complete diversity." (December 18 Order.) Defendants correctly argue that under
the doctrine of issue preclusion, the issue of Sharbat's domicile cannot be relitigated here.
Although "federal common law governs the claim-preclusive effect of a dismissal by a federal
court sitting in diversity, ... the federally prescribed rule of decision [incorporates] the law that would
be applied by state courts in the State in which the federal diversity court sits." Semtek Int 'l Inc. v.
Lockheed Martin Corp., 531 U.S. 497, 508-09 (2001); see also Taylor v. Sturgell, 553 U.S. 880, 891
n.4 (2008) ("For judgments in diversity cases, federal law incorporates the rules of preclusion applied
by the State in which the rendering court sits."). Thus, the Court looks to California law to determine
the preclusive effect of Judge Fischer's December 18 Order. Under California law, issue preclusion
applies if the following elements are satisfied:
First, the issue sought to be precluded from relitigation must be identical to that decided
in a former proceeding. Second, this issue must have been actually litigated in the
former proceeding. Third, it must have been necessarily decided in the former
proceeding. Fourth, the decision in the former proceeding must be final and on the
merits. Finally, the party against whom preclusion is sought must be the same as, or in
privity with, the party to the former proceeding.
In re Harmon, 250 F.3d 1240, 1245 (9th Cir. 2001) (quoting Lucido v. Superior Court, 795 P.2d 1223,
1225 (Cal. 1990)). The burden of proving these elements rests with the party seeking to apply issue
Here, the first, third, fourth, and fifth elements are plainly satisfied. In the Central District of
California case, which involved the same parties, Judge Fischer granted Defendants' motion to dismiss
pursuant to Rule l 2(b )(1) based on a finding that Sharbat is domiciled in Israel. In the February 18
Order, Judge Fischer denied United Torah's motion to vacate the December 18 Order. (February 18
Order.) United Torah has presented no evidence calling into question the finality of the December 18
United Torah nevertheless argues that the second element of issue preclusion - that the issue to
be precluded was "actually litigated" - is not met, since United Torah never filed an opposition brief to
Defendants' motion in the Central District of California case. In support of this argument, United
Torah cites a number of cases for the proposition that default judgments cannot form the basis for issue
preclusion. (Doc. No. 37.)
This argument is unpersuasive for a number of reasons.
First, Judge Fischer granted
Defendants' motion to dismiss based not on United Torah's failure to oppose, but on a merits
determination of Sharbat's domicile. (February 18 Order ("The Court did not grant the motion to
dismiss based on the lack of opposition, but on the merits of the diversity jurisdiction issue.").) Thus,
the December 18 Order was not issued on default, making the case law on the preclusive effect of
default judgments inapplicable.
Second, United Torah's argument presumes that the "actually litigated" element of issue
preclusion is defeated simply because a party opposing a dispositive motion fails to file a brief. United
Torah cites no authority for this proposition and, indeed, the Supreme Court of California has
suggested quite the opposite. See Lucido, 795 P.2d at 1223-24 ("[T]he important question, at least for
threshold purposes, is whether the People had the opportunity to present their entire case at the
revocation hearing, not whether they availed themselves of the opportunity." (emphasis added)); see
also People v. Sims, 651 P .2d 321, 329 (Cal. 1982) ("The failure of a litigant to introduce relevant
available evidence on an issue does not necessarily defeat a plea of collateral estoppel."). Here, United
Torah does not contend that it Jacked an opportunity to file an opposition brief; indeed, United Torah
apparently conceded in its submissions to Judge Fischer that it was aware of the briefing schedule and
that its failure to file an opposition brief was due to its own "calendaring error." (February 18 Order.)
Third, United Torah's view of issue preclusion would lead to rank gamesmanship. If factual
and legal findings made by a court in the grant of a Rule l 2(b )(1) motion Jacked preclusive effect
anytime the plaintiff failed to file an opposition brief, a plaintiff could forum shop by filing an
opposition brief only when it sensed that a particular court would be receptive to its jurisdictional
arguments. Under such a rule, defendants would be forced to undertake the time and expense of
repeatedly filing identical Rule 12(b)(l) motions without ever reaping the benefits of a court's grant of
its motions, even ifthat grant was based on the merits of the jurisdictional dispute. 2 This is untenable.
For these reasons, the Court finds that the issue of Sharbat's domicile was "actually litigated"
in the Central District of California case and actually decided by Judge Fischer's December 18 Order.
Accordingly, the Court accords preclusive effect to Judge Fischer's finding that Sharbat is domiciled in
Israel and finds that no diversity jurisdiction exists between United Torah and Sharbat, a U.S. citizen
Since the lack of diversity as to Sharbat defeats complete diversity, the other
Defendants must also be dismissed. 3
The doctrine of claim preclusion, or res judicata, would offer defendants no protection from such
tactics since a dismissal pursuant to Rule 12(b)(l) cannot form the basis for claim preclusion. Nowak
v. lronworkers Local 6 Pension Fund, 81 F .3d 1182, 1188 (2d Cir. 1996).
United Torah concedes that if the Court Jacks diversity jurisdiction as to Sharbat, the entire case must
be dismissed for Jack of jurisdiction. (Doc. No. 28 at 7 n.2.)
IT IS HEREBY ORDERED THAT Defendants' motion to dismiss is GRANTED. The Clerk
of the Court is respectfully directed to terminate the motion pending at Doc. No. 22 and to close this
August 13, 2014
New York, New York
UNITED STATES DISTRICT JUDGE
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