1031 Equity Exchange, LLC et al vs Superior Homes, LLC et al

Filing 23

ORDER by Judge Benjamin H. Settle vacating previous order 21 Order on Motion to Dismiss; and dismissing complaint for lack of jurisdiction. (TG)

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT TACOMA

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1031 EQUITY EXCHANGE, LLC, et
al.,
Plaintiffs,
v.

CASE NO. C17-5213 BHS
ORDER VACATING PREVIOUS
ORDER AND DISMISSING
COMPLAINT FOR LACK OF
JURISDICTION

SUPERIOR HOMES, LLC, et al.,

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Defendants.

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This matter comes before the Court on Defendants Superior Homes, LLC

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(“Superior”) and Estela Mata’s (“Defendants”) motion to dismiss (Dkt. 12) and the

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Court’s order to show cause (Dkt. 19). The Court has considered the pleadings filed in

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support of and in opposition to the motion, the parties’ responses to the order to show

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cause, and the remainder of the file and hereby dismisses the complaint for lack of

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jurisdiction.

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I.

PROCEDURAL HISTORY

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On March 22, 2017, Plaintiffs 1031 Equity Exchange, LLC (“1031EE”) and Kauai

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Ocean View Professional Building, LLC (“Kauai Ocean”) (collectively “Plaintiffs”) filed

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a complaint against Defendants asserting diversity jurisdiction and numerous causes of

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action based on violations of state law. Dkt. 1.

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ORDER - 1

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On May 1, 2017, Defendants filed a motion to dismiss arguing that the Court

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should (1) abstain because of a prior action in Hawaii, (2) dismiss because neither

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plaintiff is a real party in interest, or (3) dismiss because joinder of the real party in

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interest would defeat jurisdiction. Dkt. 12. On May 22, 2017, Plaintiffs responded. Dkt.

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15. On May 23, 2017, Defendants replied and argued for the first time that there is not

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complete diversity. Dkt. 18.

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On June 13, 2017, the Court issued an order to show cause regarding an apparent

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lack of diversity between the parties. Dkt. 19. On June 16, 2016, Defendants responded

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and agreed with the Court. Dkt. 20. On the morning of June 19, 2019, the Court issued

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an order dismissing the complaint for lack of jurisdiction. Dkt. 21. Later that day,

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Plaintiffs responded and pointed out that the Court had set June 19, 2017 as the deadline

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for responding to the order to show cause. Dkt. 22.

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II.
A.

DISCUSSION

Previous Order
“The court may correct a clerical mistake or a mistake arising from oversight or

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omission whenever one is found in a judgment, order, or other part of the record. The

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court may do so on motion or on its own, with or without notice.” Fed. R. Civ. P. 60(a).

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In this case, the Court issued its previous order before Plaintiffs had a fair

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opportunity to respond. The Court generally sets Fridays as the deadline for show cause

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responses, but set the instant deadline for a Monday. Therefore, the Court sua sponte

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vacates the previous order due to this oversight.

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ORDER - 2

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B.

Jurisdiction
“If the court determines at any time that it lacks subject-matter jurisdiction, the

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court must dismiss the action.” Fed. R. Civ. P. 12(h)(3) (emphasis added). See also Snell

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v. Cleveland, Inc., 316 F.3d 822, 826 (9th Cir. 2002) (“Federal Rule of Civil Procedure

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12(h)(3) provides that a court may raise the question of subject matter jurisdiction, sua

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sponte, at any time during the pendency of the action . . . .”). Although Defendants

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improperly raised the issue of diversity jurisdiction for the first time in the reply, the

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Court must confirm it has jurisdiction before reaching the merits of the dispute. See

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Morongo Band of Mission Indians v. Cal. State Bd. of Equalization, 858 F.2d 1376, 1380

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(9th Cir. 1988). As the parties invoking federal jurisdiction, Plaintiffs bear the burden of

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establishing its existence. Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377 (1994).

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District courts have diversity jurisdiction when the parties are citizens of different

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states and the amount in controversy exceeds $75,000, exclusive of interest and costs. 28

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U.S.C. § 1332(a)(1). “Diversity jurisdiction requires complete diversity between the

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parties—each defendant must be a citizen of a different state from each plaintiff.” In re

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Digimarc Corp. Derivative Litig., 549 F.3d 1223, 1234 (9th Cir. 2008). “In cases where

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entities rather than individuals are litigants, diversity jurisdiction depends on the form of

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the entity.” Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir.

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2006). “[A]n LLC is a citizen of every state of which its owners/members are citizens.”

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Id. Thus, if an individual defendant is an owner or member of a plaintiff LLC, “then

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diversity requirement of section 1332 cannot be satisfied.” Skaaning v. Sorensen, CV 09-

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00364 DAE-KSC, 2009 WL 3763056, at *3 (D. Haw. Nov. 10, 2009)

ORDER - 3

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In this case, Plaintiffs have failed to show complete diversity between the parties.

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Defendants assert that a member of 1031EE, Frank Sarabia, is a citizen of California,

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which would result in 1031EE being a citizen of California. Johnson, 437 F.3d at 899.

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Plaintiffs fail to address this assertion in their response. They do, however, submit

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evidence showing that Mr. Sarabia signed documents as the “Managing Member” of

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1031EE, Dkt. 22 at 31, and refers to 1031EE as his “company,” id. at 98. In light of

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these documents and the uncontested assertion from Defendants, the Court concludes that

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the record reflects that 1031EE is a citizen of California because Mr. Sarabia is an owner

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and/or a member of 1031EE. Thus, a plaintiff and a defendant are both citizens of the

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state of California, and the parties lack complete diversity of citizenship.
Furthermore, Plaintiffs submit documents showing another issue with diversity

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between the parties. Mr. Sarabia declares that he and Ms. Mata were the initial members

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of Kauai Ocean. Id. at 4–5. However, as of September 10, 2016, the managing members

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are 1031EE and Superior. Id.; see also id. at 29 (list of members’ names attached to

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Kauai Ocean’s current Operating Agreement), 30 (attachment recognizing Superior’s

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admission as a new member of Kauai Ocean). If the Court is interpreting the operating

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agreement correctly, then Kauai Ocean, a named plaintiff, is suing one of its members

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Superior, a named defendant. Such a scenario destroys diversity and the Court lacks

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jurisdiction.

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ORDER - 4

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III.

ORDER

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Therefore, it is hereby ORDERED that the Court’s previous order (Dkt. 21) is

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VACATED and Plaintiffs’ complaint is DISMISSED without prejudice for lack of

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jurisdiction.

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Dated this 20th day of June, 2017.

A

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BENJAMIN H. SETTLE
United States District Judge

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ORDER - 5