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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1 2 3 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT TACOMA 4 5 6 7 8 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., 9 Defendants. 10 11 This matter comes before the Court on Defendants Superior Homes, LLC 12 (“Superior”) and Estela Mata’s (“Defendants”) motion to dismiss (Dkt. 12) and the 13 Court’s order to show cause (Dkt. 19). The Court has considered the pleadings filed in 14 support of and in opposition to the motion, the parties’ responses to the order to show 15 cause, and the remainder of the file and hereby dismisses the complaint for lack of 16 jurisdiction. 17 I. PROCEDURAL HISTORY 18 On March 22, 2017, Plaintiffs 1031 Equity Exchange, LLC (“1031EE”) and Kauai 19 Ocean View Professional Building, LLC (“Kauai Ocean”) (collectively “Plaintiffs”) filed 20 a complaint against Defendants asserting diversity jurisdiction and numerous causes of 21 action based on violations of state law. Dkt. 1. 22 ORDER - 1 1 On May 1, 2017, Defendants filed a motion to dismiss arguing that the Court 2 should (1) abstain because of a prior action in Hawaii, (2) dismiss because neither 3 plaintiff is a real party in interest, or (3) dismiss because joinder of the real party in 4 interest would defeat jurisdiction. Dkt. 12. On May 22, 2017, Plaintiffs responded. Dkt. 5 15. On May 23, 2017, Defendants replied and argued for the first time that there is not 6 complete diversity. Dkt. 18. 7 On June 13, 2017, the Court issued an order to show cause regarding an apparent 8 lack of diversity between the parties. Dkt. 19. On June 16, 2016, Defendants responded 9 and agreed with the Court. Dkt. 20. On the morning of June 19, 2019, the Court issued 10 an order dismissing the complaint for lack of jurisdiction. Dkt. 21. Later that day, 11 Plaintiffs responded and pointed out that the Court had set June 19, 2017 as the deadline 12 for responding to the order to show cause. Dkt. 22. 13 14 15 II. A. DISCUSSION Previous Order “The court may correct a clerical mistake or a mistake arising from oversight or 16 omission whenever one is found in a judgment, order, or other part of the record. The 17 court may do so on motion or on its own, with or without notice.” Fed. R. Civ. P. 60(a). 18 In this case, the Court issued its previous order before Plaintiffs had a fair 19 opportunity to respond. The Court generally sets Fridays as the deadline for show cause 20 responses, but set the instant deadline for a Monday. Therefore, the Court sua sponte 21 vacates the previous order due to this oversight. 22 ORDER - 2 1 2 B. Jurisdiction “If the court determines at any time that it lacks subject-matter jurisdiction, the 3 court must dismiss the action.” Fed. R. Civ. P. 12(h)(3) (emphasis added). See also Snell 4 v. Cleveland, Inc., 316 F.3d 822, 826 (9th Cir. 2002) (“Federal Rule of Civil Procedure 5 12(h)(3) provides that a court may raise the question of subject matter jurisdiction, sua 6 sponte, at any time during the pendency of the action . . . .”). Although Defendants 7 improperly raised the issue of diversity jurisdiction for the first time in the reply, the 8 Court must confirm it has jurisdiction before reaching the merits of the dispute. See 9 Morongo Band of Mission Indians v. Cal. State Bd. of Equalization, 858 F.2d 1376, 1380 10 (9th Cir. 1988). As the parties invoking federal jurisdiction, Plaintiffs bear the burden of 11 establishing its existence. Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377 (1994). 12 District courts have diversity jurisdiction when the parties are citizens of different 13 states and the amount in controversy exceeds $75,000, exclusive of interest and costs. 28 14 U.S.C. § 1332(a)(1). “Diversity jurisdiction requires complete diversity between the 15 parties—each defendant must be a citizen of a different state from each plaintiff.” In re 16 Digimarc Corp. Derivative Litig., 549 F.3d 1223, 1234 (9th Cir. 2008). “In cases where 17 entities rather than individuals are litigants, diversity jurisdiction depends on the form of 18 the entity.” Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 19 2006). “[A]n LLC is a citizen of every state of which its owners/members are citizens.” 20 Id. Thus, if an individual defendant is an owner or member of a plaintiff LLC, “then 21 diversity requirement of section 1332 cannot be satisfied.” Skaaning v. Sorensen, CV 09- 22 00364 DAE-KSC, 2009 WL 3763056, at *3 (D. Haw. Nov. 10, 2009) ORDER - 3 1 In this case, Plaintiffs have failed to show complete diversity between the parties. 2 Defendants assert that a member of 1031EE, Frank Sarabia, is a citizen of California, 3 which would result in 1031EE being a citizen of California. Johnson, 437 F.3d at 899. 4 Plaintiffs fail to address this assertion in their response. They do, however, submit 5 evidence showing that Mr. Sarabia signed documents as the “Managing Member” of 6 1031EE, Dkt. 22 at 31, and refers to 1031EE as his “company,” id. at 98. In light of 7 these documents and the uncontested assertion from Defendants, the Court concludes that 8 the record reflects that 1031EE is a citizen of California because Mr. Sarabia is an owner 9 and/or a member of 1031EE. Thus, a plaintiff and a defendant are both citizens of the 10 11 state of California, and the parties lack complete diversity of citizenship. Furthermore, Plaintiffs submit documents showing another issue with diversity 12 between the parties. Mr. Sarabia declares that he and Ms. Mata were the initial members 13 of Kauai Ocean. Id. at 4–5. However, as of September 10, 2016, the managing members 14 are 1031EE and Superior. Id.; see also id. at 29 (list of members’ names attached to 15 Kauai Ocean’s current Operating Agreement), 30 (attachment recognizing Superior’s 16 admission as a new member of Kauai Ocean). If the Court is interpreting the operating 17 agreement correctly, then Kauai Ocean, a named plaintiff, is suing one of its members 18 Superior, a named defendant. Such a scenario destroys diversity and the Court lacks 19 jurisdiction. 20 21 22 ORDER - 4 1 III. ORDER 2 Therefore, it is hereby ORDERED that the Court’s previous order (Dkt. 21) is 3 VACATED and Plaintiffs’ complaint is DISMISSED without prejudice for lack of 4 jurisdiction. 5 Dated this 20th day of June, 2017. A 6 7 BENJAMIN H. SETTLE United States District Judge 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 ORDER - 5

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