Carhart-Halaska International LLC et al v. Carhart Inc et al

Filing 33

DECISION AND ORDER remanding case to state court for further proceedings signed by Judge Lynn Adelman on 2/5/13. (cc: all counsel)(dm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
CARHART-HALASKA INTERNATIONAL, LLC,
and HALASKA INTERNATIONAL, INC.,
Plaintiffs,
v.

Case No. 12-CV-01124

CARHART, INC., and CHRIS CARHART,
Defendants,
v.
CHRISTOPHER HALASKA,
Third Party Defendant.

DECISION AND ORDER
This case involves a contractual dispute between the two members of a Wisconsin
LLC, plaintiff Halaska International, Inc. (“Halaska”) and defendant Carhart, Inc. Halaska
brought the action in state court and joined the LLC, Carhart-Halaska International, LLC
(“CH”), as a plaintiff and Chris Carhart, the owner of Carhart, Inc. and a manager of the
LLC, as a defendant. Defendants removed the case based on diversity of citizenship. See
28 U.S.C. § 1332. It would appear, however, that the parties are not diverse because the
citizenship of an LLC is the citizenship of its members. This puts an Illinois citizen on both
sides of the case.1
Defendants respond that CH is an improper plaintiff and that, therefore, I should
disregard its citizenship. Defendants rely on the fraudulent joinder doctrine, which allows

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Plaintiff Halaska is a Wisconsin citizen, defendant Carhart, Inc. is an Illinois citizen,
and defendant Carhart is a Florida citizen.

a court to disregard the citizenship of a party joined simply to defeat diversity jurisdiction.
Schur v. L.A. Weight Loss Centers, Inc., 577 F.3d 752, 763 (7th Cir. 2009). The Seventh
Circuit, however, has never endorsed using the fraudulent joinder doctrine to disregard the
citizenship of a plaintiff, as opposed to a defendant. Moreover, it has cautioned district
courts to “interpret the removal statute narrowly and presume that the plaintiff may choose
his or her forum.” Doe v. Allied-Signal, Inc., 985 F.2d 908, 911 (7th Cir. 1993). In any case,
even if I am authorized to disregard the citizenship of a plaintiff, I decline to do so here
because the burden of establishing fraudulent joinder is very heavy, and defendants fail
to satisfy it.
To prevail on their claim of fraudulent joinder, defendants must show that Halaska
actually committed fraud in naming CH as a party or, taking all inferences of fact and law
in CH’s favor, that there is no reasonable possibility that CH can prevail on any of its
claims. Schur, 577 F.3d at 764. The Seventh Circuit has suggested that the burden of
proving fraudulent joinder is even heavier than “the standard that applies to a motion to
dismiss under Federal Rule of Civil Procedure 12(b)(6).” Id. Defendants argue that there
is no reasonable possibility that CH can prevail because Halaska was not authorized to join
CH as a plaintiff.
Wis. Stat. § 183.1101 governs LLC lawsuits. It provides:
Unless otherwise provided in an operating agreement, an action on behalf of a
limited liability company may be brought in the name of the limited liability company
by one or more members . . . if the members are authorized to sue by the
affirmative vote as described in s. 183.0404(1)(a), except that the vote of any
member who has an interest in the outcome of the action that is adverse to the
interest of the limited liability company shall be excluded.

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Wis. Stat. § 183.1101(1). An “affirmative vote” under § 183.0404 is a vote “by members
whose interests in the limited liability company represent contributions to the limited liability
company of more than 50% of the value of the total contributions made to the [company],”
not counting the contribution made by any member who “is precluded from voting with
respect to a given matter.” Wis. Stat. § 183.0404(1)(a), (3). To override this rule, an LLC’s
operating agreement “must explicitly address voting to authorize an action on behalf of an
LLC.” Lenticular Europe, LLC, ex rel. Van Leeuwen v. Cunnally, 279 Wis. 2d 385, 398–99
(Ct. App. 2005). While § 5.4(b)(vii) of the operating agreement between Halaska and
Carhart, Inc. prohibits a manager of the LLC from bringing a suit on the LLC’s behalf
unless a certain procedure is followed, it does not address member-initiated suits or voting
to authorize such suits. Thus, it does not override § 183.1101(1).
As to whether Halaska satisfied the requirements specified in § 183.1101(1),
Defendants concede that Halaska did not need Carhart, Inc’s consent to name CH as a
plaintiff because its interest is adverse to that of CH. However, it contends that Halaska’s
interest is also adverse to CH’s because Halaska’s seeks to compel CH to provide Halaska
with funds to pay certain tax obligations. But Halaska’s complaint makes clear that the
funds Halaska seeks are funds that it alleges defendants misappropriated from CH.
Therefore, I cannot say that Halaska’s interest is adverse to that of CH. Thus, Halaska
was authorized to join CH as a plaintiff. Halaska was responsible for more than 50% of the
value of the total contributions made to CH, not counting the contributions made by
Carhart, Inc., which was precluded from voting.

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Defendants’ final contention is that Halaska failed to follow the appropriate
procedure with respect to initiating the suit because it did not seek a vote at a meeting of
the members of the LLC and did not memorialize its consent in writing until after it filed the
complaint. However, § 183.1101 does not require a formal vote or written consent. It simply
requires the complaint to “describe with particularity the authorization of the member to
bring this action.” Wis. Stat. § 183.1101(3). Halaska satisfied this requirement by alleging
that “[a]s a 50% Member of CH, Halaska International is authorized to bring this action on
behalf of CH pursuant to the terms of the CH Operating Agreement and Wis. Stat.
§ 183.1101.” (Compl. ¶ 11.)
For the foregoing reasons, there is a reasonable possibility that CH can prevail on
its claims against defendants. Thus, in determining whether I have diversity jurisdiction, I
cannot disregard CH’s citizenship. With CH in the case, the parties are not diverse.
Therefore, I must remand the case for lack of subject matter jurisdiction. See 28 U.S.C.
§ 1447(c) (“If at any time before final judgment it appears that the district court lacks
subject matter jurisdiction, the case shall be remanded.”).
I will, however, deny plaintiffs’ request for attorney’s fees under § 1447(c). I can
award the party seeking remand the costs and attorney’s fees incurred as a result of the
removal only if I find that defendants’ basis for removal was objectively unreasonable. See
Martin v. Franklin Capital Corp., 546 U.S. 132, 140–41 (2005). A basis for removal is
objectively unreasonable “if, at the time the defendant filed his notice in federal court,
clearly established laws demonstrated that he had no basis for removal.” Wolf v. Kennelly,
574 F.3d 406, 411–12 (7th Cir. 2009) (quoting Lott v. Pfizer, Inc., 492 F.3d 789, 793 (7th

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Cir. 2007)). Here, defendants’ basis for removal was not objectively unreasonable. Even
if it was, I would deny plaintiffs’ request for costs because plaintiffs contributed to the delay
in remanding this case. Plaintiffs failed to move to remand leaving it to me to raise the
issue of jurisdiction. See Martin, 546 U.S. at 141 (“[A] plaintiff’s delay in seeking remand
or failure to disclose facts necessary to determine jurisdiction may affect the decision to
award attorney’s fees.”).
THEREFORE, IT IS ORDERED that the case is REMANDED to the state court for
further proceedings.
Dated at Milwaukee, Wisconsin, this 5th day of February 2013.

s/ Lynn Adelman
_______________________
LYNN ADELMAN
District Judge

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