K3 Prop, LLC v. GQ Sand, LLC

Filing 63

ORDER regarding jurisdiction. Plaintiff may have until 7/3/2017 to submit proof of complete diversity of citizenship and to show cause as to why the court should not strike Dkt. 48 as inadmissible evidence. Signed by District Judge James D. Peterson on 06/29/2017. (cew)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN

K3 PROP, LLC,

v.

Plaintiff,

ORDER
16-cv-142-jdp

GQ SAND, LLC,
Defendant.

Plaintiff K3 Prop, LLC, procures frac sand for its customers in the petroleum industry.
In March 2017, K3 filed this lawsuit against defendant GQ Sand, LLC, alleging that it
transferred $930,000 to GQ to purchase frac sand but that GQ failed to place any of the
money in escrow, as required by the parties’ contract, and failed to deliver the correct amount
of sand. Now pending before the court is GQ’s summary judgment motion. Dkt. 39. But
before the court can consider GQ’s motion, it must determine whether it has subject matter
jurisdiction over the action.
“Federal courts are courts of limited jurisdiction.” Int’l Union of Operating Eng’rs, Local
150 v. Ward, 563 F.3d 276, 280 (7th Cir. 2009). Unless the party invoking federal
jurisdiction establishes complete diversity of citizenship among the real parties to the
controversy and an amount in controversy exceeding $75,000, or raises a federal question,
the court must dismiss the case for lack of jurisdiction. Smart v. Local 702 Int’l Bhd. of Elec.
Workers, 562 F.3d 798, 802 (7th Cir. 2009). Federal courts “have an independent obligation
to determine whether subject-matter jurisdiction exists, even when no party challenges it.”
Hertz Corp. v. Friend, 559 U.S. 77, 94 (2010). The party invoking federal jurisdiction bears
the burden of establishing that jurisdiction is proper. Smart, 562 F.3d at 802-03.

K3 invokes this court’s subject matter jurisdiction pursuant to 28 U.S.C. § 1332. It
contends that diversity jurisdiction exists because: (1) the amount in controversy exceeds
$75,000; and (2) the parties are completely diverse. The allegations in K3’s initial complaint
were insufficient to determine whether diversity jurisdiction actually exists because K3 failed
to allege the names or citizenships of any of its or GQ’s members. See Dkt. 1. “[T]he
citizenship of an LLC is the citizenship of each of its members.” Camico Mut. Ins. Co. v.
Citizens Bank, 474 F.3d 989, 992 (7th Cir. 2007). The court allowed K3 to file an amended
complaint establishing subject matter jurisdiction. Dkt. 14. K3 did so, alleging that K3’s sole
member is Charles Cody Lyon, a citizen of Texas, and that GQ’s members are Joshua
Quisling and Joe Gargano, both citizens of Wisconsin. Dkt. 16. Those allegations were
sufficient to establish subject matter jurisdiction at the pleading stage. Dkt. 18.
But now, K3 has adduced evidence in opposition to GQ’s summary judgment motion
that puts the veracity of K3’s earlier allegations in doubt. A document titled “Membership
Interests Purchase and Sale Agreement,” dated July 29, 2015, purports to transfer
membership of K3 from Kenneth C. White, III, and Kenneth C. White, Jr., to Managed
Owners Group, LLC. Jim R. Pierce signed the document on behalf of Managed Owners
Group as its manager. Dkt. 48-5. The agreement does not mention Charles Cody Lyon. To
further complicate things, Texas public records list “Ken White” as the director and manager
of K3 in 2016. 1 Texas public records list “Chartes Cody Lyon” as the director and owner of
Managed Owners Group. 2

1

Taxable
Entity
Search,
Texas
Comptroller
of
Public
Accounts,
https://mycpa.cpa.state.tx.us/coa/coaSearch.do (search for “K3 Prop LLC”; then follow
“Details” hyperlink and “Public Information Report” hyperlink).
2

Taxable

Entity

Search,

Texas

Comptroller

2

of

Public

Accounts,

Because this case is at the summary judgment stage, the court will direct K3 to adduce
evidence sufficient to determine the members of K3 and the citizenship of each member. If
any member of K3 is itself a limited liability company, then K3 must adduce evidence of the
individual citizenships of each member of that LLC, as well: “the citizenship of
unincorporated associations must be traced through however many layers of partners or
members there may be.” Meyerson v. Harrah’s E. Chi. Casino, 299 F.3d 616, 617 (7th Cir.
2002). Failure to timely submit evidence will result in prompt dismissal of this matter for
lack of subject matter jurisdiction with an award of fees and costs to defendant.
One other issue is worth addressing at this point. In opposition to GQ’s summary
judgment motion, K3 adduces Lyon’s declaration. Dkt. 48. The court will assume, for the
moment, that Lyon was a member of K3 during the events in question, and therefore has
personal knowledge of the facts included in his declaration. Even so, for the court to consider
Lyon’s declaration at summary judgment, it must be possible to put the information into an
admissible form for trial. 11 James Wm. Moore et al., Moore’s Federal Practice § 56.91[2] (3d
ed. 2015) (“[T]he party submitting the material must be able to demonstrate how it will be
possible to introduce the content or substance of the material at trial.”). Here, GQ claims
that Lyon was recently sentenced to 30 years in prison and may be unable to testify at trial.
Dkt. 62, ¶ 7. The court will order K3 to show that the content of Lyon’s declaration would be
admissible at trial. Failure to timely make this showing will result in the court striking Lyon’s
declaration and its attachments.

https://mycpa.cpa.state.tx.us/coa/coaSearch.do (search for “Managed Owners Group, LLC”;
then follow “Details” hyperlink and “Public Information Report” hyperlink).

3

ORDER
IT IS ORDERED that:
1. Plaintiff K3 Prop, LLC, may have until July 3, 2017, to adduce evidence sufficient
to establish complete diversity of citizenship among the real parties to the
controversy for purposes of determining subject matter jurisdiction under 28
U.S.C. § 1332.
2. Failure to timely submit evidence will result in prompt dismissal of this matter for
lack of subject matter jurisdiction.
3. Plaintiff may have until July 3, 2017, to show cause as to why the court should
not strike the Charles Cody Lyon declaration and its attachments, Dkt. 48, as
inadmissible evidence.
Entered June 29, 2017.
BY THE COURT:
/s/
________________________________________
JAMES D. PETERSON
District Judge

4