Larchmont Holdings, LLC v. North Shore Services, LLC et al

Filing 41

OPINION AND ORDER denying 11 Motion to Dismiss. Signed by Magistrate Judge Stephen L. Crocker on 1/13/17. (jat)

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

LARCHMONT HOLDINGS, LLC,
OPINION AND ORDER
Plaintiff,
v.

16-cv-575-slc

NORTH SHORE HOLDINGS, LLC and
WILLIAM BETHKE,
Defendants.

This lawsuit arises out of a multi-million dollar land contract involving frac sand.
Plaintiff Larchmont Holdings, LLC chose to file in federal court, claiming diversity jurisdiction
under 28 U.S.C. § 1332(a)(1). Defendants Northshore Holdings, LLC and William Bethke
dispute Larchmont’s claim of diversity and have moved to dismiss this lawsuit for lack of subject
matter jurisdiction under Fed. R. Civ. P. 12(b)(1). See dkt. 11. For the reasons stated below,
I am denying this motion.
Defendants, who both are residents of Wisconsin contend that two members of
Larchmont (Neal Benham and Richard McHugh) also are domiciled in Wisconsin rather than
Florida, as Larchmont contends.1 Thomas v. Guardsmark, LLC, 487 F.3d 531, 534 (7th Cir. 2007)
(citizenship of limited liability company is citizenship of each of its members); McCready v. EBay,
Inc., 453 F.3d 882, 891 (7th Cir. 2006) (no plaintiff may be a citizen of the same state as any
defendant). As the party invoking federal diversity jurisdiction, Larchmont bears the burden of
demonstrating that the parties are diverse. Appert v. Morgan Stanley Dean Witter, Inc., 673 F.3d
609, 617 (7th Cir. 2012); Chase v. Shop ‘N Save Warehouse Foods, Inc., 110 F.3d 424, 427 (7th Cir.
1997). Larchmont has met this burden in this case.

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In their opening brief, defendants also questioned the domicile of the other individual members
of Larchmont, but they did not pursue this in their reply brief.

Although the briefs and declarations submitted by the parties indicated that Benham and
McHugh probably were domiciled in Florida, I held an evidentiary hearing on December 7, 2016
to ensure that no relevant stone was left unturned. See Nov. 10, 2016 Text Ord., dkt. 26;
Midwest Transit, Inc. v. Hicks, 79 Fed. Appx. 205, 209-10 (7th Cir. 2003) (noting evidentiary
hearing likely necessary to determine credibility of defendant’s citizenship claim where his
contacts point to two states as possible domiciles). Having considered the evidence presented
at the hearing and the record as a whole, I conclude that all of the members of Larchmont were
domiciled in Florida when Larchmont filed this lawsuit. This makes Larchmont a citizen of
Florida. Because both defendants are citizens of Wisconsin, diversity exists and this suit can
remain in federal court.
Before setting forth the findings of fact, one preliminary matter deserves attention: at the
evidentiary hearing, defendant Dr. Bethke testified that the signature on the October 7, 2016
declaration submitted in his name, see dkt. 13, was not his. At the court’s request, defendants
investigated and subsequently reported that Connie Bethke had signed the affidavit with her
husband’s permission while he was on a hunting trip in South Dakota. Dkt. 38. Defense
counsel explained that Dr. Bethke did not remember these events at the hearing but
subsequently was able to refresh his recollection by discussing this with his wife. Counsel also
explained that Dr. Bethke’s memory was impaired by stress resulting from other events occurring
during this time. Although defendants concede that they have not found any authority for
entering into evidence a declaration signed by the declarant’s spouse, it is not necessary to
resolve this issue because the declaration is not essential to the court’s jurisdictional analysis.
Dr. Bethke testified at the hearing about the facts contained in the declaration, and Larchmont

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had an opportunity to cross examine him. Therefore, I have not considered the first declaration
of Dr. Bethke.
I have drawn the following facts from the evidentiary hearing and written submissions
provided by the parties:

FACTS
I. Background
Plaintiff Larchmont Holdings, LLC was organized under Wisconsin law on December 18,
2012, with its principal place of business in Eau Claire, Wisconsin. Its members are David
Westrate, Westrate’s Roth IRA and traditional IRA, Dr. Neal Benham’s Roth IRA, and Patricia
and Richard McHugh. Dkt. 1.
Defendant North Shore Services, LLC was organized under Wisconsin law on October
18, 2000, with its principal place of business in Eau Claire, Wisconsin. North Shore is wholly
owned by defendant Dr. William Bethke, an individual who is a citizen of Wisconsin, where he
is domiciled and resides. Id.
Dr. Benham and Dr. Bethke are practicing dentists who have shared an office since 1986
under the name All Family Dental. Dkt. 37, exh. 1; dkt. 40 at 12-13. Although Northshore has
not yet filed an answer, Larchmont alleges the following with respect to the parties’ relationship
in its complaint:
In the summer of 2012, Bethke approached Benham, and subsequently Westrate, with
the idea of developing a frac sand project on approximately 300 acres of recreational land in
Jackson County, Wisconsin that Bethke owned through North Shore Services. Dkt. 1, ¶ 27.
Following various negotiations throughout the fall of 2012, in December 2012 the direction of
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the negotiations changed, leading Benham, Westrate, and Westrate’s friends, Richard and
Patricia McHugh, to form Larchmont Holdings on December 17, 2012 for the purpose of
purchasing the Jackson County property and developing a frac sand mining and processing
operation. Id. at ¶¶ 30, 41. On December 20, 2012, Larchmont and North Shore entered a
contract for Larchmont’s purchase of the land. Id. at ¶ 42. The parties’ business relationship
soured over the next few years, resulting in the filing of this lawsuit on August 19, 2016.
Larchmont alleges fraudulent inducement, frustration of purpose, unjust enrichment, and
reformation of the land contract. Dkt. 1.

II. Dr. Neal Benham
From 1980 until 2001, Dr. Benham owned a home and lived full-time in Eau Claire,
Wisconsin. In October 2001, Dr. Benham and his wife Jane moved to Florida. They kept their
Eau Claire house as a second property. Since 2001, the Benhams have lived in six different
residences in Florida, the most recent purchased in January 2015. Since 2002, Dr. Benham has
classified the Florida home as a primary residence and the Eau Claire home as a secondary
residence for insurance purposes. Jane is a Florida resident and has a license to work as a parttime real estate referral agent in the state. Dkt. 18; dkt. 40 at pp. 41-44 and 68-69.
Dr. Benham estimates that after moving to Florida, he continued to work at his dental
practice in Wisconsin for about 120 days every year since 2002. Between January and August
2016, Dr. Benham worked about half of the work days in each month and he made six round
trips between Florida and Wisconsin. When in Wisconsin, Dr. Benham typically works full days
on Mondays, Tuesdays, Thursdays, and Fridays and either a half day or not at all on

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Wednesdays. When Dr. Benham is working in Wisconsin, he does not return to Florida over
the weekends between his work weeks. Dkt. 18; dkt. 40 at pp. 49-51 and 73-78; dkt. 37, exhs.
3 and 7. For example, between January and April 2016, Dr. Benham spent two full work weeks
and the weekends in between those work weeks in Wisconsin. Dr. Benham spent closer to three
work weeks in Wisconsin from May through July 2016. Dkt. 37, exh. 7. Although Dr. Benham
testified that he is in the process of selling his dental practice, he continues to market his practice
in Wisconsin. Dkt. 40 at p. 57 and 61. When Dr. Benham is in Wisconsin, he stays at his Eau
Claire house and drives a corporate car registered in Wisconsin. Id. at p. 58.
Dr. Benham has wanted to live in Florida since he graduated from dental school and he
returned there even when working in Wisconsin in order to see his friends and experience the
warmer weather. Dkt. 40 at 88-89. Dr. Benham claims a homestead tax credit in Florida, he
has voted in Florida since 2002, and has held a Florida driver’s license since 2002. Dr. Benham
pays his income taxes through his Florida residence, he owns and registers two cars in Florida,
receives Medicare and Social Security benefits in Florida, and he is a member of a church and
a country club in Florida. Dr. Benham uses three banks in Florida, has executed estate planning
documents with a lawyer in Florida, and sees a cardiologist in Florida. Dr. Benham plays 50 to
60 rounds a golf a year in Florida. Since 2008, Dr. Benham has been an Associate Professor in
Pediatric Dentistry at the University of Florida, where he gives lectures and teaches in the clinic
approximately 18 to 20 days a year. In 2009, Dr. Benham obtained a Florida dental license, but
it is a limited license that only allows him to work in unpaid positions, taking care of children
in federally qualified health care facilities. Dr. Benham has a firearm concealed carry permits in
the states of Florida and Utah. Dr. Benham could not apply for a conceal and carry permit in

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Wisconsin because he is not a resident of Wisconsin. Dkt. 18; dkt. 40 at pp. 44-49, 62-63, 6870, and 80-84.
As for Wisconsin connections, in addition to his Eau Claire house and dental practice,
Dr. Benham has maintained his relationship with two investment firms in Wisconsin that handle
about 80% of his investments. Dr. Benham has a Wisconsin accountant, a Wisconsin bank
account, and he keeps a car in Wisconsin that he uses for business purposes. His dentist (Dr.
Bethke) is in Wisconsin. Dr. Benham’s Colorado elk hunting license lists the Eau Claire address
of All Family Dental. Dr. Benham is a membership of a Wisconsin country club where he plays
about 25 rounds of golf a year. When Dr. Benham went hunting in Colorado, he left from and
returned to Wisconsin, bringing the meat and antlers from his elk with him. Dr. Benham also
hunts in Wisconsin but he has obtained a nonresident license since 2001. After moving to
Florida, Dr. Benham continued to make contributions to Wisconsin state political candidates
because of his business interests in the state. Dkt. 40 at p. 46, 65-68, 71, 79-80.

III. Richard and Patricia McHugh
Richard and Patricia are married and are both members of Larchmont Holdings. They
have owned a home in Eau Claire, Wisconsin since 1980 and a home in Augusta, Wisconsin
since the mid 1990s. In June 2014, they bought a home in Naples, Florida. Dkt. 40 at p. 91.
The McHughs made Florida their primary residence in December 2014. They currently
spend at least six months of the year in Florida and intend to spend all of their time there after
Richard fully retires from his current businesses. Dkts. 19, 20 and 40 at pp. 93-94. Richard and
Patricia vote in Florida, they insure their Florida home as their primary residence, they file

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federal income taxes in Florida, they claim a Florida homestead tax credit, they are members of
a church Florida, they receive Medicare in Florida, use the services of a Florida attorney, have
their primary bank account in Florida, and they have received mail related to their banking,
investments, credit cards, and social security benefits in Florida since before Larchmont filed this
lawsuit. Dkts. 19, 20 and 40 at pp. 94-95, 106, 116. The McHughs both have Florida driver’s
licenses and each owns a car registered in the state. Id.
Richard is the managing partner of Choice Products USA, LLC, a Wisconsin fundraising
corporation, and Choice Commercial LLC, a commercial real estate company in Wisconsin.
Richard reduced his professional work in Wisconsin by 50% when he moved to Florida. Dkt.
40 at pp. 94-102. Richard currently works about eight hours a week for Choice Products during
the times he is in Florida; he works a bit more than that when he is in Wisconsin. Id. at pp. 9697. Richard spends about one and a half hours a week making telephone calls for Choice
Commercial. Id. at p. 98. Richard owns 50% of Empire Financial Solutions, which has
warehouses in Iowa and Wisconsin, but he does not work for the company on a regular basis.
Richard has been the chairman of the board of a bank in Eau Claire for over 30 years, but he
conducts most of his business for this bank from Florida. Richard attends six to eight board
meetings a year, staying in Wisconsin only a few days for each meeting.
Richard has an accountant, investment advisor, bank account, and a church in Eau Claire.
Id. at pp. 105, 112-13; dkt. 19. Richard has made political contributions to Wisconsin state
candidates and organizations as recently as the summer of 2016, but he does so because his
businesses are located in the state. Dkt. 40 at p. 104. At the time this lawsuit was filed, Richard

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did not own a car or have a driver’s license in Wisconsin. Id. at pp. 114-15. Richard has not
applied for a resident Wisconsin hunting license since 2010. Id. at pp. 115-16.

IV. David Westrate
Westrate is a member of Larchmont and the owner and beneficiary of both a Roth IRA
and a traditional IRA that also are members of Larchmont. The IRAs are held by a custodian
located in Dallas, Texas. He has owned a home in Ellenton, Florida since 2005 and made it his
permanent, primary residence after he retired in 2012. Dkt. 17. Westrate spends seven months
a year in Florida and votes, files federal income taxes, attends church, sees doctors, and obtains
banking, investment, estate planning, social security, and Veterans Administration services and
benefits in Florida. Westrate has had a Florida driver’s license since July 2013 and has at least
one car registered in the state.
Westrate’s former lakefront home in Eau Claire, Wisconsin is owned by an irrevocable
trust; his four adult children are the beneficiaries and Michael Westrate is the trustee. Although
Westrate stays at the home when he visits Wisconsin, he uses it solely as a vacation property.
Westrate owns two vehicles that are registered and insured in Wisconsin, but they remain at the
lakefront property for use by visitors. Westrate owns 40 acres of hunting land and a house in
Wisconsin that he has rented as an investment property since building it in 2009. Westrate
purchases non-resident hunting and fishing licenses in Wisconsin and several other states.
Westrate has ownership interests in several corporations in various states, including
Florida and Wisconsin.

He serves on the board of directors of a Wisconsin charitable

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foundation and a bank incorporated in Maryland. He performs his work as a business owner
and board member remotely from his home in Florida.

OPINION
In order to establish this court’s diversity jurisdiction over the instant lawsuit, plaintiff
Larchmont Holdings, LLC must establish to the court’s satisfaction that Larchmont is not a
citizen of the same state as either North Shore Services, LLC or William Bethke. Appert, 673
F.3d at 617; Avila v. Pappas, 591 F.3d 552, 553 (7th Cir. 2010) (court has independent
obligation to ensure subject matter jurisdiction exists). Because Larchmont and North Shore are
limited liability corporations, their citizenship depends on the citizenship of each of its members.
Thomas, 487 F.3d at 534.
Bethke is the sole member of North Shore, and the parties do not dispute that he, and
therefore North Shore, are citizens of Wisconsin. Larchmont has several members, including
David Westrate, Westrate’s Roth IRA and traditional IRA, Neal Benham’s Roth IRA, and
Patricia and Richard McHugh. As with an LLC, the citizenship of an individual retirement
account is determined by the citizenship of its members or owners—in this case, Westrate and
Benham. Americold Realty Trust v. Conagra Foods, Inc., __ U.S. __, 136 S. Ct. 1012, 1015 (2016)
(for purposes of diversity jurisdiction, citizenship of “unincorporated entities” depends on
citizenship of their “members,” which the Court has equated as “owners”). Therefore, to
determine whether diversity of citizenship exists, I must determine the individual citizenship of
Westrate, Benham, and Patricia and Richard McHugh. It also is a well-settled rule that diversity

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of citizenship must be assessed at the time this action was filed on August 19, 2016. Dkt. 1;
Freeport-McMoRAN, Inc., et al. v. KN Energy, Inc., 498 U.S. 426, 428 (1991).
In determining the citizenship of individuals, courts generally look to where the parties
are domiciled, that is, where they have their permanent, fixed homes to which they have the
intention of returning whenever they are absent therefrom. 15 Coquillette et al., Moore’s Federal
Practice 3d § 102.34[1], 3d ed. 2014. To determine domicile or where an individual intends to
make his home, courts look for objective manifestations of intent, such as where the individual
is employed and registered to vote; where he exercises civil and political rights; where he pays
taxes and receives mail; the location of his bank accounts, personal property and any land he
owns; and whether the individual belongs to any clubs or organizations in a particular state.
More v. Callahan, No. 12-CV-905-bbc, 2015 WL 137270, at *2 (W.D. Wis. Jan. 9, 2015);
O'Neal v. Atwal, 425 F. Supp. 2d 944, 947 (W.D. Wis. 2006) (citing 15 Moore's Federal Practice
at § 102.36[1]). See also Craig v. Ontario Corp., 543 F.3d 872, 876 (7th Cir. 2008) (looking at
party’s voter registration, property ownership, and tax information to determine domicile);
Midwest Transit, 79 Fed. Appx. at 208 (domicile has been assessed based on “current residence,
voting registration and voting practices, location of personal and real property, location of
financial accounts, membership in unions and other associations, place of employment, driver’s
license and automobile registration, and tax payments”); Perry v. Pogemiller, 146 F.R.D. 164, 167
(N.D. Ill. 1993) (“Courts have also listed other facts as relevant [to the determination of a
party’s domicile], including . . .the location of a person’s physician, lawyer, accountant, dentist,
stockbroker, etc.”) (internal citation omitted), aff’d, 16 F.3d 138 (7th Cir. 1993). “The existence

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of one or more of these factors may weigh in favor of a finding of citizenship, but no single factor
is conclusive.” Midwest Transit, 79 Fed. Appx. at 208.
In their brief in support of their motion to dismiss, defendants questioned whether David
Westrate and Patricia McHugh were domiciled in Florida in August 2016 because they both
were long-time residents of Eau Claire, Wisconsin and still maintain homes there. In response,
Larchmont submitted declarations showing that even though Westrate and Patricia McHugh
have vacation properties in Wisconsin, they reside and conduct their daily affairs primarily in
Florida and intend to make Florida their permanent home. Defendants have not refuted this
evidence or submitted any rebuttal evidence.

Accordingly, I find that Patricia McHugh,

Westrate, his Roth IRAs and his traditional IRAs all are domiciled in Florida.
Left in play are the domiciles of Dr. Benham and Richard McHugh. Both men were longterm residents of Wisconsin and both men continued to work, own property, and maintain
business interests in Wisconsin after moving to Florida with their wives. The question is
whether Florida is where they each intended to establish a permanent home, or whether they
purchased their Florida residences merely for vacation or other purposes.
The Court of Appeals for the Seventh Circuit has recognized that “in this age of second
homes and speedy transportation, picking out a single state to be an individual's domicile can
be a difficult, even a rather arbitrary, undertaking.” Galva Foundry Co. v. Heiden, 924 F.2d 729,
730 (7th Cir. 1991). In Galva, the defendant was born and raised and lived most of his 68 years
in Peoria, Illinois. After quitting his job and selling his stock in Galva (which he allegedly
defrauded), defendant spent several months in Florida, where he registered to vote, filed income
tax returns, and obtained a driver’s license. Id. The court of appeals held that the district court

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did not clearly err when it concluded that defendant did all of those things in order to shelter
the proceeds from the sale of his Galva stock from Illinois taxes. Id.
Unlike the situation in Galva, there is no evidence in this case that either Dr. Benham
or Richard McHugh set up residency in Florida for any other purpose other than their stated
intent of making Florida their permanent homes. Sadat v. Mertes, 615 F.2d 1176, 1181 (7th Cir.
1980) (internal quotation omitted) (“Intent is a state of mind which must be evaluated through
the circumstantial evidence of a person’s manifested conduct.”). Both men made their move to
Florida well before Larchmont filed suit in this case.
At the hearing, defendants hammered on the large number of days Dr. Benham spends
working in Wisconsin. This clearly is relevant to the court’s determination, but this fact alone
does not discredit Dr. Benham’s claim of Florida residency. Although Dr. Benham spends about
half of his time every month working at his dental practice in Wisconsin, he always returns to
Florida, which he considers his primary residence. Dr. Benham credibly testified that once he
moved to Florida with his wife in 2002, he intended to make it their permanent, fixed home.
See 24 Hour Fitness USA, Inc. v. Bally Total Fitness Holding Corp., 2008 WL 4671748, at *5 (N.D.
Ill. Oct. 21, 2008) (“Central to this ‘center of gravity’ analysis is the location of an individual's
family–particularly his spouse and children.”). Dr. Benham has established enough important,
deep roots in Florida–family, church, voting, taxes, social security and medicare payments–to
establish that Florida is his home, the place where is actually is domiciled.
As additional evidence of his intent to remain in Florida indefinitely, Dr. Benham
testified that he is in the process of selling his dental practice.

Virtually all of the ties Dr.

Benham has to Wisconsin—including an accountant, investment advisors, a car, political

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contributions, and a bank account—relate to his business. Although Dr. Benham has a country
club membership in Wisconsin, he golfs there when he is in the state for work. The work
connections are more than nothing, but they are not enough to outweigh the stronger evidence
that Dr. Benham is domiciled in Florida.
Similarly, a review of Richard McHugh’s declaration and testimony shows that he moved
to Florida with his wife in December 2014 and intends to stay there. True, McHugh spends
six months of his time in Wisconsin at the houses he owns in Eau Claire and Augusta, and he
attends board meetings six to eight times a year in Eau Claire, but the preponderance of the
evidence shows that McHugh’s life actually is centered in Florida. McHugh substantially
reduced his workload when he moved to Florida and he conducts most of his Wisconsin business
from his home in Naples. McHugh’s Wisconsin accountant, investment advisor, bank account,
and political contributions all are related to his businesses in this state. As with Dr. Benham,
McHugh’s business connections to Wisconsin are not weightless, but they do not outweigh the
evidence that McHugh is domiciled in Florida.
Additionally, I credit McHugh’s testimony that he is in the process of retiring fully from
his positions in the Wisconsin companies and the bank’s board of directors. There is no
evidence that Richard McHugh ever intended to keep Wisconsin as his permanent home after
he moved to Florida in late 2014.
In sum, I conclude that all of the individual members of Larchmont are domiciled in
Florida. This makes Larchmont a citizen of Florida. Because both defendants are citizens of
Wisconsin, diversity exists and this suit can remain in federal court.

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ORDER
IT IS ORDERED that the motion filed by defendants North Shore Services, LLC and
William Bethke to dismiss the claims against them for lack of diversity jurisdiction, dkt. 11, is
DENIED.

Entered this 13th day of January, 2017.
BY THE COURT:
/s/
STEPHEN L. CROCKER
Magistrate Judge

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