United States District Court, E.D. Virginia, Richmond Division
DANIEL R. CHAMBERLAIN, Plaintiff,
37TH PARALLEL PROPERTIES INVESTMENT GROUP, LLC, EDWARD P. BARRISKILL, and CHAD A. DOTY, Defendants.
JOHN A. GIBNEY, Jr., District Judge.
Three owners of a limited liability company dispute their ownership percentages of the company. One owner brought this suit in state court against the other owners, alleging he owns eighteen percent of the company. He asks that a court find that he is an owner, officer, and manager of the company. One of the defendants removed the case to this Court under its diversity jurisdiction. Because there is a question of whether this Court has diversity jurisdiction to hear the case, this Court addresses its jurisdiction before deciding any claims on the merits.
The plaintiff, Daniel R. Chamberlain, sued 37th Parallel Properties Investment Group, LLC ("37th Parallel"), Edward P. Barriskill, and Chad A. Doty in state court. Barriskill removed this case to federal court based on diversity jurisdiction. ( See Dk. No. 15.) Although plaintiff consented to removal (Dk. No. 19), this Court has an independent obligation to ensure it has subject matter jurisdiction. 28 U.S.C. § 1447(c). Upon reviewing the facts, the Court concludes it lacks jurisdiction and remands this case to the Henrico County Circuit Court.
Doty and Barriskill formed 37th Parallel in 2008 as equal partners. In September 2008, 37th Parallel hired Chamberlain to provide market and financial analysis, as well as modeling for its residential portfolio. In October 2010, Barriskill and Doty awarded Chamberlain an equity interest in 37th Parallel. According to the Memorandum of Understanding, Chamberlain was to receive five percent of the company per year until he owned twenty percent, reducing the interests of Barriskill and Doty pro rata. On January 15, 2011, Doty and Barriskill adopted a resolution naming Chamberlain as a principal in 37th Parallel with the title of Vice President and Chief Operating Officer. On June 25, 2011, Barriskill, Doty, and Chamberlain executed the Amended and Restated Operating Agreement as "Managing Members" and "Class C Members, " designating each of their ownership interests. By 2012, Barriskill, Doty, and Chamberlain had sold ten percent of 37th Parallel's equity to third-party investors, reducing each of their ownership interests proportionately. Chamberlain owned eighteen percent of the company, and Doty and Barriskill each owned thirty-six percent.
In May 2014, Barriskill asserted that Chamberlain had no voting rights in 37th Parallel because he was not a "manager, " and in August 2014, he claimed that Chamberlain had no ownership interest in 37th Parallel whatsoever.
The parties now dispute the ownership and management rights of 37th Parallel. Chamberlain seeks a declaratory judgment that he: (1) owns eighteen percent of the company; (2) serves as its Vice President and Chief Operating Officer; and (3) is a Manager of the company. Chamberlain also asserts a breach of contract claim against Barriskill.
Defendant Barriskill is a citizen of California. Defendant Doty and Plaintiff Chamberlain are both citizens of Virginia. A limited liability company has the citizenship of its members, so 37th Parallel is a citizen of both Virginia and California. See Gen. Tech. Applications, Inc. v. Exro Ltda, 388 F.3d 114, 120 (4th Cir. 2004). Barriskill removed the case on the basis of diversity jurisdiction. See 28 U.S.C. § 1332(a)(1). Diversity jurisdiction requires "complete diversity" between the parties, meaning that the "state of citizenship of each plaintiff must be different from that of each defendant" at the time an action commences. Athena Auto., Inc. v. DiGregorio, 166 F.3d 288, 290 (4th Cir. 1999). If the "complete diversity" requirement is not met, a district court lacks subject matter jurisdiction, and "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." 28 U.S.C. § 1447(c). Removal statutes are strictly construed against the party seeking removal, and the burden of establishing jurisdiction rests on the removing party. Mulcahey v. Columbia Organic Chems. Co., Inc., 29 F.3d 148, 151 (4th Cir. 1994). If jurisdiction is doubtful, a remand is necessary. Id.
To determine the existence of subject matter jurisdiction, a court may look into the pleadings sua sponte to discover the real interests of the parties. Here, a quick review of the facts shows that diversity of citizenship does not exist. The courts, however, have recognized three exceptions to the strict requirement of diversity: (1) a court may ignore the citizenship of nominal parties; (2) a court may dismiss parties fraudulently joined; and (3) a court may realign the parties based on their true interests. Now united in their effort to keep the case in this Court, the parties argue that each of these three exceptions applies here. For the reasons discussed below, the Court concludes that none of these exceptions apply and that the parties lack complete diversity of citizenship.
A. Nominal Parties
When determining the citizenship of the parties for the purpose of diversity jurisdiction, "a federal court must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy." Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 461 (1980) (emphasis added). A nominal party "means simply a party having no immediately apparent stake in the litigation either prior or subsequent to the act of removal." Hartford Fire Ins. Co. v. Harleysville Mut. Ins. Co., 736 F.3d 255, 260 (4th Cir. 2013). In determining nominal party status, "[t]he key inquiry is whether the suit can be resolved without affecting the... nominal defendant in any reasonably foreseeable way." Id. Barriskill asserts that both 37th Parallel and Doty are nominal parties, but he is only half correct.
1. 37th Parallel
"[I]n a dispute between owners of an LLC regarding their respective ownership and control of the company, the LLC is a nominal party." Mortenson Family Dental Ctr., Inc. v. Heartland Dental Care, Inc., 526 F.Appx. 506, 508-09 (6th Cir. 2013) ("The real dispute in this case is between [the owners of the LLC]. The LLC is only a spectator on the sideline. That it will give a trophy to the winner does not make it a player in the game."). Regardless of the ownership percentages of the members Chamberlain, Doty, and Barriskill, 37th Parallel will not own any more or any less property or equity at the conclusion of the matter. 37th Parallel has "no immediately apparent stake in the litigation either prior or subsequent to the act of removal." See Hartford Fire, 736 F.3d at 260. This "suit can be resolved" ...