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Atkins Nuclear Secured, LLC v. APTIM Federal Services, LLC

United States District Court, E.D. Virginia, Alexandria Division

April 24, 2019



          Anthony J. Trenga United States District Judge.

         Before fling this action, Plaintiff Atkins Nuclear Secured, LLC (''Atkins'') attempted to confirm with Defendant Aptim Federal Services, LLC ("Aptim") that complete diversity of citizenship existed as between them. In response to Atkins' inquiry, Aptim's in-house counsel told Atkins that Aptim had "no plans to object to subject matter jurisdiction in the Easter District of Virginia." Based on that response, Atkins then fled this breach of contract action on August 30, 2018, invoking jurisdiction solely based on diversity of citizenship under 28 U.S.C. §1332. Thereafier, while preparing its answer to Atkins' amended complaint, Aptim's outside counsel, whom Aptim had retained afier the suit was fled, learned that complete diversity did not exist because the sole member of a limited liability company that served as the sole member of Aptim, also a limited liability company, shared the same citizenship as a member of Atkins. also a limited liability company. Outside counsel immediately disclosed this infonnation to Atkins, afier which Aptim fled a motion to dismiss fr lack of subject matter jurisdiction, to which Atkins consented.

         Atkins then moved fr sanctions, see Plaintiff Atkins Nuclear Secured, LLC's Motion for Sanctions [Doc. 45] ("the Motion fr Sanctions"), in the form of reasonable attorneys' fees and costs, on the ground that Aptim acted in bad faith, either when its in-house counsel advised that Aptim would not object to federal jurisdiction without investigating Aptim's citizenship for that purpose or when outside counsel's failed to investigate Aptim's citizenship before filing a motion to dismiss that did not raise an objection to jurisdiction, or both.

         The Motion was referred to a Magistrate Judge, who, after holding a hearing on the Motion, issued Proposed Findings of Fact and Recommendations [Doc. 56] in which he found that Aptim's counsel behaved recklessly in failing to investigate Aptim's citizenship but recommended that the Motion for Sanctions be denied on the ground that Atkins failed to show that Aptim's counsel acted in bad faith under a subjective bad faith standard. Atkins and Aptim objected in part to the Proposed Findings of Fact and Recommendations. See Aptim Federal Services, LLC's Partial Objections to Proposed Findings of Fact and Recommendations [Doc. 58]; Plaintiff Atkins Nuclear Secured, LLC's Objections to Proposed Findings of Fact and Recommendations [Doc. 60] (collectively, "the Objections"). This Court held a hearing on the Motion and the Objections on April 12, 2019, after which the Court took the matter under advisement.

         For the reasons stated below, the Motion for Sanctions is DENIED.

         I. BACKGROUND

         The following facts, mostly taken from the Magistrate Judge's Proposed Findings of Fact. which the Court adopts, are undisputed[1]:

         On August 27, 2018, before filing this case, counsel for Atkins sent Aptim's in-house counsel a draft of the complaint and a letter with the following request:

We kindly ask you to confirm that neither APTIM Federal Services, LLC nor any of its members are citizens of Delaware, Tennessee, or Florida. Subject matter jurisdiction under 28 U.S.C. § 1332 requires complete diversity of citizenship, and the diversity analysis for limited liability companies takes into account the citizenship of each member. As you know, the parties cannot confer subject matter jurisdiction on a federal court by agreement, so it is in all parties' interest to confirm subject matter jurisdiction exists before Atkins Nuclear Secured, LLC ("Atkins") files the attached complaint. If diversity jurisdiction does not exist. Atkins intends to convert this Complaint for filing in a state court of its choosing.

[Doc. 56 at 1]. The letter was originally directed to Wade M. Bass, Aptim's Associate General Counsel, and Aidan Delgado, Counsel. [Doc. 46-1]. In an email response that same day, Mr. Delgado, without researching the standard for determining the citizenship of limited liability companies ("LLCs"), stated that "APTIM has no plans to object to subject matter jurisdiction in the Eastern District of Virginia." [Doc. 46-2].

         Atkins filed this action on August 30, 2018. Id. The Complaint alleged that Atkins was a Delaware LLC with its principal place of business in Tennessee, and that Atkins' sole member was a Delaware corporation with its principal place of business in Florida. Id. It alleged "upon information and belief that Aptim was a Louisiana LLC with its principal place of business in Louisiana and that none of its members were citizens of Delaware, Tennessee, or Florida. Id.

         On September 4, 2018, Aptim retained outside counsel to defend the action on its behalf. Id. On September 21, 2018, Aptim filed a motion to dismiss for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). Id. That same day, Aptim filed its Corporate Disclosure Statement, which stated that Aptim's sole member was another LLC. APTIM Government Solutions, LLC. Id. at 2-3.[2]

         On October 24, 2018, this Court, after a hearing on October 19, 2018, denied Aptim's motion to dismiss but granted Atkins leave to file an amended complaint, which it filed on November 7, 2018. Id. The Amended Complaint repeated the same subject matter jurisdictional allegations as the original complaint.

         According to Aptim, its counsel first discovered the jurisdictional defect on November 15, 2018 while drafting its Answer to the Amended Complaint, together with a third-party complaint. Specifically, counsel learned that Aptim's sole member, APTIM Government Solutions, LLC, had as its sole member APTIM Corp., a Delaware corporation, thereby making both LLC's (APTIM Federal Service, LLC and APTIM Government Solutions, LLC) citizens of Delaware for the purposes of determining federal subject matter jurisdiction, the same citizenship as Atkins. Id. at 3-4. The next day, November 16, 2018, Aptim informed Atkins that the parties were not completely diverse. Id. at 4. On November 19, 2018, Atkins told Aptim that it would not contest a motion to dismiss for lack of subject matter jurisdiction "while reserving the right to move for sanctions based on APTIM's earlier litigation and pre-litigation conduct." Id. APTIM refused to include such a reservation in any consent motion and filed on an unconsented basis its motion to dismiss for lack of jurisdiction. Id.

         On November 21, 2018, the parties canceled the settlement conference then scheduled for December 5, 2018, and on December 3, 2018, Atkins filed its response to Aptim's motion to dismiss, which conceded the lack of subject matter jurisdiction. Id. The Court granted the motion to dismiss on February 8, 2019. Id. at 6. While the motion was pending, Atkins refiled its claims in the Circuit Court of the City of Alexandria. Id. at 5.

         Atkins filed the Motion for Sanctions on December 28, 2018, in which it seeks attorneys' fees and costs pursuant to the Court's inherent sanctioning authority on the ground that Aptim "vexatiously and wantonly multiplied] the proceedings in bad faith." Id. The Magistrate Judge held a hearing on the matter on February 22, 2019 and issued his Proposed Findings of Fact and Recommendations on March 5, 2019, in which he recommended that sanctions not be imposed. [Doc. 56]. The Magistrate Judge concluded that the Motion for Sanctions turned in large part on whether a subjective or objective bad faith standard applies to an award of sanctions under the Court's inherent sanctioning authority, an unresolved issue in this Circuit. Id. at 7. After reviewing cases within and outside this Circuit, the Magistrate Judge concluded that a subjective bad faith standard applies, and based on that standard, recommended that the Court not impose sanctions, principally on the ground that neither Aptim's in-house counsel nor its outside counsel was aware of APTIM's corporate citizenship and did not fail to disclose it or otherwise engaged in subjective bad faith. Id. at 7-11. However, the Magistrate Judge also recommended that if this Court were to conclude that an objective bad faith standard applies, the Court should grant the Motion for Sanctions. Id. at 13. The Magistrate Judge explained this recommendation as follows:

[O]nce [Aptim] retained outside counsel, its failure to perform any investigation before filing its first Rule 12(b) motion was reckless. Counsel should know the citizenship of its client when it practices before this court, and they should have investigated its citizenship at least by the time they were preparing the first Rule 12(b) motion, which required [Aptim] to include all available defenses. Clearly, they did not.

Id. Finally, the Magistrate Judge recommended that in the event the Court imposes sanctions, it should award Atkins $103, 683.98, which includes $103, 581.00 in attorneys' fees that Atkins requested beginning on September 21, 2018, the date Aptim filed its ...

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