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Littlestone, LC v. Chauvin

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

September 26, 2019

LITTLESTONE, LC, et al., Plaintiffs,
v.
ROBERT J. CHAUVIN, et ah, Defendants.

          MEMORANDUM OPINION

          M. Hannah Lauck, United States District Judge

         This matter comes before the Court on Plaintiffs Littlestone LC ("Littlestone") and Chadwick Development LLC's ("Chadwick, " and collectively with Littlestone, "Plaintiffs") Motion to Remand. (ECF No. 7.) Defendants Robert J. Chauvin and Chauvin LLC[1] (collectively with Chauvin, "Defendants") responded, and Plaintiffs replied. (ECF Nos. 14, 15.) The matter is ripe for disposition. The Court dispenses with oral argument because the materials before it adequately present the facts and legal contentions, and argument would not aid the decisional process. For the reasons that follow, the Court will grant Plaintiffs' Motion to Remand.

         I. Factual and Procedural Background

         A. Summary of Allegations in the Complaint

         This two-count Complaint arises from events resulting in two failed real estate developments. Count I sets forth a breach of contract claim in which Littlestone alleges that it formed Amelia Wayside, LLC ("Amelia Wayside") with Chauvin LLC "to acquire three parcels of land in Amelia County, Virginia for mixed use development." (Not. Removal Ex. A "Complaint" ¶¶ 6-7, ECF No. 1-1.) Plaintiffs allege that Chauvin LLC's actions caused the development project to fail. Plaintiffs seek $7, 500, 000.00 in damages for Count I. Count II sets forth a breach of fiduciary duty and duty of loyalty claim in which Chadwick alleges that it formed Amelia Village, LLC ("Amelia Village") with Chauvin LLC "to acquire land in Amelia County, Virginia for mixed use development." (Id. ¶ 15.) Plaintiffs allege that Chauvin LLC and Chauvin's actions also caused this project to fail. Plaintiffs seek $12, 500, 000.00 in damages for Count II. Chadwick, a member of Amelia Village, brings Count II derivatively on behalf of Amelia Village. The outcome of the instant Motion to Remand depends solely on Count II, the derivative claim.

         In discussing Amelia Village, Plaintiffs explain that "[p]er the Operating Agreement, Robert J. Chauvin was the sole manager of Amelia Village, with exclusive authority to sell property, refinance loans, approve land development plans, secure permits for development and building and all other actions necessary to achieve the purposes of Amelia Village." (Id. ¶ 18.) Plaintiffs allege that "[i]n his capacity as Manger, Mr. Chauvin negligently engaged in the same behavior set out in Paragraph 11[2] hereinabove, and Chauvin [LLC] did not loan sufficient funds to Amelia Village to carry the mortgage obligation nor to acquire the property." (Id. ¶ 19.) "As a result of the delays, the failure/refusal to make sufficient loans to Amelia Village, and the failure/refusal to acquire the property, the project failed." (Id. ¶ 20.)

         Plaintiffs aver that "[t]hroughout this time, and with knowledge that [Chadwick][3] would eventually be unable to continue with the debt service on the property ... Mr. Chauvin (unbeknownst to Mr. Soden) was engaged in discussions ... to purchase the property for himself or for his entity at a foreclosure auction." (Id. ¶ 21.) Plaintiffs maintain that "[i]t became Mr. Chauvin's intention that [Chadwick] default under [the] Deed of Trust Note, to allow Mr. Chauvin or his entity to purchase the property at a discounted price upon foreclosure." (Id. ¶ 22.) Plaintiffs assert that "Mr. Chauvin's actions and omissions as Manager of Amelia Village were committed fraudulently, in bad faith, and/or constituted gross negligence." (Id. ¶ 30.)

         B. Procedural History

         Plaintiffs originally filed their Complaint in the Circuit Court for the County of Amelia (the "Amelia Circuit Court"). Defendants removed the action to this Court citing, in relevant part, 28 U.S.C. § 1441, [4] and relying on the Court's exercise of diversity jurisdiction.[5] Four days after it removed the action to this Court, Defendants filed a motion to dismiss pursuant to Rule 12(b)(6).[6] (ECF No.5.)

         Plaintiffs filed the Motion to Remand and a motion to dismiss pursuant to Rule 12(b)(1), [7](ECF No. 9).[8] In the Motion to Remand, Plaintiffs argue that complete diversity does not exist in this case because Amelia Village, on whose behalf Chadwick brings Count II, constitutes a citizen of both New York and Virginia, which destroys diversity. Defendants responded in opposition and Plaintiffs replied.

         II. Applicable Legal Standard: Removal and Remand

         Under 28 U.S.C. § 1447(c), "[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). "The party seeking removal bears the initial burden of establishing federal jurisdiction." Abraham v. Cracker Barrel Old Country Store, Inc., No. 3:1 lcvl82, 2011 WL 1790168, at*1 (E.D. Va. May 9, 2011) (citing Mulcahey v. Columbia Organic Chem. Co., 29 F.3d 148, 151 (4th Cir. 1994)). No. presumption favoring the existence of federal subject matter jurisdiction exists because federal courts have limited, not general, jurisdiction. Id. (citing Pinkley Inc. v. City of Frederick, 191 F.3d 394, 399 (4th Cir. 1999)). Courts must construe removal jurisdiction strictly. Id. (citing Mulcahey, 29 F.3d at 151). "'If federal jurisdiction is doubtful, a remand is necessary.'" Id. (quoting Mulcahey, 29 F.3d at 151). "[T]he parties' characterization of themselves or their claims is not determinative for federal jurisdiction purposes." Gen. Tech. Applications, Inc. v. Exro Ltda, 388 F.3d 114, 118 (4th Cir. 2004) (quoting Roche v. Lincoln Prop. Co., 373 F.3d 610, 615-16 (4th Cir. 2004)).

         A defendant may remove a civil action initially filed in state court if the plaintiff could have originally brought the action in federal court. Abraham, 2011 WL 1790168, at *2 (citing Yarnevic v. Brink's Inc., 102 F.3d 753, 754 (4th Cir. 1996)); see 28 U.S.C. § 1441(a). A federal district court has diversity jurisdiction over "all civil actions where the matter in controversy exceeds ... $75, 000 ... and is between ... [c]itizens of different states." 28 U.S.C. § 1332(a)(1). Federal diversity jurisdiction requires complete diversity of citizenship. Abraham, 2011 WL 1790168 at *2 (citing Carden v. Arkoma Assocs., 494 U.S. 185, 187 (1990)); see also 28 U.S.C. § 1332(a)(1). "[T]he 'citizenship of each plaintiff [must be] diverse from the citizenship of each defendant.'" Abraham, 2011 WL 1790168, at *2 (quoting Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996) (second alteration in original)).

         When analyzing whether complete diversity exists in a case in which a party asserts a derivative claim, the Court must consider the citizenship of the entity on whose behalf the party asserts the derivative claim. See Gen. Tech. Applications, Inc., 388 F.3d at 121 n.3 (noting that "[d]iversity jurisdiction is also judged by the real parties in interest" and that "the legal rights asserted here belong to" the entity on whose behalf the party asserted a derivative claim (citations omitted)); Racetime Invs., LLC v. Moser, No. 3:12cv860, 2013 WL 987834, at *2-*3 (E.D. Va. Mar. 8, 2013) (remanding the case to state court because "[i]n a derivative suit, 'the claim pressed by the stockholder against directors or third parties is not his own but the corporation's.'" (citations omitted)).

         III. The Court Will Remand the Action Because the Citizenship of Amelia Village Destroys Diversity Jurisdiction

         An entity on whose behalf a party asserts a derivative claim, constitutes the "real part[y] in interest" and its citizenship must be considered when determining whether complete diversity exists. See Gen. Tech. Applications, Inc., 388 F.3d at 121 n. 3 (citing Ross v. Bernhardt, 396 U.S. 531, 538 (1970)). Because Chadwick brings Count II of the Complaint-a claim for breach of fiduciary duty and duty of loyalty-derivatively on behalf of Amelia Village, the Court must consider the citizenship of Amelia Village when analyzing diversity of citizenship.[9] Because Amelia Village is both a citizen of New York and Virginia, complete diversity does not exist and the Court lacks subject matter jurisdiction over this action.

         A. The Court Must Consider Amelia ...


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