Connectu LLC v. Zuckerberg, Civil Action No. 2004-11923-DPW.

CourtUnited States District Courts. 1st Circuit. United States District Courts. 1st Circuit. District of Massachusetts
Citation482 F.Supp.2d 3
Docket NumberCivil Action No. 2004-11923-DPW.
PartiesCONNECTU LLC, Plaintiff, v. Mark ZUCKERBERG, Eduardo Saverin, Dustin Moskovitz, Andrew McCollum, Christopher Hughes, TheFacebook, Inc., Defendants. Mark Zuckerberg, TheFacebook, Inc., Plaintiff-in-Counterclaim, v. ConnectU LLC, Defendant-in-Counterclaim, Cameron Winklevoss, Tyler Winklevoss, Divya Narenda, Additional Defendants-in-Counterclaim.
Decision Date28 March 2007

Daniel P. Tighe, Griesinger, Tighe & Maffei, LLP, Boston, MA, Kenneth W. Curtis, Meredith H. Schoenfeld, Finnegan, Henderson, Farabow, Gaaett & Dunner L.L.P., Washington, DC, for Connectu LLC.

Scott McConchie, Griesinger, Tighe & Maffei, LLP, Boston, MA, Margaret A. Esquenet, Finnegan, Henderson, Farabow, Garett & Dunner, LLP, John F. Hornick, Troy Grabow, Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, Washington, DC, Jonathan M. Gelchinsky, Lawrence R Robins, Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, Cambridge, MA, for ConnectU LLC, Divya Narendra, Tyler Winklevoss and Cameron Winklevoss.

Annette L. Hurst, Heller Ehrman LLP, San Francisco, CA, Bhanu Sadasivan, Robert B. Hawk, Heller Ehrman LLP, Menlo Park, CA, Donald Daybell, Monte Cooper, Robert D. Nagel, Orrick, Harrington & Sutcliffe LLP, Ervine, CA, G. Hopkins Guy, III, I. Neel Chatterjee, Theresa A. Sutton, Orrick, Herrington & Sutcliffe LLP, Menlo Park, CA, Jeremy P. Oczek, Steven M. Bauer, Proskauer Rose LLP, Boston, MA, Joshua H. Walker, for Defendants Mark Zuckerberg, Eduardo Saverin.

Kevin G. Kenneally, Michael P. Giunta, Donovan & Hatem, LLP, Boston, MA, for John Taves and Pacific Northwest Software.

ORDER

WOODLOCK, District Judge.

Order entered adopting report and recommendations of Mag. Judge Robert B. Collings.

REPORT AND RECOMMENDATION ON FACEBOOK DEFENDANTS' MOTION TO DISMISS (# 94)

COLLINGS, United States Magistrate Judge.

II. Introduction

To date the Court has issued two Memorandum and Procedural Orders (## 172, 230) and held a pair of evidentiary hearings, on June 22, 2006 and October 24, 2006 respectively, on the Facebook Defendants' motion to dismiss (# 94). This Report and Recommendation regarding the disposition of that motion to dismiss shall be an amalgam of the two prior memoranda, familiarity with which is assumed and which are incorporated herein by reference1 as well as such additional analysis and discussion as is necessary to resolve the outstanding issues.

II. Background

A. Issues in First Memorandum (# 172)

Defendants Mark Zuckerberg (hereinafter "Zuckerberg"), Eduardo Saverin, Dustin Moskovitz, Andrew McCollum, Christopher Hughes and the Facebook, Inc. (hereinafter collectively. the "Defendants") filed the motion to dismiss Plaintiff ConnectU LLC's (hereinafter "ConnectU" or the "Plaintiff') complaint on several grounds, including lack of subject matter jurisdiction pursuant to Rule 12(b)(1), Fed. R.Civ.P. Specifically the Defendants contend that in the original complaint, jurisdiction was alleged to be premised solely upon diversity2 but that, as a matter of fact, diversity did not exist. The motion to dismiss has been referred to the undersigned for the preparation of a Report and Recommendation pursuant to 28 U.S.C. § 636(b)(1)(B).

In 2004, the Supreme Court wrote as follows:

It has long been the case that "the jurisdiction of the Court depends upon the state of things at the time of the action brought." Mollan v. Torrance, [22 U.S.] 9 Wheat. 537, 539, 6 L.Ed. 154 (1824). This time-of-filing rule is hornbook law (quite literally) taught to first-year law students in any basic course on federal civil procedure. It measures all challenges to subject-matter jurisdiction premised upon diversity of citizenship against the state of facts that existed at the time of filing — whether the challenge be brought shortly after filing, after the trial, or even for the first time on appeal. (Challenges to subject-matter jurisdiction can of course be raised at any time prior to final judgment. See Capron v. Van Noorden, [6 U.S.] 2 Cranch 126, 2 L.Ed. 229 (1804).)

We have adhered to the time-of-filing rule regardless of the costs it imposes.

Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 570-571, 124 S.Ct. 1920, 158 L.Ed.2d 866 (2004)(footnote omitted). ConnectU argues that the question of diversity was rendered moot when the first amended complaint was filed on October 28, 2004, because the alleged basis for jurisdiction in that pleading was the existence of a federal question. According to the Plaintiff, case law and statute allow for any prior inadequacy in diversity jurisdiction to be "cured" by the subsequent amendment.

In support of its position the Plaintiff relies on the case of Carlton v. Baww, Inc., 751 F.2d 781 (5 Cir., 1985). In Carlton, the plaintiff, a California resident, brought suit against the defendant, a resident of Texas, seeking "to void a fraudulent conveyance of real property." Carlton, 751 F.2d at 783. The court acknowledged that "[d]iversity jurisdiction was therefore properly invoked when this suit was initially filed." Carlton, 751 F.2d at 785. While the suit was ongoing, but before trial, the defendant filed for bankruptcy and the automatic stay halted the proceedings. Carlton, 751 F.2d at 783. The stay was ultimately lifted and the bankruptcy court allowed the trustee of the defendant's estate to intervene in the original district court action. Carlton, 751 F.2d at 783.

When the bankruptcy trustee was joined as a party-plaintiff to the action, diversity was destroyed. Carlton, 751 F.2d at 783, 787. However, the bankruptcy trustee was, at that juncture, "the only party who could prosecute" the district court lawsuit. Carlton, 751 F.2d at 786. The appeals court recognized that "if ... an amendment to the pleadings alters the nature of the action or adds a party without whom the case cannot continue, jurisdiction must be reassessed at the time of the change." Carlton, 751 F.2d at 785 (citations omitted).

On appeal it was argued by the appellees

that, notwithstanding the failure of the jurisdictional basis asserted in their pleadings, subject matter jurisdiction exists because the trustee was acting pursuant to avoidance powers granted to him by the Bankruptcy Code. We agree. Section 1334 of Title 28, as amended by the Bankruptcy Amendments and Federal Judgeship Act of 1984 (the "1984 Act"), grants the district courts original jurisdiction of, among other things, "all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b) (1984). A proceeding by a trustee to void a fraudulent conveyance clearly "arises under title 11."

Carlton, 751 F.2d at 787 (footnote omitted).

Although the Fifth Circuit found that the district court had properly exercised jurisdiction, the complaint had never been "amended to state the new jurisdictional basis that arose when the trustee became a party." Carlton, 751 F.2d at 789. To remedy the situation, the Fifth Circuit held that "pursuant to 28 U.S.C. § 1653 appellees should be given an opportunity to amend their pleadings to assert the correct jurisdictional basis for this lawsuit." Carlton, 751 F.2d at 789.

The primary point to be made with respect to the Carlton case is that the district court undeniably had jurisdiction at all times. When the complaint was filed, the district court had diversity jurisdiction. At the time the trustee was added, on the facts as they then existed, even if not expressly alleged, the district court had federal question jurisdiction. The question raised by the Defendants' motion to dismiss in the instant matter is whether this Court, in fact, ever had subject matter jurisdiction based on diversity over the original complaint.

The case of Blanchard v. Terry & Wright, Inc., 331 F.2d 467 (6 Cir.), cert. denied, 379 U.S. 831, 85 S.Ct. 62, 13 L.Ed.2d 40 (1964), another decision cited by the Plaintiff, is readily distinguishable from the situation at hand. In Blanchard, the court concluded that while there may have been some question as to whether diversity jurisdiction had been properly pled in the complaint,

More important than the allegations in the complaint concerning diversity of citizenship were the allegations that the contract for the construction of the dam and spillway was with the United States, and that the bond was executed to guarantee the performance of that contract and the payment of all bills for labor and material furnished in connection therewith. In our opinion, these general allegations were sufficient to invoke jurisdiction under the Miller Act without the necessity of referring to the Act by name.

Blanchard, 331 F.2d at 469.

In other words, the court found that the factual allegations of the complaint supported federal question jurisdiction even though it was not the articulated basis for jurisdiction. There is no contention that the facts as alleged in the original complaint in this case would support an alternative basis for jurisdiction.

ConnectU next points to Title 28 U.S.C. § 1653 which provides that "[d]efective allegations of jurisdiction may be amended, upon terms, in the trial or appellate courts." Interpreting this statutory provision, the Supreme Court has written the following:

The existence of federal jurisdiction ordinarily depends on the facts as they exist when the complaint is filed. See, e.g., Smith v. Sperling, 354 U.S. 91, 93, n. 1, 77 S.Ct. 1112, 1113, n. 1, 1 L.Ed.2d 1205 (1957). Like most general principles, however, this one is susceptible to exceptions, and the two that are potentially applicable here are reflected in 28 U.S.C. § 1653 and Rule 21 of the Federal Rules of Civil Procedure. We discuss each potential exception in turn.

Title 28 U.S.C. § 1653, enacted as part of the revision of the Judicial Code in 1948, provides that "[d]efective allegations of jurisdiction may be amended, upon terms, in the trial or appellate courts." At first...

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