Carolina Cas. Ins. Co. v. Team Equip., Inc.

Citation741 F.3d 1082
Decision Date04 February 2014
Docket NumberNos. 12–56203,12–56235.,s. 12–56203
PartiesCAROLINA CASUALTY INSURANCE CO., an Iowa corporation, Plaintiff–Appellant, v. TEAM EQUIPMENT, INC., a California corporation; Bell Hop Cleaners of California, Inc., a New Mexico corporation; Gamet Enterprises, LLC, a New Mexico limited liability company; U.S. Dry Cleaning Services Corp., a Delaware corporation, DBA U.S. Dry Cleaning Corporation; Steam Press Holdings, Inc., a Hawaii corporation, DBA Young Laundry and Dry Cleaning; Cleaners Club Acquisitions, Inc., a California corporation, DBA Boston Cleaners; USDCC CVR Merger Sub, LLC, a California limited liability company, DBA Roadrunner Cleaners; USDC Portsmouth, Inc., a California corporation; USDC Tuchman Indiana, Inc., a California corporation; USDC Fresno, Inc., a California corporation; USDC Fresno 2, Inc., a California corporation; Timothy Denari, an individual; Riaz Chatauni, an individual; Robert Y. Lee, an individual, AKA Robbie Lee; Martin Brill, an individual; Michael Drace, an individual; Kim COX, an individual; Earl Greenberg, an individual; Anthony J.A. Bryan, an individual, Defendants–Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

OPINION TEXT STARTS HERE

James K. Thurston, Melissa A. Murphy–Petros (argued), Wilson Elser Moskowitz Edelman & Dicker LLP, Chicago, IL, for PlaintiffAppellant.

Jonathan B. Sokol, Los Angeles, CA, for DefendantAppellee Team Equipment, Inc.

Appeal from the United States District Court for the Central District of California, John F. Walter, District Judge, Presiding. D.C. No. 2:12–cv–03133–JFW–JEM.

Before: RAYMOND C. FISHER and RICHARD R. CLIFTON, Circuit Judges, and JAMES K. SINGLETON, Senior District Judge.*

OPINION

CLIFTON, Circuit Judge:

This appeal concerns the sufficiency of allegations required to plead diversity jurisdiction under 28 U.S.C. § 1332. PlaintiffAppellant Carolina Casualty Insurance Co. (Carolina) filed suit asserting federal jurisdiction based on diversity and thus bore the burden of establishing the diversity. Before the complaint was served, the district court dismissed it without leave to amend because Carolina had failed to allege the citizenship of any of the members of the defendants that were limited liability companies (“LLCs”), had alleged that certain individual defendants were residents rather than citizens of a state, and had made its jurisdictional allegations on information and belief. Carolina then filed a proposed amended complaint. The court did not accept this complaint as sufficient because Carolina still pled its jurisdictional allegations on information and belief and still failed to establish the citizenship of some defendants, including the LLCs.

We reverse and remand. Because the district court did not conclude that any amendment would be futile, it should have dismissed the initial complaint with leave for Carolina to amend it to correct, as far as possible, the defective jurisdictional allegations. Furthermore, the district court should not have dismissed the complaint for failure to plead allegations of citizenship affirmatively and on knowledge, rather than on information and belief, when the necessary information was not reasonably available to Carolina.

I. Background

Despite its name, Carolina is an insurance company incorporated in Iowa and with its principal place of business in Florida. Carolina issued a corporate liability and directors and officers' liability insurance policy to U.S. Dry Cleaning Corp. (Dry Cleaning) that was effective between January 2009 and January 2011. The policy excluded from coverage losses “for which the Insureds are not financially liable or which are without legal recourse to the Insureds.”

Dry Cleaning purchased dry cleaning stores from Team Equipment, Inc. and two affiliated entities (collectively, Team Equipment) in February 2008. For partial payment of the purchase price, Dry Cleaning issued notes to Team Equipment. Two years later, Team Equipment filed an action against Dry Cleaning and certain of its officers, directors, and affiliated entities (collectively, the “Underlying Defendants) to enforce the notes. Team Equipment settled its claims against Dry Cleaning in June 2011 and agreed to “limit the enforcement of any judgment or award ..., including attorney's fees, solely to the proceeds of [Dry Cleaning's] Insurance Policy.” Team Equipment also released its claims against the Underlying Defendants.

Carolina filed a complaint in the United States District Court for the Central District of California against Team Equipment, Dry Cleaning, and the other Underlying Defendants for a declaratory judgment that Carolina was not liable under Dry Cleaning's insurance policy. Carolina alleged that, because the defendants had agreed to limit the enforcement of the judgment to the proceeds from Dry Cleaning's insurance policy, the settlement constituted a loss for which there was no recourse to the Insureds and which was therefore outside the scope of coverage. The asserted basis of jurisdiction was diversity of citizenship under 28 U.S.C. § 1332.

The district court dismissed the complaint, without prior notice to Carolina, seventeen days after it was filed. Carolina had not yet served the complaint, nor had any of the defendants responded to it. The district court ruled that Carolina had “not adequately alleged the facts essential for ... subject matter jurisdiction.” First, the district court observed that two of the entity defendants were LLCs, but Carolina had not alleged the citizenship of the LLCs by alleging the citizenship of their members. See Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir.2006) ([A]n LLC is a citizen of every state of which its owners/members are citizens.”). Instead, Carolina had alleged the states under whose laws the LLCs were organized and where they had their principal places of business, as if the LLCs were corporations. See28 U.S.C. § 1332(c)(1). As to the individual defendants, the district court noted that Carolina had alleged their states of residency and not their states of citizenship, as required for diversity jurisdiction. Finally, the court observed that Carolina had made its allegations “on information and belief,” not on knowledge, and held that this was insufficient to allege jurisdiction. The court dismissed the complaint under Federal Rule of Civil Procedure 12(h)(3), which provides that [i]f the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action.”

Carolina filed a motion to alter or amend the judgment under Federal Rule of Civil Procedure 59(e). As part of the motion, Carolina submitted a proposed amended complaint. Carolina advised the court in its moving papers that it was unable to determine the citizenship of the LLCs, because their organizational filings did not list their members. As a result, Carolina alleged simply that the members of the LLCs were “citizens of neither Iowa nor Florida.” As to the eight individual defendants, Carolina alleged that four of them were citizens of California and that four of them were citizens of neither Iowa nor Florida. Carolina continued to make its allegations on information and belief but made clear that the basis for its allegations were the four complaints or proposed complaints filed in the underlying action.

The district court denied the motion for reconsideration and held that the proposed amended complaint also suffered from jurisdictional defects. The district court pointed out that Carolina had not alleged the principal place of business of one of the corporate defendants, USDC Tuchman Indiana, Inc., and had simply stated that it was “unknown.” 1 The court faulted Carolina for not being able to specifythe citizenship of the members of the LLCs and held that it was insufficient to allege simply that they were not citizens of Iowa or Florida. And, the court again rejected Carolina's attempt to plead jurisdictional allegations on information and belief.

Carolina appealed, arguing that the district court should not have dismissed the complaint or denied Carolina leave to amend.

II. Discussion

We review a district court's decision to dismiss a complaint for lack of subject-matter jurisdiction de novo. Carter v. Health Net of Cal., Inc., 374 F.3d 830, 833 (9th Cir.2004). The district court's decision to deny leave to amend a complaint is reviewed for abuse of discretion. Universal Mortg. Co. v. Prudential Ins. Co., 799 F.2d 458, 459 (9th Cir.1986).

We conclude that the district court should not have dismissed Carolina's original complaint without leave to amend, because it did not find that any attempt to amend the complaint would be futile. In addition, because the information necessary to establish the diversity of the citizenship of some of the defendants was not reasonably available to plaintiff, we conclude that the court should have permitted Carolina to plead its jurisdictional allegations as to those defendants on information and belief and without affirmatively asserting those defendants' citizenship. The diversity issues can be better considered by the court after the defendants have been served and had an opportunity to respond.

A. Dismissal without leave to amend

A complaint should not be dismissed without leave to amend unless amendment would be futile. McQuillion v. Schwarzenegger, 369 F.3d 1091, 1099 (9th Cir.2004). The court should “freely give leave” to amend a complaint when justice so requires. Fed.R.Civ.P. 15(a)(2).

In dismissing the complaint, the court relied on the plain language of Rule 12(h)(3) and the proposition that “the subject matter of the district court is not a waivable matter.” Emrich v. Touche Ross & Co., 846 F.2d 1190, 1194 n. 2 (9th Cir.1988). But the district court did not conclude that amendment would be futile, nor did it give any reason that might support such a conclusion. The defects in the original complaint were not of a...

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