Ambrosia Coal & Const. Co. v. Pages Morales

• Decision Date: 02 April 2007
• Docket Number: No. 05-14255.,05-14255.
• Citation: 482 F.3d 1309
• Parties: AMBROSIA COAL & CONSTRUCTION COMPANY, a Pennsylvania corporation, Plaintiff-Appellant, v. Hector Carlos PAGES MORALES, Isla Verde Beach Hotel & Casino, S.E., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

482 F.3d 1309

AMBROSIA COAL & CONSTRUCTION COMPANY, a Pennsylvania corporation, Plaintiff-Appellant, v. Hector Carlos PAGES MORALES, Isla Verde Beach Hotel & Casino, S.E., et al., Defendants-Appellees.

No. 05-14255.

United States Court of Appeals, Eleventh Circuit.

April 2, 2007.

Frank Gugliotta Salpietro, Meyer, Unkovic & Scott, LLP, Pittsburgh, PA, Arnaldo Velez, Miami, FL, for Plaintiff-Appellant.

Carlos A. Rodriguez-Vidal, Goldman, Antonetti & Cordova, PSC, San Juan, PR, Glenn Jerrold Waldman, Waldman, Feluren, Hildebrandt & Trigoboff, P.A., Weston, FL, Ina M. Berlingeri-Vincenty, Greenberg Traurig, Ft. Lauderdale, FL, for Defendants-Appellees.

Appeal from the United States District Court for the Southern District of Florida.

Before BIRCH and PRYOR, Circuit Judges, and NANGLE,^* District Judge.

NANGLE, District Judge:

This appeal stems from Appellant Ambrosia Coal & Construction Company's ("Ambrosia") Fourth Amended Complaint against Appellees.¹ The Complaint alleges that Appellees fraudulently induced Ambrosia into entering a settlement agreement relating to properties in Puerto Rico. Ambrosia's complaint sets forth twenty-four state claims and three federal claims brought pursuant to the Racketeer Influence and Corrupt Organization Act, ("RICO"). The district court dismissed the complaint for lack of subject matter jurisdiction, holding that there was a lack of complete diversity between Ambrosia (and its subsidiaries) and Appellees, and there were no viable federal claims that would allow the court to exercise federal question jurisdiction over the matter. Ambrosia appeals the motion to dismiss and asks this Court to find that the district court has subject matter jurisdiction over both the state and federal law claims.

There are two main issues before this Court. First, did Ambrosia acquire diversity jurisdiction in violation of 28 U.S.C. § 1359 when Ambrosia's non-diverse subsidiaries assigned their claims to their diverse parent corporation, Ambrosia. Second, did Ambrosia meet the pleading standards in its Complaint with respect to the civil RICO claims. Regarding the state law claims, we conclude that the district court erred in concluding diversity jurisdiction was collusively obtained. With respect to the federal causes of action, we affirm the district court's dismissal of the civil RICO claims.

I. BACKGROUND

In 1985, Ambrosia, a Pennsylvania-based corporation, entered into a real estate transaction with Garita Hotel Limited Partnership ("Garita L.P."), an Ohio based partnership formed by George Malizia. Ambrosia provided Garita L.P. with four million dollars in order for Garita L.P. to purchase a ninety-nine-year leasehold interest in beachfront property in Puerto Rico. In exchange for supplying the financing, Ambrosia received a one hundred percent ownership interest in Garita Hotel Corporation ("Garita Hotel Corp."), a Puerto Rican corporation. Garita Hotel Corp. is the majority owner and sole general partner of Garita L.P. (collectively referred to as "the Garita entities"). In sum, the corporate structure of Ambrosia and the Garita entities is that of parent and subsidiaries, respectively.

George Malizia and Lenine Strollo, purporting to act on behalf of Garita L.P., attempted to sell the leasehold to Isla Verde Beach Hotel & Casino, S.E. ("Isla Verde") for twelve and a half million dollars.² Ambrosia claimed that it did not authorize the sale of the lease, and did not receive any consideration from the sale. Ambrosia sued in the Pennsylvania state courts. Ultimately the court found in Ambrosia's favor and entered a consent order confirming that Ambrosia was the sole owner of Garita Corp., and, was therefore entitled to the proceeds of the unauthorized sale.

In 1994, Ambrosia, in its own right and on behalf of the Garita entities, advised Isla Verde and Mr. Pages of its intent to file an action relating to the title of the lease and/or for recovery of the consideration paid for the lease. After numerous exchanges via mail and phone conversations, in lieu of filing suit, a settlement agreement was reached. The agreement provided that Green Isle, a limited partnership established under Florida law, would own the Lease. Ambrosia agreed to relinquish its rights in the Lease in exchange for $750,000 in cash and a promissory note in the amount $3,250,000, payable on October 25, 2001. The promissory note was subject to the condition that it be paid solely from cash distributions made from Green Isle to Mr. Pages.³ According to the settlement agreement, Mr. Pages would receive a thirty-three percent limited partnership interest in Green Isle Partners Ltd., S.E.

Ambrosia claims that it entered into the settlement agreement based on the misrepresentation that Mr. Pages' interest in the Green Isle partnership would not be diluted in the future. Ambrosia alleges that the 1995 post-settlement restructuring of Green Isle's partnership agreement, which reduced Mr. Pages' interest in Green Isle to "Class B" limited partnership status, diluted Mr. Pages' interest negatively impacted the terms of the settlement agreement, and impeded Ambrosia's ability to collect payment on its promissory note from Mr. Pages. Furthermore, Ambrosia claims that misrepresentations were made during settlement negotiations which led Ambrosia to believe that Lenine Strollo and George Malizia would not be involved with any aspect of the future "project."

On September 15, 1999, Ambrosia's subsidiaries, Garita L.P. and Garita Hotel Corp., assigned their claims under the 1994 settlement agreement to Ambrosia.⁴ Thus, Ambrosia's Puerto Rico and Ohio subsidiaries were not parties to the action when, in December of 1999, Ambrosia, as the sole plaintiff, commenced litigation against Hector Carlos Pages Morales, Ana Celia Pages, Isla Verde, S.E., Isla Verde Hotel & Casino, and Green Isle; without the Garita entities involved, there is complete diversity of citizenship in this litigation.⁵

II. DISCUSSION

a. Assignment of Claims from Garita to Ambrosia

i.

Ambrosia alleged the existence of federal jurisdiction over its state law claims through diversity of citizenship, 28 U.S.C. § 1332. Although on its face the action appears to have complete diversity amongst the parties, the district court found that Ambrosia improperly manufactured diversity jurisdiction in violation of 28 U.S.C. § 1359 when the Garita entities assigned their causes of action to Ambrosia. Section 1359 states that "[a] district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of the court." 28 U.S.C. § 1359. The district court arrived at this conclusion by first applying a presumption of collusion against Ambrosia, which shifted the burden to Ambrosia to demonstrate that it had a legitimate business reason for the assignment. The court then found that Ambrosia failed to rebut the presumption, and held that Ambrosia achieved diversity of citizenship in violation of the anti-collusion statute, 28 U.S.C. § 1359. Accordingly, the court dismissed the claims for lack of subject matter jurisdiction.

This Court reviews de novo the district court's conclusion that it lacked proper subject matter jurisdiction to decide the case. See Williams v. Best Buy Co., Inc., 269 F.3d 1316, 1318 (11th Cir. 2001). Factual findings regarding the citizenship of a party are subject to a clearly erroneous standard of review. MacGinnitie v. Hobbs Group, LLC, 420 F.3d 1234 (11th Cir.2005).

ii.

Appellees contend that the district court correctly applied a presumption of collusion against Ambrosia, as other Circuits have done in evaluating assignments made between related entities. Contrary to Appellees' position, we hold that the district court erred in applying a presumption of collusion to the case at bar.

The Second Circuit has held that when a non-diverse parent company assigns its claims to a diverse subsidiary "engaged in no business other than the prosecution of that claim," the court presumes that diversity jurisdiction was collusively obtained in violation of 28 U.S.C § 1359. Prudential Oil Corp. v. Phillips Petroleum Co., 546 F.2d 469, 476 (2d Cir.1976). The Second Circuit later extended Prudential by applying the presumption of collusion to a non-parent-subsidiary assignment. Airlines Reporting Corp. v. S&N Travel, Inc., 58 F.3d 857 (2d Cir.1995) (applying the presumption against Airlines Reporting Corp., a quasi-collection agency that sought to litigate claims on behalf of their airline clients who were owed money by a delinquent travel agency).

We find that Prudential and S&N Travel are factually distinguishable from the instant situation. In Prudential, the court held that the presumption of collusion applies to "downstream" assignments, namely, those assignments whereby the parent corporation assigns its claims to a subsidiary whose sole business purpose is to litigate the assigned claim. Here, however, it is the subsidiaries, Garita L.P. and Garita Hotel Corp., that assigned their claims to an already existing parent, Ambrosia. In S&N Travel, the assignee was merely an agent for the real parties in interest. Here, however, Ambrosia, the assignee, has business purposes beyond the litigation of the assigned claims and is the real party in interest.

In Nike, Inc. v. Commercial Iberica de Exclusivas Deportivas, S.A., 20 F.3d 987, 991-92 (9th Cir.1994), the Ninth Circuit extended the presumption of collusion and applied it to the assignment of claims from a non-diverse Nike subsidiary to the diverse parent corporation (an "upstream" assignment). Appellees urge us to adopt Nike and affirm the district court's application of the presumption of collusion to the case before us. The Nike court solely relied on a quote from Green & White Constr. Co. v. Cormat Contr. Co., 361 F.Supp. 125, 128 (N.D.Ill.1973), a case applying the presumption to an...