Blasberg v. Oxbow Power Corp.

• Decision Date: 17 July 1996
• Docket Number: Civil Action No. 94-12387-REK.
• Citation: 934 F. Supp. 21
• Parties: Arthur BLASBERG, Jr., as Successor Trustee, and As the Sole Limited Partner of North Tonawanda Cogeneration Facility Limited Partnership, Plaintiff, v. OXBOW POWER CORPORATION and Oxbow Power of North Tonawanda, New York, Inc., Individually, and in its Capacity as Sole General Partner of North Tonawanda Cogeneration Facility Limited Partnership, Defendants, and North Tonawanda Cogeneration Facility Limited Partnership, Nominal Defendant.
• Court: U.S. District Court — District of Massachusetts

934 F. Supp. 21

Arthur BLASBERG, Jr., as Successor Trustee, and As the Sole Limited Partner of North Tonawanda Cogeneration Facility Limited Partnership, Plaintiff, v. OXBOW POWER CORPORATION and Oxbow Power of North Tonawanda, New York, Inc., Individually, and in its Capacity as Sole General Partner of North Tonawanda Cogeneration Facility Limited Partnership, Defendants and North Tonawanda Cogeneration Facility Limited Partnership, Nominal Defendant.

Civil Action No. 94-12387-REK.

United States District Court, D. Massachusetts.

July 17, 1996.

Harry L. Manion, III, Cooley, Manion, Moore & Jones, P.C., Boston, MA, for Arthur Blasberg, Jr.

Mitchell H. Kaplan, Choate, Hall & Stewart, Boston, MA, for Oxbow Power Corporation, Oxbow Power of North Tonawanda, New York Inc., North Tonawanda Cogeneration Facility Limited Partnership.

MEMORANDUM AND ORDER

KEETON, District Judge.

Pending before this court is plaintiff's Renewed Motion to Remand (Docket No. 17, filed December 12, 1995). Plaintiff also filed a Memorandum in Support of Remand (Docket No. 18, filed December 12, 1995), an Affidavit of Page D. Miller (Docket No. 19, filed December 12, 1995) and an Affidavit of John R. Martin (Docket No. 20, filed December 12, 1995).

Defendants responded to plaintiff's Motion and filed a Memorandum of Law in Opposition to Plaintiff's Motion to Remand (Docket No. 22, filed January 12, 1996). Plaintiff, in turn, replied to defendants' opposition and filed a Reply Re: Renewed Motion to Remand (Docket No. 24, filed February 7, 1996).

I.

Plaintiff, Arthur Blasberg, Jr. is a Massachusetts resident and the successor trustee of a trust (the "Trust") established to liquidate the assets of Wormser Engineering, Inc. ("Wormser"). The Trust's purpose was to distribute the proceeds from the liquidation for the benefit of Wormser's creditors.

Defendants Oxbow Power of North Tonawanda, New York, Inc. ("Oxbow") and Oxbow Power Corporation ("OPC") are both Delaware Corporations whose principal places of business are in West Palm Beach, Florida.

The "Nominal Defendant," North Tonawanda Cogeneration Facility Limited Partnership (the "Partnership"), is a Limited Partnership created by an agreement between the Trust and Oxbow (the "Partnership Agreement"). The Trust is the sole limited partner and Oxbow is the sole general partner of the Partnership.

This case was first filed in Massachusetts Suffolk County Superior Court as Civil Action No. 94-6032 on November 7, 1994. Defendants removed the case to this court on December 2, 1994 contending that there was and is complete diversity of citizenship among the parties as to all claims and asserting jurisdiction under 28 U.S.C. §§ 1332 and 1441(a).

On December 19, 1994 plaintiff filed a Motion to Remand (Docket No. 3). Defendants opposed plaintiff's motion with a Memorandum in Opposition (Docket No. 5, filed December 30, 1994). This court heard the parties on plaintiff's Motion to Remand on March 2, 1995, and denied the motion without prejudice. The court stated that it did not have an adequate factual record of admissible evidence to determine whether plaintiff had asserted a derivative claim on behalf of the Partnership sufficient to defeat jurisdiction. (See, Court Notes of March 2, 1995, Docket No. 14).

The record then before the court did not show an objectively reasonable basis, after good faith inquiry, for plaintiff's characterization of the claim. The record, therefore, was insufficient for the court to make a determination that plaintiff's characterization of the claim as derivative was not just labeling designed to defeat jurisdiction. For that reason plaintiff's motion was denied without prejudice. Plaintiff was specifically invited to renew its Motion at a later date should it be able, after investigation and discovery, to produce admissible factual support showing that its derivative claim was not "a sham" to defeat defendants' effort to assert diversity jurisdiction in this court.

Plaintiff now renews its Motion to Remand asserting that, through discovery, it has come into possession of evidence sufficient to establish a good faith and reasonable basis for its derivative claim against Oxbow. Plaintiff characterizes its allegations found in Count VII and ¶ 27 of Part II of the Verified Complaint as stating a derivative claim.

In Count VII, plaintiff asserts that Oxbow, as General Partner, had fiduciary obligations both (a) to its sole Limited Partner, the Trust, and (b) to the Partnership. Plaintiff asserts that Count VII includes a derivative claim (on behalf of the Partnership) even if it also includes a claim by plaintiff as Limited Partner for the breach of the duty to the Limited Partner.

II.

A United States district court has original jurisdiction over civil actions between parties of different states where the amount in controversy is greater than $50,000.00. 28 U.S.C. § 1332. A defendant who so desires may remove to federal court any case filed in state court over which the federal district court has original jurisdiction. 28 U.S.C. § 1441(a). If plaintiff believes that removal was improper, plaintiff may file a motion to remand the case to state court. 28 U.S.C. § 1447.

If a complaint includes some claims within § 1332 jurisdiction, and others not within § 1332 jurisdiction, the case is not removable. The lack of complete diversity on any one claim defeats § 1332 jurisdiction over the entire case.

The rule stated in the preceding paragraph is in contrast with the rule established for 28 U.S.C. § 1331 (Federal Question) and 28 U.S.C. § 1441(c), under which "the entire case may be removed and the district court may determine all issues therein, or, in its discretion, may remand all matters in which State law predominates." Neither party contends that this case involves a federal question. Thus, under 28 U.S.C. §§ 1332, 1441, and 1447, for this court to retain jurisdiction, complete diversity of citizenship among opposing parties must be shown as to every claim alleged in the complaint.

In a derivative action the party on whose behalf a suit is brought (the party through which the claim derives) is indispensable. Its citizenship is therefore considered for the purpose of determining whether complete diversity exists. Ross v. Bernhard, 396 U.S. 531, 538-539, 90 S.Ct. 733, 738-39, 24 L.Ed.2d 729 (1970); Koster v. Lumbermens Mutual Casualty Co., 330 U.S. 518, 522-523, 67 S.Ct. 828, 830-31, 91 L.Ed. 1067 (1947).

In determining citizenship of a corporation, a court must treat the corporation as a citizen of the state under whose laws it was formed, as well as a citizen of "the state where it has its principal place of business...." 28 U.S.C. § 1332(c)(1) (with an exception not applicable here). Under the Supreme Court's holding in C.T. Carden v. Arkoma Associates, 494 U.S. 185, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990), a limited partnership is not like a corporation in this respect. A limited partnership is not a citizen of the state under whose laws it was created; rather, its citizenship includes the citizenship of each of its partners, both general and limited. Carden, 494 U.S. at 195-196, 110 S.Ct. at 1021-22. Thus, if plaintiff, as a Limited Partner, has alleged a derivative claim that can survive initial screening, no diversity jurisdiction exists.

The issue before this court is therefore whether plaintiff has alleged a true derivative claim on behalf of the Partnership or instead, as defendants contend, plaintiff has alleged only a claim that is properly characterized as a direct one by the Limited Partner against the General Partner.

III.

Defendants present some mutually inconsistent arguments. I conclude however, that they are permitted to argue in the alternative in this way, and I must consider each argument on its merits. In summary, I understand defendants' arguments to be:

1) since plaintiff has not amended its Complaint, nothing has changed since plaintiff's first Motion to Remand, and the court's order today should therefore be the same as its order of March 2, 1995;

2) plaintiff's Renewed Motion to Remand is, in essence, based on a new allegation, not included in the Complaint, which allegation cannot be considered when deciding the present Motion to Remand;

3) the rights and benefits that plaintiff seeks to enforce run directly and exclusively to the Trust as Limited Partner rather than to the Partnership, and thus the claim is a direct rather than a derivative claim;

4) even if plaintiff has a derivative claim, plaintiff has failed to allege (or show) that the procedural prerequisites for a derivative claim have been satisfied; and

5) the Partnership, called "Nominal Defendant," is in fact a "sham defendant" brought into the suit for the sole purpose of defeating this court's diversity jurisdiction.

In Count VII of its Verified Complaint, which plaintiff contends either states what it characterizes as its derivative claim, or at least includes its derivative claim, is in relevant part as follows:

52. Oxbow has breached its fiduciary duty to the Trust in several ways, including, but not necessarily limited to, the following:

. . . . .

c) its payment of excessive amounts of affiliated party transactions to the detriment of the Partnership and the Trust, as its sole limited partner.

53. As a direct and proximate result of Oxbow's breach of its fiduciary duty, the Trust (and in the case of the excessive affiliated party transactions, the Partnership) has suffered and will continue to suffer severe economic harm.

WHEREFORE, the plaintiff prays that this Court:

1. Award the plaintiff monetary damages in an amount sufficient to compensate the Partnership for its losses resulting from Oxbow's breach; ...

(Verified Complaint at 28) (emphasis added).

Plaintiff also points to paragraph (27) of its complaint to show that it alleged a derivative claim. That paragraph, in pertinent part states:

Upon information and belief, the sole owner of the

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