FNBN-Rescon I LLC v. Ritter
| Decision Date | 06 September 2012 |
| Docket Number | Case No.: 2:11-cv-1867-GMN-VCF,Case No.: 2:11-cv-1868-GMN-VCF |
| Parties | FNBN-RESCON I LLC, a Delaware limited liability company, Plaintiff, v. JOHN A. RITTER, Individually; JOHN A. RITTER, as Trustee of The Mustang Trust, Defendants. |
| Court | U.S. District Court — District of Nevada |
Plaintiff FNBN-RESCON I LLC ("RESCON") filed a Complaint against John A. Ritter in his individual capacity, and as Trustee of the Mustang Trust ("Defendants"). (Compl., ECF No. 1.) Pending before the Court is Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction Pursuant to Fed. R. Civ. P. 12(B)(1); or Alternatively, to Dismiss for Failure to Join an Indispensible [sic] Party Pursuant to Fed. R. Civ. P. 19. (Mot. Dismiss, ECF No. 7.) Also before the Court is Defendants' identical Motion to Dismiss, filed in Case No. 2:11-cv-1868-GMN-VCF. Because the cases have been consolidated, this Order will dispose of both motions. (Order Granting Mot. Consol., ECF No. 19.)
This case arises out of an alleged default on loan payments. Ironwood Properties, LLC, ("Ironwood") executed a Business Loan Agreement ("the Loan") in September 2004 with First National Bank of Nevada ("FNBN") for the amount of $4,869,045.00. (Compl. at 2:17-20.) In exchange for the loan, Ironwood executed a Promissory Note, which was secured by a Deed of Trust encumbering certain property. (Id.)
Defendant, acting in his individual capacity and as Trustee of the Mustang Trust, executed with FNBN a Commercial Guaranty, by which he guaranteed the Loan and any of Ironwood's obligations under it.
FNBN closed in July 2008, and the FDIC—appointed as receiver of the loans—came into possession of the loans that same month. (Compl. at 3:14-15.) The FDIC created Plaintiff RESCON in February 2009 and transferred to it "all right, title and interest . . . in and to the Loans (including all Notes, the other Loan Documents and Related Agreements)." (Compl. at 3:16-18.) Shortly thereafter, Stearns SPV I, LLC ("Stearns") purchased from the FDIC its membership interest in RESCON, thus becoming the sole owner of RESCON. (Id.)
Plaintiff alleges that Ironwood defaulted on its loans. (Compl. at 4:2-3.) Plaintiff filed its Complaint in November 2011, claiming that the Commercial Guaranty holds Defendants liable for all payments owing under and performance of any obligation associated with the Loan. (Id. at 4:15-17.) Defendants filed the pending Motion to Dismiss in January 2012. (Mot. Dismiss at 2:3.)
Defendants move to dismiss Plaintiff's claims, arguing that (1) this Court lacks subject matter jurisdiction (Mot. Dismiss at 2:12-15); and (2) that the FDIC is an indispensable party to this suit whose absence requires the Complaint's dismissal. (Id. at 3:3-6.)
Defendants move to dismiss the Complaint for lack of subject matter jurisdiction. (Mot. Dismiss at 3:8-9.) Defendants make this as a factual challenge to the Court's jurisdiction, arguing that because of the FDIC's significant interest in RESCON, "the FDIC's national citizenship status passes to [RESCON], thereby rendering diversity jurisdiction improper." (Id.)
Federal courts are courts of limited jurisdiction. Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 374 (1978). Courts have subject matter jurisdiction over cases involving a federal question or where diversity of citizenship exists. Id. Federal question jurisdiction exists when a controversy arises under "the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. Diversity jurisdiction exists when there is diversity of parties and an amount in controversy exceeding $75,000.00. 28 U.S.C. § 1332(a).
In determining whether diversity jurisdiction exists over a particular case, a court must find complete diversity of citizenship. Strawbridge v. Curtiss, 7 U.S. 267 (1806). Complete diversity of citizenship exists when all plaintiffs to a case are citizens of different states from all defendants. Id. If any two adversaries are citizens of the same state, diversity jurisdiction is destroyed. Owen, 437 U.S. at 374. Complete diversity of citizenship must exist at the time the complaint is filed. Grupo DataFlux v. Atlas Global Group, L.P., 541 U.S. 567, 571 (2004).
The citizenship of limited liability companies (LLCs) is determined for jurisdictional purposes by the citizenship of each of its members or owners. Johnson v. Columbia Properties Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006).
As a federally-chartered corporation, the FDIC is not considered a citizen of any state in particular, but rather is a national citizen only. RES-NV TVL, LCC v. Towne Vistas LLC, 2:10-cv-1084 JCM PAL, 2011 WL 5117886 (D. Nev. Oct. 27, 2011); see Hancock Financial Corp. v. Fed. Savings and Loan Ins. Corp., 492 F.2d 1325 (9th Cir. 1974). Courts have consistently held that diversity jurisdiction is destroyed when the FDIC is a member of an LLC that is party to a suit. See Towne Vistas, 2011 WL 5117886; RES-NV APC, LLC v. Astoria Pearl Creek, LLC, 2:11-cv-00381-LDG, 2011 WL 5374050 (D. Nev. Nov. 4, 2011); Multibank 2009-1 RES-ADC Venture LLC v. CRM Ventures, LLC, Case No. 10-cv-02001-PAB-CBS (D. Colo. 2010).
Defendants may move to dismiss a complaint that lacks subject matter jurisdiction. Fed.R. Civ. P. 12(b)(1). Although Defendants are the moving party, Plaintiff has the burden of proving that subject matter jurisdiction exists. McCauley v. Ford Motor Co., 264 F.3d 952, 957 (9th Cir. 2001) (citing McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189 (1936)). District courts must dismiss a complaint that, "considered in its entirety, on its face fails to allege facts sufficient to establish subject matter jurisdiction." In re Dynamic Random Access Memory (DRAM) Antitrust Litigation, 546 F.3d 981, 984-85 (9th Cir. 2008).
A 12(b)(1) motion can be made in one of two ways: facial or factual challenges. In a facial challenge, defendants attack the sufficiency of the pleadings supporting subject matter jurisdiction. Frasure v. United States, 256 F.Supp.2d 1180, 1184 (D. Nev. 2003). In this type of 12(b)(1) motion, district courts must accept all allegations as true. Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004) (citing Bollard v. Cal. Province of the Soc'y of Jesus, 196 F.3d 940, 944-45 (9th Cir. 1999)). On the other hand, in a factual attack or "speaking motion," defendants challenge the actual existence of subject matter jurisdiction. Frasure, 256 F. Supp. 2d at 1184. In this type of motion, courts should treat the pleadings as evidence, courts should not presume the truthfulness of the plaintiff's allegations, and the plaintiff has the burden of proving that jurisdiction exists. Id. In opposing a factual challenge, a plaintiff meets its burden by presenting evidence outside of the allegations that support a finding of jurisdiction. Trentacosta v. Frontier Pac. Aircraft Indus., Inc., 813 F.2d 1553, 1559 (9th Cir. 1987). This requirement is "the same as that required under Rule 56(e) that the nonmoving party to a motion for summary judgment must set forth specific facts, beyond his pleadings, to show that a genuine issue of material fact exists." Id.
When confronted with a factual challenge, courts are free to weigh the evidence and resolve factual disputes concerning subject matter jurisdiction. Id.; see Augustine v. United States, 704 F.2d 1074, 1077 (9th Cir.1983) (). Furthermore, it is within the court's discretion whether to hold an evidentiary hearing on factual disputes. See Gibbs v. Buck, 307 U.S. 66, 71-72 (1939) ().
Defendants claim that, given the FDIC's large interest in the loans at issue and the great amount of control it has over RESCON, the FDIC is actually the "real party" to this suit. (Mot. Dismiss at 8:6-7.) As the real party in interest, the FDIC would be added as a party to the suit, which would destroy diversity jurisdiction. Intertwined in Defendants' arguments that the FDIC is a real party to the suit is his argument that the assignment of RESCON to Sterns was improperly or collusively made for the purpose of creating federal subject matter jurisdiction. Thus, the Court will first address these allegations and arguments and then turn to whether or not the FDIC's substantial interest in RESCON makes it a real party in interest to this suit.
"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 such court." 28 U.S.C. §1359. Defendants allege that the FDIC violated 28 U.S.C. §1359 by improperly selling its interest in RESCON to Stearns so as to create diversity jurisdiction. (Id. at 8:8-10.) In particular, Defendants argue that the FDIC's substantial control over RESCON as evidenced in the Participation Agreement proves that the FDIC's transfer of RESCON to Stearns was a sham transaction done merely to obtain jurisdiction in federal court. (Id. at 2:22-26.)
The standard for determining whether a party improperly created federal subject matter jurisdiction "by assignment or otherwise" is an unsettled area of law. However, the Supreme Court has laid out principles that have guided other federal courts considering this issue. SeeKramer v. Caribbean Mills, Inc., 394 U.S. 823 (1969).
Kramer involved a dispute between Panamanian and Haitian corporations. Id. at 824. The Panamanian corporation sought federal jurisdiction by assigning its claim to a Texas lawyer, Kramer, in...
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