Handelsman & Village Green v. Bedford Village

• Decision Date: 01 August 1999
• Docket Number: Docket Nos. 98-9434
• Citation: 213 F.3d 48
• Parties: (2nd Cir. 2000) BURTON HANDELSMAN and VILLAGE GREEN ASSOCIATES LIMITED LIABILITY COMPANY, Plaintiffs-Appellants, v. BEDFORD VILLAGE ASSOCIATES LIMITED PARTNERSHIP, BEDFORD VILLAGE ASSOCIATES LIMITED LIABILITY COMPANY, and MARK J. KRONMAN, Defendants-Appellees. (L), 99-7948(CON)
• Court: U.S. Court of Appeals — Second Circuit

Page 48

213 F.3d 48 (2nd Cir. 2000)

BURTON HANDELSMAN and VILLAGE GREEN ASSOCIATES LIMITED LIABILITY COMPANY, Plaintiffs-Appellants, v. BEDFORD VILLAGE ASSOCIATES LIMITED PARTNERSHIP, BEDFORD VILLAGE ASSOCIATES LIMITED LIABILITY COMPANY, and MARK J. KRONMAN, Defendants-Appellees.

Docket Nos. 98-9434(L), 99-7948(CON)

August Term, 1999

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Argued: February 24, 2000

Decided: May 17, 2000

Appeal from a judgment of the United States District Court for the Southern District of New York (John S. Martin, Jr., Judge) dismissing plaintiffs' complaint and finding for defendants on their counterclaims, and from a post-judgment order dismissing all parties except plaintiff Handelsman and defendant Kronman in their individual capacities. We conclude that the district court lacked diversity jurisdiction in this case and that such jurisdiction is not salvageable.

Vacated and remanded.

AMOS ALTER, Parker Chapin Flattau & Klimpl, LLP, New York, NY, for plaintiffs-appellants.

RICHARD M. RESNICK, Mandel & Resnick PC, New York, NY (Edward M. Shapiro and Richard M. Garbarini, on the brief), for defendants-appellees.

Before: STRAUB and SOTOMAYOR, Circuit Judges, and HURD,^*. District Judge.

SOTOMAYOR, Circuit Judge:

Plaintiff-appellants Burton Handelsman ("Handelsman") and Village Green Associates Limited Liability Company ("Village Green") appeal from a judgment of the United States District Court for the Southern District of New York (John S. Martin, Jr., Judge) dismissing their complaint and finding in favor of defendants-appellees Mark J. Kronman ("Kronman"), Bedford Village Associates Limited Partnership ("Bedford Partnership"), and Bedford Village Associates Limited Liability Company ("Bedford LLC") on their counterclaims. Plaintiffs also appeal from a post-judgment order attempting to salvage diversity jurisdiction by dismissing all parties except Handelsman and Kronman in their individual capacities.

For the reasons discussed below, we conclude that jurisdiction in this case cannot lie. We therefore vacate the district court's judgment and post-judgment order and remand to the district court with instructions to remand the case to the state court from which it was originally removed.

BACKGROUND

This case arises out of a November 10, 1995 settlement agreement ("Settlement Agreement") that resolved a number of controversies involving 17 different real estate partnerships containing more than 200 partners. The Settlement Agreement provided, inter alia, for the conversion of each of the 17 general partner entities (limited partnerships, each with Handelsman as general partner) into limited liability companies ("LLCs") to be co-managed by Handelsman and either Mark Kronman or Richard Segal. The Settlement Agreement also specified a procedure by which Handelsman could offer to purchase individual partnership properties at a set price, and the Partner Representative would have the right of first refusal on behalf of the limited partners. By matching Handelsman's offer, the Partner Representative could exercise the limited partners' right of first refusal and thereby extinguish Handelsman's interest in the subject property.

On December 23, 1996, Handelsman made an offer to purchase a particular property from Bedford Partnership for $2,150,000, pursuant to the procedure set out in the Settlement Agreement. At that point, Bedford Partnership's Partner Representative-Mark Kronman-sought to match Handelsman's offer and buy out Handelsman's interest in the subject property. After negotiating several aspects of the draft contract of sale with Handelsman's attorney, Kronman signed a February 4, 1997 contract of sale ("February Contract") and returned it to Handelsman for his signature. Handelsman never executed the February Contract, however, claiming that Kronman's counteroffer failed to match the terms of his original offer.

On August 25, 1997, Handelsman filed suit against Kronman and Bedford LLC¹ in New York State Supreme Court, New York County. Defendants Kronman and Bedford LLC thereafter removed the action to federal court pursuant to 28 U.S.C. §1441.² On November 6, 1997, Handelsman filed an amended complaint in federal district court, adding Village Green (a Handelsman-controlled entity) as co-plaintiff, and naming Kronman, Bedford LLC, and Bedford Partnership as defendants.

Plaintiffs' amended complaint sought a declaratory judgment regarding the rights of the parties, an injunction directing Bedford Partnership to transfer title to the subject property to plaintiffs, attorneys fees, and costs. On November 20, 1997, defendants Kronman, Bedford LLC, and Bedford Partnership answered and filed counterclaims. In their counterclaims, defendants sought an injunction directing Handelsman to execute the February Contract, removal of Handelsman as co-manager of all 17 partnerships, damages for Handelsman's alleged breach of fiduciary duty, punitive damages, attorneys fees, and costs.

Following a bench trial, the district court entered judgment on September 23, 1998, directing Handelsman to execute the February Contract, removing Handelsman as co-managing partner of the 17 partnerships, and awarding attorneys fees and costs to defendants. Plaintiffs filed a timely notice of appeal on October 22, 1998, appealing on the merits of the district court's decision.

While their appeal on the merits was pending before this Court, plaintiffs moved to vacate the judgment for lack of subject matter jurisdiction pursuant to Fed. R. Civ. P. 60(b), claiming a lack of complete diversity between the parties. The parties thereafter entered into a stipulation dismissing the appeal on the merits with leave to reinstate it following the district court's consideration of plaintiffs' motion to vacate. On July 29, 1999, the district court issued an order recognizing that diversity jurisdiction was lacking among the parties named in the amended complaint. In an effort to salvage both jurisdiction and the judgment, the district court stated its intent to dismiss all non-diverse parties, including Kronman (in his capacity as Partner Representative) as well as the other partnership and LLC entities, and to retain only Handelsman and Kronman (in his individual capacity). Finding that diversity jurisdiction was salvageable, the district court denied plaintiffs' motion to vacate.

Pursuant to the parties' stipulation, plaintiffs now reinstate their first appeal on the merits. Plaintiffs also appeal from the district court's July 29, 1999 order denying their motion to vacate the judgment and to remand the case to state court for lack of subject matter jurisdiction. We hold that subject matter jurisdiction does not exist for this action and thus decline to address the merits of the underlying dispute.

DISCUSSION

When this action was removed to federal court, the purported basis for subject matter jurisdiction was 28 U.S.C. § 1332, which provides that "[t]he district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interests and costs, and is between . . . citizens of different States." 28 U.S.C. § 1332(a)(1). Diversity jurisdiction requires that "all of the adverse parties in a suit . . . be completely diverse with regard to citizenship." E.R. Squibb & Sons, Inc. v. Accident & Cas. Ins. Co., 160 F.3d 925, 930 (2d Cir. 1998) (citing Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806)); see also Wisconsin Dep't of Corrections v. Schact, 524 U.S. 381, 388 (1998) ("A case falls within the federal district court's original diversity jurisdiction only if diversity of citizenship among the parties is complete, i.e., only if there is no plaintiff and no defendant who are citizens of the same State.") (internal quotation marks omitted).

When the district court originally entered its judgment, however, complete diversity was lacking as between all plaintiffs and defendants. Plaintiff Handelsman is a citizen of Florida and co-plaintiff Village Green (a Handelsman entity) is, for diversity purposes, also a citizen of Florida. See Cosgrove v. Bartolotto, 150 F.3d 729, 731 (7th Cir. 1998) (stating that, for purposes of diversity jurisdiction, a limited liability company has the citizenship of its membership). Similarly, defendants Bedford Partnership and Bedford LLC are, for diversity purposes, citizens of Florida because both entities have Florida members. See, e.g., Carden v. Arkoma Assocs., 494 U.S. 185, 195-96 (1990) (stating that, for purposes of diversity jurisdiction, limited partnerships have the citizenship of each of its general and limited partners); Cosgrove, 150 F.3d at 731 (same). Finally, while Kronman (in his individual capacity) is a citizen of New York, Kronman (in his capacity as Partner Representative) is, for diversity purposes, deemed to have the citizenship of all the limited partners he represents, including those from Florida. See Squibb, 160 F.3d at 931 (noting "that federal courts must look to the individuals being represented rather than their collective representative to determine whether diversity of citizenship exists") (quoting Northern Trust Co. v. Bunge Corp., 899 F.2d 591, 594 (7th Cir. 1990)). Thus, diversity was lacking under § 1332 because plaintiffs Handelsman and Village Green, and defendants Bedford Partnership, Bedford LLC, and Kronman (in his capacity as Partner Representative) are all citizens of Florida.

In its July 29, 1999 order, the district court sought to dismiss from the lawsuit all non-diverse parties, leaving only Handelsman and Kronman in their individual capacities. See generally Fed. R. Civ. P. 21 ("Parties may be dropped or added by order of the court on motion of any party or of its own initiative at any stage of the action and on such terms as are just."); Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 832, 836 (1989) (noting that "it is well-settled that...