Hosp. Mgmt. v. Preferred Contractors Ins. Co.
| Decision Date | 30 August 2022 |
| Docket Number | 3:18-cv-452-YY |
| Parties | HOSPITALITY MANAGEMENT, INC., Plaintiff, v. PREFERRED CONTRACTORS INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — District of Oregon |
On July 6, 2021, this Court adopted the Findings and Recommendation (F&R) of United States Magistrate Judge Youlee Yim You on the parties' cross-motions for summary judgment. The Court denied the motion for summary judgment filed by Defendant Preferred Contractors Insurance Company (PCIC) granted the cross-motion for summary judgment filed by Plaintiff Hospitality Management, Inc. (HMI), and entered a Judgment in favor of HMI against PCIC in the amount of $2.5 million. HMI timely moved to amend the Judgment to add prejudgment interest and PCIC appealed the Judgment to the Ninth Circuit. PCIC's Notice of Appeal, however, is ineffective until this Court rules on HMI's pending motion to amend the Judgment to add prejudgment interest.
PCIC filed a “Motion to Inquire” with this Court asking whether this Court would consider vacating its Judgment under Rule 60(b)(4) of the Federal Rules of Civil Procedure (FRCP) so that PCIC could move to dismiss under FRCP 12(b)(1) and 12(h). The Court granted the motion in part, concluding that PCIC had raised serious questions about the Court's subject matter jurisdiction. The Court granted PCIC leave to file its motion under FRCP 60 to reconsider the Court's Judgment and a motion under FRCP 12 to dismiss or remand this case for lack of subject matter jurisdiction. The Court also directed the parties to brief whether the Court should assess sanctions against PCIC for manipulating jurisdiction and directed PCIC to answer several questions to help the Court evaluate the applicability of potential sanctions.
In addressing the Motion to Inquire, the parties raised with the Ninth Circuit jurisdictional issues relating to PCIC's appeal while HMI's motion to amend the Judgment was pending. The parties also noted to this Court that the motion to amend was pending. Judge You issued an F&R on HMI's motion to add prejudgment interest on February 14, 2022 and the Ninth Circuit issued an order stating that PCIC's notice of appeal was ineffective until the motion for prejudgment interest was resolved by this Court.
Before the Court is PCIC's motion asking the Court to dismiss or remand this case and vacate its Judgment, its Order, and the Magistrate Judge's F&R on the summary judgment motions; HMI's motion for sanctions; and Judge You's F&R on HMI's motion to amend the Judgment to add prejudgment interest. For the reasons below, the Court denies PCIC's motion, grants in part HMI's motion for sanctions, and adopts Judge You's F&R to grant HMI's motion for prejudgment interest.
HMI originally filed this action in state court and on March 14, 2018, PCIC removed this action to federal court. ECF 1. PCIC represented in its Corporate Disclosure Statement that it is a limited liability company (LLC), it has five members, and those members are residents of Montana, California, and South Carolina. ECF 3 at 1. HMI represented that it is a citizen of Oregon. ECF 8. HMI sought not less than $2.5 million in damages. See ECF 1 at 3; ECF 17 at 7. Based on these factual representations, the Court found it has subject matter jurisdiction over this action pursuant to 28 U.S.C. §§ 1332 and 1441. F&R, ECF 90, adopted by Order, ECF 101.
On March 17, 2021, Judge You issued her F&R recommending that this Court grant HMI's cross-motion for summary judgment and deny PCIC's motion. ECF 90. On July 6, 2021, this Court issued its Order adopting the F&R. ECF 101. On that same day, the Court entered its final judgment resolving all the claims and closed the case. ECF 102. The Judgment was for HMI in the amount of $2.5 million plus post-Judgment interest. Id. On August 2, 2021, HMI moved for prejudgment interest under FRCP 59(e).[1] ECF 106. On August 5, 2021, PCIC filed its Notice of Appeal of the Judgment to the Ninth Circuit. ECF 107.
The parties proceeded with the appeal before the Ninth Circuit, which set a briefing schedule. PCIC contends that while preparing for that appeal, PCIC “discovered” that its original removal of this case to federal court was invalid because it “mistakenly” did not realize that its LLC members include all its insureds who are members of PCIC's risk retention group, and who include citizens of Oregon. Thus, PCIC contends, it realized that this Court did not have diversity jurisdiction. On February 7, 2022, PCIC filed a “Motion to Inquire” with this Court, asking whether this Court would consider vacating its Judgment under FRCP 60(b)(4) so that PCIC could move to dismiss under FRCP 12(b)(1) and 12(h). ECF 143, 150. Meanwhile, the parties sent a letter to the Ninth Circuit alerting that court to HMI's motion for prejudgment interest pending in this district court. In response, on February 14, 2022, the Ninth Circuit issued an order stating that PCIC's Notice of Appeal was ineffective until this district court enters an order disposing of HMI's pending motion to amend the judgment. ECF 147. The same day, Judge You issued an F&R recommending that this Court grant HMI's motion for prejudgment interest. ECF 148.
On March 31, 2022, this Court resolved PCIC's Motion to Inquire. ECF 159. The Court granted the motion in part, concluding that PCIC had raised serious questions about the Court's subject matter jurisdiction. The Court denied PCIC's request that the Court vacate its Judgment, concluding that the Court would make the determination whether to vacate the Judgment only after “PCIC files its anticipated motion under Rule 60” and “the issues have been fully briefed.” Id. The Court also granted PCIC leave to file its accompanying motion under FRCP 12. The Court further directed the parties to brief whether the Court should assess sanctions against PCIC for manipulating jurisdiction and directed PCIC to answer several questions to help the Court evaluate the applicability of potential sanctions.
On April 6, 2022, HMI moved for sanctions against PCIC. On April 22, 2022, PCIC filed its motion, titled “Motion to Dismiss or Remand for Lack of Subject Matter Jurisdiction and Motion for Relief from Summary Judgment Order.” ECF 163. PCIC first moves under FRCP 12(b)(1) and 12(h)(3) to dismiss or remand for lack of subject matter jurisdiction. PCIC next argues that if the Court determines that it lacks subject matter jurisdiction, then under FRCP 60(b)(4) the Court must vacate the F&R resolving the cross-motions for summary judgment, the Court's Order adopting the F&R, and the Court's Judgment, as void.
PCIC represented at the time of removal that its members were the five membermanagers of its LLC. PCIC's new position stems from its current belief that its LLC members are all of its insureds, who purportedly make up its risk retention group instead of its five member-managers. PCIC states that it had insureds who are residents of Oregon throughout the duration of this litigation, and thus there was never any diversity of citizenship. PCIC asserts that it discovered that the Court does not have subject matter jurisdiction after PCIC “reevaluated” its citizenship in preparing its appeal. PCIC contends that although for years it disputed the position that all of its insureds were members of its LLC when plaintiffs in other cases raised this precise argument, it now realizes that “the law and facts to establish jurisdiction made clear that PCIC may have long misunderstood its citizenship.” ECF 163 at 6 (internal page 3) (emphasis added). PCIC contends that it now believes that it is not diverse with any party who is a citizen of a state in which PCIC has an insured. PCIC, however, is not committing to its new position, stating that it “may” have misunderstood its citizenship. PCIC also notes that it is not informing any other federal court in which it is currently litigating under diversity jurisdiction of its new belief, including courts in which it removed based on diversity jurisdiction. It awaits the nonbinding opinion of this Court before it will alert any other court, even those courts in which it is now litigating.
PCIC has long advocated against the position it now posits. For example in 2013 PCIC defended against the same citizenship theory it now propounds in Preferred Contractors Insurance Company Risk Retention Group, LLC v. Pin Xia Zhong, No. 13-cv-2810 (E.D.N.Y). See ECF 153-1 at 1-3. Additionally, in 2015 PCIC argued against this theory and lost in Preferred Contractors Insurance Company Risk Retention Group v. Joseph & Sons B, LLC, No. 14-cv-5488(JG)(LB) (E.D.N.Y., Sept. 9, 2015) (ECF 38). See ECF 153-1 at 17-24. PCIC asked in its complaint in Joseph & Sons for the court to declare that citizenship for diversity purposes for a risk retention group is different than membership in a limited liability company. ECF 153-1 at 7. The magistrate judge in Joseph & Sons disagreed, and instead found:
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