International Flavors and Textures, LLC v. Gardner

• Decision Date: 20 May 1997
• Docket Number: No. 1:97-CV-369.,1:97-CV-369.
• Citation: 966 F.Supp. 552
• Parties: INTERNATIONAL FLAVORS AND TEXTURES, LLC, and Baking & Milling Worldwide Foods, Inc., Plaintiffs, v. John G. GARDNER, and Savory Blends, Inc., Defendants.
• Court: U.S. District Court — Western District of Michigan

966 F.Supp. 552

INTERNATIONAL FLAVORS AND TEXTURES, LLC, and Baking & Milling Worldwide Foods, Inc., Plaintiffs, v. John G. GARDNER, and Savory Blends, Inc., Defendants.

No. 1:97-CV-369.

United States District Court, W.D. Michigan, Southern Division.

May 20, 1997.

Kevin Abraham Rynbrandt, Varnum, Riddering, Schmidt & Howlett, Grand Rapids, MI, for plaintiffs.

Robert E. Lee Wright, Miller, Canfield, Paddock & Stone, PLC, Grand Rapids, MI, Robert E. Lee Wright, Miller, Canfield, Paddock & Stone, Kalamazoo, MI, for defendants.

OPINION

QUIST, District Judge.

Plaintiffs filed this action in the Circuit Court for the County of Kent, Michigan, alleging breach of contract, breach of fiduciary duty, tortious interference with business relationships and conversion. Defendants removed the action to this Court based upon diversity jurisdiction pursuant to 28 U.S.C. § 1332(a). On May 6, 1997, this Court held a hearing concerning Plaintiffs' request for a Preliminary Injunction. At the hearing, the Court questioned whether it had subject matter jurisdiction and ordered the parties to submit briefs responsive to that issue. This Opinion addresses the Court's subject matter jurisdiction.

Facts

Plaintiff International Flavors and Textures, LLC ("IFT") is a Michigan limited liability company organized under the Michigan limited liability company act, M.C.L. § 450.4101 et seq. IFT's principal place of business is located in Kentwood, Michigan. The members of IFT are co-plaintiff, Baking & Milling Worldwide Foods, Inc. ("BMW") and defendant Savory Blends, Inc. ("Savory"). Plaintiff BMW is a Michigan corporation whose principal place of business is also in Kentwood, Michigan. Defendant John G. Gardner is a resident of the State of Washington. Defendant Savory is a Washington corporation with its principal place of business in Seattle, Washington.

Defendants' Notice of Removal states "Plaintiff International Flavors and Textures, LLC is a Michigan limited liability company, the equivalent of a corporation, with its principal place of business in Kentwood, Michigan" (emphasis added) (Notice of Removal at p. 2). Whether a limited liability company is truly the "equivalent" of a corporation for purposes of federal diversity jurisdiction is contested and is critical to the resolution of whether this Court has subject matter jurisdiction.

Discussion

A defendant desiring to remove a case on the basis of diversity jurisdiction has the burden of proving the diversity jurisdiction requirements. Gafford v. General Elec. Co., 997 F.2d 150, 155 (6th Cir.1993). The diversity statute provides that "[t]he district courts shall have original jurisdiction of all civil actions where the matter is controversy exceeds ... $75,000, ..., and is between — (1) citizens of different States...." 28 U.S.C. § 1332(a). The diversity statute has been interpreted to require "complete diversity" of citizenship. See Strawbridge v. Curtiss, 3 Cranch 267, 2 L.Ed. 435 (1806).

A limited liability company is designed to achieve the best of all worlds for some persons — the limited liability of a corporation plus the favorable tax treatment of a partnership. The members of a limited liability company are like shareholders of a corporation in that they are not personally liable for the debts of the company. The profits of a limited liability company, however, are not taxable to the company but flow directly to its members. Likewise, the losses of a limited liability company flow to and are deductible by its members. See generally Teresa Mosely Sebastian, The Michigan Limited Liability Company Act: A Viable Alternative for Michigan Business? 1993 Det. C.L.Rev. 151 (1993); Michael Indenbaum and Jeff Adelman, Limited Liability Partnerships: Another Choice of Entity for Michigan Business, 74 Mich. B.J. 946 (1995). In any event, it is very clear that a limited liability company is not a corporation:

`Limited liability company' or `domestic limited liability company' means an entity that is an unincorporated association having 2 or more members and is formed under this act.

M.C.L. § 450.4102(2)(i) (emphasis added).

Under Section 210 of the Michigan limited liability company act, M.C.L. § 450.4210, the company has "all powers necessary or convenient to effect any purpose for which the company is formed, including all powers granted to corporations in section 261 of the [Michigan] business corporation act [M.C.L. § 450.1261]." These powers include the powers to sue and be sued (M.C.L. § 450.1261(b)), own and deal with real and personal property (M.C.L. § 450.1261(f)), make contracts (M.C.L. § 450.1261(i)), and transact business (M.C.L. § 450.1261(p)). Furthermore, Section 302 of the Michigan limited liability company act gives the limited liability company direct rights against a member who is obligated to contribute cash or property to the company. M.C.L. § 450.4302. Finally, pursuant to Section 510 of the Michigan limited liability company act, a member of the limited liability company can sue on behalf of the company only if the company fails to sue in its own right. M.C.L. § 450.4510.

The Articles of Organization for IFT were filed with the State of Michigan on September 12, 1996. Paragraph 2.6 of the IFT Operating Agreement specifically gives IFT, not just a member of IFT, the right to take "enforcement action" to collect a member's capital contribution. Furthermore, defendants allegedly owe fiduciary duties to IFT, not BMW. The business with which defendants are accused of interfering is IFT's business. The property that defendants are accused of converting is IFT's property. Therefore, IFT would be the proper party to bring these claims against these defendants. IFT was not a plaintiff joined simply to destroy diversity of citizenship.

The jurisdiction question is whether IFT is a "citizen" under 28 U.S.C. § 1332(a) or whether this Court must look to the citizenship of its members in order to determine whether there is diversity of citizenship pursuant to 28 U.S.C. § 1332(a).

In Carden v. Arkoma Assocs., 494 U.S. 185, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990), the Supreme Court was presented with the issue of whether,...