J.P. Morgan Sec. v. Cresset Asset Mgmt.
| Decision Date | 15 December 2021 |
| Docket Number | 1:21-CV-02497 |
| Parties | J.P. MORGAN SECURITIES LLC and J.P. MORGAN CHASE BANK, N.A. Petitioners, v. CRESSET ASSET MANAGEMENT, LLC, Respondent. |
| Court | U.S. District Court — Northern District of Illinois |
Douglas Regan used to work for J.P. Morgan Securities LLC and J.P Morgan Chase Bank, N.A. (for convenience's sake, J.P Morgan). Regan and the bank are now mired in an arbitration dispute. In this federal lawsuit, J.P. Morgan is petitioning to enforce a subpoena against Cresset Asset Management, LLC which is Regan's current employer. R. 1, Pet. ¶ 2.[1] Cresset moves to dismiss, arguing that this Court lacks subject matter jurisdiction, and that the petition fails to state a claim. R. 14. For the reasons explained in this Opinion, Cresset's motion to dismiss for lack of subject-matter jurisdiction is denied. But Cresset shall file a Jurisdictional Statement (with accompanying evidence), as described in this Opinion, so that a final decision may be made on whether diversity jurisdiction applies.
Douglas Regan began working for J.P. Morgan in 2012. R. 1-1 at 33, Arbitration Claim Exh. A, Offer Letter at 1 (PDF at 34).[2] His employment agreement contained two provisions relevant to this litigation. First, for one year after leaving the bank, he was banned from soliciting or recruiting any J.P. Morgan employees. Id. at 5 (PDF at 38); R. 1-1 at 45, Arbitration Claim Exh. B, J.P. Morgan Code of Conduct at 31 (PDF at 53). Second, if any dispute were to arise between J.P. Morgan and Regan, it would be resolved by binding arbitration under the Federal Arbitration Act, 9 U.S.C. § 7 et. seq. Offer Letter at 6-11 (PDF at 39-44). Regan left J.P. Morgan in 2017, and joined Cresset as CEO. Pet. ¶ 14. According to J.P. Morgan, at least 10 of their employees were hired by Cresset in the year following Regan's departure. R. 1-1 at 11, Arbitration Claim ¶ 2 (PDF at 13). Regan maintains that all hiring was handled by an executive recruiter employed by Cresset, a process he played no part in. See R. 1-1 at 90, Cresset's Obj. to Subpoena at 6 (PDF at 96); see also R. 15-2 at 37, Griesmeyer Aff. Exh. 13, Hatfield Decl.
Believing that Cresset has information that is necessary to resolve the dispute with Regan, J.P. Morgan twice attempted, unsuccessfully, to have Cresset added as a party to the arbitration. Pet. ¶¶ 2 n.1, 16 n.2; see generally Arbitration Claim. J.P. Morgan then asked the arbitrator to issue a subpoena requesting that Cresset appear and produce 40 categories of documents. R. 1-1 at 1, Subpoena. That subpoena is the subject of this litigation.
After negotiations failed to produce a resolution, J.P. Morgan first filed an action to enforce the subpoena in the Circuit Court of Cook County. R. 15-2 at 208, Griesmeyer Aff. Exh. 30, Circuit Ct. Pet. The state court dismissed the petition, accepting Cresset's argument that only federal district courts have jurisdiction to enforce a subpoena under the Federal Arbitration Act. R. 15-2 at 300, Griesmeyer Aff. Exh. 34, Circuit Ct. Order. J.P. Morgan then filed the current petition here in federal court, asking to enforce the subpoena. The petition alleged jurisdiction under 28 U.S.C. §§ 1331 and 1332(a). Pet. ¶¶ 7-8. That is to say, the petition alleged that there is both federal-question jurisdiction and diversity jurisdiction. J.P. Morgan is simultaneously pursuing an appeal of the state court's decision in the Illinois Appellate Court. R. 15-2 at 306, Griesmeyer Aff. Exh. 35, Notice of Appeal.
Cresset moves to dismiss under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), arguing that this court lacks jurisdiction, and that the petition fails to state a claim. R. 14, Resp't.'s Mot. Dismiss. This Opinion addresses only the Rule 12(b)(1) motion on the threshold issue of subject matter jurisdiction.
A Rule 12(b)(1) motion tests whether the Court has subject matter jurisdiction, Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009); Long v. ShoreBank Dev. Corp., 182 F.3d 548, 554 (7th Cir. 1999), whereas a Rule 12(b)(6) motion tests the sufficiency of the complaint, Hallinan, 570 F.3d at 820; Gibson v. City of Chi., 910 F.2d 1510, 1520 (7th Cir. 1990). In order to survive a Rule 12(b)(1) motion, the petitioner must establish that the district court has subject-matter jurisdiction. United Phosphorous, Ltd. v. Angus Chem. Co., 322 F.3d 942, 946 (7th Cir. 2011), overruled on other grounds, Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845 (7th Cir. 2012). “If subject matter jurisdiction is not evident on the face of the complaint, [then] the ... Rule 12(b)(1) [motion is] analyzed [like] any other motion to dismiss, by assuming for the purposes of the motion that the allegations in the complaint are true.” Id.
At the outset, J.P. Morgan argues that Cresset should be estopped from contesting subject matter jurisdiction in this Court. R. 20, Pet'rs.' Br. at 5 (citing Ogden Martin Sys., Inc. v. Whiting Corp., 179 F.3d 523 (7th Cir. 1999)). J.P. Morgan says that Cresset argued that the state court lacked jurisdiction to enforce the subpoena, forcing J.P. Morgan into federal court, so Cresset should now be blocked from disputing subject matter jurisdiction here. Pet'rs' Br. at 6-7.
But the simple answer to this is that subject matter jurisdiction is not subject (no pun intended) to estoppel. Ins. Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982); United States v. Maranda, 761 F.3d 689, 694 (7th Cir. 2014). Parties cannot avoid a lack of subject matter jurisdiction by agreeing to it, and indeed no party can waive or forfeit subject matter jurisdiction. It is indispensable. Because estoppel does not apply, there is no need to address the question of whether Cresset's position before the state court and its position before this Court are truly inconsistent. See R. 22, Resp't.'s Reply at 11-12.
In its petition, J.P. Morgan alleges that this Court has federal-question jurisdiction under 28 U.S.C. § 1331, because the subpoena was issued under a federal statute, namely the Federal Arbitration Act (). Pet. ¶ 8. Cresset correctly points out, however, that the FAA by itself does not form the premise of federal-question jurisdiction. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n.32 (1983).
Conceding that point, J.P. Morgan next argues that state and federal courts have concurrent jurisdiction to enforce the FAA. Pet'rs.' Br. at 4-5. Although it is true that the FAA carries a presumption of concurrent jurisdiction, Moses H. Cone, 460 U.S. at 25-26, that does not actually help J.P. Morgan establish jurisdiction in federal court. The primary ambit of concurrent jurisdiction is to authorize (and, indeed, generally require) state courts to hear federal-law claims. Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473, 478 (1981) ()(emphasis added). The presumption of concurrent jurisdiction under the FAA is not a path into federal court without some independent basis for federal jurisdiction. Baltin v. Alaron Trading Corp., 128 F.3d 1466, 1469 (11th Cir. 1997).
Because the FAA by itself does not confer federal-question jurisdiction, and because J.P. Morgan alleges no other basis for federal-question jurisdiction, that form of jurisdiction does not apply.
J.P. Morgan next asserts that diversity jurisdiction applies, 28 U.S.C. § 1332(a). Pet. ¶ 7. The diversity-jurisdiction statute requires complete diversity between the plaintiffs and the defendants, along with at least $75, 000 in controversy. 28 U.S.C. § 1332(a)(1); Lincoln Prop. Co. v. Roche, 546 U.S. 81, 89 (2005). When determining diversity of citizenship, a corporation is considered a citizen of its state of incorporation and its principal place of business. Lincoln Prop. Co., 546 U.S. at 94 (citing 28 U.S.C. § 1332(c)(1)). An LLC's citizenship is based on the citizenship of its members. Cosgrove v. Bartolotta, 150 F.3d 729, 731 (7th Cir. 1998). If any of the LLC's members are citizens of the same state as the opposing party, then there is no complete diversity. Id.
To begin, J.P. Morgan adequately pleaded that there is more than $75, 000 in controversy. Pet. ¶ 10. Allegations as to the amount in controversy are accepted if they are made in apparent good faith. Dart Cherokee Basin Operating Co., LLC v. Owens, 574 U.S. 81, 87 (2014). Here, Cresset does not appear to dispute that the amount in controversy is more than $75, 000. See Resp't.'s Br. at 12. So diversity of citizenship is the only point of contention.
On diversity of citizenship, J.P. Morgan pleaded that J.P. Morgan Chase, a corporation, is a citizen of Ohio, because it is incorporated there and has its principal place of business in Columbus, Ohio. Pet. ¶ 12. J.P. Morgan Securities is a citizen of Delaware and New York: it is an LLC and its sole member, J.P. Morgan Broker-Dealer Holdings, is a corporation incorporated in Delaware and has its principal place of business in New York, New York. Pet. ¶ 11. So on the plaintiffs' side of the case are citizens of Ohio and New York.
As to Cresset's citizenship, J.P. Morgan pleaded, on information and belief, that Cresset was “organized under the laws of Delaware, with a [ ]principal place of business in Illinois.” Pet. ¶ 13. That is a problematic allegation for two reasons. First of all citizenship must be...
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