Mcculloch v. Velez Malave
| Decision Date | 25 February 2003 |
| Docket Number | Civil No. 01-2440(JAG). |
| Citation | 260 F.Supp.2d 358 |
| Parties | Kenneth McCULLOCH, et al., Plaintiffs, v. Norberto VELEZ MALAVE, et al., Defendants. |
| Court | U.S. District Court — District of Puerto Rico |
Fernando L. Gallardo, Woods and Woods, San Juan, PR, Kenneth J. McCulloch, Ballard, Rosenberg, Golper & Savitt, LLP, New York, NY, for plaintiffs.
Robert Millan, Rio Piedras, PR, for defendants.
On October 23, 2001, plaintiffs Kenneth McCulloch ("McCulloch"), his wife Carmen Otero Ferreras, and their conjugal partnership (collectively "plaintiffs") brought this action for collection of money and breach of contract under Puerto Rico law against defendants Norberto Velez Malave, his wife Nitza Denise Leon, their conjugal partnership, and Caribbean Bakers, Inc. (collectively "defendants"). The plaintiffs invoke the Court's jurisdiction because of the parties' diversity of citizenship, pursuant to 28 U.S.C. § 1332. Because the Court finds there is no diversity, it dismisses the case without prejudice for lack of subject matter jurisdiction.
McCulloch, a citizen of the State of New York, is the president and sole shareholder of Mandorico, Inc. ("Mandorico") and Tip Top Donuts, Inc. ("TTD"). Mandorico and TTD are incorporated under the laws of Puerto Rico. Defendants are all citizens of Puerto Rico. On June 20, 1996, Mandorico entered into a lease agreement with the Puerto Rico Industrial Development Corporation ("PRIDCO") for the premises where Mandorico's business is located. On May 7,1997, McCulloch, acting as president of Mandorico, entered into a Business Purchase Agreement ("BPA") with defendants, whereby they purchased from Mandorico a business dedicated to the manufacture and sale of baked goods, pastries, and donuts, among other things.
The BPA established a four year payment schedule. The BPA further established specific dates when plaintiffs would transfer title of the business' various assets to defendants over the same four year period, subject to defendants being current on their payments. Moreover, defendants agreed to assume the ongoing costs of running the business, including the rent payments to PFJDCO. According to the BPA, Mandorico transferred the PRIDCO lease to TTD. TTD was supposed to transfer the lease to defendants at an unspecified later time.3 The transfer to defendants never took place, however.
Furthermore, the BPA states that, in the event of default by defendants, plaintiffs and Mandorico would have the right to resume the business upon giving defendants notice of default and fifteen days in which to cure it. On May 29, 2001, plaintiffs sent a notice of default to defendants for the sum of $43,750. This suit soon followed.
On March 1, 2002, plaintiffs moved for summary judgment (Docket No. 21), and on May 31, 2002, defendants opposed (Docket No. 32). On July 11, 2002, the Court referred the motions to Magistrate-Judge Gustavo A. Gelpi for a report and recommendation (Docket No. 44). On July 18, 2002, Magistrate-Judge Gelpi recommended that the Court deny summary judgment without prejudice because discovery had not yet been completed (Docket No. 46). On July 26, 2002, plaintiffs filed objections to the report and recommendation (Docket No. 50). Review of the objections is pending before the Court.
On August 13, 2002, Magistrate-Judge Gelpi held a hearing where defendants contested the Court's subject matter jurisdiction. Following the hearing, Magistrate-Judge Gelpi ordered defendants to brief the Court on the matter (Docket No. 53). On September 3, 2002, defendants moved to dismiss the complaint, pursuant to Fed.R.Civ.P 12(b)(1) and 19(b), for lack of subject matter jurisdiction (Docket No. 57). Plaintiffs did not oppose. On September 6, 2002, Magistrate-Judge Gelpi recommended that the Court deny the motion, finding that Mandorico was not an indispensable party and that plaintiffs' complaint satisfied the amount in controversy requirement (Docket No. 58). On September 16, 2002, defendants filed objections to the report and recommendation. Review of the objections is also pending before the Court.
On December 19, 2002, plaintiffs moved for a preliminary injunction, requesting that the Court enjoin defendants from continuing to occupy the business' premises and from removing any equipment from the premises (Docket No. 78). On December 27, 2002, the Court referred the motion to Magistrate-Judge Gelpi. On December 31, 2002, Magistrate-Judge Gelpi ordered defendants to respond by January 15, 2003 (Docket No. 81). Defendants, however, failed to oppose the motion. The motion is pending before the Court.
On January 17, 2003, while a decision on their first motion for summary judgment was still pending, plaintiffs filed a second motion for summary judgment (Docket No. 86). Defendants did not oppose. This motion is also pending before the Court.
For the reasons discussed below, the Court grants defendants' motion to dismiss for lack of subject matter jurisdiction (Docket No. 57). Accordingly, the Court denies plaintiffs' motions for summary judgment (Docket Nos. 21 & 86) and for a preliminary injunction (Docket No. 78).
A District Court may, on its own motion, refer a pending motion to a U.S. Magistrate-Judge for a report and recommendation. See 28 U.S.C. § 636(b)(1)(B); Fed. R.Civ.P. 72(b); Local Rule 503. Pursuant to Fed.R.Civ.P. 72(b) and Local Rule 510.2, the adversely affected party may contest the Magistrate-Judge's report and recommendation by filing written objections "[w]ithin ten days of being served" with a copy of the order. See 28 U.S.C. § 636(b)(1). Since defendants have filed timely objections to the Magistrate-Judge's report and recommendation, the Court shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which specific objection is made. See United States v. Raddatz, 447 U.S. 667, 673, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980); Lopez v. Chater, 8 F.Supp.2d 152, 154 (D.P.R.1998).
As courts of limited jurisdiction, federal courts have the duty of construing jurisdiction-granting statutes strictly. See, e.g., Alicea-Rivera v. SIMED, 12 F.Supp.2d 243, 245 (D.P.R.1998). Here, plaintiffs have invoked the Court's jurisdiction pursuant to the diversity statute, 28 U.S.C. § 1332. Diversity jurisdiction requires complete diversity between all plaintiffs and all defendants. See Casas Office Machines v. Mita Copystar America, Inc., 42 F.3d 668, 673 (1st Cir.1994). Defendants have challenged the plaintiffs' jurisdictional allegations; accordingly, plaintiffs bear the burden of proving, by a preponderance of the evidence, the facts supporting jurisdiction.4 Bank One v. Montle, 964 F.2d 48, 50 (1st Cir.1992); O'Toole v. Arlington Trust Co., 681 F.2d 94, 98 (1st Cir.1982).
Defendants challenge the Court's jurisdiction (1) because the real party in interest is Mandorico, a Puerto Rico corporation, and, thus, no diversity exists; and (2) because plaintiffs have failed to make a good faith claim in excess of the jurisdictional amount.
Magistrate-Judge Gelpi rejected defendants' first claim relying on George v. HEK America, Inc., 157 F.R.D. 489 (D.Co. 1994). In George, the Court recognized that plaintiffs corporation was not an indispensable party because it had dissolved and plaintiff, as the sole shareholder, was its successor in interest. See id. at 493. Furthermore, the plaintiff in George had entered into some of the contracts in dispute on his own behalf, as well as on the corporation's. Id. This Court reached a similar conclusion in Myers v. Silva, 208 F.Supp.2d 155 (D.P.R.2002). In Myers, the Court found that it had jurisdiction over the case because the corporation had dissolved and transferred its cause of action to plaintiff prior to the filing of the complaint. Id. at 161-62. Moreover, the plaintiff in Myers proffered as evidence a certificate of dissolution issued by the Puerto Rico Secretary of State, as well as the minutes from the corporation's resolution transferring the cause of action to plaintiff as its successor in interest. These circumstances are not present here.
Unlike in George and Myers, the record in this case does not show that Mandorico has dissolved. Indeed, plaintiffs have not even alleged that it has. That Mandorico still exists and is a party in interest is further evidenced by the fact that it is named as a plaintiff in the summary judgment motions (Docket Nos. 21 & 86). For this reason, the Court disagrees with Magistrate-Judge Gelpi. In order to properly decide the issue of whether Mandorico is an indispensable party to this action, the Court must first examine the validity of Mandorico's assignment of its cause of action to McCulloch.
Pursuant to 28 U.S.C. § 1359, "[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."
This section mandates careful examination of transfers or assignments which might have the effect of creating federal jurisdiction. The reason for such an examination is clear: ... such devices, unless controlled, can provide a simple means of expanding federal diversity jurisdiction.... Suits between local citizens not raising federal issues were to be confined to state courts....
Airlines Reporting Corp. v. S and N Travel, Inc., 857 F.Supp. 1043, 1047 (E.D.N.Y. 1994) (citing Prudential Oil Corp. v. Phillips Petroleum Co., 546 F.2d 469, 474 (2d Cir.1976)). "[T]he mere legality of an assignment cannot make it valid for purposes of federal jurisdiction because such a ruling *would render § 1359 largely incapable of accomplishing its purpose.'" Toste Farm Corp. v. Hadbury, Inc., 70 F.3d 640, 643 (1st Cir.1995) (quoti...
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McCulloch v. Velez
...Fed.R.Civ.P. 72(b), and granted the defendants' motion to dismiss for lack of subject matter jurisdiction. McCulloch v. Vélez Malavé, 260 F.Supp.2d 358, 361-64 (D.P.R.2003). The court did not, however, place its principal reliance on the arguments advanced by the defendants, but, rather, fo......