Riley v. Merrill Lynch, Pierce, Fenner & Smith, 01-16150.

• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)
• Writing for the Court: Barkett
• Citation: 292 F.3d 1334
• Parties: Robert E. RILEY, Jr., as trustee of, and participant in, the Performance Toyota, Inc. 401(k) Profit Sharing Plan, on behalf of himself and on behalf of all similarly situated participants in the plans and shareholders of the Merrill Lynch Growth Fund, Sheila Cantrell, as trustee of, and participant in, the Performance Toyota, Inc. 401(k) Profit Sharing Plan, on behalf of herself and on behalf of all similarly situated participants in the plans and shareholders of the Merrill Lynch Growth Fund, Gregory D. Dingle, as trustee of, and participant in, the Performance Toyota, Inc. 401(k) Profit Sharing Plan, on behalf of himself and on behalf of all similarly situated participants in the plans and shareholders of the Merrill Lynch Growth Fund, Plaintiffs-Appellants, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC, Merrill Lynch Growth Fund, Merrill Lynch Assett Management, L.P, Arthur Zeikle, James H. Bodurtha, Herbert I. London, Robert R. Martin, Joseph L. May and Andre F. Perold, as the Trustees of the Merrill Lynch Growth Fund, Defendants-Appellees.
• Docket Number: No. 01-16150.,01-16150.
• Decision Date: 07 June 2002

292 F.3d 1334 Robert E. RILEY, Jr., as trustee of, and participant in, the Performance Toyota, Inc. 401(k) Profit Sharing Plan, on behalf of himself and on behalf of all similarly situated participants in the plans and shareholders of the Merrill Lynch Growth Fund, Sheila Cantrell, as trustee of, and participant in, the Performance Toyota, Inc. 401(k) Profit Sharing Plan, on behalf of herself and on behalf of all similarly situated participants in the plans and shareholders of the Merrill Lynch Growth Fund, Gregory D. Dingle, as trustee of, and participant in, the Performance Toyota, Inc. 401(k) Profit Sharing Plan, on behalf of himself and on behalf of all similarly situated participants in the plans and shareholders of the Merrill Lynch Growth Fund, Plaintiffs-Appellants,
v.
MERRILL LYNCH, PIERCE, FENNER & SMITH, INC, Merrill Lynch Growth Fund, Merrill Lynch Assett Management, L.P, Arthur Zeikle, James H. Bodurtha, Herbert I. London, Robert R. Martin, Joseph L. May and Andre F. Perold, as the Trustees of the Merrill Lynch Growth Fund, Defendants-Appellees. No. 01-16150. United States Court of Appeals, Eleventh Circuit. June 7, 2002.

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Guy M. Burns, Jonathan Strickland Coleman, Johnson, Blakely, Pope, Boker, Ruppel & Burns, Tampa, FL, for Plaintiffs-Appellants.

Mark Holland, Clifford, Chance, Rogers & Wells, LLP, New York City, John Eamon Johnson, Marvin E. Barkin, Trenam, Kemker, Scharf, Barkin, Frye, O'Neill & Mullis, Tampa, FL, for Defendants-Appellees.

Appeal from the United States District Court for the Middle District of Florida.

Before BARKETT and MARCUS, Circuit Judges, and HIGHSMITH^*, District Judge.

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BARKETT, Circuit Judge:

Robert E. Riley and Sheila Cantrell are the trustees of the Performance Toyota, Inc. Profit Sharing Plan ("Performance Plan"), and Gregory Dingle is the trustee of the Master Packaging, Inc. 401(K) plan ("Master Packaging"). Both plaintiffs initially filed a class action¹ in federal district court against Merrill Lynch² alleging a violation of two Florida statutes: the Florida Securities and Investor Protection Act (Fla. Stat. Ann. § 517.011 et seq.) and the Florida Deceptive and Unfair Trade Practices Act (Fla. Stat. Ann. § 501.201 et seq.).³ The complaint alleged that Merrill Lynch made "material Misrepresentations and Omissions [that] induced the Plaintiffs and other Class members to purchase and retain shares of the Growth Fund...."⁴ Merrill Lynch moved to dismiss, arguing (a) that the Securities Litigation Uniform Standards Act of 1998, 15 U.S.C. § 78bb ("SLUSA") specifically barred the plaintiffs' class action and (b) there was no diversity jurisdiction because one of the Merrill Lynch defendants, the Growth Fund, was required to be treated as a Florida citizen for diversity purposes because it had shareholders who, like the plaintiffs, were Florida citizens. While Merrill Lynch's motion to dismiss was pending, the district court sua sponte issued an order to show cause why the complaint should not be dismissed for lack of jurisdiction. Performance Plan responded by filing a Notice of Voluntary Dismissal Without Prejudice and then refiling its action in state court.⁵

Pursuant to the removal provision of SLUSA, Merrill Lynch immediately removed the Performance Plan action "back" to federal court, where it was "re-consolidated" with the Master Packaging action. Performance Plan moved to remand the action to state court, but the district court denied the motion. Shortly thereafter, the Court issued an order dismissing the complaints of both Performance Plan and Master Packaging under SLUSA and for lack of diversity jurisdiction over the underlying state law claims.

We review the district court's grant of a motion to dismiss de novo. Lowell v. Am. Cyanamid Co., 177 F.3d 1228, 1229 (11th Cir.1999). We review the district court's jurisdictional rulings and its interpretation of SLUSA de novo. United States v. Hooshmand, 931 F.2d 725, 737 (11th Cir.1991).

DISCUSSION

As always, jurisdiction is a threshold inquiry that we are required to consider before addressing the merits of any claim. But the jurisdictional analysis here is complicated by the unique procedural posture of this case. Master Packaging filed suit

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in diversity directly in federal court, and never left. Thus, the district court was, and this court now is, required to assess whether Master Packaging was diverse from each and every defendant before addressing the merits of its Florida statutory claims and before determining whether SLUSA barred those claims. See University of S. Ala. v. American Tobacco Co., 168 F.3d 405, 412 (11th Cir.1999).

Performance Plan, in contrast, voluntarily left federal court in response to the district court's jurisdictional inquiry, and re-filed its suit in Florida state court. The only reason Performance Plan found its way back to federal court was that Merrill Lynch removed its state lawsuit pursuant to SLUSA. Because SLUSA was the only basis for removal, the trial court was first required to assess, with respect to Performance Plan, whether SLUSA permitted removal from state to federal court. Because the sequence of analysis differs with respect to each plaintiff, we consider each separately.

I. The Master Packaging Action and Growth Fund's Citizenship

There are two issues raised with respect to Master Packaging's appeal. The threshold issue is whether there is diversity jurisdiction. If we conclude that there is jurisdiction, we must turn to the question whether SLUSA bars Master Packaging's lawsuit. For the reasons set forth below, we conclude that the requisite diversity is lacking. Therefore we do not reach the question of whether SLUSA bars Master Packaging's lawsuit.⁶

Master Packaging sued the Merrill Lynch defendants solely under Florida statutory law and the basis for federal jurisdiction was diversity of citizenship. In order for federal diversity jurisdiction to exist, each defendant must be diverse from each plaintiff. See Univ. of S. Ala., 168 F.3d at 412 (citing Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806)). Merrill Lynch contends that one of the defendants, Growth Fund, is not diverse from the Florida-based Plaintiffs because some of its shareholders are Florida citizens. Regardless of the fact that the Growth Fund was organized as a business trust under Massachusetts law, Merrill Lynch argues, it should be deemed, for diversity purposes, a citizen of each state in which it has at least one shareholder. Accordingly, Merrill Lynch contends, there is no diversity jurisdiction in this case because, as a Florida citizen, the Growth Fund is not diverse from the Florida plaintiffs. The trial court, citing Carden v. Arkoma Assocs., 494 U.S. 185, 191-95, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990), agreed, and so do we.

In Carden the Supreme Court held that, for diversity purposes, an Arizona limited partnership was a citizen of each state in which at least one of its general or limited partners was a citizen.⁷ See id. at 195, 110 S.Ct. 1015. In reaching this conclusion, the Court very clearly reaffirmed the doctrinal distinction between corporations on the one hand, and all other types of business entities on the other, stating that only corporations would be treated as citizens of their state of incorporation: "While the rule regarding the treatment of corporations

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as `citizens' has become firmly established, we have (with an exception to be discussed presently) just as firmly resisted extending that treatment to other entities." Id. at 189, 110 S.Ct. 1015. The Court emphasized, "[t]here could be no doubt ... that at least common-law entities (and likely all entities beyond the Puerto Rican sociedad en comandita)<sup>8</sup> would be treated for purposes of the diversity statute pursuant to ... `[t]he tradition of the common law,' which is `to treat as legal persons only incorporated groups and to assimilate all others to partnerships.'" Id. at 190, 110 S.Ct. 1015 (internal citations omitted) (second emphasis added). Thus, the Court stated, "we reject the contention that to determine, for diversity purposes, the citizenship of an artificial entity, the court may consult the citizenship of less than all of the entity's members. We adhere to our oft-repeated rule that diversity jurisdiction in a suit by or against the entity depends on the citizenship of all the members." Id. at 195, 110 S.Ct. 1015 (internal quotations and citations omitted).

In its extended discussion of Navarro Sav. Ass'n. v. Lee, 446 U.S. 458, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980), Carden made clear that the incorporated/unincorporated distinction applies specifically to Massachusetts business trusts, requiring their citizenship to be determined on the basis of the citizenship of their shareholders. Navarro was a case involving a Massachusetts business trust that had brought a lawsuit in the names of eight individual trustees, but not in the names of the trust itself or its shareholders. See Navarro, 446 U.S. at 465-66, 100 S.Ct. 1779. The defendants claimed that the plaintiff trust was not diverse from all of the defendants on the basis of the rule that Merrill Lynch urges here, namely, that a trust is a citizen of each state in which it has at least one shareholder. In response, the Court affirmed the general rule cited by the defendants, though it rejected its applicability in Navarro because, under the limited facts of the case, the trustees themselves were the real parties in interest. See id. In characterizing Navarro as affirming the incorporated/unincorporated distinction, the Carden Court stated:

Arkoma claims to have found another exception to our Chapman tradition⁹ in Navarro Savings Assn. v. Lee, 446 U.S. 458, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980). That case, however, did not involve the question whether a party that is an artificial entity other than a corporation can be considered a "citizen" of a State, but the quite...