Thompson v. Deloitte & Touche Llp

• Decision Date: 27 August 2007
• Docket Number: No. 4:07-cv-00067.,4:07-cv-00067.
• Citation: 503 F.Supp.2d 1118
• Parties: Herbert THOMPSON, James Pinder, Dorset Limited, and Sherpam Investments Limited, Plaintiffs, v. DELOITTE & TOUCHE LLP, Defendant.
• Court: U.S. District Court — Southern District of Iowa

503 F.Supp.2d 1118

Herbert THOMPSON, James Pinder, Dorset Limited, and Sherpam Investments Limited, Plaintiffs, v. DELOITTE & TOUCHE LLP, Defendant.

No. 4:07-cv-00067.

United States District Court, S.D. Iowa, Central Division.

August 27, 2007.

COPYRIGHT MATERIAL OMITTED

John F. Sprole, Des Moines, IA, for Plaintiffs.

Nancy E. Brasel, Lawrence M. Shapiro, Greene Espel PLLP, Minneapolis, MN, Hayward L. Draper, Nyemaster Goode Voigts West Hansen & O'Brien, PC, Des Moines, IA, for Defendant.

ORDER ON MOTION TO DISMISS

PRATT, Chief Judge.

Before the Court is Defendant, Deloitte & Touche LLP's ("Deloitte"), Motion to Dismiss, filed on June 29, 2007. Clerk's No. 4. Plaintiffs, Herbert Thompson ("Thompson"), James Pinder ("Pinder"), Dorset Limited ("Dorset Ltd."), and Sherpam Investments Limited ("Sherpam Ltd.") (collectively "Plaintiffs"), filed a resistance to the motion on July 17, 2007. Clerk's No. 10. Deloitte filed a reply to Plaintiffs' resistance on July 27, 2007. Clerk's No. 15. Both parties requested oral argument, however, the Court finds that such argument would not materially aid in the resolution of this motion. Accordingly, the matter is fully submitted.

I. FACTS

This case stems from an alleged faulty appraisal provided by Deloitte. On February 16, 2007, Plaintiffs filed this instant action against Deloitte alleging breach of contract, "violation of independence," and negligence. Clerk's No. 1. According to the Complaint, on or about June 1, 2001, Plaintiffs, as principle shareholders of `Star Insurance Company (Bahamas) Limited ("Star"), entered Star into an "oral agreement pursuant to which the Des Moines, Iowa office of Deloitte would provide an appraisal of Star as of December 31, 2000." Compl. at 1. On July 30, 2001, Deloitte issued an appraisal of Star. Id. Plaintiffs, relying on Deloitte's appraisal of Star, entered Star into a written agreement with Family Guardian Insurance Company Limited ("Family Guardian") (the "Merger Agreement") on November 30, 2001, that effectively merged the two companies. Id. According to Plaintiffs, after signing the Merger Agreement, the liabilities on Star's balance sheet as of December 31, 2000 were found to be incorrect and were adjusted upward to reflect this error, thereby causing the sale price to be adjusted downward by the amount of liability overlooked by Deloitte in its appraisal. See id. at 2, 6. Plaintiffs state that in entering into the Merger Agreement, they relied on Deloitte's appraisal of Star to their detriment. Plaintiffs claim their decision to sign the Merger Agreement was based on two specific provisions in Deloitte's appraisal: provision 3.02, captioned "Merger Closing Price," and provision 4.05, captioned "No Undisclosed Liabilities." Id. at 2.

To establish federal jurisdiction, Plaintiffs allege that "[t]he Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332 because this is an action between corporate citizens of different states and the amount in controversy exceeds the sum of $75,000.00, exclusive of interest and costs." Id. Specifically, the Complaint states that Deloitte "is a subsidiary of Deloitte & Touche USA LLP," which is in turn, "a member firm of Deloitte & Touche Tohmatsu, a Swiss Verein," and that Plaintiffs Thompson and Pinder "are both citizens of the Bahamas," Plaintiff Dorset Ltd. "is a corporate entity of Bermuda," and Plaintiff Sherpam Ltd. is "a corporate entity of the Bahamas." Id.

II. STANDARD FOR MOTION TO DISMISS

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(1) challenges the federal court's subject matter jurisdiction. "Federal courts are courts of limited jurisdiction. They possess only that power authorized by [the] Constitution and statute, which is not to be expanded by judicial decree." Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994) (citations omitted). The courts presume that a suit lies outside this limited jurisdiction, and the burden of establishing the contrary rests on the party asserting jurisdiction. Id.; Sierra Club v. U.S. Army Corp. of Eng'rs, 446 F.3d 808, 815 (8th Cir.2006) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992)). Thus, because Plaintiffs are asserting jurisdiction, they shoulder the burden of proving subject matter jurisdiction by a preponderance of the evidence. See Blakemore v. Mo. Pac. R. Co., 789 F.2d 616, 618 (8th Cir.1986) (stating, that a party attempting to establish federal jurisdiction bears the burden of proof if diversity of citizenship is challenged).

To properly dismiss for lack of subject matter jurisdiction under Rule 12(b)(1), Deloitte must successfully challenge Plaintiffs' Complaint "on its face or the factual truthfulness of its averments." Titus v. Sullivan, 4 F.3d 590, 593 (8th Cir.1993). Facial challenges are limited to analyzing the face of the complaint. Biscanin v. Merrill Lynch & Co., Inc., 407 F.3d 905, 907 (8th Cir.2005). Under a facial challenge, each factual allegation concerning jurisdiction is presumed to be true. Titus, 4 F.3d at 593. Thus, the moving party's motion can be "successful if the plaintiff fails to allege an element necessary for subject matter jurisdiction." Id. Factual challenges invoke facts other than those pled in the complaint. Osborn v. United States, 918 F.2d 724, 729 n. 6 (8th Cir.1990). If a party mounts a factual challenge, "the Court may look outside the pleadings to determine whether jurisdiction exists, and the nonmoving party loses the benefit of favorable inferences from its factual statements." Dolls, Inc. v. City of Coralville, 425 F.Supp.2d 958, 970 (S.D.Iowa 2006). Here, Deloitte's motion to dismiss pursuant to Rule 12(b)(1) is baled on a factual challenge.

III. LAW AND ANALYSIS

Deloitte presents two arguments in support of its motion to dismiss. First, Deloitte argues that complete diversity of citizenship is lacking because Deloitte is "stateless" for jurisdictional purposes. Next, Deloitte contends that complete diversity is destroyed because there are aliens on both sides of the controversy. The Court will address each argument in turn.

A. Diversity of Citizenship Jurisdiction

The Constitution requires only minimal diversity, that is, diversity of citizenship between any two parties on opposite sides of an action.¹ See. State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523, 530-31, 87 S.Ct. 1199, 18 L.Ed.2d 270 (1967). Congress, however, did not grant the district courts the full measure of diversity jurisdiction permitted by the Constitution.² Saadeh v. Farouki, 107 F.3d 52, 54 (D.C.Cir.1997). The Supreme Court has interpreted the diversity statute to require "complete diversity" of citizenship. Carden v. Arkoma Assocs., 494 U.S. 185, 186, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990) (citing Strawbridge v. Curtiss, 3 Cranch 267, 7 U.S. 267, 2 L.Ed. 435 (1806)). Complete diversity, as opposed to minimal diversity, means that the parties on one side are different than each of the parties on the other side. See Strawbridge, 7 U.S. at 267, 3 Cranch 267. In its current form, the diversity statute provides:

The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds $75,000, exclusive of interest and costs, and is between —

(1) Citizens of different States;

(2) citizens of a State and citizens or subjects of a foreign state;

(3) citizens of different States and in which citizens or subjects of a foreign state are additional parties; and

(4) a foreign state, defined in section 1603(a) of this title, as plaintiff and citizens of a State or of different States.

For the purposes of this section ... an alien admitted to the United States for permanent residence shall be deemed a citizen of the State in which such alien is domiciled.

28 U.S.C. § 1332(a). The current diversity statute retains the requirement of complete diversity. Saadeh, 107 F.3d at 54-55.

B. The "Stateless" Partner

As noted above, Plaintiffs assert the existence of subject matter jurisdiction pursuant to 28 U.S.C. § 1332.³ Deloitte, however, states that complete diversity is absent in this case because at least one Deloitte partner is "stateless" for diversity purposes. Deloitte is a limited, liability partnership⁴ consisting, in pertinent part, of partners who are citizens of the United States, about twenty-nine partners who are aliens working and residing in the United States, and at least one partner who, although a United States citizen, is domiciled in Asia and has no domicile in the United States. Deloitte states that as a limited liability partnership, its citizenship is determined by the citizenship of all of its partners. See, e.g., Carden, 494 U.S. at 195-96, 110 S.Ct. 1015 ("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, the several persons composing such association, each of its members.") (internal citations and quotations omitted); Buckley v. Control Data Corp., 923 F.2d 96, 97 (8th Cir.1991) (explaining that citizenship of a limited partnership is the citizenship of each of its partners); Schindler v. Seiler, No. 05-C-0521, 2006 U.S. Dist. LEXIS 11750, at *1 (W.D.Wis. Mar. 20, 2006) (stating that limited liability partnerships have the same citizenship as each of their partners). Plaintiffs agree that as a limited liability partnership, Deloitte's citizenship is determined by the citizenship of its partners. Plaintiffs, however, disagree that a stateless partner renders Deloitte stateless.

In Newman-Green, Inc. v. Alfonzo-Larrain, the Supreme Court explained that "[i]n order to be a citizen of a State within the meaning of the diversity statute, a natural person must be both a citizen of the United States and be domiciled within the State." 490 U.S. 826, 828, 109 S.Ct 2218, 104 L.Ed.2d 893 (1989). Thus, if a United States citizen has no domicile...