BBSR, LLC v. Anheuser-Busch, LLC

• Court: District Court, D. Connecticut
• Decided: January 3, 2023
• Docket: 3:22-cv-00544
• Status: Unknown

Opinion

UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT

BBSR, LLC, Plaintiff Civil No. 3:22cv544 (JBA) v. , January 3, 2023

ANHEUDSeEfRen-BdUanStCH, LLC,

OR. DER GRANTING PLAINTIFF’S MOTION TO REMAND

Plaintiff BBSR, LLC has moved to remand this case to state court on the grounds that this Court lacks jurisdiction in the absence of complete diversity. (Pl.’s Mot. to Remand [Doc. # 13].) Defendant Anheuser-Busch, LLC, whose sole member is a corporation with Delaware citizenship, opposes and claims that Plaintiff has improperly destroyed diversity by having Plaintiff’s former members create a non-diverse Delaware shell company (BBSR Management, Inc.) to which they assigned all of their membership interests, making it Plaintiff’s new sole member. (Def.’s Mem. in Opp. of Remand [Doc. # 35].) Defendant asserts that the Court should disregard the assignments and conclude that Plaintiff’s true state of citizenship is ConnecticIdu.t, which is the state of domicile for Plaintiff’s former members, Ir.a ther tBhaacnk Dgerloauwnadr e. ( )For the reasons below, the motion to remand is GRANTED. This case involves a contract dispute related to Defendant’s acquisition of a company founded by Nicholas Shields and David Holmes (formerly Plaintiff’s only members) for which Defendant served as the seller representative. Shields and Holmes were both Connecticut citizens. Plaintiff filed suit in Connecticut state court on March 21, 2022, alleging Defendant’s breach of contract, breach of the implied covenant of good faith and fair dealing, violation of CUTPA, and contractual indemnification. (Pl.’s Mot. at 2.) The complaint alleged that Plaintiff LLC was incorporated in and had its primary place of business in Connecticut, but was silent as to the citizenship of its members. (Def.’s Mem. at 3.) On April 14, 2022, Defendant, a Delaware state corporation, removed the case to federal court on the basis of diversity jurisdiction under 28 U.S.C. § 1332. (Notice of Removal [Doc. # 1].) Plaintiff’s motion to remand [Doc. # 13] was accompanied by an affidavit by Plaintiff’s counsel, with supporting exhibits, which stated that Mr. Shields and Mr. Holmes, the former members of Plaintiff LLC, assigned their membership interests to a new corporation founded by Mr. Shields in Delaware called BBSR Management, Inc. prior to filing the complaint. (Def.’s Mem. at 4.I)d T.hese assignments resulted in BBSR Management, Inc. becoming Plaintiff’s sole member. ( ) Thereafter, Defendant sought jurisdictional discovery [Doc. # 23] to ascertain whether Plaintiff had engaged in collusive assignment of its interests to a shell corporation for the purpose of destroying diversity jurisdiction. Because Plaintiff conceded for purposes of the motion that it had, the Court concluded that jurisdictional discovery would be uI.n neceLsseagrayl aSntadn ddeanrided the motion. [Doc. # 34]. “The party opposing a motion toD .rBe.m Satrnudc tbuereadrs P trhoed .,b Iunrcd. evn. S aovf vsihdioswing that the requirements for removal are satisfied.” , No. 3:21-CV- 388 (VAB), 2022 WL 73486, at *1 (D. Conn. Jan. 7, 2022). When a case is originally brought in state court, a party may remove “any civil action . . . of which the district courts of the United States have original jurisdiction” except “as otherwise expressly provided by Act of Congress.” 28 U.S.C. § 1441. “In light of the congressional intent to restrict federal court jurisdiction, as well as the importance of preserving the independence of state governments, federal courtsL ucpoon svt.r Huue mtahne Arffeamirosv Ianlt esrtna.,t uIntce narrowly, resolving any doubts against 1 rIIe.m ovaDbiislictuy.s”s ion ., 28 F.3d 269, 274 (2d Cir.1994). Defendant’s claim of diversity jurisdiction under § 28 U.S.C. 1332 requires that there be “no plaintiff and no defendaWnits cwohnosi anr De ecpit'itz oenf sC oorf rt.h ve. sSacmhaec hSttate” and that the amount in controversy exceed $75,000. , 524 U.S. 381, 388 (1998). “[F]or purposesH oafn ddievlesmrsaitny vju. rBiseddifcotrido nV, iall .l iAmsistoecds .l iLatbdil. itPy's choipmpany has the citizenship of its membership.” , 213 F.3d 48, 51–52 (2d Cir. 2000). Members that are “natural persons” have their citizenship determined according to domicile; members that are “corporate entities” have tAhveainr tc Citaizpe. nPsahrtipn edres,t LeLrmC vin. Wed1 b0y8 D“tehve. pLLlaCce of incorporation and principal place of business.” , 387 F. Supp. 3d 320, 322 (S.D.N.Y. 2016). Plaintiff LLC claims to be a citizen of Delaware, which is the state of incorporation of its sole member, BBSR Management. (Pl.’s Mot. at 3-4). Because Defendant LLC’s sole member is also incorporated in Delaware, the two parties would not be diverse. Defendant views Plaintiff’s motion as “based entirely upon a collusive shell game initiated to deprive Anheuser-Busch of its rightful access to federal court” and urges that the Court “exercise its authority to protect its own jurisdiction and to protect [Defendant’s] statutory and constitutional rights to a federal forum by disregarding [the former members’] collusive assignment of their interests to a sham corporation . . . .” (Def.’s Mem. at 3.) Defendant makes two primary arguments in support of its request: jurisdictional maneuvering to destroy diversity jurisdiction is disfavored by the federal courts, and remand would violate

1 Unless otherwise indicated, internal citations, quotation marks, and other alterations are omitted throughout in text quoted from court decisions. Defendant’s statutory and constitutional rights to avail itself of diversity jurisdiction and the removaAl .s tatutJeu. rTishdei Cctoiuornt aald Mdraenseseusv eearcinhg a rgument in turn below. 1. Parties’ Arguments Defendant argues that federal courts have acted to protect their jurisdiction in the 2 past by rejecting collusive attempts to defeat it. (Def.’s Mem. at 5.) Plaintiff relies on cases upholdiSnege aBcatidodnise tva.k eBne rbkye lpeayr tFieasr mtos ,a vInocid. federal jurisdiction with the specific motive of so doing. , 64 F.3d 487, 490 (9th Cir.1995) (withdrawing federal claims after removal to suppPoertte rrseomna vn. dA ltlcoi tsyt aIntes. Ccoourt was a “legitimate” “tactical decision” rather than manipulative); ., 472 F.2d 71, 74 (2d Cir. 1972) (holding that the motive behind a natural party’s change in domicile was immaterial so losnege aasls soh We iinllitaemndseodn tvo. Omsaekneto tnhe state her home and had no intention of moving elsewhere); , 232 U.S. 619 (1914). Plaintiff focuses on what it claims is a key factor in both parties’ cited cases as not whether a party’s motive is to destroy jurisdiction, but instead whether the “real party in interest” will be litigating the case; hseeer,e e, .g“B. BNSaRv aarnrdo SAanvhse. uAssesor-cB. uv.s cLhe eare the proper parties to the dispute.” (Pl.’s Reply at 1, 10.); , , 446 U.S. 458, 460 (1980) (“the citizens upon whose diversity a plaintiff grounds jurisdiction must be real and substantial parties to the controversy.”). 2 Alabama Great Sou thern Railway Co. v. Thompson, W Seecvkeerra vl . oNf aDtieofnenald aEnnta’sm ceiltiendg c&a sSetas minp isnugp pCoo.r, t of that proposition appear inapposite. For example, 200 U.S. 206, 218 (1906) and Maryland Casualty2 C0o4. vU. W.S.. R1.7 G6r,a 1c8e 3& (C1o9.07) raise the issue of whether a plaintiff can thwart removal by impropeSrleye n aalsmoi Nnga voarr jrooin Sianvg. nAossn'n-d viv. Leersee, parties, not through assignment, and , 23 F.3d 617, 623 (2d Cir. 1993) deals only with re-alignment of parties. LNY 5003 LLC v. Zurich Am.4 I4n6s. UC.oS.. 458, 462 (1980) (dealing with a trust “masking” an unincorporated association of individuals, not the validity of LLC member citizenship); , 558 F. Supp. 3d 416, 424 (S.D. Tex. 2021) (declining to address whether an assignment was collusive and thus improper because the assignment was invalid under an anti-assignment clause). Provident Savings Life AssuranPclea iSnotcifife tfyin vd. sF osrudp, port for its interpretation in th e vintage

in which the Supreme Court heldthat an “assignment of a cause of action, made to prevent removal to federal court, prevents a federal court from Parsosvuimdeinntg, jurisdiction” so long as the assignment is a complete one. 114 U.S. 635 (1885). In Cochran, a citizen of Ohio, assigned his claim to Ford, a natural personId .a nd citizen of New York, who then sued a New York defendant in New York state court. at 635. The Court rejected the defendant’s argument that because the assignment was without consideration and “if possible, [to] prevent the transfer of this action to the United States courts,” the assignment for the purposes of removal should bIed .d isregarded because the real party in interest [Cochran] was diverse from the defendant. at 638. Holding that there was no right of removal, the Supreme Court explained that: [w]here an assignment of a cause of action is colorably made for the purpose of giving jurisdiction to the United States court, the fifth section of the [A]ct of [C]ongress of March 3, 1875, relating to removals, has now given to the circuit courts power to dismiss or remand the cause at any time when the fact is made to appear. And by analogy to this law, it may, perhaps, be a good defense to an action in a state court to shnoowt ath garto au ncdo loofr raebmleo avisnsgig tnhmate cnatu hsaes i nbteoe tnh em faeddeer taol dcoeuprrtive the United States court of jurisdiction; but, as before said, it would be a defense to the action, and Id. .

at 641 (emphasis added). Kramer v. Caribbean Mills, Inc. Defendant contends that , 394 U.S. 823, 828 (1969), holding that the plaintiff’s assignment of claims to a third party to “make diversity jurisdiction available” while retaining an interest in the award was Pimropvirdoepnetr” or collusive under 28 U.S.C. § 1359, was a “departure from the Court’s holding in G rtahsasti dv.i sCtirbiact- cGoeuigryts, Lntodt. “inquire into the motives behind assignments destroying divKerrasimtye,r” , 894 F.2d 181, 184 (5th Cir. 1990). Defendant maintains signaled that “federal courts should be alert to protect their jurisdiction against cleverly-designed Gentle v. Lamb-Weston, Inc.

maneuvers designed by ingenious counsel to defeat it.” Grassi Attorneys T,r 3u0st2 F. 3 Supp. 161, 166–67 (D. Me. 1969). Defendant further points to See Graansds i — tAhteto trwneoy sle Tard. ivn. gV icdiercoutaitp ec aCsoems pount etrh eP rdoeds.,t Irnucc.t, ion of diversity. , 894 F.2d at 184; Kramer 93 F.3d 593, 593-598 (9th Cir. 1996)(relying heavily on to fashion the factors used to evaluate whether an assignment was improper or collusive). Kramer Plaintiff interprets and its progeny as simply seeking to ensure that the parties prosecuting the case are the true parties in interest, distinguishing between complete and partSiaele aAststiogrnnmeyesn Ttsr .based on whether those assignments change the true party in interest. , 93 F.3d at 597 (framing the question as whether “the assignee is truly a real party in interest or just a strawman for all practical purposes,” and noting that “[b]roadly speaking, if an assigNnumkeontet iosf eInll.t,i rIne,c n. vo.t Cplaorvteira lH, tohledrineg iss, aI nvce.ry good chance that it will be found to be proper”); , 2011 WL 13290667 (N.D. Tex. Mar. 8, 2011) (finding no valid assignment because the financial intereGste ntthlee av.s Lsiagmnob-rW reetsationne, dIn icn the outcome of the litigation made the assignment incomplete,); ., 302 F. Supp. 161, 164 (D. Me. 1969) (“‘It is one thing to say that diversity may be destroyed by an assignment of the assignor's entire claim and quite another to say 4 that diversity may be destroyed by the assignment of a mere one per cent of a claim.’”). Miller v. Perry ,

3 , 456 F.2d 63, 68 (4th Cir. 1972), which Defendant cites concerns whether the citizenship of an administrator or a deceased beneficiary would be considered for purposes of diversity in light of a state law that required appointment of in-state adOmveirnriasttreadt oPrrso dfosr., aInncy. vc.l aUimnisv ebrrsoaul gMhut siinc tGhrapt. state. This issue is significantly different from t 4he issue at handA tinto trhniesy csa Tsreu. s t , 2019 WL 6729718 (C.ADt.t Coarnl.e 7y sJ uTlryu 3st1 , 2019), which relied on to hCoolmd ptharaet aw citohm Gpol eCtoem apssuitg. nInmce. nv.t Mofi crrooysaolftty C roigrph.t, s made to evade the court’s jurisdiction was invalid, failed to acknowledge that cabined its holding to partial assignments. No. C 05- 03356 JSW, 2005 WL 3113068, at *2-3 (N.D. Cal. Nov. 21, 2005) (holding that the court should not scrutinize the assigning party’s motive in complete claim assignments based on claims interests

Plaintiff further distinguishes assignments of from assignments of See Pl u(ashs hLoeuren)g eb eLcaasu Vseeg tahse, LlaLtCt evr. Ldaolejis not raise the same concerns about straw parties. , No. 08 Civ. 8394, 2010 WL 5094238 at *3-4 (C.D. Cal. Dec. 7, 2010) (distinguishing the assignment of claims from the assignment of interests because in the former, “thsee eju arlissod iOcptiuonnaa,l LqLuCe svt.i oSanb ibsa agnhswered by deciding who [] the real party in interest [is]”); Attorneys ,T Nruos. t0 5-00488, 2006 WL 2374750, at *8 (D. Haw. Aug. 15, 2006) (distinguishing as involving an assignment of interests, rather than of 2cl. aims)A. n alysis

The Court accepts that existing jurisdictional jurisprudence does not reflect either a universal endorsement or condemnation of actions taken by parties with the motive of destroying diversity jurisdiction but reflects an overall recognition of the need to ensure that the Ptrruoev ipdaerntti,e s in interest will be litigating the case. This principle is most clearly illustrated by which explicitly acknowledged that § 1359 gave courts the authority to exagmiviinneg the motives of a party when the assignment was “colorably made for the purpose of jurisdcoicmtipolne tteo the United States court” but held that courts could not examine the motives of a assignKmraemnte rt hat would, as here, do the opposite. 114 U.S. at 641 (emphasis added). Similarly, held that courts could look to the motives of the parties wavhaeilna bthleey engaged in collusive assignment with the intent to “make diversity jurisdiction ,” 394 U.S. at 828 (emphasis added), and declined to overrule the Supreme Court’s past precedents on assignments which had held that “where the transfer of a claim is absolute, with the transferor retaining no interest in the subject matter, then the transfer is Provident Attorneys Trust and Molina Healthcare, Inc. v. Cel gene Corp., and dist inguishing as applicable only to partial assignments) No. 21-CV-05483-JCS, 2022 WL 161894, at *16 (N.D. Cal. Jan. 18, 2022)(same). regardless of the transferor's motive Id.

not ‘improperly or collusively made,’ .” at 828 n.9 (1969) (emphasis added). defeating Thus, when an assignment of interests is complete, with the consequence of diversity jurisdiction, it should not be disregarded absent a contrary statutory or 5 constituBt.i onal Cmoannsdtiattuet tioo ndaol o atnhder Swtaisteu wtohriyc hR, iagsh dtsis cussed below, does not exist. 1. Parties’ Arguments Defendant also relies on the animating principle behind the creation of diversity jurisdiction—“protecting out-of-state litigants from local prejudice”—Dtoo uagrlagsu eE netrhgayt dofi sNre.Yg, aIrndcinvg. Mthoeb ails Osiigl nCmorepn.t would violate its right to diversity jurisdiction. . , 585 F. Supp 546, 548 (D. KanN. 1u9k8o4te). Defendant argues that the “right” to removal similarly protects against “local bias,” , 2011 WL 13290667 at *9, and that allowing intentional destruction oJfM dTiRv eErnstietyrs ., jLu.rLi.sCd. ivc. tDiounc hifnrustrates both “defendant’s constitutional saened a sltsaot LuNtoYr y5 0ri0g3h tLsL.”C v. Zurich Am. Ins. Co. , 42 F. Supp. 2d 87, 92-93 (D. Mass. 1999); ,558 F. Supp. 3d 416, See Williams v. 5Wells Fargo Bank, Nat. Ass'n, Other courts have reached the same conclusion, albeit for varying reasons. 9 F. Supp. 3d 1080, 1087 (W.D. Mo. 2014) (holding that although the court questioned the continued validity of the underlying principles, binding Supreme Court authoGruiltfy Hryedqruoigreend &fi nEdnienrgg yt,h Iantc . av .c Eoamsptmleaten Cahsseimgn. mCoe.n, t of a claim would defeat diversity jurisdiction, even if “the assignment was made for the purpose of preventing such removal”); No. 2:13-CV-276, 2013 WL 5945671, at *3 (S.D. Tex. Nov. 5, 2013) (denying jurisdictional dNisecpovveeurxy, Ibnecc. avu. sMe onbeiilt hEexrp lt.h &e tPerxotd uocf in §g 1N3. 5A9m n. or any Supreme Court or Circuit precedent prohibited a conversion in creoprporotr aatned crietcizoemnmsheinpd faotri otnh ea dpouprtpeods seu obf n doemfe aNteinpgv eduixv,e Irnsci.t vy.) M; obil Expl. & Producing N. Am., Inc. , No. 6:18-CV-00467, 2018 WL 4523953, at *2 (W.D. La. Aug. 16, 2018), ; , No. 6:18-CV-00467, 2018 WL 4518006 (W.D. La. Sept. 20, 2018) (denying a motion for jurisdictional discovery to determine whether a shell corporation was formed solely to “defeat diversity jurisdiction” because the motive behind the transfer was not relevant). 428-29 (S.D. Tex. 2021) (holding “that diversity jurisdiction can’t be effectively amended out of the Federal Constitution by expedient assignment”). Plaintiff focuses on 28 U.S.C. § 1359, which prohibitisn v“oimkeproperly or collusively” making or joining any party, by assignment or otherwise, “to the jurisdiction of such court.” (emphasis acrdedaetdio)n. Plaintiff argues that § 1359 is an intentional choice by Congress to rdeessttrriucctt icoonllusive of federal jurisdiction without any symmetrical restriction on of jurisdiction. (Pl.’s Reply at 2.) Because a narrow reading of the statute aligns with “congressional intent to restrict federal court jurisdiction” and the Second Circuit’s position that district courts should “construe the removal statute narrowly, resolving doubts against removability,” Plaintiff urges the Court to follow the principle that “Congress will sepxeparke swsihoe unn iiut sw eastn etsx ctlou sdioo aslote” raiunsd” find through application of the canon of construction “ —the express mention of one thing excludes that which is not mentioned—that the statutory prohibition of collusive jurisdictional creation implicitPlyla etixnculumd-eMso anntay uprr oLihfieb Sitciiosn., LoLf Cc ovl.l uNsaivveid jeuar iBsdioipcthiaornmala dceeusttricuacltsi,o Inn.c (.Pl.’s Reply at 2 (citing , 943 F.3d 613, 617 (2d Cir. 2019)). Defendant responds that diversity jurisdiction and removal statutes are also “policy choices of Congress” meant to protect a litigant’s right to avail themselves of diversity jurisdiction, and 28 U.S.C. § 1359 should not be read to take that right away. (Def.’s Mem. at 10.) 2. Analysis Owen EIqt uiisp .a & “ fEurnedcatimone nCtoa.l vp. rKercoegpetr that federal courts are courts of limited jurisdiction,” , 437 U.S. 365, 374 (1978), and the Second Circuit has explained that the removal statute is construed narrowly “[i]n light of the congressional intent to restrict federal court jurisd Sioctmiolyno, av.s J .w Leul-lR aosb tEhnet eirms.p, Ionrct.ance of preserving the independence of state governments,” , 932 F.2d 1043, 1045– superseded by rule on other grounds as recognized by Contino v. United 4St6a t(e2sd Cir. 1991),

, 535 F.3d 124, 127 (2d Cir. 2008). Reading the statute with these principles in mind, at least one court in the Second Circuit has foundl itmhaitte tdhe word “invoke” in § 1359 dictates tSheaet F tehrer agrean evr. aPlh gilraadnetl pohf idai vLearbs'iytys, jIunrcisdiction “is by 28 U.S.C. § 1359,” naofft' de xspuabn ndoemd. Ferrara v. Philadelphia Lab'ys, Inc ., 272 F. Supp. 1000, 1015 (D. Vt. 1967), see also. Leshem v. Cont’l Am. Life Ins. Co. , 393 F.2d 934 (2d Cir. 1968) (emphasis added); , 219 F. Supp. 504, 506 (S.D.N.Y. 1963) (acknowledging that there was no analogous statute to § In1t3'l5 U9,n oiorn j, uUrnisitdeidct Aiountaol. , bAaerr,o wsphaecree & a nA g“raiscs. iIgmnpmleemnte nist mWaodrkee tros aovf oAidm f.e, dUe.Ara.Wl j.u, rLiosdc.i c1t5io0n0” )v;. Bristol Brass Co., No. CIV. H-87-980 (PCD), 1988 WL 235669, at *1 (D. Conn. July 18, 1988) (noting that the “motive of the plaintiff in joining the in-state defendant is irrelevant,” because while § 1359 “prohibits devices to create federal jurisdiction, no statute bars devices to defeat federal jurisdiction”). Thus, § 1359 itself does not prohibit actions taken to intentionally destroy diversity jurisdiction, because that reading would expand the scope of cases within a federal court’s jurisdiction, contrary to its narrowing purpose or language. Here, the principles behind the enactment of the diversity and removal statutes are not undermined since Defendant fails to explain any local prejudice it would suffer if a Connecticut jury were faced with a trial between two corporate citizens of Delaware. Finally, while a court may not deny a party access to a federal court if diversity jurisdiction has created a right to proceed there, it is equally true that courts are charged with determining the bounds of their own jurisdiction, including applying the rule that the removal statute is to be construed narrowly. Notwithstanding mixed case law, the Court returns to first principles: whenL tuhpeor,e is doubt as to removability, the Court must “resolve any doubts” in favor of remand. 28 F.3d at 274. III. Conclusion

For the reasons set forth above, Plaintiff’s motion to remand is GRANTED. The Clerk is directed to remand this case to the Judicial District of Stamford – Norwalk at Stamford. IT IS SO ORDERED.

___________/s/_________________________________

Janet Bond Arterton, U.S.D.J.

Dated at New Haven, Connecticut this 3rd day of January, 2023