Excimer Associates, Inc. v. LCA Vision, Inc.

292 F.3d 134, 2002 WL 1159486
Court of Appeals for the Second Circuit·Decided May 31, 2002·No. Docket No. 00-9390·Published·Cited by 5 cases

Opinion

PER CURIAM.

Appellants LCA Vision, Inc. and its officers and directors, Stephen N. Joffe, Larry Rapp, Gregory Livingston, Judith Crist, Sandra Joffe, Craig Joffe, and John Has-san, appeal from a judgment entered in the United States District Court for the Southern District of New York (Chin, /.), remanding to the state court from which it was removed the first of two consolidated actions, the court having determined that it lacked subject matter jurisdiction over the action because there was not complete diversity among the parties, and dismissing the second action, the court having determined that LCA Vision, Inc. lacks standing to assert the claims it pleads in that action.

BACKGROUND

In late 1994, discussions began between appellant LCA Vision, Inc. (“LCA”), non-party Cabrini Medical Center (the “Hospital”), the Hospital’s affiliate Cabrini Development Council (“Cabrini”), and various ophthalmologists regarding the establishment of a New York City center offering a laser procedure to correct myopia. On March 6, 1995, LCA and the Hospital entered into a Development Agreement that contemplated the creation of a for-profit entity, appellee CDC Operations, Inc. (“CDCO”), which would assume the Hospital’s rights and obligations under the Development Agreement and would take part in the venture. CDCO, LCA, and appellee New York Refractive Eye Associates, P.C. (“PC”) then created Excimer, a limited liability company, and entered into an Operating Agreement to govern Excimer’s operations.

Pursuant to the Operating Agreement, the percentage interests in Excimer were 40% for CDCO, 40% for LCA, and 20% for PC. These interest ratios also represented the percentage of initial and subsequent capital contributions each entity was required to make. Both CDCO and LCA made their initial contributions in accordance with the Operating Agreement. LCA alleges in its complaint that PC failed to make its required capital contribution. LCA also alleges that it made substantial additional contributions to Excimer that CDCO failed to match. CDCO denies that the capital contributions were unequal.

In late 1995 or early 1996, Excimer began operating a single, unprofitable center in Manhattan. Soon thereafter, Excimer entered into negotiations to acquire another center offering the same laser procedure in Mt. Kisco, New York. According to CDCO and Excimer, Excimer agreed to acquire the Mt. Kisco Center. Before it could do so, however, LCA acquired the center for itself, thereby usurping a corporate opportunity that rightly belonged to Excimer.

In February 1997, CDCO offered to sell its interest in Excimer to LCA. The parties sought PC’s consent to the sale, believing that the Operating Agreement required that the sale be consented to in writing by all of Excimer’s members. CDCO and LCA were unable to obtain PC’s consent. The parties dispute whether a sales agreement between LCA and CDCO would be binding, in view of PC’s refusal to agree to the sale. Excimer ceased operating in September 1997.

The first action originally was filed in the Supreme Court of the State of New York on October 16, 1997, by Cabrini and CDCO, suing individually and derivatively on behalf of and for the benefit of Excimer against LCA, and its officers and directors (the Individual Defendants), and Excimer. The complaint in the first action asserts: (1) a claim for breach of contract by CDCO against LCA; (2) claims for breach of contract, breach of the covenant of good faith [137] and fair dealing, and unjust enrichment by Excimer against LCA; (3) a claim by Ex-cimer against LCA and the Individual Defendants for conversion and theft of a corporate opportunity; and (4) a claim for fraud against LCA and the Individual Defendants by Cabrini. In response, LCA asserts counterclaims for breach of contract, promissory estoppel, breach of fiduciary duty and the duty of good faith and fair dealing, and prima facie tort against Cabrini and CDCO, and breach of contract and indemnification against Excimer.

On November 21, 1997, the defendants removed the action to the district court on the basis of diversity of citizenship, alleging that complete diversity existed between plaintiffs and defendants and that the amount in controversy requirement was satisfied.

On January 12,1998, LCA, the Individual Defendants, and Excimer moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). On March 3, 1998, Cabrini and CDCO moved for leave to file an amended complaint. On November 3, 1998, the district court granted the motion to amend and denied the motion to dismiss as moot. The amended complaint asserted claims on behalf of Excimer directly, rather than derivatively, and dropped Excimer as a defendant. The parties cross-moved for summary judgment on all claims except LCA’s counterclaim for indemnification.

The second action was a suit brought by LCA against PC in the same federal district court. In a complaint dated November 23, 1998, LCA pleaded claims against PC for breach of contract, promissory es-toppel, and breach of fiduciary duty and implied covenant of good faith.1 PC filed counterclaims for breach of contract against LCA and for indemnification against Excimer, which is not a party in the second action. Both parties moved for summary judgment on all claims. On March 25, 1999, the district court consolidated the two actions.

In an order dated August 14, 2000, the district court sua sponte raised the issue of its subject matter jurisdiction by questioning the complete diversity of the parties in the first action. The court noted that “[f]or the purposes of diversity jurisdiction, a limited liability company has the citizenship of each of its members.” Because Excimer is a plaintiff in the first action and LCA, one of its members, is a defendant in that action, the district court stated that “it appears that Excimer and LCA have the same citizenship and complete diversity is lacking.” Accordingly, the district court ordered the parties to submit by August 21, 2000, letter briefs “addressed solely to the issue of whether the complaint in the first action must be dismissed ... for lack of subject matter jurisdiction.”

On September 28, 2000, the district court ruled on the cross-motions for summary judgment made in each of the two actions. The court remanded the first action to the state court for lack of subject matter jurisdiction, finding Excimer, a nondiverse party, to be necessary and indispensable to that action. Cabrini Dev. Council v. LCA Vision, Inc., 197 F.R.D. 90, 96 (S.D.N.Y.2000). The court dismissed the second action on the ground that LCA’s claims against PC could only be asserted derivatively on behalf of Ex-cimer rather than directly and that therefore LCA lacked standing to bring those claims. The court determined that this [138] deficiency could not be rectified by joining Excimer, since such joinder would defeat the court’s diversity jurisdiction. Id. at 96-98.

This timely appeal by LCA and the Individual Defendants followed.2

DISCUSSION

I. Appellate Jurisdiction to Review Remand of First Action

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Excimer Associates, Inc. v. LCA Vision, Inc., 292 F.3d 134, 2002 WL 1159486 (2d Cir. 2002).

292 F.3d 134 (Excimer Associates, Inc. v. LCA Vision, Inc.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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Excimer Associates, Inc. v. Lca Vision, Inc.
292 F.3d 134 (Second Circuit, 2002)