Gilpin v. CU Capital Market Solutions, LLC

Opinion

* * * JEREMY GILPIN, et al., Case No. 3:20-cv-00589-MMD-WGC

Plaintiffs, ORDER

v.

et al., Defendants. Plaintiffs Jeremy Gilpin and Hardaway Capitol Group, LLC (“Hardaway”) filed a first amended complaint against Defendants CU Capital Market Solutions, LLC (“CU- CMS”) and Capital Markets Management Group (“CMMG”) arising from events following the conclusion of two bio refinery projects in Nevada. (ECF No. 14 (“FAC”).) Before the Court is Defendants’ motion to dismiss pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure. (ECF No. 23 (“Motion”).)1 Because the Court finds that it does not have diversity jurisdiction over this action—and as further explained below—Defendants’ Motion is granted. The following facts are taken from Plaintiffs’ FAC (ECF No. 14), unless noted otherwise. Jeremy Gilpin is a resident of Nevada and a senior executive of Greater Nevada Commercial Lending, LLC. (Id. at 2.) Gilpin is also the manager of Hardaway, which is a limited liability company incorporated and has a principal place of business in Nevada. (Id.) On the other hand, CU-CMS and CMMG are both Georgia limited liability

1The Court has additionally reviewed the parties’ corresponding response and Kansas but also maintains an office in Georgia. (Id. at 2.) CMMG has a principal place of business in Georgia. (Id. at 3.) Plaintiffs invoke this Court’s diversity jurisdiction under 28 U.S.C. § 1332. (Id.) Plaintiffs allege that for several years, numerous parties—including Defendants—have been litigating in multiple forums “to stake their claims for fees stemming from two large financing transaction” that Gilpin arranged regarding renewable energy projects in Nevada. (Id. at 4.) Plaintiffs seek a declaratory judgement against Defendants, and further alleges Defendants engaged in intentional interference with contractual relations and intentional interference with prospective economic activity. (Id. at 18-22.) This resulted in damages to Plaintiffs in excess of $75,000. (Id. at 18-22.) Further relevant to this order, the parties do not dispute that CU-CMS includes three credit unions: Jefferson Financial Credit Union (“Jefferson Financial”), Freedom Northwest Credit Union (“Freedom Northwest”) and SunState Federal Credit Union (“SunState”). (ECF Nos. 23 at 9, 24 at 8.) These three credit unions are federally chartered unions. (ECF No. 23 at 9.) Plaintiffs state in their opposition that Jefferson Financial is “headquartered in Metairie, Louisiana, with more than a dozen locations in south Louisiana” and that “eligibility for membership in Jefferson Financial is limited only to certain counties and parishes in Louisiana and Alabama.” (ECF No. 24 at 8.) Defendants attached a declaration to their reply from the Chief Executive Officer of Jefferson Financial declaring that Jefferson Financial conducts business and makes loans in Louisiana and Alabama, and that “15% of the revenues of Jefferson Financial is received from business conducted outside of the state of Louisiana.” (ECF No. 28-1 at 2-3.) As to the remaining two credit unions, Plaintiffs assert in response to the Motion that Freedom Northwest is located and operates in Idaho. (ECF No. 24 at 9.) SunState operates and restricts its membership to Florida, where it is located. (Id.) /// Rule 12(b)(1) of the Federal Rules of Civil Procedure (“FRCP”) allows defendants to seek dismissal of a claim or action for a lack of subject matter jurisdiction. Although the defendant is the moving party in a motion to dismiss brought under Rule 12(b)(1), the plaintiff is the party invoking the court’s jurisdiction. As a result, the plaintiff bears the burden of proving that the case is properly in federal court. See McCauley v. Ford Motor Co., 264 F.3d 952, 957 (9th Cir. 2001) (citing McNutt v. Gen. Motors Acceptance Corp., 298 U.S. 178, 189 (1936)). Plaintiff’s burden is subject to a preponderance of the evidence standard. See Leite v. Crane Co., 749 F.3d 1117, 1121 (9th Cir. 2014). Federal courts are courts of limited jurisdiction. See Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 374 (1978). A federal court is presumed to lack jurisdiction in a particular case unless the contrary affirmatively appears. See Stock W., Inc. v. Confederated Tribes of Colville Rsrv., 873 F.2d 1221, 1225 (9th Cir. 1989) (citation omitted). “Because subject matter jurisdiction goes to the power of the court to hear a case, it is a threshold issue and may be raised at any time and by any party.” Mallard Auto. Grp., Ltd. v. United States, 343 F. Supp. 2d 949, 952 (D. Nev. 2004) (citing FRCP 12(b)(1)). Moreover, district courts have original jurisdiction over civil actions where the matter is between citizens of different states and the amount exceeds $75,000. 28 U.S.C. § 1332(a)(1). Diversity jurisdiction exists when there is “complete diversity of citizenship, i.e., every plaintiff be a citizen of a different state from every defendant.” Carpenter v. PNC Bank, N.A., 368 F. Supp. 3d 1339, 1344 (D. Haw. 2019) (citing GranCare, LLC v. Thrower, 889 F.3d 543, 548 (9th Cir. 2018)). Although corporations are citizens of any state in which they are incorporated or have their principal place of business, “an LLC is a citizen of every state of which its owners/members are citizens.” Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006). /// /// Defendants argue this action should be dismissed because: (1) complete diversity does not exist between the parties; (2) the amount in controversy does not exceed $75,000; and the Colorado River2 abstention doctrine applies to this action. (ECF No. 23 at 8-14.) Because the issue of complete diversity proves to be dispositive, the Court will address the parties’ two arguments below with respect to this issue and declines to resolve Defendants’ remaining arguments. 1) Federally-Chartered Corporations Defendants assert the federally chartered credit unions of CU-CMS are not considered citizens of any particular state, therefore complete diversity does not exist in a dispute between a citizen of a state and a federally chartered credit union.3 (ECF No. 23 at 8-10.) Plaintiffs counter that the citizenship of a federal chartered credit union should be based on its principal place of business pursuant to 28 U.S. C. § 1332(c)(1) as set forth in Navy Fed. Credit Union v. LTD Fin. Servs., 972 F. 3d 344 (4th Cir. 2020). (ECF No. 24 at 10-13.) As further support, Plaintiffs cite to Lloyd v. Navy Fed. Credit Union, Case No. 17-cv-1280-BAS-RBB, 2019 WL 2269958 (S.D. Cal. May 28, 2019). (Id. at 12.) While courts appear split on this issue, the Court agrees with Defendants. In Hancock Fin. Corp. v. Fed. Sav. & Loan Ins. Corp., the Ninth Circuit held there was no subject matter jurisdiction under 28 U.S.C. § 1332 over Federal Savings and Loan Insurance Corporation (“FSLIC”) because the agency was an instrumentality of the federal government and thus not a citizen of any state for the purposes of diversity. 492 F.2d 1325, 1329 (9th Cir. 1974). In reaching this conclusion, the Ninth Circuit relied on Fed. Deposit Ins. Corp. v. Nat’l Sur. Corp., 345 F. Supp. 885, 888 (S.D. Iowa 1972) (holding that the Federal Deposit Insurance Corporation (“FDIC”)—chartered by the federal government—had no citizenship in any particular state thus no diversity of citizenship existed). The rationale in both cases was that if the FSLIC and FDIC were

2See Colo. River Water Conservation Dist. v. United States, 424 U.S. 800 (1976). 3The Court notes the parties due not dispute that CMMG is a diverse Defendant upon diversity jurisdiction, and this would have circumvented the intent of Congress to limit the scope of jurisdiction over federally chartered corporations in 28 U.S.C. § 1349. Id.; Hancock, 492 F.2d at 1329. Here, CU-CMS is a limited liability company and a credit union service organization. CU-CMS includes three federally chartered credit unions: Jefferson Financial, Freedom Northwest, and SunState.4 Thus, under Hancock, as federally chartered credit unions, these entities have no citizenship in any particular state for purposes of diversity jurisdiction. Plaintiffs argue this Court should apply the Navy Fed.’s principal place of business approach, pursuant to 28 U.S.C. § 1332(c)(1), to establish citizenship of the federally chartered credit unions as Louisiana, Idaho, and Florida. (ECF No. 24 at 13.) However, Hancock implicitly rejected application of the principal place of business analysis to federally chartered entities. The Ninth Circuit, in holding the FSLIC is not a citizen of any particular state for diversity purposes, explicitly noted the FDIC, as was the FSLIC, was “also chartered by the federal government.” Hancock, 492 F.2d at 1329. Moreover, as the court in Pierson v. Alaska USA Fed. Credit Union articulated, if 28 U.S.C. § 1332(c) were to be read as permitting jurisdiction over federally-chartered corporations based on their principal place of business, it “would contravene the statute’s primary purpose to reduce the caseload in the federal courts.” Case No. 2:19- cv-1685-RAJ, 2020 WL 747857, at *2 (W.D. Wash. Feb. 14, 2020) (citing S. Rep. No. 1830 (1983)). After it rejected the § 1332(c) argument, the Pierson court went on to find 4The Court notes that Plaintiffs included in their response a brief reference to a case in the U.S. District Court for the District of Kansas whereby CU-CMS was a party. (ECF No. 24 at 4.) The reference seeks to highlight that Defendants asserted in that case, upon a show cause order regarding diversity jurisdiction, CU-CMS’s federal credit unions were not members of CU-CMS but rather “Unit Holders.” (Id.) Plaintiffs fail to provide much else in their response and it is unclear to the Court if Plaintiffs are seeking to factually attack that the federal credit unions are not members of CU-CMS as Defendants allegedly argued in the Kansas case. Additionally, it is not clear to the Court whether Plaintiffs are arguing offensive collateral estoppel. As such, the Court declines to address the issue further as it is Plaintiffs’ burden to prove that the case is properly in purpose of establishing diversity of citizenship.” Id. See also Broadbridge Fin. Sols., Inc. v. CNBS, LLC, Case No. 15 Civ. 4978 (PAC), 2016 WL 1222339, at *1 (S.D.N.Y. Mar. 23, 2016) (brackets and citation omitted) (“The general rule with respect to federal credit unions is that . . . they are not considered to be citizens of any particular state for the purpose of establishing diversity of citizenship.”) Because Plaintiffs do not dispute the federal credit unions of CMS are federally chartered, and in light of Hancock’s rejection of the principal place of business approach, the Court concludes that it lacks diversity jurisdiction over this action. 2) Localized Exception Plaintiffs argue the general rule that federally chartered corporations are not citizens of any state does not apply to CU-CMS because of the “localized exception.” (ECF No. 24 at 6-10.) Under this exception, Plaintiffs argue Jefferson Financial, Freedom Northwest, and SunState are localized credit unions with limited geographical presence respectively in Louisiana, Idaho, and Florida, and therefore complete diversity exists in this action. (Id. at 9.) Defendants counter that at least one of CU-CMS’s credit unions—Jefferson Financial—does not have a limited presence. (ECF No. 28 at 6.) The Court agrees with Defendants. Plaintiffs quote Lehman Bros. Bank, FSB v. Frank T. Yoder Mortg., Inc., 415 F. Supp. 2d 636, 640 (E.D. Va. 2006) in their opposition to set forth the localized exception rule. (ECF No. 24 at 7 (“a federally chartered corporation may be eligible for diversity jurisdiction where its activities are sufficiently localized so that it may be deemed a citizen of a single state.”).) Plaintiffs subsequently state, “Jefferson Financial is headquartered in Metairie, Louisiana, with more than a dozen locations in south Louisiana” and that “eligibility for membership in Jefferson Financial is limited only to certain counties and parishes in Louisiana and Alabama.” (Id. at 8, 9 (emphasis added).) /// 1 Defendants attached a declaration to their reply from the Chief Executive Officer of Jefferson Financial declaring that it conducts business and makes loans in Louisiana and Alabama, and that “15% of the revenues of Jefferson Financial is received from business conducted outside of the state of Louisiana.” (ECF No. 28-1 at 2-3.) Because it is undisputed that Jefferson Financial has a business presence outside of Louisiana— specifically Alabama—its activities are thus not sufficiently localized and not the kind of “peculiarly local’ federally chartered credit union to warrant it be deemed a citizen of one state for diversity jurisdiction. See Feuchtwanger Corp. v. Lake Hiawatha Fed. Credit Union, 272 F.2d 453, 455 (3rd Cir. 1959) (exercising diversity jurisdiction over a federal credit union with a “peculiarly local institution of a single community” in a state); see also Pierson, 2020 WL 747857, at *2 (finding the localized exception did not apply to a federal credit union with locations in three different states). Accordingly, and in consideration of Jefferson Financial being federally chartered as discussed above, the Court finds it does not have diversity jurisdiction over this action. V. CONCLUSION The Court notes that Plaintiffs and Defendants made several arguments and cited to several cases not discussed above. The Court has reviewed these arguments and cases and determines that they do not warrant discussion as they do not affect the outcome of the Motion. It is therefore ordered that Defendants’ motion to dismiss (ECF No. 23) is granted. The Clerk of Court is directed to enter judgment accordingly and to close this case. DATED THIS Day of September 2021. / Cf . MIRANDA M. DU CHIEF UNITED STATES DISTRICT JUDGE