Invictus Special Situations Master I, L.P. v. Schulte Roth & Zabel LLP

CourtDistrict Court, W.D. Texas
DecidedJune 25, 2024
Docket1:24-cv-00246
StatusUnknown

This text of Invictus Special Situations Master I, L.P. v. Schulte Roth & Zabel LLP (Invictus Special Situations Master I, L.P. v. Schulte Roth & Zabel LLP) is published on Counsel Stack Legal Research, covering District Court, W.D. Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Invictus Special Situations Master I, L.P. v. Schulte Roth & Zabel LLP, (W.D. Tex. 2024).

Opinion

IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS AUSTIN DIVISION

INVICTUS SPECIAL SITUATIONS § MASTER I, L.P., a Cayman Islands exempted limited § partnership by and through TREO Vitus GP, LLC, § § Plaintiff, § § v. § 1:24-CV-246-DII § SCHULTE ROTH & ZABEL LLP and § DOUGLAS MINTZ, § § Defendants. §

ORDER Defendants Schulte Roth & Zabel (“SRZ”) and Douglas Mintz (“Mintz”) (collectively, “Defendants”) removed this case on March 5, 2024. (Dkt. 1). Before the Court is Plaintiff Invictus Special Situations Master I, LP’s (“the Fund”), by through its general partner, TREO Vitus GP, LLC (“TREO”) motion to remand. (Dkt. 11). Defendants filed a response, (Dkt. 16), and the Fund filed a reply, (Dkt. 19). Having considered the briefing, the applicable law, and the record, the Court grants the Fund’s motion to remand but denies the Fund’s request for costs and expenses under 28 U.S.C. § 1447(c). I. BACKGROUND This case stems from a dispute between a law firm and the firm’s partner—Defendants— and its former client—the Fund—over attorneys’ fees that the Fund allegedly owes Defendants. On March 2, 2023, the Fund’s former investment manager, Invictus Global Management, LLC (“IGM”) entered into an engagement agreement with Mintz, on behalf of SRZ, for Mintz and the firm to represent and advise the Fund in connection with the bankruptcy of Tuesday Morning Corporation. (Resp., Dkt. 16, at 4). The Engagement Agreement listed SRZ’s billing procedures and rates in connection with the representation. (See Engagement Agreement, Dkt. 16-1, at 2–3). The Engagement Agreement also included an arbitration clause, which states that all claims or disputes arising out of SRZ’s work for the Fund in connection with the Engagement Agreement shall be referred to binding arbitration conducted by JAMS. (Id. at 10–11). From March 2023 to August 2023, Defendants devoted thousands of hours to this representation. (Resp., Dkt. 16, at 5–6). During this timeframe, SRZ sent the Fund eighteen invoices for services rendered under the Engagement Agreement, totaling $6,114,388.46 in attorneys’ fees and disbursements. (Id. at 6). The

Fund sent SRZ $2,002,713.71 in payments, but Defendants allege that the Fund still owes SRZ $4,111,674.75, plus the “success fee” called for in the Engagement Agreement. (Id.). According to Defendants, at the time that the Engagement Agreement was executed, IGM had authority to act on behalf of the Fund, so the terms of the Engagement Agreement bound the Fund, and the Fund is now liable for the owed fees. (Id. at 4–5). The Fund disputes that it is bound by the Engagement Agreement. It states that before Defendants were to be paid under the Agreement, the Fund’s investors removed IGM for financial mismanagement and other alleged breaches of duty to the Fund and appointed TREO to take control of the Fund as its new manager and general partner. (Mot., Dkt. 11, at 2). TREO, on behalf of the Fund, now argues that the terms of the Engagement Agreement were commercially unreasonable and “appear to be designed to siphon the Fund’s money for Defendants’ benefit.” (Id.). The Fund contends that it never executed the Engagement Agreement and that there is

ambiguity concerning whether Defendants directly represented the Fund, rather than IGM in a separate capacity as an agent for an investment that merely included the Fund—and to what extent, if any, the fees should be appropriately allocated to the Fund. (Id. at 3). On December 4, 2023, SRZ filed and served upon the Fund a demand for arbitration with JAMS in New York to seek the alleged owed fees. (Resp., Dkt. 16, at 6). Because the Fund disputes that it is bound under the Engagement Agreement, it has disputed the validity of this arbitration proceeding. On February 27, 2024, the Fund filed this case in the 455th Judicial District Court of Travis County, Texas, seeking a stay of the pending JAMS arbitration proceeding. (Id.). On March 5, Defendants removed the case to this Court, asserting diversity jurisdiction. (Not. Removal, Dkt. 1). The Fund’s motion to remand followed on March 18, 2024. (Dkt. 11). More recently, on May 21, 2024, Defendants filed a motion to compel this case to arbitration and to stay this case, (Dkt. 22), which the Fund opposes, (see Dkt. 23). Both parties also filed motions for hearings on the motion to

remand and the motion to compel arbitration. (Dkts. 30, 32). II. LEGAL STANDARD A defendant may remove any civil action from state court to a district court of the United States that has original jurisdiction. 28 U.S.C. § 1441(a). District courts have original jurisdiction of all civil actions between citizens of different states where the matter in controversy exceeds $75,000. Id. § 1332(a)(1). This requires “complete diversity” of citizenship: “A district court cannot exercise diversity jurisdiction if one of the plaintiffs shares the same state citizenship as any one of the defendants.” Corfield v. Dall. Glen Hills LP, 355 F.3d 853, 857 (5th Cir. 2003). The removal statute is “strictly construed, and any doubt about the propriety of removal must be resolved in favor of remand.” Gasch v. Hartford Accident & Indem. Co., 491 F.3d 278, 281–82 (5th Cir. 2007). The party seeking removal “bears the burden of establishing that federal jurisdiction exists and that removal was proper.” Manguno v. Prudential Prop. & Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002). A federal

district court must remand a case to state court if it determines that it lacks subject matter jurisdiction. 28 U.S.C. § 1447(c). But where jurisdiction exists, the court has a “virtually unflagging obligation” to exercise it. Colo. River Water Conservation Dist. v. United States¸424 U.S. 800, 817 (1976). III. DISCUSSION The Fund alleges that remand is warranted in this case because there is not diversity jurisdiction over the parties. The Fund offers two theories of why the parties are not diverse: (1) SRZ is stateless for the purposes of diversity jurisdiction because one of its partners is a US citizen domiciled abroad; and (2) both parties have New York-based partners. (See Mot., Dkt. 11, at 4, 6). The Fund also requests that the Court require Defendants to pay the Fund costs and expenses under 28 U.S.C. § 1447(c) because removal was objectively unreasonable, and Defendants’ notice of removal contained insufficient and threadbare allegations of the parties’ citizenship. (Id. at 7–8). In opposition, Defendants argue that there is diversity jurisdiction because (1) SRZ is not a stateless

citizen; and (2) there is insufficient evidence to conclude that the Fund has a New York-based partner. (Resp., Dkt. 16, at 12–16). Defendants also oppose the Fund’s request for fees, contending that their notice of removal was proper, adequately alleged diversity, and contained a reasonable basis for removal. (Id. at 7–9, 16–17). The Court first addresses the Fund’s two theories regarding diversity of the parties. Because the Court finds that remand is warranted, it then turns to the Fund’s request for attorneys’ fees and costs. A. SRZ is not a stateless citizen for purposes of diversity jurisdiction.

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Bluebook (online)
Invictus Special Situations Master I, L.P. v. Schulte Roth & Zabel LLP, Counsel Stack Legal Research, https://law.counselstack.com/opinion/invictus-special-situations-master-i-lp-v-schulte-roth-zabel-llp-txwd-2024.