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AMBAC Assurance Corp. v. Fort Leavenworth Frontier Heritage Communities, II, LLC

United States District Court, D. Kansas

March 17, 2017

AMBAC ASSURANCE CORPORATION, Plaintiff,
v.
FORT LEAVENWORTH FRONTIER HERITAGE COMMUNITIES, II, LLC, Defendant.

          MEMORANDUM AND ORDER

          Daniel D. Crabtree United States District Judge

         This matter comes before the court on defendant's Motion to Dismiss Plaintiff's Amended Complaint (Doc. 35) and plaintiff's Motion for Leave to File Sur-reply in Opposition to Defendant's Motion to Dismiss (Doc. 46). Both parties have responded and replied to the motions. For reasons explained below, the court grants plaintiff's Motion for Leave to File Sur-Reply and grants defendant's Motion to Dismiss.

         I. Plaintiff's Motion for Leave to File Sur-reply

         The court begins with plaintiff's Motion for Leave to File Sur-reply before turning to the parties' extensive briefing on the Motion to Dismiss.

         Plaintiff has moved for leave to file a sur-reply to defendant's Motion to Dismiss. The District of Kansas Local Rules authorize a response and a reply memoranda to a motion. D. Kan. Rule 7.1. The court may authorize a sur-reply. Mike v. Dymon, Inc., No. 95-2405-EEO, 1996 WL 427761, at *2 (D. Kan. July 25, 1996). But, “the court generally grants leave to file a sur-reply only in ‘extraordinary circumstances after a showing of good cause.'” Id. (citation omitted). Good cause exists, for example, when a reply brief improperly makes new arguments. Id.

         The court grants plaintiff leave to file a sur-reply for good cause shown. Defendant raises new arguments in its Reply supporting its Motion to Dismiss plaintiff's Amended Complaint and its Supplement to Reply. Unless the court permitted a sur-reply, plaintiff would have no opportunity to respond to those new arguments. For these reasons, the court grants plaintiff's Motion for Leave to File Sur-reply and considers plaintiff's Sur-reply (Doc. 46-1) when deciding defendant's Motion to Dismiss.

         II. Defendant's Motion to Dismiss

         A. Background

         All the papers filed on this motion narrow to one simple question: Does the court have diversity subject matter jurisdiction over this case? Typically, the court determines the answer to this question with little inquiry. Is it a civil case involving an amount in controversy that exceeds $75, 000? Are the parties citizens of different states? When the answer to both questions is yes, the federal courts have subject matter jurisdiction to decide the case. See 28 U.S.C. § 1332. But when the answer to either question is no, the court must dismiss the case for lack of jurisdiction. See Basso v. Utah Power & Light Co., 495 F.2d 906, 909 (10th Cir. 1974) (“A court lacking jurisdiction cannot render judgment but must dismiss the cause at any stage of the proceedings in which it becomes apparent that jurisdiction is lacking.”). Here, there is no dispute that the matter in controversy exceeds $75, 000. So, to determine whether diversity subject matter jurisdiction exists, the court needs only to decide whether the parties are citizens of the same state.

         When the dispute is between business organizations, the court's inquiry becomes a little more complicated. For corporations, the citizenship determination, at least most of the time, is straightforward. A corporation is a citizen of its state of incorporation and the place where its principal place of business is located. Grynberg v. Kinder Morgan Energy Partners, L.P., 805 F.3d 901, 905 (10th Cir. 2015); see also 28 U.S.C. § 1332(c)(1). Unincorporated associations, such as limited liability companies (“LLC”) and partnerships, present bigger challenges. Those entities are citizens of their members/partners' states of citizenship. Grynberg, 805 F.3d at 906. Here, the defendant is an LLC, so the court must determine its citizenship under these rules.

         The parties do not dispute plaintiff's citizenship. Plaintiff is an insurance corporation, so its citizenship is determined by its state of incorporation and principal place of business. Plaintiff was incorporated in Wisconsin and its principal place of business is in New York. For subject matter jurisdiction purposes, then, plaintiff is a citizen of Wisconsin and New York.

         With that half of the caption decided, solving the jurisdiction equation only requires the court to determine whether defendant, an LLC, is a citizen of Wisconsin or New York. Defendant's LLC is comprised of just two members: Fort Leavenworth-Michaels Private, LLC” (“FLMP, LLC”) and Marlton Developers Holdings Co., LLC (“MDHC, LLC”). So, the court must determine the citizenship of FLMP, LLC and MDHC, LLC to decide whether subject matter jurisdiction exists. And, because both members are LLCs themselves, the court also must determine their members' states of citizenship. See Siloam Springs Hotel LLC v. Century Sur. Co., 781 F.3d 1233, 1237-38 (10th Cir. 2015) (“[I]n determining the citizenship of an unincorporated association for purposes of diversity, federal courts must include all the entities' members”); see also Birdsong v. Westglen Endoscopy Ctr., LLC, 176 F.Supp.2d 1245, 1249 (D. Kan. 2001) (finding that an LLC is a citizen, for diversity purposes, of each state where its members are citizens).

         Simple questions do not always beget simple answers, and this is where the endeavor gets more difficult.[1] Originally, defendant asserted that FLMP, LLC has only one member, Michael J. Levitt. Mr. Levitt is a citizen of New Jersey. Nothing about Mr. Levitt's citizenship negates diversity subject matter jurisdiction because Mr. Levitt is not a citizen of Wisconsin or New York. So far, so good. But, in a Supplemental Reply, defendant contends that Mr. Levitt transferred some of his interests in this LLC to another entity-the Michaels DJA Partnership (“MDJAP”)-before this action was filed.[2] Defendant thus contends MDJAP was a member of FLMP, LLC at the operative time-when plaintiff filed its Complaint-so the court must consider MDJAP's citizenship when deciding whether diversity jurisdiction exists. Defendant also asserts that MDJAP's involvement matters, for one of MDJAP's partners, Andrew Bocchino, is, like plaintiff, a citizen of New York.[3]

         This is where the parties disagree. Defendant contends that Andrew Bocchino is a partner of MDJAP, and this fact puts a New York citizen on defendant's half of the caption. If a New York citizen is chargeable to the defendant's side of the caption, it nullifies diversity subject matter jurisdiction because the corporate plaintiff is a New York citizen. Plaintiff, on the other hand, contends MDJAP never became a member of FLMP, LLC, because FLMP, LLC never fulfilled the legal ...


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