United States District Court, D. Kansas
CU CAPITAL MARKET SOLUTIONS, LLC and LEWIS N. LESTER, SR., Plaintiffs,
OLDEN LANE SECURITIES, LLC, et al., Defendants.
MEMORANDUM AND ORDER
D. Crabtree, United States District Judge.
matter comes before the court on plaintiffs CU Capital Market
Solutions, LLC (“CU Capital”) and Lewis N.
Lester's Motion to Amend Complaint (Doc. 40). Defendants
Olden Lane Securities, LLC; Olden Lane Advisors, LLC; Olden
Lane, LLC; and Jeremy Christopher Colvin have filed a
Response (Doc. 41). And, plaintiffs have filed a Reply (Doc.
42). For the reasons explained below, the court denies
plaintiffs' motion. But, if plaintiffs choose to proceed
in this case, the court provides the parties additional time
to address plaintiffs' argument-first made in their
Reply-that the court properly may exercise diversity
jurisdiction if the court drops plaintiff CU Capital and the
Olden Lane defendants under Federal Rule of Civil Procedure
Capital is a limited liability company providing consulting
services to federally insured state credit unions and
federally chartered credit unions. Olden Lane Securities,
LLC, is an SEC-registered investment advisor. CU Capital
offers securities through Olden Lane Securities, LLC, to
secure secondary capital for its client credit unions. As
part of their business relationship with one another, CU
Capital and Olden Lane Securities, LLC, have entered into
several agreements, including a Mutual Non-Disclosure and
Confidentiality Letter Agreement; an Office of Supervisory
Jurisdiction (“OSJ”) Branch Office Agreement; and
an Agreement of Portfolio Consultancy and Sub-Supervision
Services. Docs. 14-1, 14-2, 14-4. CU Capital contends that it
has shared confidential and proprietary information with
Olden Lane Securities, LLC, and the agreements govern that
information. And, at something of a high level, CU Capital
contends that Olden Lane Securities, LLC, has breached these
agreements and misused CU Capital's confidential and
propriety information to form a competing venture.
November 6, 2018, CU Capital filed its original Complaint
(Doc. 1) against Olden Lane Securities, LLC; Olden Lane
Advisors, LLC; and Olden Lane, LLC (collectively, the
“Olden Lane defendants”). Olden Lane, LLC, is the
sole owner of both Olden Lane Securities, LLC, and Olden Lane
Advisors, LLC. CU Capital's original Complaint asserted
eight state law causes of action against defendants,
including breach of contract; tortious interference;
misappropriation of trade secrets under the Kansas Uniform
Trade Secret Act (“KUTSA”), Kan. Stat. Ann.
§§ 60-3320-3330; unjust enrichment; and conversion.
Id. (Compl. ¶¶ 119-86). Also, CU Capital
sought temporary and permanent injunctive relief.
Id. (Compl. ¶¶ 187-202).
December 5, 2018, CU Capital filed an Amended Complaint (Doc.
14). The Amended Complaint added Lewis N. Lester, Sr.-CU
Capital's CEO-as a plaintiff. Id. (Am. Compl.
¶ 2). And, it added Jeremy Christopher Colvin-the
managing director at the OSJ branch office-as a defendant.
Id. (Am. Compl. ¶ 7). The Amended Complaint
asserted a new state law breach of contract claim against Mr.
Colvin and a second state law tortious interference claim
against the Olden Lane defendants. Id. (Am. Compl.
March 7, 2019, plaintiffs filed a Motion for Temporary
Restraining Order and Preliminary Injunction. Doc. 22. Before
the court proceeded on plaintiffs' motion, it issued an
Order to Show Cause because plaintiffs had not pleaded facts
sufficient to support diversity jurisdiction. Doc. 27.
Plaintiffs' Amended Complaint named four LLCs as parties.
And, a limited liability company “takes the citizenship
of all its members.” Siloam Springs Hotel, L.L.C.
v. Century Sur. Co., 781 F.3d 1233, 1234 (10th Cir.
2015). The governing standard requires complete diversity of
citizenship-i.e., plaintiffs must allege that no LLC
member on plaintiffs' side of the case caption is a
citizen of the same state as any individual or entity named
on the defendants' side of the caption. See Middleton
v. Stephenson, 749 F.3d 1197, 1200 (10th Cir. 2014).
But, plaintiffs' Amended Complaint contained no
information about the membership of any LLC.
Response to Order to Show Cause (Doc. 30) represented that CU
Capital was a citizen of Kansas and Georgia. Doc. 30 at 2.
Specifically, plaintiffs asserted that three members
comprised CU Capital with the following domiciles: Robert
Colvin (Kansas); Lewis N. Lester (Georgia); and William T.
Mullally (Georgia). On the other side of the caption,
plaintiffs' Response alleged that the three limited
liability companies-Olden Lane Securities, LLC; Olden Lane
Advisors, LLC; and Olden Lane, LLC-were citizens of Delaware
and New Jersey. Plaintiffs also alleged that Mr. Colvin-the
individual defendant-was domiciled in New Jersey.
then filed a Response (Doc. 31). They attached affidavits and
exhibits purporting to show a lack of diversity between the
parties. That is, defendants asserted that plaintiffs had
failed to disclose two more CU Capital members: Jefferson
Financial Federal Credit Union (“Jefferson Credit
Union”) and SunState Federal Credit Union
(“SunState Credit Union”). Id. at 2-3;
Doc. 31-1. And, defendants asserted, Olden Lane, LLC's
membership included citizens domiciled in Florida.
March 20, 2019, the court conducted a hearing trying to
determine whether the court had subject matter jurisdiction
over the case. During this hearing, plaintiffs contended that
the two credit unions were “lower-tier” members
of CU Capital. In later briefing, plaintiffs asserted that
characterization misstated the credit unions' position in
the company; instead, plaintiffs later characterized the
credit unions as “unitholders” in CU Capital.
Doc. 38 at 2 n.1. Defendants disputed plaintiffs'
recharacterization and argued that the federally chartered
corporations' membership in CU Capital precluded
diversity of citizenship. Also, defendants argued, if the
court applied the localization exception-i.e., a
doctrine where a federally chartered entity takes the
domicile of the state where its activities are localized-the
parties still would not be completely diverse. Specifically,
defendants asserted that SunState Credit Union is a Florida
citizen under the localization exception. And, Olden Lane,
LLC's general counsel testified that Olden Lane, LLC,
partially is owned by two limited partnerships: Niagara
Credit Income Fund AI, LP, and Niagara Credit Income Fund QP,
LP (“Niagara Funds”). According to the general
counsel, the two Niagara Funds, in turn, include limited
partners domiciled in Florida. And so, even if the
localization exception applied to SunState Credit Union, the
court still would lack diversity jurisdiction.
the hearing, the parties filed another round of briefing on
subject matter jurisdiction. Docs. 38, 39. Then, on April 4,
2019, plaintiffs filed a Motion to Amend Complaint. Doc. 40.
Plaintiffs' motion sought to file a Second Amended
Complaint, which would include two previously unasserted
federal claims under the Defend Trade Secrets Act
(“DTSA”), 18 U.S.C. §§ 1831-39, and the
Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C.
§ 1030. Defendants filed a Response, arguing that the
court could not grant plaintiffs' motion because, in
effect, it would confer subject matter jurisdiction on the
court retroactively. Doc. 41. Plaintiffs' Reply contended
that amendment was proper, and, for the first time, also
argued that the court could drop both plaintiff CU Capital
and the Olden Lane defendants to save diversity jurisdiction
between Mr. Lester and Mr. Colvin. Doc. 42 at 3-4.
have invoked the court's subject matter jurisdiction
under the federal diversity statute, 28 U.S.C. § 1332.
Under that statute, federal jurisdiction is proper where
“the matter in controversy exceeds the sum or value of
$75, 000 . . . and is between . . . citizens of different
states.” 28 U.S.C. § 1332(a)(1). For diversity
jurisdiction purposes, a limited liability company
“takes the citizenship of all its members.”
Siloam Springs Hotel, L.L.C., 781 F.3d at 1234. In
contrast, a corporation is “domiciled where it is
incorporated and where it has its ‘principal place of
business[.]'” Newsome v. Gallacher, 722
F.3d 1257, 1267 (10th Cir. 2013) (quoting 28 U.S.C. §
1332(c)(1)). For individuals, “a person is a citizen of
a state if the person is domiciled in that state.”
Middleton, 749 F.3d at 1200 (citation omitted).
“And a person acquires domicile in a state when the
person resides there and intends to remain there
indefinitely.” Id. (citations omitted).
court maintains “‘an independent obligation to
determine whether subject-matter jurisdiction exists, even in
the absence of a challenge from any party.'”
Spring Creek Expl. & Prod. Co., LLC v. Hess Bakken
Inv., II, LLC, 887 F.3d 1003, 1013 (10th Cir. 2018)
(quoting Arbaugh v. Y&H Corp., 546 U.S. 500, 514
(2006)). Plaintiffs bear the burden of establishing that
federal jurisdiction exists. Kinney v. Blue Dot Servs. of
Kan., 505 Fed.Appx. 812, 814 (10th Cir. 2012).
of Civil Procedure 12(b)(1) “allows a court to dismiss
a complaint for lack of subject matter jurisdiction.”
Pueblo of Jemez v. United States, 790 F.3d 1143,
1151 (10th Cir. 2015) (citing Becker v. Ute Indian
Tribe, 770 F.3d 944, 946 (10th Cir. 2014)). Rule
12(b)(1) motions constitute either “(1) a facial attack
on the sufficiency of the complaint's allegations [of]
subject matter jurisdiction; or (2) a challenge to the actual
facts upon which subject matter is based.” Ruiz v.
McDonnell, 299 F.3d 1173, 1180 (10th Cir. 2002).
defendant makes a facial attack to subject matter
jurisdiction, the court considers the complaint's pleaded
facts as true. Holt v. United States, 46 F.3d 1000,
1002 (10th Cir. 1995) (citation omitted). But, when the
defendant presents a factual attack, the court “may not
presume the truthfulness of the complaint's factual
allegations.” Id. at 1003. Instead, the court
has “wide discretion to allow affidavits, other
documents, and [conduct] a limited evidentiary hearing to
resolve disputed jurisdictional facts under Rule
12(b)(1).” Id. And, when analyzing a factual
attack, the court's “reference to evidence outside
the pleadings does not convert the motion to a Rule 56
case, the question raised by the court's Show Cause Order
amounted, in effect, to a facial attack on the Amended
Complaint-i.e., the court questioned the sufficiency
of the Amended Complaint's jurisdictional allegations
because it failed to identify the members of each limited
liability company and the domiciles of the individual
parties. In response to the Show Cause Order, defendants then
mounted a factual attack, challenging the factual
underpinnings of diversity jurisdiction-i.e.,
defendants asserted, as a matter of fact, that the parties
were not completely diverse. This persuaded the court to
conduct an evidentiary hearing with the parties on March 20,
2019. Consistent with Circuit precedent, the court considers
the affidavits and exhibits provided by the parties without
converting to summary judgment analysis.
court addresses four questions in this Order. First, the
court evaluates whether Jefferson Credit Union and SunState
Credit Union are members of the LLC that is CU Capital.
Second, concluding that the credit unions are members, the
court then considers the effect of their membership on the
subject matter jurisdiction analysis. Third, the court
assesses whether it can grant plaintiffs' Motion for
Leave to Amend to assert a Second Amended Complaint. Fourth,
the court considers whether to address plaintiffs'
arguments under Fed.R.Civ.P. 21, presented in their Reply for
the first time.
Are Jefferson Credit Union and SunState Credit Union