United States District Court, D. Arizona
FRS GC Corp., a Delaware corporation, Plaintiff/Counterdefendant,
Oak Tree Management LLC and Milagro Consulting LLC, Wyoming limited liability companies; and David and Abby Harbour, a married couple and citizens of Arizona, Defendants/Counterclaimants.
G. Campbell Senior United States District Judge.
FRS GC Corp. (“FRS Corp”) has sued Defendants Oak
Tree Management LLC (“Oak Tree”), Milagro
Consulting LLC (“Milagro”), and David and Abby
Harbour, asserting various state-law claims related to an
alleged misappropriation of funds. Doc. 1. Defendants have
filed a motion to dismiss for lack of subject matter
jurisdiction pursuant to Federal Rule of Civil Procedure
12(b)(1). Doc. 59. The motion is fully briefed (Docs. 63,
66), and oral argument has not been requested. For reasons
stated below, the Court will grant the motion.
predecessor in interest, FRS GC LLC (“FRS”),
filed a nearly identical suit against Defendants in April
2017, which was assigned to Judge James A. Teilborg.
See Doc. 1, No. CV-17-01189-JAT. The complaint
asserted diversity jurisdiction under 28 U.S.C. § 1332.
Id. ¶ 21.
purposes of diversity jurisdiction, “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). FRS alleged that no member of Oak Tree or Milagro is a
citizen of the same state as any member of FRS. Doc. 1 ¶
18. Judge Teilborg found this allegation insufficient to
establish diversity jurisdiction and directed FRS to
supplement its complaint with the name and citizenship of
each LLC member. Doc. 17 at 2. FRS filed a supplement stating
in part that Princeton Alternative Income Fund L.P.
(“PAIF”), a Delaware limited partnership, is
FRS's sole member. Doc. 20 at 1. Judge Teilborg concluded
that the supplement was deficient because it failed to
provide information for each PAIF partner. Doc. 21. Declining
an opportunity to file an additional supplement, FRS chose
instead to dismiss the complaint on June 14, 2017. Doc. 22.
next day, PAIF incorporated Plaintiff FRS Corp in Delaware.
On the following day - June 16, 2017 - FRS assigned its
claims against Defendants to Plaintiff. Plaintiff brought
this action one month later, asserting the assigned claims.
Doc. 1, No. CV-17-02348-DGC. The complaint asserts diversity
jurisdiction (id. ¶ 22), which appears to exist
from the face of the complaint.
April 2018, Plaintiff filed a motion to transfer the case to
the federal bankruptcy court in New Jersey. Doc. 45. In
response, Defendants presented facts sufficient to raise a
legitimate question as to whether Plaintiff and FRS have
attempted to collusively manufacture diversity jurisdiction
in violation of 28 U.S.C. § 1359. Doc. 46 at 7-9. The
Court denied the motion to transfer and allowed the parties
to conduct jurisdictional discovery. Docs. 49, 51.
filed the present motion to dismiss following completion of
the discovery. Doc. 59. FRS's claim assignment to
Plaintiff, Defendants argue, is a sham transfer to a shell
corporation made solely to invoke the Court's
jurisdiction. Id. at 2, 7-9. Plaintiff asserts that
the assignment serves the legitimate business purpose of
keeping the identities of PAIF's partners confidential.
Doc. 63 at 2.
The Anti-Collusion Statute and Presumptively Collusive
federal anti-collusion statute, 28 U.S.C. § 1359,
provides that “[a] district court shall not have
jurisdiction of a civil action in which any party, by
assignment or otherwise, has been improperly or collusively
made or joined to invoke the jurisdiction of such
court.” The statute is “aimed at preventing
parties from manufacturing diversity jurisdiction to
inappropriately channel ordinary business litigation into the
federal courts.” Yokeno v. Mafnas, 973 F.2d
803, 809 (9th Cir. 1992). The Supreme Court has explained:
If federal jurisdiction could be created by assignments . . .
which are easy to arrange and involve few disadvantages for
the assignor, then a vast quantity of ordinary contract and
tort litigation could be channeled into the federal courts at
the will of one of the parties. Such ‘manufacture of
Federal jurisdiction' was the very thing which Congress
intended to prevent when it enacted § 1359 and its
Kramer v. Caribbean Mills, Inc., 394 U.S. 823,
the issue of a collusive assignment is raised, the party
asserting diversity has the burden of showing the
non-collusive nature of the assignment.” W. Farm
Credit Bank v. Hamakua Sugar Co., 841 F.Supp. 976, 981
(D. Haw. 1994) (citing Dweck v. Japan CBM Corp., 877
F.2d 790, 792 (9th Cir. 1989)). Certain types of assignments
“warrant particularly close scrutiny” and
“are presumptively ineffective to create diversity
jurisdiction.” Yokeno, 973 F.2d at 809-10
(quoting Dweck, 877 F.2d at 792). These include
assignments between parent companies and subsidiaries and
between corporations and their officers, where the close
relationship “necessarily presents opportunities for
the collusive manufacture of commercial reasons for the
assignment.” Nike, Inc. v. Comercial Iberica de