Black Water Management LLC v. Mark Sprenkle
691 F. App'x 715
4th Cir.2017Background
- BWM (Black Water Management, LLC) sued several defendants in federal court; case was dismissed for lack of subject matter jurisdiction under 28 U.S.C. § 1332(a)(1).
- The jurisdictional dispute turned on BWM’s citizenship, which depends on the citizenship of its members.
- Defendant Mark D. Sprenkle, a Virginia resident, was alleged by BWM not to be a managing member at the time of filing; if he remained a member, BWM would be a citizen of Virginia and Colorado, defeating diversity.
- BWM argued Sprenkle had no membership interest because he did not contribute initial capital; the Operating Agreement, however, made him a managing member regardless of initial capital contributions under Virginia law.
- Even assuming a later capital call, Sprenkle furnished services (arranging a management agreement with a musical act) that counted as a contribution, so he retained at least some membership interest when the complaint was filed.
- The district court dismissed for lack of complete diversity; the Fourth Circuit affirmed, holding BWM failed to carry its burden to prove Sprenkle was not a managing member.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal diversity jurisdiction existed | BWM: Sprenkle was not a managing member at filing, so LLC was only Colorado citizen | Defendants: Sprenkle remained a managing member and Virginia citizen, making LLC multi-state | Held: No diversity; BWM failed to prove Sprenkle ceased to be a member |
| Effect of lack of initial capital on membership | BWM: No initial capital contribution means Sprenkle never became/retained membership | Defendants: Operating Agreement and Va. law permit managing membership without initial capital | Held: Operating Agreement (and Va. law) conferred managing member status despite no initial capital |
| Impact of subsequent capital calls on membership interest | BWM: Capital calls reduced or eliminated Sprenkle’s interest | Defendants: No evidence of capital calls sufficient to revoke interest; any contribution (services) preserved some interest | Held: No evidence of capital-call elimination; Sprenkle had at least partial interest via services |
| Consideration of Assignment Agreement | BWM: Assignment Agreement should be considered with Operating Agreement (argued late) | Defendants: Assignment conceded by BWM to have no legal effect in opening brief | Held: Assignment Agreement not effective to alter membership; BWM conceded it lacked effect |
Key Cases Cited
- Cent. W. Va. Energy Co. v. Mountain State Carbon, LLC, 636 F.3d 101 (4th Cir. 2011) (LLC citizenship is determined by citizenship of all members)
- Demetres v. East West Const., Inc., 776 F.3d 271 (4th Cir. 2015) (party asserting federal jurisdiction bears burden of proof; de novo review of Rule 12(b)(1) dismissal)
- Robb Evans & Assoc., LLC v. Holibaugh, 609 F.3d 359 (4th Cir. 2010) (clarifies burden and standards for establishing diversity jurisdiction)