Castillo Grand, LLC v. Sheraton Operating Corporation
2013 U.S. App. LEXIS 12257
| 2d Cir. | 2013Background
- Castillo Grand LLC (a Florida LLC) sued Sheraton in federal court asserting diversity jurisdiction; Sheraton answered and litigated for three years with extensive discovery.
- One month before trial Sheraton moved to dismiss, asserting two Castillo members were New York citizens at filing, defeating diversity under Carden v. Arkoma. Castillo conceded one non‑diverse member and the district court dismissed the action for lack of jurisdiction.
- Castillo announced it would “cure” the defect by dropping non‑diverse members and filed a new, nearly identical complaint (new docket and filing fee). Sheraton moved to dismiss the second action and the district court dismissed it for lack of jurisdiction under §1359.
- Sheraton then moved under 28 U.S.C. §1919 for “just costs,” seeking $200,000 in attorney’s fees and $30,000 in costs; the district court awarded both. Castillo appealed, challenging only the attorney’s‑fees award.
- The Second Circuit considered (1) whether §1919 authorizes attorney’s fees and (2) whether fees are appropriate on a common‑law/bad‑faith basis given Castillo’s refiling and alleged attempt to manufacture diversity by altering LLC membership.
Issues
| Issue | Plaintiff's Argument (Castillo) | Defendant's Argument (Sheraton) | Held |
|---|---|---|---|
| Whether 28 U.S.C. §1919 authorizes attorney’s fees when a case is dismissed for lack of jurisdiction | §1919 does not authorize fees (American Rule applies) | §1919’s “just costs” should include attorney’s fees incurred defending a refiling designed to invoke federal jurisdiction | §1919 does not authorize attorney’s fees; Congress typically specifies fees when intended |
| Whether courts may award attorney’s fees under common‑law equitable exceptions despite no statutory authorization | Castillo: no bad faith; refiling was authorized by Supreme Court guidance in Grupo Dataflux | Sheraton: refiling was an improper effort to manufacture diversity and thus warrants fees for bad faith | Common‑law fees can be awarded in extraordinary bad‑faith cases, but not warranted here |
| Whether Castillo violated 28 U.S.C. §1359 by dropping non‑diverse members to create jurisdiction | Castillo: Grupo Dataflux and refiling with new complaint provided a good‑faith basis to proceed | Sheraton: reconstituting the LLC to create diversity was collusive and barred by §1359 | Unclear that §1359 applied; Grupo Dataflux gave Castillo a plausible, good‑faith basis to refile |
| Whether the district court abused its discretion in awarding $200,000 in fees | Castillo: award was an abuse because refiling was in good faith and §1919 doesn’t authorize fees | Sheraton: award appropriate given foreseeability and prior warning about §1359 violation | Abuse of discretion: vacated fee award; remanded to delete attorney’s fees (cost award undisturbed) |
Key Cases Cited
- Carden v. Arkoma Assocs., 494 U.S. 185 (controls citizenship of all members of unincorporated entities for diversity)
- Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567 (time‑of‑filing rule; refiling new action is course after dismissal)
- Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240 (American Rule; narrow equitable exceptions for fee awards)
- Marek v. Chesny, 473 U.S. 1 (statutes that expressly include attorney’s fees must be read to do so)
- Mills v. Electric Auto‑Lite Co., 396 U.S. 375 (fee shifting when individual’s litigation benefits a larger class)
- Willy v. Coastal Corp., 503 U.S. 131 (equitable fee awards may arise even when court lacks subject‑matter jurisdiction)
- Lehigh Mfg. & M. Co. v. Kelly, 160 U.S. 327 (early precursor construing improper creation of parties to manufacture jurisdiction)