D.B. Zwirn Special Opportunities Fund, L.P. v. Mehrotra
2011 U.S. App. LEXIS 23079
1st Cir.2011Background
- Zwirn filed fraud claims against Mehrotra in Massachusetts state court; action removed to federal court under 28 U.S.C. § 1332; district court dismissed as time-barred and for lack of tolling allegations.
- Zwirn alleged Mehrotra as a Rhode Island citizen and Zwirn as a Delaware LLC with principal place of business in New York, raising diversity jurisdiction concerns.
- The court instructed Zwirn to file an affidavit detailing every member's identity and citizenship as of the removal date, to determine complete diversity; the filing was to be sealed.
- Zwirn failed to identify members and instead stated (negatively) that no Rhode Island citizens existed among members; Mehrotra did not contest this in the district court filings.
- The court relied on Cameron v. Hodges to emphasize that mere non-citizenship of one party is insufficient for diversity; stateless members or entities treated as stateless can defeat diversity, and citizenship must be traced through all layers of ownership, potentially making this issue iterative.
- The court ordered Zwirn to file a jurisdictional statement under seal within 15 days tracing citizenship through all levels, and Mehrotra to indicate contest within 10 days.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether removal jurisdiction exists given the citizenship of Zwirn and Mehrotra. | Zwirn claims complete diversity based on corporate/LLC citizenship. | Mehrotra contends lack of complete diversity due to stateless possibilities and improper jurisdictional disclosure. | No diversity; jurisdiction not established without proper, complete disclosures. |
| Whether Zwirn's failure to identify all members defeats jurisdiction. | Zwirn attempted to negate Rhode Island citizenship by absence of Rhode Island members. | Lack of explicit, correct membership citizenship prevents establishing diversity. | Jurisdiction not established; information must be properly disclosed. |
| Whether stateless members destroy complete diversity. | Not explicitly argued beyond statutory framework. | Stateless members negate complete diversity under § 1332. | Statelessness or analogous status can destroy diversity. |
| Whether Meyerson and Cameron govern the approach to jurisdictional proof in this multi-layer ownership context. | Cameron/Meyerson require clear citizenship of all entities. | Need thorough tracing of citizenship through all owners. | Approach controlled by Cameron; require full citizenship tracing. |
| Whether the court may proceed without compliant jurisdictional facts. | Filing should suffice; problem is noted but not fatal. | Without proper facts, court lacks jurisdiction. | Proceeding blocked; must obtain compliant jurisdictional affidavit. |
Key Cases Cited
- Cameron v. Hodges, 127 U.S. 322 (1888) (adverse party must be citizen of a named State other than where suit was brought; must have complete diversity)
- Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826 (1989) (stateless citizens destroy complete diversity under § 1332(a)(3) and U.S. citizenship can destroy diversity under § 1332(a)(2))
- Pramco, LLC ex rel. CFSC Consortium, LLC v. San Juan Bay Marina, Inc., 435 F.3d 51 (1st Cir. 2006) (cites governing rules for diversity when LLC members are involved)
- Meyerson v. Showboat Marina Casino Partnership (Meyerson II), 312 F.3d 318 (7th Cir. 2002) (foreign ownership and ownership chains require tracing citizenship; removal requires complete disclosure)
- Meyerson v. Showboat Marina Casino Partnership (Meyerson I), 299 F.3d 616 (7th Cir. 2002) (addressed sufficiency of citizenship allegations in initial complaint)
- Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412 (3d Cir. 2010) (illustrates iterative citizenship issues in ownership chains)
- Delay v. Rosenthal Collins Grp., 585 F.3d 1003 (6th Cir. 2009) (cites complexity of determining complete diversity in nested entities)
- Ninigret Dev. Corp. v. Narragansett Indian Wetuomuck Hous. Auth., 207 F.3d 21 (1st Cir. 2000) (treats certain entities as stateless for diversity purposes)
- Petroleum Exploration, Inc. v. Pub. Serv. Comm'n of Kentucky, 304 U.S. 209 (1938) (recognizes that states are not citizens for diversity purposes)
- Cameron v. Hodges, 127 U.S. 322 (1888) (as above)