Discover Growth Fund, LLC, a U.S. Virgin Islands limited liability company v. Clickstream Corporation
3:22-cv-00427-LRH-CSD
| D. Nev. | Jun 27, 2023Background
- Discover Growth Fund, LLC alleges Clickstream borrowed $600,000 under a promissory note (with a 20% original issuer discount) due May 16, 2022, and failed to repay.
- Discover brought five claims in federal court: breach of the note, intentional misrepresentation, unjust enrichment, deceptive trade practices, and breach of the covenant of good faith and fair dealing.
- Discover asserted federal diversity jurisdiction under 28 U.S.C. § 1332(a)(2), alleging it is an LLC organized in the U.S. Virgin Islands with principal place of business in St. Thomas and that the amount in controversy exceeds $75,000.
- Clickstream moved to dismiss under Rule 12(b)(6) and to transfer venue; those motions were pending.
- The Court found Discover failed to plead the citizenship of its LLC members (and any constituent entities), so it did not carry its burden to establish complete diversity.
- The Court dismissed the complaint for lack of subject-matter jurisdiction, granted leave to amend (deadline July 17, 2023), and reserved ruling on the pending motions until jurisdiction is adequately pled.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the complaint establishes federal diversity jurisdiction | Discover: it is a USVI LLC with principal place in St. Thomas and amount in controversy exceeds $75,000 | Clickstream: Discover failed to allege the citizenship of its LLC members, so diversity is not established | Dismissed for lack of subject-matter jurisdiction because LLC members' citizenship not alleged |
| Whether an LLC’s citizenship may be pleaded by stating its state/territory of organization and principal place of business | Discover: identifying USVI organization and principal place suffices | Clickstream: must identify each member’s citizenship (and constituent entities) | Court applied Ninth Circuit rule: LLC citizenship equals citizenship of each member; Discover’s pleading was insufficient |
| Whether dismissal should be with leave to amend | Discover implicitly seeks to cure pleading defects | Clickstream did not argue amendment should be foreclosed | Court granted leave to amend because jurisdictional defect may be curable |
| Whether the court should resolve Clickstream’s pending motions now | Discover wants merits/venue considered | Clickstream sought dismissal/transfer but jurisdiction must be resolved first | Court reserved ruling on Rule 12(b)(6) and transfer motions until amended complaint pleads jurisdiction |
Key Cases Cited
- Scott v. Breeland, 792 F.2d 925 (9th Cir. 1986) (party invoking federal jurisdiction bears burden to establish it)
- Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894 (9th Cir. 2006) (an LLC is a citizen of every state of its members)
- Segundo Suenos, LLC v. Jones, [citation="494 F. App'x 732"] (9th Cir. 2012) (failure to plead LLC members' citizenship renders diversity allegations legally deficient)
- Lindley Contours, LLC v. AABB Fitness Holdings, Inc., [citation="414 F. App'x 62"] (9th Cir. 2011) (remand required where LLC/partnership citizenship not adequately pled)
- Intri-Plex Techs., Inc. v. Crest Grp., Inc., 499 F.3d 1048 (9th Cir. 2007) (dismissal without leave to amend improper unless amendment could not cure defect)