Dumann Realty, LLC v. Faust
1:09-cv-07651
S.D.N.Y.Jan 3, 2013Background
- Dumann Realty, LLC, Profitechnic Capital Limited, Lawrence Mac, and Mac Luk sued Faust and others for nine NY law claims, including breach of operating agreement and good faith/fair dealing.
- Faust filed counterclaims; the court considers his status as a member of the LLC to determine diversity and jurisdiction.
- Court sua sponte concludes it lacks subject matter jurisdiction and dismisses case without addressing the merits.
- Dumann is an NY LLC governed by NYLLCL; its members purportedly include Faust, who allegedly resigned in 2009 but allegedly without proper withdrawal per the operating agreement.
- Diversity analysis hinges on whether Faust’s withdrawal left the LLC with complete diversity between all plaintiffs and defendants.
- New York law and NYLLCL govern withdrawal, which requires two-thirds consent or six months’ notice; Faust neither.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the court has subject matter jurisdiction. | Dumann asserting federal diversity jurisdiction. | Faust arguing there is complete diversity. | Lacks subject matter jurisdiction; case is dismissed sua sponte. |
| Whether Dumann and Faust destroy complete diversity. | Faust remains a member, so diversity may be incomplete. | If Faust withdrew properly, complete diversity could exist. | Diversity incomplete because Faust’s withdrawal was not effective under the Operating Agreement. |
| Which law governs LLC citizenship for diversity purposes. | New York law governs membership citizenship due to NY formation. | State of incorporation law governs citizenship when assessing LLCs. | New York law governs; the court applies NYLLCL/operating agreement rules to determine membership status. |
| Whether Faust’s withdrawal complied with the Operating Agreement. | Faust attempted to resign without two-thirds consent or six months’ notice. | Faust argues resignation; others contend it breached agreement. | Withdrawal was ineffective; Faust did not meet required methods. |
| Whether the dismissal should be on jurisdictional grounds rather than merits. | Court should reach merits if jurisdiction exists. | No jurisdiction; dismissal appropriate. | Dismissed for lack of jurisdiction; merits not reached. |
Key Cases Cited
- Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546 (U.S. 2005) (federal courts’ limited jurisdiction; burden on plaintiffs to prove jurisdiction)
- APWU v. Potter, 343 F.3d 619 (2d Cir. 2003) (jurisdictional allegations must be proven by preponderance)
- Gonzalez v. Thaler, 133 S. Ct. 1479 (S. Ct. 2013) (jurisdiction cannot be waived; sua sponte dismissal permissible)
- Hernandez ex rel. Hernandez v. Shinseki, 131 S. Ct. 1197 (S. Ct. 2011) (court must raise jurisdictional issues)
- Alliance of American Insurers v. Cuomo, 854 F.2d 591 (2d Cir. 1988) (jurisdictional challenges may be raised sua sponte)
- Mansfield, C. & L. Ry. Co. v. Swan, 111 U.S. 379 (U.S. 1884) (federal jurisdiction principles underlying subject-matter limits)
- Handelsman v. Bedford Vill. Assocs. Ltd. P’ship, 213 F.3d 48 (2d Cir. 2000) (LLC citizenship for diversity includes members’ states)
- Carden v. Arkoma Assocs., 494 U.S. 185 (U.S. 1990) (citi zenship of partners affects LLC diversity)