Purchasing Power, LLC v. Bluestem Brands, Inc.
2017 U.S. App. LEXIS 4918
| 11th Cir. | 2017Background
- Purchasing Power LLC (Georgia LLC) sued Bluestem Brands in Georgia state court; Bluestem removed to federal court alleging complete diversity. Bluestem attached an email from Purchasing Power’s counsel (Burr & Forman) stating the client believed none of its members were citizens of Minnesota or Delaware.
- Purchasing Power’s sole member was Purchasing Power Holdings LLC (Holdings). Holdings’ members included individuals (Georgia) and three LLCs: Rockbridge, Falcon, and Stephens. Determining citizenship required tracing the members of those LLCs.
- Later discovery revealed Falcon did not own its interest directly but through a corporation (Falcon Inc.), which was incorporated in Delaware — the same state as Bluestem — destroying complete diversity.
- The district court imposed $582,385 in sanctions on Burr & Forman under its inherent power and Rule 26(g), finding the firm misrepresented jurisdictional facts and acted recklessly/bad-faith in failing to investigate.
- The Eleventh Circuit reversed, holding the district court applied an incorrect (objective/recklessness-only) standard for inherent-power sanctions, failed to consider Bluestem’s removal burden and submissions, and overlooked evidence of B&F’s investigative efforts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether inherent-power sanctions were proper for B&F’s alleged failure to investigate and misrepresent LLC citizenship | B&F acted in bad faith or recklessly misrepresented citizenship, abusing the judicial process and justifying sanctions | B&F did investigate, relied on client officers, and did not act with the subjective bad faith required for inherent-power sanctions | Reversed: inherent-power sanctions require subjective bad faith (or conduct tantamount to it); recklessness alone is insufficient |
| Proper standard for inherent-power sanctions (subjective vs objective) | District court: applied an objective/recklessness standard (drawing on Rule 11/§1927 analogies) | B&F: inherent-power sanctions require subjective bad faith; Rule 11/§1927 use different standards | Held: inherent power governed by subjective bad-faith standard; recklessness without more does not suffice |
| Allocation of burden to establish diversity after discovery resistance | Bluestem argued Purchasing Power’s discovery objections warranted sanctioning B&F for obstructing jurisdictional proof | B&F argued Bluestem (the removing party) bore and failed the burden to establish diversity and should have pursued the issue with the court | Held: removing party (Bluestem) retains burden to establish diversity; Purchasing Power’s objections did not excuse Bluestem’s duty to pursue jurisdictional proof |
| Whether Rule 26(g) sanctions were proper for B&F’s discovery objections regarding membership information | Bluestem argued B&F’s objection to producing LLC-member information was improper and intended to hide jurisdictional facts | B&F contended the objection was legitimate (relevance/control/confidentiality) and Bluestem acquiesced by silence | Held: Rule 26(g) sanctions overturned; the objection was a permissible litigation position and did not independently justify monetary sanctions |
Key Cases Cited
- Chambers v. NASCO, Inc., 501 U.S. 32 (Sup. Ct.) (courts have inherent power to sanction for bad faith and to manage their affairs)
- Marx v. General Revenue Corp., 568 U.S. 371 (Sup. Ct.) (inherent power authorizes sanctions for bad-faith litigation conduct)
- Roadway Express, Inc. v. Piper, 447 U.S. 752 (Sup. Ct.) (distinguishing inherent-power bad-faith requirement from other sanctioning authorities)
- In re Mroz, 65 F.3d 1567 (11th Cir.) (inherent-power sanctions linked to subjective bad faith)
- Barnes v. Dalton, 158 F.3d 1212 (11th Cir.) (bad-faith finding warranted where counsel argues to harass; recklessness plus frivolity addressed)
- Sciaretta v. Lincoln Nat’l Life Ins., 778 F.3d 1205 (11th Cir.) (affirming subjective bad-faith requirement for inherent-power sanctions)
- Rolling Greens MHP, L.P. v. Comcast SCH Holdings L.L.C., 374 F.3d 1020 (11th Cir.) (defendant removing bears burden of establishing citizenship of all LLC members)
- Arbaugh v. Y & H Corp., 546 U.S. 500 (Sup. Ct.) (courts have independent obligation to ensure subject-matter jurisdiction)
- Corp. Mgmt. Advisors, Inc. v. Artjen Complexus, Inc., 561 F.3d 1294 (11th Cir.) (defendant may be allowed to cure defective allegations of citizenship under §1653)
- Muhammad v. Walmart Stores E., L.P., 732 F.3d 104 (2d Cir.) (inherent-power sua sponte sanctions require subjective bad faith)
- In re Keegan Mgmt. Co., Sec. Litig., 78 F.3d 431 (9th Cir.) (reckless but nonfrivolous filings alone do not suffice for inherent-power sanctions)