3:23-cv-00508
D. Nev.Nov 15, 2023Background
- Plaintiffs Switch, Ltd. and SUPERNAP Reno, LLC filed a state-court complaint (Oct. 5, 2023) alleging breach of a restrictive covenant, breach of implied covenant of good faith and fair dealing, and tortious interference.
- Defendants are NVLCO Storey County, LLC (NVLCO), SVO Nevada, LLC, and PSO Nevada, LLC; SVO and PSO had their certificates canceled Oct. 6, 2023; NVLCO’s ten members were converted from LLCs to corporations for Delaware tax purposes on Oct. 18, 2023.
- Defendants removed the case to federal court based on diversity jurisdiction; Plaintiffs moved to remand, conceding the amount in controversy but arguing lack of complete diversity.
- The Court examined whether Defendants met their burden to show complete diversity at the time the complaint was filed, focusing on NVLCO’s citizenship as an LLC (which depends on the citizenship of its members and the members’ owners).
- Defendants failed to trace citizenship through the multi-tier ownership structure (Tract Parent LP with limited partners and a general partner owned by an LLC managed by an individual described as a Florida resident) and did not adequately establish the citizenship of limited partners that are themselves LPs/LLCs.
- The Court held removal improper for lack of established complete diversity, granted remand to state court, denied other pending motions as moot, and granted a limited sealing of investor identities for the remand-stage proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether complete diversity existed at the time the complaint was filed | Plaintiffs are Nevada citizens and defendants were citizens of Nevada; removal improper | Removal proper because defendants (NVLCO, SVO, PSO) were not Nevada citizens | Held for Plaintiffs: Defendants failed to prove NVLCO was not a Nevada citizen; remand granted |
| Whether Defendants adequately alleged NVLCO’s citizenship by identifying members/owners | Plaintiffs: Defendants did not show the citizenship of NVLCO’s members’ members/partners; residency/state filings are insufficient | Defendants pointed to ownership documents, conversions, and a listed Florida resident as controlling owner | Held for Plaintiffs: Defendants did not sufficiently trace citizenship through multi-tier entities or allege partners’ citizenships; mere residence or state of organization is inadequate |
| Effect of post-filing dissolutions/conversions on diversity analysis | Plaintiffs: Citizenship is determined at complaint filing; post-filing changes don’t cure a jurisdictional defect | Defendants: Conversions/dissolutions after filing alter the entities’ citizenship status at removal | Held: Court applies the rule that diversity must exist at filing and removal, but Defendants still failed to show diversity at the time of filing; post-filing changes did not save removal |
Key Cases Cited
- Gaus v. Miles, Inc., 980 F.2d 564 (9th Cir. 1992) (strong presumption against removal jurisdiction; burden on removing party)
- Strotek Corp. v. Air Transp. Ass’n of Am., 300 F.3d 1129 (9th Cir. 2002) (diversity must exist both at filing and removal)
- Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894 (9th Cir. 2006) (an LLC is a citizen of every state of its members)
- Carden v. Arkoma Assocs., 494 U.S. 185 (1990) (partnership citizenship depends on citizenship of partners)
- Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375 (1994) (party asserting jurisdiction bears the burden of establishing it)
- Seven Resorts, Inc. v. Cantlen, 57 F.3d 771 (9th Cir. 1995) (residence is not the same as citizenship for jurisdictional purposes)