AMBROSIA COAL & CONSTRUCTION COMPANY, a Pennsylvania corporation, Plaintiff-Appellant, versus HECTOR CARLOS PAGES MORALES, ISLA VERDE BEACH HOTEL & CASINO, S.E., et al., Defendants-Appellees.
No. 05-14255
IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT
April 2, 2007
[PUBLISH] D. C. Docket No. 99-07677-CV-DTKH. FILED U.S. COURT OF APPEALS ELEVENTH CIRCUIT APR 2, 2007 THOMAS K. KAHN CLERK.
Appeal from the United States District Court for the Southern District of Florida
(April 2, 2007)
* Honorable John F. Nangle, United States District Judge for the Eastern District of Missouri, sitting by designation.
NANGLE, District Judge:
This appeal stems from Appellant Ambrosia Coal & Construction Company‘s (“Ambrosia“) Fourth Amended Complaint against Appellees.1 The Complaint alleges that Appellees fraudulently induced Ambrosia into entering a settlement agreement relating to properties in Puerto Rico. Ambrosia‘s complaint sets forth twenty-four state claims and three federal claims brought pursuant to the Racketeer Influence and Corrupt Organization Act, (“RICO“). The district court dismissed the complaint for lack of subject matter jurisdiction, holding that there was a lack of complete diversity between Ambrosia (and its subsidiaries) and Appellees, and there were no viable federal claims that would allow the court to exercise federal question jurisdiction over the matter. Ambrosia appeals the motion to dismiss and asks this Court to find that the district court has subject matter jurisdiction over both the state and federal law claims.
I. BACKGROUND
In 1985, Ambrosia, a Pennsylvania-based corporation, entered into a real estate transaction with Garita Hotel Limited Partnership (“Garita L.P.“), an Ohio based partnership formed by George Malizia. Ambrosia provided Garita L.P. with four million dollars in order for Garita L.P. to purchase a ninety-nine-year leasehold interest in beachfront property in Puerto Rico. In exchange for supplying the financing, Ambrosia received a one hundred percent ownership interest in Garita Hotel Corporation (“Garita Hotel Corp.“), a Puerto Rican corporation. Garita Hotel Corp. is the majority owner and sole general partner of Garita L.P. (collectively referred to as “the Garita entities“). In sum, the corporate structure of Ambrosia and the Garita entities is that of parent and subsidiaries, respectively.
George Malizia and Lenine Strollo, purporting to act on behalf of Garita L.P., attempted to sell the leasehold to Isla Verde Beach Hotel & Casino, S.E. (“Isla Verde“) for twelve and a half million dollars.2 Ambrosia claimed that it did not authorize the sale of the lease, and did not receive any consideration from the sale. Ambrosia sued in the Pennsylvania state courts. Ultimately the court found in Ambrosia‘s favor and entered a consent order confirming that Ambrosia was the sole owner of Garita Corp., and, was therefore entitled to the proceeds of the unauthorized sale.
In 1994, Ambrosia, in its own right and on behalf of the Garita entities, advised Isla Verde and Mr. Pages of its intent to file an action relating to the title of the lease and/or for recovery of the consideration paid for the lease. After numerous exchanges via mail and phone conversations, in lieu of filing suit, a settlement agreement was reached. The agreement provided that Green Isle, a limited partnership established under Florida law, would own the Lease. Ambrosia agreed to relinquish its rights in the Lease in exchange for $750,000 in cash and a promissory note in the amount $3,250,000, payable on October 25, 2001. The promissory note was subject to the condition that it be paid solely from cash distributions made from Green Isle to Mr. Pages.3 According to the settlement agreement, Mr. Pages would receive a thirty-three percent limited partnership interest in Green Isle Partners Ltd., S.E.
Ambrosia claims that it entered into the settlement agreement based on the misrepresentation that Mr. Pages’ interest in the Green Isle partnership would not be diluted in the future. Ambrosia alleges that the 1995 post-settlement restructuring of Green Isle‘s partnership agreement, which reduced Mr. Pages’ interest in Green Isle to “Class B” limited partnership status, diluted Mr. Pages’ interest,
On September 15, 1999, Ambrosia‘s subsidiaries, Garita L.P. and Garita Hotel Corp., assigned their claims under the 1994 settlement agreement to Ambrosia.4 Thus, Ambrosia‘s Puerto Rico and Ohio subsidiaries were not parties to the action when, in December of 1999, Ambrosia, as the sole plaintiff, commenced litigation against Hector Carlos Pages Morales, Ana Celia Pages, Isla Verde, S.E., Isla Verde Hotel & Casino, and Green Isle; without the Garita entities involved, there is complete diversity of citizenship in this litigation.5
II. DISCUSSION
a. Assignment of Claims from Garita to Ambrosia
i.
Ambrosia alleged the existence of federal jurisdiction over its state law claims through diversity of citizenship,
This Court reviews de novo the district court‘s conclusion that it lacked proper subject matter jurisdiction to decide the case. See Williams v. Best Buy Co., Inc., 269 F.3d 1316, 1318 (11th Cir. 2001). Factual findings regarding the citizenship of a party are subject to a clearly erroneous standard of review. MacGinnitie v. Hobbs Group, LLC, 420 F.3d 1234 (11th Cir. 2005).
ii.
Appellees contend that the district court correctly applied a presumption of
The Second Circuit has held that when a non-diverse parent company assigns its claims to a diverse subsidiary “engaged in no business other than the prosecution of that claim,” the court presumes that diversity jurisdiction was collusively obtained in violation of
We find that Prudential and S & N Travel are factually distinguishable from the instant situation. In Prudential, the court held that the presumption of collusion applies to “downstream” assignments, namely, those assignments whereby the parent corporation assigns its claims to a subsidiary whose sole business purpose is to litigate the assigned claim. Here, however, it is the subsidiaries, Garita L.P. and Garita Hotel Corp., that assigned their claims to an already existing parent, Ambrosia. In S & N Travel, the assignee was merely an agent for the real parties in interest. Here, however, Ambrosia, the assignee, has business purposes beyond the litigation of the assigned claims and is the real party in interest.
In Nike, Inc. v. Commercial Iberica de Exclusivas Deportivas, S.A., 20 F.3d 987, 991-992 (9th Cir. 1994), the Ninth Circuit extended the presumption of collusion and applied it to the assignment of claims from a non-diverse Nike subsidiary to the diverse parent corporation (an “upstream” assignment). Appellees urge us to adopt Nike and affirm the district court‘s application of the presumption of collusion to the case before us. The Nike court solely relied on a quote from Green & White Constr. Co. v. Cormat Contr. Co., 361 F.Supp. 125, 128 (N.D.Ill. 1973), a case applying the presumption to an upstream assignment. The Seventh Circuit, however, has subsequently explicitly rejected the use of a presumption when evaluating assignments between related entities. Herzog Contracting Corp. v. McGowen Corp., 976 F.2d 1062, 1067 (7th Cir. 1992) (holding that “no inference of collusive invocation of jurisdiction can be drawn from the simple fact that assignor and assignee are under common ownership“).
The reasoning of the Seventh Circuit is persuasive. The language of
iii.
While other Circuits have reasoned that a presumption of collusion is appropriate
In Kramer v. Caribbean Mills, 394 U.S. 823 (1969), the Supreme Court held that when the assignor retains an interest in the assigned claims, the assignee has no previous connection in the matter, and the assignment is made for the sole purpose of accessing the federal courts, the assignment is collusive in violation of
However, in Kramer, the Court explicitly stated that it was not disturbing prior decisions in cases where a claimant makes a bona fide, absolute transfer7 of its claims to a diverse citizen for the purpose of invoking federal jurisdiction. Kramer, 394 U.S. at 828. In such cases, the Court has held that federal jurisdiction is proper, and the motives of the transfer are irrelevant. Id. For instance, in Black & White Taxicab & Transfer Co. v. Brown & Yellow Taxicab & Transfer Co., 276 U.S. 518 (1928), the Court held that it was not collusive for a non-diverse corporation to dissolve and transfer its property into a new corporation for the purpose of creating diversity of citizenship. Id. at 524-25. The Court stated, “[s]o long as “[t]he succession and transfer were actual, not feigned or merely colorable. . .courts will not inquire into the motives when deciding jurisdiction.” Id. at 524; cf. Miller & Lux v. East Side Canal & Irrigation Co., 211 U.S. 293 (1908) (finding that the transfer of interests was feigned because the newly-created, diverse corporation had no real interests in the matter, and the transferring corporation did not dissolve or cease to exist after creating the diverse corporation).
In evaluating the nature and validity of absolute transfers, the Supreme Court has also examined the consideration exchanged for the assigned claim. See Cross v. Allen, 141 U.S. 528 (1891) (holding that it is not a collusive transaction when valuable consideration is paid to transfer a debt to a bona fide purchaser, even if the transfer was for the purpose of invoking diversity jurisdiction); Lehigh Mining and Manufacturing Co. v. Kelly, 160 U.S. 327 (1895) (holding that jurisdiction was collusively obtained when a corporation made a grant of disputed land to a newly-created, out-of-state corporation without exchanging any valuable consideration) (emphasis added).
We conclude that subject matter jurisdiction over Ambrosia‘s state law claims is proper, and does not violate the anti-collusion statute. Ambrosia is the real party in interest in this litigation and the Garita entities retained no interest in the assigned claims at issue. Since 1985, Ambrosia has been involved in the dispute relating to the title over the lease; it is Ambrosia that provided the four million dollars to purchase the lease in Puerto Rico; and, Ambrosia, on behalf of itself and its subsidiaries, spearheaded the litigation efforts ever since the Pennsylvania litigation. Furthermore according to the sworn statement by the president of Ambrosia, Carmen Schick, the assignment of claims between the Garita entities and Ambrosia were absolute transfers made in exchange for valuable consideration—in exchange for the claims, which Garita held pursuant to the 1994 settlement agreement, Ambrosia reduced its judgment against the Garita entities by $100,000. Ambrosia has placed and kept this judgment on its financial and accounting books, and as a result of the reduction in the judgment, Ambrosia was able to reduce its tax liability. Therefore, the district court erred in dismissing the state law claims for lack of subject matter jurisdiction.
b. Civil RICO Claims
This Court reviews de novo the district court‘s dismissal of the civil RICO claim for failure to state a claim. Hoffman-Pugh v. Ramsey, 312 F.3d 1222, 1225 (11th Cir. 2002).8 In evaluating whether a complaint states a claim upon which relief can be granted,9 we must accept the well-pleaded allegations of the complaint as true and draw all reasonable inferences therefrom in favor of the complaining party. Brooks v. Blue Cross & Blue Shield, 116 F.3d 1364, 1368-69 (11th Cir. 1997).
We affirm the district court‘s dismissal of Ambrosia‘s civil RICO claims. Civil RICO claims, which are essentially a certain breed of fraud claims, must be pled with an increased level of specificity. See
documents, or misrepresentations made;
After a thorough review of Ambrosia‘s Fourth Amended Complaint, we conclude that Ambrosia failed to plead its civil RICO claims against each defendant with the required level of specificity.12
III. CONCLUSION
Accordingly, we REVERSE the district court with respect to Ambrosia‘s state law claims. We find that subject matter jurisdiction exists, and, therefore we REMAND the state law claims for further proceedings. With respect to the federal civil RICO claims, we AFFIRM the district court‘s dismissal of these claims.
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