On June 28, 2018, the Court issued an Order dismissing certain third-party cross-claims in this action. See Rocky Aspen Mgmt. 204 LLC v. Hanford Holdings LLC, No. 16 Civ. 4270,
I. BACKGROUND
The facts of this action are recounted in the Court's June 28 Order, and the parties' familiarity with those facts is assumed. In short, Plaintiff Rocky Aspen Management 204 LLC ("RAM 204") commenced this action against Hanford Holdings, LLC ("Hanford") seeking a declaratory judgment determining that RAM 204 owns the majority of membership interests in Rocky Aspen LLC, a Colorado limited liability company. (See"Complaint," Dkt. No. 1; "First Amended Complaint," Dkt. No. 15; "Second Amended Complaint," Dkt. No. 53.) Each of these complaints declares that the Court has jurisdiction over this civil action based on the parties' diversity of citizenship pursuant to
Hanford's answer to the First Amended Complaint included counterclaims against RAM 204, as well as claims against two groups of third-party impleaded defendants. (See"Answer and Third-Party Complaint," Dkt. No. 23.) One group consists of Jeffrey Citron, Stephen Goglia, Mark Hamwi, and Watershed Ventures LLC (collectively, and together with RAM 204, the "Watershed Defendants"). The other group consists of Patrick McGrath, AH DB Kitchen Aspen Investors LLC ("AH DB"), Castlegrace Equity Investors LLC ("Castlegrace"), and Aristone Hospitality LLC ("Aristone," and collectively, the "Aristone Defendants"). Among the relevant citizenship allegations, Hanford asserted that AH DB and Castlegrace have principal places of business in New York. (See
On February 14, 2017, the Watershed Defendants filed their answer to Hanford's Third-Party Complaint and alleged three state law cross-claims against the Aristone Defendants. (See"Watershed Cross-claims," or "Cross-claims," Dkt. No. 49.) The instant Order concerns the Court's subject matter jurisdiction over those cross-claims. Relevant to the Court's inquiry, the Cross-claims do not distinguish which of the Watershed Defendants the claims are brought on behalf of. Because the Watershed Defendants themselves -- as do the Court and all other parties in the action -- include RAM 204 within the definition of "Watershed Defendants," the Cross-claims are thus presumably brought, in part, on behalf of RAM 204. The Cross-claims include no jurisdictional allegations.
By letter dated March 6, 2017, the Aristone Defendants sought leave to move to dismiss the Watershed Cross-claims pursuant to Rule 12(b) (6) of the Federal Rules of Civil Procedure (" Rule 12(b)(6)"). (See"March 6 Letter," Dkt. No. 51; "March 17 Letter," Dkt. No. 75 at 1 n.2.) At that time, the Aristone Defendants did not raise any concerns about the Court's subject matter jurisdiction over the Watershed Cross-claims. The Court construed those two letters as a motion to dismiss under Rule 12(b)(6) (see June 28 Order at 41-42), and granted it, dismissing all three of the Watershed Cross-claims.
II. LEGAL STANDARDS
Subject matter jurisdiction is a threshold issue, and courts must evaluate their jurisdiction over every claim, including cross-claims brought by or against impleaded third-parties. See United Republic Ins. Co., in Receivership v. Chase Manhattan Bank,
Here, the Court's jurisdiction over RAM 204's original claim against Hanford was premised on diversity of citizenship, which requires complete diversity between the plaintiff and all defendants, and that the amount in controversy exceeds "the sum or value of $ 75,000, exclusive of interest and costs."
Additionally, in cases where a federal district court already has original jurisdiction, the court may also exercise "supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy." Viacom Int'l, Inc. v. Kearney,
However, section 1367(b) qualifies a court's exercise of supplemental jurisdiction in diversity cases, such as the instant action, providing that:
In any civil action of which the district courts have original jurisdiction founded solely on section 1332 of this title, the district courts shall not have supplemental jurisdiction under subsection (a) over claims by plaintiffs against persons made parties under Rule 14, 19, 20, or 24 of the Federal Rules of Civil Procedure, or over claims by persons proposed to be joined as plaintiffs under Rule 19 of such rules, or seeking to intervene as plaintiffs under Rule 24 of such rules, when exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional requirements of section 1332.
Thus, in a case where the court has jurisdiction premised on diversity, plaintiffs cannot rely on supplemental jurisdiction to bring claims against defendants impleaded under Federal Rule of Civil Procedure 14 (" Rule 14"). See
Impleaded defendants, however, may bring claims against one another without running afoul of the supplemental jurisdictional limitation in section 1367(b), because the limitation functions to exclude claims brought by plaintiffs, but not those brought by impleaded defendants. See Viacom Int'l,
Although "[t]he caselaw on section 1367(b) is sparse," "courts adhere to its requirements fairly strictly in order to preserve the complete diversity requirement." F5 Capital v. Pappas
III. DISCUSSION
The Court now considers whether it had jurisdiction over the Watershed Cross-claims, brought in part by RAM 204, against the impleaded Aristone Defendants that were dismissed pursuant to the June 28 Order. First, the Watershed Cross-claims, all of which assert state law claims, do not invoke federal question jurisdiction. Nor do they invoke diversity of citizenship jurisdiction, because an examination of the parties' citizenship as declared in the pleadings reveals a lack of complete diversity between RAM 204 and the Aristone Defendants. According to the parties' filings, RAM 204 is a citizen of New York, as are at least two of the Aristone Defendants, AH DB and Castlegrace. AH DB or Castlegrace is named in each of the three Watershed Cross-claims, thus destroying complete diversity and divesting the Court of federal subject matter jurisdiction.
Finding no federal question or diversity of citizenship jurisdiction in this action, the Court evaluates whether it can exercise supplemental jurisdiction over the Watershed Cross-claims. First, the Court concludes that the Watershed Cross-claims "form part of the same case or controversy" as the original action.
Next, however, because this action is predicated on diversity jurisdiction, the Court must apply section 1367(b). Critically, the Court observes that RAM 204 -- the original plaintiff in this action -- is included among the Watershed Defendants bringing claims against the Aristone Defendants. RAM 204's inclusion within the Watershed Defendants transforms the Cross-claims into claims brought by the original plaintiff "against persons made parties under Rule 14."
For these reasons, the Court sua sponte raises the issue of its subject matter jurisdiction with respect to the Watershed Cross-claims and directs the parties to show cause why the Court should not vacate in part the June 28 Order dismissing
Further, the dismissal without prejudice for lack of subject matter jurisdiction may enable the Watershed Defendants to raise similar claims in another court of competent jurisdiction. Accordingly, the parties should also address whether the Court should, in its discretion under
IV. ORDER
For the reasons stated above, it is hereby
ORDERED that the parties show cause why Court should not vacate in part its June 28, 2018 Order (Dkt. No. 76) and consequently dismiss the Third-Party Cross-claims (Dkt. No. 49) brought by plaintiff Rocky Aspen Management 204 LLC and Third-Party Defendants Jeffrey Citron, Stephen Goglia, Mark Hamwi, and Watershed Ventures LLC (collectively, the "Watershed Defendants") against Third-Party Defendants Patrick McGrath, AH DB Kitchen Aspen Investors LLC, Castlegrace Equity Investors LLC, and Aristone Hospitality LLC (collectively, the "Aristone Defendants") for lack of subject matter jurisdiction. The parties should also address the impact, if any, of such vacatur on the Aristone Defendants' Third-Party Complaint (Dkt. No. 89). The parties are to submit letters, not to exceed three pages, excluding exhibits, no later than Wednesday, February 6, 2019. Each set of defendants should submit its own joint letter: one from the Watershed Defendants; and one from the Aristone Defendants.
SO ORDERED.
Notes
The June 28 Order also dismissed certain claims against Hanford that RAM 204 added to the Second Amended Complaint. (See June 28 Order at 41-42.) The Court has subject matter jurisdiction over those claims, and the instant Order does not implicate the prior dismissal of those claims.