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Treadstone Capital Management, L.P. v. TBTW Holdings

March 18, 2010

TREADSTONE CAPITAL MANAGEMENT, L.P., PLAINTIFF/COUNTER-DEFENDANT,
v.
TBTW HOLDINGS, DEFENDANT/COUNTER-CLAIMANT.



The opinion of the court was delivered by: Hon. Janet T. Neff

OPINION

Pending before the Court in this removed action is plaintiff's motion to remand (Dkt 8). Defendant filed a response in opposition (Dkt 10). For the reasons that follow, this Court finds that defendant improvidently removed this matter to this Court and therefore grants plaintiff's request to remand the matter to state court.

I. BACKGROUND

This action, alleging state law claims of breach of guaranty and judicial foreclosure, originated in the Montcalm County Circuit Court of Michigan. Defendant removed the case to this Court, claiming diversity jurisdiction under 28 U.S.C. § 1332. Plaintiff argues that this Court lacks subject matter jurisdiction to hear this case because diversity jurisdiction does not exist.

Plaintiff's motion to remand is brought pursuant to 28 U.S.C. § 1447(c), which provides in relevant part: "If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." Removal statutes are to be strictly construed, and "all doubts as to the propriety of removal are resolved in favor of remand." Coyne v. American Tobacco Co., 183 F.3d 488, 493 (6th Cir. 1999). The burden of proving the existence of jurisdiction falls on the defendant seeking removal. Id. at 492-93.

Any case that could have been brought in federal court based on diversity jurisdiction can be removed from state court on this ground. 28 U.S.C. § 1441(a). Under the diversity statute, 28 U.S.C. § 1332, this Court has original jurisdiction of a civil action where the matter is between "citizens of different states" and the amount in controversy exceeds the sum or value of $75,000, exclusive of interest and costs.

"The general rule is that all unincorporated entities ... have the citizenship of each partner or member." Delay v. Rosenthal Collins Group, LLC, 585 F.3d 1003, 1005 (6th Cir. 2009). And because each partner or member may itself have multiple members or partners -- and thus may itself have multiple citizenships -- the federal court needs to also know the citizenship of each "sub-member" or "sub-partner" to determine whether complete diversity exists between the parties opposed in interest. Id. "[W]herethe interest is joint, each of the persons concerned in that interest must be competent to sue, or liable to be sued in [the federal] courts." Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 267; 2 L.Ed 435 (1806).

Here, defendant TBTW Holdings is a Pennsylvania general partnership. Defendant has two general partners: Thomas Brubaker, a citizen and resident of the State of Pennsylvania; and Thomas Walton, a citizen and resident of the State of Florida.

Plaintiff Treadstone is a Delaware limited partnership. Plaintiff's general partner is Treadstone Capital Partners, LLC, a Delaware limited liability company, whose principal place of business is in the State of Texas. In its motion to remand, plaintiff identifies its limited partner as PCG Special Situations Partners, also a Delaware limited partnership (Mot. 4). Plaintiff further indicates that one of PCG Special Situation Partners' limited partners is the Florida State Board of Administration (SBA), "an agency of the Florida state government." Tencic Aff. [Pl. Mot. Exh. 1], ¶¶ 2-4.

At issue is the citizenship of the SBA, plaintiff's "sub-partner." Plaintiff argues that the SBA is a citizen of Florida (a political subdivision) and that its citizenship defeats complete diversity jurisdiction in this case because Walton is also a citizen of Florida. Defendant argues that the SBA is instead an arm or alter-ego of the state and that the SBA therefore cannot be considered a citizen of Florida. Defendant concludes that its claimed diversity jurisdiction in this Court is not defeated by the SBA's presence. The Court agrees with defendant's analysis that the SBA is an arm or alter-ego of the State of Florida, but not defendant's conclusion that diversity jurisdiction is available. This Court instead concludes that because the SBA has no citizenship, defendant has not established that the removed matter is between "citizens of different states."

II. ANALYSIS

A state is not a "citizenof a state" for purposes of diversity jurisdiction. Moor v. Alameda County, 411 U.S. 693, 717 (1973). In contrast, "a political subdivision of a State, unless it is simply 'the arm or alter ego of the State,' is a citizen of the State for diversity purposes." Id. See also South Carolina Dep't of Disabilities & Special Needs v. Hoover Universal, Inc., 535 F.3d 300 (4th Cir. 2008); Mich. Dep't of Transp. v. Allstate Painting & Contracting, Co., No. 2:08-cv-286, 2009 WL 891702 at *2 (W.D. Mich. March 31, 2009).

A. Ernst Factors

Courts generally look to Eleventh Amendment immunity principles for guidance in determining whether a particular public entity is a citizen for purposes of diversity jurisdiction. The Sixth Circuit Court of Appeals, drawing from the Supreme Court's analysis in Hess v. Port Authority Trans-Hudson Corp., 513 U.S. 30, 44-51 (1994), examines four factors in deciding whether an entity is an "arm of the state," on the one hand, or a "political subdivision," on the other. Ernst v. Rising (en banc), 427 F.3d 351, 359 (6th Cir. 2005) (concluding that a government retirement system that provides benefits for all state judges and many other state officials is "most naturally characterized as an arm of the State"). The four Ernst factors are "(1) whether the state would be responsible ...


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