Opinion
6:24-cv-00056-MK 6:24-cv-00097-MK
03-22-2024
DAVID P. STAPLETON in his capacity as Court-Appointed Receiver for the Receivership Entity, including Zadeh Kicks, LLC dba Zadeh Kicks, an Oregon limited liability corporation, Plaintiff, v. KATSTRIKE, INC., a New York corporation, Defendant.
FINDINGS AND RECOMMENDATION RE: MOTION TO REMAND
MUSTAFA T. KASUBHAI (He / Him) United States Magistrate Judge.
Plaintiff David P. Stapleton (“Plaintiff'), in his capacity as a court-approved receiver, brought an action in Lane County Circuit Court, Case No. 23CV50111, against Defendant Katstrike, Inc. (“Defendant”) alleging constructive fraudulent transfers and unjust enrichment. Notice of Removal, Ex. 1, ECF No. 1-1 (“Compl.”). Defendant removed the case to this Court, asserting diversity jurisdiction under 28 U.S.C. § 1332(a). Notice of Removal, ECF No. 1.
Before the Court is Plaintiff's Motion to Remand. Pl.'s Mot. ECF No. 10. For the reasons discussed below, Plaintiff's Motion to Remand should be denied.
BACKGROUND
The following allegations are taken as true for the purpose of this motion only.
Zadeh Kicks, LLC is an Oregon-based premium brand sneaker resale company that began in 2013 and that ultimately became a Ponzi scheme. Defendant was a customer of Zadeh Kicks that allegedly became a “net winner” of the Ponzi scheme, receiving money exceeding the amounts it paid. By 2022, Zadeh Kicks had incurred over $70 million in debt, warranting judicial intervention and independent oversight by a receiver. Compl. ¶ 9.
On May 19, 2022, Zadeh Kicks, through its principal Michael Malekzadeh, petitioned the Lane County Circuit Court in the captioned case In re Judicial Dissolution of Zadeh Kicks dba Zadeh Kicks, Case No. 22CV16510 (“Receivership Court”), for judicial dissolution of Zadeh Kicks and for an order appointing a receiver to assist with Zadeh Kicks' voluntary dissolution. Stapleton Decl. ¶ 3, ECF No. 11. The Court issued an order appointing Plaintiff, David P. Stapleton, as Receiver on May 20, 2022 (“Receivership Order”). Stapleton Decl. ¶ 4. Pursuant to the Receivership Order and Oregon law, the Plaintiff began marshalling and liquidating Zadeh Kicks' assets and handling claims from Zadeh Kicks' creditors. After conducting a forensic accounting of Zadeh Kicks' records, Plaintiff determined that several customers, including Defendant, had been allegedly unjustly enriched. Stapleton Decl. ¶¶ 6-7. Plaintiff brought separate actions in Lane County Circuit Court against 13 former customers of Zadeh Kicks alleging fraudulent transfer and unjust enrichment. Pl.'s Mot. 5. The Receivership Court was assigned all of the actions. The Receivership Court has been receiving periodic reports detailing the Plaintiff's efforts. Stapleton Decl. ¶ 9. Having overseen the dissolution since May 2022, the Receivership Court is familiar with the details of Zadeh Kicks' complicated scheme and potential creditors. In accordance with ORS § 37.180(1)(f), the Receivership Court maintains final approval of any settlement agreement potentially reached between the parties.
Plaintiff served Defendant on December 22, 2023. Notice of Removal ¶ 2. On January 18, 2024, Defendant timely filed its Notice of Removal based on diversity of citizenship. Zadeh Kicks is an Oregon LLC with its sole member a resident of Oregon. Notice of Removal n.1 ¶ 6. Defendant is citizen of New York. Notice of Removal ¶ 7. Plaintiff seeks over $700,000 in damages from Defendant. Compl. ¶ 21.
Many, but not all, of Plaintiff's cases have been removed to federal court. On February 13, 2024, Plaintiff filed a Motion to Remand. ECF No. 10.
On March 6, 2024 Plaintiff filed a Stipulated Motion to Consolidate Related Cases, seeking consolidation of four cases for the purposes of the motion to remand only. ECF No. 16. On March 14, 2024, the Court granted in part and denied in part. ECF No. 18. The motion was denied with respect to consolidation with Stapleton v. Twenty-Two Shoes LLC 6:24-cv-00066-AA and granted with respect to consolidation for the purpose of the pending motions to remand only: Stapleton v. Just My Kicks, LLC 6:24-cv-0056-MK (ECF No. 9); Stapleton v. Idanks Limited Liability Company 6:24-cv-00085-MK (ECF No. 11); and Stapleton v. Katsrike Inc. 6:24-cv-00097-MK (ECF No. 10). ECF No. 18. The Court considered Plaintiff's Motions to Remand in a consolidated manner but is issuing separate F&Rs for the purposes of clarity.
STANDARD OF REVIEW
A defendant may remove a civil action from state court to federal district court only if the federal court has “original jurisdiction” over the matter. 28 U.S.C. §§ 1441, 1446. The court has original jurisdiction “where the matter in controversy exceeds the sum or value of $75,000 . . . and is between . . . citizens of different States.” 28 U.S.C. § 1332(a) (“diversity jurisdiction”). A plaintiff may move to remand the case back to state court on the basis of a procedural or jurisdictional defect. 28 U.S.C. § 1447(c). Absent either circumstance, district courts have a duty “to adjudicate a controversy properly before it.” Allegheny Cnty. v. Frank Mashuda Co., 360 U.S. 185, 188-89 (1959).
DISCUSSION
Plaintiff urges the Court to abstain from exercising its jurisdiction because “the Receivership Court is best equipped to hear all of the Claw-Back Actions and . . . judicial efficiency is best served by remanding Defendants' claims.” Pl.'s Reply 4, ECF No. 17. Plaintiff does not dispute that there is complete diversity between Plaintiff and each Defendant and that the amount in controversy exceeds $75,000 in each of the cases consolidated for the purpose of this Motion. The Court has subject matter jurisdiction in accordance with 28 U.S.C. § 1332(a).
“Abstention from the exercise of federal jurisdiction is the exception, not the rule.” Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 813 (1976). Federal courts have a “virtually unflagging obligation . . . to exercise the jurisdiction given them.” Id. at 817. “However, the Supreme Court has identified several instances in which it is appropriate for a federal court to abstain from exercising its jurisdiction.” Ernest Bock, LLC v. Steelman, 76 F.4th 827, 832 (9th Cir. 2023), cert. denied, 144 S.Ct. 554 (2024) (citing Colorado River, 424 U.S. at 813-17) (discussing traditional abstention doctrines)). As relevant here, the parties dispute whether the factors identified by the Supreme Court in Colorado River justify remanding the case to state court.
In Colorado River, the Supreme Court recognized that in “exceptional circumstances,” Colorado River, 424 U.S. at 813, a district court may dismiss a case properly before it or stay the proceedings based on “considerations of ‘[w]ise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation.'” Id. (alteration in original) (quoting KerotestMfg. Co. v. C-O-Two Fire Equipment Co., 342 U.S. 180, 183 (1952)). Recognizing that these “principles [are] unrelated to considerations of proper constitutional adjudication,” id., and comity, “[t]he Court was careful to distinguish Colorado River stays from traditional abstention doctrines,” Ernest Bock, LLC v. Steelman, 76 F.4th 827, 836 (9th Cir. 2023). Simply put, “Colorado River is not an abstention doctrine,” United States v. State Water Res. Control Bd., 988 F.3d 1194, 1202 (9th Cir. 2021), it is a “type of stay.” Ernest Bock, LLC v. Steelman, 76 F.4th 827, n.2 832 (9th Cir. 2023).
An analysis under Colorado River is relevant “[w]hen a district court decides to dismiss or stay” the case pending resolution of parallel state-court litigation. Moses H. Cone Mem 'I Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 28 (1983) (emphasis added)). However, the implications of Colorado River are not relevant where, as here, the plaintiff does not seek to dismiss or stay but instead seeks remand. Plaintiff's briefing does not direct the Court to any caselaw, nor can the Court identify any controlling authority, where a district court relied on Colorado River doctrine to remand a case properly removed under diversity jurisdiction.
Moreover, even if the Court were to apply Colorado River, the analysis would start and end at its headwaters. “Parallelism is a threshold requirement” of Colorado River. Ernest Bock, LLC, 76 F.4th at 838. Plaintiff concedes that “there is no parallel state court proceeding” that would fully resolve the case before the Court. Pl.'s Mot. 8. Thus, even if Colorado River applied under the circumstances, remanding would be an abuse of discretion. Moses H. Cone Mem 'l Hosp., 460 U.S. at 28 (“serious abuse of discretion” to invoke Colorado River if there is any substantial doubt “that the parallel state-court litigation will be an adequate vehicle for the complete and prompt resolution of the issues between the parties”).
Plaintiff's assertion that abstention is also warranted under the doctrine of “discretionary abstention” is equally unpersuasive. Pl.'s Mot. 9. Plaintiff cites to City & Cnty. of San Francisco v. Assessment Appeals Bd. for City & Cnty. of San Francisco, No. 1, 122 F.3d 1274, 1276 (9th Cir. 1997), for the proposition that “federal courts should exercise their discretionary powers with due consideration to the independence of state governments carrying out their governmental functions.” Pl.'s Mot. at 9. However, in City & Cnty. of San Francisco, the Ninth Circuit reversed the district court's remand where, as here, the defendant removed based on a congressionally created statutory right to defend in federal court. City & Cnty. of San Francisco 122 F.3d at 1278. Similarly, Plaintiff's reliance on Carnegie-Mellon v. Cohill, 484 U.S. 343, 353 (1988), for the proposition that “remand may best promote the values of economy, convenience, fairness, and comity,” is misplaced. The issue in Carnegie-Mellon was whether “a district court has discretion to remand a removed case to state court when all federal-law claims have dropped out of the action and only pendent state-law claims remain,” id. at 348, which is wholly distinguishable from the present case where the Court has diversity jurisdiction. Thus, the only mandatory authority relied on by Plaintiff for so-called “discretionary abstention” supports the Court's recommendation to deny the Plaintiff's Motion to Remand.
Lastly, Plaintiff's assertion that Defendant “fail[s] to make a case for the necessity of a federal forum” is meritless. Congress enacted 28 U.S.C. § 1332, diversity jurisdiction, and the removal mechanism available in 28 U.S.C. § 1441 through its authority under Article 1, Section 8, Clause 9 (Congress shall have the power “[t]o constitute Tribunals inferior to the [S]upreme Court”) and Article III of the United States Constitution. Plaintiff does not assert that Defendant improperly removed the case, and diversity jurisdiction is undisputed.
RECOMMENDATION
For these reasons, Plaintiffs' Motion to Remand (ECF No. 10) this matter to Lane County Circuit Court, State of Oregon, should be DENIED.
This recommendation is not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any notice of appeal pursuant to Federal Rule of Appellate Procedure 4(a)(1) should not be filed until entry of the district court's judgment or appealable order. The Findings and Recommendation will be referred to a district judge. Objections to this Findings and Recommendation, if any, are due fourteen (14) days from today's date. See Fed.R.Civ.P. 72. Failure to file objections within the specified time may waive the right to appeal the district court's order. Martinez v. Ylst, 951 F.2d 1153, 1157 (9th Cir. 1991).