Opinion
Case No. 2:99CV155C
March 1, 2000
ORDER
This matter comes before the court on plaintiff's Motion for Judgment on the Pleadings Regarding Stein Eriksen Lodge Owners Association's Jurisdictional Defenses and plaintiff's Motion for Judgment on the Pleadings Regarding Stein Eriksen Lodge Owners Association's Indispensable Party and Standing Defenses.
A. Jurisdictional Defenses
On March 10, 1999, the Bowers filed suit against Stein Eriksen Lodge Owners Association ("SEL") alleging various claims for relief. Subject matter jurisdiction was premised on diversity jurisdiction under 28 U.S.C. § 1332. SEL filed an answer to the Bowers' complaint on May 18, 1999, in which it set forth seven separate defenses. SEL's second defense was that the court lacked subject matter jurisdiction to hear the complaint.
Claims against other defendants have since been dismissed. See Order, dated May 4, 1999.
The Bowers are both residents of California and SEL is a Utah organization.
There is now, and has been for some time, concern over who are the proper parties in this case. Confusing the issue, is the fact that the Bowers are plaintiffs in one complaint and defendants in the consolidated case brought by SEL. At the time the complaint was filed, the owner of record of Unit 139 was Perry Bower Properties, LLC. ("Bower LLC"). In the period of time between the filing of the complaint and now, ownership of Unit 139 has apparently changed hands from Bower LLC to the Bowers individually and back again. At this time, the Bowers, individually, are listed as plaintiffs in their suit, and defendants in SEL's consolidated suit.
In an effort to clear up the issue of who owns which claims, this court held a hearing to discuss the outstanding jurisdictional issues. At the conclusion of that hearing, counsel for the Bowers was instructed to draft a memorandum outlining who were the proper parties in its suit against SEL. On February 15, 2000, counsel for the Bowers filed a memorandum regarding the ownership of claims in which he concluded that at least five of the seven claims were owned by Bower LLC, not the Bowers in their individual capacity. According to the Bowers, the other two claims may (though it is not definite) belong to the Bowers in their individual capacity.
Bower LLC is not currently listed as a party in either suit. Neither party has moved to amend their respective complaints to add Bower LLC. On January 3, 2000, the Bowers filed a Motion for Judgment on the Pleadings Regarding Stein Eriksen Lodge Owners Association's Jurisdictional Defenses, in which it asks the court to determine whether it has subject matter jurisdiction.
1. Bowers individually
As noted above, the plaintiffs in the Bowers case are the Bowers, in their individual capacity. The Bowers are residents of California and SEL is a Utah organization. The amount in controversy is met. There is complete diversity between these parties. Under the current procedural posturing, this court concludes that there is subject matter jurisdiction.
2. Bower LLC
As discussed in his memorandum, counsel for the Bowers concludes that Bower LLC owns most of the claims. If Bower LLC is added or substituted for the Bowers as plaintiffs, it becomes necessary for this court to decide whether there is still subject matter jurisdiction to hear the case. Bower LLC is organized under the laws of the State of Utah. The sole members of Bower LLC are Christopher Bower and Mary Perry, again, both citizens of California. See Plaintiff's Memorandum at 3.
The citizenship of an LLC is not entirely clear because the question of whether to treat an LLC like a corporation or a partnership is not well established. The issue is important here because if the LLC is treated like a corporation, it is a citizen of Utah, and there is no diversity and therefore no subject matter jurisdiction. If the LLC is treated like a partnership, it is a citizen of California, and there is diversity and therefore subject matter jurisdiction. See Strawbridge v. Curtiss, 7 U.S. 267 (1806) (in order for diversity jurisdiction to exist, there must be complete diversity).
A LLC is like a limited partnership, except that a LLC need have no equivalent to a general partner. See Cosgrove v. Bartolotta, 150 F.3d 729, 731 (7th Cir. 1998). Without a general partner, there is no owner who has unlimited personal liability for the debts of the organization. See id.
There appears to be something of a split in the circuits on this issue. In Cosgrove, Judge Posner pointed to "the resemblance between an LLC and a limited partnership" in his conclusion that the LLC should be treated like a partnership, rather than a corporation. See id. at 731. This appears to be one of the few circuit courts to consider this question. A majority of the few district courts that have considered the issue appear to agree with Posner. See, e.g., Interactive Services, Inc. v. Vista Net LLC, 1999 WL 1186429 (N.D. Ill. 1999); Exchange Point LLC v. US SEC, 1999 WL 386736 (S.D.N.Y. 1999).
According to Westlaw's KeyCite, only two cases discuss the case in any detail, and neither discuss its rationale. See Gracedale Sports and Entertainment, Inc. v. Ticket Inlet, 1999 W L 691824 (N.D.Ill. 1999); JMTR Enterprises, LLC v. Duchin, 42 F. Supp.2d 87, 93 (D. Mass. 1999). All cases referencing the case cite it positively.
At least one court has posited (in dicta) that a LLC is a citizen of the state in which it has its principle place of business (i.e. treat like a corporation). See Carlos v. Adamany, 1996 WL 210019, at *3, n. 4 (N.D. Ill. 1996). That court made its decision based on the fact that an LLC enjoys shareholder liability limits like a corporation. See id. No cases have cited this decision favorably. The only case discussing Carlos in any detail notes that its conclusion is dicta and unsupported by authority. See JMTR Enterprises, LLC v. Duchin, 42 F. Supp.2d 87 (D. Mass. 1999).
The Tenth Circuit has not addressed this issue, and there are no reported cases involving any district courts within this circuit. The court concludes that the analysis and conclusion of Cosgrove is sound, and concludes that Bower LLC should be treated like a partnership and is therefore a citizen of California.
The Bowers, correctly, point out that "it would be possible in this case for the Bowers to proceed to trial in this matter, and perhaps obtain relief against SEL, only to have SEL at that point raise its jurisdictional defenses." Amended Memorandum in Support of Motion for Judgment on the Pleadings Regarding SEL's Jurisdictional Defenses at 5. If the Bowers wish to appeal this decision to the Tenth Circuit, they are free to do so at this point.
SEL, too, is free to appeal this decision to the Tenth Circuit if it so desires. In its response memorandum, SEL claims its suit is "unaffected by the Bowers' jurisdictional pleading problems. . . ." Memorandum in Response to Plaintiff's Amended Motion for Judgment on the Pleadings Regarding SEL's Jurisdictional Defenses at 8. Though verification of this statement is, of course, in the hands of SEL, it is difficult for this court to understand why this is so. A review of SEL's complaint seems to indicate that at least some of its claims are properly brought against the owners of Unit 139, which apparently is Bower LLC.
B. Indispensable Party and Standing Defenses
In its reply to the Bowers' Counterclaim, which was in effect a reply to the Bowers' Complaint, SEL asserted several affirmative defenses including failure to name indispensable and necessary parties and lack of standing. In a motion dated January 18, 2000, the Bowers asks the court to for a judgment on the pleadings in regards to these two defenses. The court declines to do so.
A detailing of the procedural history of this case would be a tedious and daunting task. It is sufficient to note that the Bowers' counterclaim is the same as the Bowers' complaint. The defenses to the counterclaim would, it appears, apply with equal force to the complaint.
The two defenses are, in their entirety, "The Bowers have failed to name indispensable and necessary parties" and "The Bowers lack standing and/or are otherwise incapable of asserting the purported counterclaims alleged herein." See Reply to Counterclaims, dated August 26, 1999. It is clear from the pleadings surrounding the instant motion that it is premature for the court to decide the strength of these defenses. It is not clear who the indispensable and necessary parties that have not been named even are or why SEL believes the Bowers lack standing. It is not clear whether these defects will affect all or only part of the claims. It is impossible for the court to make a competent determination of this issue.
SO ORDERED.