Opinion
C21-1376-JCC-MLP
12-06-2022
GUILD MORTGAGE CO. LLC, Plaintiff, v. CROSSCOUNTRY MORTGAGE LLC, Defendant.
REPORT AND RECOMMENDATION
MICHELLE L. PETERSON UNITED STATES MAGISTRATE JUDGE
I. INTRODUCTION
This matter is before the court on three motions: (1) Defendant CrossCountry Mortgage Co., LLC's (“CrossCountry”) Motion to Seal (“Defendant's Motion to Seal” (dkt. # 107)); (2) CrossCountry's Motion to Dismiss (“Defendant's Motion to Dismiss” (dkt. # 108)); and (3) Plaintiff Guild Mortgage Co., LLC.'s (“Guild”) Motion for Sanctions (“Plaintiff's Motion for Sanctions” (dkt. # 117)). CrossCountry seeks to dismiss this action on the grounds that, because it and Guild share California citizenship, diversity of citizenship is incomplete and thus the Court lacks subject matter jurisdiction. (Def.'s Mot. to Dismiss.) Guild does not oppose dismissal, but seeks recovery of attorney's fees based on CrossCountry's failure to uncover its California citizenship until ten months into the litigation. (Pl.'s Mot. for Sanctions.)
The Court held oral argument on October 31, 2022. (Dkt. # 135.) At oral argument, the Court: (1) requested further briefing on Defendant's Motion to Seal; and (2) pursuant to Federal Rule of Civil Procedure (“Rule”) 11(c)(3), ordered CrossCountry to show cause by November 14, 2022, why the Court should not impose sanctions, including attorney's fees, for failure to comply with Rule 11(b)(3). (Id.) CrossCountry filed its response (“OSC Response”) on November 14, 2022. (OSC Resp. (dkt. # 138).) The Court permitted Guild to file an optional reply brief and fee application by November 16, 2022, and Guild did so. (Dkt. ## 135, 140-41.)
Having reviewed the parties' submissions, oral argument, the governing law, and the balance of the record, the Court GRANTS in part Defendant's Motion to Seal (dkt. # 107), recommends Defendant's Motion to Dismiss (dkt. # 108) be GRANTED, and DENIES Plaintiff's Motion for Sanctions (dkt #117).
With respect to the Court's Order to Show Cause, the Court ORDERS CrossCountry to provide a complete list of its states of citizenship or pay $25,000 in Sanctions within 30 days of the date this Report and Recommendation is adopted.
II. BACKGROUND
Guild alleges that, around July 2021, CrossCountry, “a competing mortgage lender,” conspired with three Guild employees (the “Individual Employees”) to persuade other Guild employees to “misappropriate nearly all of Guild's Kirkland, Washington branch, including dozens of employees [and] massive amounts of confidential business and client information[,]” and to divert loans in process at Guild to be closed at CrossCountry instead. (Compl. (dkt. # 1) at 1-2, ¶¶ 1-3.) Guild filed the instant suit on October 8, 2021, seeking injunctive relief as well as damages. (Id. at 33-34, ¶¶ 1-9.) Guild alleged civil conspiracy, tortious interference with business expectancy, tortious interference with contractual relationships, unfair competition, and violations of California Penal Code 502. (Id. at 25-32, ¶¶ 64-110.)
In its Complaint, Guild stated it is “a limited-liability corporation organized . . . under the laws of California, with its principal place of business in San Diego, California.” (Compl. at 2, ¶ 4.) Guild alleged diversity jurisdiction was proper under 28 U.S.C. § 1332 because “Plaintiff's sole member is a citizen of Delaware and, upon information and belief based on public filings, Defendant's members are citizens of Ohio[.]” (Id. at 3, ¶ 11.) In its contemporaneously filed Corporate Disclosure Statement, Guild stated it “is a limited-liability corporation whose sole member is a Delaware Corporation named Guild Holdings Company.” (Pl.'s Disclos. (dkt. # 3) at 1.)
On November 29, 2021, CrossCountry filed its answer, “admit[ting] CrossCountry is a Delaware limited liability corporation with its principal place of business in Brecksville, Ohio and is an Ohio citizen” and admitting Guild's allegations regarding jurisdiction. (Def.'s Ans. (dkt. # 22) at ¶¶ 7, 11.) The same day, CrossCountry filed a motion to stay proceedings pending the outcome of related arbitration proceedings Guild had filed against the Individual Employees. (Dkt. # 23.) This Court issued a Report and Recommendation to deny the motion, which was adopted by the Honorable John C. Coughenour on February 14, 2022. (Dkt. ## 35, 39.)
On January 3, 2022, CrossCountry filed a Corporate Disclosure statement, asserting it “is organized under the laws of the State of Delaware, with its principal place of business in Brecksville, Ohio. [Its] members . . . are Ohio citizens.” (Def.'s Disclos. (dkt. # 34) at 1.)
On February 25, 2022, CrossCountry filed a Motion for Leave to File a Permissive Counterclaim (dkt. # 40), which this Court denied. (Dkt. # 51.) In its proposed counterclaim, CrossCountry alleged that “Guild is a California LLC with its sole member being a Delaware corporation and [CrossCountry] is a Delaware LLC with Ohio-resident members.” (Dkt. # 41, Ex. A at ¶ 4.)
Over the next few months, the Court resolved several discovery disputes. In May 2022, Guild filed a motion to compel discovery responses and the Individual Employees filed nonparty motions to quash. (Dkt. ## 52, 55, 61, 65.) After oral argument was conducted on all four motions, Guild's motion was granted in part and the Individual Employees' motions were denied. (Dkt. ## 80, 82.) Next, on July 12, 2022, CrossCountry filed a Letter/Motion for Discovery and oral argument was held on July 14, 2022. (Dkt. ## 87, 90.) On July 18, 2022, the Court denied CrossCountry's motion. (dkt # 91.)
On July 22, 2022, CrossCountry filed a motion to dismiss the complaint based on lack of diversity jurisdiction. (Dkt. # 96.) In response, the Court struck the status conference scheduled for August 5, 2022, (dkt. # 101) but held a discovery conference, ordering CrossCountry to “produce all responsive documents and information [and] a corporate designee for a Rule 30(b)(6) deposition” regarding its citizenship and “withdraw its . . . Motion to Dismiss the Complaint for Lack of Subject Matter Jurisdiction (dkt. # 96) without prejudice to refiling[.]” (Dkt. # 106.)
On August 8, 2022, CrossCountry filed the instant Motion to Seal and Motion to Dismiss. (Dkt. ## 107-08.) On September 5, 2022, Guild filed a Notice of Conditional Non-Opposition to Defendant's Motion to Dismiss, acknowledging that it had no grounds to challenge dismissal for lack of subject matter jurisdiction. (Dkt. # 116 at 1.)
On September 9, 2022, Guild filed its Motion for Sanctions, arguing that CrossCountry repeatedly made false statements and engaged in “forum shopping.” (Pl.'s Mot. for Sanctions at 1.) CrossCountry filed a response in opposition (Def.'s Resp. (dkt. # 127)) and Guild filed a reply (Pl.'s Reply (dkt. # 132)).
On September 23, 2020, as directed by the Court, both parties filed amended corporate disclosure statements. (Dkt. ## 124-26.) Guild stated it is a limited liability company (“LLC”) and “a citizen of Delaware and California for diversity of citizenship purposes.” (Pl.'s Am. Disclos. (dkt. #125 at 1).) CrossCountry identified itself as an LLC and stated that it is a citizen of California through one of its upstream members, Radcliff CCM I LLC (“Radcliff”), but is unable to ascertain the full extent of its citizenship because Radcliff “declined to provide” its complete citizenship. (Def.'s Am. Disclos. (dkt. # 126) at 2.)
III. DISCUSSION
A. Requests for Judicial Notice
In support of its Motion for Sanctions, Guild requests judicial notice of three documents from State government websites and two complaints filed in other federal district courts. (Dkt. # 120.) In support of its opposition to Plaintiff's Motion for Sanctions, CrossCountry requests judicial notice of four documents from a publicly available website, for purposes of showing their content is publicly available, and six documents publicly filed with State and federal agencies and a federal district court. (Dkt. # 131.)
The Court may take judicial notice of “proceedings in other courts, both within and without the federal judicial system, if those proceedings have a direct relation to matters at issue.” Bias v. Moynihan, 508 F.3d 1212, 1225 (9th Cir. 2007). Judicial notice may be taken of facts that are not subject to reasonable dispute because they are generally known or “capable of accurate and ready determination by resort to sources whose accuracy cannot be reasonably questioned.” U.S. v. Ritchie, 342 F.3d 903, 908-09 (9th Cir. 2003); Fed.R.Evid. 201(b). Accordingly, the parties' requests for judicial notice are hereby GRANTED.
B. CrossCountry's Motion to Seal
First, CrossCountry seeks to maintain four documents under seal. (Def.'s Mot. to Seal.) The first is a redacted version of Radcliff's LLC Agreement, which identifies an LLC (the “Tier 2 LLC Member”) as a member. (Id., Ex. G (dkt. # 107-1).) The second is a redacted version of the Tier 2 LLC Member's LLC Agreement, which identifies another LLC (the “Tier 3 LLC Member”) as a member. (Id., Ex. H (dkt. # 107-2).) The third is a redacted version of the Tier 3 LLC Member's Operating Agreement, which identifies a natural person (“Natural Person Member”) as a member. (Id., Ex. I (dkt. # 107-3).) The fourth is a declaration by the Natural Person Member claiming permanent residency in California. (Id., Ex. J (dkt. # 107-4) at ¶¶ 2, 4-5.)
CrossCountry contends the documents should be sealed “to protect the financial privacy of certain non-parties to this case[.]” (Def.'s Mot. to Seal at 2.) It argues “[i]njury will result if these documents are not sealed, because sensitive, non-public information will be revealed publicly, invading the privacy of the non-parties[.]” (Id. at 4.) Guild initially opposed the Motion to Seal, but withdrew its opposition. (Dkt. ## 110, 115.)
There is a strong presumption in favor of public access to judicial records and documents. W.D. Wash. Local Civil Rule (“LCR”) 5(g); see also Nixon v. Warner Commc'ns, Inc., 435 U.S. 589, 597 (1978). As the Ninth Circuit explained in Kamakana v. City & Cnty. of Honolulu, “judicial records are public documents almost by definition, and the public is entitled to access by default.” 447 F.3d 1172, 1180 (9th Cir. 2006). This “federal common law right of access” to court documents generally extends to “all information filed with the court,” and “creates a strong presumption in favor of access to judicial documents which can be overcome only by showing sufficiently important countervailing interests.” Phillips ex Rel. Estates of Byrd v. Gen. MotorsCorp., 307 F.3d 1206, 1212 (9th Cir. 2002) (citations and quotation marks omitted).
LCR 5(g) requires that a motion to seal a document include:
A specific statement of the applicable legal standard and the reasons for keeping a document under seal, including an explanation of: (i) the legitimate private or public interests that warrant the relief sought; (ii) the injury that will result if the relief sought is not granted; and (iii) why a less restrictive alternative to the relief sought is not sufficient. Evidentiary support from declarations must be provided where necessary.
LCR 5(g)(3)(B).
In determining the applicable standard, “[t]he focus . . . is on whether the motion at issue is more than tangentially related to the underlying cause of action.” Ctr. for Auto Safety v. Chrysler Grp., LLC, 809 F.3d 1092, 1099 (9th Cir. 2016). When the motion is more than tangentially related to the merits, the movant must show compelling reasons for overcoming the presumption in favor of public access. Id. at 1096-97. Otherwise, a party need only show good cause. Id. CrossCountry contends the lower “good cause” standard applies here. (Def.'s Mot. to Seal at 3.)
Other district courts in this Circuit have concluded that a motion to dismiss for lack of jurisdiction, without reaching the merits of the claims, should be considered non-dispositive for purposes of determining the standard to seal. “An order on a motion to dismiss for lack of personal jurisdiction . . . does not resolve the merits of the underlying causes of action, and is only tangentially related to the merits. If such a motion is granted, it is without prejudice to re-filing the action so as to cure the jurisdictional defect.” Young v. Actions Semiconductor Co., 2007 WL 2177028, at *2 (S.D. Cal. July 27, 2007). The Court finds this reasoning persuasive with regards to subject matter jurisdiction as well.
However, even under the less demanding “good cause” standard, CrossCountry's Motion to Seal fails to show that injury will result from disclosure. See LCR 5(g)(3)(B)(ii).“A party asserting good cause bears the burden, for each particular document it seeks to protect, of showing that specific prejudice or harm will result if no protective order is granted.” Foltz v. State Farm Mut. Auto. Ins. Co., 331 F.3d 1122, 1130 (9th Cir. 2003). “[B]road allegations of harm, unsubstantiated by specific examples or articulated reasoning,” will not suffice. Id. (quoting Beckman Indus., Inc. v. Int'l Ins. Co., 966 F.2d 470, 476 (9th Cir. 1992)).
CrossCountry contends the documents at issue should be sealed because they reveal “the identities of non-party investors, information about the organizational structure of non-parties, and sensitive information about the financial interests of the same.” (Def.'s Mot. to Seal at 4-5.) But financial information such as membership percentages and capital commitments in the LLC agreements is redacted. (See id., Exs. G at 5, I at 18.) And, with regard to “organizational structure,” the fact that two of the non-parties are structured as LLCs is revealed by their names, and thus is publicly available information. See Kamakana, 447 F.3d at 1184 (affirming denial of motion to seal information that was “already publicly available”).
CrossCountry's remaining argument appears to be that an entity's or person's membership in an LLC is private financial information. (Def.'s Mot. to Seal at 4-5.) Yet CrossCountry identified Radcliff, CrossCountry Holding Corp., and CrossCountry Holdco, LLC as its upstream members in its publicly available briefing.(See Def.'s Mot. to Dismiss at 5; Second Platt Decl., Exs. D (dkt. # 109-4) at 8, E (dkt. # 109-5) at 5, F (dkt. # 109-6) at 9.) Moreover, LCR 7.1 requires a party to identify “any member or owner in a . . . limited liability corporation (LLC)[.]” LCR 7.1(a).
The Court also rejects CrossCountry's contention that, as a general principle, LLC membership information must be sealed. CrossCountry makes several arguments on the issue. First, CrossCountry argues “personal information of non-litigants” should be kept under seal. (Def.'s Mot. to Seal at 4 (citing Alegre v. United States, 2021 WL 4934982 (S.D. Cal. July 29, 2021).) The court in Alegre found compelling reasons to redact “private and sensitive information, including names, dates of birth, and addresses” found in “census records, [tribal] membership rolls, enrollment records, and family tree records.” 2021 WL 4934982 at *3. Here, no birth dates or addresses are found in the documents at issue. And the names found in the LLC agreements only reveal membership in an LLC, rather than personal, tribal, or family information.
CrossCountry next argues “financial information of . . . non-parties” should be protected, citing Johnson v. Quantum Learning Network, Inc., 2016 WL 4472993 (N.D. Cal. Aug. 22, 2016), and Omni MedSci, Inc. v. Apple Inc., 2019 WL 9834334 (N.D. Cal. Nov. 25, 2019). (Def.'s Mot. to Seal at 4.) In Johnson, the court granted the parties' motion to seal unidentified “sensitive financial information of non-parties . . . as well as sensitive financial information of Defendant that, if made public, could harm Defendant's business interests.” Johnson, 2016 WL 4472993 at *2. But here, CrossCountry's Motion to Seal does not explain how membership in an LLC is sensitive financial information and shows no potential harm to business interests. In Omni, as in Johnson, the court did not identify the type of information it found required protection, stating only that it found good cause to seal an employer's “confidential information with personnel . . . given the non-dispositive nature of the [related] motion.” Omni MedSci, Inc., 2019 WL 9834334 at *2. Here, CrossCountry's Motion to Seal fails to explain how membership in an LLC is as sensitive as confidential employment records.
Finally, CrossCountry argues the court in Selling Source, LLC v. Red River Ventures, LLC, 2011 WL 1630338 (D. Nev. Apr. 29, 2011), sealed information about “corporate structure, . . . finances[,] and commercial operations.” (Def.'s Mot. to Seal at 4.) The court in Selling Source found good cause to seal “detailed information regarding the parties' business operations, customer agreements, corporate structure, the details of Selling Source's customer base and how the company works with and licenses products to its customers and measures it takes to protect its intellectual property.” 2011 WL 1630338 at *2. Taken together, this information constituted “trade secrets and proprietary business practices.” Id. But CrossCountry has not shown that trade secrets and proprietary business practices would be revealed by the documents at issue here. The Selling Source court did not seal any documents revealing only corporate structure. See Id. (sealing document that “discusses Selling Source's corporate structure and purchase agreement details”). The court specifically declined to seal documents “discuss[ing] relationships between non-party individuals and entities.” Id. at *3. Membership in an LLC is more similar to a relationship between individuals and entities than to trade secrets and proprietary business practices.
The Court thus rejects the blanket proposition that LLC membership must be sealed. However, along with CrossCountry's OSC Response, CrossCountry provided a declaration by Daniel Jemal, who states he is CFO of Radcliff and the Tier 2 LLC Member for “Radcliff CCM I (Fam) LLC.” (Jemal Decl. (dkt. # 139) at ¶ 1.) Mr. Jemal states that these two LLCs “consider [their] investor information both highly confidential and competitively sensitive.” (Id. at ¶ 2.) Specifically, Mr. Jemal avers:
If [the LLCs are] unable to continue to represent that [they] will keep [their] investors' identities private, [they] could lose investors. It is not difficult to imagine that some potential investors would be unwilling to invest money in certain companies or projects if their investments are made public. There can be
tremendous pressure from certain sectors of the public not to invest in certain industries or projects viewed as conflicting with some perceived concerns.(Id. at ¶ 3.)
Given that Mr. Jemal identified the Tier 2 LLC Member in his publicly filed declaration, the Court concludes that no reason has been offered for sealing the redacted version of Radcliff's LLC agreement that identifies the Tier 2 LLC Member (dkt. # 107-1). Because Radcliff identifies concern about losing investors who fear public pressure not to invest in its projects, the Court concludes there has been a sufficient showing of potential injury if the remaining documents are not sealed.
Accordingly, the Court grants in part the Motion to Seal. The Tier 2 LLC Member's LLC agreement (Def.'s Mot. to Seal, Ex. H (dkt. # 107-2)), Tier 3 LLC Member's LLC agreement (id., Ex. I (dkt. # 107-3)), and declaration by the Natural Person Member (id., Ex. J (dkt. # 107-4)) shall remain under seal.
C. CrossCountry's Motion to Dismiss
An unincorporated entity, such as an LLC, “‘is a citizen of every state of which its owners/members are citizens,' not the state in which it was formed or does business.” NewGen, LLC v. Safe Cig, LLC, 840 F.3d 606, 612 (9th Cir. 2016) (quoting Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006). Thus, to determine citizenship of an LLC, one must determine the citizenship of each of its members.
The Ninth Circuit has held that courts must look beyond the first layer of LLCs to determine citizenship, as it is common for an LLC to be a member of another LLC. Johnson, 437 F.3d at 894. When an LLC's members include other unincorporated entities, such as additional LLCs or partnerships, “a [party] must trace through however many layers of partners or members there may be until the underlying party's citizenship is established.” Asana Partners Fund II REIT 14 LLC v. Heath Family I LLC, 2020 WL 7241449, at *2 (W.D. Wash. Dec. 9, 2020). In doing this analysis, often the citizenship of an LLC will look like “a factor tree that exponentially expands every time a member turns out to be an LLC.” Zambelli Fireworks Mfg. Co., Inc. v. Wood, 592 F.3d 412, 420 (3d Cir. 2010).
1. Guild's Citizenship
Guild is a limited liability company with one member, Guild Holdings Company. (Pl.'s Am. Disclos.) Guild Holdings Company is a corporation incorporated in Delaware with its principal place of business in San Diego, California. (Second Platt Decl., Ex. A (dkt. # 109-1) at 2, 6.) For purposes of diversity jurisdiction, a corporation is a citizen of the state in which it is incorporated and the state where its principal place of business is located. 28 U.S.C. § 1332(c)(1). Thus, Guild Holdings Company-and, in turn, Guild-is a citizen of Delaware and California.
2. CrossCountry's Citizenship