Opinion
No. C 00-2570 SI
October 1, 2001
ORDER OF REMAND FOR LACK OF SUBJECT MATTER JURISDICTION
BACKGROUND
On September 28, 2001, the Court heard argument on whether federal jurisdiction extends to this action. At oral argument, plaintiffs counsel requested that the Court remand this case for further proceedings. Having considered the arguments of counsel and the papers submitted, the Court hereby REMANDS to Santa Cruz Superior Court.
Plaintiff Albert Russo alleges that he is the victim of a real estate conspiracy in which he and defendants contracted to purchase and develop property jointly, but defendants ultimately excluded plaintiff from ownership of the property. See Complaint at ¶¶ 16-17, 19. On December 2, 1999, plaintiff filed suit in Santa Cruz Superior Court to recover his share of the development project's current value (CV 137199). See id. at ¶ 25; Defendants' Notice of Removal, 2:4-6. Plaintiff named as defendants three individuals and several companies plaintiff claims are "mere conduit[s]" for the business dealings of the individual defendants. See Compl. at ¶¶ 3-8. The individuals and their respective alleged conduits are: Hendrik Van Vuuren, alias Henry Van Buren (Placerville Development); Keith Lennon (I.T.T. Financial Corporation, LTM Construction and Management Corporation); and Leo Speckert (California Capital Loans, Inc.). See id. Plaintiff also named Gregory White, who was to provide "end users" for the development. See id. at ¶¶ 9, 59.
Plaintiffs complaint alleges causes of action for: 1) breach of contract, 2) breach of fiduciary duties, 3) conspiracy to breach fiduciary duties, 4) aiding and abetting breach of fiduciary duties, 5) conspiracy to aid and abet breach of fiduciary duties, 6) conversion, 7) breach of promissory note, 8) intentional infliction of emotional distress, and 9) negligent infliction of emotional distress. See Compl. at 4, 6, 14, 21, 22, 23, 24, 25, 27.
On January 18, 2000, defendants Van Vuuren, Placerville Development, I.T.T. Financial Corporation, Lennon, and LTM Management Corporation removed the action to federal court. Defendants' notice of removal alleged jurisdiction under 28 U.S.C. § 1331, claiming the case "originally arose under the United States Bankruptcy Court's Jurisdiction." See Def.'s Notice of Removal, ¶ 4. Defendants also cited "a recognized exception to tbe Anti-Injunction Act, 28 U.S.C. § 2283." See id.
On July 26, 2001, this action was reassigned to the undersigned District Judge. The Court ordered parties to show cause why federal jurisdiction extends over this action. Plaintiff submitted a brief arguing that the complaint states a cause of action under federal securities law. Defendants Speckert and California Capital Loans replied that federal jurisdiction does not lie. Likewise, defendants Lennon and LTM Construction and Management argue there is no federal jurisdiction. No briefing was submitted by the remaining defendants.
Defendants Lennon and LTM appear to have reconsidered their position regarding jurisdiction since the Notice of Removal was filed. The notice states, "Hendrik Van Vuuren, Placerville Development, LLC, I.T.T. Financial Corporation, Keith Lennon, and LTM Management Corporation hereby remove to this Court the state court action.. . ." Def.'s Notice of Removal at 2:1-3.
Lennon and LTM now argue there is no federal jurisdiction. See Def. Lennon's Response to Order to Show Cause, 3:6-7. They attribute the Notice of Removal to defendants Van Vuuren Placerville Development, and I.T.T. Financial Corporation. See id. at 2:4-6. Defendants Lennon and LTM go so far as to claim that in removing this action, defendants "were disingenuous in their representations with respect this [sic] Court's Jurisdiction." See id. at 2:19-20.
LEGAL STANDARD
This court is a court of limited jurisdiction, and as such is obligated to dismiss or remand a complaint when no basis for federal jurisdiction appears on the face of the complaint or when it becomes apparent during the course of proceedings that the court lacks jurisdiction. Southern Pagific Transportation Co. v. City of Los Angeles, 922 F.2d 498, 502 (9th Cir. 1990), cert. denied, 502 U.S. 943 (1991). See 28 U.S.C. § 1447 (c): "If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded."
"It is a fundamental principle that federal courts are courts of limited jurisdiction." Owen Equipment Erection Co. v. Kmger, 437 U.S. 365, 374 (1978). "A federal court is presumed to lack jurisdiction in a particular case unless the contrary affirmatively appears." General Atomic Co. v. United Nuclear Corp., 655 F.2d 968, 968-69 (9th Cir. 1981). Accordingly, the burden rests on the party asserting federal subject matter jurisdiction to prove its existence. See Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 377 (1994). A plaintiffs right to sue under 28 U.S.C. § 1331, the "general" federal question jurisdiction statute, must be founded on a specific federal law. See Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804, 807-12 (1986).
DISCUSSION
The Court first examines the grounds for federal jurisdiction asserted in the Notice of Removal. The Court then evaluates plaintiffs claim of jurisdiction under federal securities law.
A. Jurisdiction under the Bankruptcy Statutes
A district court has jurisdiction over appeals from bankruptcy courts in its district. 28 U.S.C. § 158(a), 28 U.S.C. § 1334. This case, however, is not a bankruptcy appeal. The only references to bankruptcy are found not in the complaint itself but in the Notice of Removal, and in plaintiffs brief in support of his motion to file an amended complaint. In the latter, plaintiff claims that defendants' scheme involved "a series of pre planned bankruptcies or insolvencies." See Pl's Motion to File First Amended Complaint, 6:19-20. Neither defendants in their Notice of Removal, nor plaintiff in his response to the Order to Show Cause, offer support for exercise of jurisdiction under the bankruptcy statutes. The Court finds that no such jurisdiction lies.
B. Jurisdiction under an Exception to the Anti-Injunction Act
The Anti-Injunction Act prohibits federal courts from issuing injunctions staying state court proceedings. 28 U.S.C. § 2283. Exceptions to the act permit injunctions under certain circumstances. The Anti-Injunction Act is not a basis for federal jurisdiction.
C. Jurisdiction under Federal Securities Law
Plaintiff alleges jurisdiction under federal securities law. See Plaintiffs Response to Order to Show Cause, 1:2-5. Plaintiff claims that, although the complaint does not allege a cause of action under federal law, its factual allegations effectively amount to a claim that defendants violated Rule 10b-5 under the Securities Exchange Act. See id. at 3:22-25.
It is not clear whether plaintiff could have framed his claims as violations of the federal securities laws. However, had he attempted to do so when he filed in state court, the action could not properly have been removed to this court. State arid federal courts share concurrent jurisdiction over violations of federal securities law and regulations. 15 U.S.C. § 77v(a). But Congress specifically provided that when such claims are brought in state court they may not be removed: "No case arising under this subchapter and brought in any State court of competent jurisdiction shall be removed to any court of the United States." Id.
Thus, plaintiffs complaint does not now state a claim under federal securities law; and if it had stated one, it could not properly have been removed to this court from state court. Thus, there is no basis for federal jurisdiction over this case based on the federal securities laws.
CONCLUSION
For the foregoing reasons this Court lacks subject matter jurisdiction over this action, and in light of plaintiffs request for remand at oral argument, this action is hereby REMANDED to the Superior Court for Santa Cruz County.
IT IS SO ORDERED.