Arabesque v. Capacity LLC

Full title: ARABESQUE Plaintiff, v. CAPACITY LLC, Defendant

Court: United States District Court, S.D. New York

Date published: Mar 10, 2008

07 Civ. 2042 (TPG) (S.D.N.Y. Mar. 10, 2008)

Opinion

07 Civ. 2042 (TPG).

March 10, 2008

OPINION

THOMAS GRIESA, Senior District Judge

This case first came before the court on March 9, 2007 when defendant filed a notice of removal pursuant to 28 U.S.C. § 1332. Ten days later, on March 19, the case was remanded to Supreme Court, New York County for lack of diversity. Both parties stipulated to the order.

Plaintiff submits this motion pursuant to 28 U.S.C. § 1447(c) for an order awarding to plaintiff the costs, including attorney's fees, that it incurred as a result of the improper removal. Plaintiff alleges that it is entitled to costs because defendant had no "reasonably objective basis" for seeking removal.

The court awards plaintiff $3,000.

Procedural History

Defendant, a limited liability company (LLC), was allegedly informed on March 2, 2007 of a default judgment entered against it in Supreme Court, New York County. Defendant retained counsel, and filed a notice of removal with this court on March 5. The notice stated that there was complete diversity because defendant was incorporated in Delaware and had its principal place of business in New Jersey, whereas plaintiff was a New York LLC with its principle place of business in New York.

Plaintiff alleges that on March 6, its counsel received a courtesy copy of the removal notice. In response, on March 7, plaintiff's counsel sent a letter to defense counsel (by mail and fax) stating that the removal was jurisdictionally defective. The letter stated that the diversity test used by defendant was not correct as to the LLCs — citizenship of an LLC is based on the citizenship of the LLC's individual members, not the LLC's state of incorporation and principle place of business. Handelsman v. Bedford Vill. Assocs. Ltd., 213 F.3d 48, 51-51 (2d Cir. 2000). In the letter, counsel stated that because the petition did not set forth the citizenship of each member of the plaintiff and defendant limited liability companies, it did not support removal.

Apparently after sending the letter, plaintiff further alleges that on March 7, its counsel made inquiries with the court clerk's office to determine the docket number and judge assigned to the case. Also on March 7, plaintiffs counsel conducted research to determine whether, despite citing the improper test for diversity, there might still be complete diversity based on the citizenship of the individual members of the defendant LLC.

On March 8, defendant was notified by the clerk's office that the notice of removal was defective because necessary documents had not been included with the filing. The removal notice was refiled on March 9. There is some dispute as to whether the letter of March 7 from plaintiff's counsel was received by defense counsel prior to the refiling.

On March 9, plaintiffs counsel sent a letter to the court arguing that the notice was facially defective.

On March 13, plaintiffs counsel spoke with defense counsel, who agreed that diversity did not exist and stated that defendant was willing to consent to a remand. An order of remand on consent was entered on March 19, 2007.

Costs Incurred by Plaintiff

Plaintiff alleges that it incurred $13,000 in attorney's fees directly relating to the improper removal, and has attached a log detailing these expenses. See Hahn Declaration, Exh. N. The log includes 37 hours of work at a rate of $350 per hour.

The breakdown of costs is as follow:

• 22.6 hours between March 6 and March 9 conducting inquiries about the initial notice of removal and research relating to diversity (such as whether diversity might still have been present under the correct test for LLCs)

• 6.4 hours spent preparing the consent order for remand and discussing potential cost recovery issues.

• 8.5 hours preparing the present motion to recover fees

Discussion

The Supreme Court has stated that a federal district court may award attorney's fees when the removing party lacked an objectively reasonable basis for seeking removal. Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005). Bad faith on the part of the removing party is not necessary in order for the non-removing party to recover fees. Morgan Guaranty Trust Co. v. Republic of Palau, 971 F.2d 917, 923 (2d Cir. 1992).

Plaintiff contends it should be awarded attorney's fees because defendant had no objectively reasonable basis for seeking removal from Supreme Court, New York County to the Southern District of New York.

Defendant allegedly filed the notice of removal relying on 28 U.S.C. § 1332(c), the diversity provision applicable to corporations. Pursuant to § 1332(c), a corporation is deemed a citizen of both the state by which it has been incorporated and the state where it has its principle place of business. As stated earlier, plaintiff is a New York LLC with its principal place of business in New York, and defendant is a Delaware LLC with its principal place of business in New Jersey. Thus, if the parties were corporations, under 28 U.S.C. § 1332(c), there would be complete diversity. Defendant contends that it reasonably believed § 1332(c) also applied to LLCs, because LLCs are treated as corporations in many situations.

Second Circuit precedent clearly holds that for LLCs, citizenship is determined based on the individual members of the LLC. See Catskill Litig. Trust v. Park Place Entm't Corp., 169 Fed. Appx. 658, 659 (2d Cir. 2006); Handelsman v. Bedford Village Assocs. Ltd. P'ship, 213 F.3d 48, 51-52 (2d Cir. 2000). Under the circumstances, there was no objectively reasonable basis for seeking removal. Because plaintiff incurred unnecessary expenses as a result, some fees should be awarded.

Conclusion

The amount of costs to be awarded — or whether to award costs at all — is entirely in the discretion of the court. Morgan Guaranty Trust, 971 F.2d at 924. Defendant appears to have acted in good faith, and consented to the remand within three days of learning of the mistake. Taking this into account, the court believes an award of $13,000 is excessive. The court awards plaintiff $3,000.

SO ORDERED.