Opinion
No. 8:99CV94.
Decided/Filed Date: May 20, 1999.
John A. Andreasen, James J. Frost, McGRATH, NORTH LAW FIRM, 222 So. 15th Street, Suite 1400, One Central Park Plaza, Omaha, N.E. 68102, (402) 341-3070, FTS 341-0216, Thomas E. Reburn, Jr., Edward T. Dartley, LOWENSTEIN, SANDLER LAW FIRM, 65 Livingston Avenue, Roseland, N.J. 07068, (973) 597-2500, FTS 597-2400, Plaintiff's Attorneys.
Brien M. Welch, CASSEM, TIERNEY LAW FIRM, 8805 Indian Hills Drive, Suite 300, Omaha, N.E. 68114, 402) 390-0300, FTS 390-9676, Defendant's Attorneys.
ORDER
This matter is before me pursuant to 28 U.S.C. § 636 and the general order of referral on defendant's motion to conduct limited jurisdictional discovery (#5) and plaintiff's responsive motion to remand this case to state court (#7). After carefully reviewing the briefs and evidence submitted by the parties, I find that the motion to conduct jurisdictional discovery should be granted and the motion to remand should be denied.
BACKGROUND
This insurance coverage dispute was originally filed in the District Court for Douglas County, Nebraska. The state court petition alleges that plaintiff ("Harbourton") is a limited partnership engaged in the business of mortgage banking, including the origination and purchase of mortgage loans insured by the Federal Housing Administration ("FHA") or guaranteed by the Veterans Administration ("VA"). On January 1, 1996, Harbourton purchased a mortgage protection insurance policy from defendant ("Travelers") covering the time period from January 1, 1996 through January 1, 1999.
In early 1997, Harbourton became aware it would sustain certain losses covered by the policy and notified Travelers of the possibility two types of claims would be filed. The first group of claims (the "Mortgage Impairment Claims") are based on Harbourton's unintentional failure to obtain FHA insurance and/or VA guarantees for certain loans it originated, rendering Harbourton liable to repurchase such loans from third party purchasers of the loans. The second group of claims (the "Curtailment Claims") are based on Harbourton's unintentional failure to timely notify the FHA or VA that mortgage payments on certain loans insured or guaranteed by FHA and/or VA were in arrears, or otherwise failed to follow applicable instructions, rules or regulations of the FHA and/or VA. Harbourton is ineligible to receive payment from FHA or VA of the full amount of principal, interest and costs for these loans.
Travelers has not responded to Harbourton's notifications and request for coverage, neither granting nor denying coverage, and allegedly refuses to provide a statement of its coverage position. Harbourton alleges that Travelers' refusal to provide a statement within a reasonable time constitutes a denial of coverage.
Harbourton alleges its losses exceed $9 million and states claims for (1) breach of contract; (2) declaratory judgment pursuant to Neb. Rev. Stat. § 25-21,149 et seq. that Travelers is required to indemnify Harbourton for its losses on the mortgage impairment and Curtailment claims; and (3) declaratory judgment pursuant to § 25-21,149 that the Compulsory Arbitration Provision contained in the subject insurance policy is invalid and unenforceable under Nebraska and federal law. Harbourton also prays for an award of attorney fees pursuant to Neb. Rev. Stat. § 44-359.
Travelers timely removed the case to federal court pursuant to 28 U.S.C. § 1441(a), alleging this court has diversity jurisdiction under 28 U.S.C. § 1332. With respect to plaintiff's "citizenship," the state court petition (¶ 1) alleges only that Harbourton is a partnership whose "servicing operations for many of the loans it originated or purchased were headquartered in the State of Nebraska." The petition (¶ 2) then alleges that Travelers "is a corporation organized under the laws of the State of Illinois" and is "an insurance company licensed to issue insurance policies in the State of Nebraska." The notice of removal (¶ 6) alleges that Travelers is incorporated in the State of Illinois and has its principal place of business in a State other than Nebraska.
ISSUES PRESENTED
The determination of federal diversity jurisdiction over a partnership depends on the citizenship of all its partners. See Carden v. Arkoma Assoc., 494 U.S. 185 (1990). Because Harbourton's state court petition was silent on this point, Travelers moved for leave to conduct limited jurisdictional discovery as to the identity and bearing on the citizenship of all partners of Harbourton.
In response, Harbourton moved to remand the case to state court for lack of subject matter jurisdiction, contending that removal was improper because subject matter jurisdiction was not apparent on the face of Harbourton's petition. In other words, Harbourton contends that Travelers knowingly filed a removal petition which failed to plead a proper basis for diversity jurisdiction in violation of Fed.R.Civ.P. 11. Harbourton resists Travelers' motion to conduct discovery on this issue, and seeks an award of Rule 11 sanctions.
Rule 11(b) provides:
(b) Representations to Court. By presenting to the court (whether by signing, filing, submitting, or later advocating) a pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, —
(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;
(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;
(3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and
(4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief.
LEGAL ANALYSIS
The jurisdiction of the lower federal courts, both original and removal, is entirely a creature of statute. See Hurt v. Dow Chem. Co., 963 F.2d 1142, 1145 (8th Cir. 1992). The removal statute, 28 U.S.C. § 1441, reflects the attempt of Congress to balance the plaintiff's right to pursue an action in state court and the defendant's right to a federal forum in those cases where federal jurisdiction exists. See, e.g., Gilmer v. Walt Disney Co., 915 F. Supp. 1001, 1006 (W.D.Ark. 1996); Tapscott v. Ms Dealer Serv. Corp., 77 F.3d 1353 (11th Cir. 1996); Oppenheimer Co., Inc. v. Neidhardt, 56 F.3d 352 (2d Cir. 1995); Jones v. City of Buffalo, 867 F. Supp. 1155 (W.D.N.Y. 1994).In determining whether a federal court has removal jurisdiction, the court generally looks at the case "as of the time it was filed in state court — prior to the time the defendants filed their answer in federal court." Wisconsin Dep't of Corrections v. Schacht, 524 U.S. 381, ___, 118 S.Ct. 2047, 2053 (1998) (removal of civil rights claims to federal court); see also Hanson v. Blue Cross Blue Shield of Iowa, 953 F. Supp. 270, 273 (N.D.Iowa 1996). "[T]he status of the case as disclosed by the plaintiff's complaint is controlling in the case of a removal, since the defendant must file his petition before the time for answer or forever lose his right to remove." St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 292 (1938).
Under 28 U.S.C. § 1446(b), the defendant's notice of removal must be filed within 30 days "after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based, or within thirty days after the service of summons upon the defendant if such initial pleading has then been filed in court and is not required to be served on the defendant, whichever period is shorter."
Jurisdictional discovery may be appropriate under certain circumstances. See, e.g., Wood v. Malin Trucking, Inc., 937 F. Supp. 614, 616 (E.D.Ky. 1995) ("As a general rule, when a complaint fails to allege the requisite amount in controversy upon which to base removal, it is appropriate to engage in discovery to determine the amount of damages being sought."); Andersen v. Sportmart, Inc., 179 F.R.D. 236, 241 (N.D.Ind.) (the federal district court may require a defendant to respond to discovery requests relevant to defendant's motion to dismiss for lack of personal jurisdiction); Boustead v. Barancik, 151 F.R.D. 102 (E.D.Wis. 1998) (allowing plaintiff to conduct jurisdictional discovery in the form of interrogatories and requests for production of documents limited to structure of defendant corporation); Purple Onion Foods, Inc. v. Blue Moose of Boulder, Inc., ___ F. Supp.2d ___, 1999 WL 246430, No. Civ. 98-0758 BBJHG (D.N.M., April 14, 1999) (allowing discovery regarding personal jurisdiction: "[T]he Tenth Circuit encourages the practice of granting a plaintiff's request for limited discovery regarding a defendant's motion to dismiss for lack of jurisdiction."); Jama v. United States Immigration Naturalization Serv., 22 F. Supp.2d 353 (D.N.J. 1998) (district court may grant limited discovery to determine whether subject matter jurisdiction exists before ruling on Rule 12(b)(1) motion); Pinnacle Consultants, Ltd. v. Leucadia Nat. Corp., 923 F. Supp. 439, 447-48 (S.D.N.Y. 1995) (before deciding motion to dismiss, court directed the parties to conduct a "short and focused period of discovery" on the issue of diversity where the sole issue was whether plaintiff's principal place of business was Delaware or New York); cf. Cohen v. Kurtzman, ___ F. Supp.2d ___, 1999 WL 147140, No. Civ. A. 98-2828 (D.N.J., Jan. 11, 1999) (denying plaintiff's request for jurisdictional discovery because a partner of one of the defendant partnerships was already proven to be non-diverse).
Under § 1441(a), the defendant may remove an action from state court if the federal court could have exercised original jurisdiction over the plaintiff's claims. Had it filed this case in federal court, Harbourton's failure to plead the identity and citizenship of its limited and general partners to allege diversity jurisdiction could have rendered the complaint vulnerable to dismissal sua sponte for lack of subject matter jurisdiction. See Muscle Shoals Assoc., Ltd. v. MHF Ins. Agency, Inc., 792 F. Supp. 1224 (N.D.Ala. 1992). The "citizenship" of Harbourton's limited and general partners is irrelevant, however, to the subject matter jurisdiction of the state district court, a court of general jurisdiction. See Neb. Const. art. V, § 9; Neb. Rev. Stat. § 24-302; cf. Neb. Rev. Stat. § 25-536 (long-arm statute).
In general, the party invoking federal jurisdiction (here, the defendant) bears the burden of proving the jurisdictional requirements. See Middleton v. City of Blue Springs, 145 F.3d 993 (8th Cir. 1998); Iowa Lamb Corp. v. Kalene Industries, Inc., 871 F. Supp. 1149, 1154 (N.D.Iowa 1994); Bergstrom v. Burlington N. R.R. Co., 895 F. Supp. 257, 258 (D.N.D. 1995). The petition in this case, however, was tailored to the plaintiff's choice of forum and alleges facts demonstrating only that the plaintiff and defendant are connected to Nebraska and the Nebraska courts have personal jurisdiction over the parties. On its face, the state court petition neither establishes nor negates the possibility of federal diversity jurisdiction.
In the case at bar, the plaintiff partnership alleged it had contacts with the State of Nebraska, but had no need to allege the identities and citizenship of its general and limited partners. The fact that plaintiff's state court petition omits this jurisdictional information does not establish that this court could not have entertained original jurisdiction over the lawsuit. Defendant has been sued for $9 million, is diverse from parties who reside in Nebraska, and wishes to exercise its right to a federal forum if subject matter jurisdiction exists. In Greenery Rehabilitation Group, Inc. v. Sabol, 841 F. Supp. 58, 61 (N.D.N Y 1993), the court noted that "in a motion to dismiss pursuant to Rule 12(b)(1) for lack of subject matter jurisdiction, the party opposing the motion must be allowed discovery of facts demonstrating jurisdiction `at least where the facts are peculiarly within the knowledge of the opposing party.'" (quotingKamen v. American Telephone Telegraph Co., 791 F.2d 1006, 1011 (2d Cir. 1986)).
Under the circumstances, the court finds that the notice of removal was filed in good faith and not in violation of Rule 11. The facts demonstrating the existence or absence of federal subject matter jurisdiction are peculiarly within the knowledge of the plaintiff and the discovery proposed by the defendant will not unduly delay the progression of the case. I therefore find that defendant is entitled to conduct jurisdictional discovery limited to the identity and citizenship of all partners of plaintiff Harbourton.
IT THEREFORE IS ORDERED:
1. Defendant's motion to conduct jurisdictional discovery (#5) is granted as follows:
a. Discovery shall be limited to ascertaining the identity and citizenship of all partners of plaintiff, Harbourton Mortgage Co., L.P. for purposes of establishing this court's subject matter jurisdiction.
b. Discovery pursuant to paragraph a, above, shall be completed by July 30, 1999.
c. Defendant is hereby given leave to file a motion to amend its notice of removal with respect to detains underlying the allegation of diversity. Said motion shall be filed upon completion of discovery, but no later than August 16, 1999.
2. Plaintiff's motion to remand (#7) is denied without prejudice to reassertion, if appropriate, after the completion of the discovery authorized in paragraph 1, above. Any such motion to remand shall be filed on or before August 16, 1999.
3. This case shall remain stayed, except for the jurisdictional discovery specifically authorized in this order. Defendant's answer date will be set by further order of the court after the completion of jurisdictional discovery.
Pursuant to NELR 72.3 any appeal of this order shall be filed with the Clerk of the Court within ten (10) days after being served with a copy of this order. Failure to timely appeal may constitute a waiver of any such objection. The brief in support of any appeal shall be delivered to Senior Judge William G. Cambridge.