Opinion
Case No. 19cv134
07-28-2020
VREBA-HOFF OPERATIONS, Plaintiff, v. Marinus J.M. VAN ZELST, Defendant.
Timothy M. Kaufmann, Clarkston, MI, for Petitioner. David C. Barrett, Jr., Kaitlyn M. Kachmarik, Barrett Easterday Cunningham & Eselgroth, Dublin, OH, for Defendant.
Timothy M. Kaufmann, Clarkston, MI, for Petitioner.
David C. Barrett, Jr., Kaitlyn M. Kachmarik, Barrett Easterday Cunningham & Eselgroth, Dublin, OH, for Defendant.
ORDER
James G. Carr, Sr. U.S. District Judge
This is a dispute between a company that purchased another company's causes of action and a dairy business investor, plaintiff Vreba-Hoff Operations (VH Operations), and defendant Marinus J.M. Van Zelst, a citizen of the Netherlands.
Pending are defendant's motion to dismiss for lack of subject matter jurisdiction (Doc. 18), plaintiff's response in opposition (Doc. 19), and defendant's reply in support (Doc. 20).
For the reasons that follow, I grant defendant's motion to dismiss.
Procedural History
On October 26, 2017, Vreba-Hoff Dairy Development, LLC (VH Dairy Development), a Michigan LLC, filed suit in this court against Marinus J.M. Van Zelst, a citizen of the Netherlands, and Antwerp Dairy Leasing, LLC, an Ohio LLC. (Case No: 3:17-cv-02260-JGC). In that case, the defendants filed a motion to dismiss for lack of subject matter jurisdiction and insufficiency of service of process. (Id., Doc. 5). I ordered VH Dairy Development to ascertain citizenship of all LLC members and perfect service (Id. , Doc. 6). VH Dairy Development failed to do so. After fully briefing the matter, but before I issued an opinion, VH Dairy Development filed a notice of dismissal (Id., Doc. 12), which I granted. (Id., Doc. 13).
Two days before I granted VH Dairy Development's motion to dismiss in the former case, it filed a second complaint (Case No: 3:18-cv-00880-JGC) alleging similar claims based on the same set of facts. It named Van Zelst as the sole defendant. (Id. ). Van Zelst moved to dismiss for lack of subject matter jurisdiction and insufficiency of service of process. (Id. , Doc. 7). I, again, ordered VH Dairy Development to ascertain citizenship of all LLC members and perfect service. (Id. , Doc. 9).
VH Dairy Development filed a "Response to Citizenship of Vreba-Hoff Dairy Development, LLC." (Id., Doc. 10). From this, I determined that I did not have subject matter jurisdiction and dismissed the case. (Id. , Doc. 12). VH Dairy Development's response showed that Vreba-Hoff Holdings, LLC (VH Holdings) owned VH Dairy Development. (Id., Doc. 10). In turn, Van Bakel Onroergood BV, a Dutch BV, and Vander Hoff Dairy Management, LLC, a Michigan Limited Liability Company, owned VH Holdings in equal shares. (Id. ). Vreba Dairy BV, another Dutch BV, owns Van Bakel Onroergood BV.
Some time after dismissal of the former action and before the filing of this action, Vern Brown purchased VH Dairy Development's debts and assets. On January 16, 2019, VH Operations became incorporated. (Doc. 18-2, pgID 185-86). The following day, VH Operations filed its complaint against defendant Van Zelst. (Doc. 1). The complaint is substantially the same as those VH Dairy Development filed in the prior cases. In response, defendant filed this motion to dismiss.
Standard
Motions to dismiss for lack of subject matter jurisdiction fall into two general categories:
[F]acial attacks and factual attacks. A facial attack is a challenge to the sufficiency of the pleading itself. On such a motion, the court must take the material allegations of the petition as true and construed in the light most favorable to the nonmoving party. A factual attack, on the other hand, is not a challenge to the sufficiency of the pleading's allegations, but a challenge to the factual existence of subject matter jurisdiction. On such a motion, no presumptive truthfulness applies to the factual allegations, and the court is free to weigh the evidence and satisfy itself as to the existence of its power to hear the case. (internal citations omitted).
United States v. Ritchie , 15 F.3d 592, 598 (6th Cir. 1994).
In reviewing factual motions, "a trial court has wide discretion to allow affidavits, documents, and even a limited evidentiary hearing to resolve disputed jurisdictional facts." Int'l Forest Prod. Corp. v. West , No. 3:11-0120, 2011 WL 4056036, at *4 (M.D. Tenn. Aug. 8, 2011), report and recommendation adopted, No. 3:11-0120, 2011 WL 4063035 (M.D. Tenn. Sept. 13, 2011) (quoting Ohio Nat'l Life Ins. Co. v. United States , 922 F.2d 320, 325 (6th Cir. 1990) ).
Analysis
Under 28 U.S.C. § 1332(a), I have diversity jurisdiction over suits between 1) citizens of different States; 2) citizens of a State and citizens or subjects of a foreign state; and 3) citizens of different States and in which citizens or subjects of a foreign state are additional parties.
First, Van Zelst is a citizen of the Netherlands. Accordingly, "jurisdiction ... cannot be predicated on either § 1332(a)(1) or (a)(3) because U.S. citizens are not on both sides of the controversy." U.S. Motors v. Gen. Motors Europe , 551 F.3d 420, 422 (6th Cir. 2008).
A corporation is a citizen of "every State ... by which it has been incorporated and of the State ... where it has its principal place of business[.]" § 1332(c)(1). As a Michigan corporation, VH Operations is a citizen of Michigan.
"Principal place of business" refers to "the place where a corporation's officers direct, control, and coordinate the corporation's activities," or the nerve center. Hertz Corp. v. Friend , 559 U.S. 77, 92-93, 130 S.Ct. 1181, 175 L.Ed.2d 1029 (2010). The nerve center is "usually its main headquarters[.]" Id. at 93, 130 S.Ct. 1181.
VH Operations claims its main office is in Jonesville, Michigan (7300 Brown Road) and "does not do business in the State of Ohio and primarily conducts its business in Michigan." (Doc. 19, pgID 189). If the main office is in Jonesville, Michigan then its principal place of business is Michigan.
Without further analysis, I would have jurisdiction under § 1332(a)(2) as a suit between citizens of a State and citizens or subjects of a foreign state. But here, Van Zelst argues that VH Dairy Development sold its assets and debts to VH Operations to manufacture diversity jurisdiction.
Indeed, 28 U.S.C. § 1359 provides that "[a] district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court." The statute's purpose is to prevent the manufacture of diversity jurisdiction, so as to avoid "a vast quantity of ordinary contract and tort litigation [being] channeled into the federal courts at the will of one of the parties." Kramer v. Caribbean Mills, Inc. , 394 U.S. 823, 828–29, 89 S.Ct. 1487, 23 L.Ed.2d 9 (1969).
Where the defendant raises the issue of lack of subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1), as he did here, the plaintiff has the burden of proving jurisdiction to survive a motion to dismiss. Moir. v. Greater Cleveland Regional Transit Auth. , 895 F.2d 266, 269 (6th Cir. 1990). This remains true when a defendant raises the issue of collusive assignment: the plaintiff asserting diversity jurisdiction has the burden of proving facts that will sustain it. Fowler v. Coals, 418 F. Supp. 909, 911 (E.D. Tenn. 1976) ; Accord FRS GC Corp. v. Oak Tree Management LLC , 2019 WL 999688, *2, (D. Ariz., March 1, 2019) ("When the issue of a collusive assignment is raised, the party asserting diversity has the burden of showing the non-collusive nature of the assignment.") (internal citations omitted).
The following factors are significant, but not exclusive, to the determination that an assignment was improperly or collusively made under § 1359 :
(1) the assignor retained a substantial interest in the outcome of the suit since
the assignee, in a later transaction, reassigned ninety-five per cent of the proceeds of the suit to the corporation; (2) the assignee lacked an independent and legitimate interest in the suit which predated the assignment; (3) the assignee stood to lose little more than his time and fee if the suit proved unsuccessful since he gave only one dollar as consideration for the assignment; and (4) the assignee admitted that the assignment was motivated in substantial part by a desire to create diversity of citizenship. See Kramer, supra.
Fowler v. Coals , at 912.
In Fowler v. Coals , the court, focusing on substance rather than form of an assignment, held that an assignment falls within the scope of § 1359 if the assignment is not real, but merely colorable, and if the desire to create diversity of citizenship motivates the colorable assignment. Supra, at 920.
Defendant claims that VH Operations is an entity related to VH Development. To support this claim, defendant presents evidence that VH Operations came into existence the day before filing this suit (Doc. 18, pgID 183) and VH Operations’ incorporator, Vern Brown, owns the property on 7300 Brown Road (see hillsdalecounty.geoquickserver.com) which is listed as VH Operations’ main office (Doc. 18, pgID 186).
Defendant points out that plaintiff's counsel represented VH Dairy Development in the two prior suits filed against this defendant (See Case No: 3:17-cv-02260-JGC and Case No: 3:18-cv-00880-JGC) and is the statutory agent for VH Operations and signed the Articles of Incorporation on behalf of the incorporator. (Doc. 18, pgID 186).
Most importantly, defendant raised the issue that Vern Brown is the sole shareholder and officer of Vreba Dairy BV as of January 10, 2019 and registered on January 15, 2019. (Doc. 20-1, pgID 201-202). The shares transferred from Van Bakel Onroerent Goed BV, which appears to be a member of VH Dairy Development. Id.
Note that this transaction occurred one day before Vern Brown incorporated VH Operations and two days before VH Operations filed suit.
VH Dairy Development identified Van Bakel Onroergood BV as half owner of Vreba-Hoff Holdings, LLC, which, in turn., owns VH Dairy Development. (See No. 188-cv-880, Doc. 10, pgID 221).
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Defendant additionally alleges that the assignment is presumptively collusive, requiring the party asserting diversity to "show a legitimate business reason for the transfer." Int'l Forest Prod. Corp., supra, at *5 (quoting Yokeno v. Mafnas, 973 F.2d 803, 810 (9th Cir. 1992) ).
Certain types of assignments warrant closer scrutiny and are presumptively ineffective to create diversity jurisdiction. Yokeno, supra, 809-10. Assignments warranting closer scrutiny include those "where a close relationship necessarily presents opportunities for the collusive manufacture of commercial reasons for the assignment." Nike, Inc. v. Comercial Iberica de Exclusivas Deportivas, S.A., 20 F.3d 987, 991 (9th Cir. 1994).
Because VH Operations and incorporator Vern Brown are somehow related to VH Dairy Development, I find that the assignment is presumptively collusive. In the face of presumptive collusion, "[s]imply articulating a business reason is insufficient; the burden of proof is with the party asserting diversity to establish that the reason is legitimate and not pretextual." Int'l Forest Prod. Corp., supra, at *5 (quoting Yokeno, at 810 ). A "plaintiff can meet this burden by offering evidence that the transfer was made for a legitimate business purpose unconnected with the creation of diversity jurisdiction." Id.
In response, plaintiff simply claims that VH Operations "is a properly constituted Michigan entity which was founded to deal with the purchase, assets and debts of Vreba-Hoff Dairy Operations, LLC[,]" (Doc. 19, pgID 189) and that plaintiff's decision to use the same counsel as a similarly named company that attempted, without success, to sue the same defendant twice in recent years is "a simple business decision." (Id. , pgID 190).
Plaintiff has not offered any evidence to rebut the presumption of collusion, other than empty pronouncements of legitimacy through counsel, which are not "sufficiently compelling to show that the assignment would have been made absent the purpose of gaining a federal forum." FRS GC Corp. v. Oak Tree Mgt. LLC, at *3.
I find that, when I evaluate the totality of circumstances, see Yokeno, supra, 810, the purported business reason for the assignment, and the lack of evidence supporting the alleged business reason, are not sufficient to rebut the presumption that the assignment is collusive. That being so, I do not have subject matter jurisdiction. As this issue is dispositive, I decline to address the arguments related to sufficiency of service of process.
Conclusion
The purpose of § 1359 is to prevent parties from manufacturing diversity jurisdiction where there otherwise is none. That is what happened here. Accordingly, it is hereby
ORDERED THAT defendant's motion to dismiss for lack of subject matter jurisdiction (Doc. 18) is granted.
So ordered.