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Celtig LLC v. Patey

United States District Court, D. Utah

June 4, 2018

CELTIG, LLC, Plaintiff,
v.
AARON A. PATEY, et al., Defendants.

          MEMORANDUM DECISION AND ORDER DENYING DEFENDANTS' MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION

          Jill N. Parrish United States District Court Judge

         I. INTRODUCTION

         On September 26, 2017, Plaintiff Celtig, LLC filed a complaint against Defendants Aaron A. Patey; Evergreen Strategies, LLC; PSD International, LLC (“PSDI”); and Relay Advanced Materials, Inc. (“RAM”) (collectively, “Defendants”). Celtig alleged that the court had subject matter jurisdiction based on 28 U.S.C. § 1332(a). That section allows district courts to exercise original jurisdiction when the controversy is between citizens of different states and the amount in controversy exceeds $75, 000.

         Defendants have moved to dismiss based on lack of subject matter jurisdiction, arguing that the controversy is not between citizens of different states. Specifically, Defendants argue that RAM was a member of Celtig when Celtig commenced this action. According to Defendants, Celtig transferred a 30 percent ownership interest in itself to Evergreen pursuant to an agreement the two entities entered into. Shortly after this, Evergreen supposedly transferred the 30 percent ownership interest to RAM. As an LLC, Celtig is deemed to be a citizen of every state of which its members are citizens. So according to Defendants, Celtig was deemed to be citizen of the states of which RAM was a citizen-Delaware and Utah. If Defendants are correct, both Celtig and RAM were citizens of the same states at the time of filing, robbing the court of subject matter jurisdiction.

         Celtig attacks the foundation of Defendants argument. Celtig concedes that it “agreed” to make Evergreen a member of Celtig. But Celtig argues that neither Evergreen nor RAM actually became a member of Celtig because Celtig did not take the necessary steps under its operating agreement to make Evergreen a member. In short, Celtig contends that it agreed to make Evergreen a member but never actually did. This, according to Celtig, means that neither Evergreen nor RAM was (or is) a member of Celtig. The court agrees, and it has determined that it has jurisdiction based on § 1332(a). Defendants' motion is therefore denied.

         II. BACKGROUND[1]

         Celtig commenced this action on September 26, 2017. Celtig is a Tennessee LLC. Exhibit A to Celtig's operating agreement (the “Operating Agreement”) shows that it has five members. As of September 26, 2017, four of the members were citizens of Tennessee and one of the members was a citizen of South Carolina.

         Aaron Patey is a citizen of Utah. Mr. Patey owned and operated the following entities: Evergreen, PSDI, and RAM. Evergreen is a Nevada LLC, and all of its members are citizens of Utah. PSDI is a Utah LLC, and all of its members are citizens of Utah. RAM is a Delaware corporation, and its principal place of business is in Utah.

         On or around March 28, 2017, Celtig and Evergreen executed the “Definitive Agreement.” Evergreen promised to, among other things, pre-pay $750, 015 to Celtig for the purchase of grapheme-one of the strongest materials on earth. In exchange for this and other promises, Celtig agreed to, among other things, “transfer through an appropriate legal instrument a 30.0% voting ownership interest in Celtig to Evergreen, and Evergreen shall become a member of Celtig.” Celtig also agreed that it would “amend its Operating Agreement, which Evergreen agrees to join as a voting member.”

         On May 11, 2017, Celtig proposed to Evergreen an amended Operating Agreement. Celtig requested Evergreen's comments, but Evergreen never responded. To date, Celtig has not amended its Operating Agreement to make Evergreen a member of Celtig, and the five current members of Celtig have not approved the transfer of any membership interest to Evergreen.

         In connection with this lawsuit, Celtig seeks, among other things, a declaration that it can rescind its promise to convey a 30 percent ownership interest to Evergreen. In response to Celtig's complaint, Evergreen and RAM filed a counterclaim and third-party complaint. Evergreen and RAM allege that Celtig has breached the Definitive Agreement by, among other things, not transferring to Evergreen the 30 percent ownership interest. Evergreen and RAM seek specific performance of the Definitive Agreement, among other things.

         After reviewing the pleadings, the court was concerned that it may lack subject matter jurisdiction. Celtig alleged that the court had jurisdiction based on 28 U.S.C. § 1332(a). But Defendants, in their answer, stated that they were without sufficient information to determine whether the court had jurisdiction, and they denied, without explanation or clarification, various allegations as to the parties' citizenship. Accordingly, the court issued an order to show cause as to why the case should not be dismissed for lack of jurisdiction. Shortly after the court issued the order, Defendants moved to dismiss for lack of subject matter jurisdiction.

         III. DISCUSSION

         Defendants argue that the court lacks subject matter jurisdiction because the controversy is not between “citizens of different states.” Defendants contend that Evergreen became a member of Celtig when Celtig agreed to transfer a 30 percent ownership interest to Evergreen. According to Defendants, Evergreen then transferred the 30 percent ownership interest in Celtig to RAM, making RAM a member of Celtig. If either Evergreen or RAM was a member of Celtig when the initial complaint was filed, the controversy would not be between citizens of different states and the court would lack subject matter jurisdiction. But neither Evergreen nor RAM was (or is) a member of Celtig, and the controversy is between citizens of different states. Accordingly, the court has subject matter jurisdiction based on 28 U.S.C. § 1332(a).

         A. Motion Standard

         “Since federal courts are courts of limited jurisdiction, there is a presumption against . . . jurisdiction . . . .” Penteco Corp. Ltd. P'ship-1985A v. Union Gas Sys., Inc., 929 F.2d 1519, 1521 (10th Cir. 1991). Consequently, the party invoking federal jurisdiction bears the burden to show that it exists. Id. This burden may be met by presenting “affidavits or other evidence sufficient to establish the court's subject matter jurisdiction by a preponderance of the evidence.” United States ex rel. Hafter D.O. v. Spectrum Emergency Care, Inc., 190 F.3d 1156, 1160 n.5 (10th Cir. 1999).

         B. ...


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