Erroneous Declaration of Diversity Jurisdiction Could Cost the Plaintiff

Erroneous Declaration of Diversity Jurisdiction Could Cost the Plaintiff

 

In the decision from earlier this month, the United States District Court for the Southern District of New York opined with respect to a belated determination by the plaintiff that, in fact, diversity jurisdiction did not exist in a lawsuit that has been pending for 19 months. While the court dismissed the action without prejudice so that it could be re-filed in state court, it is considering sanctions against the plaintiff.  Errant Gene Therapeutics, LLC v. Sloan-Kettering Institute, 15-CV-2004, NYLJ 1202777366266 (S.D.N.Y. Jan 18, 2017).

Errant Gene Therapeutics, LLC (“Errant Gene”) brought suit, based upon the existence of diversity jurisdiction, against Sloan-Kettering. In connection therewith, Errant Gene made certain representations to the court as to the existence of diversity jurisdiction. On that basis, the suit proceeded for some 19 months. At the end of that period, Errant Gene advised the court that, in fact, diversity jurisdiction was lacking because one of the members of one of its member LLCs was in fact a New York resident. At the time of the prior representation of diversity jurisdiction, that person was inaccurately identified as being a resident of Delaware.

Sloan-Kettering resisted the effort to dismiss the case on the basis of the lack of diversity, but the court correctly determined that it must do so. “Under the circumstances, the Court has no choice but to GRANT Errant Gene’s motion. Accordingly, this action is DISMISSED WITHOUT prejudice to refile in state court.”

The court was not, however, done with this matter. Rather, noting that it has authority to amongst other things impose sanctions under FRCP Rule 11, it directed that:

Particularly in light of Errant Gene’s somewhat imprecise descriptions of both its original inquiry into its citizenship and its recent discovery of the lack of citizenship (not to mention it’s rather sluggish presentation of the pertinent facts to the Court, it is hereby ORDERED that Errant Gene and its counsel show cause, within 14 days, why Errant Gene and/or its counsel should not be sanctioned pursuant to Rule 11(c) for misrepresenting to the Court, in sum and substance, that Errant Gene was not a citizen of New York for purposes of diversity jurisdiction and allowing the litigation to proceed for months on the basis of that inaccurate statement.

What will happen in this particular case remains to be seen. Regardless, a court issuing a show cause order of this nature is a good reminder of the importance of a detailed assessment of the existence of diversity jurisdiction.

      My thanks to Peter Mahler for the lead on this case.