Friday, June 6, 2014

Complaint Dismissed for Failure to Plead Necessary Basis for Diversity Jurisdiction; Jurisdictional Discovery Denied

Complaint Dismissed for Failure to Plead Necessary Basis
for Diversity Jurisdiction; Jurisdictional Discovery Denied

      In a recent decision from the District Court for New Jersey, a complaint, filed on the basis of diversity jurisdiction, was dismissed on the basis that the plaintiff failed to properly allege the citizenship of two of the LLC defendants and for that reason failed to meet its pleading burden of demonstrating that diversity existed.  In addition, the Court denied jurisdictional discovery.  Lincoln Benefit Life Co. v. AEI Life, LLC, __ F.Supp.2d __, 2014 WL 1343266 (D. N.J. April 4, 2014). 
      This dispute arose out of the challenge to the legitimacy of a pair of life insurance policies, each in the amount of $6,650,000, alleged to have been procured pursuant to false and deceptive applications that fraudulently overstated the assets held by the party whose life they were issued against.  It was further alleged that the two LLC defendants, AEI Life, LLC and ALS Capital Ventures, LLC, purchased their interest in the policies on the secondary market and therefore lacked a legitimate, insurable interest in the subject life.
      The insurer’s complaint alleged “upon information and belief” that each of the LLCs was “a citizen of and domiciled in” either New York or Delaware, but recited no information with respect to the LLC’s membership.  In turn, each of the LLCs moved to dismiss the complaint on the ground that the plaintiff had failed in its burden to plead citizenship and demonstrate diversity.

      The Court began by noting that the party invoking diversity jurisdiction bears the burden of showing it by a preponderance of the evidence.  2014 WL 1343266, *4.  In finding that the plaintiffs had failed to satisfy this burden, the Court wrote:

Defendants are correct that the complete diversity requirement mandates that Plaintiff both plead the citizenship of each member of the Defendant LLCs and allege that those citizenships differ from that of Plaintiff.  The Court finds that Plaintiff has not properly pled the citizenship of Defendants ALS and AEI, because the members of each LLC are not identified in the Complaint.  2014 WL 1342366, *4.
      The Court then turned its attention to the Plaintiffs’ motion that it be allowed to engage in limited discovery as to the citizenship of the LLCs and, therefrom, satisfy its burden of showing diversity.  Finding that there was no controlling precedent from the Third Circuit, the Court reviewed other decisions by the District Courts within the Third Circuit, finding the better rule to be that espoused in Everything Yogurt Brands, LLC v. M.A.R. Air Foods, Inc., 2009 WL 3260629 (D. N.J. Oct. 9, 2009), to the effect that jurisdictional discovery should not be permitted, primarily on the basis that allowing would effectively “defang jurisdictional pleading requirements and impose an unnecessary supervisory burden upon the courts.”   In conclusion, the Court wrote:

Plaintiff has provided no law to encourage this Court to exercise the sort of “limited subject matter jurisdiction” decried in Fifth Third Bank. Moreover, Plaintiff admits that it brought the present action without actually knowing the members of the Defendant LLCs. [Plaintiff’s Response Brief to Motion of Innovative, 4 (“Further, since information concerning the citizenship of the members of the LLC-defendants was not (and is not) available to Lincoln Benefit, Lincoln Benefit did not allege such information on the face of the complaint.”)]. Accordingly, this is not even a case in which Plaintiff has alleged diversity of the members on information and belief. Without knowing the identify of any of the members of ALS or AEI, Plaintiff could not do so in good faith. Instead, Plaintiff asks this Court to allow it to bring the Complaint without having pled diversity and to further provide Plaintiff with discovery to determine whether the Complaint was properly brought. I am not inclined to lessen Plaintiff’s well-established burden to plead the basis of subject matter jurisdiction. Taken together with the Court’s reservations about the implications of an alternative rule for judicial economy, the importance of enforcing jurisdictional pleading requirements counsels against granting discovery in this case.  Accordingly, Plaintiff’s request is denied.  2014 WL 1343266, *8.

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