Kanaan v. Yaqub

[3] 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 SAN JOSE DIVISION [7] Case No. 21-cv-09591-BLF 8 NABIH KANAAN, ORDER DENYING MOTION TO 9 Plaintiff, DISMISS FIRST AMENDED 10 v. COMPLAINT; AND VACATING JANUARY 5, 2023 HEARING 11 NIZAR YAQUB, [Re: ECF 41] 12 Defendant. [15] 16 Plaintiff Nabih Kanaan (“Kanaan”) alleges that he and Defendant Nizar Yaqub (“Yaqub”) 17 are the sole members of a limited liability company, The Inn at Del Monte Beach, LLC (“the 18 LLC”). Kanaan asserts that Yaqub has engaged in fraud and other misconduct to squeeze Kanaan 19 out of the LLC and convert Kanaan’s ownership interest to himself. Kanaan’s operative first 20 amended complaint (“FAC”) asserts state law claims against both Yaqub and the LLC 21 (collectively, “Defendants”) for breach of fiduciary duty, breach of contract, breach of the implied 22 covenant of good faith and fair dealing, violation of California Business & Professions Code § 23 17200, declaratory and injunctive relief, and fraudulent concealment. See FAC, ECF 18. Subject 24 matter jurisdiction is premised on diversity of citizenship. See id. ¶ 8. 25 Before the Court is Defendants’ motion to dismiss the FAC under Federal Rule of Civil 26 Procedure 12(b)(1) for lack of subject matter jurisdiction, here, diversity jurisdiction. See ECF 41 27 (“MTD”). The Court finds the motion to dismiss suitable for decision without oral argument. See 1 The thrust of the motion to dismiss is that complete diversity of citizenship does not exist 2 because Kanaan alleges that he is a citizen of Illinois and that he is an owner/member of the LLC. 3 See FAC ¶¶ 4, 35. “For purposes of diversity jurisdiction, a limited liability company is a citizen 4 of every state of which its owners/members are citizens.” 3123 SMB LLC v. Horn, 880 F.3d 461 , 5 465 (9th Cir. 2018) (internal quotation marks and citation omitted). Because Plaintiff Kanaan and 6 Defendant LLC share Illinois citizenship, there was no diversity jurisdiction at the time the action 7 was filed. See Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996) (Diversity jurisdiction “applies 8 only to cases in which the citizenship of each plaintiff is diverse from the citizenship of each 9 defendant.”). 10 In response to Defendants’ motion to dismiss, Kanaan voluntarily dismissed the LLC from 11 the action under Federal Rule of Civil Procedure 41(a)(1)(A)(i). See Pl.’s Not. of Voluntary 12 Dismissal, ECF 42. Kanaan thereafter filed a one-page opposition, arguing that the motion to 13 dismiss should be denied as moot. See Pl.’s Opp., ECF 43. There is complete diversity of 14 citizenship between Kanaan, a citizen of Illinois, and Yaqub, a citizen of California. See FAC ¶¶ 15 4-5. Yaqub did not file a reply in support of the motion to dismiss, apparently conceding 16 Kanaan’s assertion that the motion is moot. 17 Although subject matter jurisdiction ordinarily is determined at the time an action is filed, 18 a well-established exception to the time-of-filing rule allows a court to “cure a jurisdictional defect 19 by dismissing a dispensable nondiverse party” at any time, even after judgment has been rendered 20 and an appeal has been filed. Grupo Dataflux v. Atlas Glob. Grp., L.P., 541 U.S. 567, 573 (2004). 21 The court’s authority to cure a jurisdictional defect in this manner flows from Federal Rule of 22 Civil Procedure 21, which provides that “the court may at any time, on just terms, add or drop a 23 party.” Fed. R. Civ. P. 21; see also Grupo Dataflux, 541 U.S. at 573 (citing Rule 21). The Ninth 24 Circuit has characterized Rule 21 “as a grant of discretionary power to the federal court to perfect 25 its diversity jurisdiction by dropping a nondiverse party provided the nondiverse party is not 26 indispensable to the action under Rule 19.” Kirkland v. Legion Ins. Co., 343 F.3d 1135, 1142 (9th 27 Cir. 2003) (internal quotation marks, citation, and brackets omitted). 1 argue that the LLC is an indispensable party. Such an argument would have been unsuccessful in 2 any event, as it is clear from the face of the FAC that the LLC is not an indispensable party to 3 || Kanaan’s claims against Yaqub that are grounded in Yaqub’s own alleged misconduct. Those 4 claims include breach of fiduciary duty, breach of contract, and fraudulent concealment. The 5 Court thus concludes that under the well-established exception to the time-of-filing rule discussed 6 || above, Kanaan’s voluntary dismissal of the LLC cured the jurisdictional defect that existed when 7 the action was filed. The motion to dismiss is DENIED on that basis. 8 ORDER 9 (1) The motion to dismiss for lack of subject matter jurisdiction is DENIED; 10 (2) The hearing previously scheduled for January 5, 2023 is VACATED; and ll (3) This order terminates ECF 41. [12] 13 Dated: October 27, 2022 kom men) BETH LABSON FREEMAN 15 United States District Judge [16] = 17 Z 18