Dueling Partners Destroy Diversity Jurisdiction For Removal
Virgin Diving, LLC v. Blake, No. 17-12, 2018 U.S. Dist. LEXIS 164971, 2018 WL 4625621 (D.V.I. Sep. 26, 2018).
By: Spring Gaines
Brandon Todd (Todd) and Chad Blake (Blake) created Virgin Diving LLC together in December 2015 to provide boating and scuba diving charters. Todd alleged that Blake withdrew company funds and deposited them for personal use. He also alleged that Blake promised, by way of an operating agreement, to contribute a vessel, the M/V ALYSESKA, but never did. The Court dismissed a five-count complaint against Blake and the vessel on December 20, 2016, but on February 9, 2017, Virgin Diving and Todd filed a four-count complaint in Superior Court for: (1) breach of fiduciary duty, (2) breach of the general standards of member's and manager's conduct1, (3) conversion, and (4) accounting. On January 24, 2017, Virgin Diving and Todd filed an emergency application for a temporary restraining order and preliminary injunction in the Superior Court in which he alleged that Blake sold the M/V Alyeska without Todd’s permission and sought to freeze the assets of the sale. A temporary restraining order was issued by the Superior Court on January 25, 2017.On February 13, 2017, Blake filed a notice of removal that alleged this Court possessed diversity jurisdiction. He also filed counterclaims alleging (1) breach of contract, (2) breach of fiduciary duty, and (3) defamation on February 24, 2017. Blake seeks dissolution of Virgin Diving as well. Todd and Virgin Diving move to remand the matter to Superior Court for lack of subject matter jurisdiction and asked to dismiss Blake’s counterclaim for lack of subject-matter jurisdiction.To determine diversity jurisdiction, the court defined Virgin Diving's citizenship to be of both Blake and Todd. Blake is a citizen of Canada while Todd is a citizen of Texas. This means that Virgin Diving is a citizen of both a foreign state and Texas, and this dual citizenship raised a jurisdictional question. The issue was whether a conflict between members of the same LLC who share citizenship of the LLC destroys complete diversity. The court analyzed the diversity issue for its jurisdiction. If aliens are present on both sides of an action, but a U.S. citizen appears on only one side of the action, diversity jurisdiction is destroyed. The Court does not have diversity jurisdiction because though Blake and Virgin Diving are aliens, Todd is a U.S. citizen.The Court also analyzed whether Virgin Diving is a dispensable party. Todd argued that Virgin Diving is indispensable because Todd’s standing is only derivative to the conversion claim. Additionally, he argued that Virgin Diving is entitled to damages, and that in for the dissolution action, LLC members cannot represent creditor claims because they compete with member claims. He also asserted that issuing a judgment without Virgin Diving would result in the potential of inconsistent verdicts against Blake because Virgin Diving could also sue. The trial judge could prevent prejudice by enjoining both parties and requiring the partnership to release its claims and not file subsequent suits. The court found that Virgin Diving is a dispensable party because both members represent its interests. As a result, Virgin Diving was dismissed from the case, the motion to remand was denied, and the motion to dismiss was denied.
- 13 V.I.C. § 1409
