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Welch v. JG Worldwide, LLC

United States District Court, D. Montana, Butte Division

June 7, 2019

JEFF WELCH and TANYA WHITE, Plaintiffs,
v.
JG WORLDWIDE, LLC, JENA GARDNER and JAMES SALEH, Defendants.

          FINDINGS & RECOMMENDATION

          Jeremiah C. Lynch United States Magistrate Judge.

         This breach of contract action comes before the Court on Defendants JG Worldwide, LLC, Jena Gardner, and James Saleh's motion to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). For the reasons set forth below, Defendants' motion should be denied.

         I. Background [1]

         Plaintiffs Jeff Welch and Tanya White were the shareholders of a Montana corporation by the name of Mercury Advertising, Inc. On March 2, 2018, Mercury Advertising, its shareholders, and Defendant JG Worldwide, LLC, entered into a Share Purchase Agreement. Under the terms of the Purchase Agreement, Plaintiffs sold all shares in Mercury to JG Worldwide for purchase price of $310, 000. (Doc. 12-2). Also on March 2, 2018, JG Worldwide executed a Secured Promissory Note for that amount, payable to Plaintiffs in 15 monthly installments, and bearing interest at the rate of 3.77 % per annum. (Doc. 1-1)

         Contemporaneously with the Promissory Note, Defendants Jena Gardner and James Saleh executed a Guaranty Agreement by which they guaranteed payment of JG Worldwide's obligation under the Promissory Note. (Doc. 1-3). To secure payment of the purchase price, JG Worldwide entered into a Security Agreement with Plaintiffs, granting them a secured interest in Mercury Advertising's stock and assets for such time as any amount of the purchase price remained unpaid. (Doc. 12-2). JG Worldwide initially made timely monthly payments in May, June, July, and August 2018, but was nearly two months late with its September 2018 payment and has not made any subsequent payments on the promissory note. (Doc. 17, at 2).

         Plaintiffs commenced this diversity action in January 2019, asserting a claim against JG Worldwide for breach of the Promissory Note, and a claim against Gardner and Saleh for breach of the Guaranty Agreement. (Doc. 1). In lieu of answering, Defendants filed the pending motion to dismiss the Complaint for lack of diversity subject matter jurisdiction under Rule 12(b)(1).

         II. Legal Standard

         A motion to dismiss under Federal Rule of Civil Procedure 12(b)(1) challenges the court's subject matter jurisdiction over the claims asserted. “Once challenged, the party asserting subject matter jurisdiction has the burden of proving its existence.” Rattlesnake Coalition v. United States Environmental Protection Agency, 509 F.3d 1095, 1102 n. 1 (9th Cir. 2007).

         A defendant may pursue a Rule 12(b)(1) motion to dismiss for lack of jurisdiction either as a facial challenge to the allegations of a pleading, or as a substantive challenge to the facts underlying the allegations. Savage v. Glendale Union High School, Dist. No. 205, Maricopa County, 343 F.3d 1036, 1039 n.2 (9thCir. 2003). A facial challenge to the jurisdictional allegations is one which contends that the allegations “are insufficient on their face to invoke federal jurisdiction.” Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). In a facial challenge the court must assume the allegations in the complaint are true and it must “draw all reasonable inferences in [plaintiff's] favor.” Wolfe, 392 F.3d at 362.

         “By contrast, in a factual attack, the challenger disputes the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction.” Safe Air for Everyone, 373 F.3d at 1039. In resolving such a factual attack, the court “may review evidence beyond the complaint without converting the motion to dismiss into a motion for summary judgment.” Safe Air for Everyone, 373 F.3d at 1039. If the moving party has “converted the motion to dismiss into a factual motion by presenting affidavits or other evidence properly brought before the court, the party opposing the motion must furnish affidavits or other evidence necessary to satisfy its burden of establishing subject matter jurisdiction.” Safe Air for Everyone, 373 F.3d at 1039 (quoting Savage v. Glendale Union High Sch., 343 F.3d 1036, 1039 n. 2 (9th Cir. 2003)). In looking to matters outside the pleadings, the Court must “resolve all disputes of fact in favor of the non-movant...similar to the summary judgment standard.” Dreier v. United States, 106 F.3d 844, 847 (9thCir. 1996). As with a motion for summary judgment, the party moving to dismiss for lack of subject matter jurisdiction “should prevail only if the material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of law.” Casumpang v. Int'l Longshoremen's & Warehousemen's Union, 269 F.3d 1042, 1060-61 (9th Cir. 2001).

         III. Discussion

         For the Court to have subject matter jurisdiction based on diversity, all plaintiffs must be of different citizenship than all defendants, and the amount in controversy must exceed $75, 000. See 28 U.S.C. § 1332. The Complaint seeks more than $200, 000 in damages, thereby satisfying the amount in controversy requirement for diversity jurisdiction. (Doc. 1, at 7-8). With respect to diversity of citizenship, the Complaint alleges that Plaintiffs are citizens of Montana, the individual Defendants are citizens of Connecticut, and JG Worldwide is a limited liability company organized in Delaware with a principal place of business in New York. (Doc. 1, at 2). Defendants do not dispute that the amount in controversy requirement is satisfied, but argue Plaintiffs have not met their burden of establishing diversity jurisdiction for two reasons.

         First, they contend the Complaint is deficient on its face because it does not properly allege the citizenship of JG Worldwide. “For purposes of diversity jurisdiction, the citizenship of a limited liability company is determined by the citizenship of its members.” 15A Moore's Federal Practice § 102.57[8]. See also Johnson v. Columbia Properties Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006). As Defendants correctly point out, the original Complaint is deficient on its face because while it alleges JG Worldwide's state of organization and principal place of business, it says nothing about the identity or citizenship of JG Worldwide's members. (Doc. 1, at 2). After Defendants filed their motion, however, the parties entered the following stipulation: “JG Worldwide is a single member LLC, organized in Delaware with principal business activities in New York and Connecticut. JG Worldwide's members are JJT Acquisitions, another Delaware LLC, whose members are James Saleh, Jena Gardner, and Tom Jolley, a citizen of Utah.” (Doc. 17, at ¶ 2). Consistent with this stipulation, Plaintiffs filed an Amended Complaint that properly alleges the citizenship of JG Worldwide.[2] (Doc. 23, at ¶ 6). Thus, to the extent Defendants move to dismiss based on Plaintiffs' failure to adequately allege JG Worldwide's citizenship, the motion is moot.

         Second, Defendants raise a factual challenge to subject matter jurisdiction by arguing that Mercury Advertising, a Montana corporation, is a necessary and indispensable party whose joinder will destroy complete diversity of citizenship. Plaintiffs do not dispute that joining Mercury Advertising as a defendant would ...


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