Delaware Business Litigation Report

Federal Court Denies Remand Motion Despite Delaware Dissolution and Fiduciary Claims

Polak v. Kobayashi, No. Civ. A. 05-330 JJF, 2005 WL 2008306 (D.Del. Aug. 22, 2005). Plaintiff filed a motion to remand a matter involving several Delaware state law claims, alleging lack of subject matter jurisdiction and because complete diversity of citizenship did not exist. Alternatively, plaintiff claimed that the Court should decline to exercise jurisdiction on the Burford abstention doctrine. Defendant filed a motion to remove the case pursuant to 28 U.S.C. §§ 1441 and 1446 to the District Court for the District of Hawaii. The court denied the motion to remand. Plaintiff Polak and Defendant Kobayashi had formed a Delaware limited liability company called Pokobo LLC. Pursuant to Section 5.01 of the LLC Agreement, both parties had joint management. Plaintiff filed a Petition for Dissolution in 2005 in the Court of Chancery against Kobayashi and Pokobo, pursuant to §§ 18-801 and 18-802 and an accounting of each member's capital account and expenses. Plaintiff also sought adjudication of the title to land that was then solely in Kobayashi's name, requiring imposition of a constructive trust on behalf of the company. Additionally, the complaint stated derivative claims on behalf of the company for breach of fiduciary duties and also additionally raised contractual claims. Kobayashi filed a Notice of Removal removing the case to the Federal District Court for the District of Delaware pursuant to 28 U.S.C. §§ 1441 and 1446. Soon thereafter, plaintiff filed this motion to remand. The Court examined the pleadings and the actual interests of the parties to discern the primary issue contended by them before ruling on the lack of subject matter claim. That issue was identified as the dissolution of the company under §§ 18-801 and 18-802. The Court held that the determination of the title to the land solely in the name of Kobayashi was only central to the LLC Agreement and fiduciary duty claims. The Court then determined whether the company itself was a real party to the dissolution suit to determine whether diversity existed. The Court determined that the company was not a real party to the suit and was only a nominal defendant. Because a Delaware Limited Liability Company assumes the citizenship of its members - plaintiff was from New York and defendant from Colorado - and because the company was only a nominal defendant, the Court found complete diversity existed and therefore it held it had subject matter jurisdiction. The Court also declined to trigger the Burford abstention doctrine because there was no state order issued against any individual party that was sought to be enjoined in a federal court. Accordingly, the Court denied Plaintiff's motion to remand. Authored by: Raj Srivatsan 302-888 6831 rsrivatsan@morrisjames.com Share