Delaware Business Litigation Report

Federal Court Orders Supplementation Of Record With Citizenship Status Of LLC Members In Motion To Remand

Shamrock Holdings of California, Inc. v. Arenson, No. Civ. 04-1339-SLR, 2005 WL 400198 (D.Del. Jan. 27, 2005). Plaintiffs commenced an action for declaratory relief pursuant to 10 Del. C. §§ 6501 et seq. (2004) in the Delaware Court of Chancery. The defendants had earlier threatened to sue the plaintiffs for "millions of dollars." The defendants removed the action to the federal court and filed separate motions to dismiss which were stayed under mutual stipulations, pending resolution of plaintiffs Motion to Remand. The Court ordered the defendants to supplement the record with respect to certain corporate members of defendants SELK and Laurel Equity Group, LLC. The Court also admonished the defendants that a failure to timely supplement the record would result in the grant of plaintiffs' Motion to remand. Defendants were investors in ALH Holdings, Inc. ("ALH"), a Delaware limited liability corporation. ALH was unsuccessful as a business venture and the defendants lost their investments. As a result, they threatened the plaintiffs with legal action for breach of fiduciary duties, self-interest and wrongful conduct and threatened to sue them for "millions of dollars." To decide whether the suit merited remand, the Court examined the citizenship of the various parties. The Court also examined the "matter in controversy" for assessing the value of the dispute for purposes of finding whether it transcended the $75,000 jurisdictional amount, exclusive of interests and costs. The Complaint alleged only what the defendants believed to be the citizenship of the plaintiffs. It also merely stated the citizenship of the defendant entities without providing the status of its members. The Court examined the citizenship of the various parties exhaustively and observed that the citizenship of an LLC for purposes of diversity was supplied by the citizenship of its members. Accordingly, because the defendants had not supplied the citizenship of Sallervale Company and NACA Holdings, Inc., members of SELK, Inc., and Laurel Equity Group, LLC., respectively, the Court issued the above order. Of particular interest in this case is the Court's discussion of the "plaintiff-view rule" in the context of declaratory judgment actions, to determine the amount in controversy under 28 U.S.C. § 1332(a) (2004). The Court also held that Third Circuit law had approved the threat to sue for an amount as adequate to supply the value for a declaratory judgment action. Accordingly, because defendants had threatened to sue the plaintiffs for "millions of dollars," the Court held the statute was satisfied. Authored by: Raj Srivatsan 302.888.6831 rsrivatsan@morrisjames.com Share