District of Columbia v. United Leasing Associates of America, Ltd. ( 2009 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
DISTRICT OF COLUMBIA, )
)
Plaintiff, )
) Civil Action No. 09-879 (EGS)
v. )
)
UNITED LEASING ASSOCIATES )
OF AMERICA, LTD., et al., )
)
Defendants. )
)
MEMORANDUM OPINION
Pending before the Court is plaintiff’s motion to remand the
case to the Superior Court for the District of Columbia (“D.C.
Superior Court”) and defendant Balboa Capital Corporation’s
motion for jurisdictional discovery. Upon consideration of the
motions, the responses and replies thereto, the applicable law,
the entire record herein, and for the reasons stated below, this
Court GRANTS plaintiff’s motion to remand, DENIES plaintiff’s
request for attorneys fees and costs incurred in bringing this
motion, and DENIES AS MOOT defendant’s motion for jurisdictional
discovery.
I. BACKGROUND
On April 9, 2009, the District of Columbia (the “District”)
filed this action in D.C. Superior Court against defendants
United Leasing Associates of America (“United Leasing”), Balboa
Capital Corporation (“Balboa”), Chesapeake Industrial Leasing
Company (“Chesapeake”), Television Broadcasting Online, Inc.
(“TVBO”), Urban Interfaith Network, Inc. (“Urban Interfaith”),
Willie Perkins (“Perkins”), and Michael J. Morris (“Morris”).
Am. Compl. ¶¶ 3-9. The District alleges that from 2004 to the
present, defendants conspired to “illegally obtain hundreds of
thousands of dollars” from “African-American religious
congregations in the District of Columbia and in other regions of
the country” through a computer-leasing scheme developed by
Morris and Perkins, both individually and through their companies
TVBO and Urban Interfaith (collectively, the “TVBO Defenants”).
Am. Compl. at 2, ¶¶ 11-18.1 The TVBO Defendants allegedly
induced congregations to accept computer equipment on the
representation that it was “free of charge,” when in fact, the
congregations were contractually obligated to make “tens of
thousands of dollars” in leasing payments to United Leasing,
Balboa and Chesapeake (collectively, the “Leasing Defendants”)
for equipment “that did not work.” Am. Compl. at 2, ¶¶ 11-29.
As a result of the alleged scheme, some churches in the District
were “forced to remove money from their community funds to keep
paying the leases,” while other churches were subject to
aggressive collection efforts and threatened with litigation.
1
A detailed description of the alleged scheme is contained in
the District’s First Amended Complaint. See Docket No. 1, Ex. 1.
Because the details of the alleged scheme are not relevant to the
pending motion, it is discussed only in general terms.
2
Am. Compl. ¶¶ 27-29. The District further alleges that the
defendants’ actions resulted in many of the churches having to
reduce their religious services and other community activities.
Am. Compl. ¶ 64.
Pursuant to its authority under the D.C. Consumer Protection
Procedures Act (“DCCPPA”), and as parens patriae for the
residents of the District, the District brought this action
asserting claims of fraud, negligence, civil conspiracy, and
public nuisance, as well as violations of the D.C. Human Rights
Act (“DCHRA”) and the DCCPPA. The District is requesting: (i) an
injunction to prevent further collection on the leases; (ii)
rescission of the transactions; (iii) restitution and
disgorgement; (iv) a permanent injunction prohibiting defendants
from engaging in the behavior alleged in the complaint; (v) civil
penalties; and (vi) attorneys fees and costs. Am. Compl. at 16-
17.
On May 8, 2009, defendants filed a Notice of Removal with
this Court, asserting “complete diversity of citizenship between
all of the Defendants and all of the Plaintiffs.” Notice of
Removal ¶ 4. On June 8, 2009, the District filed the pending
motion to remand, which defendants oppose.
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II. STANDARD OF REVIEW
“[A]ny civil action brought in a State court of which the
district courts of the United States have original jurisdiction,
may be removed by the defendant or the defendants, to the
district court of the United States for the district and division
embracing the place where such action is pending.” 28 U.S.C. §
1441(a). A district court has original jurisdiction of all civil
actions “where the matter in controversy exceeds the sum or value
of $75,000, exclusive of interest and costs” and “is between
Citizens of different States.” Id. § 1332(a). “When a
plaintiff seeks to remand to state court a case that was removed
to federal court, ‘the party opposing a motion to remand bears
the burden of establishing that subject matter jurisdiction
exists in federal court.’” RWN Dev. Group, LLC v. Travelers
Indem. Co. of Conn., 540 F. Supp. 2d 83, 86 (D.D.C. 2008)
(quoting Int’l Union of Bricklayers & Allied Craftworkers v. Ins.
Co. of the West, 366 F. Supp. 2d 33, 36 (D.D.C. 2005)).
“Because of the significant federalism concerns involved,
this Court strictly construes the scope of its removal
jurisdiction.” Breakman v. AOL, LLC, 545 F. Supp. 2d 96, 100
(D.D.C. 2008) (citing Shamrock Oil & Gas Corp. v. Sheets, 313
U.S. 100, 107-09 (1941)). Therefore, “[a]ny doubts as to whether
federal jurisdiction exist must be resolved in favor of remand.”
RWN Dev. Group, 540 F. Supp. 2d at 87 (citing cases); see also,
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e.g., Breakman, 545 F. Supp. at 101 (“‘[I]f federal jurisdiction
is doubtful, a remand to state court is necessary.’” (quoting
Dixon v. Coburg Dairy, Inc., 369 F.3d 811, 815-16 (4th Cir. 2003)
(en banc)); Johnson-Brown v. 2200 M St. LLC, 257 F. Supp. 2d 175,
177 (D.D.C. 2003) (“Where the need to remand is not self-evident,
the court must resolve any ambiguities concerning the propriety
of removal in favor of remand.”). If the removing party cannot
meet its burden, the court must remand the case. See, e.g., Reed
v. Alliedbarton Sec. Servs., LLC, 583 F. Supp. 2d 92, 93 (D.D.C.
2008); Johnson-Brown, 257 F. Supp. 2d at 177.
III. DISCUSSION
A. Plaintiff’s Motion to Remand to D.C. Superior Court
Defendants allege that this Court has original jurisdiction
pursuant to 28 U.S.C. § 1332. Notice of Removal ¶ 8. As noted
above, diversity jurisdiction requires both (i) complete
diversity and (ii) an amount in controversy exceeding $75,000.
See 28 U.S.C. § 1332. The parties dispute whether the former
requirement has been met in this case.
As relevant here, complete diversity exists where parties
are “Citizens of different States.” Id. § 1332(a)(1). States,
however, are not subject to diversity jurisdiction under § 1332.
See Long v. District of Columbia, 820 F.2d 409, 412-13 (D.C. Cir.
1987) (explaining that because “‘a suit between a State and a
citizen or corporation of another State is not between citizens
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of different States,’” a federal court will only have
jurisdiction if the action “‘arises under the Constitution, laws
or treaties of the United States’” (quoting Postal Telegraph
Cable Co. v. Alabama, 155 U.S. 482 (1894))). The D.C. Circuit
has concluded that the District must be treated like a state for
purposes of diversity jurisdiction, and consequently is not
subject to removal under § 1332. See id. at 414 (“[T]he
District, like the fifty states, is not subject to diversity
jurisdiction.”).
The District therefore argues that defendants’ removal on
the basis diversity jurisdiction was improper. Pl.’s Mot. to
Remand at 10-15.2 Defendants counter, however, that removal was
proper because “[t]he real plaintiffs in interest are various
church congregations located in and constituting citizens of the
District of Columbia.” Notice of Removal ¶ 6. Accordingly,
defendants argue that the District is a nominal party whose
presence should be disregarded for purposes of determining
2
In its motion to remand, the District raised additional
arguments regarding why removal was improper. Specifically, the
District argues that: (i) defendants Perkins and TVBO are
citizens of the District, and therefore complete diversity does
not exist; and (ii) certain defendants failed to provide timely
notice of or consent to removal. In response to the District’s
first argument, Balboa filed a motion seeking leave to conduct
limited depositions of Perkins and TVBO. See generally Docket
No. 26. Because the Court finds that the District is not subject
to removal on the basis of diversity jurisdiction, the Court need
not reach these additional issues. Accordingly, Balboa’s motion
for leave to conduct jurisdictional discovery is DENIED AS MOOT.
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whether complete diversity exists. See District of Columbia, ex
rel. American Combustion, Inc. v. Transamerica Ins. Co., 797 F.2d
1041, 1047-48 (D.C. Cir. 1986) (explaining that when the District
is a nominal party, its presence in the lawsuit does not defeat
diversity jurisdiction); see also Navarro Sav. Ass’n v. Lee, 446
U.S. 458, 461 (1980) (“[A] federal court must disregard nominal
or formal parties and rest jurisdiction only upon the citizenship
of real parties to the controversy.”).
The issue before the Court, then, is whether the District is
the “real party in interest” in this litigation. See Fed. R.
Civ. P. 17(a). If it is, then subject-matter jurisdiction is
lacking and the case must be remanded.
“The focus of the ‘real party in interest’ inquiry is on
‘the essential nature and effect of the proceedings.’” Wisconsin
v. Abbott Labs., 341 F. Supp. 2d 1057, 1061 (W.D. Wis. 2004)
(quoting Adden v. Middlebrooks, 688 F.2d 1147, 1150 (7th Cir.
1982)). In conducting this inquiry, courts typically look to the
relief requested. See Missouri, Kansas, & Texas Ry. Co. v.
Hickman, 183 U.S. 53, 59-61 (1901). The real party in interest
is generally a direct beneficiary of the requested relief, while
a nominal party is not. See id. (concluding that the government
lacked “a real pecuniary interest in the subject-matter of the
controversy” and therefore was not the real party in interest).
Consequently, nominal parties may be disregarded from the
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diversity analysis as they lack a “substantial stake in the
outcome of the case.” Hood ex rel. Mississippi v. Microsoft
Corp., 428 F. Supp. 2d 537, 546 (S.D. Miss. 2006) (“viewing the
complaint as a whole” and then concluding that the state was
sufficiently interested in the outcome of the case such that it
was the real party in interest); see also American Combustion,
797 F.2d at 1047 (concluding that the District was a nominal
party who could be disregarded for diversity purposes because it
had no pecuniary interest in the lawsuit, was not involved in the
prosecution of the lawsuit, and was protected from any liability
for its costs or results).
Defendants argue that the District is a nominal party
because it seeks to protect “only a specific subgroup of its
population,” and therefore lacks a quasi-sovereign interest in
the case. Chesapeake Opp’n Br. at 5; see also Balboa Opp’n Br.
at 11. A quasi-sovereign interest is “an interest apart from the
interests of particular private parties.” Alfred L. Snapp & Son,
Inc. v. Puerto Rico ex rel. Barez, 458 U.S. 592, 607 (1992).
Without a quasi-sovereign interest, a state is a nominal party
that can be disregarded for diversity purposes. Id. at 600, 607.
For instance, if a state is merely “stepping in to represent the
interests of particular citizens who, for whatever reason, cannot
represent themselves,” then the state is “a nominal party without
a real interest of its own.” Id. However, “[a] state is not a
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nominal party if it has quasi-sovereign interests beyond the
interests of a few particular private parties.” Maine v. Data
Gen. Corp., 697 F. Supp. 23, 25 (D. Me. 1988). Accordingly, in
order to be the real party in interest in this litigation, the
District must have a quasi-sovereign interest that extends beyond
the interests of the African-American churches. The Court
concludes that such an interest exists.
Through this action, the District is exercising its
authority to prevent the individuals and corporations engaged in
allegedly predatory and fraudulent activities from targeting and
soliciting further business within its domain.3 Am. Compl. ¶ 2.
Such an action implicates two well-established quasi-sovereign
interests: (i) securing an honest marketplace, see, e.g., Snapp,
458 U.S. at 607 (“[A] State has a quasi-sovereign interest in the
health and well-being - both physical and economic - of its
residents in general.”); Hood, 428 F. Supp. 2d at 545 (“[T]he
State has a quasi-sovereign interest in the economic well-being
of its citizens, which includes securing the integrity of the
marketplace.”); New York v. Gen. Motors Corp., 547 F. Supp. 703,
3
The DCCPPA authorizes the Attorney General for the District
to bring an action in the name of the District in order to obtain
an injunction, restitution, civil penalties, costs, and fees.
D.C. Code § 28-3909. Moreover, as the officer charged with “the
conduct of all law business” of the District, D.C. Code § 1-
301.111, the Attorney General is authorized to bring common law
actions to protect its quasi-sovereign interests. See generally
Pl.’s Mot. to Remand at 14-15.
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705 (S.D.N.Y. 1982) (“The State’s goal of securing an honest
marketplace in which to transact business is a quasi-sovereign
interest.”); and (ii) securing residents from the harmful effects
of racial discrimination, see, e.g., Snapp, 458 U.S. at 609
(“This court has had too much experience with the political,
social, and moral damage of discrimination not to recognize that
a State has a substantial interest in assuring its residents that
it will act to protect them from these evils.”); New York v.
Peter & John’s Pump House, Inc., 914 F. Supp. 809, 812 (N.D.N.Y.
1996) (“[T]he State has a quasi-sovereign interest in preventing
racial discrimination of its citizens.”). The District therefore
has significant quasi-sovereign interests that it seeks to
protect through this litigation.
Moreover, despite defendants’ assertions to the contrary,
this action does not accrue solely to the benefit of the African-
American churches allegedly injured by defendants. The
District’s request for injunctive relief, civil penalties, and
costs is “designed to vindicate the State’s interest in
preserving fundamental honesty, fair play and right dealings in
public transactions.” Missouri ex rel. Webster v. Best Buy Co.,
Inc., 715 F. Supp. 1455, 1457 (E.D. Mo. 1989). The widespread
relief “goes well beyond addressing the claims of previously
injured organizations or individuals.” See Abbott Labs., 341 F.
Supp. 2d at 1063 (concluding that the Attorney General’s request
10
for injunctive relief was aimed at “securing an honest
marketplace, promoting proper business practices, protecting
[state] consumers, and advancing plaintiff’s interest in the
economic well-being of its residents”). Indeed, “the indirect
benefits of barring unscrupulous companies from soliciting
further business accrues to the population at large.” Illinois
v. SDS West Corp., No. 09-3128, 2009 U.S. Dist. LEXIS 65736, at
*9 (C.D. Ill. July 29, 2009); see also Pl.’s Mot. to Remand at 15
(“[R]equiring parties who engage in unfair trade practices to
disgorge their ill-gotten gains and pay penalties serves not only
to make private victims whole, but to deter future violation.”)4
Therefore, having considered the “essential nature and the
effect” of the complaint as a whole, Abbott Labs., 341 F. Supp.
2d at 1061, this Court concludes that the District has a
“substantial stake” in the outcome of this litigation and is the
real party in interest. See Hood, 428 F. Supp. 2d at 546(concluding that the State of Mississippi was the real party in
interest due to the State’s “substantial stake” in the case).
The fact that the District is seeking compensatory damages for
4
Moreover, absent litigation by the District, it is unlikely
that the requested injunctive relief would be obtained because
“the interests of the State and individual victims are not
coextensive.” Peter & John’s Pump House, Inc., 914 F. Supp. at
812. For instance, “[p]rivate litigants might not achieve the
complete relief requested that the State seeks because they have
a greater incentive to compromise requests for injunctive relief
in exchange for increased money damages.” Id.11
the injured African-American churches does not diminish the
District’s substantial stake in this action. See Abbott Labs.,
341 F. Supp. 2d at 1063 (“The fact that private parties may
benefit monetarily from a favorable resolution of this case does
not minimize or negate plaintiff’s substantial interest.”); see
also, e.g., SDS West Corp., 2009 U.S. Dist. LEXIS 65736, at *12
(concluding that the state was the real party in interest even
though it was seeking rescission and restitution on behalf of
injured individuals); Illinois v. LiveDeal, Inc., 2009 U.S. Dist.
LEXIS 10560, at *5 (C.D. Ill. Feb. 12, 2009) (same); Webster, 715
F. Supp. at 1457 (same); Gen. Motors Corp., 547 F. Supp. at 706-
07 (same).
In sum, because the District is the real party in interest,
this is not a dispute between “Citizens of different States” and
diversity jurisdiction is lacking. 28 U.S.C. § 1332(a)(1); see
Long, 820 F.2d at 412-13.5 Accordingly, this Court finds that
5
Defendants alternatively argue that “[t]o the extent that
the District of Columbia may be the real party in interest with
respect to any Count in the Complaint, there is no possibility
that the District can establish a cause of action, and its
presence should be disregarded under the doctrine of fraudulent
joinder.” Notice of Removal ¶ 7; see Balboa Opp’n Br. at 11-16.
This Court, however, finds the doctrine of fraudulent joinder
inapplicable “where, as here, the party alleged to be
fraudulently joined is the only named plaintiff and that
plaintiff sues on its own behalf.” WMW Mach. Co., Inc. v.
Koerber A.G., 879 F. Supp. 16, 17 (S.D.N.Y. 1995). Indeed,
“[b]ecause here there exists only one named (non-diverse)
plaintiff seeking a remedy for itself, the proper course of
action is for the defendants to pursue dismissal of plaintiff’s
claims in the state court.” Id. But even assuming that
12
defendants’ removal was improper and GRANTS plaintiff’s motion to
remand this action to D.C. Superior Court.
B. Plaintiff’s Request for Attorneys Fees and Costs
Under 28 U.S.C. § 1447(c), a court “may require payment of
just costs and any actual expenses, including attorney fees,”
when an action is remanded. Plaintiff argues that such costs
should be awarded because, among other reasons, “Defendants
sought removal despite the settled case law that the District is
not a diverse party.” Mot. to Remand at 17; see Johnson-Brown,
257 F. Supp. 2d at 181 (explaining that costs and expenses may be
awarded if “the removing party contradicts well-settled law in
attempting to remove the case to federal court”). In view of the
fact that the specific issue presented in this case - whether the
District is the real party in interest in its public advocacy
litigation - is an issue of first impression for this Court, the
Court concludes that defendants’ removal was not “contrary to
defendants’ fraudulent-joinder argument is cognizable, defendants
have failed to establish that “there is no possibility that
plaintiff would be able to establish a cause of action” against
defendants in D.C. Superior Court, Brown v. Brown & Williamson
Tobacco Corp., 26 F. Supp. 2d 74, 77 (D.D.C. 1998), for the
reasons stated in plaintiff’s reply brief. Pl.’s Reply Br. at
13-16; see also Brown, 26 F. Supp. 2d at 77 (“[G]iven that the
jurisdiction of this court is uncertain and that a determination
[of fraudulent joinder] should be made cautiously by a court
uncertain of its jurisdiction, it is more appropriate to remand
this case and allow the courts of the District of Columbia to
decide whether or not the plaintiffs can state a valid cause of
action. . . .” (internal quotation and citation omitted)).
Remand to D.C. Superior Court, therefore, is the proper course of
action.
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well-settled law.” Id. Accordingly, the Court declines to award
attorneys fees and costs given the circumstances of this case.
See LiveDeal, Inc., 2009 U.S. Dist. LEXIS 10560, at *10
(declining to award fees and costs on similar facts when there
was a “lack of controlling authority on point”). Plaintiff’s
request for attorneys fees and costs is DENIED.
IV. CONCLUSION
For the reasons set forth above, the Court GRANTS
plaintiff’s motion to remand this action to D.C. Superior Court,
where the case commenced, DENIES plaintiff’s request for
attorneys fees and costs, and DENIES AS MOOT defendant Balboa’s
motion for jurisdictional discovery. An appropriate Order
accompanies this Memorandum Opinion.
SIGNED: Emmet G. Sullivan
United States District Court Judge
August 11, 2009
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