Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-03503/USCOURTS-cand-3_06-cv-03503-2/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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United States District Court

For the Northern District of California

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Docket No. 8.

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The other Defendants include Resolution Capital Management LLC and Resolution Capital Advisors LP

(collectively, “Resolution Entities”).

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Also before the Court is Defendant’s Motion to Dismiss for Lack of Personal Jurisdiction. The Court DENIES

Defendant’s Motion to Dismiss for Lack of Personal Jurisdiction (Docket No. 22) as moot.

United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

BALINDER THIARA,

 Plaintiff,

 v.

ROBERT E. KIERNAN III, ET AL.

Defendant. /

No. C06-03503 MJJ

ORDER GRANTING PLAINTIFF’S

MOTION TO REMAND TO STATE

COURT

INTRODUCTION

Before the Court is Plaintiff Balinder Thiara’s (“Plaintiff” or “Thiara”) Motion1 to Remand

to State Court. Defendant2

 Robert E. Kiernan III (“Kiernan” or “Defendant”) opposes the motion. 

For the following reasons, the Court GRANTS Plaintiff’s Motion to Remand.3

FACTUAL BACKGROUND

The instant action presents a dispute involving an investment management venture started by

Thiara and Kiernan. In early 2002, Thiara asked Kiernan to join him in establishing an asset

management company. (Complaint (“Compl.”), ¶ 10.) Thiara is a resident of California, and

Kiernan is a resident of New York. (Id., ¶¶ 1-2.)

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On June 3, 2002, Thiara and Kiernan formed Resolution Capital Management LLC (“RCM”)

pursuant to the Delaware Limited Liability Company Act. (Id., ¶ 3.) Thiara and Kiernan became

members and managers of RCM and both acquired a 50% membership interest. (Id.) 

Also on June 3, 2002, Thiara, Kiernan, and RCM formed Resolution Capital Advisors LP

(“RCA”) pursuant to the Delaware Revised Uniform Limited Partnership Act. (Id., ¶ 4.) RCA was

comprised of Thiara and Kiernan as limited partners, and RCM as the general partner, each with

partnership interests of 49.5%, 49.5%, and 1%, respectively. (Id.)

Thiara alleges that on April 1, 2005, Kiernan wrongfully terminated the parties’ business

relationship. (Id., ¶ 17.) Thiara alleges that Kiernan violated his fiduciary duties to the Resolution

Entities and has wrongfully benefitted from Thiara’s efforts. (Id., ¶ ¶ 18-27.) On May 4, 2006,

Plaintiff filed a Complaint against Kiernan and the Resolution Entities in state court, alleging: (1) a

derivative claim for breach of fiduciary duty against Kiernan on behalf of the Resolution Entities as

nominal defendants; and (2) a direct claim for quantum meruit against Kiernan on behalf of Thiara. 

(Id., ¶¶ 18-27.) 

 On May 31, 2006, Kiernan filed a Notice of Removal, citing diversity jurisdiction as basis 

for removal. Thiara now moves to remand the case to state court on the grounds that the Resolution

Entities are de facto Plaintiffs and real parties in interest as to the pending derivative claim for

breach of fiduciary duty. Thiara contends that because the de facto Plaintiff Resolution Entities are,

for diversity purposes, citizens of New York and California, and because Kiernan is a citizen of New

York, complete diversity does not exist. 

LEGAL STANDARD

Pursuant to 28 U.S.C. § 1441(a), a defendant in a civil action may remove a case from state

court to federal district court if the district court has subject matter jurisdiction over the case. The

district court has subject matter jurisdiction over a case if there is diversity of citizenship between

the parties or if the action is founded on a claim arising under the Constitution, laws, or treaties of

the United States. 28 U.S.C. § 1441(b); 28 U.S.C. § 1331 (federal question); 28 U.S.C. § 1332

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Section 1441(b) further provides that if the basis for federal jurisdiction is diversity of citizenship, removal is

available only if no defendant is a citizen of the forum state. 

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Untimely removal is a procedural, rather than a jurisdictional, defect. Maniar v. Fed. Deposit Ins. Corp., 979 F.2d

782, 785 (9th Cir. 1992). 

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(diversity jurisdiction); Ethridge v. Habor House Restaurant, 861 F.2d 1389, 1393 (9th Cir. 1988).4

As the party seeking to remove the action, the defendant bears the burden of establishing that subject

matter jurisdiction exists. Ethridge, 861 F.2d at 1393. Because the Court strictly construes the

removal statute against removal, if there is any doubt as to the existence of federal jurisdiction, the

Court should remand the matter to state court. See Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir.

1992). 

The procedure for removal is set forth in 28 U.S.C. § 1446. This section provides that a

defendant seeking to remove a civil action to federal court must file a notice identifying the basis for

removal “within 30 days after the receipt by the defendant, through service or otherwise, of a copy

of the initial pleading setting forth the claim for relief upon which such action or proceeding is

based[.]” 28 U.S.C. § 1446(b). Pursuant to 28 U.S.C. § 1447(c), a plaintiff may challenge the

propriety of removal based on procedural defects and move to remand a case to state court within 30

days after the filing of the notice of removal. See N. Cal. Dist. Council of Laborers v. Pittsburg-Des

Moines Steel Co., 69 F.3d 1034, 1037 (9th Cir. 2003).5

A district court has an independent obligation to examine whether removal jurisdiction exists

before deciding any issue on the merits. See University of South Alabama v. American Tobacco Co.,

168 F,3d 405, 410-11 (11th Cir. 1999); Valdez v. Allstate Ins. Co., 372 F.3d 1115, 1116 (9th Cir.

2004).

ANALYSIS

A. The Resolution Entities

The citizenship of each member of an unincorporated association or partnership must be

considered in determining diversity. See Carden v. Arkoma Associates, 494 US 185, 195 (1990);

Rockwell Int’l Credit Corp. v. United States Aircraft Ins. Group, 823 F.2d 302, 304 (9th Cir. 1987). 

Unincorporated associations and partnerships are treated as a citizen of each state of which its

members are citizens. See Carden v. Arkoma Associates, 494 US 185, 195 (1990).

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The citizenship of a limited liability company for diversity purposes is determined by

examining the citizenship of each member of the company. Rolling Greens MHP, L.P. v. Comcast

SCH Holdings, L.L.C., 374 F.3d 1020, 1021-22 (11th Cir. 2004); Cosgrove v. Bartolotta,150 F.3d

729, 731 (7th Cir. 1998); GMAC Comm'l Credit LLC v. Dillard Dept. Stores, Inc., 357 F.3d 827, 829

(8th Cir. 2004).

Here, the Resolution Entities have both Thiara and Kiernan as members. Since Thiara is a

citizen of California and Kiernan is a citizen of New York, it follows that the Resolution Entities are

citizens of both New York and California for diversity purposes.

B. Diversity of Citizenship 

Thiara contends that this case must be remanded for lack of subject matter jurisdiction

because complete diversity of citizenship does not exist among the parties. Specifically, Thiara

contends that the Resolution Entities’ citizenship must be considered for purposes of determining

whether diversity jurisdiction exists. In response, Kiernan contends that, because Thiara’s claims

are direct and not derivative, the Resolution Entities’ citizenship is not a factor in determining

diversity jurisdiction. The parties do not dispute that the amount in controversy for federal subject

matter jurisdiction based on diversity of citizenship is satisfied.

1. Delaware Law

Whether a suit is derivative or direct is governed by the law of the state of incorporation. 

Kennedy v. Venrock Associates, 348 F.3d 584, 589-90 (7th Cir. 2003) (The question whether a suit is

derivative by nature or may be brought by a shareholder in his own right is governed by the law of

the state of incorporation); see also Frank v. Hadesman & Frank, Inc., 83 F.3d 158, 159 (7th Cir.

1996). Here, since the Resolution Entities were established under the laws of Delaware, the Court

will look to Delaware law to determine whether Thiara’s claim is a valid derivative claim or whether

it is actually a direct claim.

2. Direct or Derivative Claim

Under Delaware law, whether a claim is derivative or direct turns on the following questions:

(1) who suffered the alleged harm (the corporation or the suing stockholders, individually); and (2)

who would receive the benefit of any recovery or other remedy (the corporation or the stockholders,

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individually). Tooley v. Donaldson, Lufkin, & Jenrette, Inc., 845 A.2d 1031, 1033 (D. Del. 2004). 

A wrong to the incorporated group as a whole that depletes or destroys corporate assets and

reduces the value of the corporation’s stock gives rise to a derivative action; while a breach of an

individual shareholder’s “membership” contract or some other interference with the rights that are

traditionally viewed as incident to the individual’s ownership of stock gives rise to a non-derivative,

or direct, action by the injured shareholder or shareholders. Cede & Co. v. Technicolor, Inc., 542

A.2d 1182, 1188 n. 10 (Del 1988). To determine whether the claim belongs to the company or to a

member directly, the court considers the “nature of the wrong alleged” and “the relief, if any, which

could result if plaintiff were to prevail.” Kramer v. Western Pacific Indus., Inc., 546 A.2d 348, 350

(Del. 1988); Elster v. American Airlines, Inc., Del. Ch., 100 A.2d 219, 221-23 (Del. 1953). In

determining the nature of the wrong alleged, a court must look to “the body of the complaint, not to

the plaintiff’s designation or stated intention.” Lipton v. News Int'l, PLC, Del. Supr., 514 A.2d 1075,

1078 (Del. 1986).

a. Alleged Harm

In determining whether Thiara’s claim is actually a derivative claim, the Court must

determine who suffered the alleged harm as the real parties in interest. “[A] federal court must

disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to

the controversy.” Navarro v. Sav. Ass’n v. Lee, 446 U.S. 458 (1980). In doing so the court may

realign the parties according to their substantive interests in the litigation. See Employers Ins. of

Wausau v. Crown Cork & Seal Co., Inc., 942 F.2d 862 (3d Cir. 1991). 

Here, the Court finds that the Resolution Entities are real parties in interest. In examining

the complaint and the nature of the alleged wrong, the Court finds that the primary issue in this

controversy is whether Kiernan breached his fiduciary duties. In the first cause of action for breach

of fiduciary duty, the Complaint alleges that Kiernan injured the Resolution Entities by: (1)

“misappropriating the intellectual property assets and business opportunities to promote [Kiernan’s

own separate interests]; (2) developing for [Kiernan’s own] benefit profitable business opportunities

developed by and belonging to Resolution Capital; (3) refusing to provide access to the Resolution

Capital offices, books, and records; and (4) “taking improper and wrongful employment actions

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Thiara correctly notes that the recovery could go to pay back creditors or be used to continue the operation of the

Resolution Entities. Thiara also argues that as discovery develops, it is possible that Kiernan’s alleged breach of fiduciary

duty may result in the Resolution Entities’ liability to third party investors, if any. 

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against Resolution Capital employees.” (Compl., ¶ 21.) As a result, the Complaint alleges that

Kiernan’s alleged breach of fiduciary duty directly injured the Resolution Entities.

b. Benefit of Recovery

Next, in looking beyond the pleadings, the Court finds that the Resolution Entities have a

genuine interest in the recovery, if any. Kiernan argues that any relief in this action would be

Thiara’s alone. The Court disagrees. It does not necessarily follow that the recovery, if any, would 

flow entirely to Thiara. Kiernan’s alleged misappropriation of the property, assets, and business

opportunities did not belong only to Thiara. Rather, the property, assets, and business opportunities

belonged to the Resolution Entities, of which Thiara only held a partnership interest. Thus, it does

not follow that Thiara would be entitled to 100% of any resulting damages. Allowing all damages to

flow directly to Thiara would potentially result in a windfall to Thiara at the expense of the damaged

Resolution Entity6

. Thus, the Court concludes that Thiara and the Resolution Entities have distinct

interests in any potential relief.

In support of his argument against remand, Kiernan relies almost exclusively on Polak v.

Kobayashi, No. Civ. A05-330, 2005 WL 2008306 (D. Del. 2005). In Polak however, the court

found that the primary issue was whether the LLC at issue, should be dissolved pursuant to 6

Delaware Code §§ 18-801 and 18-802. See Polak, 2005 WL 2008306, at *5-6. The court

determined that the plaintiff’s other claim for breach of fiduciary duty was secondary to the

dissolution action. Id. The court found that the question of whether the LLC should be dissolved

was “a strictly internal conflict between [the LLC’s] members.” Id. at *8. 

The Court finds Kiernan’s reliance on Polak to be misplaced. Unlike the partners in Polak,

Thiara and Kiernan are not involved in a dissolution proceeding of the Resolution Entities. To the

contrary, the parties are engaged in a dispute over Kiernan’s alleged misappropriation and breach of

fiduciary duty to the Resolution Entities, in which both individuals have membership interests. As

Thiara points out, a dissolution action like the one in Polak seeks to terminate a corporation’s

existence, while a derivative action seeks to repair a corporation’s damages. Therefore, the Court

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concludes that Thiara’s first cause of action is properly asserted as a derivative action on behalf of

the Resolution Entities and that the Court lacks diversity jurisdiction over the action because both

Resolution Entities and Kiernan are citizens of New York. 

CONCLUSION

For the foregoing reasons, the Court GRANTS Plaintiff’s Motion to Remand

IT IS SO ORDERED.

Dated: October 25, 2006 

MARTIN J. JENKINS

UNITED STATES DISTRICT JUDGE

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