Jeffrey Reiniche v. Jamie Martin

NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with Fed. R. App. P. 32.1

United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Submitted October 4, 2011*
Decided February 23, 2012

Before

FRANK H. EASTERBROOK, Chief Judge

JOEL M. FLAUM, Circuit Judge

ANN CLAIRE WILLIAMS, Circuit Judge

No. 10-3753 Appeal from the United
States District Court for
JEFFREY S. REINICHE, et al., the Northern District of
Plaintiffs-Appellants, Illinois, Eastern Division.

v. No. 08 C 3093
James B. Zagel, Judge.
JAMIE MARTIN, et al.,
Defendants-Appellees.

Order

When this court questioned the basis of subject-matter jurisdiction initially
asserted in this appeal, it issued a series of orders requiring the parties to provide
all details necessary to establish the citizenship of the parties. After several
rounds of filings, the parties finally agreed that complete diversity of citizenship
is absent, because some members of the defendant limited liability companies are
citizens of the same three states as the plaintiffs.

After this agreement was reached, one group of defendants asserted that
jurisdiction nonetheless could be based on 28 U.S.C. §1334, because the litigation

*
After examining the briefs and the record, we have concluded that oral argument is
unnecessary. See Fed. R. App. P. 34(a); Cir. R. 34(f).
No. 10-3753 Page 2

is related to a bankruptcy. The other litigants then embraced that position. The
problem with it, however, is that the jurisdiction under §1334 is available only
when the suit will affect the assets available for distribution to creditors or the
administration of a bankruptcy estate. See In re Xonics, Inc., 813 F.2d 127, 131 (7th
Cir. 1987). The outcome of this litigation cannot affect any estate in bankruptcy.

This is a derivative suit. Three investors (Reiniche, Chausmer, and Post)
seek to pursue a claim on behalf of a business entity. A fourth investor (Swift),
who had filed for bankruptcy in 2005, made a similar claim and filed suit on it in
2007 without notifying the bankruptcy Trustee or his creditors. The Trustee
learned of this evasion, took over the suit, and sold or settled the claim for
$10,000. Swift's suit has been dismissed. Reiniche, Chausmer, and Post filed their
own suit in 2008. Nothing that happens in this suit can affect the creditors in the
Swift bankruptcy, so the requirements of §1334 have not been satisfied.

This leads the litigants to contend that this suit may be maintained in
federal court under the supplemental jurisdiction, 28 U.S.C. §1367, because it
entails the same derivative claim as the one Swift commenced. But §1367 does
not allow one entire suit to be treated as “supplemental” to another. Section 1367
deals with multiple claims in a single suit. No claim in this suit has ever been
within federal jurisdiction, so §1367 is inapplicable.

The premise of the parties’ current approach is that, once any aspect of a
controversy is properly in federal court, all disputes related to that controversy
also are within federal jurisdiction. The Supreme Court held otherwise
in Kokkonen v. Guardian Life Insurance Co. of America, 511 U.S. 375 (1994),
and Peacock v. Thomas, 516 U.S. 349 (1996). Each dispute submitted for resolution
requires its own basis of federal jurisdiction. This suit has none.

The judgment of the district court is vacated, and the case is remanded
with instructions to dismiss for want of subject-matter jurisdiction.