United States Court of Appeals
For the First Circuit
________________
No. 04-1410
PRAMCO, LLC, ON BEHALF OF CFSC CONSORTIUM, LLC,
Plaintiff, Appellant,
v.
SAN JUAN BAY MARINA, INC., EDUARDO FERRER-BOLIVAR,
ORIENTAL PLAZA, INC., TOP SUITE, INC.,
VILLA MARINA YACHT HARBOUR, INC.,
Defendants, Appellees.
_____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Jesús A. Castellanos, U.S. Magistrate Judge]
______________________
Before
Boudin, Chief Judge,
Lipez, Circuit Judge,
and Schwarzer,* Senior District Judge.
____________________
Francisco Fernandez-Chiques for appellant.
Carlos J. Grovas-Porrata with whom Sierra/Serapion, PSC was on
brief for appellees.
January 19, 2006
*
Of the Northern District of California, sitting by
designation.
SCHWARZER, Senior District Judge. This appeal confronts
us with a series of unfortunate events arising out of Pramco, LLC’s
(Pramco) efforts to collect the unpaid balance of a $500,000
promissory note from defendants, collectively San Juan Bay Marina,
Inc. (San Juan). Those efforts left the parties in a procedural
tangle, which they seek to have us sort out. Being unable to do so
on the present record, we vacate the magistrate judge’s ruling and
remand.
FACTUAL AND PROCEDURAL BACKGROUND
We begin by summarizing briefly the essential background
facts. In December 1999, Pramco brought this action to collect the
unpaid balance of a promissory note issued by San Juan and for
foreclosure of the mortgage securing the note. The complaint
alleged that San Juan owed some $471,000 in principal and $18,000
in accrued interest. In June 2001, the parties entered into a
settlement agreement. The agreement remains under seal in the
district court and is not a part of the appendix, but the parties’
briefs refer to some of its terms. The agreement provided that
Pramco would foreclose on the property securing the note to recover
a portion of the total amount owed. The remainder of the amount
due would be paid by San Juan, and the agreement included a payment
schedule. The agreement also provided that failure to make the
payments would constitute an instant default and the full amount
would be due immediately.
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On June 20, 2001, Magistrate Judge Castellanos, on the
motion of the parties, issued an order approving the agreement and
incorporating its terms and conditions by reference. While the
terms of the agreement called for the magistrate to enter judgment
in favor of Pramco, the magistrate judge entered a judgment
dismissing the case with prejudice. The judgment did not
incorporate the terms of the settlement or otherwise specify any
obligation owed by San Juan.
The foreclosure on the property securing the note was
later authorized by the magistrate judge, and the property was sold
at a judicial sale, although not without opposition from San Juan.
However, the propriety of the foreclosure and sale is not
challenged on appeal. Instead, the critical events for the
purposes of this appeal relate to San Juan's failure to follow the
payment schedule in the settlement agreement.
Sometime in early 2002, the parties appear to have
entered into negotiations about the possible liquidation of the
debt. For a time, San Juan did not make payments when due. In
July 2002, Pramco gave notice that San Juan was in default. San
Juan quickly paid the past-due amounts to Pramco, and resumed
making the regularly scheduled payments. Pramco took no further
action regarding this potential default by San Juan.
Later in 2002, the parties again entered into
negotiations to liquidate the entire debt and, during this time,
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San Juan again failed to make payments. In April 2003, Pramco
again gave notice that San Juan was in default. San Juan paid the
past-due amounts, and again resumed making the scheduled payments.
However, from August until the last-scheduled payment in November,
San Juan deposited the payments with the court rather than making
them directly to Pramco. In November, Pramco moved for execution
of the judgment, arguing that because of the April 2003 default,
San Juan owed additional amounts.
On January 16, 2004, the magistrate judge heard Pramco’s
motion for execution of judgment and San Juan’s opposition. San
Juan argued that all sums due under the settlement agreement had
been received by Pramco except for a small amount remaining on
deposit with the court. Pramco in turn argued that the failure to
make the payments on time resulted in an automatic default, making
San Juan liable for the default amount of $661,762.60. The
magistrate judge ruled informally after hearing argument, finding
that the settlement agreement had been modified by Pramco’s
acceptance of payment. He ordered Pramco to return the promissory
note, permitted it to withdraw the remaining funds on deposit with
the court, and declared that “this case is closed.” No findings of
fact or conclusions of law were entered. This appeal followed.
DISCUSSION
I. APPELLATE JURISDICTION
Pramco appeals from the magistrate judge's denial of its
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motion to enforce the settlement agreement. No separate judgment
or order was entered. Thus, we must ask whether the appeal is from
a “final decision” as required by 28 U.S.C. § 1291 (2000);1 and
whether there has been compliance with Federal Rule of Civil
Procedure 58, requiring each judgment to be entered as a separate
document.
We consider the magistrate judge’s January 2004 ruling,
albeit lacking formality, to be a final decision. No further
proceedings are pending in the district court and none were
contemplated. See, e.g., Negron Gaztambide v. Hernandez Torres,
145 F.3d 410, 414-15 (1st Cir. 1998). Moreover, the ruling below
satisfied the purpose of the Rule 58 separate judgment requirement
to "communicate an unambiguous message of finality." Fiore v.
Wash. County Cmty. Mental Health Ctr., 960 F.2d 229, 235 (1st Cir.
1992). Given that the instant appeal was timely, it would not
serve the purposes of the rule to remand merely for entry of a
separate document. See de Jesus-Mangual v. Rodriguez, 383 F.3d 1,
5 (1st Cir. 2004); Fiore, 960 F.2d at 236 n.10.
II. SUBJECT MATTER JURISDICTION
Although neither party has addressed subject matter
jurisdiction, we are obliged to do so at the threshold. Negron
1
The parties consented to proceed before the magistrate judge,
which thereby authorized appeal from a final judgment directly to
the courts of appeals "in the same manner as an appeal from any
other judgment of a district court." 28 U.S.C. § 636(c)(3) (2000).
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Gaztambide, 145 F.3d at 414; Florio v. Olson, 129 F.3d 678, 680
(1st Cir. 1997).
The proceedings in the district court were directed to
enforcing the settlement agreement. The district court had
ancillary enforcement jurisdiction because it “incorporat[ed] the
terms of the settlement agreement in the order [of dismissal].”
Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 381 (1994).
However, whether diversity jurisdiction existed over the underlying
action presents us with a knotty problem, which we examine next.
Pramco brought this action “on behalf of CFSC Consortium,
LLC,” which purchased the underlying loan from the Small Business
Administration. In its complaint, Pramco is identified as a
limited liability company, organized under the laws of Delaware,
with its principal place of business in New York. CFSC Consortium,
LLC (CFSC) is also identified as a limited liability company,
organized in Delaware, with its principal place of business in
Minnesota. The complaint identified the defendants as citizens of
Puerto Rico, and alleged that there was complete diversity of
parties.
The jurisdictional facts alleged in the complaint are
insufficient to establish the existence of complete diversity.
Limited liability companies are unincorporated entities. The
citizenship of an unincorporated entity, such as a partnership, is
determined by the citizenship of all of its members. Carden v.
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Arkoma Assoc., 494 U.S. 185, 195-96 (1990) (limited partnership).
Neither the Supreme Court nor this circuit has yet directly
addressed whether that rule also applies to limited liability
companies. However, every circuit to consider this issue has held
that the citizenship of a limited liability company is determined
by the citizenship of all of its members. See Gen. Tech.
Applications, Inc. v. Exro Ltda, 388 F.3d 114, 121 (4th Cir. 2004);
GMAC Commercial Credit LLC v. Dillard Dep't Stores, Inc., 357 F.3d
827, 829 (8th Cir. 2004); Rolling Greens MHP, L.P. v. Comcast SCH
Holdings L.L.C., 374 F.3d 1020, 1022 (11th Cir. 2004); Provident
Energy Assocs. of Mont. v. Bullington, 77 F. Appx. 427, 428 (9th
Cir. 2003); Homfeld II, L.L.C. v. Comair Holdings, Inc., 53 F. Appx.
731, 732-33 (6th Cir. 2002); Handelsman v. Bedford Vill. Assocs.
Ltd. P'ship, 213 F.3d 48, 51-52 (2d Cir. 2000); Cosgrove v.
Bartolotta, 150 F.3d 729, 731 (7th Cir. 1998); see also 13B Charles
Alan Wright et al., Federal Practice & Procedure: Juris. 2d § 3630
(Supp. 2005). We see no reason to depart from this well-established
rule.
In its Rule 26.1 disclosure statement filed on appeal,
Pramco stated that it has two members and CFSC has three. According
to the complaint, Pramco held a power of attorney to collect loans
purchased by CFSC. The record, however, does not disclose the
citizenship of the members of either Pramco or CFSC. It also does
not fully disclose the nature of the arrangement between CFSC and
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Pramco, which could be relevant to a decision as to whose
citizenship–the members of CFSC or the members of Pramco–should be
considered in the diversity calculus.
In addition, there may be a circuit split on the issue of
whether the sort of arrangement entered into here–whether it
involved an assignment of the debt itself or merely the granting of
a power of attorney to litigate the case–would suffice to make
Pramco, rather than CFSC, the party whose citizenship matters for
diversity purposes. Some circuits have held that "the citizenship
of an agent who merely sues on behalf of the real parties must be
ignored" for diversity purposes. Associated Ins. Mgmt. Corp. v.
Ark. Gen. Agency, Inc., 149 F.3d 794, 796 (8th Cir. 1998); see also
Airlines Reporting Corp. v. S & N Travel, Inc., 58 F.3d 857, 862 (2d
Cir. 1995). In the Second Circuit, for example, the court asks
whether the named plaintiff is more than "a mere conduit for a
remedy owing to others, advancing no specific interests of its own."
Airlines Reporting Corp., 58 F.3d at 862.
The Third Circuit, by contrast, has adopted a rule that
accepts the citizenship of the named plaintiff as the relevant
citizenship for diversity jurisdiction purposes in any case where
that plaintiff has "capacity to sue" under state law. See Fallat v.
Gouran, 220 F.2d 325, 236-27 (3d Cir. 1955); see also 6A Charles
Alan Wright et al., Federal Practice and Procedure: Civil 2d § 1556,
at 426-28 (1990). It subsequently qualified its rule by holding
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that any attempt to "manufacture" diversity jurisdiction, by
appointing a representative "solely to create diversity
jurisdiction," offends 28 U.S.C. § 1359 (2000) and so is ineffective
to create federal jurisdiction. See McSparran v. Weist, 402 F.2d
867, 875-76 (3d Cir. 1968); cf. Pallazola v. Rucker, 797 F.2d 1116,
1126-27 (1st Cir. 1986). Yet even with this qualification, one
could still see how the Third Circuit's approach could result in
contrary results in cases such as Airlines Reporting Corp.
Because we cannot on this record determine whether
complete diversity exists, we remand to the district court. The
district court shall determine whether all of Pramco’s and CFSC’s
members are diverse from San Juan, in which case diversity exists;
if either Pramco or CFSC has members who are not diverse, the court
must determine whether the nondiverse party’s citizenship matters
for jurisdictional purposes; to that end, the court will need to
make appropriate findings of fact concerning the relationship of
Pramco and CFSC and entertain briefs from the parties. So far as
we can tell, the problem is a matter of first impression in this
circuit.
III. MERITS
If the district court determines that diversity
jurisdiction exists, it will need to conduct appropriate
proceedings to decide whether San Juan defaulted under the
settlement agreement; if it did, whether under the facts of the case
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and applicable law, Pramco’s acceptance of late payments modified
San Juan’s obligation under the settlement agreement; and what, if
any, amounts (whether of principal or interest) remain owing. We
expect that the resolution of these issues will require the making
of findings of fact and the entry of conclusions of law.
CONCLUSION
For the foregoing reasons, we vacate the magistrate
judge’s ruling and remand for further proceedings consistent with
this opinion. Each side shall bear their own costs on this appeal.
Vacated and Remanded.
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