[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
APR 2, 2007
No. 05-14255 THOMAS K. KAHN
________________________ CLERK
D. C. Docket No. 99-07677-CV-DTKH
AMBROSIA COAL & CONSTRUCTION COMPANY,
a Pennsylvania corporation,
Plaintiff-Appellant,
versus
HECTOR CARLOS PAGES MORALES,
ISLA VERDE BEACH HOTEL & CASINO, S.E., et al.,
Defendants-Appellees.
________________________
Appeal from the United States District Court
for the Southern District of Florida
_________________________
(April 2, 2007)
Before BIRCH and PRYOR, Circuit Judges, and NANGLE,* District Judge.
*
Honorable John F. Nangle, United States District Judge for the Eastern District of Missouri,
sitting by designation.
NANGLE, District Judge:
This appeal stems from Appellant Ambrosia Coal & Construction Company’s
(“Ambrosia”) Fourth Amended Complaint against Appellees.1 The Complaint alleges
that Appellees fraudulently induced Ambrosia into entering a settlement agreement
relating to properties in Puerto Rico. Ambrosia’s complaint sets forth twenty-four
state claims and three federal claims brought pursuant to the Racketeer Influence and
Corrupt Organization Act, (“RICO”). The district court dismissed the complaint for
lack of subject matter jurisdiction, holding that there was a lack of complete diversity
between Ambrosia (and its subsidiaries) and Appellees, and there were no viable
federal claims that would allow the court to exercise federal question jurisdiction over
the matter. Ambrosia appeals the motion to dismiss and asks this Court to find that
the district court has subject matter jurisdiction over both the state and federal law
claims.
There are two main issues before this Court. First, did Ambrosia acquire
diversity jurisdiction in violation of 28 U.S.C. § 1359 when Ambrosia’s non-diverse
subsidiaries assigned their claims to their diverse parent corporation, Ambrosia.
Second, did Ambrosia meet the pleading standards in its Complaint with respect to
1
The following people and entities constitute Appellees in this matter: Hector Carlos Pages
Morales, Ana Celia Pages, Isla Verde, S.E., Isla Verde Hotel & Casino Green Isle Partners Ltd,
Green Isle-GP Ltd., S.E., and Aces Green Isle GP, Inc.. The aforementioned Green Isle entities
are collectively referred to as “Green Isle.”
2
the civil RICO claims. Regarding the state law claims, we conclude that the district
court erred in concluding diversity jurisdiction was collusively obtained. With
respect to the federal causes of action, we affirm the district court’s dismissal of the
civil RICO claims.
I. BACKGROUND
In 1985, Ambrosia, a Pennsylvania-based corporation, entered into a real estate
transaction with Garita Hotel Limited Partnership (“Garita L.P.”), an Ohio based
partnership formed by George Malizia. Ambrosia provided Garita L.P. with four
million dollars in order for Garita L.P. to purchase a ninety-nine-year leasehold
interest in beachfront property in Puerto Rico. In exchange for supplying the
financing, Ambrosia received a one hundred percent ownership interest in Garita
Hotel Corporation (“Garita Hotel Corp.”), a Puerto Rican corporation. Garita Hotel
Corp. is the majority owner and sole general partner of Garita L.P. (collectively
referred to as “the Garita entities”). In sum, the corporate structure of Ambrosia and
the Garita entities is that of parent and subsidiaries, respectively.
George Malizia and Lenine Strollo, purporting to act on behalf of Garita L.P.,
attempted to sell the leasehold to Isla Verde Beach Hotel & Casino, S.E. (“Isla
3
Verde”) for twelve and a half million dollars.2 Ambrosia claimed that it did not
authorize the sale of the lease, and did not receive any consideration from the sale.
Ambrosia sued in the Pennsylvania state courts. Ultimately the court found in
Ambrosia’s favor and entered a consent order confirming that Ambrosia was the sole
owner of Garita Corp., and, was therefore entitled to the proceeds of the unauthorized
sale.
In 1994, Ambrosia, in its own right and on behalf of the Garita entities, advised
Isla Verde and Mr. Pages of its intent to file an action relating to the title of the lease
and/or for recovery of the consideration paid for the lease. After numerous exchanges
via mail and phone conversations, in lieu of filing suit, a settlement agreement was
reached. The agreement provided that Green Isle, a limited partnership established
under Florida law, would own the Lease. Ambrosia agreed to relinquish its rights in
the Lease in exchange for $750,000 in cash and a promissory note in the amount
$3,250,000, payable on October 25, 2001. The promissory note was subject to the
condition that it be paid solely from cash distributions made from Green Isle to Mr.
2
Isla Verde Beach Hotel & Casino is owned by Hector Carlos Pages Morales. Ambrosia claims
that Isla Verde Beach Hotel & Casino knew of Ambrosia’s interest in the leasehold.
4
Pages.3 According to the settlement agreement, Mr. Pages would receive a thirty-
three percent limited partnership interest in Green Isle Partners Ltd., S.E.
Ambrosia claims that it entered into the settlement agreement based on the
misrepresentation that Mr. Pages’ interest in the Green Isle partnership would not be
diluted in the future. Ambrosia alleges that the 1995 post-settlement restructuring of
Green Isle’s partnership agreement, which reduced Mr. Pages’ interest in Green Isle
to “Class B” limited partnership status, diluted Mr. Pages’ interest, negatively
impacted the terms of the settlement agreement, and impeded Ambrosia’s ability to
collect payment on its promissory note from Mr. Pages. Furthermore, Ambrosia
claims that misrepresentations were made during settlement negotiations which led
Ambrosia to believe that Lenine Strollo and George Malizia would not be involved
with any aspect of the future “project.”
On September 15, 1999, Ambrosia’s subsidiaries, Garita L.P. and Garita Hotel
Corp., assigned their claims under the 1994 settlement agreement to Ambrosia. 4
Thus, Ambrosia’s Puerto Rico and Ohio subsidiaries were not parties to the action
when, in December of 1999, Ambrosia, as the sole plaintiff, commenced litigation
3
Specifically, Mr. Pages agreed to transfer half of his interest in the Green Isle partnership into a
trust as a source of payment and security on the promissory note.
4
Prior to the assignment, Ambrosia held a four million dollar judgment against the Garita
entities. Ambrosia reduced its judgment against the Garita entities by $100,000.00 in exchange
for the assignment.
5
against Hector Carlos Pages Morales, Ana Celia Pages, Isla Verde, S.E., Isla Verde
Hotel & Casino, and Green Isle; without the Garita entities involved, there is
complete diversity of citizenship in this litigation.5
II. DISCUSSION
a. Assignment of Claims from Garita to Ambrosia
i.
Ambrosia alleged the existence of federal jurisdiction over its state law claims
through diversity of citizenship, 18 U.S.C. § 1332. Although on its face the action
appears to have complete diversity amongst the parties, the district court found that
Ambrosia improperly manufactured diversity jurisdiction in violation of 28 U.S.C.
§ 1359 when the Garita entities assigned their causes of action to Ambrosia. Section
1359 states that “[a] district court shall not have jurisdiction of a civil action in which
any party, by assignment or otherwise, has been improperly or collusively made or
joined to invoke the jurisdiction of the court.” 28 U.S.C. § 1359. The district court
5
Ambrosia is incorporated and headquartered in Pennsylvania; Ambrosia contends that the
defendants are citizens of Puerto Rico, Florida, and/or Ohio. (District Court Order p. 5,6.)
Therefore, complete diversity exists between the parties. Furthermore, it is undisputed that
Ambrosia’s claims exceed the sum or value of $75,000 exclusive of interests and costs.
However, if the Garita entities had not assigned their claims to Ambrosia diversity would be
defeated—Garita L.P. is incorporated in Ohio and Garita Corporation is a Puerto Rican
corporation. Additionally, Ambrosia does not deny that, prior to the assignment of the claims,
that the Garita entities were indispensable parties to this lawsuit. (District Court Order, p. 6).
6
arrived at this conclusion by first applying a presumption of collusion against
Ambrosia, which shifted the burden to Ambrosia to demonstrate that it had a
legitimate business reason for the assignment. The court then found that Ambrosia
failed to rebut the presumption, and held that Ambrosia achieved diversity of
citizenship in violation of the anti-collusion statute, 28 U.S.C. § 1359. Accordingly,
the court dismissed the claims for lack of subject matter jurisdiction.
This Court reviews de novo the district court’s conclusion that it lacked proper
subject matter jurisdiction to decide the case. See Williams v. Best Buy Co., Inc., 269
F.3d 1316, 1318 (11th Cir. 2001). Factual findings regarding the citizenship of a
party are subject to a clearly erroneous standard of review. MacGinnitie v. Hobbs
Group, LLC, 420 F.3d 1234 (11th Cir. 2005).
ii.
Appellees contend that the district court correctly applied a presumption of
collusion against Ambrosia, as other Circuits have done in evaluating assignments
made between related entities. Contrary to Appellees’ position, we hold that the
district court erred in applying a presumption of collusion to the case at bar.
7
The Second Circuit has held that when a non-diverse parent company assigns
its claims to a diverse subsidiary “engaged in no business other than the prosecution
of that claim,” the court presumes that diversity jurisdiction was collusively obtained
in violation of 28 U.S.C § 1359. Prudential Oil Corp. v. Phillips Petroleum Co., 546
F.2d 469, 4768 (2d Cir. 1976). The Second Circuit later extended Prudential by
applying the presumption of collusion to a non-parent-subsidiary assignment.
Airlines Reporting Corp. v. S & N Travel, Inc., 58 F.3d 857 (2d Cir. 1995) (applying
the presumption against Airlines Reporting Corp., a quasi-collection agency that
sought to litigate claims on behalf of their airline clients who were owed money by
a delinquent travel agency).
We find that Prudential and S & N Travel are factually distinguishable from the
instant situation. In Prudential, the court held that the presumption of collusion
applies to “downstream” assignments, namely, those assignments whereby the parent
corporation assigns its claims to a subsidiary whose sole business purpose is to
litigate the assigned claim. Here, however, it is the subsidiaries, Garita L.P. and
Garita Hotel Corp., that assigned their claims to an already existing parent, Ambrosia.
In S & N Travel, the assignee was merely an agent for the real parties in interest.
Here, however, Ambrosia, the assignee, has business purposes beyond the litigation
of the assigned claims and is the real party in interest.
8
In Nike, Inc. v. Commercial Iberica de Exclusivas Deportivas, S.A., 20 F.3d
987, 991-992 (9th Cir. 1994), the Ninth Circuit extended the presumption of collusion
and applied it to the assignment of claims from a non-diverse Nike subsidiary to the
diverse parent corporation (an “upstream” assignment). Appellees urge us to adopt
Nike and affirm the district court’s application of the presumption of collusion to the
case before us. The Nike court solely relied on a quote from Green & White Constr.
Co. v. Cormat Contr. Co., 361 F.Supp. 125, 128 (N.D.Ill. 1973), a case applying the
presumption to an upstream assignment. The Seventh Circuit, however, has
subsequently explicitly rejected the use of a presumption when evaluating
assignments between related entities. Herzog Contracting Corp. v. McGowen Corp.,
976 F.2d 1062, 1067 (7th Cir. 1992) (holding that “no inference of collusive
invocation of jurisdiction can be drawn from the simple fact that assignor and
assignee are under common ownership”).
The reasoning of the Seventh Circuit is persuasive. The language of 28 U.S.C.
§ 1359 does not provide for applying a presumption of collusion in determining
whether diversity jurisdiction was manufactured in violation of the statute. “Congress
could if it wanted adopt a rule forbidding the conferral of diversity jurisdiction by
assignment to an affiliated corporation but it has not done so and we are given no
urgent reason to try to do so in its place even to the extent of creating a soft rule, that
9
is, a presumption.” Herzog, 976 F.2d at 1067. Therefore, we are not persuaded by
Appellees’ argument that we should apply the presumption of collusion to upstream
assignments. Accordingly, we find that the district court erred by commencing its
evaluation of the assignment by applying a presumption of collusion against
Ambrosia.
iii.
While other Circuits have reasoned that a presumption of collusion is
appropriate when certain closely-related entities assign claims amongst themselves,
there is no such binding precedent in this Circuit. Neither the Supreme Court nor the
Eleventh Circuit has held that in cases where diversity jurisdiction is premised on the
assignment of claims from a subsidiary to a parent corporation, a presumption of
collusion is triggered. However, both the Supreme Court and the Eleventh Circuit
have opined on the general topic of parties collusively obtaining federal diversity
jurisdiction. As discussed above, we decline to follow the law of other Circuits that
apply the presumption of collusion to cases such as the one before us, and evaluate
the assignment from the Garita entities to Ambrosia under existing precedent.
10
In Kramer v. Caribbean Mills, 394 U.S. 823 (1969), the Supreme Court held
that when the assignor retains an interest in the assigned claims, the assignee has no
previous connection in the matter, and the assignment is made for the sole purpose
of accessing the federal courts, the assignment is collusive in violation of 28 U.S.C.
§ 1359. Id. at 827-28. Likewise, we focus on the nature of the transfer, namely,
whether the assignor has retained an interest in the assigned claim. See Gilbert v.
Wills, 834 F.2d 935 (11th Cir. 1987) (holding that jurisdiction was collusively
obtained when the plaintiff made a private side agreement that promised a portion of
the litigation proceeds to potential plaintiffs so long as they did not intervene and
destroy diversity between the parties); Harrell & Sumner Contracting Co., Inc. v.
Peabody Petersen Co., 546 F.2d 1227 (5th Cir. 1977) (holding diversity jurisdiction
was collusively obtained because the transferor retained a one-half interest in the
outcome of the litigation, and was an indispensable party but for the assignment).6
However, in Kramer, the Court explicitly stated that it was not disturbing prior
decisions in cases where a claimant makes a bona fide, absolute transfer7 of its claims
to a diverse citizen for the purpose of invoking federal jurisdiction. Kramer, 394 U.S.
6
The decisions of the United States Court of Appeals for the Fifth Circuit handed down prior to
the close of business on October 1, 1981, are binding precedent in the Eleventh Circuit. Bonner
v. City of Pritchard, 661 F.2d 1206 (11th Cir. 1981).
7
An absolute transfer is one wherein the transferring corporation retains no interest in the
outcome of the claims.
11
at 828. In such cases, the Court has held that federal jurisdiction is proper, and the
motives of the transfer are irrelevant. Id. For instance, in Black & White Taxicab &
Transfer Co. v. Brown & Yellow Taxicab & Transfer Co., 276 U.S. 518 (1928), the
Court held that it was not collusive for a non-diverse corporation to dissolve and
transfer its property into a new corporation for the purpose of creating diversity of
citizenship. Id. at 524-25. The Court stated, “[s]o long as “[t]he succession and
transfer were actual, not feigned or merely colorable. . .courts will not inquire into the
motives when deciding jurisdiction.” Id. at 524; cf. Miller & Lux v. East Side Canal
& Irrigation Co., 211 U.S. 293 (1908) (finding that the transfer of interests was
feigned because the newly-created, diverse corporation had no real interests in the
matter, and the transferring corporation did not dissolve or cease to exist after
creating the diverse corporation).
In evaluating the nature and validity of absolute transfers, the Supreme Court
has also examined the consideration exchanged for the assigned claim. See Cross v.
Allen, 141 U.S. 528 (1891) (holding that it is not a collusive transaction when
valuable consideration is paid to transfer a debt to a bona fide purchaser, even if the
transfer was for the purpose of invoking diversity jurisdiction); Lehigh Mining and
Manufacturing Co. v. Kelly, 160 U.S. 327 (1895) (holding that jurisdiction was
collusively obtained when a corporation made a grant of disputed land to a newly-
12
created, out-of-state corporation without exchanging any valuable consideration)
(emphasis added).
We conclude that subject matter jurisdiction over Ambrosia’s state law claims
is proper, and does not violate the anti-collusion statute. Ambrosia is the real party
in interest in this litigation and the Garita entities retained no interest in the assigned
claims at issue. Since 1985, Ambrosia has been involved in the dispute relating to the
title over the lease; it is Ambrosia that provided the four million dollars to purchase
the lease in Puerto Rico; and, Ambrosia, on behalf of itself and its subsidiaries,
spearheaded the litigation efforts ever since the Pennsylvania litigation. Furthermore
according to the sworn statement by the president of Ambrosia, Carmen Schick, the
assignment of claims between the Garita entities and Ambrosia were absolute
transfers made in exchange for valuable consideration—in exchange for the claims,
which Garita held pursuant to the 1994 settlement agreement, Ambrosia reduced its
judgment against the Garita entities by $100,000. Ambrosia has placed and kept this
judgment on its financial and accounting books, and as a result of the reduction in the
judgment, Ambrosia was able to reduce its tax liability. Therefore, the district court
erred in dismissing the state law claims for lack of subject matter jurisdiction.
13
b. Civil RICO Claims
This Court reviews de novo the district court’s dismissal of the civil RICO
claim for failure to state a claim. Hoffman-Pugh v. Ramsey, 312 F.3d 1222, 1225
(11th Cir. 2002).8 In evaluating whether a complaint states a claim upon which relief
can be granted,9 we must accept the well-pleaded allegations of the complaint as true
and draw all reasonable inferences therefrom in favor of the complaining party.
Brooks v. Blue Cross & Blue Shield, 116 F.3d 1364, 1368-69 (11th Cir. 1997).
We affirm the district court’s dismissal of Ambrosia’s civil RICO claims. Civil
RICO claims, which are essentially a certain breed of fraud claims, must be pled with
an increased level of specificity. See FED. R. CIV. P. 9(b);10 Brooks v. Blue Cross and
Blue Shield of Florida, Inc., 116 F.3d 1364, 1380-81 (11th Cir. 1997). To satisfy the
Rule 9(b) standard, RICO complaints must allege: (1) the precise statements,
8
The district court dismissed the cause of action solely on lack of subject matter jurisdiction.
The district court relied on a Second Circuit decision, Mendlow v. To Be Named After Discovery
Unknown Government Agencies, et al., No. 97-7744, 1998 U.S.App. Lexis 15111 (2d Cir. June
1, 1998), and held that that there was a lack of diversity in citizenship between the parties and the
complaint failed to allege the basic elements of a civil RICO claim, and thus, such a complaint
can be dismissed for lack of subject matter jurisdiction.
9
FED . R. CIV . P. 12(b)(6) motion is a “failure to state a claim upon which relief can be granted.”
“[T]o dismiss for failure of the pleading to state a claim upon which relief can be granted,
matters outside the pleading are presented to and not excluded by the court, the motion shall be
treated as one for summary judgment and disposed of as provided by Rule 56.” Id.
10
Rule 9(b) provides that “[i]n all averments of fraud or mistake, the circumstances constituting
fraud or mistake shall be stated with particularity.”
14
documents, or misrepresentations made; (2) the time and place of and person
responsible for the statement; (3) the content and manner in which the statements
misled the Plaintiffs; and (4) what the Defendants gained by the alleged fraud.
Brooks, 116 F.3d at 1380-81. In Brooks, we concluded that the complaint alleging
a RICO claim did not meet the Rule 9(b) particularity standard11 because it was
devoid of specific allegations with respect to each defendant; the plaintiffs lumped
together all of the defendants in their allegations of fraud. Id. at 1381. “[I]n a case
involving multiple defendants . . . the complaint should inform each defendant of the
nature of his alleged participation in the fraud.” Id.
After a thorough review of Ambrosia’s Fourth Amended Complaint, we
conclude that Ambrosia failed to plead its civil RICO claims against each defendant
with the required level of specificity.12
11
The pleading requirements of FED . R. CIV . P. 9(b) are codified in the Local Rules of the United
States District Court for the Southern District of Florida. See S.D. Fla. L.R. 12.1.
12
For example in Count XXV, Ambrosia inaccurately states that Defendant Hector Carlos Pages
Morales and Isla Verde Beach Hotel & Casino, S.E. defrauded Ambrosia as described in
paragraphs 24-31 and 31-41, when in fact these paragraphs only discuss Strollo and Malizia’s
actions. Count XXV does not discuss the nature of each defendant’s participation in the scheme,
nor does Count XXV discuss each alleged statement, document, or misrepresentation made with
the proper level of precision. Furthermore, Count XXV generally states that Ambrosia relied
upon each of the material misrepresentations without specifying the content or manner in which
the statements misled Ambrosia. Count XXVI mirrors Count XXV and the 9(b) issues equally
apply to Count XXVI.
15
III. CONCLUSION
Accordingly, we REVERSE the district court with respect to Ambrosia’s state
law claims. We find that subject matter jurisdiction exists, and, therefore we
REMAND the state law claims for further proceedings. With respect to the federal
civil RICO claims, we AFFIRM the district court’s dismissal of these claims.
16