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Emerald Investors Trust v. Gaunt Parsippany Partners

August 12, 2008


The opinion of the court was delivered by: William J. Martini, U.S.D.J.


On remand from the Third Circuit, Defendants have filed a motion to dismiss for lack of subject-matter jurisdiction. Defendants argue that under the Third Circuit's newly promulgated rules for determining the citizenship of a trust, the Plaintiff is a citizen of the same state as an indispensable Defendant and thus the Court lacks diversity jurisdiction. The Court agrees. Accordingly, Defendants' motion is GRANTED, and Plaintiff's complaint is DISMISSED WITHOUT PREJUDICE.


This is essentially an action to recover on two notes and to foreclose on two mortgages securing those notes. Emerald Investors Trust ("Emerald"), the mortgages' current holder, has sued three groups of parties: (1) Gaunt Parsippany Partners ("GPP") and 99 Cherry Hill Associates, L.P. ("99 CHA"), the original mortgagors, (2) 119 Cherry Hill Associates, L.L.C. ("119 CHA") and Horeseheads Commercial Development Partners, L.P. ("Horseheads"), the original mortgagors' successors and thus new mortgagors, and (3) Reckson Operating Partnership, L.P. ("Reckson"), the owner of the properties subject to the mortgages.*fn1 Emerald Investors Trust v. Gaunt Parsippany Partners, No. 02-1939, 2005 WL 1705779, at *1--4 (D.N.J. July 21, 2005). Emerald sought to recover on notes that it holds from 119 CHA and Horseheads and to foreclose on the properties securing those notes, which as of the filing of the suit were owned by Reckson. Id. at *2--4.

After a bench trial, the Court entered judgment in Emerald's favor. Id. at *15. Specifically, the Court entered a judgment on Emerald's claim to recover $583,333.33 on each of the notes it held. Id. The Court also entered a judgment of foreclosure in Emerald's favor. Id.

The parties appealed. See Emerald Investors Trust v. Gaunt Parsippany Partners, 492 F.3d 192 (3d Cir. 2007). The sole issue decided on appeal was whether this Court had diversity jurisdiction. Id. at 193--94. This Court had previously determined that it did have diversity jurisdiction, reasoning that Emerald's citizenship was diverse from any Defendant's. Id. at 196. In reaching this conclusion, the Court assumed that the citizenship of a trust-such as Emerald-was determined only by the citizenship of its beneficiaries. Id. The Third Circuit reversed and held that the citizenship of a trust is that of both its beneficiaries and its trustees. Id. at 205, 208. The Third Circuit, however, could not on appeal determine the citizenship of Emerald's trustees, so the court remanded the case back to this Court for discovery on that issue and a redetermination of diversity jurisdiction based on the resulting findings. Id. at 208.

Discovery on that issue is now complete, and Defendants now move to dismiss this case for lack of diversity jurisdiction. (Defs.' Br. in Supp. of Mot. to Dismiss Compl.) Defendants argue that the parties are nondiverse because at the time Emerald filed the complaint, both Defendant Reckson and Plaintiff Emerald were citizens of Florida. (Mot. 6.) Defendants reason, as per the Third Circuit's holding on appeal, that Emerald's trustee, Michael Houllis, is a citizen of Florida and thus that Emerald is a citizen of Florida as well. (Mot. 6.) As the Opinion will now explain, the Court agrees.


District courts may only adjudicate cases over which they have subject-matter jurisdiction. Brown v. Fancis, 75 F.3d 860, (3d Cir. 1996). Indeed, even after a court has proceeded completely through a case to a final judgment, if the court lacked subject-matter jurisdiction, the judgment must be vacated. Caterpillar Inc. v. Lewis, 519 U.S. 61, 76--77 (1996) ("[I]f, at the end of the day and case, a jurisdictional defect remains uncured, the judgment must be vacated."). Simply put, subject-matter jurisdiction is the sine qua non of adjudication.

One type of subject-matter jurisdiction-and the only type alleged here-is diversity jurisdiction. Federal courts have diversity jurisdiction over a case only if there is "complete diversity" among the parties. In re LifeUSA Holding Inc., 242 F.3d 136, 142 (3d Cir. 2001). Complete diversity exists where the citizenship of every plaintiff is different from that of any defendant. Midlantic Nat'l Bank v. Hansen, 48 F.3d 693, 696 (3d Cir. 1995). Defined alternatively in the negative, complete diversity is absent if any plaintiff and any defendant are citizens of the same state. See id.

Because the citizenship of a party or other facts bearing on diversity may change throughout trial, courts have developed a clear rule for ascertaining diversity jurisdiction. That rule, called the "time-of-filing" rule, provides that a court has diversity jurisdiction only if the parties are completely diverse at the time of filing. Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 570 (2004) ("It has long been the case that 'the jurisdiction of the court depends upon the state of things at the time of the action brought.'" (quoting Mollan v. Torrance, 22 U.S. (9 Wheat.) 537, 539 (1824))). The purpose of the rule is merely to provide a clear and easily accessible answer to the question of whether complete diversity exists. Id. at 580 ("The time-of-filing rule is what it is precisely because the facts determining jurisdiction are subject to change, and because constant litigation in response to that change would be wasteful.").

Here, as measured from the time of filing, the parties were undisputedly not diverse. Reckson, a partnership, was a citizen of Florida since one of its partners, Michael Stillman, lived in and was thus a citizen of Florida. See Carden v. Arkoma Assocs., 494 U.S. 185, 195 (1990) (holding that partnerships are citizens of the states of which their partners are citizens); Frett-Smith v. Vanterpool, 511 F.3d 396, 400 (3d Cir. 2008) (holding that for individual parties, citizenship is synonymous with domicile). (Cert. of Michael Stillman ¶¶ 1, 2.) And Emerald, a trust, was also a citizen of Florida since its trustee, Michael Houllis, lived in and was thus a citizen of Florida. See Emerald Investors Trust, 492 F.3d at 205; Frett-Smith, 511 F.3d at 400. (Decl. of Michael A. Houllis ¶¶ 1, 3.) Indeed, Emerald even admits that at the time of filing it and Reckson were both citizens of Florida. (Pl.'s Mem. of Law in Opp'n to Mot. to Dismiss 3.) Accordingly, at the time of filing, the Court lacked subject-matter jurisdiction.

Because the Court lacked subject-matter jurisdiction at filing, the Court will dismiss the action in its entirety unless Emerald can proffer some applicable exception to the time-of-filing rule. Emerald indeed does proffer such an exception. However, the Court finds this exception inapplicable, as the Opinion will now explain.

The exception to the time-of-filing rule that Emerald proffers regards the Court's limited ability to dismiss certain defendants who would otherwise destroy diversity. District courts may dismiss a nondiverse defendant to preserve diversity-but only if that defendant is not indispensable to the litigation. Publicker Indus., Inc. v. Roman Ceramics Corp., 603 F.2d 1065, 1069 (3d Cir. 1979). Whether a party is indispensable for this analysis is determined by ...

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