MEMORANDUM OPINION
ROBINSON, District Judge.
I. INTRODUCTION
The instant action was originally filed as an adversary proceeding
Currently pending are two motions — Kelly's motion to dismiss for lack of subject matter jurisdiction and plaintiff's amended motion for leave to file an amended complaint (the "pending motions"). (D.I. 17, 27) Both pending motions were filed in the bankruptcy court but were docketed, along with the corresponding briefing, in this court when the reference was withdrawn. In light of the unusual procedural posture of this case, the parties disagree as to what the court should do at this juncture. However, they agree that both pending motions have been fully briefed and that this court has all of the papers necessary to resolve them. (See D.I. 40 at 21:2-4, 9-12)
II. BACKGROUND
A. The Former ProxyMed Bankruptcy Case
In 2008, ProxyMed, an electronic healthcare transaction processing services company, and certain of its affiliates (collectively, "the debtors")
Section 7.4 of the Plan transferred all of the trust assets to the liquidating trust of PTMS Liquidating Corp. (f/k/a ProxyMed), and plaintiff, as the liquidating trustee, was vested with the authority to prosecute "Remaining Actions" on behalf of the liquidating trust. (Bank. Dkt. 620, §§ 7.4, 7.8, 12.24) "Trust Assets" are defined in § 1.84 to be all assets and property of the debtors including all "Remaining Actions," which are defined as "any and all claims or causes of actions of the Debtors" other than certain "Customer Avoidance Actions" that had been acquired by a third party. (Bank. Dkt. 620, §§ 1.76, 1.84) The Plan authorized the bankruptcy court to retain post-confirmation jurisdiction to the extent legally permissible until such time as "all payments and distributions required to be made and all other obligations required to be performed under the Plan have been made and performed by the Liquidating Trustee and a final decree has been entered closing [ProxyMed's Bankruptcy] Case." (Bank. Dkt. 620, § 11.1) The Plan also purported to preserve jurisdiction over, inter alia, "matters ... instituted
B. The Premise of the Adversary Proceeding
On December 21, 2010, plaintiff initiated the adversary proceeding by filing a complaint (the "original complaint") in the bankruptcy court against GA LLC and Kelly. (Adv. Dkt. 1) Plaintiff alleges that it is empowered to pursue the action as a "Remaining Action," defined by § 1.76 of the Plan. (Id. at ¶ 8) The complaint asserts claims for breach of fiduciary duty against Kelly and claims for breach of fiduciary duty and fraud against GA LLC. (Id. at ¶¶ 9, 10, 122-40) As the merit pleadings are not currently at issue before the court, a brief summary of the factual allegations will suffice.
GA LLC, a private equity investment firm, acquired a significant ownership interest in ProxyMed in 2002 for $25 million. (Id. at ¶¶ 1, 12) Kelly, who was a managing director of GA LLC, served as designee on ProxyMed's board of directors ("the Board") and later became chairman of the Board. (Id. at ¶ 4) In and around 2006, while Kelly was on the Board, he allegedly gave ProxyMed false assurances that GA LLC would provide or facilitate financing to enable ProxyMed to pursue investments and acquisitions as part of a growth strategy. (Id. at ¶¶ 1, 49, 52, 55, 66, 85, 91) Meanwhile, GA LLC was allegedly engaged in the "secret pursuit" of making a much larger $1.2 billion investment to obtain a majority interest in one of ProxyMed's most significant competitors, Emdeon, Inc. ("Emdeon"). (Id. at ¶¶ 1, 69, 72-73) Although Kelly allegedly knew about GA LLC's plans, neither Kelly nor GA LLC disclosed the alleged conflict of interest or retracted any of the prior assurances allegedly given to ProxyMed. (Id. at ¶¶ 1, 57-59, 73, 77-78, 83-85) After GA LLC's investment in Emdeon was publicly announced, to ProxyMed's surprise, GA LLC advised ProxyMed that it would not provide any of the allegedly promised financing. (Id. at ¶¶ 2, 102-06)
Plaintiff asserts that Kelly owed ProxyMed fiduciary duties as a director and that GA LLC also owed ProxyMed fiduciary duties based on a special relationship of trust and confidence, advice that it gave to ProxyMed, and GA LLC's role as a controlling shareholder in ProxyMed. (Id. at ¶¶ 3-4) As a result of GA LLC's and Kelly's breaches of fiduciary duty and GA LLC's fraud in deceiving ProxyMed for its own profit, plaintiff claims it was misled into pursuing a financial strategy which it otherwise would not have adopted. (Id. at ¶ 107) Without GA LLC's financing, ProxyMed was unable to close on its planned acquisitions and was ultimately forced to file the Bankruptcy Case in 2008. (Id. at ¶¶ 111-17) Plaintiff's adversary proceeding seeks damages in excess of $100 million. (Id. at ¶¶ 107-20, 129-30, 140)
C. Procedural Background of the Adversary Proceeding in the Bankruptcy Court
Currently at issue are procedural questions regarding the bankruptcy court's and this court's subject matter jurisdiction over the instant case. The case has been through prolonged, somewhat confusing, motion practice in the bankruptcy court to now come before this court. A detailed overview of the procedural history will be helpful for understanding the pending motions.
The bankruptcy court made two rulings in this case before it, or any party, ever raised the issue of subject matter jurisdiction.
The bankruptcy court's second ruling that came before the issue of subject matter jurisdiction arose addressed a motion by plaintiff for clarification and/or reconsideration of the motion to dismiss decision. (Adv. Dkt. 46) The parties, again, did not raise any subject matter jurisdiction issues in their briefing on that motion. (Adv. Dkt. 39, 43, 44) The bankruptcy court issued a memorandum order, dated March 27, 2012, granting the motion for clarification and/or reconsideration and stated in a footnote that "[t]he Court's jurisdiction over this matter is not in dispute.... This is a core proceeding under 28 U.S.C. § 157(b)(2)(O)." (Adv. Dkt. 46 at 1 n.1)
1. Plaintiff's proposed amended complaints
On May 9, 2012, after the bankruptcy court issued the motion to dismiss decision on the merits, Kelly filed another motion to dismiss (the "jurisdictional motion to dismiss"), this time based on lack of subject matter jurisdiction. (D.I. 17) This was the first time any party to the adversary proceeding raised the issue of subject matter jurisdiction. The jurisdictional motion to dismiss prompted a number of filings by both parties — plaintiff attempted to amend its original complaint several times using different procedural avenues, while Kelly opposed each of plaintiff's attempts to amend.
With respect to subject matter jurisdiction, plaintiff's original complaint made the assertion that the action is a core proceeding under 28 U.S.C. § 157(b)(2)(O). (Adv. Dkt. 1 at ¶ 5) It asserted that GA LLC is a Delaware limited liability corporation with a principal place of business in Connecticut, but did not mention the citizenship of any other party or assert diversity jurisdiction. (Id. at ¶ 9)
On May 30, 2012, plaintiff filed an amended complaint (the "first proposed amended complaint") which added assertions that this court has diversity jurisdiction over the action and included a demand for a jury trial.
On June 13, 2012, Kelly filed a motion to strike plaintiff's first proposed amended complaint, contending that, pursuant to Fed.R.Civ.P. 15, plaintiff had no right to file the amended pleading without Kelly's written consent or the court's leave.
Kelly again asserted challenges to the sufficiency of the diversity jurisdiction allegations. (D.I. 23; Adv. Dkt. 82) Kelly argued that the second proposed amended complaint still failed to properly plead diversity jurisdiction because, inter alia: (1) plaintiff's pleading with respect to GA LLC did not mention the citizenship of any of GA LLC's "members;" and (2) plaintiff could not plead the citizenship of a party for purposes of diversity jurisdiction based "upon information and belief" or upon the "negative inference" form of pleading that plaintiff sought to employ. (D.I. 23 at 17-18; Adv. Dkt. 82 at 19-20)
Plaintiff responded by proposing yet another amended complaint (the "third proposed amended complaint") on August 2, 2012.
2. Plaintiff's motion to withdraw reference pursuant to Local Rule 5011-1
On June 4, 2012 — after filing its first proposed amended complaint but before the related motion practice — plaintiff filed a motion for this court to withdraw the reference pursuant to Local Rule 5011-1.
On August 12, 2012, pursuant to Local Rule 5011-1 and the bankruptcy court's directive during a July 25, 2012 teleconference, plaintiff filed a motion for a core/non-core determination. (Adv. Dkt. 89; see also Adv. Dkt. 87) After conducting oral argument on the matter on October 11, 2012 (Adv. Dkt. 105), the bankruptcy court
On January 9, 2013, following the bankruptcy court's order and determination that the proceeding is non-core, this court granted plaintiff's motion to withdraw the reference. (D.I. 14) The automatic reference of the adversary proceeding to the bankruptcy court was withdrawn, and it was ordered that the proceeding would be adjudicated by and tried in this court. (Id.) The adversary proceeding in the bankruptcy court was then closed.
In sum, the bankruptcy court issued the motion to dismiss decision, which dismissed GA LLC as a defendant on the merits, prior to determining whether it had subject matter jurisdiction. Kelly then raised the issue of jurisdiction in its jurisdictional motion to dismiss. In response, plaintiff proposed three different amended complaints, each supplanting the previous, to add assertions that this court has diversity jurisdiction over the matter. The bankruptcy court subsequently determined that the matter was a non-core proceeding. Thereafter, this court granted the motion to withdraw the reference, bringing the matter before this court.
D. Issues Before the Court
In light of the unique procedural posture of this case, the court held a teleconference on January 30, 2013, during which plaintiff and Kelly expressed differing viewpoints on how the case should proceed. (D.I. 40) Plaintiff and Kelly agree that plaintiff's amended motion for leave to file the third proposed amended complaint (hereinafter plaintiff's "motion for leave to file its amended complaint") is ripe for the court to resolve. (Id. at 7:5-11, 9:21-10:2) Kelly contends that his jurisdictional motion to dismiss needs to be addressed as well because, if the bankruptcy court did not, in fact, have jurisdiction, then it would be unclear what weight should be accorded to the bankruptcy court's motion to dismiss decision.
III. STANDARD OF REVIEW
Fed.R.Civ.P. 15 provides that a court should freely give leave to amend when justice so requires. The Third Circuit has adopted a liberal approach to the amendment of pleadings to ensure that "a particular claim will be decided on the merits rather than on technicalities." Dole v. Arco Chemical Co., 921 F.2d 484, 486-87 (3d Cir.1990) (citations omitted). Amendment, however, is not automatic. See Dover Steel Co., Inc. v. Hartford Accident & Indem. Co., 151 F.R.D. 570, 574 (E.D.Pa. 1993). Leave to amend should be granted absent a showing of "undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of the allowance of the amendment, futility of amendment, etc." Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962); see also Oran v. Stafford, 226 F.3d 275, 291 (3d Cir.2000).
IV. DISCUSSION
A. Whether Plaintiff's Numerous Attempts to Amend and Alleged Bad Faith Should Bar Leave to Amend
Kelly contends that, based on plaintiff's numerous attempts to amend its
Insofar as Kelly is alleging that the burdens will prejudice him, a defendant "must do more than merely claim prejudice; `[he] must show that [he] was unfairly disadvantaged or deprived of the opportunity to present facts or evidence which [he] would have offered had the ... amendments been timely.'" Bechtel v. Robinson, 886 F.2d 644, 652 (3d Cir.1989) (quoting Heyl & Patterson Int'l, Inc. v. F.D. Rich Housing, 663 F.2d 419, 425 (3d Cir.1981)). Kelly has not made such a showing. Neither is there an unwarranted burden on the court. An unwarranted burden on the court may result from undue delay. Estate of Oliva v. New Jersey, 604 F.3d 788, 803 (3d Cir.2010). In Estate of Oliva, the Third Circuit upheld a district court's decision to deny leave to amend for undue delay where the plaintiff sought to add a new retaliation claim at the summary judgment stage after the case had been pending for more than seven years. Id. The instant case does not present such undue delay or unwarranted burden on the court.
The court also declines to find that plaintiff's amendments were motivated by bad faith. Each of plaintiff's proposed amended complaints simply attempted to plead diversity jurisdiction, albeit in incremental revisions in response to Kelly's criticisms. No amended complaints have been allowed thus far. Although the case has been pending for over two years, Kelly did not raise the issue of subject matter jurisdiction until more than a year after the original complaint was filed, and the action has not progressed past the initial stages of litigation.
B. Whether Amendment Would Be Futile
Kelly also takes issue with two aspects of plaintiff's third proposed amended complaint to argue that plaintiff's motion should be denied as futile: (1) plaintiff's pleadings based on "information and belief" are allegedly improper; and (2) plaintiff has allegedly failed to plead complete diversity with respect to GA LLC. Futility is governed by the same standard of legal sufficiency that applies under Fed. R.Civ.P. 12(b)(6). See Oran, 226 F.3d at 291 (citation omitted) (internal quotation marks omitted).
First, Kelly argues that plaintiff attempts to improperly plead citizenship based on "information and belief." (D.I. 28 at 14-15) The court need not determine whether a pleading of diversity jurisdiction on "information and belief" is categorically insufficient. Plaintiff's third proposed amended complaint does not allege citizenship based on "information and belief." (See D.I. 27, ex. A at ¶¶ 10-12) Not only does plaintiff's currently proposed amended complaint state that its knowledge about the citizenship of the members of GA LLC is "[b]ased on plaintiff's investigation," but plaintiff's counsel also submitted a declaration that its allegations of citizenship are "the product of an extensive investigation that considered documents produced by [GA LLC] in this action, [GA LLC]'s web site and information through [various] web sites." (Id., ex. A at ¶ 11; D.I. 30 at ¶ 3)
The bankruptcy court's motion to dismiss decision purportedly dismissed GA LLC as a party. Kelly does not factually challenge the citizenship pleadings with respect to plaintiff or Kelly, who are allegedly diverse parties. Therefore, if GA LLC is no longer a defendant, then plaintiff has sufficiently pled diversity jurisdiction as to it and Kelly.
However, because plaintiff's third proposed amended complaint maintains its allegations against GA LLC
An amendment is futile if it will not cure the deficiency in the original complaint, or if the amended complaint cannot withstand a motion to dismiss. See Jablonski v. Pan Am. World Airways, Inc., 863 F.2d 289, 292 (3d Cir.1988). Specifically,
Schwartz v. D/FD Operating Services, L.L.C. 205 F.R.D. 166, 167 (D.Del.2002) (quoting Site Microsurgical Sys., Inc. v. Cooper Companies, Inc., 797 F.Supp. 333, 336-37 (D.Del.1992)). For purposes of determining diversity of citizenship, the citizenship of an LLC is equivalent to all the states where its members are domiciled, including members that are themselves LLCs or other unincorporated business entities. See Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d 412, 420 (3d Cir.2010). A limited liability company assumes the citizenship of its members. See Polak v. Kobayashi, 2005 WL 2008306, at *2 (D.Del. Aug.22, 2005).
Plaintiff allegedly identifies GA LLC's members, none of which share citizenship with plaintiff. Therefore, the court does not find that plaintiff's proposed amended complaint would be futile and grants plaintiff's motion for leave to file its amended complaint. "To rule otherwise would result in the filing of another lawsuit and would not promote the interests of judicial efficiency." See LG Electronics U.S.A., Inc. v. Whirlpool Corp., Civ. No. 10-311, 2011 WL 4043394, at *2 (D.Del. Sept. 12, 2011).
C. Kelly's Submission of an Affidavit Challenging Diversity Jurisdiction
Attached to his brief opposing plaintiff's motion, Kelly submitted the affidavit of a GA LLC managing director, Christopher Lanning, which states that, at the time the original complaint was filed, GA LLC actually had forty-five members and that eight of the twenty-five individuals identified by plaintiff were not in fact members of GA LLC. (D.I. 28 at ¶¶ 4-5) Therefore, Kelly asserts, plaintiff only identified seventeen out of the forty-five relevant GA LLC members in its proposed amended complaint. Moreover, of the twenty-eight purportedly unidentified members, six are allegedly limited liability corporations, and two are allegedly "Limited" or "Ltd." entities. (Id. at ¶ 7)
Not only may the lack of subject matter jurisdiction be raised at any time, it cannot be waived and the court is obliged to address the issue. See Moodie v. Fed. Reserve Bank of NY, 58 F.3d 879, 882 (2d Cir.1995). Once jurisdiction is challenged, the party asserting subject matter jurisdiction has the burden of proving its existence. See Carpet Group Int'l v. Oriental Rug Importers Ass'n, Inc., 227 F.3d 62, 69 (3d Cir.2000).
Kelly's challenge to diversity jurisdiction is analogous to a factual attack under Fed.R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction. "Under Rule 12(b)(1), the court's jurisdiction may be challenged either facially (based on the legal sufficiency of the claim) or factually (based on the sufficiency of jurisdictional fact)." See MobileMedia Ideas, LLC v. Apple Inc., 885 F.Supp.2d 700, 705 (D.Del. 2012) (citing 2 James W. Moore, Moore's Federal Practice § 12.30[4] (3d ed. 1997)). Under a facial challenge to jurisdiction, the court must accept as true the allegations contained in the complaint. See id. Under a factual attack, however, the court is not "confine[d] to allegations in the ... complaint, but [can] consider affidavits, depositions, and testimony to resolve factual issues bearing on jurisdiction." Gotha v. United States, 115 F.3d 176, 179 (3d Cir. 1997); see also Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891-92 (3d Cir.1977). In such a situation, "`no presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims.'" Carpet Group, 227 F.3d at 69 (quoting Mortensen, 549 F.2d at 891).
Because Kelly's attack on diversity jurisdiction is a factual one, the court may take notice of his submission of the affidavit regarding the citizenship of members of GA LLC. See Gotha, 115 F.3d at 179; Mortensen, 549 F.2d at 891-92. When a defendant contests any jurisdictional allegations in the pleadings by presenting evidence,
Gould Elecs., Inc. v. United States, 220 F.3d 169, 177 (3d Cir.2000) (citations omitted). Therefore, the court will order jurisdictional discovery and afford plaintiff an opportunity to respond with evidence supporting jurisdiction. See S. Freedman & Co. v. Raab, 180 Fed.Appx. 316, 321 (3d Cir.2006) ("We have repeatedly held that a district court has an obligation to provide the parties with notice and an opportunity to be heard before dismissing a case for lack of jurisdiction." (citation omitted)). If
V. CONCLUSION
The court grants plaintiff's motion for leave to file its amended complaint. Given Kelly's factual attack on diversity jurisdiction, the court will permit plaintiff the opportunity to pursue jurisdictional discovery, after which plaintiff may either respond with supplemental papers supporting diversity jurisdiction or remove its pleadings regarding GA LLC. The court reserves decision on Kelly's jurisdictional motion to dismiss. An appropriate order shall issue.
ORDER
At Wilmington this 15th day of April, 2013, consistent with the memorandum opinion issued this same date;
IT IS ORDERED that:
1. Plaintiff's amended motion for leave to file its amended complaint (D.I. 27) is granted.
2. Plaintiff shall complete its jurisdictional discovery on or before
3. On or before
4. Defendant Braden Kelly ("Kelly") may respond to plaintiff's papers on or before
5. Kelly may supplement his motion to dismiss for lack of subject matter jurisdiction (D.I. 17) on or before
6. The April 15, 2013 telephonic status conference is cancelled.
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