United States District Court, D. Colorado
FIRST MEZZANINE INVESTORS, LLC, for itself and derivatively on behalf of BMGI Corporation, Plaintiff,
BMGI CORPORATION, BREAKTHROUGH ENTERPRISES, LLC, BREAKTHROUGH MANAGEMENT GROUP HOLLAND, LLC, BREAKTHROUGH MANAGEMENT GROUP CANADA, LLC, DSI INVESTMENTS, LLC, and DAVID SILVERSTEIN, Defendants.
ORDER REMANDING CASE TO STATE COURT
A. Brimmer, United States District Judge
matter is before the Court on plaintiff's forthwith
motion to remand [Docket No. 15] and the Court's sua
sponte order to show cause [Docket No. 23]. Plaintiff
requests that the Court remand this case to the District
Court for the City and County of Denver, Colorado.
case arises from a dispute over loans made before the winding
up of a failed company. Plaintiff First Mezzanine Investors,
LLC (“FMI”) loaned money to defendant BMGI
Corporation (“BMGI”). Docket No. 1-2 at 3-4,
¶¶ 13-21. Defendant DSI Investments, LLC
(“DSI”) also made a secured loan to BMGI.
Id. at 2-3, ¶¶ 10-12. On August 22, 2016,
DSI foreclosed on the assets of BMGI and began the process of
winding up its operations. Id. at 6-7, ¶¶
owns and is the sole member of defendants Breakthrough
Enterprises, LLC, Breakthrough Management Group Holland, LLC,
and Breakthrough Management Group Canada, LLC (collectively,
the “BMGI subsidiaries”). Docket No. 27 at 2-3.
Therefore, the citizenship of the BMGI subsidiaries is the
same as that of BMGI. See Siloam Springs Hotel,
L.L.C. v. Century Sur. Co., 781 F.3d 1233, 1237-38
(10th Cir. 2015) (citing Carden v. Arkoma Assocs.,
494 U.S. 185, 195-96 (1990)). The owner, President, and CEO
of BMGI is defendant David Silverstein, a Colorado citizen.
Docket No. 27 at 3. He also owns and is the sole member of
defendant DSI. Docket No. 27 at 3. Thus, DSI is also a
Colorado citizen. Siloam Springs Hotel,
L.L.C., 781 F.3d at 1237-38.
initiated this action in the District Court for the City and
County of Denver, Colorado on September 2, 2016. Docket No.
1-2. Plaintiff alleges, among other things, that DSI violated
state law by taking possession of BMGI's assets and using
them to pay BMGI's expenses. Docket No. 1-2 at 9-10. BMGI
removed the action to this Court on September 26, 2016
pursuant to 18 U.S.C. § 1441. Docket No. 1. BMGI alleges
this Court has diversity jurisdiction under 28 U.S.C. §
1332(a)(1). Id. at 3, ¶ 11. On September 28,
2016, plaintiff filed its motion to remand this case to state
court [Docket No. 15], arguing that removal is barred by 28
U.S.C. § 1441(b)(2), which provides that a “civil
action otherwise removable solely on the basis of the
jurisdiction under section 1332(a) of this title may not be
removed if any of the parties in interest properly joined and
served as defendants is a citizen of the State in which such
action is brought.” 28 U.S.C. § 1441(b)(2). On
September 29, 2016, the Court entered an order to show cause
why the case should not be remanded for defendant's
“failure to show complete diversity by failing to
consider all of the members of the LLC parties.” Docket
No. 23 at 3.
STANDARD OF REVIEW
may remove “any civil action brought in a State court
of which the district courts of the United States have
original jurisdiction.” 28 U.S.C. § 1441(a). The
so-called forum defendant rule, 28 U.S.C. § 1441(b)(2),
prevents removal to federal district court even where
diversity is established when one of the defendants is a
citizen of the forum state. See Brazell v. Waite,
525 F.App'x 878, 884 (10th Cir. 2013) (unpublished)
(citing Lively v. Wild Oats Markets, Inc., 456 F.3d
933, 940 (9th Cir. 2006)). A party's citizenship is
determined at the time the complaint was filed. Siloam
Springs Hotel, L.L.C., 781 F.3d at 1239.
moves for remand on the basis that all defendants are
citizens of Colorado. Docket No. 15 at 2, ¶ 5. BMGI
argues that removal was proper because BMGI is not a citizen
of Colorado and all defendants were fraudulently joined.
Docket No. 35 at 6-7. The parties do not dispute that Mr.
Silverstein and DSI are citizens of Colorado. Docket No. 27
at 3; see also Docket No. 35. The Court will focus
on the dispositive issue of whether DSI was fraudulently
party's citizenship can be ignored for the purposes of
determining whether removal was proper if the party was
fraudulently joined. See Dutcher v. Matheson, 733
F.3d 980, 988 (10th Cir. 2013). In cases where fraudulent
joinder is claimed, courts must “pierce the pleadings,
consider the entire record, and determine the basis of
joinder by any means available.” Dodd v. Fawcett
Publ'ns, Inc., 329 F.2d 82, 85 (10th Cir. 1964)
(citations omitted); Smoot v. Chicago, Rock
Island & Pac. R.R. Co., 378 F.2d 879, 881-82 (10th
Cir. 1967). To prove that a defendant was fraudulently
joined, BMGI must show “either: (1) actual fraud in the
pleading of jurisdictional facts, or (2) inability of the
plaintiff to establish a cause of action against the
non-diverse party in state court.” Dutcher,
733 F.3d at 988 (citing Cuevas v. BAC Home Loans
Servicing, LP, 648 F.3d 242, 249 (5th Cir.2011));
see also Hale v. Master Soft Int'l Pty. Ltd., 93
F.Supp.2d 1108, 1113 (D. Colo. 2000).
a defendant does not allege fraud in the pleading of
jurisdictional facts, the sole issue before the court is
whether plaintiff has stated a basis for recovery against
resident defendants under state law.” Frontier
Airlines, Inc. v. United Air Lines, Inc., 758 F.Supp.
1399, 1404 (D. Colo. 1989). In so doing, courts must decide
whether there is a reasonable basis to believe the plaintiff
might succeed on at least one claim. Nerad v. Astrazeneca
Pharms., Inc., 203 F.App'x 911, 913 (10th Cir. 2006)
(unpublished). For a claim to have a reasonable basis, it
must have a basis in the alleged facts and the applicable
law. Id. The removing party claiming fraudulent
joinder must “prove the non-liability of the defendant
as a matter of fact or law.” Blackwood v.
Thomas, 855 F.Supp. 1205, 1207 (D. Colo. 1994).
seeks to establish fraudulent joinder by showing that
plaintiff cannot bring a colorable claim against DSI. Docket
No. 35 at 15. Plaintiff alleges DSI violated Colo. Rev. Stat.
§ 4-9-608(a)(1). Docket No. 1-2 at 9, ¶¶
49-52. As BMGI explains, this section “simply provides
the order in which a secured party, here DSI, ” must
prioritize its payments from the proceeds of foreclosing on
BMGI's assets. Docket No. 35 at 15. BMGI acknowledges
that plaintiff alleges that “DSI has used the cash
collateral it has taken possession of to pay unsecured
expenses of BMGI, ” Docket No. 1-2 at 9, ¶ 50, but
argues that plaintiff's allegations are insufficient
because plaintiff “FMI pleads no facts showing that DSI
has mis-applied or mis-paid any cash proceeds
whatsoever” after foreclosing on BMGI's assets.
Docket No. 35 at 15.
argues that its allegations are sufficient to allege a
violation of Colo. Rev. Stat. § 4-9-608(a)(1) because
they include allegations of DSI's intent to make payments
in violation of the statute. Docket No. 38 at 7. Plaintiff
claims DSI emailed it after foreclosing on BMGI's assets
and stated that it was going to use the cash collateral from
foreclosing on BMGI's assets “to cover BMGI's
wind-down expenses, pay for BMGI's tax liabilities and
cover general expenses of BMGI.” Id. (citing
Docket No. 1-2 at 6-7, ¶ 38). Specifically, plaintiff
alleges that DSI's email stated that “some