In J.C. Penney Corporation, Inc. v. Oxford Mall, LLC, No. 22-12461 (11th Cir. May 1, 2024), the Eleventh Circuit affirms in full an attorney’s fee sanction, awarded against a defendant that was found to have withheld information for fifteen months that the parties were not diverse for purposes of 28 U.S.C. § 1332 subject-matter jurisdiction.
The action, concerning enforcement of a lease, was filed by J.C. Penney in the Northern District of Alabama in April 2019, “invoking the district court’s diversity jurisdiction. For federal diversity jurisdiction to attach, all parties must be completely diverse . . . . Oxford Mall did not contest jurisdiction in its answer to the complaint— and even pleaded diversity jurisdiction in its counterclaim. Both parties took the position that the court had diversity jurisdiction, but Oxford’s LLC ownership structure made it a complex question. A limited liability company or a limited partnership has the citizenship of each one of its members . . . . And because members of an LLC are often themselves LLCs or LPs, the citizenship inquiry can balloon at each step.”
In unrelated federal litigation, it was found in early 2020 that one member of the defendant LLC, just like J.C. Penney, was a citizen of Delaware (where both are incorporated). Despite Oxford knowing this – indeed, the unrelated litigation was dismissed for lack of diversity for this reason – the defendant continued to litigate the J.C. Penney case for another fifteen months. “On August 27, [2020] it granted J.C. Penney’s motion for partial summary judgment and denied Oxford’s motion in full.” Oxford moved for reconsideration and even entered mediation without ever mentioning the finding in the other case.
Only “fifteen months after learning that both parties in the case were citizens of Delaware . . . Oxford filed a motion to dismiss for lack of subject-matter jurisdiction, finally informing the court of the lack of diversity.” The district court dismissed the action but, under its inherent powers, “awarded J.C. Penney $62,556 in attorney’s fees—two-thirds of the amount that it incurred after Oxford learned the diversity-destroying information—and another $558.05 in costs.”
The Eleventh Circuit affirms, upholding the district court’s finding of subjective bad faith.
“First, on January 28, 2020, Oxford had actual knowledge that it, like J.C. Penney, was a citizen of Delaware, which destroyed the court’s diversity jurisdiction. Next, the district court found that Oxford properly understood the relevant law . . . . Finally, the district court found that Oxford’s delay in disclosing the lack of diversity jurisdiction was strategic; it waited until April 2021—15 months and several unfavorable rulings later.”
“This evidence, the court concluded, showed that the conduct was ‘so egregious that Oxford Mall could only have committed it in bad faith.’ We cannot disagree; Oxford Mall’s wrongdoing here is startling in its obviousness.”
The panel also rejected arguments that the sanction was too high and that the district court erred in striking an Oxford affidavit as untimely and irrelevant.
Paul Mollica's Federal Courts Blog 