MidCap Media Finance, L.L.C. v. Pathway Data, Inco

Case: 18-50650 Document: 00515026469 Page: 1 Date Filed: 07/09/2019

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

United States Court of Appeals

Fifth Circuit

No. 18-50650 FILED

July 9, 2019

Lyle W. Cayce

MIDCAP MEDIA FINANCE, L.L.C., Clerk

Plaintiff-Appellee Cross-Appellant,

v.

PATHWAY DATA, INCORPORATED, doing business as Consumer Direct,

Defendant-Appellant Cross-Appellee.

Appeals from the United States District Court

for the Western District of Texas

Before CLEMENT, DUNCAN, and OLDHAM, Circuit Judges.

ANDREW S. OLDHAM, Circuit Judge:

This appeal involves a contract dispute that pits MidCap Media Finance,

L.L.C., against Pathway Data, Inc., and Pathway’s CEO, David Coulter. But

we cannot reach the merits because the parties have failed to establish

diversity of citizenship. We remand to allow the district court to consider

additional evidence regarding jurisdiction.

I.

MidCap agreed to loan Pathway up to $1.5 million for online advertising

under the Media Financing, Security and Assignment Agreement (the

“Agreement”). Coulter executed a Guaranty of Repayment (the “Guaranty”)

that personally obligated him to pay MidCap damages in certain

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No. 18-50650

circumstances. When Pathway stopped making the required periodic

payments and refused to repay the outstanding amount—despite receiving a

notice to cure and a default notice—MidCap sued Pathway and Coulter.

Pathway asserted counterclaims and defenses.

After a bench trial, the trial court concluded Pathway breached the

Agreement and awarded damages to MidCap. The trial court, however, found

Coulter was not personally liable for those damages under the Guaranty.

Pathway appealed the trial court’s determination that MidCap did not

materially breach the Agreement. MidCap cross-appealed, contending the

trial court erred in concluding Coulter was not personally liable.

II.

In their opening appellate briefs, the parties agreed the district court

had diversity jurisdiction under 28 U.S.C. § 1332. And they said we have

jurisdiction under 28 U.S.C. § 1291. Notwithstanding the parties’ agreement,

we have an independent obligation to assess our own jurisdiction before

exercising the judicial power of the United States. See, e.g., Ruhrgas AG v.

Marathon Oil Co., 526 U.S. 574, 583 (1999).

When we did so at the outset of this case, we could not find proper

allegations or evidence of the parties’ citizenship. So we asked for and received

supplemental briefs on the issue. We are now convinced the evidence does not

exist in this record.

A.

Because federal courts have limited jurisdiction, parties must make

“clear, distinct, and precise affirmative jurisdictional allegations” in their

pleadings. Getty Oil Corp. v. Ins. Co. of N. Am., 841 F.2d 1254, 1259 (5th Cir.

1988). To properly allege diversity jurisdiction under § 1332, the parties need

to allege “complete diversity.” McLaughlin v. Miss. Power Co., 376 F.3d 344,

353 (5th Cir. 2004) (per curiam). That means “all persons on one side of the

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controversy [must] be citizens of different states than all persons on the other

side.” Ibid. (quotation omitted).

The difference between citizenship and residency is a frequent source of

confusion. For individuals, “citizenship has the same meaning as domicile,”

and “the place of residence is prima facie the domicile.” Stine v. Moore, 213

F.2d 446, 448 (5th Cir. 1954). Nevertheless, “[c]itizenship and residence, as

often declared by this court, are not synonymous terms.” Robertson v. Cease,

97 U.S. 646, 648 (1878). Citizenship requires not only “[r]esidence in fact” but

also “the purpose to make the place of residence one’s home.” Texas v. Florida,

306 U.S. 398, 424 (1939). Therefore, an allegation of residency alone “does not

satisfy the requirement of an allegation of citizenship.” Strain v. Harrelson

Rubber Co., 742 F.2d 888, 889 (5th Cir. 1984) (per curiam).

This distinction is not empty formalism. Take for example the Supreme

Court’s decision in Robertson v. Cease. Robertson was a citizen of Texas. But

the complaint relied on Cease’s residency instead of his citizenship:

[T]here is no allegation as to the citizenship of Cease. The

averment as to him is, that he resides in the county of Mason and

State of Illinois. It is, however, claimed by counsel to be apparent,

or to be fairly inferred from certain documents or papers copied

into the transcript, that Cease was, at the commencement of the

action, a citizen of Illinois.

97 U.S. at 647 (quotation omitted). One of the documents was Cease’s

deposition in which he described his “residence” as “Mason County, Illinois.”

Ibid. The Supreme Court held that was insufficient to prove citizenship,

reversed a final judgment, and ordered a new trial. Id. at 651.

The rules regarding non-natural persons are equally unforgiving. A

corporation is “a citizen of every State and foreign state by which it has been

incorporated and of the State or foreign state where it has its principal place

of business.” 28 U.S.C. § 1332(c)(1). Accordingly, “allegations regarding the

citizenship of a corporation must set out the principal place of business of the

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corporation as well as the state of its incorporation.” Neeley v. Bankers Tr. Co.

of Tex., 757 F.2d 621, 634 n.18 (5th Cir. 1985). In contrast, “the citizenship of

a[n] LLC is determined by the citizenship of all of its members.” Harvey v.

Grey Wolf Drilling Co., 542 F.3d 1077, 1080 (5th Cir. 2008). So, to establish

diversity jurisdiction, a party “must specifically allege the citizenship of every

member of every LLC.” Settlement Funding, L.L.C. v. Rapid Settlements, Ltd.,

851 F.3d 530, 536 (5th Cir. 2017).

The parties in this case failed to properly allege diversity of citizenship.

First, they alleged only that Coulter was a California resident, not that he was

a California citizen. See Robertson, 97 U.S. at 647–48; Strain, 742 F.2d at 889;

Stine, 213 F.2d at 448. Second, because MidCap is an LLC, the pleadings

needed to identify MidCap’s members and allege their citizenship. See Harvey,

542 F.3d at 1080. The parties, however, alleged only that MidCap was

“organized and existing under the laws of the State of Texas and had its

principal place of business” in Texas. They did at least properly allege

Pathway’s place of incorporation (Nevada) and principal place of business

(California). But establishing the citizenship of one party is insufficient to

demonstrate complete diversity under § 1332. See McLaughlin, 376 F.3d at

353.

B.

The parties cannot fix that problem here. True, we can allow parties to

amend defective jurisdictional allegations on appeal under 28 U.S.C. § 1653.

See Molett v. Penrod Drilling Co., 872 F.2d 1221, 1228 (5th Cir. 1989) (per

curiam) (collecting cases). But § 1653 “addresses only incorrect statements

about jurisdiction that actually exists”; it doesn’t provide a mechanism for

parties to remedy “defects in the jurisdictional facts themselves.” Newman-

Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 831 (1989). In other words, § 1653

allows us to “overlook [a party’s] failure to plead diversity if [a party] can

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identify allegations and evidence in the record demonstrating diversity.”

Howery v. Allstate Ins. Co., 243 F.3d 912, 919 (5th Cir. 2001) (emphasis added).

If, on the other hand, “there is no evidence of diversity on the record, we cannot

find diversity jurisdiction, and we must dismiss the action for lack of

jurisdiction.” Id. at 920 (emphasis added).

What should we do if there is some evidence that jurisdiction exists, but

it’s not conclusive? It depends. * “Where . . . jurisdiction is not clear from the

record, but there is some reason to believe that jurisdiction exists, the Court

may remand the case to the district court for amendment of the allegations and

for the record to be supplemented.” Molett, 872 F.2d at 1228. Alternatively,

we have taken judicial notice of jurisdictional facts “not subject to reasonable

dispute” from certain sources such as public filings with state agencies. See

Swindol v. Aurora Flight Sciences Corp., 805 F.3d 516, 519 (5th Cir. 2015)

(quoting FED. R. EVID. 201(b)).

Here we must remand. After we called attention to this issue in our

supplemental briefing order, MidCap insisted that Coulter is a citizen of

California. But underscoring the general confusion over what that term

means, MidCap cites only:

• The original complaint, which alleges Coulter “resides and works in

Riverside County, California”;

• Pathway’s answer and amended answer, which said Coulter “resided

in Riverside County, California and worked in Orange County,

California”;

• Coulter’s testimony at trial, which said “I live in California”;

* Of course, how much evidence is required also depends on the stage of litigation.

Citizenship issues, like every “factual issue necessary to support subject matter jurisdiction[,]

‘must be supported in the same way as any other matter on which the plaintiff bears the

burden of proof, i.e., with the manner and degree of evidence required at the successive stages

of the litigation.’ ” Sharkey v. Quarantillo, 541 F.3d 75, 83 (2d Cir. 2008) (quoting Lujan v.

Defs. of Wildlife, 504 U.S. 555, 561 (1992)).

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• Letters mailed to Coulter’s business office in California—which say

nothing about where he resides, much less where he’s domiciled; and

• Pathway’s admission that Coulter “may be served at his principal

place of business” in California—which again, says nothing about

where he resides much less where he’s domiciled.

Emphases added.

We need not decide whether the parties can cure the Coulter allegations

on appeal because we hold the proof of MidCap’s citizenship fails. MidCap is

an LLC, so we look for the citizenship of its members. It has two. The first is

Jeff Black who, we’re told, is a citizen of Texas. But the only record evidence

MidCap cites to prove that jurisdictional fact is an email signature block that

lists Jeff Black’s position at a different LLC and a Texas address for that LLC.

That’s insufficient.

MidCap’s second member is MidCap Media LLC (“Media”). MidCap cites

a mixture of record evidence and new exhibits containing public tax filings to

trace the membership interests of Media through a variety of still more LLCs

to the ultimate interest owners: Jeff Black and Joe Black. And MidCap asks

us to consider new exhibits attached to its supplemental briefing that include

declarations claiming Jeff and Joe are Texas and Georgia citizens respectively.

We cannot. True, we can take judicial notice of MidCap’s members based

on the public tax filings in its exhibits. See FED. R. EVID. 201; Swindol, 805

F.3d at 519. But we agree with Pathway that it would be improper for us to

consider the Blacks’ declarations. Since at least 1878, the Supreme Court has

prohibited us from receiving jurisdictional evidence on appeal. See Robertson,

97 U.S. at 648 (refusing to consider documents that “clearly do not constitute

any legitimate part of the record” below). Rule 201 does not change that

prohibition. See Bd. of Miss. Levee Comm’rs v. EPA, 674 F.3d 409, 417 n.4 (5th

Cir. 2012) (“[A] party may not avoid the rule against supplementing the record

with a document not before the district court by requesting that the appellate

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court take judicial notice of the document.”). Nor does § 1653; that provision

authorizes us to correct “formal mistakes,” not “to receive new evidence.”

Nadler v. Am. Motors Sales Corp., 764 F.2d 409, 413 (5th Cir. 1985) (quotation

omitted); accord Jebaco, Inc. v. Harrah’s Operating Co., 587 F.3d 314, 323 (5th

Cir. 2009) (explaining that, if the Court granted a motion to amend the

pleadings under § 1653, it would still need to remand so jurisdictional facts

could be established before the district court); Stafford v. Mobil Oil Corp., 945

F.2d 803, 805–06 (5th Cir. 1991) (denying motion to amend under § 1653 where

the defect was not “merely one of form, rather than one of substance,” because

the record below was “insufficient to factually establish diversity jurisdiction”);

Strain, 742 F.2d at 890 & n.2 (remanding a case back to the district court to

determine “whether jurisdictional grounds exist” because “we do not sit to

receive new evidence” and must “conform[ ] to our role as an appellate

tribunal”); cf. Schwarz v. Folloder, 767 F.2d 125, 128 n.2 (5th Cir. 1985)

(rejecting parties’ attempt to attach a new affidavit as an appendix to their

brief as an improper “attempt to introduce new evidence on appeal”).

MidCap says it can establish jurisdiction under Warren v. Bank of

America, 717 F. App’x 474 (5th Cir. 2018) (per curiam), and Burdett v.

Remington Arms Co., 854 F.3d 733 (5th Cir. 2017), because the Blacks’

declarations are undisputed. But the Blacks’ declarations are disputed. In

fact, Pathway filed a motion to strike them because it “has never heard of Joe

Black and has not had an opportunity to investigate, take discovery[,] or

otherwise be in a position to dispute new purported facts presented for the first

time on appeal.” We therefore need not consider whether Burdett or Warren

purported to change our decades-long interpretation that § 1653 does not allow

us to receive new evidence of jurisdictional facts.

We cannot use § 1653 to supplement the record with the Blacks’

declarations regarding their citizenship. Because our jurisdiction remains

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unclear, “but there is some reason to believe that jurisdiction exists,” we

“remand the case to the district court for amendment of the allegations and for

the record to be supplemented.” Molett, 872 F.2d at 1228.

* * *

The state courts have general jurisdiction. Federal ones do not. And the

States’ courthouse doors are open to contract disputes like this one regardless

of the parties’ citizenship. Federal ones are not. Respect for the state system

and the strictly circumscribed nature of federal jurisdiction requires our

unflagging attention to these limits. We expect the same unflagging attention

from litigants who invoke our jurisdiction. We REMAND to the district court

to determine whether it has diversity jurisdiction, and we DENY the pending

motion to strike as MOOT.

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