Squarex Pharmaceutical Corporation v. Spartan Capital Securities LLC

Background

Squarex Pharmaceutical Corporation, formerly known as Squarex LLC, filed this case against Spartan Capital Securities LLC. Squarex’s complaint alleged that the court had diversity jurisdiction under 28 U.S.C. § 1332. Diversity jurisdiction is federal-court authority based generally on the parties being citizens of different states and the amount in controversy exceeding $75,000.

The complaint stated that Squarex was incorporated in Delaware and had a “corporate home” in Minnesota. It did not identify the citizenship of Spartan Capital Securities’ members. Because a limited liability company’s citizenship depends on the citizenship of all of its members, the court ordered Squarex to explain why the case should not be dismissed for lack of subject-matter jurisdiction.

Squarex responded that a search of public records showed Spartan Capital Securities was “75% or more” owned by Spartan Capital Holdings, LLC. Squarex further stated that Spartan Capital Holdings was wholly and solely owned and operated by John D. Lowry, whom Squarex identified as a New York citizen. Squarex asked the court either to find that subject-matter jurisdiction existed or to allow discovery concerning jurisdiction.

Court’s Analysis

The court explained that it may allow jurisdictional discovery—discovery limited to facts needed to determine whether the court has jurisdiction—when a plaintiff makes a threshold showing of a possible basis for jurisdiction. The court considered the facts in the light most favorable to Squarex for purposes of the motion and found that Squarex had made a sufficient start toward establishing that jurisdiction might exist.

The court stated that if discovery showed that all members of Spartan Capital Securities were citizens of states different from Squarex, diversity jurisdiction would exist. The court also emphasized that the permitted discovery had to be relevant and proportional to the needs of the case.

Order

The court ordered that Squarex may take discovery from Spartan Capital Securities concerning the citizenship of its members. Squarex must update the court by September 2, 2025, about the results of the discovery and state whether it intends to amend the operative complaint. The order did not determine whether the court ultimately has subject-matter jurisdiction, and it did not rule on the motion for default judgment.