Kanaan v. Yaqub

Background

Nabih Kanaan alleged that he and Nizar Yaqub were the sole members of The Inn at Del Monte Beach, LLC. Kanaan claimed that Yaqub engaged in fraud and other misconduct to squeeze him out of the company and convert his ownership interest. Kanaan’s first amended complaint asserted state-law claims against Yaqub and the LLC for breach of fiduciary duty, breach of contract, breach of the implied covenant of good faith and fair dealing, violation of California Business and Professions Code section 17200, declaratory and injunctive relief, and fraudulent concealment.

Kanaan relied on diversity jurisdiction, which generally requires that no plaintiff share state citizenship with any defendant.

Jurisdictional Dispute

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(1) for lack of subject-matter jurisdiction. They argued that complete diversity was absent because Kanaan alleged that he was an Illinois citizen and a member of the LLC. For diversity purposes, an LLC is a citizen of every state where its members are citizens. The court therefore concluded that Kanaan and the LLC shared Illinois citizenship when the case was filed.

While responding to the motion, Kanaan voluntarily dismissed the LLC under Rule 41(a)(1)(A)(i). The remaining parties were Kanaan, whom the complaint identified as an Illinois citizen, and Yaqub, whom it identified as a California citizen. Kanaan argued that the motion had become moot, and Yaqub did not file a reply.

Court’s Analysis

The court explained that, although subject-matter jurisdiction ordinarily is determined when a case begins, a court may cure a diversity defect by dismissing a nondiverse party if that party is dispensable, meaning not essential to the case. Rule 21 permits a court to add or remove a party at any time on just terms.

The court determined that the LLC was not indispensable to Kanaan’s claims against Yaqub based on Yaqub’s alleged misconduct, including the claims for breach of fiduciary duty, breach of contract, and fraudulent concealment. The LLC’s voluntary dismissal therefore cured the jurisdictional defect that existed when the action was filed.

Disposition

The court denied the motion to dismiss for lack of subject-matter jurisdiction. It also vacated the hearing previously scheduled for January 5, 2023 and terminated the motion docketed as ECF 41.