CollegeStreet Import & Export Co. Ltd. v. XL x HF LLC

Background

This was a breach-of-contract action removed from Alameda County Superior Court to the U.S. District Court for the Northern District of California. On August 10, 2023, the court ordered the defendants to show cause—meaning to explain—why the action should not be remanded to state court for lack of subject-matter jurisdiction.

The court had identified problems with the defendants’ notice of removal. The notice did not allege facts about the membership or citizenship of the limited liability company parties. For diversity jurisdiction, a limited liability company is a citizen of every state where its owners or members are citizens. Federal diversity jurisdiction also requires complete diversity between the opposing parties.

The court had further observed that the complaint and other filings appeared to show that CollegeStreet, or its sole owner Jin Zhang, had been a member of Loyalist, LLC since 2019. If a plaintiff is a member of a defendant limited liability company, the court explained, complete diversity cannot exist.

Defendants’ response

In their one-page response, defendants did not address the apparent lack of complete diversity or dispute that CollegeStreet had been a member of Loyalist, LLC before the case was filed and removed. They instead asserted that they believed their notice of removal contained sufficient jurisdictional allegations. They also stated that they did not otherwise oppose remand if the court determined that subject-matter jurisdiction was lacking.

The court rejected the idea that CollegeStreet’s failure to challenge the removal affected the jurisdictional issue. It stated that defects in subject-matter jurisdiction may be raised at any time by the parties or by the court and cannot be waived.

Ruling

The court concluded that the record demonstrated that complete diversity was lacking. It held that the federal court therefore lacked subject-matter jurisdiction and that remand was required under 28 U.S.C. § 1447(c).

The Clerk of Court was directed to remand the action to Alameda County Superior Court for further proceedings. CollegeStreet’s pending motion for a writ of attachment and defendants’ pending motion to dismiss were terminated as moot. Judge Alex G. Tse signed the order.