E & T Skyline Construction, LLC v. Talisman Casualty Insurance Company, LLC

Background

E & T Skyline Construction, LLC, a general contractor, sued Talisman Casualty Insurance Company, LLC, under diversity jurisdiction to enforce a performance bond. The bond covered NY Renaissance Corp.’s work as a subcontractor on a condominium construction project. The bond required Talisman to guarantee completion of NY Renaissance’s work if NY Renaissance defaulted or materially breached the subcontract.

E & T Skyline alleged that NY Renaissance missed deadlines, failed to provide progress documents, did not supply enough properly skilled workers, failed to pay material suppliers and contractors, and refused to deliver materials to the job site. After giving notice and an opportunity to cure, E & T Skyline terminated the subcontract, notified Talisman of the alleged default, and demanded that Talisman correct and complete the work. Talisman refused, and E & T Skyline alleged that it incurred expenses completing and correcting the work.

Motions and Report

Talisman filed two motions to dismiss. Under Rule 12(b)(1), it argued that the court lacked subject-matter jurisdiction because Talisman was a stateless limited liability company or, alternatively, because its insured participants should be treated as members whose citizenship would defeat diversity jurisdiction. Under Rule 12(b)(7), Talisman argued that NY Renaissance, Centennial Commercial Finance Group, and 31st Street ZEF, LLC were required parties under Rule 19.

The magistrate judge recommended denying the Rule 12(b)(1) motion without prejudice and allowing discovery about Talisman’s corporate structure and membership when the complaint was filed. The recommendation also concluded that Talisman’s insured participants were not members for purposes of the alternative argument. The magistrate judge recommended denying the Rule 12(b)(7) motion because NY Renaissance was not a required party and, although 31st Street ZEF and Centennial were required parties, joining them was feasible.

District Court’s Analysis

Judge Torres reviewed the magistrate judge’s recommendation. The court treated Talisman’s objections about its allegedly stateless status as general objections or repetitions of arguments already made, so it reviewed that portion for clear error. The court found no clear error in allowing jurisdictional discovery. It also declined to consider operating agreements that Talisman submitted for the first time with its objections, because new arguments and factual material generally cannot be raised for the first time at that stage.

The court therefore ordered the parties to conduct jurisdictional discovery about Talisman’s corporate structure and membership when the complaint was filed. Because that discovery remained necessary, the court did not decide Talisman’s alternative argument about its insured participants. The court denied Talisman’s Rule 12(b)(1) motion without prejudice.

As to required parties, the court found Talisman’s objections unpersuasive and found no clear error in the recommendation. The court agreed that NY Renaissance’s practical interest as the subcontractor was not enough to make it a required party. The court also rejected Talisman’s arguments concerning the recommendation’s treatment of Centennial and the other party-joinder issues, including arguments that merely repeated points previously made. The court denied Talisman’s Rule 12(b)(7) motion.

Disposition

The court overruled Talisman’s objections and adopted the magistrate judge’s Report and Recommendation in full. Talisman’s Rule 12(b)(1) motion to dismiss was DENIED without prejudice. Talisman’s Rule 12(b)(7) motion to dismiss was DENIED. The Clerk of Court was directed to terminate the motions at ECF Nos. 18 and 40.