Locust Group, LLC v. JMBT Live, Inc.

Background

Locust Group, LLC sued JMBT Live, Inc., Michael Russell, and unidentified defendants. The complaint alleged fraud against all defendants and breach of fiduciary duty against Russell individually. Locust Group asserted that the court had diversity jurisdiction, which allows a federal court to hear certain state-law disputes between citizens of different states when more than $75,000 is at stake.

According to the complaint, JMBT solicited seed financing for its social media and entertainment platform, Tilt. Locust Group agreed to lend JMBT $560,000 and later converted the principal and interest into 1,075,561 shares of JMBT. Russell then sent shareholders emails stating that JMBT had secured or was pursuing contracts with celebrities. Locust Group alleged, on information and belief, that some statements about the negotiations were false, but it did not identify the specific false statements or the consequences of those alleged misrepresentations.

The Motion and Jurisdictional Ruling

The defendants moved to dismiss the complaint in its entirety for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) and on forum non conveniens grounds. The court instead dismissed the complaint under Rule 12(b)(1) for lack of subject matter jurisdiction.

The court found that Locust Group adequately pleaded that the parties were citizens of different states. But it held that Locust Group did not plead facts plausibly showing that the amount in controversy exceeded $75,000. The complaint said that Locust Group suffered damages of at least $75,000, but gave no factual explanation for that calculation. It did not allege out-of-pocket losses, that the investment lost value because of the alleged misrepresentations, that Locust Group took or failed to take action because of them, or another specific material harm.

Disposition

The court dismissed the complaint in its entirety for lack of subject matter jurisdiction. It granted Locust Group leave to file a motion to amend, together with a proposed amended complaint and a redline comparing it with the original complaint. The proposed amendment must address the jurisdictional requirements discussed in the order. If Locust Group did not file that motion within 21 days after entry of the order, the action would be dismissed for lack of subject matter jurisdiction without further advance notice and without prejudice to pursuing the claims in a court of competent jurisdiction. The order resolved docket entry 22.