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Hiren Patel v. Sharon K. Smith

March 28, 2012


The opinion of the court was delivered by: Pollak, J.


Presently before the court is a motion filed by the defendants on July 29, 2011, for sanctions against the plaintiff and plaintiff's counsel (Docket No. 17). The motion, brought under Rule 11 of the Federal Rules of Civil Procedure, claims that the plaintiff's counsel failed to conduct reasonable pre-filing investigation into the citizenship of the parties for jurisdictional purposes. For the reasons that follow, the motion will be denied.

Plaintiff Hiren Patel commenced this action by filing a complaint in federal court against Sharon K. Smith, Nicole Johnson, and SJ Subs LLC on August 18, 2010 (Docket No. 1). The complaint concerned a soured business transaction in which Smith and Johnson allegedly agreed to transfer to Patel an exclusive contract to serve as a regional overseer ("Development Agent") for Subway restaurant franchises in southern New Jersey. Transfer of the contract was contingent on Subway's approval, which was denied.

The complaint alleged, in substance, that Patel was induced by Smith and Johnson to pay a non-refundable deposit shortly before Subway denied the proposed transfer. The complaint further alleged that Patel had been induced by Smith and Johnson to purchase from them (and from SJ Subs LLC, an entity they controlled) several New Jersey Subway franchises in an effort to make himself a more attractive candidate for transfer of the Development Agent contract, and that Smith and Johnson had interfered with Patel's efforts to sell the New Jersey franchises after Subway denied the proposed transfer.

The complaint contained seven claims for relief. Four counts sounded in state law: conversion; fraud; civil conspiracy; and tortious interference with business relations. Three counts sounded in federal law: restraint of trade, 15 U.S.C. § 1; civil racketeering (RICO), 18 U.S.C. § 1962(c); and securities fraud, 18 U.S.C. § 1343.

Paragraph five of Patel's complaint asserted that the latter three counts conferred federal-question jurisdiction, 28 U.S.C. § 1331, and that the state-law claims could be heard in pendent or supplemental jurisdiction. However, the complaint also alleged that jurisdiction was proper based on the diversity of citizenship of the parties and the amount in controversy. Id. § 1332(a). The citizenship of the parties was not alleged in express terms. The complaint referred, instead, only to the principal place of business of each of the parties: Patel in Pennsylvania; Smith, Johnson, and SJ Subs LLC in New Jersey.

On October 15, 2010, the defendants moved to dismiss the complaint for lack of subject-matter jurisdiction, Fed. R. Civ. P. 12(b)(1), and for failure to state a claim, Fed. R. Civ. P. 12(b)(6) (Docket No. 4). Patel opposed that motion on November 1, 2010 (Docket No. 6). In pertinent part, Patel argued that diversity jurisdiction was proper because "Patel is from Pennsylvania" and "[t]he Defendants are two individuals and a limited liability company, each from New Jersey." Those statements were supported by citations to paragraphs in the complaint alleging the "principal place of business" of each of the parties.

I granted the defendants' motion and dismissed the complaint by order and accompanying memorandum, dated July 11, 2011 (Docket Nos. 15, 16). All three federal claims were dismissed pursuant to Rule 12(b)(6) for failure to state a claim. Count 3 of the complaint, asserting a violation of 18 U.S.C. § 1343, was dismissed with prejudice, since there is no recognized private right of action to recover for violations of § 1343; the other two federal counts were dismissed without prejudice. Having dismissed the federal claims, I declined to exercise supplemental jurisdiction over the remaining state-law claims. 28 U.S.C. § 1367(c).

In the memorandum, I also explained that 28 U.S.C. § 1332(a) was not available as an alternate source of jurisdiction to hear the state-law claims, because the complaint failed to allege the citizenship of Patel, Smith, or Johnson. Allegations concerning the "principal place of business" of a natural person are insufficient. The citizenship of a natural person is determined by domicile. See, e.g., Walls v. Ahmed, 832 F. Supp. 940, 942 (E.D. Pa. 1993). Patel was given leave to amend the complaint to correct the defect.

Patel did not submit an amended federal complaint. Instead, in a letter dated July 22, 2011, Patel notified the court of the absence of diversity jurisdiction (Docket No. 18, docketed Aug. 8, 2011). The letter, from the plaintiff's counsel, Marc A. Zaid, stated:

I have reviewed Your Honor's Memorandum and Order, each dated July 11, 2011, and also conducted additional research into the residence addresses for the named individual Defendants. That research reveals the absence of diversity jurisdiction effective as of the date when this case had been commenced.

Accordingly, Plaintiff will not be filing an amended complaint in this case. Instead, Plaintiff intends to transfer the matter to the appropriate state court forum. I have communicated with the Office of the Clerk of Court for [the] United States District Court for the Eastern District of Pennsylvania for guidance to obtain the requisite certified transcript and pleadings in order to accomplish such transfer.

No order transferring or remanding the case was ever sought or entered in these federal proceedings.*fn1

On July 29, 2011, the defendants moved for Rule 11 sanctions against both the plaintiff, Patel, and the plaintiff's counsel, Zaid (Docket No. 17). The defendants' motion argues that the complaint's defective jurisdictional allegation could have been avoided had the plaintiff's counsel ...

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