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Estate of Harris v. Abbott Acquisition Co., LLC

United States District Court, W.D. Pennsylvania

August 22, 2017



          Susan Paradise Baxter Magistrate Judge. [1]

         I. Background

         A. Introduction

         This action arises out of the death of Robert Lance Harris (“Mr. Harris” or “Decedent”), a member of a Pennsylvania limited liability company (“LLC”) named Abbott Acquisitions Company, LLC (“Abbott Acquisitions, LLC”). On September 20, 2016, Mrs. Tracey Harris, the widow of Robert Harris (“Mrs. Harris” or “the widow”), filed the Complaint in the Court of Common Pleas of Elk County, Pennsylvania, on behalf of the Estate of Robert Lance Harris (“the Estate”) in her capacity as the personal representative of the Estate (“Plaintiff”), asserting state law claims against Abbott Acquisitions, LLC and Mr. Edmund Gaffney (“Mr. Gaffney”) (collectively “Defendants”). On October 10, 2016, Defendants removed this matter to federal court on the basis of diversity jurisdiction. (ECF No. 1 at ¶ 8). The Notice of Removal contained averments that: Plaintiff is a citizen of Florida, (ECF No. 1 at ¶ 3); Mr. Gaffney is a citizen of Pennsylvania, (ECF No. 1 at ¶ 4); Mr. Gaffney had not yet been served with the Complaint, (ECF No. 1 at ¶ 2), and Abbott Acquisition, LLC “does not admit that process was properly served on it, and fully reserves all rights to challenge and/or object on the grounds of improper service of process, ” (ECF No. 1 n.1), but not anywhere within averring the citizenship of Abbott Acquisition, LLC. See Lincoln Ben. Life Co. v. AEI Life, LLC, 800 F.3d 99, 108 (3d Cir. 2015)(“Of course, where the unincorporated association is the proponent of diversity jurisdiction, there is no reason to excuse it of its obligation to plead the citizenship of each of its members.”). On October 17, 2016, Defendants filed an Amended Notice of Removal, (ECF No. 4), this time making averments in the body of the amended notice that Abbott Acquisition, LLC at the time of removal had only one member, Mr. Gaffney, who is a citizen of Pennsylvania (ECF No. 4 at ¶ 6), and that because Mr. Gaffney had not been served, Abbott Acquisition, LLC as a result also had not been served with process. (ECF No. 4 at ¶ 9).

         On October 26, 2016, Plaintiff filed its motion to remand the matter pursuant to 28 U.S.C. § 1447(c) for a defect in removal, namely the removal to this Court from a Pennsylvania court by Pennsylvania forum defendants, and for lack of subject matter jurisdiction, as the Complaint contains no federal law claims and Plaintiff contends that complete diversity is lacking. Plaintiff also filed a brief in support of remand. (ECF No. 9). Defendants filed their brief in opposition to remand on November 14, 2016, (ECF No. 11), Plaintiff filed its reply in further support of remand on November 20, 2016, (ECF No. 12), and Defendants filed a sur-reply in opposition to remand with leave. (ECF Nos. 13, 15, 19). On December 2, 2016, Defendants filed a motion to dismiss, (ECF Nos. 16), which the Court stayed on request of Plaintiff pending resolution of the motion to remand. (ECF Nos. 20, 21). The Court also has received documentary evidence submitted by the parties attached to the Notice of Removal, Complaint, and briefs. (ECF Nos. 1-1, 8-2, 8-3, 11-1, 11-2, 12-1). After careful consideration of the parties' submissions, and for the following reasons, Plaintiff's Motion to Remand [ECF No. 8] will be granted.

         B. Facts[2]

         Abbott Acquisition, LLC was formed on October 20, 2014. (ECF No. 1-1, Complaint at ¶ 5). On December 1, 2014, Mr. Harris, a citizen of Florida, and Mr. Gaffney, a citizen of Pennsylvania, entered into the “Limited Liability Company Operating Agreement of Abbott Acquisition Company, LLC, ” (“Operating Agreement”)[3] establishing Abbott Acquisitions, LLC, as a two member Pennsylvania limited liability company with Mr. Harris and Mr. Gaffney each owning as member 50% of the company. (ECF No. 1-1, Complaint at ¶ 6).

         Abbott Acquisitions, LLC was formed under Pennsylvania's Limited Liability Company Law of 1994 (also “LLC Act”), 15 Pa. Cons. Stat. § 8901 et seq., [4] which was modeled after the Prototype Limited Liability Company Act, see 1994 Committee Comment and Source Note to 15 Pa. Cons. Stat. § 8901, and which was in effect at the time of Abbott Acquisition, LLC's organization but subsequently amended. Effective February 21, 2017, Pennsylvania's LLC Act was repealed and replaced by the Pennsylvania Uniform Limited Liability Company Act of 2016 (“new LLC Act”), 15 Pa. Cons. Stat. § 8811, et. seq., which is modeled, in part, after the Uniform Limited Liability Company Act (2006). Section 8811, 15 Pa. Cons. Stat., of Pennsylvania's new LLC Act provides that prior to April 1, 2017 the new act governs LLCs formed on or after February 21, 2017, and an LLC formed prior to February 21, 2017 that elects to be subject to it. 15 Pa. Cons. Stat. § 8811(b). It also provides that on and after April 1, 2017, the new act governs all LLCs. 15 Pa. Cons. Stat. § 8811(c).[5]

         The Operating Agreement executed by Mr. Harris and Mr. Gaffney provides in relevant part:

         SECTION 4


The Company shall continue until terminated pursuant to Section 11 of this Agreement or as otherwise required to be terminated pursuant to the Act. . . .

         SECTION 5


5.3 Admission of Members. In the event any additional Members are admitted to the Company, the Interests in the Company of the most recently admitted Member shall be as specified at the time such new Member(s) shall be admitted and the Interests in the Company of all other Members of Company shall be proportionately reduced. The foregoing shall not apply to any substituted Member who is the transferee of an Interest.

         SECTION 8


8.1 General Management. Management and control of the operations of the Company and all decisions with respect to the Company's affairs shall rest exclusively with the Members. . . If any Interests are transferred, the transferee shall become a Member with a voting Interest in the Company to the extent of the Interests so transferred.
8.4 Standard of Care of Members. The Members shall have a fiduciary responsibility for the safekeeping and use of all cash and property of the company. The Members shall not employ such cash or property in any manner except as permitted under this Agreement and the Act. The Members shall carry out their duties and exercise their powers hereunder in good faith and in a manner reasonably believed by the Members to be in the best interests of the Company and its Members. No Member shall be liable to the Company or any Member for any matter or item, unless such matter or item is attributable to gross negligence, willful misconduct or fraud on the part of such Member. The Members may consult with legal counsel or accountants selected by them, and no Member shall be liable to the Company or a Member for any act or omission suffered or taken by such Member in accordance with the opinion or advice of such counsel or accountants.

         SECTION 11


11.1 General Restriction on Transfers. Except as and to the extent expressly permitted in this Section 11, each Member agrees that, during such Member's lifetime or upon or after his or her death, such Member or his or her personal representative will not transfer, sell, convey, assign, dispose, distribute, encumber, pledge, mortgage, hypothecate or gift (“Transfer”) all or any portion of such Member's Interest in the Company, which such Member now owns or may hereafter acquire, except that a Member may Transfer all or any portion of his or her Interest in the Company to any other Member upon written notice given to the other Members on or before the effective date of the Transfer.
11.2 Life Insurance. As soon as practicable after closing, the Company shall maintain life insurance policies on each of the Members in an amount agreed upon by the Members. Each Member hereby agrees to cooperate fully by performing all the requirements of the life insurer which are necessary conditions precedent to the issuance of life insurance policies.
11.3 Death of a Member. In the event of the death of a Member, the deceased Member's personal representative or the trustee (“Trustee”) of any trust for the deceased Member which is included in the deceased Members' gross estate for Federal estate tax purposes shall be deemed to have offered to sell to the Company, and the Company shall be required to purchase from such personal representative or Trustee, all and not less than all of the deceased Member's Interest in the Company. The purchase price for such Interest in the Company shall be the greater of: (i) the proceeds from the life insurance policy of such Member, or (ii) the Equity Value of such Interest which shall be calculated in accordance with the following formula: Equity Value shall equal: (A) (i) Member's Percentage Interest, times (ii) the EBITDA of the Company for the most recent trailing twelve month period immediately prior to the date of death of the Member, times (iii) 3.0, minus (B) all outstanding indebtedness of the Company as of the date of death of the Member.
11.4 Violation. Any purported or attempted Transfer of an Interest in the Company that is not in compliance with this Agreement shall be null and void.

         SECTION 14


14.2 Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Pennsylvania, without regard to conflicts of laws principles.
14.5 Successors and Assigns. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective administrators, executors, legal representatives, heirs, successors, and assigns.

(ECF No. 1-1 at 11) (emphasis added).

         Operating Agreement § 11.2 provides that Abbott Acquisitions, LLC, would maintain life insurance policies on both of its members “in an amount agreed upon by the Members” and required the Members to cooperate in obtaining the policies. According to the Complaint and as expressly contemplated by § 11.2, Mr. Harris and Mr. Gaffney agreed to the purchase by Abbott Acquisitions, LLC, of “key man” life insurance policies insuring against their death in the amount of $5, 000, 000.00 each. (ECF No. 1-1, Complaint at ¶ 9). Abbott Acquisitions, LLC, however, only purchased such a policy in the amount of $5, 000, 000.00 insuring the life of Mr. Gaffney, but did not purchase a similar life insurance policy regarding Mr. Harris. (ECF No. 1-1, Complaint at ¶ 10).

         Mr. Harris, who was a citizen of Florida, died on July 2, 2016. (ECF No. 1-1, Complaint at ¶ 11). Abbott Acquisitions, LLC and Mr. Gaffney thereafter demanded that Mr. Harris' member interest in the LLC be sold to Abbott Acquisitions, LLC pursuant to Operating Agreement § 11.3. (ECF No. 1-1, Complaint at ¶ 11).

         Subsequently, on August 1, 2016, letters of administration were issued to Tracey D. Harris solely in her capacity as duly authorized Personal Representative of the Estate of Robert Lance Harris by the Circuit Court of the 18th Judicial Circuit in and for Seminole County, Florida. (ECF No. 8-3). Plaintiff, the personal representative of the Estate, through correspondence dated August 3, 2016, just two days after the letters of administration issued, specifically indicated to Mr. Gaffney and Abbott Acquisition, LLC that based on Abbott Acquisition, LLC's failure to maintain key man life insurance on Mr. Harris as required by Operating Agreement § 11.2, and other unspecified material breaches of the Operating Agreement, § 11.3 was not operative and any “deemed” sale by the Estate to Abbott Acquisitions, LLC could not be rightfully demanded under § 11.3. (ECF No. 1-1, Complaint at ¶ 12; 12-1).

         Correspondence on August 12, 2016 and August 30, 2016 from Unum Life Insurance Company of America, Group Life/Special Risk Benefits, to Tracey Harris, widow, and copied to Abbott Furnace Company, Inc. (“Abbott Furnace, Inc.”), [6] indicated that the widow as beneficiary of an employee Group Life Insurance policy with Abbott Furnace, Inc., for whom Mr. Harris apparently worked, would receive payment of the $20, 000.00 Group Life Insurance benefits by check to her. (ECF No. 11-2 at 17, 19). It appears that Abbott Furnace, Inc., as opposed to Abbott Acquisitions, LLC, additionally made two wire transfers totaling $20, 000.00 into the account of the widow (as opposed to the account of the Estate of Robert L. Harris or to Tracey Harris Personal Representative of the Estate of Robert L. Harris): one dated July 25, 2016 for $6, 500.00, prior to issuance of any letters of administration to Tracey Harris to act as personal representative of the Estate; and one dated September 8, 2916 for $13, 500.00. (ECF No. 11-2 at 22).

         By correspondence dated September 7, 2016, Defendants' counsel indicated to Plaintiff's counsel that payment was being made via wire that date to the Estate of Mr. Harris care of Tracey Harris in the amount $13, 500.00 and that the amount of $6, 500.00 had previously been paid to Mrs. Harris and that together those payments comprised “the full amount due and owing in consideration of the purchase of all of Mr. Harris's [sic] Interest in Abbott pursuant to Section 11.3 of the Operating Agreement.” (ECF No. 11-2 at 24). There is nothing in the record, however, to suggest that the wire transfer actually was made to the account of the Estate or that Plaintiff ever had given the Estate's bank account or wire information such that these wired payments to the widow were actually any payments to the Estate as contemplated by § 11.3 of the Operating Agreement. Indeed, the letters of administration had not even issued to Plaintiff until after the first wire transfer was made. Additionally, the correspondence unilaterally attempts, but may not have done so successfully in light of the present dispute, to cast as a fait accompli a deemed sale, stating that:

[t]he amount of $20, 000[7] (which is the sum total of the proceeds of the life insurance policy of Mr. Harris) is the amount of the purchase price for the Interest of Mr. Harris as dictated by Section 11.3 of the Operating agreement, and today's payment executes and completes Abbott's purchase of Mr. Harris' Interest in Abbott.

(ECF No. 11-2 at 24). The Court recognizes that it is Defendant Abbott Acquisitions, LLC, of which Mr. Harris was a member, and not Abbott Furnace, Inc. or some other unspecified Abbott entity, that the Operating Agreement dictates as the entity to make the purchase and ultimately required payment, if any, necessary to complete the transaction under § 11.3, assuming the requirements § 11.4 did not operate to render any transfer null and void.

         In sum, the record of payments provided by Defendants shows payment to the widow and not to the Estate or Tracey Harris in her capacity as Personal Representative of the Estate; shows payment from Abbott Furnace, Inc. and not from Abbott Acquisitions LLC; and shows that $20, 000.00 was an amount of benefits payable from a group insurance policy from Abbott Furnace, Inc. insuring the life of Mr. Harris with the widow as beneficiary not an amount of a key man policy owned by Abbott Acquisitions, LLC. Thus, the payments by wire transfer on the present record do not appear on the Court's initial review to meet the requirements of Operating Agreement §§ 11.2 and 11.3, leaving Mr. Harris' Membership interest and the nature of that interest remaining in play for jurisdictional purposes.[8]

         II. Standard

         A. Removal and Remand

         Pursuant to 28 U.S.C. § 1332(a),

[a] civil action brought in state court may be removed by the defendant to federal district court if the federal court would have had original jurisdiction over the claim. 28 U.S.C. § 1441(a). Diversity of citizenship subject matter jurisdiction falls within the original jurisdiction of the district court, pursuant to § 1332(a) of Title 28 of the United States Code.

Johnson v. SmithKline Beecham Corp., 724 F.3d 337, 346 (3d Cir. 2013)(internal citations and quotations omitted). The removal ...

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