United States District Court, E.D. Kentucky, Central Division, Frankfort
COMMONWEALTH OF KENTUCKY ex rel. J. Michael Brown, Secretary, JUSTICE AND PUBLIC SAFETY CABINET, Plaintiff,
POCKET KINGS, LTD, et al., Defendants.
MEMORANDUM OPINION & ORDER
GREGORY F. VAN TATENHOVE, District Judge.
The Commonwealth of Kentucky originally brought this action in State Court against various companies who run, or did run, internet-based gambling websites inside the Commonwealth. Having already, in a wholly unrelated action, seized the internet domains used by these companies, the Commonwealth now seeks to recover gambling losses pursuant to KRS 372.040, an old statute designed to provide compensation for gambling losses.
Now, the Commonwealth wants the case remanded to Franklin Circuit Court. [R. 7.] It argues that the removal is "absurd" and nothing more than a delay tactic aimed at avoiding an inevitable judgment in State Court. Not at all, say the Defendants, contending that diversity of citizenship exists because J. Michael Brown, in his individual capacity, as opposed to the Commonwealth of Kentucky, is the real party in interest. For the reasons explained herein, the case will be REMANDED.
On April 10, 2014, Defendant Oldford Group, Ltd. removed this action from Franklin Circuit Court to Federal Court. [R. 1.] Their notice of removal contained the following statement pertaining to diversity jurisdiction:
The Secretary, acting through his private attorneys, is (and was at all relevant times hereto) a citizen of the Commonwealth of Kentucky. The Commonwealth of Kentucky, itself, is not a real party in interest in this case, but rather a nominal party in this action, as the Secretary and his Cabinet acted autonomously in bringing this action through hired contingency lawyers without the authority of the state Attorney General. See Ex. 1, TAC at ¶ 2 (purporting to bring action on behalf of Kentucky citizens). As such, the Secretary, acting through his private lawyers, is a citizen of the Commonwealth of Kentucky for diversity jurisdiction purposes.
[R. 1 at 4-5.] On April 16, the Commonwealth of Kentucky, ex rel. J. Michael Brown, Secretary, Justice and Public Safety Cabinet, moved to remand. [R. 7.] This motion has been fully briefed [R. 18, 23, 30, 31] and the Court heard arguments on the motion [R. 26]. Oldford has since moved the Court to strike the Commonwealth's final Sur-Reply or, in the alternative, to be granted leave to file an additional Response. [R. 32.] The Court considers all the filings before it and needs no additional briefing.
The pending motion to remand hinges on one issue: whether the Commonwealth of Kentucky or Secretary J. Michael Brown, in his personal capacity, is the real party in interest to this suit. If the Commonwealth is the real party in interest then the Court has no jurisdiction, and the case must be remanded because "[t]he Commonwealth, as a state, is not a citizen for the purposes of diversity jurisdiction under 28 U.S.C. § 1332." Espinosa v. Louisville Metro Gov't, 2011 WL 588468, at *1 (E.D. Ky. Feb. 10, 2011) ( citing Moor v. Alameda County, 411 U.S. 693, 716 (1973)). If, however, Secretary Brown is the real-party-in-interest, and the Commonwealth is only a nominal party, then this Court would potentially have diversity jurisdiction. Defendants argue that Secretary Brown must be the real party in interest because, as they see it, Kentucky's gambling loss statute only permits individual citizens to sue. The Commonwealth ardently disagrees.
A defendant may remove a civil action to federal court only if the action is one over which the federal court could have exercised original jurisdiction. See 28 U.S.C. §§ 1441, 1446. This Court has original "diversity" jurisdiction over all civil actions when "the matter in controversy exceeds the sum or value of $75, 000, exclusive of interest and costs, and the dispute is between" parties who are "citizens of different states." See 28 U.S.C. § 1332(a)(1). Importantly, "a State is not a citizen' for purposes of the diversity jurisdiction." Moor, 411 U.S. at 716; see also Espinosa, 2011 WL 588468 at, *1 ("The Commonwealth, as a state, is not a citizen for the purposes of diversity jurisdiction under 28 U.S.C. § 1332.")
When removal is based on diversity, "[a] defendant desiring to remove a case has the burden of proving the diversity requirements' by a preponderance of the evidence." Everett v. Verizon Wireless, Inc., 460 F.3d 818, 829 (6th Cir. 2006) (quotation omitted); see also Fenger v. Idexx Laboratories, 194 F.Supp.2d 601, 602 (E.D.Ky. 2002) (citations omitted). Finally, because Federal Courts are courts of limited jurisdiction, any doubts regarding federal jurisdiction should be construed in favor of remanding the case to state court. Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-109 (1941); Cole v. Great Atlantic & Pacific Tea Co., 728 F.Supp. 1305, 1307 (E.D.Ky. 1990) (citations omitted).
It has long been the rule that the parties "upon whose diversity a plaintiff grounds jurisdiction must be real and substantial parties to the controversy." Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 460-61 (1980) (citations omitted). This command mandates that "federal court[s] must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy." Id. (citations omitted).
"When a state official is a party to a proceeding over which diversity jurisdiction is alleged, whether the respective state is itself the real party in interest is a question to be determined from the essential nature and effect of the proceeding." Com. ex rel. Stumbo v. Marathon Petroleum Co., LLC, 2007 WL 2900461, at *1 (E.D. Ky. Oct. 3, 2007) (quoting Nuclear Engineering Co. v. Scott, 660 F.2d 241, 250 (7th Cir.1981) (citation and quotations omitted)). To this end, the Court has an obligation to look beyond the pleadings to determine who is the real-party-in-interest. See Grant Cnty. Deposit Bank v. McCampbell, 194 ...