21-1775 Scripts Wholesale, Inc. v. Mainspring Distrib. LLC

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 17th day of May, two thousand twenty-two.

PRESENT: RICHARD J. SULLIVAN, EUNICE C. LEE, MYRNA PÉREZ, Circuit Judges. _____________________________________ SCRIPTS WHOLESALE, INC., LIEB PHARMACY, INC., Plaintiffs-Appellants, v. No. 21-1775 MAINSPRING DISTRIBUTION LLC, EDVIN OVASAPYAN,

Defendants-Appellees. _____________________________________ For Appellants: Michael Korsinsky and Marc Illish, Korsinsky & Klein, LLP, Brooklyn, NY. For Appellees: Jason Canales, Canales PLLC, Southold, NY.

Appeal from a judgment of the United States District Court for the Eastern

District of New York (Dora L. Irizarry, Judge).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,

ADJUDGED, AND DECREED that the district court’s judgment is REVERSED

and the case is REMANDED.

Plaintiffs-Appellants Scripts Wholesale, Inc. (“Scripts”) and Lieb Pharmacy,

Inc. (“Lieb Pharmacy”) appeal from an order entered on July 13, 2021, in the

United States District for the Eastern District of New York, dismissing their action

with prejudice for lack of subject matter jurisdiction. Where a district court

dismisses an action for lack of subject matter jurisdiction, “we review factual

findings for clear error and legal conclusions de novo.” Morrison v. Nat’l Australia

Bank Ltd.,

(2d Cir. 2008). We assume the parties’ familiarity with

the underlying facts, procedural history, and issues on appeal.

Scripts commenced this action on November 19, 2018, against

Defendants-Appellees Mainspring Distribution LLC (“Mainspring”) and Edvin

2 Ovasapyan, asserting breach of contract and other state-law claims. 1 The amended

complaint invoked diversity jurisdiction under

, alleging that

complete diversity between the parties existed because both Scripts and Lieb

Pharmacy (which had been added as a plaintiff) are New York corporations with

their principal places of business in New York, while Mainspring is a Pennsylvania

limited liability company with its principal place of business in Pennsylvania, and

Edvin is a resident of California. In their answers to the amended complaint,

Defendants did not contest diversity jurisdiction, acknowledging that “no plaintiff

appears to be a citizen of the same state as any defendant.” App’x at 39, 48.

After the close of discovery, however, the district court sua sponte raised

concerns that it lacked subject matter jurisdiction over the action because Plaintiffs

had not alleged the citizenship of each member of Mainspring. 2 The district court

therefore ordered Mainspring to file an affidavit attesting to the citizenship of each

of its members. In response, Defendants submitted an affidavit stating that

Mainspring had only two members: Vahe Ovasapyan and Ria Phillips. Phillips

1To avoid confusion, the Court will refer to brothers Edvin Ovasapyan (a named defendant) and Vahe Ovasapyan (a member of Mainspring) by their first names. 2 For purposes of determining diversity jurisdiction, a limited liability company “takes the citizenship of each of its members.” Bayerische Landesbank, N.Y. Branch v. Aladdin Cap. Mgmt. LLC,

(2d Cir. 2012). 3 was a Pennsylvania citizen. But Defendants averred that Vahe was a citizen of

New York, which, if true, would destroy complete diversity.

Plaintiffs argued that Vahe was in fact a citizen of Pennsylvania and

requested limited discovery into that issue, which the district court granted.

Plaintiffs thus focused their discovery on the citizenship of Vahe – the only person

whose citizenship was then in dispute – and obtained evidence that, soon before

the filing of the complaint, Vahe had purchased a house in Pennsylvania and

obtained a Pennsylvania driver’s license. Following the close of jurisdictional

discovery, however, the district court sua sponte raised a new issue unrelated to

Vahe’s citizenship and directed Plaintiffs to set forth “the citizenship, as opposed

to the residence, of Defendant Edvin Ovasapyan.” 3 Id. at 10 (first emphasis in

original; second emphasis added).

In response, Plaintiffs provided the following evidence in support of

Edvin’s California citizenship: (1) a criminal indictment filed against Edvin in the

Northern District of California on November 1, 2018 – a couple weeks before this

complaint was filed – confirming Edvin’s residency in California; and (2) a

3Given Defendants’ equivocal statements and nondenials about Edvin’s citizenship, the district court might have resolved the issue by directing Edvin to submit an affidavit, under penalty of perjury, indicating where he was domiciled at the time the complaint was filed. See, e.g., Canedy v. Liberty Mut. Ins. Co.,

(2d Cir. 1997) (ordering the parties “to submit additional affidavits regarding the plaintiff’s domicile and the defendant’s state of incorporation”). 4 declaration submitted by Edvin in a separate civil matter in which he had stated

that on April 10, 2019 – less than five months after this complaint was filed – he

was a citizen of California. 4 Plaintiffs also provided their newly obtained evidence

that Vahe was a citizen of Pennsylvania. In their response to Plaintiffs’

submission, Defendants contested only Vahe’s citizenship; as to Edvin, they

merely stated that he “was not a citizen of the State of New York” and that

Plaintiffs had not “appropriately alleg[ed]” Edvin’s citizenship. Id. at 419.

The district court concluded that Plaintiffs had presented sufficient evidence

that, as of the date this action commenced, Vahe was a citizen of Pennsylvania and

therefore Plaintiffs were completely diverse from Mainspring. Nevertheless, it

dismissed the complaint for lack of subject matter jurisdiction because, in its view,

Plaintiffs had failed to establish Edvin’s citizenship. The district court noted that

the amended complaint alleged only that Edvin was a resident – but not a citizen

– of California, and that the other documents proffered by Plaintiffs did not

establish that Edvin was a citizen of California on the date the complaint was filed.

It therefore concluded that “Edvin’s domicile remains unknown” and that he was,

4The affidavit was submitted by Edvin in the matter of Paymentech, LLC, et al. v. Mainspring Distrib. LLC, et al., 1:19-cv-02087 (DLI), which was also before Judge Irizarry. 5 in effect, “stateless.” Sp. App’x at 10. The district court then dismissed the

complaint with prejudice.

The district court clearly erred. First, even if the district court lacked subject

matter jurisdiction, the complaint should not have been dismissed with prejudice.

“[W]hen a case is dismissed for lack of federal subject matter jurisdiction, Article

III deprives federal courts of the power to dismiss the case with prejudice.” Katz

v. Donna Karan Co., L.L.C.,

(2d Cir. 2017) (internal quotation marks

and alterations omitted). Thus, where – as here – a case is dismissed for lack of

subject matter jurisdiction, “that disposition cannot be entered with prejudice, and

instead must be dismissed without prejudice.”

(emphasis in original).

More fundamentally, the district court erred in concluding that Plaintiffs

had failed to establish Edvin’s citizenship and that Edvin was therefore “stateless.”

While it is true that an allegation of “residence alone is insufficient to establish

domicile for jurisdictional purposes,” Van Buskirk v. United Grp. of Cos., Inc.,

(2d Cir. 2019), the district court was presented with far more than

residency alone. In his two answers, Edvin admitted to being a California resident,

“admit[ed] [the district] [c]ourt has federal diversity jurisdiction over this matter,”

App’x at 24, and stated that “no plaintiff appears to be a citizen of the same state

as any defendant,” id. at 39. See Herrick Co. v. SCS Commc'ns, Inc.,

, 324

6 (2d Cir. 2001) (explaining that a pretrial admission of diversity “may well establish

a prima facie showing of diversity”). Moreover, in responding to the district

court’s sua sponte request, Plaintiffs also submitted evidence of a criminal

indictment confirming Edvin’s residency in California several weeks before the

filing date, along with a declaration by Edvin stating that he was a California

citizen on April 10, 2019, less than five months after the filing date of the initial

complaint. Finally, and most significantly, Edvin has never claimed to be a citizen

of any state other than California and has offered no countervailing evidence that

his “true fixed home” was in any other state. Palazzo ex rel. Delmage v. Corio,

(2d Cir. 2000); see also Katz v. Goodyear Tire and Rubber Co.,

(2d Cir. 1984) (“The nature of domicile . . . is such that a person has one at all

times.”).

Considering this record as a whole, all of which was before the district court

at the time of its ruling, we conclude that Plaintiffs met their burden of establishing

that Edvin was a citizen of California on November 19, 2018. 5 And because the

existence of diversity jurisdiction hinged on whether Plaintiffs and Edvin were

completely diverse, we further conclude that the district court had subject matter

5Indeed, any doubt on this matter was caused not by a genuine dispute over Edvin’s citizenship, but by Defendants’ blatant gamesmanship. 7 jurisdiction over this action. We therefore reverse the district court’s order of

dismissal and remand so the case may proceed on the merits.

Plaintiffs also request that a new judge be assigned on remand due to the

“apparent animus” of the current district judge. Scripts Br. at 19. But

reassignment to a different district judge on remand is justified only in “unusual

circumstances,” L.S. v. Webloyalty.com, Inc.,

(2d Cir. 2020) (internal

citation omitted), where “the facts might reasonably cause an objective observer

to question the judge’s impartiality,” United States v. Quattrone,

(2d Cir. 2006) (internal quotation marks and alterations omitted). Here, there is no

indication from the record that the district judge bore hostility toward any party

or that reassignment is necessary to preserve even the appearance of justice. See,

e.g., Webloyalty.com,

. The Court therefore declines Plaintiffs’ request

for reassignment.

Finally, we hold that Defendants shall bear the costs of this appeal. See Fed.

R. App. P. 39(a)(3); see also City of San Antonio v. Hotels.com, L. P.,

(2021) (“Rule 39 gives discretion over the allocation of appellate costs to the

courts of appeals.”); Moore v. City of Delaware,

(2d Cir. 2009)

(“Rule [39] affords wide discretion in the taxation of costs.”) (internal quotation

marks omitted). While the Court acknowledges that the district court’s dismissal

8 of the complaint was sua sponte, the reality is that Defendants intentionally

delayed this litigation at every turn. Even on appeal – having no plausible

argument that Edvin is domiciled anywhere other than California – they maintain

the frivolous position that Edvin’s citizenship is simply unknown.

We have considered Defendants’ remaining arguments and find them to be

meritless. Accordingly, we REVERSE the district court’s judgment of dismissal

and REMAND the case to the district court for further proceedings consistent with

this order.

FOR THE COURT: Catherine O’Hagan Wolfe, Clerk of Court

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