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John Zapata Dba Zapata Collection, Service, An v. Flintco

August 11, 2011

JOHN ZAPATA DBA ZAPATA COLLECTION, SERVICE, AN INDIVIDUAL, PLAINTIFF,
v.
FLINTCO, INC., AN OKLAHOMA CORPORATION, SAN JOAGUIN [SIC] COMMUNITY COLLEGE DISTRICT, A POLITICAL SUBDIVISION AND JOHN DOE 1-25, INCLUSIVE, DEFENDANTS.



The opinion of the court was delivered by: Kendall J. Newman United States Magistrate Judge

FINDINGS AND RECOMMENDATIONS

Presently before the court is defendants' motion to dismiss this case for lack of federal subject matter jurisdiction.*fn1 (Mot. to Dismiss, Dkt. No. 41.) Briefly stated, defendants seek dismissal on the grounds that: (1) plaintiff improperly created diversity jurisdiction via a collusive or "sham" assignment of a corporation's claims against defendants; and (2) the otherwise proper plaintiff, Midwest Demolition Company of CA, Inc., which defendants assert is the assignor of the chose in action, is a California corporation that has failed to appear through counsel.

On June 30, 2011, after defendants' motion was fully briefed, the undersigned conducted an evidentiary hearing solely concerning the matter of subject matter jurisdiction, which lasted nearly five hours.*fn2 (See Minutes, June 30, 2011, Dkt. No. 53.) The evidentiary hearing did not touch on the merits of plaintiff's underlying claims. Plaintiff John Zapata and Greg Margritz, the President of Midwest Demolition Company of CA, Inc., testified at the evidentiary hearing. Additionally, the parties stipulated to the admission into evidence of all of plaintiff's and defendants' respective exhibits. Plaintiff's exhibits numbered 1 through 28 were admitted into evidence. Defendants' exhibits numbered 1 through 32 were also admitted into evidence. Unless otherwise noted, all citations in these findings and recommendations to plaintiff's and defendants' exhibits refer to the exhibits admitted at the evidentiary hearing.

The court has fully reviewed the parties' submissions, the testimony provided at the evidentiary hearing, and the appropriate portions of the record in this case. For the reasons stated below, the undersigned recommends that defendants' motion to dismiss be granted and that plaintiff's action be dismissed for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(h)(3). In short, the undersigned concludes that Midwest Demolition Company of CA, Inc.'s assignment to plaintiff of its claims against defendants was collusive within the meaning of the federal anti-collusion statute, 28 U.S.C. § 1359, and the law of this Circuit. As a result, Midwest Demolition Company of CA, Inc. is the proper plaintiff in this action, and its presence in the action destroys complete diversity of the parties and deprives this court of federal subject matter jurisdiction over the claims alleged in the complaint.

I. BACKGROUND

A. Plaintiff's Complaint*fn3

On December 23, 2009, plaintiff filed the complaint in this action, alleging two claims for relief: (1) "breach of duty not to substitute subcontractor for listed subcontractor without proper consent," which is alleged against defendant Flintco, Inc. (see Compl. ¶¶ 12-23, Dkt. No. 1); and (2) violation of due process, alleged against defendant San Joaquin Delta Community College District (see id. ¶¶24-36).

Plaintiff filed this action as John Zapata, doing business as Zapata Collection Service, "an individual residing in Lancaster County, Nebraska" and "the assignee of all rights, title, [and] interest due to Midwest Demolition Company of California . . . , a California corporation, and against all Defendants."*fn4 (Compl. ¶¶ 4-6.) The named defendants are Flintco, Inc., an Oklahoma corporation ("Flintco"), and San Joaquin Delta Community College, a political subdivision of the state of California ("the District"). (Id. ¶¶ 8-9.) Plaintiff alleges that this court has subject matter jurisdiction over this action pursuant to the diversity jurisdiction statute, 28 U.S.C. § 1332. (Compl. ¶¶ 1-2.) More specifically, plaintiff alleges complete diversity of citizenship among the parties and seeks damages in the amount of $348,031. (See id.¶¶ 2, 23, 36, and prayer for relief.)

Plaintiff's complaint alleges that on or about August 1, 2008, the District "called for competitive bidding for the construction of a public project consisting of the renovation of the interior of the Goleman Learning Resources Center," referred to herein as the "Project." (Compl.¶ 13.) Midwest Demolition Company of California CA, Inc. ("MDC California") subsequently "submitted a subcontract bid to furnish labor and equipment to complete all of the interior service selective demolition" for the Project. (Id. ¶ 14.) This bid, totaling $280,531.00, was signed by "John Zapata . . . Midwest Demolition Co. of CA."*fn5 (Ex. 1 to Compl., Dkt. No. 4.) Flintco subsequently submitted a bid to the District to serve as the prime contractor for the Project; Flintco's bid listed MDC California as the subcontractor for the interior service selective demolition. (Id. ¶ 15.) The District ultimately accepted Flintco's bid. (Id. ¶ 16.)

Plaintiff's first claim for relief is alleged against Flintco. Plaintiff alleges that on or about January 12, 2009, Flintco requested permission from the District to substitute another subcontractor for MDC California in regards to the performance of the demolition work for the Project. (Compl. ¶ 17.) He further alleges that the District subsequently held a hearing on Flintco's request and, in or around June 2009, determined that Flintco had not met the requirements for the requested substitution under the California Public Contract Code. (See id. ¶ 19.) Plaintiff alleges that despite MDC California's readiness to complete the work, Flintco "wrongfully refused, and continues to refuse, to permit plaintiff to carry out such work." (Id.¶ 21.) Plaintiff alleges that the replacement of MDC California violated provisions of the California Public Contract Code.

Plaintiff's second claim for relief is alleged against the District. Plaintiff alleges, in essence, that the District violated his right to "due process" because: (1) "the District was aware that [MDC California] was the party required to perform the selective demolition, yet the district allowed Flintco to violate section 4104 of the Public Contract Code" (Compl. ¶ 30);

(2) "the District [did not] make any attempt to prevent Flintco from performing the work that [MDC California] was required to do on the project" (id. ¶ 31); and (3) "the district intentionally and negligently delayed the substitute hearing process until such a time the [sic] Flintco was complete or nearly complete with all the demolition work that was required to be performed by [MDC California]" (id. ¶ 33).*fn6

B. The Assignment From MDC California to Plaintiff

A document entitled "Assignment of Claims" between MDC California and plaintiff ("Assignment") is central to the question of the court's subject matter jurisdiction. (Pl.'s Ex. 26.) The Assignment is discussed in more detail below, but is also briefly described here.

The one-page Assignment concerns the "Project" referred to as "Goleman Learning Resources Center" and provides, in part, that MDC California "does hereby assign, acquit, bargain, and sell to John Zapata d/b/a Zapata Collection Services ("Assignee") all of its claims, rights, damages, actions, grievances, and causes of action of any kind or character, specifically including claims for violations of the California Subletting and Subcontracting Fair Practices Act, which arise from, or related [sic] to, the above-referenced Project." (Pl.'s Ex. 26.) The Assignment is fairly characterized as purporting to effectuate a complete assignment of MDC California's claims against defendants to plaintiff.

The Assignment is executed by Katie Cedarburg before a notary public in Nebraska on June 15, 2009. (Pl.'s Ex. 26.) Ms. Cedarburg signed the Assignment as "V.P." of "Midwest Demolition Company of California." (Id.; see also Cedarburg Decl., Jan. 19, 2011,¶ 3, Defs.' Ex. 28.) Ms. Cedarburg is plaintiff's daughter. (Cedarburg Decl., May 29, 2011, at 2, Pl.'s Ex. 25.) The Assignment is not signed by plaintiff.

No amount of consideration is reflected in the Assignment. Instead, the Assignment provides: "Such assignment is for good and valuable consideration from Assignee to the undersigned, the receipt and sufficiency of which is hereby acknowledged by the undersigned." (Pl.'s Ex. 26.) Plaintiff has represented that he and MDC California intended the consideration for the Assignment to be $80,000. However, plaintiff has also represented that the total consideration paid was $94,500. (See also Cedarburg Decl., Jan. 19, 2011, ¶ 3 (stating that "Midwest has received $94,500 in valuable consideration from Mr. Zapata for the assignment").) As explained below, the undersigned finds that regardless of the amount of consideration suggested by plaintiff or Ms. Cedarburg, the relationship among the involved individuals and entities, among other factors, supports a finding that the Assignment was collusive or a sham.

C. Procedural History

As stated above, plaintiff filed his complaint on December 23, 2009. Flintco filedan answer to plaintiff's complaint on February 10, 2010, and the District filed an answer on February 11, 2010. (Dkt. Nos. 6, 8.) On May 20, 2010, the undersigned conducted a status (pretrial scheduling) conference in this case. (Minutes, Dkt. No. 28; see also Order, May 21, 2010, Dkt. No. 29.) In the parties' Joint Status Report, defendants notified the court of their contentions that this court might lack diversity jurisdiction over plaintiff's claims and that plaintiff, a non-lawyer, could not appear on behalf of the proper plaintiff in this case, MDC California. (See Joint Status Report at 2, Dkt. No. 24.) Specifically, defendants alleged that the assignment from MDC California to plaintiff was a "sham" and ineffective to create diversity jurisdiction; MDC California, a California corporation, is the appropriate plaintiff; and there can be no complete diversity if MDC California is the proper plaintiff because the District is also a California entity. (See id. at 2:17-22.)

Following the scheduling conference, the undersigned entered an order: (1) permitting defendants to conduct limited discovery and a limited deposition of plaintiff confined to the issue of the court's subject matter jurisdiction; and (2) setting a briefing schedule for defendants' motion, if any, regarding the issues raised in the Joint Status Report. (See Order, May 21, 2010, at 3-5.) The undersigned set a special schedule to accommodate plaintiff, who informed the court that he would be out of the country and unavailable from approximately June 18, 2010, through the middle of August of 2010. (Id. at 3.) Despite this accommodation, discovery disputes arose wherein defendants credibly contended that plaintiff's obstreperous behavior precluded compliance with the court's May 20, 2010 order. Indeed, the undersigned nearly recommended that plaintiff's case be dismissed pursuant to Federal Rule of Civil Procedure 41(b) based on plaintiff's failure to prosecute this action and repeated failures to follow the court's orders. (See Order to Show Cause, Sept. 9, 2010, Dkt. No. 32; Order, Oct. 5, 2010, Dkt. No. 36.) Moreover, plaintiff did not return from his international trip until late September 2010, and did not notify the court of his return until he was under the threat of sanctions including dismissal. (See Letter, Sept. 28, 2010, Dkt. No. 35.) The undersigned ultimately modified the discovery and briefing schedules. (See Order, June 10, 2010, Dkt.No. 31; Order, Oct. 5, 2010.)

Defendants were finally able to take plaintiff's deposition on October 13, 2010,*fn7 and filed a timely motion to dismiss. In their motion, defendants challenge plaintiff's claim that this court may exercise diversity jurisdiction over plaintiff's claims. The undersigned construes this motion as one proceeding under Federal Rule of Civil Procedure 12(h)(3).*fn8 After being granted an extension of time to oppose defendants' motion, plaintiff filed a written opposition. As noted above, the undersigned conducted an evidentiary hearing regarding the issue of subject matter jurisdiction on June 30, 2011.

II. EVIDENTIARY OBJECTIONS

In his briefing in opposition to the pending motion, plaintiff objected to fourexhibits appended to one of the declarations filed by defendants' counsel. (Pl.'s Objections, Dkt. No. 49; see also Suh Decl., Exs. 1-4, Feb. 4, 2011, Dkt. No 47.) The undersigned overrules plaintiff's objections on the grounds that they are moot. Three of the exhibits that plaintiff objected to-exhibits 1, 2, and 4-were offered as evidence at the evidentiary hearing, and plaintiff stipulated to the admission of that evidence. (See Defs.' Exhibits 18, 31, and 32.) As to the remaining exhibit, exhibit 3 to the subject declaration, the court has not considered plaintiff's public Facebook profile page in resolving the pending motion.

III. LEGAL STANDARDS

A. Motion to Dismiss For Lack of Subject Matter Jurisdiction A motion to dismiss brought pursuant to Federal Rules of Civil Procedure12(b)(1) or 12(h)(3) challenges the court's subject matter jurisdiction. Federal courts are courts of limited jurisdiction that "may not grant relief absent a constitutional or valid statutory grant of jurisdiction," and "[a] federal court is presumed to lack jurisdiction in a particular case unless the contrary affirmatively appears." A-Z Int'l v. Phillips, 323 F.3d 1141, 1145 (9th Cir. 2003) (citations and quotation marks omitted); accord Kokkenen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 ...


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