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Thermoset Corporation v. Building Materials Corp. of America, No. 15—13942, 2017 WL 816224 (11th Cir. March 2, 2017)
This case involves a product liability lawsuit that was filed in state court in Florida and then removed to federal court based on diversity of citizenship. The case is significant because the Eleventh Circuit, on its own, challenging subject matter jurisdiction, even after final summary judgment had been entered and while the matter was pending on appeal.
Plaintiff Thermoset Corporation is a roofing contractor organized under Florida law with its principal place of business in Florida. In 2005, Thermoset entered into a “Master Select Roofing Contractor Agreement” with GAF Materials Corporation (“GAF”), a manufacturer of roofing products and systems organized under Delaware law with its principal place of business in New Jersey. The agreement allowed Thermoset to use GAF’s products on various jobs.
Later, Thermoset and its affiliates were hired to install a roofing system at an airport in Nassau, Bahamas. Because of the Bahamian climate, the system had certain project requirements and had to withstand certain wind velocities and uplift pressures. GAF assured Thermoset that its “TPO” roofing system met the requirements for the climate.
Thermoset also discussed the TPO system and project requirements with the Roofing Supply Group of Orlando, LLC (“RSGO”), a manufacturer and distributor of GAF roofing products organized as a limited liability company under Delaware law with a principal place of business in Texas. Thermoset claims it relied on recommendations from RSGO and GAF to buy roofing materials and components for the TPO system from RSGO.
After Thermoset began work on the project, the roofing system began to fail. Thermoset notified GAF and RSGO of the malfunction, and Thermoset received an $82,000 credit from RSGO. Thermoset believed it incurred damages of upward of $1 million and subsequently brought a products liability action in state court in Florida against both GAF and RSGO.
Shortly after the suit was filed, GAF removed the case to federal court, invoking diversity jurisdiction. After conducting discovery, GAF and RSGO jointly moved for summary judgment, which was granted by the District Court.
When Thermoset filed its appeal to the Eleventh Circuit, the Eleventh Circuit noticed that the pleadings did not sufficiently allege the citizenship of RSGO. Ultimately, RSGO and GAF admitted that RSGO was not actually diverse at the time of removal. It was undisputed that Thermoset was a Florida corporation and that RSGO was a limited liability company organized under Delaware law with its principal place of business in Texas. But one of RSGO’s members was a citizen of Florida. Because a limited liability company is a citizen of any state in which a member is a citizen, Plaintiff Thermostat and Defendant RSGO were both citizens of Florida.
Interestingly, the Eleventh Circuit inquired of the parties themselves as to how to cure the defect of lack of diversity. RSGO contended it was a “nominal” party, and therefore the federal court system could exercise diversity over the entire case. In the alternative, RSGO argued that the Eleventh Circuit should dismiss RSGO to preserve diversity jurisdiction. Thermoset argued that RSGO was a real party in interest whose citizenship cannot be ignored.
The court addressed two main issues. The first issue was whether RSGO, a non-diverse limited liability company, was an indispensable party. The second issue was whether the dismissal of RSGO would be proper under Fed. R. Civ. P. 21, which governs misjoinder and nonjoinder of parties and gives the court authority to dismiss a nondiverse party to preserve diversity jurisdiction.
The court held that RSGO was a real party in interest and not a nominal party and that dismissal of RSGO would not be proper under Fed. R. Civ. P. 21. Summary judgment was vacated, and the case was sent back to District Court with instructions to remand to Florida state court for further proceedings.
The court explained that a limited liability company (“LLC”) is a citizen of any state of which a member of the company is a citizen. Therefore, if just one member of an LLC is a citizen of the same state as a party on the other side of the lawsuit, diversity jurisdiction is defeated provided that the LLC is not a nominal party.
The court further explained that a case may proceed in federal court if a “nominal party” is not diverse. The test for nominal parties is whether the party who may defeat diversity is “neither necessary nor indispensable.” Under this test, the Eleventh Circuit concluded that RSGO was not simply a nominal defendant, because RSGO’s absence in the case would have put Thermoset at risk of receiving inadequate relief. Specifically, in a products liability action under Florida law, a defendant is only liable for the amount of damages proportional to its percentage of fault. Thus, at trial, GAF could argue that RSGO caused all the damages, leaving GAF to pay nothing if the factfinder agreed. Furthermore, Thermoset pled that it specifically relied on the recommendations of RSGO. The Court also found that RSGO was an indispensable party under Fed. R. Civ. P. 19, and therefore it could not dismiss the case under Rule 21.
Additionally, the Court examined the fact that this case had already been litigated to final judgment. The Supreme Court had previously stated that once a diversity case has been tried in federal court, considerations of finality, efficiency, and economy become overwhelming. However, the Eleventh Circuit noticed that this case had not actually gone to trial, so the considerations were not yet overwhelming. Furthermore, both RSGO and GAF conceded that some of the discovery could be used again in state court. As such, the Court stated that the fact that the action has been litigated to summary judgment was not enough to continue the case without RSGO as a party.