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Larchmont Holdings, LLC v. North Shore Holdings, LLC

United States District Court, W.D. Wisconsin

January 13, 2017

LARCHMONT HOLDINGS, LLC, Plaintiff,
v.
NORTH SHORE HOLDINGS, LLC and WILLIAM BETHKE, Defendants.

          OPINION AND ORDER

          STEPHEN L. CROCKER MAGISTRATE JUDGE

         This lawsuit arises out of a multi-million dollar land contract involving frac sand. Plaintiff Larchmont Holdings, LLC chose to file in federal court, claiming diversity jurisdiction under 28 U.S.C. § 1332(a)(1). Defendants Northshore Holdings, LLC and William Bethke dispute Larchmont's claim of diversity and have moved to dismiss this lawsuit for lack of subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1). See dkt. 11. For the reasons stated below, I am denying this motion.

         Defendants, who both are residents of Wisconsin contend that two members of Larchmont (Neal Benham and Richard McHugh) also are domiciled in Wisconsin rather than Florida, as Larchmont contends.[1] Thomas v. Guardsmark, LLC, 487 F.3d 531, 534 (7th Cir. 2007) (citizenship of limited liability company is citizenship of each of its members); McCready v. EBay, Inc., 453 F.3d 882, 891 (7th Cir. 2006) (no plaintiff may be a citizen of the same state as any defendant). As the party invoking federal diversity jurisdiction, Larchmont bears the burden of demonstrating that the parties are diverse. Appert v. Morgan Stanley Dean Witter, Inc., 673 F.3d 609, 617 (7th Cir. 2012); Chase v. Shop ‘N Save Warehouse Foods, Inc., 110 F.3d 424, 427 (7th Cir. 1997). Larchmont has met this burden in this case.

         Although the briefs and declarations submitted by the parties indicated that Benham and McHugh probably were domiciled in Florida, I held an evidentiary hearing on December 7, 2016 to ensure that no relevant stone was left unturned. See Nov. 10, 2016 Text Ord., dkt. 26; Midwest Transit, Inc. v. Hicks, 79 Fed.Appx. 205, 209-10 (7th Cir. 2003) (noting evidentiary hearing likely necessary to determine credibility of defendant's citizenship claim where his contacts point to two states as possible domiciles). Having considered the evidence presented at the hearing and the record as a whole, I conclude that all of the members of Larchmont were domiciled in Florida when Larchmont filed this lawsuit. This makes Larchmont a citizen of Florida. Because both defendants are citizens of Wisconsin, diversity exists and this suit can remain in federal court.

         Before setting forth the findings of fact, one preliminary matter deserves attention: at the evidentiary hearing, defendant Dr. Bethke testified that the signature on the October 7, 2016 declaration submitted in his name, see dkt. 13, was not his. At the court's request, defendants investigated and subsequently reported that Connie Bethke had signed the affidavit with her husband's permission while he was on a hunting trip in South Dakota. Dkt. 38. Defense counsel explained that Dr. Bethke did not remember these events at the hearing but subsequently was able to refresh his recollection by discussing this with his wife. Counsel also explained that Dr. Bethke's memory was impaired by stress resulting from other events occurring during this time. Although defendants concede that they have not found any authority for entering into evidence a declaration signed by the declarant's spouse, it is not necessary to resolve this issue because the declaration is not essential to the court's jurisdictional analysis. Dr. Bethke testified at the hearing about the facts contained in the declaration, and Larchmont had an opportunity to cross examine him. Therefore, I have not considered the first declaration of Dr. Bethke.

         I have drawn the following facts from the evidentiary hearing and written submissions provided by the parties:

         FACTS

         I. Background

         Plaintiff Larchmont Holdings, LLC was organized under Wisconsin law on December 18, 2012, with its principal place of business in Eau Claire, Wisconsin. Its members are David Westrate, Westrate's Roth IRA and traditional IRA, Dr. Neal Benham's Roth IRA, and Patricia and Richard McHugh. Dkt. 1.

         Defendant North Shore Services, LLC was organized under Wisconsin law on October 18, 2000, with its principal place of business in Eau Claire, Wisconsin. North Shore is wholly owned by defendant Dr. William Bethke, an individual who is a citizen of Wisconsin, where he is domiciled and resides. Id.

         Dr. Benham and Dr. Bethke are practicing dentists who have shared an office since 1986 under the name All Family Dental. Dkt. 37, exh. 1; dkt. 40 at 12-13. Although Northshore has not yet filed an answer, Larchmont alleges the following with respect to the parties' relationship in its complaint:

         In the summer of 2012, Bethke approached Benham, and subsequently Westrate, with the idea of developing a frac sand project on approximately 300 acres of recreational land in Jackson County, Wisconsin that Bethke owned through North Shore Services. Dkt. 1, ¶ 27. Following various negotiations throughout the fall of 2012, in December 2012 the direction of the negotiations changed, leading Benham, Westrate, and Westrate's friends, Richard and Patricia McHugh, to form Larchmont Holdings on December 17, 2012 for the purpose of purchasing the Jackson County property and developing a frac sand mining and processing operation. Id. at ¶¶ 30, 41. On December 20, 2012, Larchmont and North Shore entered a contract for Larchmont's purchase of the land. Id. at ¶ 42. The parties' business relationship soured over the next few years, resulting in the filing of this lawsuit on August 19, 2016. Larchmont alleges fraudulent inducement, frustration of purpose, unjust enrichment, and reformation of the land contract. Dkt. 1.

         II. Dr. Neal Benham

         From 1980 until 2001, Dr. Benham owned a home and lived full-time in Eau Claire, Wisconsin. In October 2001, Dr. Benham and his wife Jane moved to Florida. They kept their Eau Claire house as a second property. Since 2001, the Benhams have lived in six different residences in Florida, the most recent purchased in January 2015. Since 2002, Dr. Benham has classified the Florida home as a primary residence and the Eau Claire home as a secondary residence for insurance purposes. Jane is a ...


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