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Klein v. American Finance Limited Partnership

July 1, 2010

R. WAYNE KLEIN, THE COURT APPOINTED RECEIVER, PLAINTIFF,
v.
AMERICAN FINANCE LIMITED PARTNERSHIP, AN IDAHO LIMITED PARTNERSHIP, DEFENDANT.



The opinion of the court was delivered by: Honorable Edward J. Lodge U. S. District Judge

MEMORANDUM ORDER

INTRODUCTION

Pending before the Court in the above-entitled matter is Defendant American Finance Limited Partnership's ("AFLP") Motion to Dismiss Pursuant FRCP 12(b)(1). (Mot. to Dismiss. Dkt. 3.) The matter is ripe for the Court's consideration. Having fully reviewed the record herein, the Court finds that the facts and legal arguments are adequately represented in the briefs and record. Accordingly, and in the interest of avoiding further delay, and because the Court conclusively finds that the decisional process would not be significantly aided by oral argument, this motion shall be decided on the record before this Court without oral argument.

FACTUAL AND PROCEDURAL BACKGROUND

On February 26, 2009 the Securities and Exchange Commission ("SEC") filed suit*fn1 against Trigon Group, Inc. ("Trigon") and Daren L. Palmer ("Palmer") alleging they were engaged in a classic Ponzi scheme. (Pl.'s Opp. to Def.'s Mot. to Dismiss Pursuant to FRCP 12(b)(1), 2, Dkt. 9.) Pursuant to this action the District Court appointed R. Wayne Klein ("Klein") as temporary receiver of Trigon and the assets of Palmer with the instruction that:

[T]he Receiver shall be authorized, empowered and directed to investigate, prosecute, defend, intervene in or otherwise participate in, compromise, and adjust actions in any state, federal or foreign court or proceeding of any kind as may in his sole discretion be advisable or proper to recover or conserve funds, assets and property of the Companies.

Id.

While acting as receiver Klein brought the current action against AFLP on February 17, 2010. Klein alleges AFLP received $215,000 from Trigon financed through the fraudulent activities of the Ponzi scheme. (Compl. to Avoid Fraudulent Transfers, for Constructive Trust and Other Provision Remedies for Damages, 7, Dkt. 1.) Klein seeks to recover these funds, plus interest, by alleging violations of Idaho Code § 55-913, 55-914 and 55-916 for fraudulent conveyance along with an equitable theory of constructive trust. Id. at 8.

On March 5, 2010 AFLP filed its Motion to Dismiss. AFLP alleges that the Court does not have subject matter jurisdiction to hear Klein's action because the Court cannot exercise ancillary jurisdiction over this claim.

STANDARD OF LAW

"The jurisdiction of the federal courts is limited to 'cases' and 'controversies.'" Oregon v. Legal Services Corp., 552 F.3d 965, 969 (9th Cir. 2009) (quoting U.S. Const., Art. III, sec. 2). "Whenever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action." Id. (quoting Fed. R. Civ. P. 12(h)(3)). "An objection that a federal court lacks subject matter jurisdiction may be raised at any time, even after trial and the entry of judgment." Id. (citation omitted).

"Federal Rule of Civil Procedure 12(b)(1) allows litigants to seek the dismissal of an action from federal court for lack of subject matter jurisdiction. A federal court has subject matter jurisdiction over an action that either arises under federal law, or when there is complete diversity of citizenship between the parties and the amount in controversy exceeds $75,000." Tosco Corp. v. Communities for a Better Environment, 236 F.3d 495, 499 (9th Cir. 2001) (citing 28 U.S.C. §§ 1331, 1332(a)). "When subject matter jurisdiction is challenged under Federal Rule of Procedure 12(b)(1), the plaintiff has the burden of proving jurisdiction in order to survive the motion." Id.

A Defendant may move to dismiss a complaint for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1) in one of two ways. See Thornhill Publ'g Co., Inc. v. General Tel. & Elec. Corp., 594 F.2d 730, 733 (9th Cir. 1979)). The attack may be a "facial" one where the defendant attacks the sufficiency of the allegations supporting subject matter jurisdiction. Id. On the other hand, the defendant may launch a "factual" attack, "attacking the existence of subject matter jurisdiction in fact." Id. When considering a "facial" attack made pursuant to Rule 12(b)(1), a court must consider the allegations of the complaint to be true and construe them in the light most favorable to the plaintiff. Love v. United States, 915 F.2d 1242, 1245 (9th Cir. 1988). A "factual" attack made pursuant to Rule 12(b)(1) may be accompanied by extrinsic evidence. St. Clair v. City of Chico, 880 F.2d 199, 201 (9th Cir. 1989); Trentacosta v. Frontier Pac. Aircraft Indus,, 813 F.2d 1553, 1558 (9th Cir. 1987). When considering a factual attack on subject matter jurisdiction, "the district court is ordinarily free to hear evidence regarding jurisdiction and to rule on that issue prior to trial, resolving factual disputes where necessary." Augustine v. United States, 704 F.2d 1074, 1077 (9th Cir. 1983) (citing Thornhill, 594 F.2d at 733). "[N]o presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims." Thornhill, 594 F.2d at 733 (quoting Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977)).

However, "[t]he relatively expansive standards of a 12(b)(1) motion are not appropriate for determining jurisdiction... where issues of jurisdiction and substance are intertwined. A court may not resolve genuinely disputed facts where 'the question of jurisdiction is dependent on the resolution of factual issues going to the merits.'" Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987) (quoting Augustine, 704 F.2d at 1077). In such a case, "the jurisdictional determination should await a determination of the relevant facts on either a motion going to the merits or at trial." Augustine, 704 F.2d at ...


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