District of Columbia for the Use and Benefit of Z-Modular, LLC v. McN Build, Inc. ( 2021 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
DISTRICT OF COLUMBIA FOR THE
USE AND BENEFIT OF Z-MODULAR,
LLC,
Plaintiff
MCN BUILD, INC., ZURICH
AMERICAN INSURANCE
COMPANY, INC., FIDELITY AND
DEPOSIT COMPANY OF
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v. ) Civil Case No. 18-cv-02947 (RJL)
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MARYLAND, INC., )
Defendants.
MEMORANDUM OPINION AND ORDER
September Pye 2021 [Dkt. ## 15, 61, 66, 67]
This case involves this Court’s subject-matter jurisdiction over a contract dispute.
Plaintiff Z-Modular, LLC (“Z-Modular”) moves for leave to amend its complaint with
jurisdictional allegations. Defendants MCN Build, Inc. (“MCN”), Zurich American
Insurance Company, Inc. (“‘Zurich’’), and Fidelity and Deposit Company of Maryland, Inc.
(“Fidelity”) oppose. For the following reasons, Z-Modular’s motion will be DENIED, and
its complaint will be DISMISSED.
BACKGROUND
This case arose from a contract dispute. Defendant MCN contracted with the
District of Columbia to build housing facilities. Plaintiff Z-Modular then contracted with
MCN to provide services in connection with the construction of those facilities. Two
sureties—Zaurich and Fidelity—issued payment bonds on behalf of MCN. Eventually, the
parties had a disagreement about the services performed and compensation owed under the
contract. Z-Modular asserted common law claims and claims under D.C. Code § 2-
201.02(a) against MCN, Zurich, and Fidelity. MCN counterclaimed, arguing that Z-
Modular breached the parties’ contract. All four parties then moved for summary
judgment.
On July 1, 2021, however, I issued an order raising two issues with the jurisdictional
allegations in Z-Modular’s complaint. First, I explained that Z-Modular failed to allege
the citizenship of its members—the relevant inquiry in determining the citizenship of a
limited liability company. See Order [Dkt. # 60] at 3-4. Second, J noted that if Z-Modular
was a citizen of Illinois—its alleged principal place of business—the Court would lack
jurisdiction because Zurich and Fidelity are citizens of Illinois. See id. at 4. Finding it
appropriate to give Z-Modular an opportunity to cure its error, I gave Z-Modular 30 days
to either seek leave to amend its complaint or otherwise show cause as to why the complaint
should not be dismissed in its current form. Jd. at 4—5.
Following this order, Z-Modular moved to amend its complaint on July 20, 2021,
alleging that (1) it has a single member—Z-Modular Holding, Inc., and (2) that member
“is organized and existing under the laws of Delaware and has its principal place of
business at 710 Swanner Loop, Killeen, TX 76543.” See Motion for Leave to File
Amended Complaint [Dkt. # 61] at 2, and Ex. A [Dkt. # 61-2] § 3.
Defendants disputed these new allegations, making two primary arguments. First,
defendants argued that public records showed a different entity—Zekelman Holding, Inc.
2
(“Zekelman”)—was Z-Modular, LLC’s sole member at the time the complaint was filed,
and Zelekman’s corporate filings show that its principal place of business was Illinois. See
Defendants’ Memorandum of Points and Authorities in Opposition to Plaintiff Z-Modular
LLC’s Motion for Leave to File Amended Complaint (“Opp.”) [Dkt. # 63] at 8. Second,
they contended that even if Z-Modular Holding was Z-Modular’s sole member, corporate
filings indicated that Il]inois—not Texas—was Z-Modular Holding’s principal place of
business. See id. at 7.
In response, Z-Modular changed its story yet again! Z-Modular filed a reply on
August 10, 2021 alleging that Z-Modular Holding’s principal place of business was neither
Illinois nor Texas, but instead Bay Village, Ohio. See Reply In Support of Motion for
Leave to File Amended Complaint (“Reply”) [Dkt. # 64] at 2-3. The reply asks the Court
to accept a new proposed amended complaint, reflecting this new theory of state
citizenship. See id. at 4; accord id., Ex. 2 [Dkt. # 64-2] 93. Z-Modular also included new
evidence: a declaration by Michael McNamara, the President of Z-Modular Holding,
attesting that he “made all policy and business decisions for Z-Modular Holding, Inc.”
while working “primarily from [his] home in Bay Village, Ohio.” See Declaration of
Michael P. McNamara [Dkt. # 64-1] at [9 6, 14.
Not surprisingly, Z-Modular also used its new declaration to address defendants’
arguments. With regard to the contention that Zekelman was the sole member of Z-
Modular, McNamara claimed that (1) Z-Modular was contributed from Zekelman to Z-
Modular Holding on August 3, 2018—4 months before the suit was initiated, and (2) in
any event, Zekelman’s principal place of business was also his home in Bay Village, Ohio.
3
See id. §§ 6, 13. Addressing the contention that Z-Modular Holding’s corporate filings
listed Chicago, IL as the principal place of business for both companies, McNamara
claimed that the Chicago, IL location was “merely a mailing address[.]” Id. J 12, 21.
In a sur-reply, defendants argued that the evidence still indicated that Hlinois—not
Ohio—was Z-Modular Holding’s principal place of business.! See Defendants’ Sur-Reply
in Opposition to Plaintiff Z-Modular, LLC’s Motion for Leave to File Amended Complaint
(“Sur-Reply”) [Dkt. # 65]. Undaunted, Z-Modular responded to these arguments in a
motion to strike. See Memorandum of Points and Authorities in Support of Motion to
Strike Defendants’ Surreply in Opposition to Plaintiff Z-Modular, LLC’s Motion for Leave
to File Amended Complaint (“Motion to Strike”) [Dkt. # 66-1]. Z-Modular’s motion for
leave to amend its complaint is now ripe for review.
LEGAL STANDARD
Under Federal Rule of Civil Procedure 15(a)(2), leave to amend shall be “freely
given,” absent “any apparent or declared reason” to deny it. Barkley v. U.S. Marshals Serv.
ex rel. Hylton, 766 F.3d 25, 38 (D.C. Cir. 2014) (citation and quotation omitted). Courts
may deny leave to amend where the proposed complaint would “fail[] to establish subject-
matter jurisdiction” because such an amendment “would be futile.” Laufer v. Alamac Inc.,
' Z-Modular moved to strike this sur-reply, noting that it was improperly filed without
leave of the Court. See Motion to Strike Defendants’ Surreply in Opposition to Z-Modular,
LLC’s Motion for Leave to File Amended Complaint [Dkt. # 66]. However, defendants
acknowledged the error and moved for leave to file the sur-reply, and Z-Modular does not
oppose this motion. See Motion for Leave to File Sur-Reply [Dkt. # 67]; Response to
Defendants’ Motion for Leave to File Sur-Reply [Dkt. # 68]. Accordingly, I will GRANT
the motion for leave to file the sur-reply and DENY the motion to strike.
4
No. 1:20-CV-02206, 2021 WL 1966574, at *3 (D.D.C. May 17, 2021) (McFadden, J.);
accord Aguiar v. Drug Enf’t Admin., 992 F.3d 1108, 1113-14 (D.C. Cir. 2021) (“The
district court properly denies a motion to amend a complaint as futile if the proposed claim
would not survive a motion to dismiss.” (citations and quotations omitted)).
Where, as here, a party argues that an amendment is futile on jurisdictional grounds,
the Court reviews the motion under the standard of Federal Rule of Procedure 12(b)(1).
See Ekemezie v. CVS Rx Servs., Inc., No. CV 17-367, 2019 WL 340711, at *1—*2 (D.D.C.
Jan. 25, 2019) (Kelly, J.). “Under Rule 12(b)(1), plaintiffs bear the burden of proving by
a preponderance of the evidence that the Court has subject matter jurisdiction to hear their
claims.” RICU LLC v. United States Dept. of Health and Human Servs., No. 21-CV-452
(CRC), 2021 WL 3709736, at *3 (D.D.C. Aug. 20, 2021) (Cooper, J.) (citing Lujan v. Defs.
of Wildlife, 504 U.S. 555, 561 (1992)). While this review requires the Court to “construe
the complaint liberally,” the Court must also review the pleadings with “closer scrutiny . .
. given the court’s affirmative obligation to ensure that it is acting within the scope of its
jurisdictional authority.” Jd. (citations and quotations omitted).
DISCUSSION
I will deny the motion for leave to amend the complaint (and the so-called “reply”
brief seeking to do the same but on a different theory) for two reasons. First, Z-Modular’s
“reply” motion seeking leave to amend its complaint to allege Ohio citizenship is untimely.
Second, even if Z-Modular had timely moved, the amendment would still be futile because
of the substantial evidence contradicting Z-Modular’s theory of citizenship.
A, Z-Modular’s motion seeking to allege Ohio citizenship is untimely.
Z-Modular’s “reply”—despite its title—is in effect a new motion to amend the
complaint. “Courts [of course] ‘must determine the proper characterization of a motion by
the nature of the relief sought,’ and not by its heading or legend.” Peterson v. Islamic
Republic of Iran, 224 F. Supp. 3d 17, 25 (D.D.C. 2016) (Lamberth, J.) (quoting United
States v. Palmer, 296 F.3d 1135, 1145 (D.C. Cir. 2002)). Z-Modular’s “reply” not only
raises a new theory of state citizenship, but introduces new evidence, and—critically—
seeks different relief than its original motion for leave to amend. See Reply at 4 (requesting
leave to file a separate amended complaint than the original motion). Because Z-Modular’s
“reply” has all the hallmarks of a new motion, it will be construed as such. See Peterson,
224 F. Supp. at 25 (construing “response as a motion” because it sought “separate relief”);
accord Feld v. Fireman's Fund Ins. Co., 300 F.R.D. 9, 12 (D.D.C. 2014) (Bates, J.) (finding
that filing was a motion even though plaintiff “ha[d] not actually filed a formal motion”
because it was “clear that [the party] want[ed] some form of court-ordered relief”).
Unfortunately, this new motion was not filed on a timely basis. How so?
On July 1, I ordered Z-Modular to seek leave to amend its complaint within 30 days.
See Order at 5. Z-Modular sought leave to allege that it was a citizen of Ohio on August
10—i.e., 40 days later.2 See Dkt. # 64. Where, as here, “the time has expired” for “[w]hen
* Even if Z-Modular’s reply “corrected” its motion, I see no reason—and Z-Modular offers
none—why the Court should treat July 20 as the filing date of the corrected motion. To
the contrary, Z-Modular’s August 10 reply was the first time it asked the Court to accept
the operative proposed amended pleading and the first time it raised its operative legal
theory. And, in any event, a “plaintiff forfeits arguments raised for the first time in her
reply brief].]” Khedkar v. U.S. Citizenship & Immigr. Servs., No. CV 20-1510, 2021 WL
6an act may or must be done within a specified time,” an extension is permissible “on motion
... if the party failed to act because of excusable neglect.” Fed. R. Civ. P. 6(b)(1)(B)
(emphasis added). The Court may not accept Z-Modular’s untimely filing because—
despite seeking to add new jurisdictional allegations after the 30-day deadline—Z-Modular
did not file a motion seeking an extension. See Smith v. D.C., 430 F.3d 450, 457 (D.C. Cir.
2005) (citing Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871, 896 (1990)) (“In the absence of
any motion for an extension, the trial court had no basis on which to. . . entertain[] the late
motion[.]”); accord Bazarian Int'l Fin. Assocs., LLC v. Desarrollos Hotelco, C.A., 342 F.
Supp. 3d 1, 28 (D.D.C. 2018) (Howell, C.J.) (rejecting untimely filing where “defendants
have filed no motion for extension of time’’).
Moreover, Z-Modular’s delay here was not the product of excusable neglect.2_ By
its own admission, its delay was due to its own “misunderstanding regarding the timing of
certain events and the location from which the activities of Z-Modular’s sole member were
directed, controlled and coordinated.” See Motion to Strike at 3. Z-Modular’s failure to
properly analyze facts entirely in its control cuts strongly against finding excusable neglect.
3418818, at *7 (D.D.C. Aug. 5, 2021) (Contreras, J.) (citation omitted)); accord Nat’! R.R.
Passenger Corp. v. Se. Pennsylvania Transportation Auth., No. 1:19-CV-00537, 2021 WL
325957, at *8 (D.D.C. Feb. 1, 2021) (McFadden, J.) (citation and quotations omitted)
(“reject[ing]” “argument as untimely” where it was “raised for the first time in a reply
brief.’’).
3 Courts analyze “all relevant circumstances” in assessing whether delay is the result of
excusable neglect, with a particular focus on four factors: (1) the risk of prejudice to the
other side, (2) the length of the delay and its impact on the Court’s proceedings, (3) the
reason for the delay, and (4) whether the movant acted in good faith. Pioneer Inv. Servs.
Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 395 (1993). The third factor—fault in
the delay—is of particular importance.
While the delay was relatively small—10 days—it came on the heels of its failure to
adequately plead subject-matter jurisdiction for more than two years. And while the delay
resulted in relatively little prejudice to defendants, I find that Z-Modular’s three different
assertions of state citizenship—coupled with its previous misrepresentations, see infra—
are indicative of bad faith, or gross incompetence, and as such have wasted judicial
resources. Under these circumstances, I do not find Z-Modular’s neglect to be excusable.
See Cohen v. Bd. of Trustees of the Univ. of the D.C., 819 F.3d 476, 479-80 (D.C. Cir.
2016) (district court was “well within its discretion to find that [a party] did not show
excusable neglect” where factors were mixed but “[m]ost importantly, counsel put forth no
reasonable excuse for the delay” (citations and quotations omitted)).
B. Even if Z-Modular had raised its argument on a timely basis, it has
nevertheless failed to meet its burden of establishing jurisdiction.
Even under the lenient standard of review afforded at this stage of the proceedings,
Z-Modular’s motion would fail to establish subject-matter jurisdiction in this Court. Z-
Modular has alleged three different principal places of business in this litigation.
Unfortunately, however, the state Z-Modular finally settled on—Ohio—does not appear in
any of Z-Modular’s corporate filings.* Indeed, the declaration offered to the Court appears
to be the first time Z-Modular Holding has ever claimed Ohio as a place of business,
4 See Opp., Ex. C [Dkt. # 63-3] at 2, 4 (listing “Chicago, IL” as “principal place of business”
in Delaware corporate filing); id., Ex. # [Dkt. # 63-5] at 3 (same); id., Ex. D [Dkt. # 63-4]
at 3 (listing same address in Texas corporate filing); id. Ex. F [Dkt. # 63-6] at 3-4 (listing
Chicago as address of holding company to Illinois); accord Cent. W. Virginia Energy Co.
v. Mountain State Carbon, LLC, 636 F.3d 101, 105 (4th Cir. 2011) (finding relevant—but
not dispositive—‘corporate filings with the States of West Virginia, Ohio, and Michigan,”
in which party “listed its Dearborn, Michigan address as its principal place of business”’).
8
directly contradicting prior representations to this Court and state regulators. See Owens
v. BNP Paribas, S.A., 897 F.3d 266, 272-73 (D.C. Cir. 2018) (quoting Kaempe v. Myers,
367 F.3d 958, 963 (D.C. Cir. 2004)) (Courts need not “accept as true. . . factual allegations
insofar as they contradict exhibits to the complaint or matters subject to judicial notice.”
(citations and quotations omitted)). Moreover, Z-Modular has assured another federal
court that it was owned by a company with a principal place of business in Illinois and had
its own principal place of business in Alabama—assurances that are not consistent with
what Z-Modular has represented in this case.> Thus, even if Z-Modular’s motion was
timely, the complaint, relevant exhibits, and judicially noticeable materials viewed in the
light most favorable to Z-Modular would fail to establish that Z-Modular’s citizenship is
diverse from all three defendants in this action.® Accordingly, granting the motion to
amend would be futile.
> See Zekelman Indus. Inc. v. Marker, No. CV-19-02109-PHX-DWL (D. Ariz. Mar. 27,
2020), Complaint for Trademark Infringement, False Advertising, False Endorsement,
Counterfeiting, Unfair Competition, Violations of the Arizona Consumer Fraud Act, and
Copyright Infringement [Dkt. # 1] J] 3-4; see also Corporate Disclosure Statement [Dkt.
# 2-1] at 2; accord Capitol Servs. Mgmt., Inc. v. Vesta Corp., 933 F.3d 784, 789 (D.C. Cir.
2019) (“District courts may . . . take judicial notice of publicly filed pleadings in related
actions as evidence of what was alleged in the other actions, although they may not treat
as true the matter alleged.”); Kareem v. Haspel, 986 F.3d 859, 866 n.7 (D.C. Cir. 2021)
(“It is well-settled that [a court] may consider materials outside the pleadings to determine
[its] jurisdiction,” including materials subject to “judicial notice”).
° To be clear, I do not conclude today that Z-Modular’s principal place of business is in
Illinois or even that it is not in Ohio. Rather, I find that Z-Modular has failed to adequately
meet its burden of establishing the states in which it is a citizen. Without this information,
this Court cannot “assure itself of its jurisdiction to act[.]” CTS Corp. v. E.P.A., 759 F.3d
52, 57 (D.C. Cir. 2014).
C. Dismissal of the complaint is appropriate in this situation.
Because “[t]he court cannot act without jurisdiction and it is the complaining party’s
burden to plead it,” I refuse to “reduce[] to a mere afterthought years after the
commencement of the action” Z-Modular’s obligation to plead diversity jurisdiction.
Loughlin v. United States, 393 F.3d 155, 172 (D.C. Cir. 2004). Rather I will “dismiss[] for
lack of subject matter jurisdiction” because “despite the relevant authorities and the
specific statute having been called to counsel’s attention by the Court, plaintiff still has not
adequately alleged jurisdiction.” Coons v. U.S. Tr. Co. of New York, No. 04 CIV. 0439
(LAK), 2004 WL 286942, at *1 (S.D.N.Y. Feb. 13, 2004); Downs v. IndyMac Mortg.
Servs., FSB, 560 F. App’x 589, 591-92 (7th Cir. 2014) (affirming dismissal for want of
jurisdiction after plaintiff failed to establish diversity jurisdiction after being given
opportunity to amend complaint); Butler v. Morgan, 562 F. App’x 832, 836 (11th Cir.
2014) (same); 13E Charles Alan Wright & Arthur R. Miller, Federal Practice and
Procedure § 3602.1 (3d ed. Apr. 2021 update) (“Dismissal of the offending pleading (or
the relevant claim) will follow a failure to amend by the party seeking to invoke federal
jurisdiction.”); accord Fed. R. Civ. P. 12(h)(3) (“If the court determines at any time that it
lacks subject-matter jurisdiction, the court must dismiss the action.”).
In addition, because MCN’s counterclaim does not plead—nor appear to support—
an independent basis for jurisdiction in this Court, see Answer and Counterclaim of
Defendant MCN Build, Inc. [Dkt. # 15], I will also dismiss MCN’s state law counterclaim,
see Lurie v. Mid-Atl. Permanente Med. Grp., P.C., 729 F. Supp. 2d 304, 335 (D.D.C. 2010)
(Lamberth, C.J.) (citing Shekoyan v. Sibley Int’l, 409 F.3d 414, 423 (D.C. Cir. 2005)) (“All
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of the causes of action described in defendant’s counterclaim are founded in state law and
have been found to lack an independent basis in the Court’s diversity jurisdiction. The
Court can and will exercise its discretion to dismiss them.”).
CONCLUSION
For all of the foregoing reasons, it is hereby ORDERED that:
1.
Plaintiffs Motion for Leave to File Amended Complaint [Dkt. # 61] is
DENIED;
Plaintiff's Motion to Strike Defendants’ Surreply In Opposition to Plaintiff Z-
Modular, LLC’s Motion for Leave to File Amended Complaint [Dkt. # 66] is
DENIED;
. Plaintiff's Motion for Leave to File Sur-Reply [Dkt. # 67] is GRANTED;
Plaintiff's Complaint [Dkt. # 1] is DISMISSED;
Defendant MCN Build Inc.’s Answer and Counterclaim of Defendant MCN
Build, Inc. [Dkt. # 15] is DISMISSED;
The above-captioned case is hereby DISMISSED;
All other pending motions are DENIED AS MOOT.
{
RICHARD J. LE
United States
N
Strict Judge
11