E-Alert Case Updates
Membership of LLC determines citizenship for diversity
Bunnell v. Rago
This action was a derivative action brought by Christopher Bunnell, on behalf of OpenOnward, LLC, a software company focused on allowing scientists to post protocols and detailed notes of experiments online for use and review by other scientists. OpenOnward was formed by Bunnell, a software developer, and Carlo Rago, a cellular and molecular scientist. After the formation of OpenOnward, Rago sought to develop software to streamline access to research and funding in an effort to aid David Schultz, whose son has Duchenne Muscular Dystrophy, and who was the head of Ryan’s Quest, which is part of Duchenne, an unincorporated organization of corporate entities, working together for common business interests. OpenOnward began discussion with Duchenne to solicit investments for the development of the software, and members of Duchenne provide OpenOnward with $65,000 of grant funding. In May 2011, Bunnell and Rago submitted a provisional patent application to the USPTO for the new software, and listed Bunnell and Rago as the inventors. In March 2012, Duchenne published a news release indicating that it had been given access to the patent pending intellectual property, for which Rago subsequently acknowledged he authorized the license, but for which OpenOnward was never compensated. By October 2012, the software had facilitated $6,000,000.00 in funding. Shortly thereafter, Rago became a salaried employee of Duchenne, with contractual provisions that required that he provide open access to all OpenOnward technology without compensation to OpenOnward.
In April 2014, Bunnell brought the derivative suit against various Duchenne defendants (“Duchenne”) and Rago, for breach of contract and violation of the Maryland Uniform Trade Secrets Act. Duchenne removed the action to the Federal Court based on Diversity jurisdiction, and then moved to dismiss the complaint for failure to state a claim. Bunnell opposed the motion to dismiss and filed an amended complaint, which Duchenne opposed. On September 11, 2014, Bunnell moved for default against Rago, who had not responded to the original complaint. Rago then moved to dismiss the complaint for failure to state a claim, which Bunnell opposed.
The Court noted that prior to addressing any of the pending motions, it had to determine whether it had a proper basis to exercise subject matter jurisdiction. The matter was a derivative claim for an LLC. “An LLC is a citizen of the states of which its members are citizens.” Bunnell, 2015 U. S. Dist. LEXIS 26472, 8, quoting Gen. Tech. Applications, Inc. v. Exro Ltda,, 388 F.3d 114, 120 (4th Cir. 2004). As such, OpenOnward, the party on whose behalf Bunnell brought the claim, had the citizenship of its members, Bunnell and Rago. While the Court noted that it was unclear if OpenOnward was a plaintiff or defendant, it was irrelevant to the analysis. As there were members on both sides of the matter, it was impossible for there to be diversity, as it would always share common citizenship with the opposing member. Accordingly, the matter was remanded to the Circuit Court for Baltimore City.
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