Fees Award in Dismissal for Lack of Diversity Jurisdiction Reversed

Plaintiff, a Florida limited liability company, filed a diversity suit against Sheraton in the Southern District of New York.  After three years and much discovery, the action was dismissed without prejudice for lack of subject matter jurisdiction when it was revealed that at least one of the members of plaintiff's limited liability company was a New York citizen, as was Sheraton.  Plaintiff then tried to cure the jurisdictional defect by dropping the non-diverse member of its company and filing a new action alleging the same claims. 

The district court also dismissed the second action for lack of subject matter jurisdiction, ruling that 28 U.S.C. §1359 prohibited such "engineering" of diversity jurisdiction.  The court also granted Sheraton's motion for "just costs," including $200,000 in attorney's fees, under 28 U.S.C. §1919 ("Whenever any action or suit is dismissed in any district court . . . for want of jurisdiction, such court may order the payment of just costs.")

The Second Circuit reversed, holding that Section 1919's allowance of "just costs" did not include attorney's fees, and that the invocation of the common-law "bad faith" exception to the American Rule on attorney's fees was not appropriate in the case.  Castillo Grand, LLC v. Sheraton Operating Corp., No. 11-2457 (2d Cir. June 18, 2013).

PM