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June 4, 2003


The opinion of the court was delivered by: Paul Plunkett, Senior District Judge


Franklin Lunding, Jr. has sued defendants under a variety of theories for their alleged failure to tender certain stock, dividends and other payments to him. Defendants, who contend that Lunding has not properly invoked the Court's diversity jurisdiction, have filed a Federal Rule of Civil Procedure ("Rule") 12(b)(1) motion to dismiss the complaint for lack of subject matter jurisdiction. For the reasons set forth below, the motion is granted in part and denied in part.


In the early 1980s, Lunding, defendant Silverman and others formed The Prozyme Company. (Compl. ¶ 16.) Lunding was the president and CEO of Prozyme. (Id.) Sometime later, Silverman left Prozyme and formed PPL, a company that acted as a distributor for Prozyme. (Id. ¶ 17.)

In the early 1990s, Lunding formed a new company, Biocatalyst, to purchase all of the outstanding stock of both Prozyme and PPL. (Id. ¶¶ 19-20.) In early 1993, pursuant to an exchange/purchase agreement, Biocatalyst convertible preferred stock was used to purchase the stock of both Prozyme and PPL. (Id. ¶¶ 19, 22.) As a result of the exchange/purchase, Lunding received 275 shares of Biocatalyst convertible preferred stock. (Id. Ex. A, Exchange/Purchase Agreement, Ex. D; Defs.' Mem. Supp. Mot. Dismiss, Ex. A, Lunding Dep. at 94-95.) Though he does not own them, Lunding is the trustee of 575 other shares of Biocatalyst convertible preferred stock held by four different trusts. (Pl.'s Resp. at 3.)

In May 2001, Lunding tried to convert his 275 shares of Biocatalyst preferred stock to common stock. (Compl. ¶ 27.) The conversion rate was four shares of common stock for each share of preferred. (Id. ¶ 28.) In addition, upon conversion, Lunding was entitled to the unpaid accumulated dividends on his preferred stock, which totaled $11,550.00. (Id. ¶ 29.)

The CEO of Biocatalyst acknowledged receipt of Lunding's preferred stock, directed that it be converted and had the corporate stock ledger changed to reflect the conversion. (Id. ¶ 30.) However, the common stock was not issued and no accrued dividends were paid to Lunding. (Id.)

On May 14, 2002, Biocatalyst announced that the majority of convertible preferred shareholders had consented to rescind the 1993 issuance of the convertible preferred stock. (Id. ¶ 34.) Despite Lunding's demands, Biocatalyst refuses to reinstate the convertible preferred stock, issue him common stock for the preferred stock he tendered or pay him for the accrued dividends on the preferred stock. (Id. ¶ 40.) Lunding contends that defendants' actions are tortious and breach various agreements and seeks declaratory, monetary and mandamus relief.

The Legal Standard

There are two kinds of Rule 12(b)(1) motions: those that attack the sufficiency of the jurisdictional allegations and those that attack the factual basis for jurisdiction. Facial attacks are subject to the same standard as motions pursuant to Rule 12(b)(6) motions; that is, the Court accepts as true all well-pleaded factual allegations of the complaint, drawing all reasonable inferences in plaintiffs favor. United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 946 (7th Cir. 2002). However, in factual attacks, like this one, the Court may consider affidavits and other evidence in deciding the motion. Id. In either case, the burden of proving that jurisdiction exists rests with the plaintiff. Id.


The Court has diversity jurisdiction over Lunding's suit if there is diversity of citizenship among the parties and the amount in controversy exceeds $75,000.00. 28 U.S.C. § 1332. Defendants contend that neither requirement is met.

The citizenship requirement is satisfied if no plaintiff is a citizen of the same state as any defendant. In making that determination, "a federal court must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy." Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 461 (1980). Plaintiff asserts claims on behalf of himself and in his capacity as trustee of four trusts. (Pl.'s Resp. at 2-3.) Defendants contend that the trust beneficiaries, not plaintiff, are the real parties in interest for the latter claims. Moreover, defendants say, the Illinois citizenship of one of the trust beneficiaries destroys diversity in this case.

The Court disagrees. Rule 17(a) permits a trustee of an express trust to sue in his own name "without joining the party for whose benefit the action is brought." Moreover, the Supreme Court has said, such a trustee is the real party in interest in a suit he prosecutes on behalf of the trust. Navarro, 446 U.S. at 465. Thus, it is the citizenship of the trustee, not the trust beneficiary, that is considered for diversity purposes. Id. at 465-66. ...

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