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Scientology Moves to Dismiss Garcia Fraud Lawsuit On a Question of Jurisdiction

Could Luis Garcia's lawsuit be in trouble?

Could Luis Garcia’s lawsuit be in trouble?

Yesterday, the Church of Scientology was required by Judge James Whittemore to come up with a 5-page description of its internal arbitration system as the latest step in the federal fraud lawsuit brought against the church by Luis and Rocio Garcia.

But on Monday, the church filed a surprising new motion in the case, asking the lawsuit to be dismissed because a Florida federal courtroom is not the proper venue for it.

Almost eleven months after the lawsuit was first filed in Tampa, Scientology is saying that it just recently got around to noticing that three of the individual church entities which are being sued are based in California, where the Garcias live, and therefore those three entities should be dismissed from the case — they should never have been sued in a Florida federal court.

Garcia attorney Ted Babbitt told us the timing on this motion is pretty suspect. “With all of their attorneys, they just thought of this?” he said to us yesterday by telephone. Babbitt says he’s working on a response that will be filed in the next week to ten days.

In January, the Garcias filed their lawsuit, saying that they had been longtime members of the church who now realized that they had been induced to give donations through fraudulent means. They named several church entities in their complaint:

— The Church of Scientology Religious Trust (CSRT) solicited donations for the church and in particular for the “Super Power Building,” a major project of the church that was begun in 1998 and still sits unopened. The Garcias said they had donated $340,000 to the project, but now believe that they were lied to about how the money was going to be spent.

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— The Church of Scientology Flag Service Organization, Inc. (abbreviated to FLAG in the lawsuit) runs Scientology’s “Flag Land Base” in Clearwater, Florida, where high-level Scientologists come for upper-level teachings that can run $1,000 an hour. The Garcias had been convinced to put money on account for future services that totaled $37,413.56.

— The Church of Scientology Flag Ship Service Organization, Inc. d/b/a Majestic Cruise Lines (SHIP) operates Scientology’s private cruise ship, the Freewinds. Scientology’s highest level of spiritual advancement — Operating Thetan Level Eight — can only be delivered on the ship, which plies the Caribbean. Other courses are also conducted on the ship, and the Garcias had put $31,445.45 on account for future cruises.

— IAS Administrations, Inc. (IAS) runs the International Association of Scientologists, a defense fund that started in the mid-1980s and which all church members are pressured to donate to. The Garcias said they had donated $40,410.00 to the IAS.

— US IAS Members Trust (USIMT) was also named as a defendant, and was described as an alter ego of the IAS.

The Garcias named these entities in their Florida federal lawsuit because each of them, they said, were either headquartered in or did substantial business in Clearwater, Florida.

But now, Scientology is saying that it has just now discovered that three of the entities are headquartered in California, where the Garcias are, and therefore should not be sued in federal court in Florida.

— USIMT has four trustees, all of whom live in California.

— CSRT has two trustees in Clearwater, and three others in California.

— The IAS has staff in Florida, but three-quarters of its staff is in Los Angeles, its principal place of business.

These are facts which the church only recently discovered, it says…

Defendants have not answered the complaint, having instead moved to compel arbitration, therefore these allegations and the legal issue regarding citizenship of trusts for purposes of diversity were not scrutinized by counsel until recently…

The church argues that the lawsuit fails to properly assert “diversity jurisdiction” and “subject matter jurisdiction” and so the three California-based entities should be dropped from the suit.

We asked attorney Scott Pilutik to explain the legal concepts behind Scientology’s motion…

I guess the concept of diversity jurisdiction needs to be first explained so that people can understand what’s going on here. I’ll try to make it as painless as possible but be forewarned: It’s fairly dense and dry terrain. Ready? Deep breath, and…

There are two basic types of jurisdiction — personal and subject matter — needed in every federal case. Well, every case actually, but I’m going to focus on federal as opposed to state-based jurisdiction since we’re in federal court, for now at least.

The issue of personal jurisdiction asks whether the court properly has jurisdiction over a party. More specifically the court looks to whether the party has “minimum contacts” to the forum state, asking such questions as: Does the party live there? Were you able to serve the party there? Does the party sell goods there? And so on, there are dozens of ways to establish personal jurisdiction not worth going into here.

The issue of subject matter jurisdiction asks whether the court properly has jurisdiction over the claim. In federal court, subject matter jurisdiction is most often found where a party sues another pursuant to a federal statute or the U.S. Constitution.

Diversity jurisdiction, a subspecies of subject matter jurisdiction, is asserted by one party suing a defendant in another state under a non-federal statute (state, county, city, etc.). The policy idea behind this is to prevent state courts from favoring in-state plaintiffs over out-of-state defendants. There’s some debate over whether this remains a reasonable fear, but the rule isn’t going anywhere anytime soon.

I won’t explain the other flavors, but the most common type of diversity jurisdiction involves citizen of State A suing citizen of State B under a state statute. 28 USC § 1332(a)(1). (Which is what the Garcias did — California citizens suing purported Florida entities). For corporate defendants, their citizenship is determined by either looking to their “principal place of business” and the state in which it is incorporated (corporations can be citizens of multiple states for the sake of diversity jurisdiction analysis). 28 USC § 1332(c)(1). A trust’s citizenship is determined by the residences of its trustees.

Now this is important. For a plaintiff to invoke diversity jurisdiction the diversity must be “complete.” That is, if you’re bringing suit against multiple defendants, no defendant can be a citizen of the same state. If it’s discovered that one of the defendants is from the same state as the plaintiff then diversity is no longer complete, and the federal court will dismiss the case for lack of subject matter jurisdiction, unless the plaintiff can cure the jurisdictional defect by dropping the same-state defendants from the suit.

Here, three Scientology defendants — CSRT, IAS ADMINISTRATIONS, INC., and U.S. IAS MEMBERS TRUST — now claim, nine months after being served with the complaint, that they are all, like the Garcias, California citizens, and thus the court lacks subject matter jurisdiction and must dismiss.

So are they California citizens? It would seem that if the three declarations included in Scientology’s submission are accurate, then yes, they are California citizens, and their presence destroys complete diversity jurisdiction. Furthermore, whereas personal jurisdiction can be waived by a party, subject matter jurisdiction cannot (which is why I explained the distinction earlier). Which means that it probably matters little that Scientology has filed this so late, and possibly in bad faith. (We’re meant to think they really just noticed this now? Really? No, really.)

Speculating a bit on how the Garcias might respond, one argument is the aforementioned bad faith argument — that the court should reject Scientology’s eleventh-hour motion on the basis that Scientology had to have known that they were holding this motion on their pocket until such time as they saw their position threatened, such as perhaps when they were asked by the court to provide an example of their arbitration process. The problem with this argument is that no matter how pissed off the court gets at Scientology for having wasted months of the court’s time (and plaintiff’s money), they’ll still lack subject matter jurisdiction at the end of the day and will need to dismiss.

The other way to go is to argue that they aren’t really California entities, that perhaps these declarations aren’t being entirely clear and honest about the nature of those entities, but I don’t know whether that’s actually the case. On a similar train of thought, one could argue that these particular trusts act more like corporations and should, for the purpose of a diversity jurisdiction analysis, be viewed as such (which, again, would look to the “principal place of business”). Courts often construe sham business entities as something other than what they purport to be, most commonly, e.g., corporations as partnerships. One problem with that argument is that CSRT can likely successfully contend that it is a California entity regardless of its label.

And of all the defendants, CSRT is the big fat whale here, the one defendant the Garcias need, as CSRT was the recipient of the Super Power Building donations.

The one bright spot here, if there is one, is that even if this kills the suit in this court, the case could still be filed in state court (either Florida or California would make sense, but probably Florida). What could be saved from the progress already made, though, is an open question. And perhaps the federal court could sanction Scientology for waiting until just before the clock struck twelve to file this.

Those don’t sound like the most optimistic outcomes that Scott has described. So we’ll be very interested to see what Ted Babbitt comes up with as a response.

In the meantime, Scientology did file on time the arbitration memo it was asked to submit by Judge Whittemore. We’re a little surprised to see the church referring to “comm evs” — committees of evidence — in a description of its arbitration procedures. Comm evs are justice actions that are somewhat like mini-trials or court martials. We weren’t aware that they were assembled when someone merely wanted their money back.

A very important element that we did expect to see was the rule that a three-person arbitration panel has to be comprised of people who are members of the church in good standing. That’s the rule, ex-members say, which makes it impossible for them to get a fair ruling from Scientology arbitration.

So now we await Judge Whittemore’s ruling — will he agree with the church that the Garcias’ claim that they were defrauded be something they should take to Scientology arbitration rather than a civil court of law?

And will Whittemore make a ruling on the arbitration question before he deals with this new motion from the church to dismiss three of the defendants because of a question of jurisdiction?

It was just three weeks ago that the Garcias won a big victory as Whittemore denied Scientology’s attempt to disqualify the Garcia attorneys. But now, things suddenly seem much more up in the air.

 
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LA Confidential — Ebner and Your Proprietor

Since we were in town, we couldn’t help suggesting to Allison Hope Weiner that she have us on with our old pal, Mark Ebner. We hope you enjoy the result!

 

 
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TomKatSmallThanks to Bunker Readers — The TomKat Project in LA!

They did it! Producer Dein Sofley and Writer/Director Brandon Ogborn are bringing The TomKat Project to Los Angeles after they hit their fundraising target of $15,000 at Kickstarter.

The hilarious stage comedy about Katie Holmes, Tom Cruise, and Scientology leader David Miscavige (along with scads of other characters) finished off a successful run in Chicago, then played sold out shows at the NYC Fringe Festival. But LA is where this show really ought to be, and we helped announce the fundraising effort — and then our readers continued to push for its success.

It came down to the wire, but the goal was reached and in November The TomKat Project will be playing at a theater, iO West, just steps away from one of Scientology’s most important facilities on Hollywood Bouldevard. Spooky!

Here are the dates: Friday, November 15 (8 pm); Saturday, November 16 (8 pm); and Sunday, November 17 (7 pm).

Grab your tickets fast before they disappear. At $15 each, they’re a steal.

Dein Sofley sent us these words for readers of the Bunker, who helped make this happen: “We couldn’t have come this far without you.”

 
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Posted by Tony Ortega on October 25, 2013 at 07:00

E-mail your tips and story ideas to tonyo94@gmail.com or follow us on Twitter. We post behind-the-scenes updates at our Facebook author page. Here at the Bunker we try to have a post up every morning at 7 AM Eastern (Noon GMT), and on some days we post an afternoon story at around 2 PM. After every new story we send out an alert to our e-mail list and our FB page.

If you’d like to help support The Underground Bunker, please e-mail our webmaster Scott Pilutik at BunkerFund@tonyortega.org

 

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