MITCHELL POZEZ and NEIL KLEINMAN v. CLEAN ENERGY CAPITAL, LLC, FKA Ethanol Capital Management, LLC

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MITCHELL POZEZ and NEIL
KLEINMAN,
Plaintiffs - Appellees,
v.
CLEAN ENERGY CAPITAL, LLC, FKA
Ethanol Capital Management, LLC and
ETHANOL CAPITAL PARTNERS, LP,
Series G,
Defendants - Appellants.
No. 13-16504
D.C. No. 4:07-cv-00319-CKJ
MEMORANDUM*
Appeal from the United States District Court
for the District of Arizona
Cindy K. Jorgenson, District Judge, Presiding
Argued and Submitted January 13, 2015
San Francisco California
Before: WALLACE, M. SMITH, and FRIEDLAND, Circuit Judges.
Defendants-Appellants Clean Energy Capital and Ethanol Capital Partners
appeal from the district court’s award of attorneys’ fees to Plaintiffs-Appellees
FILED
FEB 09 2015
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
* This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.

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Mitchell Pozez and Neil Kleinman. Although neither party raised the issue on
appeal, it appears that subject matter jurisdiction is lacking, and this court is
“bound to consider jurisdictional defects sua sponte.” United States v. S. Pac.
Transp. Co., 543 F.2d 676, 682 (9th Cir. 1976).
Under the well-pleaded complaint rule, no federal question subject matter
jurisdiction exists here because the complaint only sets forth state law claims.
Appellants’ argument that Appellees’ were required to register or take other action
under one or more of the federal securities laws constitutes a defense, which cannot
provide a basis for subject matter jurisdiction. See, e.g., Vaden v. Discover Bank,
556 U.S. 49, 60 (2009); Cal. Shock Trauma Air Rescue v. State Comp. Ins. Fund,
636 F.3d 538, 541–42 (9th Cir. 2011). Nor does the isolated allegation in the
complaint of “knowing violations of securities and other law” constitute a federal
claim by itself, or transform any of the state law claims in the complaint into
federal claims. Nor can a counterclaim create federal jurisdiction. Holmes Grp.,
Inc. v. Vornado Air Circulation Sys., Inc., 535 U.S. 826, 830–31 (2002). The
Supreme Court’s decision in Mackay v. Uinta Dev. Co., 229 U.S. 173 (1913), is
not to the contrary, given that the analysis of counterclaims in the context of
diversity jurisdiction does not necessarily follow the same well-pleaded complaint
rule that applies in the context of federal question jurisdiction. See Horton v.
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Liberty Mut. Ins. Co., 367 U.S. 348, 353–54 (1961) (taking into consideration not
only the amount sought by the plaintiff but also the amount sought by the
defendant through a counterclaim in finding that the amount in controversy was
satisfied for purposes of diversity jurisdiction).
We conclude that there is no subject matter jurisdiction over this case.
Although the only matter before us on appeal is the district court’s order regarding
attorneys’ fees, our conclusion regarding the clear lack of subject matter
jurisdiction also means that the district court’s judgment on the merits in the
underlying case is void, Watts v. Pinckney, 752 F.2d 406, 409 (9th Cir. 1985), and
that the case should not have been removed from state court in the first place,
Dennis v. Hart, 724 F.3d 1249, 1255 (9th Cir. 2013).
We therefore vacate the district court’s order regarding attorneys’ fees and
the district court’s prior order and judgment on the merits with instructions to
remand to state court. The motion to dismiss or stay the appeal is denied.
APPEAL DISMISSED, JUDGMENT AND ORDERS VACATED AND
REMANDED.
The parties shall bear their own costs.
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