Dominium Austin Partners, L.L.C. v. Emerson

• Decision Date: 16 March 2001
• Docket Number: No. 00-2226,00-2226
• Citation: 248 F.3d 720,2001 WL 436045
• Parties: (8th Cir. 2001) DOMINIUM AUSTIN PARTNERS, L.L.C., A MINNESOTA LIMITED LIABILITY COMPANY; DOMINIUM IOWA ONE, L.L.C., A MINNESOTA LIMITED LIABILITY COMPANY; DOMINIUM KANSAS ONE, L.L.C., A MINNESOTA LIMITED LIABILITY COMPANY; DOMINIUM WISCONSIN FIVE, L.L.C., A MINNESOTA LIMITED LIABILITY COMPANY; DOMINIUM WISCONSIN SEVEN, L.L.C., A MINNESOTA LIMITED LIABILITY COMPANY; DOMINIUM MANAGEMENT SERVICES, INC., A MINNESOTA CORPORATION; GENERAL MILLS, INC., A DELAWARE CORPORATION; MINNESOTA MINING AND MANUFACTURING COMPANY, A DELAWARE CORPORATION; H B FULLER COMPANY, A MINNESOTA CORPORATION; DELUXE CORPORATION, A MINNESOTA CORPORATION; KLT INVESTMENTS, INC., A MISSOURI CORPORATION, PLAINTIFFS - APPELLEES, v. M. J. EMERSON; NANCY EMERSON; RICHARD TRIPLETT; SUSAN TRIPLETT, DEFENDANTS - APPELLANTS. Submitted:
• Court: U.S. Court of Appeals — Eighth Circuit

Page 720

248 F.3d 720 (8th Cir. 2001)

DOMINIUM AUSTIN PARTNERS, L.L.C., A MINNESOTA LIMITED LIABILITY COMPANY; DOMINIUM IOWA ONE, L.L.C., A MINNESOTA LIMITED LIABILITY COMPANY; DOMINIUM KANSAS ONE, L.L.C., A MINNESOTA LIMITED LIABILITY COMPANY; DOMINIUM WISCONSIN FIVE, L.L.C., A MINNESOTA LIMITED LIABILITY COMPANY; DOMINIUM WISCONSIN SEVEN, L.L.C., A MINNESOTA LIMITED LIABILITY COMPANY; DOMINIUM MANAGEMENT SERVICES, INC., A MINNESOTA CORPORATION; GENERAL MILLS, INC., A DELAWARE CORPORATION; MINNESOTA MINING AND MANUFACTURING COMPANY, A DELAWARE CORPORATION; H B FULLER COMPANY, A MINNESOTA CORPORATION; DELUXE CORPORATION, A MINNESOTA CORPORATION; KLT INVESTMENTS, INC., A MISSOURI CORPORATION, PLAINTIFFS - APPELLEES, v. M. J. EMERSON; NANCY EMERSON; RICHARD TRIPLETT; SUSAN TRIPLETT, DEFENDANTS - APPELLANTS.

No. 00-2226

UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT

Submitted: March 16, 2001

Filed: May 1, 2001

Appeal from the United States District Court for the District of Minnesota. [Copyrighted Material Omitted]

[Copyrighted Material Omitted]

Before Murphy, Lay, and Bye, Circuit Judges.

Murphy, Circuit Judge.

This diversity case involves disagreements between certain limited partners and other partnership entities who invested in low income housing. The case was brought by a number of companies, who are citizens of Minnesota, Delaware, and Missouri, to compel arbitration under the Federal Arbitration Act (FAA), 9 U.S.C. 1-16, and to enjoin further proceedings in a California class action brought by defendants. Defendants, all residents of Iowa, then joined Minnesota resident Joel Lindquist as a class representative in their California action and moved the district court to dismiss this case for failure to join an indispensable party under Fed. R. Civ. P. 12(b)(7) , for lack of personal jurisdiction, and for improper venue. In the alternative, defendants moved for permission to arbitrate on behalf of the class alleged in California. The district court ¹ denied the motion to dismiss, ordered defendants to arbitrate as individuals, and enjoined the California proceedings. They appeal, and we affirm.

I.

Appellants M.J. and Nancy Emerson and Richard and Susan Triplett are residents of Iowa who became limited partners by investing in some Operating Limited Partnerships (Operating Partnerships). ² Forty Operating Partnerships were formed between 1991 and 1996 under California law to own and operate low income housing projects through general partners Nationwide Housing Group, Inc. and Nationwide Development Group, L.P. (collectively NHG). Each partnership adopted an agreement which provided that the limited partners would have voting rights in proportion to their investment, that the agreement could be amended by a 51% vote of the limited partners, that the replacement of a general partner required a unanimous vote of the limited partners, and that any dispute would be submitted to an arbitrator who would resolve the issue by applying California law.

NHG Institutional Fund, L.P. (the Institutional Fund) was a limited partner in twelve of the Operating Partnerships, including all but one of the partnerships in which appellants had invested. The Institutional Fund invested a total of $50 million in these twelve Operating Partnerships, giving the Institutional Fund a controlling vote in each. The Institutional Fund was comprised of appellees General Mills, Inc., Minnesota Mining and Manufacturing Company, H.B. Fuller Company, Deluxe Corporation, and KLT Investments, Inc. (the corporate parties), and five other companies not involved in this lawsuit.

The appellants allege that in early 1996, NHG informed the Institutional Fund that the Operating Partnerships and NHG were experiencing financial difficulties. The corporate parties were concerned about their investments, and they allegedly took on an active role in the management of the partnerships by influencing NHG and restructuring the partnerships to the detriment of the individual limited partners. Part of the restructuring involved the replacement of NHG as general partner without the unanimous vote of the limited partners.

Appellee Dominium Management Services, Inc., acted as general partner for some or all of the Operating Partnerships in 1996, but the corporate parties eventually placed each Operating Partnership under the control of separate general partners. Appellees Dominium Iowa One, L.L.C., Dominium Kansas One, L.L.C., Dominium Wisconsin Five, L.L.C., and Dominium Wisconsin Seven, L.L.C., were all general partners in Operating Partnerships in which one or more of the appellants invested.

The appellants allege that the corporate parties continued to control the partnerships through the general partners, received information not available to the individual investors, made misrepresentations to the individual investors, and diluted their interests. In 1997, over 80% of the limited partners of each Operating Partnership adopted amendments to their partnership agreements. Richard and Susan Triplett voted for adoption of the amendments, but M.J. and Nancy Emerson voted against adoption. Among the provisions of the amended agreements was one that provided that all disputes arising out of the partnerships would be submitted to an arbitrator in Minnesota who would resolve the issues under Minnesota law. The appellants claim that the amendments would not have been adopted had the corporate parties not made certain misrepresentations to the individual limited partners.

In September 1999, appellants filed a class action in California state court against the corporate parties, NHG, and Dominium Management Services, Inc. Appellants also sued the general partners who replaced NHG as a class, naming Dominium Austin Partners, L.L.C. as class representative. Among the causes of action the complaint alleged were breach of fiduciary duty by the general partners, for allowing themselves to be controlled by the corporate parties, and breach of fiduciary duty by the corporate parties, for diluting the interests of the individual investors while acting in the capacity of de facto general partners. After the complaint was filed in California, appellees filed a petition with the American Arbitration Association, demanding arbitration. Appellants refused to arbitrate. Appellees then brought this diversity action, requesting that appellants be compelled to arbitrate their dispute in Minnesota under the FAA, that appellants be precluded from arbitrating as a class, and that further proceedings in the California case be enjoined. After this federal action was filed, appellants joined Joel Lindquist as a class representative in their California lawsuit.

Lindquist is a Minnesota resident who had invested in the Dakota II limited partnership, and appellees petitioned the American Arbitration Association with a demand that he submit his claim to arbitration. He refused, and appellees sued in Minnesota District Court to compel him to arbitrate. After the appellate briefs in this case were submitted, the state court granted appellees' motion to compel Lindquist to submit to arbitration. It also enjoined him from arbitrating on behalf of a class and from bringing further proceedings related to this dispute in any forum other than binding arbitration in Minnesota. Lindquist's appeal from that decision is pending in the Minnesota Court of Appeals. Meanwhile, the California Superior Court granted appellees' motion to stay the California case. No class has yet been certified in that action.

In the appeal now before the court, appellants claim that the federal district court erred in dismissing this case and denying their request to arbitrate as a class. The district court held that Lindquist was not indispensable because he was not a named party at the time this action was filed. Since he was not indispensable, the court had diversity jurisdiction. Personal jurisdiction was not lacking because appellants had consented to personal jurisdiction by the agreement to arbitrate in Minnesota. Venue was proper in Minnesota because it was not inconvenient to the parties, and some of the conduct at issue had occurred in the state. Appellants contest all these points and also argue that the district court should have abstained in favor of the California court since the case there was filed first.

The FAA confers jurisdiction on federal courts over actions to compel arbitration only to the extent that the court would otherwise have jurisdiction. See 9 U.S.C. 4; Moses H. Cone Mem. Hosp. v. Mercury Constr. Co., 460 U.S. 1, 25 n.32 (1983). The asserted basis for subject matter jurisdiction in this case is diversity of citizenship, see 28 U.S.C. 1332, which requires complete diversity among the parties. See Carden v. Arkoma Assocs., 494 U.S. 185, 187 (1990). Appellants argue that Lindquist is an indispensable party because he is necessary for a just resolution of this case. His joinder would deprive the court of diversity jurisdiction since he and some of the plaintiffs are citizens of Minnesota.

If subject matter jurisdiction exists at the time the action is commenced, it will generally not be divested by subsequent events. See Freeport-McMoRan, Inc. v. KN Energy, Inc., 498 U.S. 426, 428 (1991) (per curiam). The exception is where a nondiverse party must be joined because the party was indispensable at the time the complaint was filed. See Estate of Alvarez v. Donaldson Co., Inc., 213 F.3d 993, 994 (7th Cir. 2000); Whalen v. Carter, 954 F.2d 1087, 1096 (5th Cir. 1992).

The first step in determining whether a party is indispensable is to determine whether it is a necessary party. A party is necessary if:

(1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair...