March/Magnolia IV Inv. Ltd. v. Rudolph H. Beaver & Olympia Diversified Constr. Corp.

• Decision Date: 29 April 2016
• Docket Number: Case No.: 4:15-CV-1139-VEH
• Parties: MARCH/MAGNOLIA IV INVESTMENT LIMITED PARTNERSHIP, MARCH/MAGNOLIA V INVESTMENT LIMITED PARTNERSHIP, et al., Plaintiffs/Counter-Defendants, v. RUDOLPH H. BEAVER and OLYMPIA DIVERSIFIED CONSTRUCTION CORPORATION, Defendants/Counter-Plaintiffs.
• Court: U.S. District Court — Northern District of Alabama

MARCH/MAGNOLIA IV INVESTMENT LIMITED PARTNERSHIP,MARCH/MAGNOLIA V INVESTMENT LIMITED PARTNERSHIP,et al., Plaintiffs/Counter-Defendants, v. RUDOLPH H. BEAVER and OLYMPIA DIVERSIFIED CONSTRUCTION

CORPORATION, Defendants/Counter-Plaintiffs.

Case No.: 4:15-CV-1139-VEH

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ALABAMA MIDDLE DIVISION

April 29, 2016

MEMORANDUM OPINION

I. Introduction and Procedural History

On July 8, 2015, Plaintiffs March/Magnolia IV Investment Limited Partnership ("March IV") and March/Magnolia V Investment Limited Partnership ("March V") initiated this breach of fiduciary duty and breach of partnership action¹ against Rudolph H. Beaver ("Mr. Beaver") and Olympia Diversified Construction Corporation ("Olympia"). (Doc. 1). Plaintiffs maintain in their complaint that thecourt's authority to hear this action derives from diversity jurisdiction. (See Doc. 1 at 2 ¶ 5 ("Jurisdiction is proper in this Court pursuant to 28 U.S.C. § 1332, as the parties are completely diverse and the amount in controversy exceeds $75,000.")).

Perceiving several jurisdictional problems with Plaintiffs' lawsuit, the court, on January 25, 2016, entered an order (Doc. 20) directing Plaintiffs to show cause no later than February 16, 2016, why their case should not be dismissed without prejudice for lack of subject matter jurisdiction. In particular, the court questioned the absence of 23 Alabama real estate investment partnerships (the "Alabama Limited Partnerships") that were referred to in Plaintiffs' allegations and requested relief, but not named as parties. On the day of the show cause deadline, Plaintiffs filed their response (Doc. 21) and a Motion for Leave To Amend (Doc. 22) (the "Leave Motion"). On March 3, 2016, Defendants opposed Plaintiffs' Amend Motion (Doc. 25) and replied to Plaintiffs' show cause response. (Doc. 26).

Having considered the parties' filings, including Plaintiffs' proposed amended pleading, the court finds that Plaintiffs' case is due to be dismissed under Rule 19 due to the absence of the diversity-destroying Alabama Limited Partnerships that are indispensable parties in the context of this case. Further, because the court lacks subject matter jurisdiction and because Plaintiffs' proposed amended pleading only partially cures their case's jurisdictional deficits, their Amend Motion is due to betermed as moot.

II. Standards

A. Subject Matter Jurisdiction

Because federal courts are tribunals of limited jurisdiction, "a federal court has an independent obligation to review its authority to hear a case before it proceeds to the merits." Mirage Resorts, Inc. v. Quiet Nacelle Corp., 206 F.3d 1398, 1400-01 (11th Cir. 2000); see also Baggett v. First Nat'l Bank of Gainesville, 117 F.3d 1342, 1352 (11th Cir. 1997) ("The Court sua sponte may raise a jurisdiction defect at any time."). And, if at any time the court determines that it lacks subject matter jurisdiction, "the court must dismiss the action." FED. R. CIV. P. 12(h)(3) (emphasis added); see also Morrison v. Allstate Indemnity Co., 228 F.3d 1255, 1261 (11th Cir. 2000) (same). A dismissal for lack of subject matter jurisdiction must be without prejudice. Stalley ex rel. U.S. v. Orlando Reg'l Healthcare Sys., Inc., 524 F.3d 1229, 1235 (11th Cir. 2008) (affirming district court dismissal for lack of jurisdiction but reversing for entry of dismissal "without prejudice" on remand rather than "with prejudice" as originally and erroneously entered). Importantly, when a dismissal is a "without prejudice" one, this means that the merits of the plaintiff's asserted claims, if any, are not barred from further litigation in state or federal court by such an order.

B. Rule 19

"Rule 19 states a two-part test for determining whether a party is indispensable. First, the court must ascertain under the standards of Rule 19(a) whether the person in question is one who should be joined if feasible. If the person should be joined but cannot be (because, for example, joinder would divest the court of jurisdiction) then the court must inquire whether, applying the factors enumerated in Rule 19(b), the litigation may continue." Focus on the Family v. Pinellas Suncoast Transit Authority, 344 F.3d 1263, 1279-80 (11th Cir. 2003) (internal quotation marks omitted) (quoting Challenge Homes, Inc. v. Greater Naples Care Ctr., Inc., 669 F.2d 667, 669 (11th Cir. 1982)).

In making the first determination-i.e., whether the party in question "should be joined," "'pragmatic concerns, especially the effect on the parties and the litigation, control.'" [Challenge Homes, 669 F.2d at 669] (quoting Smith v. State Farm Fire & Cas. Co., 633 F.2d 401, 405 (5th Cir. 1980)); see also In re Torcise, 116 F.3d 860, 865 (11th Cir. 1997) ("[F]indings of indispensability must be based on stated pragmatic considerations, especially the effect on parties and on litigation."). (internal citations and quotations omitted).

Focus, 334 F.3d at 1280.

Concerning the second determination, "when a person described by Rule 19(a) cannot be joined, 'the court shall determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, theabsent person being thus regarded as indispensable.'" California v. Arizona, 440 U.S. 59, 62 n.3, 99 S. Ct. 919, 922 n.3, 59 L. Ed. 2d 144 (1979) (quoting FED. R. CIV. P. 19(b)). Factors for the court to consider when undergoing this equitable evaluation include:

(1) the extent to which a judgment rendered in the person absence might prejudice that person or the existing parties;

(2) the extent to which any prejudice could be lessened or avoided by:

(A) protective provisions in the judgment;

(B) shaping the relief; or

(C) other measures;

(3) whether a judgment rendered in the person's absence would be adequate; and

(4) whether the plaintiff would have an adequate remedy if the action were dismissed for nonjoinder.

FED. R. CIV. P. 19(b).

When the court decides under Rule 19(a) that a diversity-destroying party should be joined, dismissal is appropriate only when a necessary party cannot be joined, and "in equity and good conscience, the case should not proceed without such a party." English v. Seaboard Coast Line R. Co., 465 F.2d 43, 48 (5th Cir. 1972).²Finally, a district court's dismissal is reviewed for abuse of discretion on appeal. Laker Airways, Inc. v. British Airways, PLC, 182 F.3d 843, 847 (11th Cir. 1999).

III. Analysis

A. Background and Preliminary Considerations

Plaintiffs assert no federal claims and predicate subject matter jurisdiction exclusively on 28 U.S.C. § 1332(a)(1). Section 1332(a)(1) bestows this court with the authority to hear disputes arising under state law when complete diversity of citizenship exists between the adverse parties and the lawsuit meets the amount in controversy threshold. See 28 U.S.C. § 1332(a)(1) ("The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between--(1) citizens of different States[.]").

Having studied Plaintiffs' proposed amended complaint and the parties' briefing, the sole jurisdictional concern that remains for consideration is the impact of Rule 19 on Plaintiffs' ability to show diversity jurisdiction. As this court previously stated in its show cause order:

Finally, the court has Rule 19 concerns about the host of "real estate investment partnerships that own multi-family housing complexes" (Doc. 16 at 3 ¶ 9), which Plaintiffs have referenced in theiramended complaint, (id. at 3 ¶¶ 10-13; see also Doc. 16-7 at 2),³ but which are not parties to this litigation. Plaintiffs do not assert that these entities are "dispensable," explain their "reasons for not joining" them, FED. R. CIV. P. 19(c)(2), or otherwise address how their presence as parties would impact this court's ability to exercise diversity jurisdiction over this dispute. Cf. Haas v. Jefferson Nat. Bank of Miami Beach, 442 F.2d 394, 396 (5th Cir. 1971) ("It is settled that failure of the district court to acquire jurisdiction over indispensable parties to an action deprives 'the court of jurisdiction to proceed in the matter and render a judgment.'" (quoting Schuckman v. Rubenstein, 164 F.2d 952, 957 (6th Cir. 1947))).

(Doc. 20 at 6-7 (footnotes omitted)). The court further detailed its concern noting:

As the court understands Plaintiffs' allegations, 23 real estate investment partnerships exist in which Mr. Beaver and Olympia act as the general partners and either March II, March III, March IV, or March V serves as the limited partner. (Doc. 16 at 3 ¶ 9). Plaintiffs complain about the actions of Mr. Beaver and Olympia in their roles as general partners of these real estate investment entities and specifically seek a declaratory judgment that their "misconduct [is] sufficient to trigger the Plaintiffs' right to remove them as the general partners of all twenty-three partnerships . . . ." (Doc. 16 at 28 ¶ 123. Given Plaintiffs' request for declaratory relief which, if granted, will undoubtedly have a significant impact on the real estate partnerships, the court struggles to envision how these entities could ever be appropriately characterized as dispensable.

(Doc. 20 at 7 n.3).

Plaintiffs' proposed amended complaint continues to seek a "declar[ation] that the actions of Beaver and Olympia constitute misconduct sufficient to trigger the Plaintiffs' right to remove them as the general partners of all twenty-threepartnerships listed on the attached 'Exhibit G.'" (Doc. 22-1 at 30-31 ¶ 125). Plaintiffs have omitted the Alabama Limited Partnerships as named defendants, explaining that:

[They] are not joined to this action because the constituent partners of all twenty-three partnerships are already parties to this Complaint and complete relief can readily be afforded without the presence of the partnerships themselves. The nature of the claims alleged below constitute claims among the

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