VIRGINIA EMERSON HOPKINS, District Judge.
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 action
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 be termed as moot.
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
"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)).
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, the absent 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
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).
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:
(Doc. 20 at 6-7 (footnotes omitted)). The court further detailed its concern noting:
(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-three partnerships 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:
(Doc. 22-1 at 6 ¶ 15). Based upon these allegations and the parties' diverging positions about the dispensable nature of the partnerships, the court now analyzes Rule 19.
Following the two-part framework imposed by Rule 19, the court must first determine whether the partnerships are necessary parties, i.e., a party that must be joined if feasible. See Focus, 344 F.3d at 1279-1280. As Rule 19(a) provides in relevant part:
FED. R. CIV. P. 19(a). "A party is considered `necessary' to [or required in] the action if the court determines either that complete relief cannot be granted with the present parties or the absent party has an interest in the disposition of the current proceedings." Laker Airways, 182 F.3d at 847.
A key component of Plaintiffs' complaint calls for a judgment from this court restructuring the Alabama Limited Partnerships' composition. Thus, if Plaintiffs are successful, the impact on these non-joined entities would be direct and substantial. Cf. Laker Airways, 182 F.3d at 848 (explaining in finding necessariness through indirect impact under Rule 19(a) that "[a]lthough the relief Laker presently seeks
As signaled by the show cause order, this court comfortably concludes that, because Plaintiffs seek a declaration that
Further, Plaintiffs admit that joinder of the partnerships is not feasible: "Whether the real estate partnerships are added to the plaintiffs' side or the defendants' side, complete diversity would be destroyed. This is so because the partnership is a citizen of every state in which it has a partner." (Doc. 21 at 9); see also Rolling Greens MHP, L.P. v. Comcast SCH Holdings L.L.C., 374 F.3d 1020, 1022 (11th Cir. 2004) ("To sufficiently allege the citizenships of these unincorporated business entities, a party must list the citizenships of all the members of the limited liability company and all the partners of the limited partnership."). Thus, having confirmed that the Alabama Limited Partnerships should be joined under Rule 19(a), but that to do so would deprive this court of subject matter jurisdiction, the court now turns to an evaluation of their indispensability under Rule 19(b).
"If a necessary party cannot be joined, the court must then proceed to Rule 19(b) and consider whether in `equity and good conscience,' the suit should proceed without the necessary party. [In doing so,][t]he court balances [the] four [Rule 19(b)] factors [listed above]. . . ." Laker Airway, 182 F.3d at 848. Here, the court concludes that Plaintiffs' efforts to remain in federal court fall short under Rule 19(b)'s non-exclusive list of factors,
The primary opinion that Plaintiffs rely upon in their show cause response to demonstrate why this case should continue in federal court without the Alabama Limited Partnerships as parties is Hooper, supra at 10. In Hooper, the Sixth Circuit held that the district court abused its discretion in (i) finding the diversity-destroying limited partnership to be indispensable and (ii) dismissing the complaint under Rule 19(b). 396 F.3d at 745. The court finds the Hooper opinion to be significantly different for at least two reasons. First, the focus of relief sought in Hooper was on apportioning the profits from a real estate transaction and, unlike here, the plaintiff did not seek judicial intervention in changing the composition of the limited partnership. Second, the availability of an alternative venue in Hooper was murky, at best. See Hooper, 396 F.3d at 751 ("[I]t is not at all clear that Mr. Hooper will have an adequate remedy if the action is dismissed."); id. ("While the presence of an alternate forum would militate in favor of dismissing the action, it is unclear whether the Tennessee case that was filed in 2000 is still viable. . . . or whether the Tennessee court would allow the complaint to be amended to include direct claims against Mr. Wolfe.").
The Hooper decision, in turn, relies heavily upon HB, supra at 10. In HB, the Third Circuit explained the interplay between federal and state law when conducting a Rule 19 assessment:
HB, 95 F.3d at 1192 (emphasis added).
After determining that the partnership met the Rule 19(a) test under Delaware law, the HB court concluded that its absence from the litigation would not cause it sufficient prejudice, reasoning:
HB, 95 F.3d at 1193 (emphasis added).
In arriving at the Rule 19(b) result of proceeding without the non-joined partnership, the HB court limited the scope of its holding by cautioning:
HB, 95 F.3d at1193 n.3 (emphasis added); see also id. at 1193 ("Although in some cases the interests of the partners may sufficiently diverge from those of the partnership that the partnership is an indispensable party, we simply cannot conceive of any interest the Partnership has as an entity in this case that will not be advanced by the three partners."). Thus, the HB court anticipated situations in which the absence of a partnership, despite the presence of its member partners, might warrant a Rule 19(b) dismissal.
The court finds the foregoing framework utilized in HB to be instructive, and adopts certain portions of HB as persuasive authority,
Turning to the first Rule 19(b) factor, Plaintiffs maintain that the Alabama Limited Partnerships "are adequately protected because all of the constituent partners are parties." (Doc. 21 at 11). In a more conventional partnership dispute, such as those examples cited by Plaintiffs in their show cause response, the undersigned would likely agree with Plaintiffs. However, this case-which seeks a judicial reconstitution of the Alabama Limited Partnerships-is an exceptional circumstance that causes this court to have serious doubts about whether "the interests of [the Alabama Limited Partnerships] [can be] adequately represented by those already a party to the litigation." Hooper, 396 F.3d at 749. Indeed, this action is more akin to the exception noted in HB in which "the [Alabama Limited] Partnership[s'] interests . . . so diverge from those of the partners that [they] should be represented by [their] own attorney." HB, 95 F.3d at1193 n.3. Thus, the court finds that the first factor favors a dismissal of this action.
Plaintiffs address the second and third factors collectively and contend that they do not demonstrate indispensability. (Doc. 21 at 12). Plaintiffs first vaguely suggest that this court's final order could be drafted in such a manner as to "impose whatever restrictions are necessary on the parties and the partnerships, as all the partners are before this Court and subject to its Orders." Id. However, Plaintiffs do not specifically explain how the court can craft such a suitable and enforceable final order. For example, if Plaintiffs are able to show malfeasance on the part of Defendants and Defendants are, as a result, ordered to be removed as General Partners of the Alabama Limited Partnerships, would the court then have the power to select new General Partners to replace Beaver and Olympia or appoint a receiver (e.g., under Ala. Code § 6-6-620) to deal with the assets of those entities that are no longer functioning as limited partnerships, despite their absence as separately joined as parties? Indeed, the risk of these and any unforeseen issues attributable to the absence of the Alabama Limited Partnerships might seriously hamper the court's ability to order comprehensive relief in the best interests of
Second, Plaintiffs argue that the presence of res judicata and/or collateral estoppel supports their position because any efforts to relitigate would be barred by the court's final order. (Doc. 21 at 12). Defendants, on the other hand, maintain that res judicata will not bar the Alabama Limited Partnerships from bringing a subsequent suit in state court because they are not parties to this action, and under Alabama statutory law their rights are distinct from those of their partners. (See Doc. 26 at 6 ("[N]othing would prevent the Partnerships themselves from bringing state court claims of [their] own which could result in the parties incurring double, multiple, or otherwise inconsistent judgments.")).
Unhelpfully, neither side attempts to analyze how
Under Alabama law:
Dairyland Ins. Co. v. Jackson, 566 So.2d 723, 725-26 (Ala. 1990) (emphasis added). Although neither side mentions privity, this is the only conceivable element whose existence could seriously be in dispute here. Based on Whisman's privity formulation, the key for measuring whether res judicata would apply here is whether the Alabama Limited Partnerships' "interests [would be] adequately represented by [Plaintiffs] in [this action], and the relationship between [Plaintiffs] and [the Alabama Limited Partnerships] is not so attenuated as to violate due process." But cf. Thomas v. Lynn, 620 So.2d 615, 617 (Ala. 1993) ("To apply this `party identity' language from Dairyland in the context of the present case would be totally inconsistent with the classical statement of the res judicata doctrine, as expressed in the first sentence of the paragraph quoted from Dairyland (particularly `(3) with substantial identity of the parties.'").
Thus, Thomas indicates that more than one test exists under Alabama law for determining whether privity exists. Indeed, in quoting a secondary source with approval regarding the concept of privity, the Supreme Court of Alabama has acknowledged:
Hughes v. Martin, 533 So.2d 188, 191 (Ala. 1988) (emphasis added) (quoting Issue Preclusion in Alabama, 32 Ala. L. Rev. 500, 520-21 (1981)). Based on this ad hoc admonishment in Hughes and the apparent absence of any on-point direction arising under Alabama law that is comparable to this case, this court is ill-equipped to determine whether the privity element can be satisfied when, such as here, the non-joined Alabama Limited Partnerships identify with
Moreover, lacking any legal development from Plaintiffs or otherwise independently finding a straightforward answer as to whether Alabama law would find the element of privity satisfied in this instance, this court has significant concerns about the finality of any judgment that it would enter with respect to the composition of the Alabama Limited Partnerships. Consequently, the court finds that, due to the absence of legal clarity with regard to fashioning a less prejudicial and substantively adequate judgment, the second and third Rule 19(b) factors do not weigh in Plaintiffs' favor-these two factors instead are, at best, neutral in their impact.
With respect to the fourth factor, in "maintain[ing] the right to refile this action in state court if dismissed" (Doc. 21 at 12), Plaintiffs have implicitly admitted that complete relief with the Alabama Limited Partnerships joined as parties is available in state court. At the end of their show cause response, Plaintiffs lament that a dismissal of this action "would be inherently unfair in the absence of other compelling reasons that the real estate partnerships are indispensable[;]" however, they cite to no binding authority for this proposition and skirt the complexities connected to the extraordinary relief that they seek from this court-23 reconstituted Alabama Limited Partnerships. Id. Further, this federal court case has not progressed very far and starting over in state court does not create an insurmountable burden for Plaintiffs. Finally, changing venue benefits all the parties because those foreseen and unforeseen pitfalls associated with remaining in federal court are no longer looming concerns.
Thus, the final Rule 19(b) factor favors dismissing this case. In reaching this conclusion, the court, relies in part, on the binding decision of Harrell & Sumner Contracting Co. v. Peabody Petersen Co., 546 F.2d 1227, 1229 (5th Cir. 1977). In Peabody, the former Fifth Circuit explained with respect to a Rule 19 dismissal premised upon a diversity-destroying corporation:
Peabody, 546 F.2d at 1229 (emphasis added). Although the differences between how a corporation and a limited partnership are organized can influence certain parts of the Rule 19(b) analysis, cf., e.g., DM II, Ltd. v. Hospital Corp., 130 F.R.D. 469, 473 n.5 (N.D. Ga. 1989) ("Joinder of each non-party partner would ordinarily satisfy Rule 19, since the interests of the partnership would be adequately represented."), Peabody underscores the availability of an alternative venue as a good reason for upholding a district court's discretionary dismissal due to indispensability and does so without ever suggesting that the importance of Rule 19(b)'s fourth factor is limited to only certain cases, i.e., those involving non-joined diversity-destroying corporations.
The burden of establishing federal jurisdiction falls on the party who is attempting to invoke the jurisdiction of the federal court. McNutt v. Gen. Motors Acceptance Corp. of Indiana, 298 U.S. 178, 189, 56 S.Ct. 780, 785, 80 L. Ed. 1135 (1936); see also Hertz Corp. v. Friend, 559 U.S. 77, 96, 130 S.Ct. 1181, 1194, 175 L. Ed. 2d 1029 (2010) ("The burden of persuasion for establishing diversity jurisdiction, of course, remains on the party asserting it." (citing McNutt)). The court has fully considered Plaintiffs' show cause response and proposed amended complaint offered to substantiate the diversity jurisdiction of this court. However, after weighing the Rule 19(b) enumerated and other factors, including the still early stage of this litigation, the continuity of any discovery already conducted, and the substantial uncertainties associated with remaining in federal court, the undersigned is persuaded that, in equity and good conscience, this action should not proceed without the Alabama Limited Partnerships as named parties. Accordingly, Plaintiffs' lawsuit is due to be dismissed without prejudice sua sponte for lack of subject matter jurisdiction.
Further, in the absence of subject matter jurisdiction and because their proposed amended complaint only partially cures their case's jurisdictional deficits, Plaintiffs' Leave Motion is due to be termed as moot. Finally, the court will enter a separate order of dismissal consistent with this memorandum opinion.
Broussard, 398 F.2d at 889 (emphasis added).
