March/Magnolia IV Investment Limited Partnership et al v. Beaver et al
MEMORANDUM OPINION. Signed by Judge Virginia Emerson Hopkins on 4/29/2016. (JLC)
2016 Apr-29 AM 11:24
U.S. DISTRICT COURT
N.D. OF ALABAMA
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
MAGNOLIA V INVESTMENT
LIMITED PARTNERSHIP, et al.,
) Case No.: 4:15-CV-1139-VEH
RUDOLPH H. BEAVER and
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 the
Plaintiffs’ pleading contains 6 separate counts. For the sake of brevity, the court does not
list all of them in this memorandum opinion.
court’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 be
termed as moot.
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.
“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
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, 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
(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
(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).2
See Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (holding that
decisions of the former Fifth Circuit handed down prior to the close of business on September 30,
Finally, 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).
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 their
1981, are binding in the Eleventh Circuit).
amended 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
(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 twentythree 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
(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
The page references to Doc. 16-7 correspond with the court’s CM/ECF numbering system.
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:
[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 partners, and exist independent of the
partnership’s own rights, none of which will be affected by the outcome
of this litigation.
(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
Threshold Determinations Under Rule 19(a)
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
(a) Persons Required to Be Joined if Feasible.
(1) Required Party. A person who is subject to service of
process and whose joinder will not deprive the court of
subject-matter jurisdiction must be joined as a party if:
(A) in that person’s absence, the court cannot
accord complete relief among existing parties;
(B) that person claims an interest relating to
the subject of the action and is so situated that
disposing of the action in the person absence
(i) as a practical matter impair or
impede the person’s ability to
protect the interest; or
(ii) leave an existing party
subject to a substantial risk of
incurring double, multiple, or
obligations because of the
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 may
not directly implicate ACL because there would be no order directed at ACL, Laker’s
antitrust claims necessarily require that a court evaluate ACL’s conduct in relation to
Laker, thereby substantially implicating ACL’s interests”) (emphasis added).
As signaled by the show cause order, this court comfortably concludes that,
because Plaintiffs seek a declaration that their right to remove the General Partners,
Beaver and Olympia, from the Alabama Limited Partnerships has been triggered, and
because the partnerships are legal entities with rights, obligations, and interests that
are distinct from their partners, see Ala. Code § 10A-8-2.01 (“A partnership is an
entity distinct from its partners.”),4 the Alabama Limited Partnerships have a
substantial interest in the disposition of this lawsuit and are “required” parties under
19(a). Importantly, none of the cases cited by Plaintiffs reaches a different outcome
when making this threshold determination under Rule 19(a). See, e.g., Hooper v.
Wolfe, 396 F.3d 744, 747 (6th Cir. 2005) (“[T]he district court did not abuse its
discretion in determining PPM III was a necessary party under Rule 19(a).”); HB Gen.
Corp. v. Manchester Partners, L.P., 95 F.3d 1185, 1190 (3d Cir. 1996) (“We agree
with the district court that, pursuant to Rule 19(a), this Partnership should be joined
if feasible.”); Curley v. Brignoli, Curley & Roberts Associates, 915 F.2d 81, 90 (2d
Cir. 1990) (“Here, as in Provident Tradesmens, BCR is a party which, within the
See also Ala. Code § 10A-9-1.05 (“A limited partnership has the powers to do all things
necessary or convenient to carry on its activities, including the power to sue, be sued, and defend in
its own name and to maintain an action against a partner for harm caused to the limited partnership
by a breach of the partnership agreement or violation of a duty to the partnership.”).
meaning of rule 19(a), should be joined ‘if feasible,’ but whose joinder would destroy
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).
Balancing of Factors 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 non11
exclusive list of factors,5 especially in light of the early stages of this litigation, the
concern over the adequacy and finality of any judgment entered in this case if the
lawsuit proceeds in federal court, and the ability of Plaintiffs to pursue their claims
in state court with the Alabama Limited Partnerships as parties.
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
See FED. R. CIV. P. 19(b) (“The factors for the court to consider include: . . . .”) (emphasis
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.
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:
The district court also decided, and Manchester argues, that
exclusion of the Partnership would prejudice the Partnership’s interests.
We disagree. Although indispensability under Rule 19 is a question of
federal law, state law determines the nature of the interests of all the
individuals concerned. See Provident Tradesmens Bank & Trust Co. v.
Patterson, 390 U.S. 102, 125 n.22, 88 S. Ct. 733, 746 n.22, 19 L. Ed. 2d
936 (1968); Hertz v. Record Publishing Co., 219 F.2d 397, 399–400 (3d
Cir.), cert. denied, 349 U.S. 912, 75 S. Ct. 601, 99 L. Ed. 1247 (1955).
The relevant state law here is that of Delaware, as the Partnership is
organized pursuant to Delaware law, Partnership Agreement Art. III, and
Delaware law is the source of any cause of action the Partnership may
have for Manchester’s breach of contract, see Partnership Agreement §
17.5 (“[T]his Agreement shall be governed by and construed in
accordance with the laws of Delaware....”).
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:
The exact relationship between the Partnership’s interests as an
entity and those of the individual partners has not been addressed by the
Delaware courts. But, following Rule 19’s pragmatic approach, we are
guided by common sense. A partnership’s interests as an entity consist
of an aggregation of those interests of each of the individual partners
that are relevant to the purpose of the partnership. Thus, at least in
certain cases, it is possible that a partnership’s interests can be
effectively represented in litigation by participation of its partners.
We believe that to be the case here. This partnership consists of
at most three partners, all of whom are before the court. Although each
of the partners may arguably bring to bear some interests (the nature of
which no one has identified) that are distinct from those of the
Partnership, we have no doubt that the Partnership’s interests in this case
are adequately represented by the partners. If the Partnership has a claim
against Manchester and the right to retain its real property, these
interests will be effectively advanced by the HB entities. And even if the
HB entities’ interests are not entirely consistent with those of the
Partnership, they are not antagonistic. Furthermore, to the extent the HB
entities’ interests diverge from the Partnership’s interests, Manchester
can protect them.
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:
While it might be troubling to say that a human being could be
excluded from litigation because his or her interests are adequately
pressed by other people, a partnership is not a human being. A
partnership’s interests can never be known except through those who
comprise it. Thus, as a practical matter, the Partnership is not prejudiced
by having others represent its interests in this case. Although a
partnership’s interests can only be known through the medium of human
beings, the choice of which human being(s) will represent the
partnership’s interests may have practical effects. Thus, if there is a
conflict between interests of a partnership and those of the partners
sufficient to require the partnership, if it is joined, to be represented by
its own attorney, the failure to join the partnership would cause it real
prejudice. In such a case, joinder of the partnership would do more than
change the name of the caption, but would provide the partnership with
the practical benefit of having an advocate wholly devoted to its own
interests. Here there are no allegations that the Partnership’s interests in
this case so diverge from those of the partners that it should be
represented by its own attorney.
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,6 including its directive to be
mindful of the interests created by state law when weighing whether a case “in equity
and good conscience” should proceed in federal court under Rule 19(b). See also
Broussard v. Columbia Gulf Transmission Co., 398 F.2d 885, 888 n.3 (5th Cir. 1968)
The court deviates from the Rule 19(b) result reached in HB on the basis of the differing
relief sought and the absence of any discussion in HB about Rule 19(b)’s fourth factor, a key
component of the court’s discretionary determination to dismiss this case as discussed in more detail
(“Rule 19 allows considerable judicial discretion for a realistic analysis of the
interrelation of federal procedural requirements and state substantive law which
materially affect the rights of the litigants.” (citing Provident Tradesmens, supra at
10, 13)); see also Provident Tradesmens, 390 U.S. at 125 n.22, 88 S. Ct. at 746 n.22
(“[S]tate-law questions may arise in determining what interest the outsider actually
has, but the ultimate question whether, given those state[-]defined interests, a federal
court may proceed without the outsider is a federal matter.” (citation omitted)). Here,
Alabama is the relevant law for evaluating the various interests at stake. (See Doc. 163 at 16 § 14(e) (“The Partnership is a validly existing limited partnership under the
laws of the State of Alabama . . . .”); id. at 34 § 37 (“This Agreement shall be
construed in accordance with the laws and decisions of the State of Alabama.”)).7
With that in mind, the court delves further into the Rule 19(b) analysis.
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
All page references to Doc. 16-3 correspond with the court’s CM/ECF numbering system.
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 all parties.
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 Alabama courts apply such
a doctrine generally, much less cite to an Alabama case in which res judicata did or
did not bar subsequent litigation based on facts such as these. Instead, the parties
merely base their competing stances on their attorneys’ ipse dixit.
Under Alabama law:
The elements of res judicata, or claim preclusion, are (1) a prior
judgment on the merits, (2) rendered by a court of competent
jurisdiction, (3) with substantial identity of the parties, and (4) with the
same cause of action presented in both suits. Hughes v. Allenstein, 514
So. 2d 858, 860 (Ala.1987). If those four elements are present, any claim
that was or could have been adjudicated in the prior action is barred
from further litigation. Dairyland was not a party to the prior action, and
Reaves was not a party to the instant action. However, the “party
identity criterion of res judicata does not require complete identity, but
only that the party against whom res judicata is asserted was either a
party or in privity with a party to the prior action or that the non-party’s
interests were adequately represented by a party in the prior suit, and the
relationship between the party and non-party is not so attenuated as to
violate due process.” Whisman v. Alabama Power Co., 512 So. 2d 78,
82 (Ala.1987) (citations omitted).
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
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
“The term ‘privity’ has not been uniformly defined with respect to res
judicata. The following three definitions have appeared in Alabama
cases: (1) the relationship of one who is privy in blood, estate, or law;
(2) the mutual or successive relationship to the same rights of property;
and (3) an identity of interest in the subject matter of litigation. Largely
defining privity by example, the Alabama cases seem to resolve the
question on an ad hoc basis in which the circumstances determine
whether a person should be bound by or entitled to the benefits of a
judgment. The decision usually turns on whether the relationship
between the parties was close enough and whether adequate notice of
the action was received by the alleged privy; this test has been bolstered
by the recent tendency of the Alabama courts to analyze privity as an
identity of interests.”•
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 nonjoined Alabama Limited Partnerships identify with both the limited partner plaintiffs
and the general partner defendants.
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
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:
Because joinder of Tackett, a Florida corporation, would destroy
the subject matter jurisdiction of the district court, Rule 19(b), FED. R.
CIV. P., requires the court to determine “whether in equity and good
conscience the action should proceed among the parties before it, or
should be dismissed” by considering the four factors enumerated in the
rule. The district court found that because of the availability of an
adequate remedy in state court, and because of the possibility of a
second suit by Tackett alone with an inconsistent result, the suit should
not proceed with the parties before the court absent an assignment of
Tackett’s cause of action. Such a result is consistent with this Court’s
decision in Bry-Man’s, Inc. v. Stute, supra, in which plaintiff’s case was
dismissed for failure to join a joint obligee as an indispensable party.
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.8 Cf.
also Broussard, 398 F.2d at 889 (finding that fourth Rule 19(b) factor favored
dismissal because “[t]he cause of action involved in this litigation could easily be
brought in a state court of Louisiana”).
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
The deferential abuse of discretion standard contemplates a range of acceptable choices for
a district court to make. See Cook ex rel. Estate of Tessier v. Sheriff of Monroe Cty., 402 F.3d 1092,
1103 (11th Cir. 2005) (describing abuse of discretion standard as one that “recognizes the range of
possible conclusions the trial judge may reach” without being reversed and affords “considerable
leeway”) (internal quotation marks omitted); see also id. (“[U]nder the abuse of discretion standard
of review there will be occasions in which we affirm the district court even though we would have
gone the other way had it been our call.” (quoting United States v. Frazier, 387 F.3d 1244, 1259
(11th Cir. 2004) (en banc))). Further, as the former Fifth Circuit has described this deferential
standard in the context of Rule 19 more particularly:
We therefore find that in equity and good conscience the district court
correctly exercised its discretion by dismissing the suit. We add, moreover, that the
pragmatical approach elevates the role of judgmental discretion in the joinder
problem. While this discretion may not have the constrictions of a clearly erroneous
rule, we must be mindful that the district judge is closer to the arena and is often in
a better position to survey the practicalities involved in the litigation.
Broussard, 398 F.2d at 889 (emphasis added).
(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
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.
DONE and ORDERED this the 29th day of April, 2016.
VIRGINIA EMERSON HOPKINS
United States District Judge
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