Cashner v. Plant Maintenance Services, LLC et al
Filing
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ORDER DENYING 18 MOTION to Dismiss filed by Robert Haller, Harold R. Dugan, Robert M. Harbison, Steven C. Dugan. ORDER STAYING CASE, Case stayed pending the resolution of the litigation in Missouri. The parties are DIRECTED to file a status report six months from the date of this Order. The parties are further DIRECTED to immediately notify the Court of the conclusion of either of the pending state actions in the Missouri and Illinois state courts. Signed by Judge William D. Stiehl on 09/28/2012. (jst)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
CHARLES C. CASHNER,
Plaintiff,
vs.
PLANT MAINTENANCE SERVICES, LLC,
a Limited Liability Company,
HAROLD R. DUGAN, STEVEN C. DUGAN,
ROBERT M. HARBISON, and ROBERT
HALLER,
Defendants.
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Case No. 11-cv-1122-WDS-DGW
MEMORANDUM AND ORDER
Before the Court is Plant Maintenance Services’ (“PM”), Harold R. Dugan’s (“H.
Dugan”), Steven C. Dugan’s (“S. Dugan”), Robert Haller’s (“Haller”), and Robert M. Harbison’s
(“Harbison”) (referred to collectively as the “defendants”)1 motion to dismiss (Doc. 18), to
which plaintiff filed a memorandum in opposition (Doc. 23). Defendants seek dismissal of
plaintiff’s complaint (Doc. 2) pursuant to Federal Rules of Civil Procedure 12(b)(7) and 19.
BACKGROUND
Plaintiff Charles C. Cashner (“Plaintiff”) filed a three-count complaint against defendants
seeking one of the following three remedies: (1) to force S. Dugan to pay the money owed to
plaintiff in accordance with their contract; or (2) have PM liquidated to distribute its net assets to
its members, including Plaintiff; or (3) have this Court declare that Plaintiff retains a 9.5%
interest in PM.
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The Court granted PM’s motion to join its co-defendants’ motion to dismiss on March 5, 2012 (Doc.
22).
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Plaintiff asserts that this Court has diversity jurisdiction pursuant to 28 U.S.C. § 1332,
which provides that “[t]he 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 . . . citizens of different States.” 28 U.S.C. §1332(a)(1). Plaintiff alleges, and the
defendants do not dispute, the facts which establish diversity. Cashner is a citizen of Missouri
and asserts a claim for relief of $740,000. PM is an Illinois limited liability corporation with its
principle place of business in Illinois (Doc. 2). “[A] corporation shall be deemed to be a citizen
of every State and foreign state by which it has been incorporated and of the State or foreign
state where it has its principal place of business. . . .” 28 U.S.C.A. § 1332(c)(1). PM is,
therefore, a citizen of Illinois. The remaining defendants are citizens of Illinois. (Doc. 2).
According to PM’s Operating Agreement, Plaintiff was a 10% shareholder (Doc. 2-1).
The shareholders then granted Haller a 5% portion, sold to him from all of the members’ shares,
reducing the stake of all shareholders, including Plaintiff (Doc. 2-2). Plaintiff’s total stake in the
venture became 9.5%. Plaintiff then allegedly sold his 9.5% share in PM to S. Dugan for
$520,000 via signed contract. Subsequent to this transaction, S. Dugan failed to pay Plaintiff for
purchase of Plaintiff’s interest, and the other shareholders refused to recognize Plaintiff’s 9.5%
interest in PM.
As a result, plaintiff brought the present case. In Count I, Plaintiff alleges breach of
contract against S. Dugan for failure to pay plaintiff $520,000 and cancel a 2007 promissory note
with a face value of $220,000 in exchange for Plaintiff’s 9.5% interest in PM in accordance with
an Assignment of his interest which was consented to by PM’s members/managers. Plaintiff
seeks judgment against S. Dugan in the amount of $740,000, plus prejudgment interest from
December 31, 2009. Alternatively, Plaintiff alleges in Count II that the members/managers of
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PM are aware that S.Dugan never paid Plaintiff for his 9.5% interest, but refuse to recognize
Plaintiff’s interest and that distributions have been made without recognition of Plaintiff’s
interest. Plaintiff asks the Court to appoint a Receiver and/or dissolve and liquidate the assets of
PM, wind up its affairs, direct the payments of its liabilities, and to distribute its net assets and
distributions to its members, including Plaintiff for his fees and expenses to pursue this action.
Alternatively, in Count III, Plaintiff asks the Court to declare that the Assignment dated
December 31, 2009, is void because S. Dugan has refused to pay in accordance with the
assignment, and to declare that Plaintiff retains his 9.5% minority interest and his status as a
member/manager of PM under the terms of the original Operating Agreement, as amended.
Plaintiff seeks a declaratory judgment stating the same.
I.
Missouri State Court Litigation
The complexity of the case increases upon consideration of plaintiff’s involvement in two
ongoing state lawsuits, as well as this federal action. Prior to Plaintiff’s filing a complaint in this
Court, Douglas C. Draper (“Draper”) and his company, Carlyle Investment Company, LLC
(“CIC”) sued Plaintiff, S. Dugan, and PM in Missouri state court for collection of debts owed.
(Draper and Carlyle Investment Group, LLC v. Cashner, LLC, and Charles C. Cashner, Case
No. 10JE-CC00923, 23rd Judicial Circuit, Division 6, Jefferson County, Missouri). It is
undisputed that Draper and CIC are both Missouri citizens. Defendants assert that joinder of
Draper and CIC is required because, in the Missouri state case, both claim an interest in the
subject of this action, particularly, a security interest in Plaintiff’s 9.5% membership interest in
PM. Without joinder of Draper and CIC, defendants assert, S. Dugan, and the other individual
defendants will be subject to a substantial risk of incurring double, multiple, or otherwise
inconsistent obligations. According to defendants, S. Dugan may be liable to Plaintiff as a result
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of the alleged contract he entered into with Plaintiff for the purchase of his membership interest
in PM, even though that interest may be subject to the prior, conflicting security interest claimed
by Draper and CIC. Defendants claim that PM may be forced to recognize Plaintiff’s interest in
PM even after Draper and CIC have acquired that interest through foreclosure, and that the other
individual defendants risk dissolution of PM even though Draper’s and CIC’s conflicting claim
to Plaintiff’s interest in PM may deprive Plaintiff of any right to compel dissolution.
Defendants also assert that Plaintiff is able to obtain complete relief in the action between
Draper and CIC, PM, and Plaintiff in the Missouri court. Notably, as of the date of Plaintiff’s
response to defendants’ motion to dismiss, however, PM, S. Dugan, and Speed Lube, LLC, were
dismissed from the Missouri case, and the action now consists only of Draper and CIC as
plaintiffs, and Plaintiff and his company, Cashner, LLC, as defendants. Draper and CIC claim
Plaintiff owes over $3,500,000.00 and seek, among other things, to foreclose their alleged
security interest in the Plaintiff’s PM and Speed Lube interest. Plaintiff denies liability to Draper
and CIC, claiming that they never acquired a valid security interest in the PM interest or the
Speed Lube Interest.
II.
Illinois State Court Litigation
Litigation is also ongoing in Bond County, Illinois, in which Plaintiff sued S. Dugan,
Draper, Harbison, and Speed Lube, claiming that his agreement to sell the PM interest to S.
Dugan was part of an agreement with Draper in which Plaintiff agreed to sell the Speed Lube
interest to Draper. (Charles C. Cashner v. Speed Lube, LLC, Douglas Draper, Steven C. Dugan,
and Robert M. Harbison, No. 2011-L-13, 3rd Judicial Circuit, Bond County, Illinois). In that
case, Plaintiff seeks a declaratory judgment that he is the owner of the Speed Lube interest and is
entitled to dissolve Speed Lube.
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Plaintiff asserts that the only connection between this suit and the Missouri and Illinois
state court actions is a common claim by Draper and CIC that plaintiff pledged his 9.5%
minority interest in PM and Speed Lube, LLC to secure several loans. (Doc. 19 at 4). Plaintiff
further asserts that the outcome of the case before this Court does not directly impact Draper’s
and CIC’s claims in the two state court actions, and confirmation of Plaintiff’s interest in PM
may in fact strengthen Draper’s and CIC’s claims to secure the note obligations if each is
successful in the Missouri case. Finally, plaintiff claims that because neither Draper nor CIC are
members or managers of PM, neither is a necessary or indispensable party to this action.
In their motion to dismiss, defendants advance two arguments: (1) Draper’s and CIC’s
security interests in PM make them indispensable parties, their joinder would defeat diversity
jurisdiction, and the suit should, therefore, be dismissed pursuant to Fed. R. Civ. P. 12(b)(7) and
19; and, alternatively, (2) the Court should abstain from adjudicating Plaintiff’s claims to avoid
duplicative litigation in state court.
LEGAL STANDARD
Federal Rule of Civil Procedure 12(b)(7) provides for dismissal for failure to join a party
under Rule 19. For purposes of this motion, the Court accepts as true the allegations in the
complaint. Davis Companies v. Emerald Casino, Inc., 268 F.3d 477, 479 n.2 (7th Cir. 2001).
“The purpose of Rule 19 under the Federal Rules of Civil Procedure is to permit joinder
of all materially interested parties to a single lawsuit so as to protect interested parties and avoid
waste of judicial resources.” Id. at 481 (internal quotation omitted). If the joinder of a party will
deprive the plaintiff of proceeding in federal court, however, courts are reluctant to dismiss a
case for failure to join. Id. “Dismissal . . . is not the preferred outcome under the Rules.”
Askew v. Sheriff of Cook County, Ill., 568 F.3d 632, 634 (7th Cir. 2009).
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The Seventh Circuit has recognized a two-step inquiry for joinder pursuant to Rule 19:
First, the court must determine whether a party is one that should be joined if
feasible--called, in the old days, a “necessary” party. Fed. R. Civ. P. 19(a); Hall,
100 F.3d at 478. . . . Only if the court concludes . . . that the party should be
included in the action but it cannot be, it must go on to decide whether the
litigation can proceed at all in the party’s absence. See Fed. R. Civ. P. 19(b). If
there is no way to structure a judgment in the absence of the party that will protect
both the party’s own rights and the rights of the existing litigants, the unavailable
party is regarded as “indispensable” and the action is subject to dismissal upon a
proper motion under Federal Rule of Civil Procedure 12(b)(7).
Thomas v. United States, 189 F.3d 662, 667 (7th Cir. 1999).
“In ruling on a dismissal for lack of joinder of an indispensable party, a court may go
outside the pleadings and look to extrinsic evidence.” Davis, 268 F.3d at 480 n.4.
ANALYSIS
I.
Rule 19
A. Rule 19(a)
“Rule 19(a)(1) defines who is a ‘required party.’” Askew, 568 F.3d at 635. To determine
whether the party is necessary under Rule 19(a), the Court must consider: “(1) whether complete
relief can be accorded without joinder, (2) whether [the potential party’s] ability to protect his
interest will be impaired, and (3) whether the existing parties will be subjected to a substantial
risk of multiple or inconsistent obligations unless he is joined.” Davis, 268 F.3d at 481.
“If, as in the present case, joinder of an absent party would destroy diversity jurisdiction,
19(a) is inapplicable.” Bio-Analytical Services, Inc. v. Edgewater Hospital, Inc., 565 F.2d 450,
452 (7th Cir. 1977); accord Bonnet v. Trustees of Schools of Township 41 North, 563 F.2d 831,
833 (7th Cir. 1977). Rule 19(a)(1) defines “required party,” however, and the Court must,
therefore, consider whether Draper or CIC meet the definition before proceeding to 19(b).
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Under Rule 19(a)(1), neither Draper nor CIC are required to participate in this case for
the Court to afford complete relief to the parties before it. The Seventh Circuit has noted:
while it is true that a contracting party is the paradigm of an indispensable party,
when a person is not a party to the contract in litigation and has no rights or
obligations under that contract, even though the absent party may be obligated to
abide by the result of the pending action by another contract that is not at issue,
the absentee will not be regarded as an indispensable party in a suit to determine
obligations under the disputed contract.
Davis, 268 F.3d at 484 (internal quotations and citations omitted). Furthermore, “the term
‘complete relief’ refers only to ‘relief between the persons already parties, and not as between a
party and the absent person whose joinder is sought.’” Id. (quoting Perrian v. O’Grady, 958
F.2d 192, 196 (7th Cir. 1992)).
The agreement at issue was made strictly between Plaintiff and S.Dugan, with the
approval of the other individual defendants. Defendants’ assertion that Draper or CIC may have
a superior security interest in the exact 9.5% interest at issue in this case would not prevent the
Court from granting relief. The defendants have presented no reason why they cannot raise this
issue as a defense, present relevant evidence of Plaintiff’s agreement with Draper and CIC,
depose Draper, and obtain any relevant documentation to support their claim. “The assertion of
affirmative defenses which may turn upon, and even require adjudication of, the actions or rights
of non-parties does not require joinder of those parties.” EquiMed, Inc. v. Genstler, 170 F.R.D.
175, 179 (D.Kan. 1996). The presence of Draper or CIC is, therefore, not necessary for this
Court to go forward, and complete relief between the existing parties can occur without joinder
of Draper and CIC.
Regarding Draper’s and CIC’s ability to protect their own interests, Draper and CIC have
sued plaintiff and Cashner, LLC in Missouri, and seek to protect their interests in that court.
Draper and CIC have not attempted to intervene in this suit to protect any interests each might
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have, nor have defendants produced an affidavit from Draper or CIC explaining how their
interests may be affected by this lawsuit. See Mamacita, Inc. v. Colborne Acquisition Co., LLC.,
No. 10 C 6861, 2011 WL 881654, at *8 (N.D.Ill. March 11, 2011). Furthermore, Draper and
CIC were not parties to the agreement at issue here, nor does either have rights or obligations
under this particular agreement.
Finally, defendants claimed risk of multiple obligations has been diminished by their
recent dismissal with prejudice from Draper’s and CIC’s case in the Missouri court.
Furthermore, the case in Illinois is based upon Plaintiff’s 9.5% interest in a company called
Speed Lube, LLC, and although some of the defendants here are also defendants in that case, that
cause of action revolves around a separate company, a separate agreement, and a separate
interest. 2
The risk of inconsistent obligations, however, raises a murky issue. Defendants assert
that if the Missouri state court upholds Draper’s and CIC’s claim that each is entitled to the same
interest Plaintiff attempts to protect here, inconsistent results may follow. Defendants claim that
if the Missouri court decides that Draper and CIC have valid security interests, plaintiff here
would no longer have the right to seek payment for that same interest, nor would he have the
right to request dissolution of PM or seek declaratory judgment that he is still a member of PM
as a 9.5% interest holder. It is not at all clear, nor will this Court speculate as to how the cases
may play out, and, therefore, whether any of the parties may actually incur inconsistent
obligations. As a result of this issue, the Court will treat Draper and CIC as required parties. In
light of the fact that the joinder of Draper and CIC is not feasible because it would destroy the
2
Even though the Illinois litigation involves Cashner as a plaintiff and Draper, S.Dugan, and Harbison, as
defendants, the subject matter and relevant agreement are different, thereby minimizing or eliminating the
possibility that a judgment in this case would conflict with a judgment in the Illinois case. Nor could it
subject the parties to duplicative litigation or liability.
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Court’s subject matter jurisdiction, the Court must consider whether, under Rule 19(b), the case
can proceed or must be dismissed for lack of subject matter jurisdiction.
B. Rule 19(b)
Under Rule 19(b), the Court must consider whether:
in equity and good conscience the action shall proceed among the parties before it
or whether the absent party is indispensable requiring dismissal of the action. The
rule lists four factors which must be weighed in making this judgment: (1) to what
extent a judgment rendered in the person’s absence might be prejudicial to him or
those already parties; (2) the extent to which such prejudice can be avoided by the
shaping of relief; (3) the adequacy of the judgment in the absence of the person;
and (4) the availability of an adequate remedy for the plaintiff if the action is
dismissed from non-joinder. Generally, Rule 19 entails a pragmatic approach,
focusing on realistic analysis of the facts of each case. In making this pragmatic
determination, the district court should state the facts and reasons upon which it
acts.
Bio-Analytical, 565 F.2d at 452 (internal quotations and citations omitted).
A judgment rendered in this case in Draper’s and CIC’s absence would not be prejudicial
to Draper or CIC, or the other defendants, but the relevant issue is one of timing. The Court
concludes that it can provide particular relief to avoid potential prejudice to the defendants. As
stated above, the defendants can raise certain defenses in this case, but it appears that those
defenses may depend upon the outcome of the pending litigation in Missouri. Upon review of
the record, the Court notes that the Missouri case was filed before this federal case, and that the
Missouri case revolves around agreements which are subject to Missouri state law and which
were entered into by Plaintiff before he entered into the agreement at issue in this case, and that
the relevant agreements refer to the same 9.5% interest in PM. The Court is also mindful,
however, under 19(b), that the plaintiff would have no other recourse against these defendants if
this case were simply dismissed, and that dismissal is not favored. In light of this, the Court
STAYS this cause of action until the Missouri litigation has concluded. This way, defendants
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will have the benefit of finality of that case to raise any potential defenses they wish, and will not
be subject to inconsistent results from parallel proceedings. At the same time, plaintiff retains
his ability to receive an adequate remedy for his particular claims against these particular
defendants, which he would not have should this case be dismissed for non-joinder.
II.
Abstention
To the extent that defendants argue that this Court should abstain because of the pending
state court cases, they have not shown:
how any of the traditional theories of abstention apply to this litigation. This case
presents neither a federal question which might be mooted by a state court
determination of state law, or a difficult question of state law bearing on an issue
of public policy, or the request to restrain criminal or civil proceedings in favor of
the exercise of federal jurisdiction.
Bonnet, 563 F.2d at 834 (internal citations omitted). Furthermore:
[i]n Colorado River Water Conservation District v. United States, 424 U.S. 800,
96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), the Supreme Court reaffirmed that
abstention is the exception, not the rule, and it applies only in limited
circumstances. Id. at 813-20, 96 S.Ct. 1236. We have understood that the
existence of a parallel proceeding- i.e. an overlapping case in a state court-is a
requirement for exercising “Colorado River abstention.” See Beck v. Dobrowski,
559 F.3d 680, 686 (7th Cir.2009). That branch of abstention doctrine is invoked
when, in the interest of wise judicial administration, it is desirable for one court to
yield to another. See Doctor's Assocs., supra, 375 F.3d at 622.
Medical Assur. Co., v. Hellman, 610 F.3d 371, 378 (7th Cir. 2010). In light of the Court’s
conclusions above, abstention is not appropriate here.
CONCLUSION
Accordingly, the Court DENIES defendants’ motion to dismiss (Doc. 18) on all grounds
raised. This cause of action is STAYED pending the resolution of the litigation in Missouri.
The parties are DIRECTED to file a status report six months from the date of this Order. The
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parties are further DIRECTED to immediately notify the Court of the conclusion of either of the
pending state actions in the Missouri and Illinois state courts.
IT IS SO ORDERED.
DATE: September 28, 2012
/s/ WILLIAM D. STIEHL
DISTRICT JUDGE
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