URBAN DEVELOPMENT VENTURES, LLC v. MERCHO et al

Filing 39

CLOSED DISMISSED. ENTRY DISMSSING CASE FOR LACK OF SUBJECT MATTER JURISDICTION. For the reasons set forth above, the Court finds that the Amended Complaint must be, and therefore is, dismissed pursuant to Rule 19(b).3 Signed by Judge William T. Lawrence on 1/30/2018. (JDC)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
URBAN DEVELOPMENT VENTURES,
LLC,
Plaintiff,
vs.
FRANCOIS E. MERCHO, et al.,
Defendants.

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) Cause No. 1:17-cv-1670-WTL-MPB
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ENTRY DISMSSING CASE FOR LACK OF SUBJECT MATTER JURISDICTION
In the Amended Complaint in this case, the Plaintiff requests the following relief:
1. a decree of judicial dissolution of [MIG Guilford Reserves LLC
(“MIG/MHM”)] and of [Diamond Investment Group I, LLC (“DIG”)]
pursuant to IC 23-18-9-2;
2. a full accounting of the financial affairs, profits, losses, capital and
distributions of MIG/MHM and of DIG;
3. the winding up of the affairs of MIG/MHM and of DIG;
4. the liquidation at fair market value of the assets of MIG/MHM and of DIG
and distributions of the proceeds to their creditors and then to the
members, taking into account their respective ownership percentages and
capital/equity balances;
5. an award of costs and expenses, including reasonable attorneys’ fees; and
6. all further relief to which Plaintiff may be entitled.
Because MIG/MHM and DIG are not parties to this case, and because their joinder would
destroy the Court’s subject matter jurisdiction over this case because there would no longer be
diversity of citizenship, the Court ordered the Plaintiff (and invited the Defendants) to brief the
issue of whether complete relief can be granted in the absence of MIG/MHM and DIG, or
whether this case must be dismissed pursuant to Federal Rule of Civil Procedure 19(b). Both
sides have now filed briefs addressing the issue.

The Plaintiff argues that the joinder of MIG/MHM and DIG as defendants would not
destroy diversity because they would be only nominal parties. While it is true that “a federal
court must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of
real parties to the controversy,” Navarro Savings Ass’n v. Lee, 446 U.S. 458, 461 (1980), the
Court does not believe MIG/MHM and DIG would be nominal parties to this case. Rather, the
Court, like the Eleventh Circuit in Masters v. Harkleroad, 303 F. App’x 859, 861 (11th Cir.
2008), finds no authority “holding that a LLC which a plaintiff seeks to put into receivership,
dissolve, and enjoin from engaging in any business activity is merely a nominal party.”1
The Plaintiff next argues that even if MIG/MHM and DIG would not be nominal parties,2
the case nevertheless should proceed without them pursuant to Rule 19(b), which provides:
If a person who is required to be joined if feasible cannot be joined, the court
must determine whether, in equity and good conscience, the action should
proceed among the existing parties or should be dismissed. The factors for the
court to consider include:
(1) the extent to which a judgment rendered in the person’s absence might
prejudice that person or the existing parties;
(2) the extent to which any prejudice could be lessened or avoided by:
1

Mortenson Family Dental Center, Inc. v. Heartland Dental Care, Inc., No. 12-5494, 526
Fed. App’x 506, 2013 U.S. App. LEXIS 9781, *5-6 (6th Cir. May 13, 2013), the case relied upon
by the Plaintiff, did not involve a request to dissolve the LLC that was determined to be a
nominal party; rather, the plaintiff in that case sought only a declaration of the plaintiff’s and the
defendant’s ownership percentages in the LLC. Indeed, the Sixth Circuit noted that neither party
in that case “ha[d] claimed that the LLC paid its members incorrectly under the terms of the
agreement,” while that claim is made in this case. See Amended Complaint ¶ 16 (Dkt. No. 5).
2
The Plaintiff does not dispute that MIG/MHM and DIG each is a “person who is
required to be joined if feasible” pursuant to Federal Rule of Civil Procedure 19(a). The Plaintiff
does cite to Bagdon v. Bridgestone/Firestone, Inc., 916 F.2d 379, 382 (7th Cir. 1990), and
McGee v. Dresnick, 2005 WL 6244201 (N.D. Ill., Aug. 24, 2005), for the proposition that “the
LLCs would only be indispensable parties to this action had Plaintiff brought derivative claims
on behalf of the LLCs.” Dkt. No. 35 at 6. This argument is without merit; those cases stand for
the proposition that an LLC is always an indispensable party if the plaintiff is bringing a
derivative claim, which is a far cry from the proposition that an LLC is never an indispensable
party in any other situation.
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(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.
In this case, it is clear that MIG/MHM and DIG would be prejudiced by the relief sought by the
Plaintiff—they would be dissolved. The Plaintiff’s bare assertion that the dissolution of an LLC
does not prejudice the LLC is a non-starter. It is also clear that the Plaintiff would have an
adequate remedy if this case were dismissed; the Plaintiff could refile this case in state court,
with MIG/MHM and DIG added as defendants. Thus the first and last factors weigh heavily in
favor of dismissal.
With regard to the second and third factors, the Plaintiff argues that the prejudice to
MIG/MHM and DIG “could be avoided by having the Court stop short of ordering the
dissolution and liquidation of the LLCs, instead adjudicating only the rights and liabilities of
Plaintiff and Defendants as the sole members of the LLCs.” Dkt. No. 35 at 6. That may be true,
but that is not the case that the Plaintiff has filed. The Amended Complaint contains only one
count, and it is for judicial dissolution of MIG/MHM and DIG. Thus while there likely is relief
that could be afforded the Plaintiff in this suit without prejudicing MIG/MHM and DIG, that
relief would not appear to be “adequate” in the sense that it is not the relief the Plaintiff actually
filed this lawsuit in order to obtain. Thus, these factor also weigh in favor of dismissal.

3

For the reasons set forth above, the Court finds that the Amended Complaint must be, and
therefore is, dismissed pursuant to Rule 19(b).3
SO ORDERED: 1/30/18
_______________________________
Hon. William T. Lawrence, Judge
United States District Court
Southern District of Indiana

Copies to all counsel of record via electronic notification

3

The Court recognizes that, in the last sentence of its response to the Order to Show
Cause, the Plaintiff states the following: “If necessary to facilitate such an Order, Plaintiff
requests leave of Court pursuant to Rule 15(a) to amend its Complaint so as to remove any doubt
as to the necessity of joinder of the LLCs.” Dkt. No. 35 at 7. That request is denied, inasmuch
as the Plaintiff fails to explain what claim(s) it would bring in an amended complaint and why
those claims would be more appropriately decided in this court, in the absence of MIG/MHM
and DIG, rather than in a state court action in which the Plaintiff could seek all of the relief to
which it believes it is entitled.
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