Sagi v. Kubik

Filing 9

OPINION and ORDER Denying Defendant's 4 Motion to Dismiss, for Summary Judgment and/or for Abstention. Signed by District Judge Linda V. Parker. (RLou)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
ZEEV SAGI,
Plaintiff,
Civil Case No. 16-10347
Honorable Linda V. Parker

v.
FREDRICK K. KUBIK,
Defendant.
____________________________/

OPINION AND ORDER DENYING “DEFENDANT’S MOTION TO
DISMISS, FOR SUMMARY JUDGMENT AND/OR FOR ABSTENTION”
In this lawsuit, Plaintiff Zeev Sagi (“Sagi”) is suing Defendant Fredrick K.
Kubik (“Kubik”) to recover money Sagi paid Kubik “to be utilized as credits
against indebtedness on … real property transactions.” (Compl. ¶ 4, ECF No. 1.)
Those real estate transactions were not between Sagi and Kubik individually.
Instead, they were between “Sagi’s business entities” and Kubik’s trust. (Id. ¶ 3.)
Contending that Sagi’s business entities are the real parties in interest in this
litigation and that they are necessary and indispensable parties who cannot be
joined without defeating the Court’s jurisdiction, Kubik moves for dismissal of the
action pursuant to Federal Rule of Civil Procedure 19.1 (Mot., ECF No. 5.)

In his brief in support of his motion, Kubik states that Plaintiff’s Complaint must
be dismissed under Federal Rule of Civil Procedure 12(b)(6) or 56. (Br. in Supp.
of Mot. at 9, ECF No. 5 at Pg ID 86.) Sagi responds, arguing that the motion
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Alternatively, Kubik argues that “this Court should abstain from exercising
jurisdiction in deference to contemporaneous state-court proceedings involving the
exact same facts and circumstances.” (Id. at Pg ID 84.)
Factual and Procedural Background
Sagi is a citizen of California. (Compl. ¶ 1, ECF No. 1.) Kubik asserts, and
Sagi does not dispute, that Sagi is the sole member of several Michigan limited
liability companies: ASAF, LLC; The Home Apartments, LLC (“Home
Apartments”); and Matan Real Estate, LLC (“Matan”) (collectively “LLCs”).
Kubik is a citizen of Michigan. (Compl. ¶ 2, ECF No. 1.) He is the settlor and
principal member of the Frederick L. Kubik Revocable Trust (“Trust”).
The LLCs entered into land contracts to purchase apartment buildings from
the Trust. (Mot., ECF No. 5, Exs. 2-4.) Alleging non-payment and other breaches
of the contracts, the Trust filed separate forfeiture actions against each of the LLCs
in Michigan state courts. (Id. Exs. 5-7.) According to Kubik, in each of the
forfeiture actions, ASAF, Home Apartments, or Matan argued that it made the
payments required under the applicable land contract. As proof, each LLC offered
should be denied because it does not qualify for relief under either rule. Sagi is
correct that neither Rule 12 nor Rule 56 is the proper source for the relief Kubik
seeks. Nevertheless, Kubik does indicate in his motion that his request for
dismissal based on failure to join Sagi’s entities is brought under Rule 19 and that
his request for abstention is premised on Supreme Court precedent. Kubik’s (or
rather his counsel’s) error in believing that a citation to Rule 12 or 56 also is
necessary to seek dismissal of the Complaint is not grounds for denying the
motion, and is a frivolous argument.
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the documents attached as Exhibit A to Sagi’s current Complaint. (Compl., Ex. A,
ECF No. 1; see also Resp., Ex. E, ECF No. 7-6.) The documents include checks
written by Sagi to Kubik, totaling $103,000. (Id.) After a hearing in the actions
against Matan and ASAF and a bench trial in the case against Home Apartments,
Michigan state court judges entered judgments of possession after land contract
forfeiture against each of the LLCs. (Mot., Exs. 5-7.)
Sagi filed the instant lawsuit seeking to recover the $103,000 he paid to
Kubik. In his Complaint, Sagi alleges that Kubik improperly converted this money
for purposes other than making payments on the land contracts. (See Compl. ¶ 17,
ECF No. 1.) Sagi further alleges that Kubik’s handling of the money constituted a
breach of contract and/or unjust enrichment. (Id. ¶¶ 19-28.)
Applicable Law and Analysis
Joinder
Rule 19 establishes a three-step process for a court to decide whether an
absent party must be joined in the litigation. Fed. R. Civ. P. 19. First, the court
must determine whether the absent party is a necessary party under Rule 19(a). If
it is, the court next must decide whether joinder is feasible, or if a lack of subject
matter or personal jurisdiction makes joinder impossible. Glancy v. Taubman Ctrs,
Inc., 373 F.3d 656, 666 (6th Cir. 2004). Third, if joinder is not feasible, the court
must consider the factors listed in Rule 19(b) to decide whether, “ ‘in equity and
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good conscience,’ ” the matter should be dismissed because the absent party “is
indispensable.” Id. (quoting Fed. R. Civ. P. 19(b)).
Rule 19(a) provides that a person or entity is a necessary party, and where
feasible must be joined, if:
(A) in that person’s absence, the court cannot accord
complete relief among existing parties; or
(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’s absence may:
(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 otherwise
inconsistent obligations because of the interest.
Fed. R. Civ. P. 19(a)(1). To show that the LLCs are necessary parties, Kubik
states: “while [Sagi] may have ownership interests in [the LLCs], he does not have
any ownership interests in each of their properties, which are at interest in this
suit.” (Br. in Supp. of Mot at 6, ECF No. 5 at Pg ID 83.) The payments totaling
$103,000, rather than the real estate properties, are the focus of this litigation,
however. Nevertheless, because one of the issues to be decided will be whether
the payments were made for and applied to the LLCs’ land contracts, the Court
will assume for purposes of deciding this motion that the LLCs do have “an
interest relating to the subject of the action” and are “so situated that disposing of
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the action in [their] absence may … impair or impede [their] ability to protect the
interest.” In other words, that they are necessary parties. Thus, the Court moves to
the second step and asks whether the LLCs can feasibly be joined.
Contending that the LLCs “are incorporated in the State of Michigan[,]”
Kubik argues that they cannot be feasibly joined without destroying the Court’s
diversity jurisdiction, as Kubik is a Michigan citizen as well. (Br. in Supp. of Mot.
at 12, ECF No. 5 at Pg ID 79.) A corporation is a citizen of any State in which it is
incorporated and has its principal place of business. 28 U.S.C. § 1332(c)(1). The
citizenship of a limited liability corporation is assessed differently, however.
Varsity Brands, Inc. v. Star Athletica, LLC, 799 F.3d 468, 494 (6th Cir. 2015)
(citing Delay v. Rosenthal Collins Grp., LLC, 585 F.3d 1003, 1005 (6th Cir.
2009)). “[A]n LLC ‘has the citizenship of each of its members.’ ” Id. (quoting
Delay, 585 F.3d at 1005).
As such, the LLCs share the California citizenship of Sagi, their only
purported member. Therefore, their joinder is feasible. But even if the LLCs were
Michigan citizens, the Court would find that they are not indispensable parties
under Rule 19(b).
As stated above, where joinder of a necessary party is not feasible, Rule
19(b) instructs courts to “determine whether, in equity and good conscience, the
action should proceed among the existing parties or … be dismissed.” Fed. R. Civ.
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P. 19(b). The rule identifies four factors a court should consider in making this
determination:
(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:
(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). The only factor Kubik attempts to address is the first factor,
when he asks: “If [Sagi] is able to litigate this case in the absence of Matan, ASAF
and The Home Apartments, what would stop each of those entities from filing
subsequent lawsuits in federal court?” (Br. in Supp. of Mot. at 6, ECF No. 5 at Pg
ID 83.) The answer to this rhetorical question and whether the action should
proceed without the LLCs is found in the Sixth Circuit’s decision in Hooper v.
Wolfe, 396 F.3d 744 (2005).
Relying on decisions of three other circuit courts, the Hooper court
concluded that a limited partnership entity is dispensable where its members
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already are parties to the action and there is no evidence that the members’
interests are antagonistic to the partnership or that they will not adequately
represent the interests of the partnership as an entity. Id. at 749-50. The court
relied on the following reasoning from the Third Circuit:
Even though the Partnership has its own interests, it is an
artificial entity: its interests must ultimately derive from
the interests of the human beings that are its members
(albeit through the medium of other partnerships and
corporations). … 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.
Hooper, 396 F.3d at 749-50 (quoting HB Gen. Corp. v. Manchester Partners, LP,
95 F.3d 1185, 1193 (3d Cir. 1996)). The Hooper court further reasoned:
Here, the general partner, PPM, Inc., the only party
authorized to act on behalf of the partnership; its human
master, Mr. Wolfe; and the antagonistic limited partner,
Mr. Hooper, are before the court and may be bound by a
judgment. “The Partnership, like a marionette, cannot
make a move unless some human being pulls the
strings.”
396 F.3d at 750 (quoting HB Gen. Corp., 95 F.3d at 1191). As this suggests, the
only potential prejudice Kubik identifies resulting from the LLCs’ absence (that is,
subsequent litigation initiated by the LLCs against Kubik) can be avoided by the

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Court fashioning a judgment enjoining their only member, Sagi, from bringing
such claims.
In short, the failure to join the LLCs as parties to this litigation is not a basis
for dismissal of Sagi’s Complaint pursuant to Rule 19.
Abstention
“The doctrine of abstention, under which a District Court may decline to
exercise or postpone the exercise of its jurisdiction, is an extraordinary and narrow
exception to the duty of a District Court to adjudicate a controversy properly
before it.” Colorado River Water Conservation Dist. v. United States, 424 U.S.
800, 813 (1976). The exception is found warranted “by considerations of ‘proper
constitutional adjudication,’ ‘regard for federal-state relations,’ or ‘wise judicial
administration.’ ” Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716 (1996)
(quoting Colorado River, 424 U.S. at 817). Otherwise, as the Supreme Court
repeatedly has advised, “federal courts have a strict duty to exercise the jurisdiction
that is conferred upon them by Congress.” Id. (citing Colorado River, 424 U.S. at
821; England v. Louisiana Bd. of Medical Examiners, 375 U.S. 411, 415 (1964)
(quoting Willcox v. Consolidated Gas Co., 212 U.S. 19, 40 (1909)); Cohens v.
Virginia, 6 Wheat. 264, 404, 5 L.Ed. 257 (1821)).
In Quackenbush, the Supreme Court summarized the types of cases where it
has found abstention appropriate:
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[F]ederal courts have the power to refrain from hearing
cases that would interfere with a pending state criminal
proceeding … or with certain types of state civil
proceedings …; cases in which the resolution of a federal
constitutional question might be obviated if the state
courts were given the opportunity to interpret ambiguous
state law …; cases raising issues “intimately involved
with the States’ sovereign prerogative,” the proper
adjudication of which might be impaired by unsettled
questions of state law …; cases whose resolution by a
federal court might unnecessarily interfere with a state
system for the collection of taxes …; and cases which are
duplicative of a pending state proceeding ….
517 U.S. at 716-17 (internal brackets and citations omitted). Kubik relies upon the
last category (see Br. in Supp. of Mot at 8, ECF No. Pg ID 85), which is commonly
known as Colorado River abstention. There is no pending state-court action,
however. As such, the doctrine is inapplicable. See Gottfried v. Med. Planning
Servs., Inc., 142 F.3d 326, 329 (6th Cir. 1998) (“Where … there is no presently
ongoing state proceeding parallel to the federal case, the exceptional circumstances
necessary for Colorado River abstention do not exist.”); Chellman-Shelton v.
Glenn, 197 F. App’x 392, 394-95 (6th Cir. 2006) (finding that the district court
erred in abstaining, because, “[w]hen the district court abstained, the related state
court action between these parties had already concluded, so there was no pending
state court proceeding to which the district court could defer”). Moreover,
dismissal would not be the appropriate remedy even if there was a pending parallel
state court action.
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In Quackenbush, the Supreme Court addressed “whether the principles
underlying [its] abstention cases would support the remand or dismissal of a
common-law action for damages.” Id. at 719. The Court concluded that
abstention is not strictly limited to “equitable cases.” Id. at 730. Nevertheless, the
Court held that “[u]nder [its] precedents, federal courts have the power to dismiss
or remand cases based on abstention principles only where the relief being sought
is equitable or otherwise discretionary.” Id. at 731 (emphasis added). In a
damages action, if a court determines that abstention is appropriate, the only option
available is to postpone adjudication of the action pending the resolution of a
parallel state court action. Id. at 730-31. Because the present action is a damages
action, dismissal is not warranted even if the Court were to find the abstention
doctrine applicable.2
Conclusion
In short, the LLCs are citizens of California, not Michigan. Thus, even if
they are necessary parties to this action, their joinder would not destroy subject
matter jurisdiction and therefore is feasible. As such, dismissal under Rule 19 for
failure to join the LLCs as parties is not appropriate.
The present action does not fall within any of the narrow exceptions where
the Supreme Court has found abstention appropriate. But even if the Court found
Because there is no parallel state court action pending, a stay of the proceedings
also is not warranted.
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the doctrine of abstention applicable in this damages action, the appropriate
remedy is not to dismiss the case.
Accordingly,
IT IS ORDERED that Defendant Fredrick K. Kubick’s Motion to Dismiss
(ECF No. 4.) is DENIED.
s/ Linda V. Parker
LINDA V. PARKER
U.S. DISTRICT JUDGE
Dated: November 2, 2016
I hereby certify that a copy of the foregoing document was mailed to counsel of
record and/or pro se parties on this date, November 2, 2016, by electronic and/or
U.S. First Class mail.
s/ Richard Loury
Case Manager

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