Liebke et al v. McReynolds et al

Filing 74

ORDER granting 67 Second Motion to Dismiss for Lack of Jurisdiction. This lawsuit is dismissed without prejudice for lack of subject matter jurisdiction; and defendants' request for an award of costs is denied. Signed by District Judge Louis Guirola, Jr. on 11/7/17. (RLW)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
SOUTHERN DIVISION
EVELYN HOPE HARWOOD
LIEBKE; MARY BUIE
HARWOOD; and R.H. FRITH
HARWOOD

PLAINTIFFS

v.

CAUSE NO. 1:16cv137-LG-RHW

CHARLES McREYNOLDS; SMI,
INC.; TIDEWATER EXCHANGE
GROUP; EI REALTY CORP.;
JOHN McREYNOLDS; and JOHN
DOES 1-10

DEFENDANTS

ORDER GRANTING PLAINTIFF’S SECOND MOTION
TO DISMISS FOR LACK OF JURISDICTION AND
DENYING DEFENDANTS’ REQUEST FOR COSTS
BEFORE THE COURT is the Second Motion to Dismiss for Lack of
Jurisdiction [67] filed by the plaintiffs Evelyn Hope Harwood Liebke, Mary Buie
Harwood, and R.H. Frith Harwood. The Motion has been fully briefed. The
defendants request an order requiring the plaintiffs to pay the defendants’ costs in
the event that the Court grants the plaintiffs’ Motion. After reviewing the
submissions of the parties, the record in this matter, and the applicable law, the
Court finds that the plaintiffs’ Motion to Dismiss should be granted pursuant to
Fed. R. Civ. P. 19(b), and the defendants’ request for costs should be denied.
BACKGROUND
The defendant Charles McReynolds organized the partnership Raintree
Associates Limited in 1982 in order to purchase an apartment complex. The
plaintiffs have owned limited partnership interests in Raintree since its formation.

The plaintiffs claim that Equity Management Associates, an entity in which
McReynolds had a partnership interest, served as Raintree’s general partner. In
2000, Equity Management Associates exchanged the apartment complex owned by
Raintree for a CVS pharmacy in a 1031 exchange. See 26 U.S.C. § 1031. The
plaintiffs allege that the general partner of Raintree was at some point changed to
the defendant SMI, Inc., another entity in which McReynolds allegedly has an
interest. In 2001, Raintree conveyed the CVS to Mitchell Montgomery, LLC1, and
Mitchell Montgomery leased the property to an entity called “Big B” before
conveying the CVS pharmacy to Patriot Equity Partners in a 1031 exchange. The
CVS pharmacy was exchanged for an IHOP restaurant in which McReynolds and
his son allegedly held an interest. The plaintiffs claim that some of Raintree’s
limited partners received a distribution as a result of this series of transactions, but
the plaintiffs did not receive a distribution in violation of the Raintree partnership
agreement.
The plaintiffs originally sued Charles McReynolds, SMI, Tidewater Exchange
Group, Mitchell Montgomery, EI Realty, and John McReynolds. On June 7, 2016,
this Court entered an Order [13] requiring the plaintiffs to show cause why the case
should not be dismissed for lack of jurisdiction due to the presence of a non-diverse
defendant, Mitchell Montgomery. The plaintiffs then filed a Second Amended
Complaint [16] that did not name Mitchell Montgomery as a defendant.

Raintree Associates is the 99% owner of Mitchell Montgomery. (Ans. at 2, ECF
No. 10).
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The plaintiffs filed their first Motion [56] to Dismiss for Lack of Jurisdiction
on July 27, 2017, alleging that they had determined during discovery that both
Mitchell Montgomery and Raintree are necessary and indispensable parties to this
action. It is undisputed that the presence of Mitchell Montgomery and Raintree in
this lawsuit would destroy the Court’s diversity jurisdiction. The Court denied the
Motion without prejudice because the plaintiffs did not provide analysis of the
factors relevant to a determination of whether these entities are necessary and
indispensable. The plaintiffs have now filed a second Motion to Dismiss for Lack of
Jurisdiction.
DISCUSSION
I. RULE 19 JOINDER
Courts conduct a two-step inquiry when determining whether to dismiss a
case for failure to join an indispensable party. Hood ex rel. Miss. v. City of
Memphis, Tenn., 570 F.3d 625, 628 (5th Cir. 2009). The first step involves analysis
of Fed. R Civ. P. 19(a)(1), which provides that:
a person who is subject to service of process and whose joinder will not
deprive the court of subject-matter jurisdiction 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.
Id. (citing Fed. R. Civ. P. 19(a)(1)). If these factors are satisfied, but the necessary
party cannot be joined without destroying subject matter jurisdiction, the court then

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determines whether the party is indispensable by analyzing the following factors
set forth in Fed. R. Civ. P. 19(b):
(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.
Id. at 629.
In the present case, the plaintiffs learned during discovery that Mitchell
Montgomery was the entity that made distributions to some of Raintree’s limited
partners but not to plaintiffs. As a result, the plaintiffs claim that Mitchell
Montgomery may be liable for the distributions that were not made to the plaintiffs.
If this Court determined that Mitchell Montgomery is liable for the alleged
improper or inadequate distributions, the Court would not be able to provide
complete relief to the plaintiffs. The plaintiffs — and potentially Mitchell
Montgomery —would be prejudiced by such a finding. There is no indication that
this prejudice could be lessened by including protective provisions in the judgment,
shaping the relief, or other measures. The plaintiffs have an adequate remedy in
the event of dismissal because they have filed a separate state court action that
includes all of the interested parties. As a result, the Court finds that Mitchell

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Montgomery is a necessary and indispensable party. Since the presence of this
entity as a defendant would destroy jurisdiction, this lawsuit must be dismissed.2
II. DEFENDANTS’ REQUEST FOR COSTS
The defendants seek an award of costs pursuant to 28 U.S.C. 1919, which
provides: “Whenever any action or suit is dismissed in any district court . . . for
want of jurisdiction, such court may order the payment of just costs.” The Fifth
Circuit has held that “[t]here is nothing in § 1919 . . . that requires such an award
[of costs]: Orders under this statute are purely permissive.” Religious Tech. Ctr. v.
Liebreich, 98 F. App’x 979, 986-87 (5th Cir. 2004). Since the discovery conducted in
the present case can be utilized in the plaintiffs’ state court lawsuit, the defendants’
request for just costs is denied. See Karnes v. Fleming, No. H-07-0620, 2009 WL
385458, at *2 (S.D. Tex. Feb. 17, 2009).
IT IS, THEREFORE, ORDERED AND ADJUDGED that the Second
Motion to Dismiss for Lack of Jurisdiction [67] filed by the plaintiffs Evelyn Hope
Harwood Liebke, Mary Buie Harwood, and R.H. Frith Harwood is GRANTED.
This lawsuit is DISMISSED WITHOUT PREJUDICE for lack of subject matter
jurisdiction.

Contrary to the defendants’ assertions, it is unnecessary to determine whether the
plaintiffs’ claims are direct claims or derivative claims in order to determine
whether Mitchell Montgomery is a necessary and indispensable party. It is also
unnecessary to reach a decision whether Raintree is a necessary and indispensable
party, since Mitchell Montgomery’s status as a necessary and indispensable party is
sufficient to destroy the Court’s jurisdiction.
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IT IS, FURTHER, ORDERED AND ADJUDGED that the defendants’
request for an award of costs pursuant to 28 U.S.C. § 1919 is DENIED.
SO ORDERED AND ADJUDGED this the 7th day of November, 2017.

s/

Louis Guirola, Jr.

LOUIS GUIROLA, JR.
UNITED STATES DISTRICT JUDGE

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