Clapper et al v. American Realty Investors Inc et al
Filing
684
MEMORANDUM OPINION AND ORDER granting #657 MOTION to Dismiss for Lack of Jurisdiction filed by EQK Holdings Inc, American Realty Investors Inc, American Realty Trust, Inc.; granting #658 MOTION to Dismiss for Lack of filed by Gene E Phillips; and denying without prejudice #514 Motion for Protective Order, Motion to Quash filed by Atlantic XIII LLC, David M Clapper, Atlantic Midwest LLC, #399 Dismiss for Failure to State a Claim filed by American Realty Trust, Inc, #469 Motion for Leave to File, filed by Atlantic XIII LLC, David M Clapper, Atlantic Midwest LLC, 329 Motion to Stay filed by American Realty Investors Inc, #375 Motion for Summary Judgment filed by Gene E Phillips, #551 Motion for Summary Judgment filed by EQK Holdings Inc, #676 Motion for Miscellaneous Relief filed by Atlantic XIII LLC, David M Clapper, Atlantic Midwest LLC, #518 Motion for Protective Order, Motion to Quash filed by Atlantic XIII LLC, David M Clapper, Atlantic Midwest LLC, #542 Motion for Summary Judgment filed by Atlantic XIII LLC, David M Clapper, Atlantic Midwest LLC, #578 Motion to Strike, filed by EQK Holdings Inc, American Realty Investors Inc, American Realty Trust, Inc, Gene E Phillips, #516 Motion for Protective Order, Motion to Quash filed by Atlantic XIII LLC, David M Clapper, Atlantic Midwest LLC, #400 Dismiss for Failure to State a Claim filed by Gene E Phillips, #622 Motion for Leave to File filed by Atlantic XIII LLC, David M Clapper, Atlantic Midwest LLC, #498 Motion for Miscellaneous Relief, filed by Atlantic XIII LLC, David M Clapper, Atlantic Midwest LLC, #398 Motion to Dismiss, Motion to Strike filed by EQK Holdings Inc, American Realty Investors Inc, American Realty Trust, Inc, Gene E Phillips, #673 Motion for Miscellaneous Relief, filed by Atlantic XIII LLC, David M Clapper, Atlantic Midwest LLC, #416 Motion for Protective Order, Motion to Quash,, filed by Atlantic XIII LLC, David M Clapper, Atlantic Midwest LLC, #403 Dismiss for Failure to State a Claim filed by American Realty Investors Inc, #612 Motion for Leave to File, filed by Atlantic XIII LLC, David M Clapper, Atlantic Midwest LLC, #592 Motion for Leave to File, filed by EQK Holdings Inc, American Realty Investors Inc, American Realty Trust, Inc, Gene E Phillips, #548 Motion for Summary Judgment filed by American Realty Investors Inc, #489 Motion to Strike, filed by Atlantic XIII LLC, David M Clapper, Atlantic Midwest LLC, #512 Motion for Protective Order, Motion to Quash filed by Atlantic XIII LLC, David M Clapper, Atlantic Midwest LLC, #539 Motion for Summary Judgment filed by American Realty Trust, Inc, #646 Motion to Quash filed by EQK Holdings Inc, American Realty Investors Inc, American Realty Trust, Inc, Gene E Phillips, #401 Dismiss for Failure to State a Claim filed by EQK Holdings Inc re: #514 MOTION for Protective Order and MOTION to Quash the Subpoena Duces Tecum for Herbert L. Shevin, #658 MOTION to Dismiss for Lack of Jurisdiction MOTION to Strike #651 Amended Complaint,, , #399 Motion to Dismiss for Failure to State a Claim, #657 MOTION to Dismiss for Lack of Jurisdiction MOTION to Strike #651 Amended Complaint,, , #469 MOTION for Leave to File Supplemental Appendices to Plaintiffs' Response to Defendant Gene Phillips' Motion for Summary Judgment, 329 MOTION to Stay re #289 Order on Motion for Sanctions, #309 Response/Objection, #375 MOTION for Summary Judgment , #551 MOTION for Summary Judgment , #676 MOTION for Expenses Relating to the Court's October 24, 2017 Order Granting Plaintiffs' Motion to Compel Production of Documents, #518 MOTION for Protective Order and MOTION to Quash the Subpoena Duces Tecum for William Widmeyer, Sr., #542 MOTION for Summary Judgment , #578 MOTION to Strike #545 Sealed and/or Ex Parte Appendix/Brief/Memorandum in Support, #544 Appendix in Support, #542 MOTION for Summary Judgment , #543 Brief/Memorandum in Support of Motion , #516 MOTION for Protective Order and MOTION to Quash the Subpoena Duces Tecum for Jody B. Shevin, #400 Motion to Dismiss for Failure to State a Claim, #622 MOTION for Leave to File Supplemental Appendix in Support of Plaintiffs' Motion for Partial Summary Judgment, #498 MOTION for Leave to Supplement the Record as to Plaintiffs' Response to Defendant Gene Phillips' Motion for Summary Judgment, #398 MOTION to Dismiss or, Alternatively MOTION to Strike #373 Amended Complaint,, , #673 MOTION for Expenses and to Sanction Defendants American Realty Investors, Inc., American Realty Trust, Inc., EQK Holdings, Inc. and Gene E. Phillips for Discovery Abuse Relating to the Court's October 6, 2017 Order Granting Plaintiffs' Motion, #416 MOTION for Protective Order MOTION to Quash Defendants' Notice of Intention to Take the Oral Deposition of Andy Mychalowych, #403 Motion to Dismiss for Failure to State a Claim, #612 MOTION for Leave to File Appendix in Support of Plaintiffs' Reply in Support of Their Motion for Partial Summary Judgment, #592 First MOTION for Leave to File Motion for Leave to File Supplements to Defendants Response to Plaintiffs Motion for Partial Summary Judgment, #548 MOTION for Summary Judgment , #489 MOTION to Strike Section III and Related Exhibits of Defendants' Expert Gary B. Goolsby's Report Dated February 15, 2017, #512 MOTION for Protective Order and MOTION to Quash the Subpoena Duces Tecum for Gary Konke, #539 MOTION for Summary Judgment , #646 MOTION to Quash , #401 Motion to Dismiss for Failure to State a Claim (Ordered by Judge Sidney A Fitzwater on 2/28/2018) (Judge Sidney A Fitzwater)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
DAVID M. CLAPPER, Individually,
et al.,
Plaintiffs,
VS.
AMERICAN REALTY INVESTORS,
INC., et al.,
Defendants.
§
§
§
§
§ Civil Action No. 3:14-CV-2970-D
§
§
§
§
§
§
MEMORANDUM OPINION
AND ORDER
Defendants’ motions to dismiss under Fed. R. Civ. P. 12(b)(1) for lack of subject
matter jurisdiction present the principal question whether, in determining diversity
jurisdiction, the court should consider the citizenship of a nonparty limited
partnership—ART Midwest, L.P. (“ART Midwest”)—or only the citizenship of ART
Midwest’s managing general partner—plaintiff Atlantic Midwest LLC (“Atlantic
Midwest”)—who brings suit on behalf of the partnership. Concluding that the court should
consider the citizenship of ART Midwest, the court grants defendants’ motions to dismiss
for lack of subject matter jurisdiction because two members of ART Midwest—Atlantic XIII
LLC (“Atlantic XIII”) and American Realty Trust, Inc. (“ART”)—are citizens of Georgia,
which makes ART Midwest a Georgia citizen, and ART, a citizen of Georgia, is also a
defendant in the lawsuit.1
I
Because this case is the subject of three prior memorandum opinions and orders, see,
e.g., Clapper v. American Realty Investors, Inc., 2016 WL 302313 (N.D. Tex. Jan. 25, 2016)
(Fitzwater, J.) (“Clapper III”), the court will recount only the background facts pertinent to
this decision.
On August 19, 2014 plaintiffs David M. Clapper (“Clapper”), Atlantic Midwest, and
Atlantic XIII filed this lawsuit against numerous defendants. They invoked this court’s
diversity jurisdiction and also its federal question jurisdiction based on the assertion of a
claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C.
§ 1962. See Compl. ¶ 1 (“This Court has jurisdiction over this action pursuant to 28 USC
§1332, (diversity jurisdiction) and based on a federal question being raised pursuant to
RICO.”). In Clapper III, however, the court dismissed the civil RICO claim. Plaintiffs
unsuccessfully sought leave of court to replead that claim.2 Plaintiffs then filed on March
24, 2017 a third amended complaint that omitted any federal-law claims, including a civil
RICO claim.
In December 2017 the court had under consideration various pending motions. As
1
Even if the court assumes arguendo that it should disregard ART’s citizenship on the
plaintiffs’ side of the controversy since it is a defendant, the Georgia citizenship of Atlantic
XIII is sufficient to destroy complete diversity.
2
The court denied plaintiffs’ motion for leave to file a third complaint to the extent
they sought to replead their civil RICO claim.
-2-
part of the decisional process, it reviewed the third amended complaint. In doing so, it noted
that plaintiffs predicated subject matter jurisdiction on diversity of citizenship, 28 U.S.C. §
1332, but it concluded that the third amended complaint failed to allege properly the
citizenship of plaintiffs Clapper, Atlantic XIII, and Atlantic Midwest, and defendants Prime
Income Asset Management, LLC, and Gene Phillips (“Phillips”). Because diversity
jurisdiction was then the sole basis for the court’s subject matter jurisdiction, the court
ordered plaintiffs to amend their complaint to properly plead the citizenship of the parties
specified in the order. In response, plaintiffs filed the instant fourth amended complaint
(“FAC”).3
In the FAC, plaintiffs allege claims against defendants American Realty Investors
Inc., ART, and EQK Holdings Inc. (collectively, the “Entity Defendants”) and Phillips for
fraudulent conveyance, in violation of the Texas Uniform Fraudulent Transfer Act, Tex. Bus.
& Com. Code Ann. § 24.001 et seq. (West 2015); unjust enrichment/constructive trust; and
alter ego. Plaintiffs’ claims all center on the theory that defendants are attempting to evade
a final judgment entered by Judge Godbey in 2016 (the “Final Judgment”) at the culmination
of an extensive litigation process, including an appeal to the Fifth Circuit.
The Final Judgment awards various sums to individual parties and combinations of
parties by paragraph. One such party, relevant to the instant motion, is ART Midwest. As
3
The FAC omits Atlantic XIII as a plaintiff. Under the court’s reasoning, however,
it does not matter that Atlantic XIII is not a plaintiff because its citizenship still determines
ART Midwest’s citizenship, and it is ART Midwest’s citizenship that controls when
determining the citizenship of plaintiffs’ side of the suit. See infra § II(C).
-3-
of the 1998 First Amended and Restated Agreement of Limited Partnership of ART Midwest,
L.P. (the “Partnership Agreement”), the known members of ART Midwest are “ART
Midwest, Inc., as the Managing General Partner, Atlantic Midwest, LLC, a Michigan limited
liability company . . . as the Non-Managing General Partner . . . and American Realty Trust,
Inc., as the Class B Limited Partner.” D. App. 110. Exhibit A of the Partnership Agreement
also lists Atlantic XIII as a Class A Limited Partner of ART Midwest. Id. at 156.
The paragraph of the Final Judgment relevant to ART Midwest states:
Atlantic Midwest, on behalf of the Partnership, has judgment
against ART for its breach of section 4.02(d) of the Partnership
Agreement in the amount of $10,554,914, together with
prejudgment interest from the date of breach, March 22, 1999
through October 11, 2011, at the rate of 19% simple interest per
annum in the amount of $25,175,738.70, for a total amount
through October 11, 2011 of $35,730,652.70.
Final Judgment ¶ 5 (emphasis added). The Final Judgment also specifies:
Atlantic Midwest has declaratory judgment that it is the
managing general partner of the ART Midwest L.P. (the
“Partnership”) as of December 9, 1999, and is entitled to assert
legal claims on behalf of the Partnership and wind up the
Partnership’s affairs[.]
Final Judgment ¶ 4 (emphasis added).
In connection with their filing of the FAC, plaintiffs filed amended Rule 26(a)(1)
disclosures regarding the damages they seek. Relevant, in part, to Atlantic Midwest and
ART Midwest, plaintiffs’ Fifth Amended and Restated Rule 26 disclosures (“Fifth Rule 26
-4-
disclosures”)4 state:
In addition to the turnover relief requested in Count I of
Plaintiffs’ Fourth Amended Complaint, Atlantic Midwest, LLC
seeks damages in the amount of $10,554,914, together with
prejudgment interest from March 22, 1999 through October 11,
2011, at the rate of 19% simple interest per annum in the amount
of $25,175,738.70, for a total amount through October 11, 2011
of $35,730,652.70, plus post-judgment interest at the rate of
0.11%, compounded annually, beginning October 12, 2011 until
paid in full, as set forth in paragraph 5 of the Final Judgment,
plus punitive damages in an amount exceeding $10,000,000.00,
prejudgment interest, post-judgment interest, attorneys fees, and
costs in this matter.
P. App. 22 (emphasis added).
After plaintiffs filed the FAC, the Entity Defendants moved to dismiss pursuant to
Rule 12(b)(1) and Rule 19 for lack of subject matter jurisdiction and to strike the FAC
pursuant to Rule 41. Phillips also moved to dismiss the case under Rule 12(b)(1) for lack of
subject matter jurisdiction and for want of standing, or, alternatively, to strike the FAC.
Phillips and the Entity Defendants maintain that, because ART Midwest, not Atlantic
Midwest, is the real party to the controversy, the court must look to the citizenship of ART
Midwest when determining whether the parties are diverse citizens. They contend that the
Georgia citizenship of two members of ART Midwest—Atlantic XIII and ART—destroys
diversity because ART is also a defendant in the lawsuit. Plaintiffs rely on the Final
Judgment’s designation of Atlantic Midwest as a party with the authority to bring suit on
4
The court considers the Fifth Rule 26 disclosures in interpreting what Atlantic
Midwest is seeking in this suit.
-5-
behalf of the partnership as evidence that ART Midwest is not the real party to the
controversy. Plaintiffs oppose the motions of Phillips and the Entity Defendants.5
II
A
“Federal courts are courts of limited jurisdiction, and absent jurisdiction conferred by
statute, lack the power to adjudicate claims.” Stockman v. Fed. Election Comm’n, 138 F.3d
144, 151 (5th Cir. 1998). “The burden of proof for a Rule 12(b)(1) motion to dismiss is on
the party asserting jurisdiction. Accordingly, the plaintiff constantly bears the burden of
proof that jurisdiction does in fact exist.” Ramming v. United States, 281 F.3d 158, 161 (5th
Cir. 2001) (per curiam) (citations omitted).
A Rule 12(b)(1) motion challenging the court’s subject matter jurisdiction can mount
either a facial or factual challenge. See, e.g., Hunter v. Branch Banking & Trust Co., 2013
WL 607151, at *2 (N.D. Tex. Feb.19, 2013) (Fitzwater, C.J.) (citing Paterson v. Weinberger,
644 F.2d 521, 523 (5th Cir. May 1981)). When a party makes a Rule 12(b)(1) motion
without including evidence, the challenge to subject matter jurisdiction is facial. Id. The
court assesses a facial challenge as it does a Rule 12(b)(6) motion in that it “looks only at the
sufficiency of the allegations in the pleading and assumes them to be true. If the allegations
5
In the process of filing the FAC, plaintiffs discovered that a member of Atlantic XIII
is a citizen of Georgia, the same state of which defendant ART, a Georgia corporation, is a
citizen. The Entity Defendants and Phillips also move to dismiss for lack of subject matter
jurisdiction on the basis that the citizenship of Atlantic XIII, an indispensable party, destroys
diversity. Because the court is deciding the motions to dismiss on other grounds, it need not
address whether this case should be dismissed on this basis.
-6-
are sufficient to allege jurisdiction, the court must deny the motion.” Id. at *2 (citations
omitted). “If, however, the defendant supports the motion with affidavits, testimony, or other
evidentiary materials, then the attack is ‘factual’ and the burden shifts to the plaintiff to prove
subject matter jurisdiction by a preponderance of the evidence.” MacKenzie v. Castro, 2016
WL 3906084, at *2 (N.D. Tex. July 19, 2016) (Fitzwater, J.).
“[C]omplete diversity requires that all persons on one side of the controversy be
citizens of different states than all persons on the other side.” Settlement Funding, L.L.C. v.
Rapid Settlements, Ltd., 851 F.3d 530, 536 (5th Cir. 2017) (alteration in original) (quoting
McLaughlin v. Miss. Power Co., 376 F.3d 344, 353 (5th Cir. 2004) (per curiam)). The party
seeking the federal forum has the burden of establishing diversity jurisdiction. Id.
“[A] federal court must disregard nominal or formal parties and rest jurisdiction only
upon the citizenship of real parties to the controversy.” Navarro Sav. Ass’n v. Lee, 446 U.S.
458, 461 (1980). “The ‘real party to the controversy’ test does not require a federal court to
consider the citizenship of non-parties who have an interest in the litigation or might be
affected by the judgment.” KeyBank Nat. Ass’n v. Perkins Rowe Assocs., L.L.C., 539 Fed.
Appx. 414, 416 (5th Cir. 2013) (per curiam) (citing Corfield v. Dallas Glen Hills LP, 355
F.3d 853, 855 (5th Cir. 2003)).
“The ‘real party to the controversy’ test requires
consideration of the citizenship of non-parties when a party already before the court is found
to be a non-stake holder/agent suing only on behalf of another.” Id. The court relies on a
variety of factors, including who has legal title, manages the assets, and controls the
litigation, when determining the real party to the controversy. Navarro, 446 U.S. at 465.
-7-
B
While the determination of citizenship for the purpose of diversity jurisdiction is a
matter of federal law, see Horton v. Bank One, N.A., 387 F.3d 426, 435 (5th Cir. 2004), the
court looks to Texas law of partnerships to “define the substantive rights of the parties and
the interests concerned.” Lone Star Indus., Inc. v. Redwine, 757 F.2d 1544, 1548 n.3 (5th
Cir. 1985) (Rule 19 case). Under Texas law, “a partner may individually sue for the benefit
of the partnership and other partners.” ART Midwest Inc. v. Atl. Ltd. P’ship XII, 742 F.3d
206, 217 (5th Cir. 2014) (citing R & R White Family Ltd. P’ship v. Jones, 182 S.W.3d 454,
458 (Tex. App. 2006, no pet.). In this lawsuit, Atlantic Midwest is a plaintiff. ART Midwest
has not participated as a party at any time during the litigation, nor is it referenced in the FAC
or in the Fifth Rule 26 Disclosures. The evidence before the court indicates, however, that
Atlantic Midwest is bringing its claims on behalf of the partnership: ART Midwest.
Plaintiffs’ Fifth Rule 26 Disclosures specify that Atlantic Midwest seeks damages based on
¶ 5 of the Final Judgment, which awards money to “Atlantic Midwest, on behalf of the
Partnership.” Id. (emphasis added). The Final Judgment designates Atlantic Midwest as the
Managing General Partner with the power to assert such legal claims on behalf of ART
Midwest. And the Partnership Agreement grants the Managing General Partner the authority
“to prosecute, defend, arbitrate, or compromise any and all claims or liabilities in favor of
or against the Partnership[.]” D. App. 133.
Thus although Atlantic Midwest is bringing this suit in its individual capacity, it is
asserting a partnership cause of action that “belongs to and is the specific property of the
-8-
partnership[.]” MacLean v. McCarroll, 2009 WL 1882838, at *2 (E.D. Tex. June 30, 2009).
Under Texas law, a partner cannot bring suit for a fractional share of a partnership cause of
action. See Cates v. Int’l Tel. & Tel. Corp., 756 F.2d 1161, 1176 (5th Cir. 1985). In this
case, then, any funds recovered by Atlantic Midwest from defendants ultimately inure to the
benefit of the partnership—ART Midwest—not to Atlantic Midwest individually. See RMP
Consulting Grp., Inc. v. Datronic Rental Corp., 179 F.R.D. 614, 620 (N.D. Okla. 1998), aff’d
on these grounds, 189 F.3d 478 (10th Cir. 1999) (holding that evidence that limited
partnership was “the actual owner of the assets and the claims central to this litigation”
indicated it was real party to the controversy).
Plaintiffs have not demonstrated that ART Midwest is not involved in this litigation.
Cf. id. (finding that deposition testimony indicated that limited partnership was actively
participating in litigation). Plaintiffs merely point to various procedural moves throughout
the litigation, which they maintain indicate that ART Midwest’s status is that of a nominal
party.6 They fail, however, to offer evidence that any of these decisions rested on Navarro
precedent. Thus plaintiffs have not shown that they are relevant to the status of the ART
Midwest as a real party to the controversy for the purposes of diversity jurisdiction.
Because it is clear that Atlantic Midwest seeks to recover damages on behalf of the
6
Plaintiffs refer to the parties’ decision to dismiss ART Midwest from the original
1999 lawsuit. They also state that Judge Godbey and the Fifth Circuit referred to ART
Midwest as a “nominal” party in later orders. Finally, plaintiffs refer to counsel’s decision
to voluntarily dismiss the complaint on behalf of ART Midwest alleging breach of fiduciary
duty.
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ART Midwest partnership, the court follows the precedent of several other circuits and holds
that ART Midwest is the real party to the controversy whose citizenship is determinative of
diversity jurisdiction. See Halleran v. Hoffman, 966 F.2d 45, 48 (1st Cir. 1992) (holding
where “there can be no doubt that suit was brought for and on behalf of [the limited
partnership] . . . the citizenship of [the limited partnership]—which is that of all of its general
and limited partners—must be considered in determining whether there is diversity
jurisdiction”); Stouffer Corp. v. Breckenridge, 859 F.2d 75, 76 (8th Cir. 1988) (holding that
when general partner brought action on behalf of limited partnership against a Missouri
citizen, court was also required to consider limited partners for purposes of diversity); RMP
Consulting, 179 F.R.D. at 620 (holding limited partnership was real party to the controversy
whose citizenship must be considered even when suit was brought in individual name of
general partner); Carlsberg Res. Corp. v. Cambria Sav. & Loan Ass’n, 554 F.2d 1254, 1261
(3d Cir. 1977) (holding where general partner sues on behalf of partnership, court must
consider citizenship of all partners); cf. Chapman v. Barney, 129 U.S. 677 (1889) (holding
citizenship of all members of joint stock company acting as partnership must be considered,
even though suit brought on behalf of company by president). This rule accords with the
principle that parties may not manufacture diversity jurisdiction.7 Holding to the contrary
would allow a limited partnership plaintiff to “generate or avoid federal jurisdiction by filing
7
28 U.S.C. § 1359 states: “A district court shall not have jurisdiction of a civil action
in which any party, by assignment or otherwise, has been improperly or collusively made or
joined to invoke the jurisdiction of such court.”
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in its own name or the name of its general partner as it chooses.” RMP Consulting, 179
F.R.D. at 621. And plaintiffs have provided no persuasive authority to the contrary.
Citing Maiden v. N.A. Stainless, L.P., 125 Fed. Appx. 1 (6th Cir. 2004), plaintiffs
maintain that Atlantic Midwest is the real party in interest because it holds a judgment issued
in its own name. See id. at 3 (“[T]he real party in interest is the person who is entitled to
enforce the right asserted under the governing substantive law.”). This definition, however,
applies to Rule 17(a), which is independent of “real party to the controversy” test in Navarro.
Rule 17(a) states that “[a]n action must be prosecuted in the name of the real party in
interest.” The Supreme Court noted in Navarro:
There is a “rough symmetry” between the “real party in interest”
standard of Rule 17(a) and the rule that diversity jurisdiction
depends upon the citizenship of real parties to the controversy.
But the two rules serve different purposes and need not produce
identical outcomes in all cases. In appropriate circumstances,
for example, a labor union may file suit in its own name as a real
party in interest under Rule 17(a). To establish diversity,
however, the union must rely upon the citizenship of each of its
members.
Navarro, 446 U.S. at 463 (internal citations omitted).
Thus, even assuming arguendo that Atlantic Midwest is a real party in interest under
Rule 17(a), the court would not be precluded from concluding under Navarro that it should
look to the citizenship of the partnership in determining diversity jurisdiction. Plaintiffs thus
have not carried their burden to establish that ART Midwest is not the real party to the
controversy.
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C
Accordingly, the court looks to the citizenship of ART Midwest, not Atlantic
Midwest, when determining whether there is complete diversity of citizenship.
As noted above, diversity jurisdiction requires complete diversity of citizenship
between all plaintiffs and all defendants. See Owen Equip. & Erection Co. v. Kroger, 437
U.S. 365, 373-74 (1978); Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806). “This means
that no plaintiff can be a citizen of the same state as even one defendant.” Wireless Agents,
L.L.C. v. T-Mobile USA, Inc., 2006 WL 1627922, at *1 (N.D. Tex. June 8, 2006) (Fitzwater,
J.).
For the reasons explained, on the plaintiffs’ side of the suit, ART Midwest’s
citizenship controls, even though it is not a named party-plaintiff. Because ART Midwest
is a limited partnership, its citizenship is based on the citizenship of each of its members. See
Carden v. Arkoma Assocs., 494 U.S. 185, 195-96 (1990) (holding that citizenship of
unincorporated association is based on citizenship of each member). Two members of ART
Midwest—Atlantic XIII and ART—are citizens of Georgia. Atlantic XIII is a citizen of
Georgia based on the Georgia citizenship of one of its members.8 ART is a citizen of
Georgia based on its state of incorporation. See FAC ¶ 7 (alleging that ART is citizen, inter
alia, of Georgia). Accordingly, ART Midwest is deemed a Georgia citizen. ART, a citizen
of Georgia, is also a party on defendants’ side of the suit. Because there are Georgia citizens
8
Atlantic XII, L.P. (“Atlantic XII”) is a member of Atlantic XIII. Atlantic XII
comprises partners who are citizens of a number of states, including Georgia.
- 12 -
on both sides of the controversy, the court cannot exercise diversity jurisdiction.9
Accordingly, the Entity Defendants’ and Phillips’ motions to dismiss are granted.10
III
A
Although plaintiffs can now pursue this litigation against defendants in state court,
because this case has been pending in this court since August 19, 2014, the court will give
plaintiffs 21 days from the date this memorandum opinion and order is filed to move for any
available relief that would enable this court to exercise subject matter jurisdiction.11 This
may include demonstrating sufficient grounds for this court to exercise supplemental
jurisdiction under 28 U.S.C. § 1367(a), considering that the court had federal-question
9
Because the court concludes that it lacks diversity jurisdiction, it does not reach
defendants’ arguments for the premise that ART Midwest is the real party in interest under
Rule 17(a). The court also does not reach defendants’ motions to dismiss for lack of
standing.
10
This holding is consistent with the Fifth Circuit’s decision in Corfield. Corfield
addressed the question whether the citizenship of a Lloyd’s of London underwriter suing on
his own behalf, or the citizenship of every underwriter subscribing to a Lloyd’s policy must
be considered when determining diversity jurisdiction. Corfield, 355 F.3d at 855. The court
held that only the citizenship of the underwriter suing on his own behalf need be considered.
Id. at 864. The court pointed to a number of factors, inapplicable in this case, that compelled
such a result. The court stated that “the very essence of a Lloyd’s policy is that it is a
collection of individual contracts running between the insured and each [underwriter].” Id.
The court also explained, “[t]he severability of each Name’s liability to the insured lends
further support to the conclusion that a Name can be sued individually.” Id. These unique
qualities of a Lloyd’s of London policy, which dictated the outcome in Corfield, do not apply
to a limited partnership.
11
The court does not suggest that there is such relief. But it concludes that plaintiffs
should be afforded the opportunity, if they so desire, to attempt to establish that relief is
available.
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jurisdiction at the time the lawsuit was filed. Of course, “when all federal claims are
dismissed or otherwise eliminated from a case prior to trial, [the Fifth Circuit has] stated that
[its] ‘general rule’ is to decline to exercise jurisdiction over the pendent state law claims.”
McClelland v. Gronwaldt, 155 F.3d 507, 519 (5th Cir. 1998) (citing Wong v. Stripling, 881
F.2d 200, 204 (5th Cir. 1989)), overruled on other grounds by Arana v. Ochsner Health
Plan, 338 F.3d 433, 440 (5th Cir. 2003) (en banc). In the present case, no federal claim
remains, and the suit is still at the pretrial stage. Accordingly, it would appear that the
general rule should apply, that this court should decline to exercise supplemental jurisdiction,
and that plaintiffs should now re-file their lawsuit in state court. Nevertheless, to ensure that
the court reaches a just result, it will permit plaintiffs to move for any available relief that
would result in retaining this case in this court, assuming, of course, that this is their
preference.
B
Except for any motion that plaintiffs file under the terms of § III(A) of this
memorandum opinion and order, no party may file any prejudgment motion of any kind in
this civil action without first moving for and obtaining leave of court.
*
*
*
The Entity Defendants’ January 16, 2018 motion to dismiss pursuant to Rule 12(b)(1)
and defendant Phillips’ January 16, 2018 motion to dismiss pursuant to Rule 12(b)(1) for
lack of subject matter jurisdiction are granted. Because the court does not have subject
matter jurisdiction and may dismiss this action in due course, all pending motions other than
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these two motions to dismiss are denied without prejudice.12
SO ORDERED.
February 28, 2018.
_________________________________
SIDNEY A. FITZWATER
UNITED STATES DISTRICT JUDGE
12
If the court later determines that this suit should not be dismissed, it can statistically
reopen any pending motions and address them based on the briefing already on file.
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