TSquare Apts LLC v. AMLI/BPMT Towne Square Partnership et al
MEMORANDUM OPINION AND ORDER granting 71 AMENDED 26 MOTION to Dismiss for Lack of Subject Matter Jurisdiction (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)
United States District Court
Southern District of Texas
February 10, 2017
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
TSQUARE APTS LLC,
David J. Bradley, Clerk
AMLI/BPMT TOWNE SQUARE
PARTNERSHIP; AMLI RESIDENTIAL
PROPERTIES, L.P.; AMLI
RESIDENTIAL PARTNERS LLC;
AMLI MANAGEMENT COMPANY; and
PENSIOENFONDS METAAL EN
TECHNIEK (PMT) f/k/a STICHTING
BEDRIJFSPENSIOENFONDS VOOR DE
METAAL EN TECHNISCHE
CIVIL ACTION NO. H-16-0873
MEMORANDUM OPINION AND ORDER
Pending before the court is AMLI Defendants' Amended Motion to
Support ( "AMLI' s Amended Motion to Dismiss")
(Docket Entry No. 71) .
For the reasons stated below, the motion will be granted.
Factual and Procedural Background
Plaintiff TSquare Apts LLC ("TSquare")
filed this action to
multi-family residential apartment complex. 1
TSquare alleges that
it purchased the mid-rise apartment complex located near downtown
Partnership ( "AMLI/BPMT") on or around September 25, 2012. 2
around Memorial Day 2015, heavy rainfall resulted in damage to the
evidence of previously undisclosed damage and repairs that had been
hidden by AMLI/BPMT. 4
TSquare filed suit on April 1, 2016. 5
AMLI Residential Properties, L.P.
("AMLI L.P."), AMLI Residential
for a more definite statement. 6
conference held on June 24,
At a scheduling
the court ordered TSquare to
Plaintiff TSquare Apts LLC's
First Amended Complaint
("Plaintiff's Amended Complaint"), Docket Entry No. 70, p. 1.
Id. at 4
See Plaintiff TSquare Apts LLC's Original Complaint, Docket
Entry No. 1.
See Defendants' Motion to Dismiss, and Alternatively, Motion
for More Definite Statement, and Brief in Support, Docket Entry
defendant entities, along with their residences, so that the court
could determine whether it had jurisdiction. 7
On November 1, 2016,
Defendants then filed AMLI's Amended Motion to Dismiss. 9
TSquare is a limited liability company ("LLC") with members
who are citizens of Colorado . 10
AMLI/BPMT, AMLI L. P., and AMLI LLC
(collectively, "the Member Entities") are members of a complex and
companies (See Organizational Chart below.) of which Prime Property
Fund, LLC ("Prime, LLC") is a part. 11
Hearing Minutes and Order, Docket Entry No. 21.
Plaintiff's Amended Complaint, Docket Entry No. 70, pp. 8-15.
See AMLI's Amended Motion to Dismiss, Docket Entry No. 71.
Plaintiff' s Amended Complaint, Docket Entry No. 70, p. 1 ~ 1;
Appendix A to Plaintiff's Amended Complaint, Docket Entry No. 70-1.
See Supplemental Declaration of Lidia Novak (Under Seal)
("Novak Declaration") , Docket Entry No. 31, pp. 1-3; see also
Organizational Chart, AMLI' s Amended Motion to Dismiss, Docket
Entry No. 71, p. 8.
Towne Square.__ ____.
The AMLI Defendants argue that the citizenship of one or more
of the Member Entities is determined by the citizenship of Prime,
citizenship of two of its rnernbers. 12
The AMLI Defendants argue that
the parties are therefore not completely diverse and that the court
jurisdiction over this action.
TSquare disputes whether
LLC's citizenship ultimately determines whether the court
has subject-matter jurisdiction and argues
in any event,
Prime, LLC is not a citizen of Colorado. 13
"Federal courts are courts of lirni ted jurisdiction."
v. Guardian Life Insurance Company of America,
A party may assert the defense of lack of subject
12 (b) (1)
properly dismissed for lack of subject matter jurisdiction when the
court lacks the statutory or constitutional power to adjudicate the
Horne Builders Association of Mississippi, Inc. v. City of
143 F.3d 1006,
burden of establishing federal jurisdiction rests with the party
AMLI' s Amended
pp . 7 - 9 , , 8 - 9 .
Plaintiff's Response to AMLI Defendants' Amended Motion to
Dismiss for Lack of Subject Matter Jurisdiction ("Plaintiff's
Response"), Docket Entry No. 83, pp. 4-5.
asserting its existence.
DaimlerChrysler Corp. v. Cuno, 126 S. Ct.
1854, 1861 n.3 (2006).
"Courts may dismiss for lack of subject matter jurisdiction on
any one of three different bases:
(1) the complaint alone;
complaint supplemented by undisputed facts in the record; or (3) the
resolution of disputed facts."
Clark v. Tarrant County, Texas, 798
F.2d 736, 741 (5th Cir. 1986).
Rule 12(b) (1) challenges to subject
(5th Cir. 1981).
See Paterson v. Weinberger,
644 F.2d 521, 523
A facial attack consists of a Rule 12(b) (1) motion
unaccompanied by supporting evidence that challenges the court's
jurisdiction based solely on the pleadings.
A factual attack
challenges the existence of subject matter jurisdiction in fact,
irrespective of the pleadings, and matters outside the pleadings -such as testimony and affidavits -- may be considered.
the parties have each submitted evidence outside the pleadings, the
motion is a
and the court will
consider the evidence in the record, resolving any disputed facts.
Courts have original jurisdiction over civil actions where the
parties are diverse and the matter in controversy exceeds the sum
or value of $75,000, exclusive of interest and costs.
1332 (a) . 14
The Supreme Court has
Neither party disputes that
requirement is met in this case.
See McLaughlin v.
Power Co., 376 F.3d 344, 353 (5th Cir. 2004)
Curtiss, 7 U.S.
(citing Strawbridge v.
267, 2 L. Ed. 435
diversity requires that all persons on one side of the controversy
be citizens of different states
than all persons on the other
Harvey v. Grey Wolf Drilling Co., 542 F.3d 1077, 1079 (5th
(internal quotation marks and citations omitted).
For artificial entities other than corporations,
jurisdiction in a
suit by or against an entity depends on the
citizenship of all its members.
Americold Realty Trust v. Conagra
(citations omitted) .
Where artificial entities are members of other artificial entities,
repeated application of the rule may be necessary as citizenship is
traced through organizational layers.
618 F. App'x 765,
See Alphonse v. Arch Bay
Mullins v. TestAmerica, Inc., 564 F.3d 386, 397 (5th Cir. 2009)).
The Fifth Circuit has joined the majority of circuits in holding
that these rules apply to limited liability companies as well as
Grey Wolf, 542 F.3d at 1080.
The essential question in this action is whether Prime, LLC,
and as a result,
the Member Entities,
are citizens of Colorado
because of the citizenship of two of Prime,
the City of Aurora General Employees'
Aurora Plan"), a Colorado public pension fundi and (ii)
Association"), a political subdivision of Colorado (collectively,
"the Colorado Entities")
Although the parties dispute whether
whatever it may be,
any bearing on
therefore combines its analysis of the Colorado Entities except
where otherwise stated.
In attachments to its Amended Complaint TSquare sets forth its
citizenship as well as what it alleges to be the citizenship of the
AMLI Defendants. 18
But TSquare states that it "lacks sufficient
knowledge and information to form a belief about the citizenship"
TSquare alleges that it believes
that Prime, LLC is a single member LLC. 20
AMLI's Amended Motion to Dismiss, Docket Entry No. 71, p. 9.
The parties do not, however, appear to dispute
Colorado Entities are Colorado citizens.
See Plaintiff's Response, Docket Entry No. 83, p. 7 ("AMLI
Defendants claim the Pension Fund and the Pension Association are
both 'member-owners' and hold the same interest in Prime Property
Fund, LLC [Doc. 71 ~ 20]. Accordingly, the Pension Association's
sworn declaration stating it is not a member of Prime Property
Fund, LLC likewise demonstrates the Pension Fund is not a member of
Prime Property Fund, LLC.").
See Appendix B to Plaintiff's Amended Complaint, Docket Entry
No. 70-2, p. 2 ~~ 10-11.
In support of their argument that Prime,
LLC has Colorado
members the AMLI Defendants first cite to the Amended and Restated
Limited Liability Company Agreement of Prime, LLC ("Fund Operating
3. 03 (a)
"[e]ach Initial Subscribing Shareholder of Voting Shares
in exchange for
agree[s] to pay consideration to the Company
. . . Voting Shares of the Company. " 21
Second, the AMLI Defendants
cite to subscription agreements signed by the Colorado Entities,
in relevant part,
that each entity subscribed for
TSquare previously filed as exhibits statements purporting to show
the Colorado Entities'
Fund. " 23
ownership percentages in "Prime Property
Fourth, the AMLI Defendants attach redacted copies of IRS
Form 1099-DIV for each of the Colorado Entities showing that each
receives quarterly dividend statements from Prime, LLC. 24
the AMLI Defendants submit signed, written consent forms showing
that each of the Colorado Entities, as "a holder of Voting Shares
of [Prime, LLC,] a Delaware limited liability company" consented to
AMLI's Amended Motion to Dismiss, Docket Entry No. 71, p. 14
(citing Fund Operating Agreement, Docket Entry No. 72-1,
Art. 3, Section 3.03(a), p. 17).
Id. ~~ 22-23 (citing Docket Entry Nos. 31-1, p. 35 and 31-3,
pp. 29-30) .
(citing Docket Entry Nos.
2 and 56-4,
p. 4) .
(citing Pension Fund's 2015 1099-DIV and Political
Subdivision's 2015 1099-DIV, Exhibits C & D to AMLI's Amended
Motion to Dismiss, Docket Entry Nos. 72-3 and 72-4, respectively).
the election of each of the Independent Directors nominated by the
The AMLI Defendants' evidence proves that, at a minimum, the
Colorado Entities are shareholders of Prime,
In order to
further determine whether they are members of Prime, LLC, the court
definition of "member" and few direct references to members as a
class, the Fund Operating Agreement supports the AMLI Defendants'
position that the Colorado Entities, as shareholders, are members.
the preamble to the Fund Operating Agreement states that
Subscribing Shareholders (as defined below) are being issued Shares
is defined as
"an interest held by a
representing a fractional portion of the
interests of all members of
LLC] . " 28
A "Shareholder" is
defined as "at any time, any Person who holds Shares and is at such
time admitted to the Company as a member in accordance with the
Id. ~ 26 (citing Pension Fund's Shareholder Consent and
Political Subdivision's Consent Exhibits G & H to AMLI's Amended
Motion to Dismiss, Docket Entry Nos. 72-7 and 72-8, respectively).
Docketed as Docket Entry Nos. 72-1 and 84-3.
Id. at 7 (emphasis added) .
Id. at 12 (emphases added) .
terms of th[e]
Agreement and is shown as such on the books and
LLC] . " 29
are defined in reference to the foregoing terms. 30
Moreover, Article 11 of the Fund Operating Agreement dealing with
"Admission of Members,"
which describes the method by which "a
Person may be admitted to [Prime, LLC] as a Shareholder." 31
TSquare responds that the citizenship of Prime, LLC does not
determine the citizenship of the AMLI Defendants and that neither
of the Colorado Entities is a member of Prime, LLC.
asserts that the dispute over the AMLI Defendants' citizenship is
based on information provided in the declaration of Lidia Novak and
based on her personal
alleges that "Novak testified she has no personal knowledge of the
organizational structure of the AMLI Defendants"
and a conversation with
and "that her
counsel. " 33
cites the following deposition testimony:
Id. at 11.
Id. at 59-60.
(emphasis added) .
Deposition of Lidia Novak ("Novak Deposition"), corporate
secretary for Prime, LLC and for the fund investment advisor,
Morgan Stanley Real Estate Adviser ("MSREA"), Exhibit A to
Plaintiff's Response, Docket Entry No. 84-1, 33:21-34:8.
Plaintiff's Response, Docket Entry No. 83, p. 5.
Q: How often do you work with Gail?
A: I would say in the course of a year, probably four or
five times we have an occasion to communicate by e-mail.
Q: Do you have any understanding of what her job duties
A: Not specifically.
Q: Do you work in combination with her any other time
where you are relying on her work?
A: Yes, over the course of a year, as I said, probably
four or five times, yes.
In that particular context, what is that related to?
A: It might be -- I might e-mail her and send her an
organizational chart, which she maintains and I will ask
her, is that the most current version of the document?
And then she will tell me yes or she will provide
Do you know who drafted that document for Gail?
A: I don't -- I'm assuming she did, but I don't really
Q: So looking back at number 4, what you relied on for
the knowledge that the principal office was located in
Georgia and the sole member of PPF OPGP, LLC a Delaware
limited liability company was based on an organizational
chart; is that correct?
A: Based on an organizational chart,
my conversation with Braden and
whatever information was contained
was supported by documents that the
that certificate and
the knowledge that
in that certificate
Novak Deposition, Exhibit A to Plaintiff's Response, Docket Entry
No. 84-1, 34:14-35:25.
Before the above exchange, however, Novak
gave the following testimony:
Q: Your primary role is, is that fair to say, basically
in the management, the investment or vice [sic] for the
particular fund, Prime Property Fund?
A: It is
really related to
How long have you been in this position?
A: I have been with Morgan Stanley since November of
2003, so doing work since then.
A: It became an LLC on June 30th, 2004.
And you have been assigned to Prime Property Fund
since the beginning?
Q: Fabulous. [Declaration paragraph] Number 4 says, "The
Fund, with its principal office located in Georgia, is
the sold [sic] member of PPF OPGP, LLC, a Delaware
limited liability company ("OPGP") ."
Where did you get that information?
I relied on my knowledge of AMLI in general,
organizational charts that I have seen throughout the
course of my daily work and I also relied on the
secretary certificate that contains this information and
I consulted with our in-house counsel Braden Wilhelm.
Id. at 7:4-21; 32:19-33:8.
Contrary to TSquare's assertion, Novak's deposition testimony
organizational charts maintained by Freeman in her capacity as
Nothing in Novak's Deposition,
court has read in its entirety, suggests that Novak lacked personal
knowledge of the facts in her declaration,
despite the fact that
signing the declaration under penalty of perjury. 34
court need not rely solely on Novak's Declaration because TSquare
attached a similar description of the AMLI Defendants' corporate
structure to its Amended Complaint without qualification. 35
TSquare further asserts that "[Prime, LLC] is not a party to
this case or even a member or partner in any AMLI Defendant." 36
That fact is irrelevant.
The court must apply its citizenship
analysis through as many organizational layers as necessary to
evidence before the court proves that Prime,
LLC is the limited
partner of PPF OP, LP, which is the sole member of PPF Multifamily,
LLC, which is in turn the sole member of PPF AMLI Acquisition LLC,
the sole member of defendant AMLI LLC and a limited partner of
defendant AMLI L.P.
TSquare next argues that the Pension Association is not a
declaration of J.
Chief Investment Officer of the
The Association does not hold or possess
certificates or membership instruments in [Prime, LLC].
Considering the complexity of the alleged organizational
structure, Novak's need to refresh her recollection regarding its
details from a source she personally knows to be reliable is
See supra notes 10-11 and accompanying text.
Plaintiff's Response, Docket Entry No. 83, p. 4.
The Association is not a shareholding member or managing
[Prime, LLC]. The Association does not
participate in the management of [Prime, LLC] . The
Association does not receive and has never received an
annual K-1 tax form specific to the Association from or
in connection with [Prime, LLC] .
Declaration from Fire and Police Pension Association of Colorado
("Simon Declaration"), Exhibit B to Plaintiff's Response, Docket
Entry No. 84-2, p. 1.
TSquare argues that Simon's Declaration and
the fact that (i) no investor has a direct ownership in the fund's
"the Manager of
exclusive power and authority over the investments of the company"
indicate that Prime, LLC's shareholders are "merely" investors in
"an investment fund held by Prime Property Fund, LLC." 38
Simon declares that the Pension Association is "not a
administrator of the Aurora Plan, refused to sign an identically
Connell testified that he understood that the Aurora
Plan owns shares in an actual limited liability company as opposed
Id. at 5-6.
Simon Declaration, Exhibit B to Plaintiff's Response, Docket
Entry No. 84-2.
AMLI's Amended Motion to Dismiss, Docket Entry No. 71, p. 17
28 (citing Deposition of Tom Connell ("Connell Deposition"),
Exhibit B to AMLI' s Amended Motion to Dismiss, Docket Entry
No. 72-2, 73:6-74:11).
Connell Deposition, Exhibit B to AMLI's Amended Motion to
Dismiss, Docket Entry No. 72-2, 55:4-56-5.
to a mere investment vehicle. 42
The conflicting declaration and
purported to have sufficient expertise -- legal or otherwise -- to
resolve the parties'
dispute over the membership status of the
TSquare's arguments regarding the management and ownership of
Prime, LLC's assets are not persuasive.
The signed consent form
from each of the Colorado Entities consenting to the election of
shareholders have no role in the management of Prime,
creatures of state law,
and because Prime, LLC was formed under
Delaware law, the court looks to the law of that state to determine
whether members of LLCs are required to directly own assets or
participate in management.
The court has reviewed the Delaware
Limited Liability Company Act, Del. Code tit. 6, §§ 18-101 et seq.,
and can find no support for the argument that members must directly
The court notes, however, that only Connell's statements were
subject to cross-examination.
William Callison and Maureen A. Sullivan, Limited
Liability Companies: A State-by-State Guide to Law & Practice§ 1:1
Nature of limited liability company ( 2 016) (Westlaw) ( "LLCs are
formed pursuant to various state limited liability company acts,
which generally set forth a series of default rules that govern LLC
operation and governance unless the members' operating agreement
specifies particular rules.").
own an LLC's assets or exercise control over the company.
Delaware law provides for multiple classes of members
with varying rights. 45
Finally, TSquare argues that "Prime Property Fund, LLC" refers
to both an actual LLC and an "investment vehicle" of the same name
created by the LLC. 46
TSquare offers three arguments for why the
Pension Fund holds shares in this alleged investment fund rather
than the LLC itself.
First, TSquare alleges that the Pension Fund
"generally does not own shares in the companies that hold
manage the investment funds. " 47
explanation that Prime,
Second, TSquare asserts without
LLC's election to be treated as a
estate investment trust ( "REIT") for federal tax purposes indicates
that the Pension Fund is "merely an investor in a fund managed and
held by [Prime, LLC] and not a member of [Prime, LLC] ." 48
TSquare argues that the Pension Fund does not appear to be a member
or owner of Prime, LLC because it does not have share certificates.
TSquare's arguments are not convincing.
structure of the Pension Fund's other investments has no bearing on
TSquare has offered no
Plaintiff's Response, Docket Entry No. 83, p. 6.
Id. at 7.
assertion that Prime, LLC's REIT election for federal tax purposes
is evidence of the existence of a distinct investment vehicle.
Third, as evidenced by the Fund Operating Agreement 49 and affirmed
by deposition testimony, 50 Prime, LLC is uncertificated, and thus
no shareholder possesses share certificates.
neither the Fund Operating Agreement nor its attachments make any
mention of a distinct investment vehicle like the one hypothesized
the court can find no evidence to support TSquare's
The court finds that the Colorado Entities were shareholders
of Prime, LLC, an LLC organized under Delaware law when this suit
The court further finds that the Colorado Entities, as
shareholders, are also members of Prime, LLC.
concludes that Prime, LLC and, as a result,
are citizens of Colorado.
The court therefore
the Member Entities,
Because TSquare is also a citizen of
the parties are not completely diverse,
and the court
must dismiss this action for want of subject-matter jurisdiction. 51
Fund Operating Agreement, Docket Entry No. 84-3, p. 16 § 3.02
("All Shares issued hereunder shall be uncertificated unless
otherwise determined by the Manager in its discretion.").
Novak Deposition, Exhibit A to Plaintiff's Response, Docket
Entry No. 84-1, 17:4-7.
At least one of the Member Entities is a necessary party.
Dismissal of the non-diverse parties pursuant to Federal Rule of
Civil Procedure 21 would therefore not be appropriate.
Conclusions and Order
For the reasons explained above,
the court concludes that
TSquare has failed to meet its burden to establish that the AMLI
Defendants' Amended Motion to Dismiss for Lack of Subject-Matter
Jurisdiction (Docket Entry No. 71) is GRANTED.
SIGNED at Houston, Texas, on this lOth day of February, 2017.
UNITED STATES DISTRICT JUDGE
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