SJ Properties Suites BuyCo ehf v. DOC Milwaukee II LLC et al.

Filing 77

ORDER signed by Judge Rudolph T Randa on 11/10/2009 dismissing 73 Motion to Consolidate Cases. (cc: all counsel) (Koll, J) Modified on 11/12/2009 (mlm). - All future submissions to the court will be docketed in CASE NO. 09-C-533.

UNITED STATES DISTRICT COURT E A S T E R N DISTRICT OF WISCONSIN

S J PROPERTIES SUITES, BUYCO, EHF; SJ FASTEIGNIR, EHF; and, A S K A R CAPITAL, HF; P l a i n t if fs ,

and, S E T H E. DIZARD, Court-Appointed Receiver of DOC Milwaukee LP;

Intervenor Plaintiff,

v. D E V E L O P M E N T OPPORTUNITY CORP.; S T J , P.C., d/b/a ECONOMOU PARTNERS; E P MILWAUKEE, LLC; D O C DEVELOPMENT MILWAUKEE, LLC; E C O N O M O U PARTNERS CONSTRUCTION, INC.; DOC FT. MYERS, LLC; JOHN W. ECONOMOU; STEVE J. ECONOMOU; THOMAS V. ECONOMOU; BRENDA J. YURICK; and, PHILLIP E. HUGH; Defendants.

C a s e No. 09-C-0533

SJ PROPERTIES SUITES, BUYCO, EHF; Plaintiff,

and, SETH E. DIZARD, Court-Appointed Receiver of DOC Milwaukee LP;

Intervenor Plaintiff,

v.

Case No. 09-C-0569

D O C MILWAUKEE II, LLC; D E V E L O P M E N T OPPORTUNITY CORP.; and EP MILWAUKEE, LLC; D e fe n d a n ts .

DECISION AND ORDER

A number of motions are pending in the above captioned cases. The motions f o r consolidation and to intervene will be addressed in this Decision and Order.

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C o n s o lid a t io n The Plaintiffs in the above captioned actions, case numbers 09-C-533 and 09C -5 6 9 , (the "533 action" and the "569 action," respectively) filed motions to consolidate the a c tio n s pursuant to Federal Rule of Civil Procedure 42 and Civil Local Rule 42.1(a) of this D istric t. In accord with Civil Local Rule 42.1(a), this Court is addressing the motion to c o n so lid a te in the lower case number, the 533 action. The time for filing a response to the m o tio n s to consolidate has passed, see Civil Local Rule 7.1(a), without any response to the m o tio n s from any of the Defendants. Under the Federal Rule of Civil Procedure Rule 42(a), if multiple actions " b e fo re the court involve a common question of law or fact, the court may: join for hearing o r trial any or all matters at issue in the actions; (2) consolidate the actions; or (3) issue any o t h e r orders to avoid unnecessary cost or delay." In deciding whether to consolidate cases, c o u rts exercise broad discretion and try to consolidate where possible. United States v. K n a u e r , 149 F.2d 519, 520 (7th Cir. 1945). Consolidation is preferred to avoid unnecessary d u p lic a tio n of efforts in related cases and promote judicial economy and efficiency. Equal E m p lo y m e n t Opportunity Comm'n v. G-K-G, Inc., 39 F.3d 740, 745 (7th Cir. 1994). See also K n a u e r, 149 F.2d at 520. However, if consolidation is certain to lead to confusion or p re ju d ic e the actions should not be consolidated. Knauer, 149 F.2d at 520. Here both actions relate to a common core of factual questions: that is; they re la te to the (1) same construction project, a hotel and condominium real estate development p ro je c t; (2) the same property located at 1150 North Water Street, in downtown Milwaukee,

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W is c o n sin (the "Milwaukee Project"); and, (3) involve many of the same parties. In addition, to avoid unnecessary duplication of efforts, consolidation of the actions would be highly e f f icie n t and economical. The examination of the common factual questions will likely in v o lv e discussion of the same exhibits and testimony. Absent consolidation, two judges of th is district would expend valuable time and effort considering the same evidence twice. S u c h duplication is inconsistent with the Court's goal of efficiency. unopposed motion for consolidation in the 533 action is granted. Therefore, the In light of such

d e te rm in a tio n , the unopposed motion for consolidation in the 569 action is dismissed. Civil Local Rule 42.1(b) (E.D. Wis.) states: "[w]hen two or more cases are c o n so lid a ted , all documents relevant to the purposes for which consolidation was granted will th e re a fte r be docketed only on the docket sheet for the lowest numbered of the consolidated c a se s." Accordingly, the parties must file all documents concerning the actions in the 533 a c tio n . Motion to Intervene In the 569 action, Proposed Intervenor Plaintiff Seth E. Dizard ("Dizard"), the sta te court-appointed receiver of DOC Milwaukee LP ("DOC LP") filed a motion to in ter v e n e . Dizard's motion relies on Rule 24(a) and (b) of the Federal Rules of Civil P r o c e d u re and proffers the affidavit of Gregory W. Lyons ("Lyons Affidavit"), in support of the motion. Dizard relies on the July 8, 2009, order of the Milwaukee County Circuit Court a p p o in tin g him as receiver for DOC LP, pursuant to Wisconsin Statutes Chapter 128 and

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S e c tio n 179.73 of the Wisconsin Statutes.1 (See Lyons Aff. ¶ 2, Ex. 1.)

That order

a u th o riz e s Dizard "[t]o bring and prosecute all proper actions for the: (a) collection of re v e n u e s derived from the property of [DOC LP][;] (b) removal from the property of [DOC L P ] of persons not entitled to entry thereon [;] (iii) [sic] protection of the property of [DOC L P ] [;] and (c) any damage caused to the property of [DOC LP]." (Lyons Aff., Ex. 1 ¶ 9(d).) D iz a rd states that Plaintiff SJ Properties Suites, BuyCo, ehf ("BuyCo") and Defendant D e v e lo p m en t Opportunity Corporation ("Development Opportunity") are partners in DOC L P and, as the receiver of DOC LP, he has the fiduciary duty to investigate and preserve all a ss e ts of DOC LP for the benefit of creditors, as well as to make a determination regarding th e extent and validity of all such creditors, including those of the parties to the action. BuyCo filed a response stating that the Court should allow Dizard to intervene b e c au s e the Court's determination of the ownership of DOC LP will have a fundamental im p a c t on Dizard's responsibility as the receiver to preserve the assets of DOC LP. None of th e Defendants have responded to the motion and the time for any such response has passed. On September 15, 2009, this Court granted a similar motion to intervene filed b y Dizard in the 533 action, relying on Rule 24(a) of the Federal Rules of Civil Procedure. A s to intervention as of right, Rule 24(a) provides that: [ o n ] timely motion, the court must permit anyone to intervene w ho: (1) is given an unconditional right to intervene by a federal statu te; or

Section 179.73 of the W is c o n s in Statutes relates to the wind-up of a limited partnership's affairs, and a u th o r iz e s , upon a showing of cause, a state circuit court to direct a wind-up.

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(2 ) claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of th e action may as a practical matter impair or impede the m o v a n t's ability to protect its interest, unless existing parties a d e q u a te ly represent that interest. The applicable case law was summarized by the Court at pages six through eight of its S e p tem b e r 15, 2009, Decision and Order in the 533 action and is relied upon by the Court, w ith o u t reiteration. As with the 553 action, although Dizard's motion describes the ground for his in te rv e n tio n , it is not accompanied by any proposed intervenor pleading. The procedural d e f ec t is not necessarily fatal to the motion because the Court of Appeals for this Circuit does n o t "take an inflexible view of this rule; if no prejudice would result, a district court has the d is c re tio n to accept a procedurally defective motion." See United States v. City of

M ilw a u k e e, 144 F.3d 524, 528-29 n.8 (7th Cir. 1998) (citing Retired Chi. Police Ass'n v. City o f Chi., 7 F.3d 584, 595 (7th Cir. 1993)). The parties have not commented on the absence of a n y proposed intervenor pleading or on any resultant prejudice, nor is there any obvious p re ju d ic e to the parties. Thus, this Court may further consider Dizard's motion, despite the p ro c e d u ra l defect. In seeking to intervene, Dizard states that BuyCo and Development O p p o rtu n itie s are partners in DOC LP and that he needs to intervene to protect the interests o f the creditors of DOC LP. As DOC LP's receiver, Dizard has a duty to investigate and p re se rv e , by prosecution if necessary, any and all of DOC LP's assets for the benefit of c r e d it o r s , as well as to make a determination regarding the extent and validity of all such 6

c re d ito rs , including those of the parties to the action. Dizard states that "upon information a n d belief," each of the partners in DOC LP, independently of one another is seeking f in a n c ie rs to complete the construction. (Brief Support Mot. Intervene 3.) Dizard believes th a t completion of the Milwaukee Project is in the best interests of all concerned, as well as th e creditors of DOC LP. Dizard states that each partner is offering such financiers some p o rtio n of their respective ownership stake in exchange for financing but that until potential f in a n c ie rs can determine, to their own satisfaction, how much of an ownership stake they can e x p e ct to receive, none are willing to commit. Thus, Dizard states that it is essential for the C o u rt to make a determination as to the ownership percentages, and that it do so as e x p e d itio u s ly as possible. BuyCo, as the Plaintiff, relies upon diversity jurisdiction pursuant to 28 U.S.C. § 1332, and seeks declaratory judgment resolving disputes between the owners of the DOC L P partnership ­ BuyCo; Defendants DOC Milwaukee II, LLC ("DOC II"); Development O p p o rtu n ity; and, EP Milwaukee, LLC ("EP") ­ regarding which entity has the authority to a c t on behalf of the partnership as the legitimate general partner, and the correct percentages o f their respective ownership interests and voting rights. The Court concludes that Dizard h a s a sufficient interest for intervention because the Court's determination as to the o w n e rs h ip of DOC LP will have a fundamental impact on Dizard's task of preserving the a ss e ts of DOC LP and, defining the ownership interest of the Milwaukee Project is essential to allow Dizard to facilitate the best use of the Milwaukee Project for the benefit of creditors.

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T u rn in g to the question of timeliness, although this action was commenced in ea rly June 2009, Dizard was not appointed as DOC LP's receiver until July 8, 2009. Dizard f ile d his motion to intervene in this action on August 5, 2009. Under these circumstances, D iz a rd 's motion is timely. Dizard's direct, significant, and legally protectable interest in this litigation is e sta b lis h e d by the state circuit court's July 8, 2009, order appointing him as the receiver for D O C LP and authorizing him to bring and prosecute all proper actions on behalf of DOC LP s o as to preserve the assets of its creditors. At this juncture and having considered the d isp u tes between the partners in DOC LP, including that the Plaintiff is BuyCo, a partner in D O C LP, and that two Defendants, Development Opportunities and EP, are partners in DOC L P , the Court is satisfied that Dizard has established the adequacy of his interest in this a c tio n . The determination as to the rightful ownership interests of the DOC LP partners will h a v e a critical impact on Dizard's role as receiver and his obligation to represent the interests o f DOC LP's creditors. Furthermore, Dizard's interests, as the court-appointed receiver, are not a d e q u a t e ly protected by any of the current parties in this action. Unlike the current parties, D i z a r d has the obligation to act on behalf of the creditors of DOC LP. Finally, Dizard is o b lig a ted under section 128.17(1)(h) of the Wisconsin Statutes to return any excess funds to D O C LP's owners and needs to secure financing to preserve the value of the assets. Those o b lig a tio n s will be potentially impacted by the prosecution of this action. Therefore, the C o u rt concludes Dizard has demonstrated potential impairment of his interests in a

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su b se q u e n t proceeding. In light of the foregoing, Dizard's motion to intervene under Rule 2 4 (a )(2 ) is granted. T h e Court has also considered Dizard's request to intervene under Rule 24(b). A s with the 533 action, neither the timeliness of his motion nor prejudice to the existing p a rtie s would bar Dizard's intervention. Furthermore, Dizard has established that his claims inv o lve common questions of fact and law. However, as explained more fully in the Court's S e p te m b e r 15, 2009, Decision and Order in the 533 action, Dizard has not addressed the e x is te n c e of an independent basis for jurisdiction or provided the Court with sufficient in f o rm a tio n for it to make that determination. The Court has insufficient information to allow p erm issiv e intervention under Rule 24(b), and will not allow intervention under Rule 24(b). S u b je c t Matter Jurisdiction T h is Court's September 15, 2009, Decision and Order in the 533 action at pages tw o through four, directed the Plaintiffs to file an amended complaint providing additional in f o rm a tio n regarding the citizenship of the parties. The principles underlying that directive c o m e into play again with the 569 action. BuyCo, as the proponent of federal subject matter ju ris d ic tio n in this case, bears the burden of proof as to the existence of such jurisdiction. See M e rid ia n Sec. Ins. Co. v. Sadowski, 441 F.3d 536, 540 (7th Cir. 2006) (citing McNutt v. G e n e ra l Motors Acceptance Corp. of Ind., 298 U.S. 178, 189 (1936)). Thus, without reiterating the entire rationale underlying the Court's concern, th e Court requests that BuyCo clarify, in an amended complaint, the nature of its business s tru c tu re for purposes of diversity jurisdiction. Furthermore, with respect to the two

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D e f en d a n t limited liability corporations in the 569 action, EP and, DOC II, the Complaint i d e n tif ie s "upon information and belief" the "managers" of EP and DOC II. However, the k e y to determining the citizenship of a limited liability corporation is its members because a limited liability corporation has the citizenship of all its members. See Intec USA, LLC v. E n g le , 467 F.3d 1038, 1041 (7th Cir. 2006). To establish the existence of diversity

ju ris d ic tio n over this action, BuyCo must allege the identities of the members of EP and DOC II, and the citizenship of each of those members. For purposes of diversity jurisdiction, an in d iv id u a l's citizenship is determined by the individual's domicile. See Dakuras v. Edwards, 3 1 2 F.3d 256, 258 (7th Cir. 2002). Additionally, allegations based "upon information and b e lie f " are insufficient to establish subject matter jurisdiction. See Am.'s Best Inns, Inc., v. B e s t Inns of Abilene, L.P., 980 F.2d 1072, 1074 (7th Cir. 1992). BuyCo will be required to f ile an amended complaint that includes the missing jurisdictional information no later than N o v e m b e r 30, 2009. NOW, THEREFORE, BASED ON THE FOREGOING, IT IS HEREBY O R D E R E D THAT: The Plaintiff's motion to consolidate in Case No. 09-C-533 (Docket No. 70) is GRANTED; The Plaintiffs' motion to consolidate in Case No. 09-C-569 (Docket No. 73) is DISMISSED;

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In light of such consolidation: P u rsu a n t to Civil Local Rule 42.1(b), the parties must FILE all documents c o n c ern in g Case No. 09-C-533 and Case No. 09-C-569, in Case No. 09-C-533. D iza rd 's motion to intervene in Case No. 09-C-533 (Docket No. 20) is G R A N T E D pursuant to Federal Rule of Civil Procedure 24(a)(2). BuyCo MUST FILE an Amended Complaint that includes the subject matter ju ris d ic tio n allegations as outlined in this Decision and Order no later than November 30, 2009. Failure to file an amended complaint as ordered will result in dismissal of this a c tio n for lack of subject matter jurisdiction. Dated at Milwaukee, Wisconsin this 10th day of November, 2009. BY THE COURT

s / Rudolph T. Randa Hon. Rudolph T. Randa U .S . District Judge

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