Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-alnd-4_15-cv-01139/USCOURTS-alnd-4_15-cv-01139-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Contract Dispute

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ALABAMA

MIDDLE DIVISION

MARCH/MAGNOLIA IV

INVESTMENT LIMITED

PARTNERSHIP, MARCH/

MAGNOLIA V INVESTMENT

LIMITED PARTNERSHIP, et al.,

Plaintiffs/Counter-Defendants,

v.

RUDOLPH H. BEAVER and

OLYMPIA DIVERSIFIED

CONSTRUCTION

CORPORATION,

Defendants/Counter-Plaintiffs.

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Case No.: 4:15-CV-1139-VEH

 

MEMORANDUM OPINION 

I. Introduction and Procedural History

On July 8, 2015, Plaintiffs March/Magnolia IV Investment Limited Partnership

(“March IV”) and March/Magnolia V Investment Limited Partnership (“March V”)

initiated this breach of fiduciary duty and breach of partnership action

1

against

Rudolph H. Beaver (“Mr. Beaver”) and Olympia Diversified Construction

Corporation (“Olympia”). (Doc. 1). Plaintiffs maintain in their complaint that the

1 Plaintiffs’ pleading contains 6 separate counts. For the sake of brevity, the court does not

list all of them in this memorandum opinion.

FILED

 2016 Apr-29 AM 11:24

U.S. DISTRICT COURT

N.D. OF ALABAMA

Case 4:15-cv-01139-VEH Document 27 Filed 04/29/16 Page 1 of 24
court’s authority to hear this action derives from diversity jurisdiction. (See Doc. 1

at 2 ¶ 5 (“Jurisdiction is proper in this Court pursuant to 28 U.S.C. § 1332, as the

parties are completely diverse and the amount in controversy exceeds $75,000.”)). 

Perceiving several jurisdictional problems with Plaintiffs’ lawsuit, the court,

on January 25, 2016, entered an order (Doc. 20) directing Plaintiffs to show cause no

later than February 16, 2016, why their case should not be dismissed without

prejudice for lack of subject matter jurisdiction. In particular, the court questioned the

absence of 23 Alabama real estate investment partnerships (the “Alabama Limited

Partnerships”) that were referred to in Plaintiffs’ allegations and requested relief, but

not named as parties. On the day of the show cause deadline, Plaintiffs filed their

response (Doc. 21) and a Motion for Leave To Amend (Doc. 22) (the “Leave

Motion”). On March 3, 2016, Defendants opposed Plaintiffs’ Amend Motion (Doc.

25) and replied to Plaintiffs’ show cause response. (Doc. 26).

Having considered the parties’filings, including Plaintiffs’ proposed amended

pleading, the court findsthat Plaintiffs’ case is due to be dismissed under Rule 19 due

to the absence of the diversity-destroying Alabama Limited Partnerships that are

indispensable parties in the context of this case. Further, because the court lacks

subject matter jurisdiction and because Plaintiffs’ proposed amended pleading only

partially cures their case’s jurisdictional deficits, their Amend Motion is due to be

2

Case 4:15-cv-01139-VEH Document 27 Filed 04/29/16 Page 2 of 24
termed as moot.

 II. Standards

A. Subject Matter Jurisdiction

Because federal courts are tribunals of limited jurisdiction, “a federal court has

an independent obligation to review its authority to hear a case before it proceeds to

the merits.” Mirage Resorts, Inc. v. Quiet Nacelle Corp., 206 F.3d 1398, 1400-01

(11th Cir. 2000); see also Baggett v. First Nat’l Bank of Gainesville, 117 F.3d 1342,

1352 (11th Cir. 1997) (“The Court sua sponte may raise a jurisdiction defect at any

time.”). And, if at any time the court determines that it lacks subject matter

jurisdiction, “the court must dismiss the action.” FED. R. CIV. P. 12(h)(3) (emphasis

added); see also Morrison v. Allstate Indemnity Co., 228 F.3d 1255, 1261 (11th Cir.

2000) (same). A dismissal for lack of subject matter jurisdiction must be without

prejudice. Stalley ex rel. U.S. v. Orlando Reg’l Healthcare Sys., Inc., 524 F.3d 1229,

1235 (11th Cir. 2008) (affirming district court dismissal for lack of jurisdiction but

reversing for entry of dismissal “without prejudice” on remand rather than “with

prejudice” as originally and erroneously entered). Importantly, when a dismissal is

a “without prejudice” one, this meansthat the merits of the plaintiff’s asserted claims,

if any, are not barred from further litigation in state or federal court by such an order.

3

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B. Rule 19

“Rule 19 states a two-part testfor determining whether a party isindispensable.

First, the court must ascertain under the standards of Rule 19(a) whether the person

in question is one who should be joined if feasible. If the person should be joined but

cannot be (because, for example, joinder would divest the court of jurisdiction) then

the court must inquire whether, applying the factors enumerated in Rule 19(b), the

litigation may continue.” Focus on the Family v. Pinellas Suncoast Transit Authority,

344 F.3d 1263, 1279-80 (11th Cir. 2003) (internal quotation marks omitted) (quoting

Challenge Homes, Inc. v. Greater Naples Care Ctr., Inc., 669 F.2d 667, 669 (11th

Cir. 1982)).

In making the first determination-i.e., whether the party in question

“should be joined,” “‘pragmatic concerns, especially the effect on the

parties and the litigation, control.’” [Challenge Homes, 669 F.2d at 669]

(quoting Smith v. State Farm Fire & Cas. Co., 633 F.2d 401, 405 (5th

Cir. 1980)); see also In re Torcise, 116 F.3d 860, 865 (11th Cir. 1997)

(“[F]indings of indispensability must be based on stated pragmatic

considerations, especially the effect on parties and on litigation.”).

(internal citations and quotations omitted). 

Focus, 334 F.3d at 1280.

Concerning the second determination, “when a person described byRule 19(a)

cannot be joined, ‘the court shall determine whether in equity and good conscience

the action should proceed among the parties before it, or should be dismissed, the

4

Case 4:15-cv-01139-VEH Document 27 Filed 04/29/16 Page 4 of 24
absent person being thusregarded asindispensable.’” California v. Arizona, 440 U.S.

59, 62 n.3, 99 S. Ct. 919, 922 n.3, 59 L. Ed. 2d 144 (1979) (quoting FED. R. CIV. P.

19(b)). Factors for the court to consider when undergoing this equitable evaluation

include:

(1) the extent to which a judgment rendered in the person 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).

When the court decides under Rule 19(a) that a diversity-destroying party

should be joined, dismissal is appropriate only when a necessary party cannot be

joined, and “in equity and good conscience, the case should not proceed withoutsuch

a party.” English v. Seaboard Coast Line R. Co., 465 F.2d 43, 48 (5th Cir. 1972).2

2

See Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (holding that

decisions of the former Fifth Circuit handed down prior to the close of business on September 30,

5

Case 4:15-cv-01139-VEH Document 27 Filed 04/29/16 Page 5 of 24
Finally, a district court’s dismissal is reviewed for abuse of discretion on appeal.

Laker Airways, Inc. v. British Airways, PLC, 182 F.3d 843, 847 (11th Cir. 1999). 

III. Analysis

A. Background and Preliminary Considerations

Plaintiffs assert no federal claims and predicate subject matter jurisdiction

exclusively on 28 U.S.C. § 1332(a)(1). Section 1332(a)(1) bestowsthis court with the

authority to hear disputes arising under state law when complete diversity of

citizenship exists between the adverse parties and the lawsuit meets the amount in

controversy threshold. See 28 U.S.C. § 1332(a)(1) (“The district courts shall have

original jurisdiction of all civil actions where the matter in controversy exceeds the

sum or value of $75,000, exclusive of interest and costs, and is between--(1) citizens

of different States[.]”).

Having studied Plaintiffs’ proposed amended complaint and the parties’

briefing, the sole jurisdictional concern that remains for consideration is the impact

of Rule 19 on Plaintiffs’ ability to show diversity jurisdiction. As this court

previously stated in its show cause order:

Finally, the court has Rule 19 concerns about the host of “real

estate investment partnerships that own multi-family housing

complexes” (Doc. 16 at 3 ¶ 9), which Plaintiffs have referenced in their

1981, are binding in the Eleventh Circuit).

6

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amended complaint, (id. at 3 ¶¶ 10-13; see also Doc. 16-7 at 2),3

but

which are not parties to this litigation. Plaintiffs do not assert that these

entities are “dispensable,” explain their “reasons for not joining” them,

FED. R. CIV. P. 19(c)(2), or otherwise address how their presence as

parties would impact this court’s ability to exercise diversity jurisdiction

over this dispute. Cf. Haas v. Jefferson Nat. Bank of Miami Beach, 442

F.2d 394, 396 (5th Cir. 1971) (“It is settled that failure of the district

court to acquire jurisdiction over indispensable parties to an action

deprives ‘the court of jurisdiction to proceed in the matter and render a

judgment.’” (quoting Schuckman v. Rubenstein, 164 F.2d 952, 957 (6th

Cir. 1947))). 

(Doc. 20 at 6-7 (footnotes omitted)). The court further detailed its concern noting:

As the court understands Plaintiffs’ allegations, 23 real estate

investment partnerships exist in which Mr. Beaver and Olympia act as

the general partners and either March II, March III, March IV, or March

V serves as the limited partner. (Doc. 16 at 3 ¶ 9). Plaintiffs complain

about the actions of Mr. Beaver and Olympia in their roles as general

partners of these real estate investment entities and specifically seek a

declaratory judgment that their “misconduct [is]sufficient to trigger the

Plaintiffs’ right to remove them as the general partners of all twentythree partnerships . . . .” (Doc. 16 at 28 ¶ 123. Given Plaintiffs’ request

for declaratory relief which, if granted, will undoubtedly have a

significant impact on the real estate partnerships, the court struggles to

envision how these entities could ever be appropriately characterized as

dispensable.

(Doc. 20 at 7 n.3).

Plaintiffs’ proposed amended complaint continuesto seek a “declar[ation]that

the actions of Beaver and Olympia constitute misconduct sufficient to trigger the

Plaintiffs’ right to remove them as the general partners of all twenty-three

3 The page references to Doc. 16-7 correspond with the court’s CM/ECF numbering system.

7

Case 4:15-cv-01139-VEH Document 27 Filed 04/29/16 Page 7 of 24
partnershipslisted on the attached ‘Exhibit G.’” (Doc. 22-1 at 30-31 ¶ 125). Plaintiffs

have omitted theAlabamaLimited Partnerships as named defendants, explaining that:

[They] are not joined to this action because the constituent partners of

all twenty-three partnerships are already parties to this Complaint and

complete relief can readily be afforded without the presence of the

partnerships themselves. The nature of the claims alleged below

constitute claims among the partners, and exist independent of the

partnership’s own rights, none of which will be affected by the outcome

of this litigation.

(Doc. 22-1 at 6 ¶ 15). Based upon these allegations and the parties’ diverging

positions about the dispensable nature of the partnerships, the court now analyzes

Rule 19.

B. Threshold Determinations Under Rule 19(a)

Following the two-part framework imposed by Rule 19, the court must first

determine whether the partnerships are necessary parties, i.e., a party that must be

joined if feasible. See Focus, 344 F.3d at 1279-1280. As Rule 19(a) provides in

relevant part:

(a) Persons Required to Be Joined if Feasible.

(1) Required Party. A person who is subject to service of

process and whose joinder will not deprive the court of

subject-matter jurisdiction must be joined as a party if:

(A) in that person’s absence, the court cannot

accord complete relief among existing parties;

or

8

Case 4:15-cv-01139-VEH Document 27 Filed 04/29/16 Page 8 of 24
(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 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

o t h e r w is e i n c o n sist e n t

obligations because of the

interest.

FED.R.CIV. P. 19(a). “A party is considered ‘necessary’ to [or required in] the action

if the court determines either that complete relief cannot be granted with the present

parties or the absent party has an interest in the disposition of the current

proceedings.” Laker Airways, 182 F.3d at 847.

A key component of Plaintiffs’ complaint calls for a judgment from this court

restructuring the Alabama Limited Partnerships’ composition. Thus, if Plaintiffs are

successful, the impact on these non-joined entities would be direct and substantial.

Cf. Laker Airways, 182 F.3d at 848 (explaining in finding necessariness through

indirect impact under Rule 19(a) that “[a]lthough the relief Laker presently seeks may

not directly implicate ACL because there would be no order directed at ACL, Laker’s

antitrust claims necessarily require that a court evaluate ACL’s conduct in relation to

9

Case 4:15-cv-01139-VEH Document 27 Filed 04/29/16 Page 9 of 24
Laker, thereby substantially implicating ACL’s interests”) (emphasis added).

As signaled by the show cause order, this court comfortably concludes that,

because Plaintiffs seek a declaration that their right to remove the General Partners,

Beaver and Olympia, from the Alabama Limited Partnerships has been triggered, and

because the partnerships are legal entities with rights, obligations, and interests that

are distinct from their partners, see Ala. Code § 10A-8-2.01 (“A partnership is an

entity distinct from its partners.”),4the Alabama Limited Partnerships have a

substantial interest in the disposition of this lawsuit and are “required” parties under

19(a). Importantly, none of the cases cited by Plaintiffs reaches a different outcome

when making this threshold determination under Rule 19(a). See, e.g., Hooper v.

Wolfe, 396 F.3d 744, 747 (6th Cir. 2005) (“[T]he district court did not abuse its

discretion in determining PPM III was a necessary party under Rule 19(a).”); HB Gen.

Corp. v. Manchester Partners, L.P., 95 F.3d 1185, 1190 (3d Cir. 1996) (“We agree

with the district court that, pursuant to Rule 19(a), this Partnership should be joined

if feasible.”); Curley v. Brignoli, Curley & Roberts Associates, 915 F.2d 81, 90 (2d

Cir. 1990) (“Here, as in Provident Tradesmens, BCR is a party which, within the

4

 See also Ala. Code § 10A-9-1.05 (“A limited partnership has the powers to do all things

necessary or convenient to carry on its activities, including the power to sue, be sued, and defend in

its own name and to maintain an action against a partner for harm caused to the limited partnership

by a breach of the partnership agreement or violation of a duty to the partnership.”).

10

Case 4:15-cv-01139-VEH Document 27 Filed 04/29/16 Page 10 of 24
meaning of rule 19(a), should be joined ‘if feasible,’ but whose joinder would destroy

diversity.”).

Further, Plaintiffs admit that joinder of the partnerships is not feasible:

“Whether the real estate partnerships are added to the plaintiffs’ side or the

defendants’ side, complete diversity would be destroyed. This is so because the

partnership is a citizen of every state in which it has a partner.” (Doc. 21 at 9); see

also Rolling Greens MHP, L.P. v. Comcast SCH Holdings L.L.C., 374 F.3d 1020,

1022 (11th Cir. 2004)(“To sufficiently allege the citizenships of these unincorporated

business entities, a party must list the citizenships of all the members of the limited

liability company and all the partners of the limited partnership.”). Thus, having

confirmed that the Alabama Limited Partnerships should be joined under Rule 19(a),

but that to do so would deprive this court of subject matter jurisdiction, the court now

turns to an evaluation of their indispensability under Rule 19(b). 

C. Balancing of Factors Under Rule 19(b) 

“If a necessary party cannot be joined, the court must then proceed to Rule

19(b) and consider whether in ‘equity and good conscience,’ the suit should proceed

without the necessary party. [In doing so,][t]he court balances[the] four [Rule 19(b)]

factors [listed above] . . . .” Laker Airway, 182 F.3d at 848. Here, the court concludes

that Plaintiffs’ efforts to remain in federal court fall short under Rule 19(b)’s non11

Case 4:15-cv-01139-VEH Document 27 Filed 04/29/16 Page 11 of 24
exclusive list of factors,

5

especially in light of the early stages of this litigation, the

concern over the adequacy and finality of any judgment entered in this case if the

lawsuit proceeds in federal court, and the ability of Plaintiffs to pursue their claims

in state court with the Alabama Limited Partnerships as parties.

The primary opinion that Plaintiffs rely upon in their show cause response to

demonstrate why this case should continue in federal court without the Alabama

Limited Partnerships as parties is Hooper, supra at 10. In Hooper, the Sixth Circuit

held that the district court abused its discretion in (i) finding the diversity-destroying

limited partnership to be indispensable and (ii) dismissing the complaint under Rule

19(b). 396 F.3d at 745. The court finds the Hooper opinion to be significantly

different for at least two reasons. First, the focus of relief sought in Hooper was on

apportioning the profits from a real estate transaction and, unlike here, the plaintiff

did not seek judicial intervention in changing the composition of the limited

partnership. Second, the availability of an alternative venue in Hooper was murky,

at best. See Hooper, 396 F.3d at 751 (“[I]t is not at all clear that Mr. Hooper will have

an adequate remedy if the action is dismissed.”); id. (“While the presence of an

alternate forum would militate in favor of dismissing the action, it is unclear whether

5

See FED.R.CIV. P. 19(b) (“The factors for the court to consider include: . . . .”) (emphasis

added).

12

Case 4:15-cv-01139-VEH Document 27 Filed 04/29/16 Page 12 of 24
the Tennessee case that was filed in 2000 is still viable. . . . or whether the Tennessee

court would allow the complaint to be amended to include direct claims against Mr.

Wolfe.”).

The Hooper decision, in turn, relies heavily upon HB, supra at 10. In HB, the

Third Circuit explained the interplay between federal and state law when conducting

a Rule 19 assessment:

The district court also decided, and Manchester argues, that

exclusion of the Partnership would prejudice the Partnership’sinterests.

We disagree. Although indispensability under Rule 19 is a question of

federal law, state law determines the nature of the interests of all the

individuals concerned. See Provident Tradesmens Bank & Trust Co. v.

Patterson, 390 U.S. 102, 125 n.22, 88 S. Ct. 733, 746 n.22, 19 L. Ed. 2d

936 (1968); Hertz v. Record Publishing Co., 219 F.2d 397, 399–400 (3d

Cir.), cert. denied, 349 U.S. 912, 75 S. Ct. 601, 99 L. Ed. 1247 (1955).

The relevant state law here is that of Delaware, as the Partnership is

organized pursuant to Delaware law, Partnership Agreement Art. III, and

Delaware law is the source of any cause of action the Partnership may

have for Manchester’s breach of contract, see Partnership Agreement §

17.5 (“[T]his Agreement shall be governed by and construed in

accordance with the laws of Delaware....”).

HB, 95 F.3d at 1192 (emphasis added).

After determining that the partnership met the Rule 19(a) test under Delaware

law, the HB court concluded that its absence from the litigation would not cause it

sufficient prejudice, reasoning:

The exact relationship between the Partnership’s interests as an

entity and those of the individual partners has not been addressed by the

13

Case 4:15-cv-01139-VEH Document 27 Filed 04/29/16 Page 13 of 24
Delaware courts. But, 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.

We believe that to be the case here. This partnership consists of

at most three partners, all of whom are before the court. Although each

of the partners may arguably bring to bear some interests (the nature of

which no one has identified) that are distinct from those of the

Partnership, we have no doubt that the Partnership’s interestsin this case

are adequately represented by the partners.If the Partnership has a claim

against Manchester and the right to retain its real property, these

interests will be effectively advanced by the HB entities. And even if the

HB entities’ interests are not entirely consistent with those of the

Partnership, they are not antagonistic. Furthermore, to the extent the HB

entities’ interests diverge from the Partnership’s interests, Manchester

can protect them.

HB, 95 F.3d at 1193 (emphasis added).

In arriving at the Rule 19(b) result of proceeding without the non-joined

partnership, the HB court limited the scope of its holding by cautioning:

While it might be troubling to say that a human being could be

excluded from litigation because his or her interests are adequately

pressed by other people, a partnership is not a human being. A

partnership’s interests can never be known except through those who

comprise it. Thus, as a practical matter, the Partnership is not prejudiced

by having others represent its interests in this case. Although a

partnership’sinterests can only be known through the mediumof human

beings, the choice of which human being(s) will represent the

partnership’s interests may have practical effects. Thus, if there is a

conflict between interests of a partnership and those of the partners

sufficient to require the partnership, if it is joined, to be represented by

14

Case 4:15-cv-01139-VEH Document 27 Filed 04/29/16 Page 14 of 24
its own attorney, the failure to join the partnership would cause it real

prejudice. In such a case, joinder of the partnership would do more than

change the name of the caption, but would provide the partnership with

the practical benefit of having an advocate wholly devoted to its own

interests. Here there are no allegations that the Partnership’sinterests in

this case so diverge from those of the partners that it should be

represented by its own attorney.

HB, 95 F.3d at1193 n.3 (emphasis added); see also id. at 1193 (“Although in some

cases the interests of the partners may sufficiently diverge from those of the

partnership that the partnership is an indispensable party, we simply cannot conceive

of any interest the Partnership has as an entity in this case that will not be advanced

by the three partners.”). Thus, the HB court anticipated situations in which the

absence of a partnership, despite the presence of its member partners, might warrant

a Rule 19(b) dismissal.

The court finds the foregoing framework utilized in HB to be instructive, and

adopts certain portions of HB as persuasive authority,

6

including its directive to be

mindful of the interests created by state law when weighing whether a case “in equity

and good conscience” should proceed in federal court under Rule 19(b). See also

Broussard v. Columbia Gulf Transmission Co., 398 F.2d 885, 888 n.3 (5th Cir. 1968)

6

 The court deviates from the Rule 19(b) result reached in HB on the basis of the differing

relief sought and the absence of any discussion in HB about Rule 19(b)’s fourth factor, a key

component of the court’s discretionary determination to dismiss this case as discussed in more detail

infra.

15

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(“Rule 19 allows considerable judicial discretion for a realistic analysis of the

interrelation of federal procedural requirements and state substantive law which

materially affect the rights of the litigants.” (citing Provident Tradesmens, supra at

10, 13)); see also Provident Tradesmens, 390 U.S. at 125 n.22, 88 S. Ct. at 746 n.22

(“[S]tate-law questions may arise in determining what interest the outsider actually

has, but the ultimate question whether, given those state[-]defined interests, a federal

court may proceed without the outsider is a federal matter.” (citation omitted)). Here,

Alabama isthe relevant law for evaluating the variousinterests atstake. (See Doc. 16-

3 at 16 § 14(e) (“The Partnership is a validly existing limited partnership under the

laws of the State of Alabama . . . .”); id. at 34 § 37 (“This Agreement shall be

construed in accordance with the laws and decisions of the State of Alabama.”)).7

With that in mind, the court delves further into the Rule 19(b) analysis.

Turning to the first Rule 19(b) factor, Plaintiffs maintain that the Alabama

Limited Partnerships “are adequately protected because all of the constituent partners

are parties.” (Doc. 21 at 11). In a more conventional partnership dispute, such as

those examples cited by Plaintiffs in their show cause response, the undersigned

would likely agree with Plaintiffs. However, this case–which seeks a judicial

reconstitution of the Alabama Limited Partnerships–is an exceptional circumstance

7 All page references to Doc. 16-3 correspond with the court’s CM/ECF numbering system.

16

Case 4:15-cv-01139-VEH Document 27 Filed 04/29/16 Page 16 of 24
that causes this court to have serious doubts about whether “the interests of [the

Alabama Limited Partnerships] [can be] adequately represented by those already a

party to the litigation.” Hooper, 396 F.3d at 749. Indeed, this action is more akin to

the exception noted in HB in which “the [Alabama Limited] Partnership[s’] interests

. . . so diverge from those of the partners that [they] should be represented by [their]

own attorney.” HB, 95 F.3d at1193 n.3. Thus, the court finds that the first factor

favors a dismissal of this action. 

Plaintiffs address the second and third factors collectively and contend that

they do not demonstrate indispensability. (Doc. 21 at 12). Plaintiffs first vaguely

suggest that this court’s final order could be drafted in such a manner as to “impose

whatever restrictions are necessary on the parties and the partnerships, as all the

partners are before this Court and subject to its Orders.” Id. However, Plaintiffs do

not specifically explain how the court can craft such a suitable and enforceable final

order. For example, if Plaintiffs are able to show malfeasance on the part of

Defendants and Defendants are, as a result, ordered to be removed as General

Partners of the Alabama Limited Partnerships, would the court then have the power

to select new General Partners to replace Beaver and Olympia or appoint a receiver

(e.g., under Ala. Code § 6-6-620) to deal with the assets of those entities that are no

longer functioning as limited partnerships, despite their absence as separately joined

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Case 4:15-cv-01139-VEH Document 27 Filed 04/29/16 Page 17 of 24
as parties? Indeed, the risk of these and any unforeseen issues attributable to the

absence of the Alabama Limited Partnerships might seriously hamper the court’s

ability to order comprehensive relief in the best interests of all parties. 

Second, Plaintiffs argue that the presence of res judicata and/or collateral

estoppel supports their position because any efforts to relitigate would be barred by

the court’s final order. (Doc. 21 at 12). Defendants, on the other hand, maintain that

res judicata will not bar the Alabama Limited Partnerships from bringing a

subsequent suit in state court because they are not parties to this action, and under

Alabama statutory law their rights are distinct from those of their partners. (See Doc.

26 at 6 (“[N]othing would prevent the Partnerships themselves from bringing state

court claims of [their] own which could result in the parties incurring double,

multiple, or otherwise inconsistent judgments.”)). 

Unhelpfully, neither side attempts to analyze how Alabama courts apply such

a doctrine generally, much less cite to an Alabama case in which res judicata did or

did not bar subsequent litigation based on facts such as these. Instead, the parties

merely base their competing stances on their attorneys’ ipse dixit. 

Under Alabama law:

The elements of res judicata, or claim preclusion, are (1) a prior

judgment on the merits, (2) rendered by a court of competent

jurisdiction, (3) with substantial identity of the parties, and (4) with the

18

Case 4:15-cv-01139-VEH Document 27 Filed 04/29/16 Page 18 of 24
same cause of action presented in both suits. Hughes v. Allenstein, 514

So. 2d 858, 860 (Ala.1987). If those four elements are present, any claim

that was or could have been adjudicated in the prior action is barred

from further litigation. Dairyland was not a party to the prior action, and

Reaves was not a party to the instant action. However, the “party

identity criterion of res judicata does not require complete identity, but

only that the party against whom res judicata is asserted was either a

party or in privity with a party to the prior action or that the non-party’s

interests were adequately represented by a party in the prior suit, and the

relationship between the party and non-party is not so attenuated as to

violate due process.” Whisman v. Alabama Power Co., 512 So. 2d 78,

82 (Ala.1987) (citations omitted).

Dairyland Ins. Co. v. Jackson, 566 So. 2d 723, 725-26 (Ala. 1990) (emphasis added).

Although neither side mentions privity, this is the only conceivable element whose

existence could seriously be in dispute here. Based on Whisman’s privityformulation,

the key for measuring whether res judicata would apply here is whether the Alabama

Limited Partnerships’ “interests [would be] adequately represented by [Plaintiffs] in

[this action], and the relationship between [Plaintiffs] and [the Alabama Limited

Partnerships] is not so attenuated as to violate due process.” But cf. Thomas v. Lynn,

620 So. 2d 615, 617 (Ala. 1993) (“To apply this ‘party identity’ language from

Dairyland in the context of the present case would be totally inconsistent with the

classical statement of the res judicata doctrine, as expressed in the first sentence of

the paragraph quoted fromDairyland (particularly ‘(3) with substantial identity of the

parties.’”).

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Thus, Thomas indicates that more than one test exists under Alabama law for

determining whether privity exists. Indeed, in quoting a secondary source with

approval regarding the concept of privity, the Supreme Court of Alabama has

acknowledged:

“The term ‘privity’ has not been uniformly defined with respect to res

judicata. The following three definitions have appeared in Alabama

cases: (1) the relationship of one who is privy in blood, estate, or law;

(2) the mutual or successive relationship to the same rights of property;

and (3) an identity of interest in the subject matter of litigation. Largely

defining privity by example, the Alabama cases seem to resolve the

question on an ad hoc basis in which the circumstances determine

whether a person should be bound by or entitled to the benefits of a

judgment. The decision usually turns on whether the relationship

between the parties was close enough and whether adequate notice of

the action was received by the alleged privy; thistest has been bolstered

by the recent tendency of the Alabama courts to analyze privity as an

identity of interests.”•

Hughes v. Martin, 533 So. 2d 188, 191 (Ala. 1988) (emphasis added) (quoting Issue

Preclusion in Alabama, 32 Ala. L. Rev. 500, 520-21 (1981)). Based on this ad hoc

admonishment in Hughes and the apparent absence of any on-point direction arising

under Alabama law that is comparable to this case, this court is ill-equipped to

determine whether the privity element can be satisfied when, such as here, the nonjoined Alabama Limited Partnershipsidentify with both the limited partner plaintiffs

and the general partner defendants.

Moreover, lacking any legal development from Plaintiffs or otherwise

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independently finding a straightforward answer as to whether Alabama law would

find the element of privity satisfied in thisinstance, this court hassignificant concerns

about the finality of any judgment that it would enter with respect to the composition

of the Alabama Limited Partnerships. Consequently, the court finds that, due to the

absence of legal clarity with regard to fashioning a less prejudicial and substantively

adequate judgment, the second and thirdRule 19(b) factors do not weigh in Plaintiffs’

favor–these two factors instead are, at best, neutral in their impact.

With respect to the fourth factor, in “maintain[ing]the right to refile this action

in state court if dismissed” (Doc. 21 at 12), Plaintiffs have implicitly admitted that

complete relief with the Alabama Limited Partnerships joined as parties is available

in state court. At the end of their show cause response, Plaintiffs lament that a

dismissal of this action “would be inherently unfair in the absence of other

compelling reasons that the real estate partnerships are indispensable[;]” however,

they cite to no binding authority for this proposition and skirt the complexities

connected to the extraordinary relief that they seek from this court–23 reconstituted

Alabama Limited Partnerships. Id. Further, this federal court case has not progressed

very far and starting over in state court does not create an insurmountable burden for

Plaintiffs. Finally, changing venue benefits all the parties because those foreseen and

unforeseen pitfalls associated with remaining in federal court are no longer looming

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concerns. 

Thus, the final Rule 19(b) factor favors dismissing this case. In reaching this

conclusion, the court, relies in part, on the binding decision of Harrell & Sumner

Contracting Co. v. Peabody Petersen Co., 546 F.2d 1227, 1229 (5th Cir. 1977). In

Peabody, the former Fifth Circuit explained with respect to a Rule 19 dismissal

premised upon a diversity-destroying corporation:

Because joinder of Tackett, a Florida corporation, would destroy

the subject matter jurisdiction of the district court, Rule 19(b), FED. R.

CIV. P., requires the court to determine “whether in equity and good

conscience the action should proceed among the parties before it, or

should be dismissed” by considering the four factors enumerated in the

rule. The district court found that because of the availability of an

adequate remedy in state court, and because of the possibility of a

second suit by Tackett alone with an inconsistent result, the suit should

not proceed with the parties before the court absent an assignment of

Tackett’s cause of action. Such a result is consistent with this Court’s

decision in Bry-Man’s, Inc. v. Stute, supra, in which plaintiff’s case was

dismissed for failure to join a joint obligee as an indispensable party.

Peabody, 546 F.2d at 1229 (emphasis added). Although the differences between how

a corporation and a limited partnership are organized can influence certain parts of

the Rule 19(b) analysis, cf., e.g., DM II, Ltd. v. Hospital Corp., 130 F.R.D. 469, 473

n.5 (N.D. Ga. 1989) (“Joinder of each non-party partner would ordinarily satisfyRule

19, since the interests of the partnership would be adequately represented.”), Peabody

underscores the availability of an alternative venue as a good reason for upholding

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a district court’s discretionary dismissal due to indispensability and does so without

ever suggesting that the importance of Rule 19(b)’s fourth factor is limited to only

certain cases, i.e., those involving non-joined diversity-destroying corporations.

8 Cf.

also Broussard, 398 F.2d at 889 (finding that fourth Rule 19(b) factor favored

dismissal because “[t]he cause of action involved in this litigation could easily be

brought in a state court of Louisiana”).

IV. Conclusion

The burden of establishing federal jurisdiction falls on the party who is

attempting to invoke the jurisdiction of the federal court. McNutt v. Gen. Motors

Acceptance Corp. of Indiana, 298 U.S. 178, 189, 56 S. Ct. 780, 785, 80 L. Ed. 1135

8 The deferential abuse of discretion standard contemplates a range of acceptable choices for

a district court to make. See Cook ex rel. Estate of Tessier v. Sheriff of Monroe Cty., 402 F.3d 1092,

1103 (11th Cir. 2005) (describing abuse of discretion standard as one that “recognizes the range of

possible conclusions the trial judge may reach” without being reversed and affords “considerable

leeway”) (internal quotation marks omitted); see also id. (“[U]nder the abuse of discretion standard

of review there will be occasions in which we affirm the district court even though we would have

gone the other way had it been our call.” (quoting United States v. Frazier, 387 F.3d 1244, 1259

(11th Cir. 2004) (en banc))). Further, as the former Fifth Circuit has described this deferential

standard in the context of Rule 19 more particularly:

We therefore find that in equity and good conscience the district court

correctly exercised its discretion by dismissing the suit. We add, moreover, that the

pragmatical approach elevates the role of judgmental discretion in the joinder

problem. While this discretion may not have the constrictions of a clearly erroneous

rule, we must be mindful that the district judge is closer to the arena and is often in

a better position to survey the practicalities involved in the litigation.

Broussard, 398 F.2d at 889 (emphasis added). 

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(1936); see also Hertz Corp. v. Friend, 559 U.S. 77, 96, 130 S. Ct. 1181, 1194, 175

L. Ed. 2d 1029 (2010) (“The burden of persuasion for establishing diversity

jurisdiction, of course, remains on the party asserting it.” (citing McNutt)). The court

has fully considered Plaintiffs’ show cause response and proposed amended

complaint offered to substantiate the diversity jurisdiction of this court. However,

after weighing the Rule 19(b) enumerated and other factors, including the still early

stage of this litigation, the continuity of any discovery already conducted, and the

substantial uncertainties associated with remaining in federal court, the undersigned

is persuaded that, in equity and good conscience, this action should not proceed

without the Alabama Limited Partnerships as named parties. Accordingly, Plaintiffs’

lawsuit is due to be dismissed without prejudice sua sponte for lack of subject matter

jurisdiction. 

Further, in the absence of subject matter jurisdiction and because their

proposed amended complaint only partially cures their case’s jurisdictional deficits,

Plaintiffs’ Leave Motion is due to be termed as moot. Finally, the court will enter a

separate order of dismissal consistent with this memorandum opinion.

DONE and ORDERED this the 29th day of April, 2016.

 

 VIRGINIA EMERSON HOPKINS

United States District Judge

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