Court Opinion

ID: 6328072
Source: CourtListenerOpinion
Date Created: 2022-03-30 15:01:04.294012+00
Date Added: 2024-06-11T09:21:35.022343
License: Public Domain

UNITED STATES DISTRICT COURT
                             FOR THE DISTRICT OF COLUMBIA

LEWIS CLARK TIERNEY, III, et al.,                  :
                                                   :
       Plaintiffs,                                 :       Civil Action No.:      21-1714 (RC)
                                                   :
       v.                                          :       Re Document Nos.:      9, 19, 21, 24
                                                   :
BARCLAY de WET, et al.,                            :
                                                   :
       Defendants.                                 :

                                  MEMORANDUM OPINION

                         GRANTING DEFENDANTS’ MOTIONS TO DISMISS

                                       I. INTRODUCTION

       Plaintiffs bring this shareholder derivative action based on alleged mismanagement of

two closely held family corporations. The facts leading to this suit stretch back over a decade,

but it is unnecessary to delve into them too deeply because it is clear that Plaintiffs have failed to

allege subject matter jurisdiction based on diversity of citizenship. Accordingly, Defendants’

motions to dismiss are granted on that ground. However, given that Plaintiffs believe that they

could allege facts sufficient to entitle them to subject matter jurisdiction, they are granted leave

to either amend their complaint or move for limited discovery relating to establishing diversity of

citizenship.

                                       II. BACKGROUND 1

       Plaintiffs in this action are Lewis Clark Tierney, III, Christopher Scott Tierney, Lee

Mountcastle Kenna Tierney, the Estate of Carolyn Kenna Tierney Griesemer, Carolyn Kenna

Tierney GST Tax Exempt Trust, and Carolyn Kenna Tierney Trust; Defendants are Barclay de

       1
           The factual background is drawn from Plaintiffs’ complaint unless otherwise noted.
Wet, Laurence Smith, Peyton Tierney, Ann Tierney Smith,2 Douglas Woloshin, Duane Morris

LLP, the Tierney Corporation, and the Leatherwood Company. Tierney Corporation is a closely

held family corporation that itself owns a majority of shares of a second company, the

Leatherwood Company. Compl. ¶¶ 12–13, ECF No. 1. After over a century of operation,

Tierney Corporation is now “primarily owned by three families”: those of Ann Tierney Smith,

Matt Tierney, and Lewis Clark Tierney, who collectively own 69.3% of the company. Id. ¶ 12.

This case arises out of longstanding complaints by some family members against others about

decisions made by the companies on their watch. However, it is not necessary to delve into the

full history for the purpose of this opinion.

       In short, Plaintiffs allege “more than 20 years of self-dealing and usurpation of corporate

assets for the personal benefit of the Companies’ Executive Committee members, including the

Companies’ President, her immediate family members, and the family attorney, Doug

Woloshin,” who is employed at Duane Morris LLP. Id. ¶¶ 1, 36. According to Plaintiffs,

Woloshin made false representations to Board members regarding property values that led them

to approve a transaction unfavorable to the companies. Id. ¶ 1. These actions allegedly

benefited Defendants at the expense of the companies and shareholders. Id. ¶ 2.

       Plaintiffs have brought other, similar lawsuits. In 2017, Plaintiffs brought a derivative

action in West Virginia state court against certain Board members. Id. ¶ 4. The defendants there

moved to dismiss for failure to make a demand pursuant to the West Virginia Rules of Civil

Procedure, with Plaintiffs arguing that demand would be futile. Id. The court agreed with the

       2
          After briefing for these motions concluded, counsel for Defendant Ann Tierney Smith
filed a suggestion of death regarding Ms. Smith’s passing. See Suggestion of Death of Def. Ann
Tierney Smith, ECF No. 40. No party filed anything discussing how this would affect this case.
Accordingly, the Court sees no need to take action at this time.

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defendants and dismissed the case. Id. Thereafter, Plaintiffs made a demand and then filed a

second derivative action in 2018 “with the same allegations” in West Virginia state court. Id.

“The 2018 Action asserts seven counts, premised largely on breaches of fiduciary duty, gross

negligence, mismanagement, self-dealing, and corporate waste by Ann Tierney Smith, Matt

Tierney, Doug Woloshin, and Duane Morris.” Id. ¶ 39.

       After the demand was made and the second lawsuit was filed, the companies launched an

investigation into Plaintiffs’ claims. Id. ¶ 4. This investigation included Tierney Corporation

president Barclay de Wet hiring a law firm, Dinsmore & Shohl LLP, to investigate the

allegations. Id. ¶ 45. Dinsmore wrote a 72-page report of its investigation and provided it to de

Wet on May 19, 2020. 3 Id. ¶ 46. The next day, de Wet sent a letter to the companies’

shareholders “urging them to vote to dismiss Plaintiffs’ claims.” Id. ¶ 48. She did not provide a

copy of the Dinsmore report but did provide a summary. Id. Her letter also called for a

shareholder vote ten days later to recommend dismissal of the claims. Id. ¶ 49. The shareholders

voted to not pursue Plaintiffs’ claims. Id. The Board convened the next day and voted to seek

dismissal of Plaintiffs’ claims. Id. ¶ 50. Accordingly, Defendants submitted a settlement

agreement to the West Virginia court for approval that would settle the 2018 action and other

related claims. Id. ¶ 79.

       After the motions were briefed in this case, Defendants filed a notice of supplemental

authority alerting the Court that “the West Virginia Business Court, presiding over Plaintiffs’

Second Lawsuit, granted preliminary approval to the settlement between The Tierney

       3
        According to Plaintiffs, “new facts were revealed to Plaintiffs” from this investigation,
which prompted Plaintiffs to bring this additional action. Compl. ¶ 4. Namely, “it was through
Dinsmore’s investigation that Plaintiffs were finally able to obtain a copy of the Appraisal that
had been fraudulently concealed from Plaintiffs by the Board, Executive Committee, Mr.
Woloshin, and Duane Morris for more than a decade.” Id. ¶ 51.

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Corporation and The Leatherwood Company and Defendants Duane Morris, Douglas Woloshin,

Ann Tierney Smith, and C. Matthew S. Tierney.” Notice of Suppl. Auth. at 1, ECF No. 38. On

its face, the preliminarily approved settlement purports to release Defendants from any claims

asserted in this case, among other things. See Order Granting Prelim. Settlement Approval ¶ 12,

ECF No. 38-1 (defining “Civil Actions” to include this case); id. ¶ 11(a) (listing as a principal

term of the settlement agreement that “[t]he Companies shall release any and all claims against

Defendants arising from or in any way related to the claims asserted in the Civil Actions”). In

response, Plaintiffs point out that the shareholders have not yet approved the agreement and

argue that there are several other reasons that, even if the agreement were approved by the West

Virginia court and the shareholders, this Court should not dismiss the case. See Pls.’ Resp.

Defs.’ Notice of Suppl. Auth., ECF No. 39. But Plaintiffs do not dispute the authenticity of the

order granting preliminary approval. Subsequently, and shortly before this opinion was

published, Defendants alerted the Court that the West Virginia court “granted final approval to

the settlement agreement” and dismissed the state-court action with prejudice. Defs. Duane

Morris LLP & Douglas Woloshin’s Mot. Leave File Suppl. Br. at 2, ECF No. 42. 4

       The complaint in this case alleges that this Court has subject matter jurisdiction premised

on diversity of citizenship. Compl. ¶ 9 (alleging that “[t]he Court has subject matter jurisdiction

over this Action pursuant to 28 U.S.C. § 1332 because the amount in controversy exceeds

$75,000 and the Action is between citizens of different States”). It lays out six claims:

fraudulent misrepresentation; negligent misrepresentation; breach of contract and implied

       4
         The deadline for Plaintiffs to respond to this motion has not yet passed, so the Court has
not yet heard from Plaintiffs about this factual development, the motion for leave, or the
proposed supplemental brief. However, this factual development does not affect the Court’s
diversity analysis and is noted here merely for completeness of the factual background. It is
therefore not necessary to wait for Plaintiffs’ response to this motion to issue this opinion.

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covenant of good faith and fair dealing; aiding and abetting fraud; civil conspiracy; and removal

of directors. Id. ¶¶ 82–116. Defendants Woloshin and Duane Morris move to dismiss the

complaint on numerous grounds: lack of subject matter jurisdiction; Colorado River abstention;

statute of limitations; claim preclusion; issue preclusion; failure to satisfy the demand

requirement for derivative suits; failure to allege fraud with specificity; failure to allege a breach

of the implied covenant of good faith and fair dealing; operation of the statutory safe harbor

provisions of West Virginia’s Business Corporation Act; lack of a stand-alone claim for civil

conspiracy; and failure to allege the conduct required by the West Virginia director removal

statute. Mem. P. & A. Supp. Defs. Duane Morris, LLP’s & Douglas Woloshin’s Mot. Dismiss

Pursuant to Fed. Rules 12(b)(1) & 12(b)(6) (“Mem.”), ECF No. 9-1; Pls.’ Opp’n Defs. Duane

Morris LLP’s & Douglas Woloshin’s Mot. Dismiss (“Opp’n”), ECF No. 25; Reply Supp. Defs.

Duane Morris, LLP’s & Douglas Woloshin’s Mot. Dismiss Pursuant to Fed. Rules 12(b)(1) &

12(b)(6) (“Reply”), ECF No. 31. Three groups of other Defendants also moved to dismiss,

incorporating some of Woloshin and Duane Morris’s arguments—including their arguments

regarding diversity subject matter jurisdiction—and making some additional arguments. Mem.

P. & A. Def. Peyton Tierney Supp. Mot. Dismiss at 1 n.1, ECF No. 19-1; Defs. Barclay de Wet

& Laurence Smith’s Mot. Dismiss at 2 n.2, ECF No. 21; Def. Ann Tierney Smith’s Mem. Supp.

Mot. Dismiss at 2, ECF No. 24-1.

                                    III. LEGAL STANDARD

       A Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction “presents a

threshold challenge to the Court’s jurisdiction.” Curran v. Holder, 626 F. Supp. 2d 30, 32

(D.D.C. 2009) (quoting Agrocomplect, AD v. Republic of Iraq, 524 F. Supp. 2d 16, 21 (D.D.C.

2007)). In evaluating this challenge, a court must “presume[] that a cause lies outside [the

                                                  5
federal courts’] limited jurisdiction” and place “the burden of establishing the contrary . . . upon

the party asserting jurisdiction.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377

(1994). Therefore, “[w]hen a defendant files a motion to dismiss a complaint for lack of subject

matter jurisdiction under Rule 12(b)(1), the plaintiff bears the burden of establishing jurisdiction

by a preponderance of the evidence.” Scruggs v. Bureau of Engraving & Printing, 200 F. Supp.

3d 78, 81 (D.D.C. 2016). The court must also accept “the allegations of the complaint as true,”

Banneker Ventures, LLC v. Graham, 798 F.3d 1119, 1129 (D.C. Cir. 2015), and “construe the

complaint ‘liberally,’ granting plaintiff ‘the benefit of all inferences that can be derived from the

facts alleged,’” Barr v. Clinton, 370 F.3d 1196, 1199 (D.C. Cir. 2004) (quoting Kowal v. MCI

Commc’ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994)). However, “[b]ecause subject-matter

jurisdiction focuses on the court’s power to hear the plaintiff's claim, a Rule 12(b)(1) motion

imposes on the court an affirmative obligation to ensure that it is acting within the scope of its

jurisdictional authority. For this reason, ‘the plaintiff’s factual allegations in the complaint will

bear closer scrutiny in resolving a 12(b)(1) motion’ than in resolving a 12(b)(6) motion for

failure to state a claim.” Grand Lodge of Fraternal Ord. of Police v. Ashcroft, 185 F. Supp. 2d 9,

13–14 (D.D.C. 2001) (cleaned up) (quoting 5A Charles A. Wright & Arthur R. Miller, Federal

Practice and Procedure § 1350 (2d ed. 1987)). “[A] court may consider such materials outside

the pleadings as it deems appropriate to resolve the question [of] whether it has jurisdiction to

hear the case.” CostCommand, LLC v. PRS Software Sols., Inc., 73 F. Supp. 3d 111, 113

(D.D.C. 2014) (second alteration in original) (quoting Scolaro v. D.C. Bd. of Elections & Ethics,

104 F. Supp. 2d 18, 22 (D.D.C. 2000)), aff’d sub nom. CostCommand, LLC v. WH Adm’rs, Inc.,

820 F.3d 19 (D.C. Cir. 2016).

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                                           IV. ANALYSIS

        As mentioned above, Defendants raise many arguments in their motions to dismiss.

However, it is only necessary to address their first: subject matter jurisdiction based on diversity

of citizenship. “[S]ubject matter jurisdiction ‘is, of necessity, the first issue for an Article III

court,’ for ‘[t]he federal courts are courts of limited jurisdiction, and they lack the power to

presume the existence of jurisdiction in order to dispose of a case on any other grounds.’”

Loughlin v. United States, 393 F.3d 155, 170 (D.C. Cir. 2004) (second alteration in original)

(quoting Tuck v. Pan Am. Health Org., 668 F.2d 547, 549 (D.C. Cir. 1981)); see also Am. Farm

Bureau v. U.S. EPA, 121 F. Supp. 2d 84, 90 (D.D.C. 2000) (“The court cannot address any issue

if it lacks subject matter jurisdiction . . . .”); cf. Consumer Elecs. Assoc. v. Fed. Communications

Comm’n, 347 F.3d 291, 296 (D.C. Cir. 2003) (“As a court of limited jurisdiction, [the court]

take[s] seriously any suggestion that [it] lack[s] the authority to act—even one raised at the

eleventh hour . . . .”). “Citizenship is an essential element of federal diversity jurisdiction;

failing to establish citizenship is not a mere technicality. ‘[T]he party seeking the exercise of

diversity jurisdiction bears the burden of pleading the citizenship of each and every party to the

action.’” Novak v. Cap. Mgmt. & Dev. Corp., 452 F.3d 902, 906 (D.C. Cir. 2006) (alteration in

original) (quoting Naartex Consulting Corp. v. Watt, 722 F.2d 779, 792 (D.C. Cir. 1983)). This

is because Plaintiffs must demonstrate complete diversity, meaning that no plaintiff may be a

citizen of the same jurisdiction as any defendant. Caterpillar, Inc. v. Lewis, 519 U.S. 61, 68

(1996). “[A]n allegation of residence alone is insufficient to establish the citizenship necessary

for diversity jurisdiction.” Novak, 452 F.3d at 906 (quoting Naartex Consulting Corp., 722 F.2d

at 792 n.20). “[T]he citizenship of every party to the action must be distinctly alleged [in the

complaint] and cannot be established presumptively or by mere inference.” El Bey v. Narula,

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No. 20-CV-03841, 2021 WL 184361, at *1 (D.D.C. Jan. 15, 2021) (second alteration in original)

(quoting Meng v. Schwartz, 305 F. Supp. 2d 49, 55 (D.D.C. 2004)).

       Plaintiffs’ complaint has several defects regarding diversity. First, the parties appear to

agree that several Plaintiffs are citizens of the same states as Defendant Duane Morris LLP. In

their motion to dismiss, Defendants argue that Duane Morris LLP is a citizen of at least New

York and Florida because one or more of the firm’s partners are citizens of those states, and that

Defendant Woloshin is also a citizen of Florida. Mem. at 15; see Boyd v. Kilpatrick Townsend &

Stockton, LLP, 79 F. Supp. 3d 153, 157 n.1 (D.D.C. 2015) (stating that limited liability

partnerships are citizens of all states of which their partners are citizens). Defendants support

this argument with a declaration by Duane Morris’s chief operating officer providing these facts

about the Duane Morris partners and a declaration by Defendant Woloshin about his own state

citizenship. Mem. at 15; Mem. Ex. 8, Decl. of Charles J. O’Donnell, ECF No. 9-10; Mem. Ex. 9,

Decl. of Douglas Woloshin, ECF No. 9-11. They then point to the complaint’s allegation that

Plaintiff Lewis Tierney “currently resides in New York, New York,” and the Florida address

listed in the complaint for the trustee of the two trust Plaintiffs. Mem. at 15; see Wang ex rel.

Wong v. New Mighty U.S. Tr., 843 F.3d 487, 494 (D.C. Cir. 2016) (holding that “the citizenship

of a traditional trust depends only on the trustees’ citizenship”). Plaintiffs do not dispute any of

this. The parties therefore agree that the complaint as drafted fails to allege the complete

diversity necessary for subject matter jurisdiction. See Caterpillar, Inc., 519 U.S. at 68. Instead,

“even assuming arguendo the accuracy of” the Duane Morris declaration, Plaintiffs urge the

Court to either drop Lewis Tierney and the two trust Plaintiffs as dispensable parties or allow

leave to file a motion to amend their complaint (while also acknowledging the citizenships of

those three Plaintiffs as put forth by Defendants). Opp’n at 5–6. Were this the only defect in

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diversity, the Court might have exercised its discretion under Federal Rule of Civil Procedure 21

to drop diversity-destroying parties, as urged by Plaintiffs. See id. at 5; Fed. R. Civ. P. 21 (“On

motion or on its own, the court may at any time, on just terms, add or drop a party.”); In re

Lorazepam & Clorazepate Antitrust Litig., 631 F.3d 537, 542 (D.C. Cir. 2011) (Rule 21 “allows

the district court to dismiss so-called ‘jurisdictional spoilers’—parties whose presence in the

litigation destroys jurisdiction—if those parties are not indispensable and if there would be no

prejudice to the parties.”). But there are other defects.

       Second, Defendants are correct that “the Complaint does not contain a single allegation

concerning the citizenship of the two trust Plaintiffs or of Defendants Barclay deWet, Lawrence

Smith, Ann Tierney Smith, or Duane Morris LLP.” Reply at 4. 5 The two trust Plaintiffs and

Duane Morris are analyzed above using the parties’ apparent agreement about their citizenships,

but the fact remains that the complaint does not contain supporting allegations of citizenship for

any of these parties. Plaintiffs do not dispute that the complaint lacks allegations of citizenship

for these parties, and the paragraphs of the complaint concerning Defendants Barclay de Wet,

Laurence Smith, and Ann Tierney Smith do lack any allegations regarding their citizenship or

residence despite neighboring paragraphs doing so. Compare Compl. ¶¶ 32–33, 35 (no mention

of citizenship or residence), with Compl. ¶ 34 (“Upon information and belief, [Peyton Tierney] is

a resident of Lexington, Kentucky.”). Plaintiffs merely argue—without citation to their

complaint—that Lewis Tierney and the two trusts can be dropped because they are not

indispensable, the remaining Plaintiffs are all citizens of Colorado, and none of the Defendants,

       5
          Although Defendants raised this specific argument in reply and new arguments in reply
are generally waived, here these are merely elaborations of the general argument made in
Defendants’ opening brief that “the Complaint fails to plead sufficient facts to establish diversity
jurisdiction.” Mem. at 14. Defendants can be forgiven for not sufficiently elaborating on every
theory when their main theory was correct.

                                                  9
including Duane Morris, is a citizen of Colorado. Opp’n at 5. The Court “may consider such

materials outside the pleadings as it deems appropriate to resolve the question [of] whether it has

jurisdiction to hear the case.” CostCommand, LLC, 73 F. Supp. 3d at 113 (quoting Scolaro, 104

F. Supp. 2d at 22). But asking the Court to rely on a single, unsupported sentence in their brief

arguing that no Defendant is a citizen of Colorado is a bridge too far. Plaintiffs could have

submitted declarations in support of their brief, as Defendants did, or moved to amend their

complaint, but they have not done so.

       Last, although Defendants do not raise this issue specifically, several of Plaintiffs’

allegations concern residence, not citizenship. For example, the complaint states that Plaintiff

“Lewis Tierney currently resides in New York, New York” and Defendant Peyton Tierney “is a

resident of Lexington, Kentucky.” Compl. ¶¶ 24, 34 (emphases added). But “an allegation of

residence alone is insufficient to establish the citizenship necessary for diversity jurisdiction.”

Novak, 452 F.3d at 906 (quoting Naartex Consulting Corp., 722 F.2d at 792 n.20); accord

Momenian v. Davidson, 878 F.3d 381, 389 (D.C. Cir. 2017) (“Citizenship is determined by

domicile, which is in turn determined by ‘physical presence in a state, and intent to remain there

for an unspecified or indefinite period of time.’ Pleading a party’s ‘residence alone is

insufficient to establish the citizenship necessary for diversity jurisdiction.’” (citation omitted)

(first quoting Prakash v. Am. Univ., 727 F.2d 1174, 1180 (D.C. Cir. 1984); and then quoting

Novak, 452 F.3d at 906)).

       In light of the concerns above with Plaintiffs’ assertion of subject matter jurisdiction, the

better course of action is to dismiss Plaintiff’s complaint without prejudice. See Yueh-Lan Wang

ex rel. Wong v. New Mighty U.S. Tr., 841 F. Supp. 2d 198, 202 (D.D.C. 2012) (dismissing

complaint without prejudice because “the Court cannot determine on the face of the First

                                                  10
Amended Complaint whether diversity exists here”), rev’d on other grounds, 843 F.3d 487 (D.C.

Cir. 2016). If Plaintiffs believe that they have the necessary information to plead citizenship of

all parties (absent the ones they intend to drop) and still wish to pursue this case, they should

move to amend the complaint. If Plaintiffs feel that they need more information to allege

diversity and cannot obtain this information voluntarily from Defendants, Plaintiffs may move

for limited discovery on this issue. The Court grants leave to file either an amended complaint or

a motion for limited discovery regarding diversity within sixty days of the issuance of this

opinion. Because the Court cannot yet determine whether it has subject matter jurisdiction over

this case, it will not yet address Defendants’ other arguments for dismissal. See Cause of Action

Inst. v. Eggleston, 224 F. Supp. 3d 63, 78 n.6 (D.D.C. 2016) (declining to address “other

arguments for dismissing the claim”—including other arguments about subject matter

jurisdiction—after determining that court lacked subject matter jurisdiction).

                                        V. CONCLUSION

       For the foregoing reasons, Defendants’ motions to dismiss (ECF Nos. 9, 19, 21, 24) are

GRANTED. However, Plaintiffs are granted leave to either file an amended complaint or move

for limited discovery within sixty days of the issuance of this opinion. An order consistent with

this Memorandum Opinion is separately and contemporaneously issued.

Dated: March 30, 2022                                               RUDOLPH CONTRERAS
                                                                    United States District Judge

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