United States District Court, N.D. Texas, Dallas Division
DAVID M. CLAPPER, Individually, et al., Plaintiffs,
AMERICAN REALTY INVESTORS, INC., et al., Defendants.
MEMORANDUM OPINION AND ORDER
A. FITZWATER UNITED STATES DISTRICT JUDGE.
motions to dismiss under Fed.R.Civ.P. 12(b)(1) for lack of
subject matter jurisdiction present the principal question
whether, in determining diversity jurisdiction, the court
should consider the citizenship of a nonparty limited
partnership-ART Midwest, L.P. (“ART Midwest”)-or
only the citizenship of ART Midwest's managing general
partner-plaintiff Atlantic Midwest LLC (“Atlantic
Midwest”)-who brings suit on behalf of the partnership.
Concluding that the court should consider the citizenship of
ART Midwest, the court grants defendants' motions to
dismiss for lack of subject matter jurisdiction because two
members of ART Midwest-Atlantic XIII LLC (“Atlantic
XIII”) and American Realty Trust, Inc.
(“ART”)-are citizens of Georgia, which makes ART
Midwest a Georgia citizen, and ART, a citizen of Georgia, is
also a defendant in the lawsuit.
this case is the subject of three prior memorandum opinions
and orders, see, e.g., Clapper v. American Realty
Investors, Inc., 2016 WL 302313 (N.D. Tex. Jan. 25,
2016) (Fitzwater, J.) (“Clapper III”),
the court will recount only the background facts pertinent to
August 19, 2014 plaintiffs David M. Clapper
(“Clapper”), Atlantic Midwest, and Atlantic XIII
filed this lawsuit against numerous defendants. They invoked
this court's diversity jurisdiction and also its federal
question jurisdiction based on the assertion of a claim under
the Racketeer Influenced and Corrupt Organizations Act
(“RICO”), 18 U.S.C. § 1962. See
Compl. ¶ 1 (“This Court has jurisdiction over this
action pursuant to 28 USC §1332, (diversity
jurisdiction) and based on a federal question being raised
pursuant to RICO.”). In Clapper III, however,
the court dismissed the civil RICO claim. Plaintiffs
unsuccessfully sought leave of court to replead that
claim. Plaintiffs then filed on March 24, 2017 a
third amended complaint that omitted any federal-law claims,
including a civil RICO claim.
December 2017 the court had under consideration various
pending motions. As part of the decisional process, it
reviewed the third amended complaint. In doing so, it noted
that plaintiffs predicated subject matter jurisdiction on
diversity of citizenship, 28 U.S.C. § 1332, but it
concluded that the third amended complaint failed to allege
properly the citizenship of plaintiffs Clapper, Atlantic
XIII, and Atlantic Midwest, and defendants Prime Income Asset
Management, LLC, and Gene Phillips (“Phillips”).
Because diversity jurisdiction was then the sole basis for
the court's subject matter jurisdiction, the court
ordered plaintiffs to amend their complaint to properly plead
the citizenship of the parties specified in the order. In
response, plaintiffs filed the instant fourth amended
FAC, plaintiffs allege claims against defendants American
Realty Investors Inc., ART, and EQK Holdings Inc.
(collectively, the “Entity Defendants”) and
Phillips for fraudulent conveyance, in violation of the Texas
Uniform Fraudulent Transfer Act, Tex. Bus. & Com. Code
Ann. § 24.001 et seq. (West 2015); unjust
enrichment/constructive trust; and alter ego. Plaintiffs'
claims all center on the theory that defendants are
attempting to evade a final judgment entered by Judge Godbey
in 2016 (the “Final Judgment”) at the culmination
of an extensive litigation process, including an appeal to
the Fifth Circuit.
Final Judgment awards various sums to individual parties and
combinations of parties by paragraph. One such party,
relevant to the instant motion, is ART Midwest. As of the
1998 First Amended and Restated Agreement of Limited
Partnership of ART Midwest, L.P. (the “Partnership
Agreement”), the known members of ART Midwest are
“ART Midwest, Inc., as the Managing General Partner,
Atlantic Midwest, LLC, a Michigan limited liability company .
. . as the Non-Managing General Partner . . . and American
Realty Trust, Inc., as the Class B Limited Partner.” D.
App. 110. Exhibit A of the Partnership Agreement also lists
Atlantic XIII as a Class A Limited Partner of ART Midwest.
Id. at 156.
paragraph of the Final Judgment relevant to ART Midwest
Atlantic Midwest, on behalf of the Partnership, has
judgment against ART for its breach of section 4.02(d) of the
Partnership Agreement in the amount of $10, 554, 914,
together with prejudgment interest from the date of breach,
March 22, 1999 through October 11, 2011, at the rate of 19%
simple interest per annum in the amount of $25, 175, 738.70,
for a total amount through October 11, 2011 of $35, 730,
Judgment ¶ 5 (emphasis added). The Final Judgment also
Atlantic Midwest has declaratory judgment that it is the
managing general partner of the ART Midwest L.P. (the
“Partnership”) as of December 9, 1999, and is
entitled to assert legal claims on behalf of the
Partnership and wind up the Partnership's affairs[.]
Judgment ¶ 4 (emphasis added).
connection with their filing of the FAC, plaintiffs filed
amended Rule 26(a)(1) disclosures regarding the damages they
seek. Relevant, in part, to Atlantic Midwest and ART Midwest,
plaintiffs' Fifth Amended and Restated Rule 26
disclosures (“Fifth Rule 26
In addition to the turnover relief requested in Count I of
Plaintiffs' Fourth Amended Complaint, Atlantic Midwest,
LLC seeks damages in the amount of $10, 554, 914, together
with prejudgment interest from March 22, 1999 through October
11, 2011, at the rate of 19% simple interest per annum in the
amount of $25, 175, 738.70, for a total amount through
October 11, 2011 of $35, 730, 652.70, plus post-judgment
interest at the rate of 0.11%, compounded annually, beginning
October 12, 2011 until paid in full, as set forth in
paragraph 5 of the Final Judgment, plus punitive damages
in an amount exceeding $10, 000, 000.00, prejudgment
interest, post-judgment interest, attorneys fees, and costs
in this matter.
P. App. 22 (emphasis added).
plaintiffs filed the FAC, the Entity Defendants moved to
dismiss pursuant to Rule 12(b)(1) and Rule 19 for lack of
subject matter jurisdiction and to strike the FAC pursuant to
Rule 41. Phillips also moved to dismiss the case under Rule
12(b)(1) for lack of subject ...