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Clapper v. American Realty Investors Inc.

United States District Court, N.D. Texas, Dallas Division

February 28, 2018

DAVID M. CLAPPER, Individually, et al., Plaintiffs,
v.
AMERICAN REALTY INVESTORS, INC., et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          SIDNEY A. FITZWATER UNITED STATES DISTRICT JUDGE.

         Defendants' 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.[1]

         I

         Because 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 this decision.

         On 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.[2] Plaintiffs then filed on March 24, 2017 a third amended complaint that omitted any federal-law claims, including a civil RICO claim.

         In 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 complaint (“FAC”).[3]

         In the 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.

         The 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.

         The paragraph of the Final Judgment relevant to ART Midwest states:

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, 652.70.

         Final Judgment ¶ 5 (emphasis added). The Final Judgment also specifies:

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[.]

         Final Judgment ¶ 4 (emphasis added).

         In 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 disclosures”)[4] state:

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).

         After 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 ...


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