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CGA Steck, Ltd. v. The Nature Conservancy

United States District Court, W.D. Texas, Austin Division

July 19, 2019

CGA STECK, LTD.
v.
THE NATURE CONSERVANCY

          HONORABLE LEE YEAKEL UNITED STATES DISTRICT JUDGE

          REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

          ANDREW W. AUSTIN UNITED STATES MAGISTRATE JUDGE

         Before the Court are Defendant's Motion to Dismiss (Dkt. No. 9), Plaintiff's Response (Dkt. No. 10), and Defendant's Reply (Dkt. No. 13); Plaintiff's Motion for Leave to File a Second Amended Complaint (Dkt. No. 21), Defendant's Response (Dkt. No. 22), and Plaintiff's Reply (Dkt. No. 23). The undersigned submits this Report and Recommendation to the United States District Court pursuant to 28 U.S.C. § 636(b) and Rule 1(h) of Appendix C of the Local Court Rules.

         I. GENERAL BACKGROUND

         This is a property dispute between Plaintiff CGA, Steck, LTD. (“CGA”) and Defendant The Nature Conservancy (“TNC”). CGA is a Texas Limited partnership. TNC is a nonprofit corporation that maintains its principal office in Virginia. CGA brings this diversity suit seeking a declaration related to a restrictive covenant on a parcel of property it owns in Travis County, Texas. TNC, through its predecessor in-interest, the Nature Conservancy of Texas, was the owner of roughly 340 acres of property in Travis County, widely known as the Uplands Tract. In February 1994, TNC, as Declarant, filed a Declaration of Covenants, Conditions, and Restrictions (the “Declaration”) that established two setbacks on the Uplands Tract, including a 1, 000 foot minimum setback from the center line of Barton Creek for all or any portion of the Uplands Tract located within the said 1, 000 foot area. The Declaration states that:

No construction, development, landscaping or any other type of site disturbance shall be permitted within said setbacks other than water quality, detention or sedimentation ponds in, but only in, the 1000 foot setback from Major Tributaries to ensure that the water quality goals of nondegredation are achieved.

         Dkt. No. 6 at 3. The Uplands Tract was eventually platted into two subdivisions, with the first (Uplands West) being subdivided into over 100 small commercial and residential lots. In October 2002, the second subdivision (Uplands East), made up of roughly 46 acres subdivided into five large lots, was created. In October 2006, CGA purchased Lot 1. It has remained undeveloped ever since.

         Unlike Uplands West, where there are hundreds of property owners, there are only two property owners in Uplands East-CGA and the Lake Hills Church (“Church”), which owns the other four lots in Uplands East. CGA alleges that its parcel-Lot 1-is so burdened by the setback restriction that it cannot be developed. In this suit, CGA contends that the Church materially violated the 1, 000 foot setback when it built its worship facility in January 2004, and violated the setback restriction again when it built the Church's secondary access drive. CGA claims these violations were open and obvious from their initial construction. Based on these violations, CGA approached TNC and sought a modification of the setback that would allow CGA to develop its parcel as well, but TNC refused to agree to the modification. As a result, CGA filed this suit.

         TNC moved to dismiss the case for failure to join indispensable parties, specifically, all of the other property owners in the Uplands Tract. On May 30, 2019, the Court held a hearing on TNC's motion. In its briefing, CGA had taken the position that none of the relief it sought in the lawsuit would have any impact on the rights of the Uplands West property owners, and that it believed the Complaint made that clear. TNC disagreed, and argued that several items of the declaratory relief requested in the Complaint would directly impact property owners in Uplands West. At the hearing, the Court questioned CGA's counsel regarding the claim that it was not seeking any relief against any property owner in the Uplands Tract beside TNC. In response, CGA's counsel stated unequivocally that CGA was only seeking relief against TNC, and was not seeking any relief, declaratory or otherwise, against any of the other property owners in the Uplands Tract, notwithstanding anything in the Complaint that might suggest to the contrary. Because the indispensable parties issues are complex, and because the Court might be able to avoid reaching those issues if it is clear that CGA is only seeking relief against TNC, and not against any of the other Uplands Tract property owners, the Court instructed CGA to file a Second Amended Complaint to bring its pleadings into alignment with its statements from the hearing. Further, the Court directed the parties to confer about the amendment, so that there would not be the same sort of disagreement regarding the legal effect of the pleading language as developed on TNC's indispensable parties motion. CGA thus prepared its Second Amended Complaint, and presented that to TNC. TNC then reviewed the proposed amendment to see if it agreed that the language was sufficiently narrow such that any ruling flowing from the amended complaint would only bind TNC, and would not impact the rights of any of the other Uplands Tract property owners. Unfortunately, TNC did not agree that the proposed amended complaint eliminated the indispensable parties issue. Dkt. No. 19. Thus, CGA filed its Motion to File a Second Amended Complaint, Dkt. No. 21, which TNC opposes.

         II. STANDARD OF REVIEW

         Under the Erie doctrine, federal courts apply substantive state law when adjudicating diversity claims, but apply federal procedural law to the proceedings. Cates v. Sears, Roebuck & Co., 928 F.2d 679, 687 (5th Cir. 1991). Given that the joinder rules are procedural, the Federal Rules govern here. And though the issue before the Court is presented both in a motion to dismiss, and in a motion for leave to file an amended complaint, the issue is, for all intents and purposes, solely one of necessary parties, not amendment.[1] Rule 12(b)(7) permits the filing of a motion to dismiss for “failure to join a party under Rule 19.” A court deciding a Rule 12(b)(7) motion “must accept all factual allegations in the complaint as true and draw inferences in favor of the non-moving party.” 5C Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1359 (3d ed. 2004) “[C]ourts are reluctant to grant motions to dismiss of this type.” Id.

         Rule 19 states that a person must be joined as a party when (1) the person's absence will prevent the court from “accord[ing] complete relief among existing parties, ” or (2) the person has an interest in the subject of the case, and disposing of it in the person's absence will either “impair or impede the person's ability to protect the interest, ” or create a risk of multiple or inconsistent obligations for an existing party because of the interest. Fed.R.Civ.P. 19(a)(1). If it is not feasible to join the required person, a court “must determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed.” Fed.R.Civ.P. 19(b). Four factors are relevant to this analysis: (1) “the extent to which a judgment rendered in the person's absence might prejudice that person or the existing parties;” (2) the degree to which “protective provisions in the judgment, ” “shaping the relief, ” or “other measures” might mitigate any prejudice; (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.” Id.

         “Determining whether to dismiss a case for failure to join an indispensable party requires a two-step inquiry.” Hood ex rel. Miss. v. City of Memphis, 570 F.3d 625, 628 (5th Cir. 2009). “Rule 19(a) provides a framework for deciding whether a given person should be joined, ” and Rule “19(b) guides the court in deciding whether the suit should be dismissed if that person cannot be joined.” Pulitzer-Polster v. Pulitizer, 784 F.2d 1305, 1309 (5th Cir. 1986). “If the necessary party cannot be joined without destroying subject-matter jurisdiction, the court must then determine whether that person is ‘indispensable,' that is, whether litigation can be properly pursued without the absent party.” Hood, 570 F.3d at 629 (citations omitted). “While the party advocating joinder has the initial burden of demonstrating that a missing party is necessary, after ‘an initial appraisal of the facts indicates that a possibly necessary party is absent, the burden of disputing this initial appraisal falls on the party who opposes joinder.'” Hood, 570 F.3d at 628 (quoting Pulitzer-Polster, 784 F.2d at 1309); National Cas. Co. v. Gonzalez, 637 Fed.Appx. 812, 814-15 (5th Cir. 2016) (unpublished). Finally, no inquiry under Rule 19(b) is necessary when the threshold requirements of Rule 19(a) have not been satisfied. Temple v. Synthes Corp., 498 U.S. 5, 8 (1990).

         III. ...


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