Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Clapper v. American Realty Investors Inc.

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

October 31, 2019

DAVID M. CLAPPER; ATLANTIC MIDWEST LLC; and ATLANTIC XIII, LLC, Plaintiffs,
v.
AMERICAN REALTY INVESTORS, INC.; AMERICAN REALTY TRUST, INC.; TRANSCONTINENTAL REALTY INVESTORS, INC.; PILLAR INCOME ASSET MANAGEMENT, INC.; PRIME INCOME ASSET MANAGEMENT, INC.; PRIME INCOME ASSET MANAGEMENT, LLC; EQK HOLDINGS, INC.; BASIC CAPITAL MANAGEMENT, INC.; GENE E. PHILIPS, Defendants.[1]

          MEMORANDUM OPINION AND ORDER

          Sam A. Lindsay United States District Judge.

         Before the court is Defendants' Motion to Dismiss Supplemental Claims Under 28 U.S.C. § 1367(c) and Memorandum in Support (Doc. 852), filed October 11, 2019. After reviewing the motion, response, reply, record, and applicable law, the court denies Defendants' Motion to Dismiss Supplemental Claims Under 28 U.S.C. § 1367(c).

         I. Factual Background and Procedural History

         On August 19, 2014, Plaintiffs David M. Clapper (“Clapper”), Atlantic Midwest, L.L.C. (“Atlantic Midwest”), and Atlantic XIII, L.L.C. (“Atlantic XIII”)-judgment creditors of Defendant American Realty Trust, Inc. (“ART”)-filed this lawsuit against ART and numerous other defendants. Plaintiffs allege that ART unlawfully transferred assets to its parent, Defendant American Realty Investors, Inc. (“ARI”), and other entities and persons in an attempt to evade a final judgment entered in their favor by the Honorable David C. Godbey on October 11, 2011, in ART Midwest, Inc. v. Clapper, No. 3-99-cv-2355-N.[2]

         In the Original Complaint, Plaintiffs alleged the following claims: fraudulent conveyance in violation of the Texas Uniform Fraudulent Transfer Act, Tex. Bus. & Com. Code Ann. § 24.001 et seq. (West 2015) (“TUFTA”); unjust enrichment/constructive trust; alter ego; civil conspiracy to commit fraudulent conveyances; and violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962. As the basis for federal subject matter jurisdiction, Plaintiffs invoked this court's diversity jurisdiction and also its federal question jurisdiction based on the assertion of their civil RICO claim. See Compl. ¶ 1 (“This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1332, (diversity jurisdiction) and based on a federal question being raised pursuant to RICO.”). On October 31, 2014, following the recusal of the Honorable Jorge A. Solis, the matter was reassigned to the Honorable Sidney A. Fitzwater. After allowing Plaintiffs leave to amend the pleadings twice, he granted in part Defendants' motion to dismiss Plaintiffs' Second Amended Complaint, dismissing, among other claims, the civil RICO claim, the sole source of federal question jurisdiction, finding it “speculative, conclusory, and insufficient to state a claim on which relief can be granted.” Clapper v. American Realty Investors, Inc., 2016 WL 302313, at *10 (N.D. Tex. Jan. 25, 2016) (Fitzwater, J.) (“Clapper III”) (“[T]he court dismisses plaintiffs' civil RICO claim because the allegations in the second amended complaint do not allow the court to draw the reasonable inference that defendants engaged in a pattern of racketeering activity.”).

         On March 24, 2017, with leave of court, see Clapper v. American Realty Investors, Inc., 2017 WL 978098 (N.D. Tex. Mar. 14, 2017) (Fitzwater, J.) (“Clapper IV”), Plaintiffs filed a Third Amended Complaint that added alter ego claims against ARI. Following the court's rulings in Clapper III and Clapper IV, the following state law claims remained: fraudulent conveyance in violation of TUFTA against ART, ARI, and EKQ Holdings, Inc. (“EKQ”); unjust enrichment/constructive trust against ARI and EKQ; and alter ego against Gene Phillips (“Phillips”) and ARI.

         In December 2017, the court, in reviewing Plaintiffs' Third Amended Complaint, noted that Plaintiffs predicated subject matter jurisdiction on diversity of citizenship under 28 U.S.C. § 1332, and that they failed to allege properly the various parties' citizenship. In compliance with Judge Fitzwater's order to replead correctly the citizenship of the parties, Plaintiffs Clapper and Atlantic Midwest (but not Atlantic XIII) filed a Fourth Amended Complaint. Defendants moved to dismiss the Fourth Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction, maintaining that, because ART Midwest, not Atlantic Midwest, was the real party to the controversy, the court was required to look to the citizenship of ART Midwest when determining whether the parties were diverse citizens, and the Georgia citizenship of two members of ART Midwest-Atlantic XIII and ART-destroyed diversity (as ART was also a Defendant in the lawsuit). The court agreed and granted Defendants' motion to dismiss. Clapper v. American Realty Investors, Inc., 2018 WL 1083609, at *5 (N.D. Tex. Feb. 28, 2018) (Fitzwater, J.) (“Clapper V”) (“Because there are Georgia citizens on both sides of the controversy, the court cannot exercise diversity jurisdiction. Accordingly, the Entity Defendants' and Phillips' motion to dismiss are granted.”). Rather than dismiss the case for want of federal subject matter jurisdiction, however, the court stated:

Although plaintiffs can now pursue this litigation against defendants in state court, because this case has been pending in this court since August 19, 2014, the court will give plaintiffs 21 days from the date this memorandum opinion and order is filed to move for any available relief that would enable this court to exercise subject matter jurisdiction. This may include demonstrating sufficient grounds for this court to exercise supplemental jurisdiction under 28 U.S.C. § 1367(a), considering that the court had federal-question jurisdiction at the time the lawsuit was filed.

Id. at *6 (footnote omitted) (emphasis added).

         In response to Clapper V, Plaintiffs moved for leave to file their Fifth Amended Complaint pleading supplemental jurisdiction for the first time, or, in the alternative, to remove the Atlantic entities from the lawsuit. On June 6, 2018, Judge Fitzwater determined that, in his discretion, he would exercise supplemental jurisdiction over the remaining claims under 28 U.S.C. § 1367(a), and denied Plaintiffs' motion without prejudice after concluding a formal amendment of the pleadings was not necessary. See Clapper v. American Realty Investors, Inc., 2018 WL 2739014, at *1 (N.D. Tex. June 6, 2018) (Fitzwater, J.) (“Clapper VI”) (“Supplemental Jurisdiction Order”).

         On August 14, 2018, the court addressed multiple outstanding motions, including then-pending motions to dismiss the Fourth Amended Complaint and motions for summary judgment. Clapper v. American Realty Investors, Inc., 2018 WL 3868703 (N.D. Tex. Aug. 14, 2018) (Fitzwater, J.) (“Clapper VIII”). The court granted in part the pending motions, sua sponte raised whether ARI and EKQ are entitled to summary judgment on Plaintiffs' unjust enrichment claims, and set out a briefing schedule pertaining to the unjust enrichment claims. See Id. At *23-24. Following Clapper VIII, a dispute arose concerning Judge Fitzwater's reference to the Fourth Amended Complaint as the operative pleading and whether, as Plaintiffs argued, he intended Atlantic XIII to remain a plaintiff in this lawsuit, notwithstanding that Atlantic XIII was not a party to the Fourth Amended Complaint. On November 16, 2018, Judge Fitzwater agreed with Plaintiffs and directed them to file their Fifth Amended Complaint to reinclude Atlantic XIII as a party:

[B]ecause Atlantic XIII was dropped as a plaintiff before the court decided it would exercise supplemental jurisdiction, and it is the court's intention that all three plaintiffs named in the 3AC be allowed to participate as plaintiffs, the court concludes that it should permit the filing of a 5AC that includes Atlantic XIII as a plaintiff.

Clapper v. American Realty Investors, Inc., 2018 WL 6011182, at *3 (N.D. Tex. Nov. 16, 2018) (“Clapper IX”)

         On November 16, 2018, after presiding over this matter for over four years, Judge Fitzwater-who had taken senior status-recused himself, and the matter was reassigned to the Honorable Sam R. Cummings. On December 7, 2018, as permitted by Clapper IX, Plaintiffs filed their Fifth Amended Complaint. The next day, December 11, 2018, Judge Cummings recused himself and the matter was reassigned to the Honorable Karen G. Scholer, who recused herself on December 12, 2018, after which it was reassigned to this court.

         On January 11, 2019, in addition to filing a joint motion to strike, Defendants separately filed motions to dismiss the Fifth Amended Complaint. On January 16, 2019, given the complex nature of the case and court's busy docket, the court vacated the March 2019 trial setting and advised the parties that it would reset the trial, pretrial conference, and pretrial material deadlines by separate order once it addressed all pending motions. On January 23, 2019, the court denied Defendants' Motion for Leave to File Defendants' Emergency Motion to Amend Scheduling Order and to Extend Expert Discovery and Motion for Continuance (filed before Judge Cummings), in which Defendants sought to extend the expert witness designation deadline by at least 90 days, to extend discovery on the alter ego claims for at least 120 days, and to extend the summary judgment deadline by 120 days. See Mem. Op. & Order (Doc. 797). Plaintiffs have since filed a motion for leave to file a motion for sanctions against Defendants, contending they are seeking in bad faith to relitigate matters already decided, and a motion for leave to file a motion to strike one of Defendants' experts or alternative motion in limine. Both motions for leave are pending.

         On August 16, 2019, Defendant Phillips passed away. On August 28, 2019, Plaintiffs filed a Suggestion of Death Upon the Record (Doc. 848). On September 10, 2019, Plaintiffs filed a Motion for Leave to File Motion for Substitution of Party Pursuant to Fed.R.Civ.P. 25(a)(1) (Doc. 849). This motion is pending.

         It is against this backdrop, after the matter has been pending in this court for over five years, that on October 11, 2019, with leave of court, Defendants filed their Motion to Dismiss Supplemental Claims for Lack of Jurisdiction Under 28 U.S.C. § 1367, urging the court to reverse Clapper VI, decline to exercise supplemental jurisdiction over the remaining state law claims, and dismiss this lawsuit. The motion has been fully briefed and is ripe for disposition.

         II. The Parties' Contentions

         Defendants contend that the court should reexamine and reverse Judge Fitzwater's decision in Clapper VI to exercise supplemental jurisdiction and, almost fifteen months later, decline to exercise supplemental jurisdiction and dismiss the remaining state law claims. In support, Defendants assert that the “reassignment of this case to a new judge . . . is a monumental event that entirely changes the analysis and conclusion concerning the Court's retention of jurisdiction over the state law claims in this litigation.” Defs.' Mot. 2 (Doc. 852). According to Defendants, judicial economy is no longer served by exercising supplemental jurisdiction since, “[u]nlike ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.