Laios v. Mtm Builder/Developer, Inc.

MEMORANDUM OPINION

GEORGE J. HAZEL United States District Judge.

Plaintiff Edward T. Laios, personally and on behalf of Plaintiff Beachside Associates, LLC brought this civil action against Defendants MTM Builder/Developer, Inc., Morehouse Real Estate Investments, LLC (“MREI”), and Dean Morehouse, seeking an accounting and asserting claims for breach of contract, breach of fiduciary duty, and conversion. ECF No. 1. Pending before the Court is Defendants' Motion to Dismiss for Improper Venue. ECF No. 11. No. hearing is necessary. See Loc. R. 105.6 (D. Md. 2021). For the following reasons, the Court dismisses the instant action sua sponte for lack of subject matter jurisdiction and, to the extent Plaintiffs' derivative claims can be severed, grants Defendant's Motion to Dismiss.

I. BACKGROUND

Plaintiff Beachside is a limited liability company formed under the laws of the U.S. Virgin Islands with a principal place of business in the U.S. Virgin Islands. ECF No. 1 ¶ 8. Beachside was created for the purpose of acquiring, maintaining, selling, and/or leasing a certain resort located in the U.S. Virgin Islands. Id. Plaintiff Beachside's original members were Plaintiff Laios, Defendant Morehouse, and Defendant MTM. Id. ¶¶ 9, 10, 16, 26; ECF No. 11-2

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at 33.^[1] Since Beachside's creation, Plaintiff Laios, who is a resident of the U.S. Virgin Islands, has held a 49.5% interest in Beachside. ECF No. 1 ¶¶ 3, 9, 26; ECF No. 11-2 at 33, 37. Defendant Morehouse, who is a resident of Florida, originally held a 49.5% interest in Beachside as well, but assigned that interest to Defendant MREI in 2009. ECF No. 1 ¶¶ 2, 10, 16, 26-28; ECF No. 11-2 at 33, 34-37. Defendant MREI is a limited liability company organized under the laws of Wyoming with a principal place of business in Florida. ECF No. 1 ¶ 14. Defendant MREI's members are Defendant Morehouse and a living trust created for Defendant Morehouse and his wife. Id. ¶¶ 14-15, 27; ECF No. 13 at 2. Both members of MREI are citizens of Wyoming or Florida. ECF No. 13 at 2. Finally, since Beachside's creation, Defendant MTM-a corporation organized in Virginia with a principal place of business in Florida-has held a 1% interest in Beachside. ECF No. 1 ¶ 2, 11, 26; ECF No. 11-2 at 33, 37. Defendant MTM is wholly owned and controlled by Defendant Morehouse. ECF No. 1 ¶ 12. Thus, Beachside's current membership is Plaintiff Laios (49.5%), Defendant MREI (49.5%), and Defendant MTM (1%). ECF No. 1 ¶¶ 2-3.

Defendant Morehouse is a real estate purchaser, builder, and developer who regularly: (1) engages in projects involving single-purpose business entities in which he owns significant direct or indirect interests; and (2) designates MTM, a management company owned and controlled by him, as manager of such entities and projects. Id. ¶ 24. In April 2003, Defendant Morehouse, Defendant MTM, and Plaintiff Laios executed an Operating Agreement for Beachside. Id. ¶ 25; ECF No. 11-2. Section 1.01.o of that agreement designated Defendant MTM as Beachside's manager, and thus MTM was charged under Section 5.01 of the Operating Agreement with “direct[ing], manag[ing], and control[ling] the business of [Beachside] to the best of [its]

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ability.” ECF No. 1 ¶¶ 13, 29; ECF No. 11-2 at 3, 6. MTM can only be removed as manager by an affirmative vote of members holding 75% of Beachside's membership interest, which effectively renders it unremovable since MTM and Defendant Morehouse/MREI have always owned an aggregate 50.50% interest in Beachside. ECF No. 1 ¶¶ 30-31; ECF No. 11-2 at 9.

To gain more information about how Defendants are managing Beachside, Plaintiff Laios sought to inspect and copy Beachside's documents, which he argues he is entitled to do under Section 6.05 of the Operating Agreement. ECF No. 1 ¶¶ 32-33; ECF No. 11-2 at 11 (“Upon reasonable request and prior notice, each Member and Economic Interest Owner shall have the right, during ordinary business hours, to inspect and copy those Company documents at the requesting Member's and Economic Interest Owner's expense.”). However, despite Plaintiff Laios's efforts, Defendants have repeatedly and deliberately denied Plaintiff information concerning Beachside, its activities, and its financial dealings. ECF No. 1 ¶ 33. In fact, Defendant MTM has always run Beachside “with a high degree of secrecy and tight control[, ]” and, historically, has met Plaintiff's efforts to obtain information with delay, followed by incomplete productions of documents. Id. ¶ 34.

Plaintiff Laios's recent attempts to gain more information, and his underlying concerns regarding how MTM is managing Beachside, have been motivated by: (1) Defendant Morehouse's past malfeasance relating to another single-purpose entity that MTM was supposed to have operated on Defendant Morehouse's and Plaintiff Laios's behalf-malfeasance that was hidden by the same type of refusal to provide information that Plaintiff has been experiencing in the instant case; (2) Defendant Morehouse and companies owned by him becoming delinquent in the repayment of third-party loans totaling in the millions of dollars-loans that are secured by Defendant Morehouse's ownership interests in various companies, including Beachside; (3)

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Defendants' involvement with multiple other development/investment projects, including two U.S. Virgin Island-based residences and a project on land adjacent to that owned by Beachside; (4) the 2018 decision of Defendants Morehouse and MTM to distribute to themselves the vast majority of proceeds from a lucrative sale of Beachside realty; and (5) Defendants Morehouse and MTM's 2020 decision to apply the entire proceeds of a $500, 000 arbitration award to bills comprised primarily of MTM fees. Id. ¶ 36. Moreover, Plaintiff Laios's suspicions have increased based on a review of Beachside's general ledgers from December 2013 through January 2020. Id. ¶¶ 37-39. The general ledgers revealed that MTM caused Beachside to pay MTM a sum exceeding $1.4 million, consisting of approximately $485, 000 in payments labeled “payroll reimbursements” and almost $945, 000 in development fees, bookkeeping fees, and management fees. Id. ¶ 37. Those payments represent approximately 51% of Beachside's total expenditures during that time period. Id. ¶ 38. However, despite these massive expenditures, “MTM has expended little apparent effort to maintain the parcel's value” and the land reveals a lack of visible upkeep. Id. ¶ 39.

In light of his existing concerns and the information he had discovered reviewing Beachside's general ledgers, Plaintiff Laios, through one of his agents, emailed and mailed MTM a July 24, 2020 letter demanding prompt access to, or production of, various itemized categories of records, invoices, and other documents underlying the various ledger entries. Id. ¶ 40. Defendants did not respond to the July 24, 2020 letter. Id. ¶ 41. Thus, on August 25, 2020, Plaintiff Laios's agent demanded that MTM either (1) provide the full document production, as requested in the July 24 letter, by August 28, 2020; or (2) commit in writing, by August 31, 2020, to cause Beachside to file a lawsuit on or before September 4, 2020 to compel the

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requested accounting. Id. Defendants failed to meet either of the demands in Plaintiff Laios's August 25 letter. Id.

Finding that any additional request would be futile, id. ¶ 23, Plaintiffs filed the instant action on November 17, 2020. ECF No. 1. Defendants responded by filing a Motion to Dismiss for Improper Venue on December 14, 2020. ECF No. 11. On December 28, 2020 Plaintiffs opposed Defendants' Motion, ECF No. 14, and Defendants replied on January 11, 2020, ECF No. 18.

II. STANDARD OF REVIEW

A. Sua Sponte Dismissal Pursuant to Fed.R.Civ.P. 12(h)(3)

Pursuant to Federal Rule of Civil Procedure 12(h)(3), “[i]f the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action.” Fed.R.Civ.P. 12(h)(3). “Indeed, the absence of jurisdiction may be raised at any time during the case, and may be based on the court's review of the evidence. . . . Determining the question of subject matter jurisdiction at the outset of the litigation is often the most efficient procedure.” Lovern v. Edwards, 190 F.3d 648, 654 (4th Cir. 1999) (internal citations omitted). If necessary, the court has an obligation to consider its subject-matter jurisdiction sua sponte. Brickwood Contractors, Inc. v. Datanet Eng'g, 369 F.3d 385, 390 (4th Cir. 2004) (“[Q]uestions of subject matter jurisdiction may be raised at any point during the proceedings and may (or, more precisely, must) be raised sua sponte by the court.”).

B. Motion to Dismiss Pursuant to Fed.R.Civ.P. 12(b)(3)

“A defendant may challenge the sufficiency of plaintiff's choice of venue by way of a motion under Rule 12(b)(3).” Stone v. Wells Fargo Bank, N.A., 361 F.Supp.3d 539, 549 (D. Md. 2019) (citing Bartholomew v. Va. Chiropractors Ass'n, 612 F.2d 812, 816 (4th Cir. 1979)).

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When such a challenge has been made, “the Plaintiff bears the burden of establishing proper venue.” In re ZTE (USA) Inc., 890 F.3d 1008, 1013 (Fed. Cir. 2018); Delta T, LLC, 2019 WL 3220287, at *2 (quoting Plant Genetics Sys., N.V. v. Ciba Seeds, 933 F.Supp. 519, 526 (M.D. N.C. 1996)). “To survive a motion to dismiss for improper venue when no evidentiary hearing is held, the plaintiff need only make a prima facie showing of venue.” Mitrano v. Hawes, 377 F.3d 402, 405 (4th Cir. 2004) (citing Delong Equip. Co. v. Washington Mills Abrasive Co., 840 F.2d 843, 845 (11th Cir. 1988)). “Unlike a Rule 12(b)(6) motion, evidence outside the pleadings may be ‘freely consider[ed]' in ruling on a Rule 12(b)(3) motion.” Am. Ins. Mktg. Corp. v. 5 Star...