Silver Crown Invs., LLC v. Team Real Estate Mgmt., LLC

349 F.Supp.3d 1316

SILVER CROWN INVESTMENTS, LLC, a Florida Limited Liability Company, et al., Plaintiffs,

v.TEAM REAL ESTATE MANAGEMENT, LLC, a Florida Limited Liability Company, et al., Defendants.

Case Number: 16-21179-CIV-MARTINEZ-GOODMAN

United States District Court, S.D. Florida, Miami Division.

Signed September 29, 2018

Meghan Evans Rovner, Alexander Stephen Orlofsky, The Orlofsky Law Firm, P.L., Miami Beach, FL, for Plaintiffs.

Robert P. Frankel, Law Offices of Robert P. Frankel, P.A., Plantation, FL, George Albert Minski, Law Offices of George A. Minski, PA, Hollywood, FL, Brian Barakat, Barakat Law, P.A., Coral Gables, FL, for Defendants.

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS

JOSE E. MARTINEZ, UNITED STATES DISTRICT JUDGE

THIS CAUSE is before the Court upon Defendants' Motion to Dismiss Plaintiffs' Second Amended Complaint and Derivative Complaint for, inter alia , lack of subject matter jurisdiction [ECF No. 48], Plaintiffs' Response in opposition [ECF No. 49], and Defendants' corresponding Reply [ECF No. 50]. After careful consideration of the requisite filings and the record, the Court grants the motion.

I. FACTUAL BACKGROUND

This case arises out of a real estate project owned by Manor Glenn Investments, LLC ("Manor Glenn"). The Plaintiffs in this action are the thirteen limited liability companies ("LLC") which are all members of Manor Glenn. (ECF. No 40-1, ¶ 4). All of the members of Plaintiff LLCs, with the exception of one Texas resident, are foreign investors from Argentina. (Id. at ¶¶ 5-33). Defendants are: (1) Manor Glenn, (2) Team Real Estate Management, LLC; (3) Team Real Estate Development, LLC; (4) seven individual residents and citizens of Florida, who are alleged members of Team Real Estate Development, LLC (5) Atlanta R.E. Investment Group LLC; and (6) Team Real Estate Title Services, LLC, which are alleged to be joint ventures. The Defendants are all alleged to be Florida Limited Liability Companies. (Id. at ¶¶ 38-53).¹

According to the allegations in the Second Amended Complaint ("SAC"), the operative complaint in this action, in early 2014, Defendant Team Real Estate Management, LLC began soliciting foreign investors to fund a real estate project. (Id. at ¶ 56). The project entailed forming a manager-managed LLC called Manor Glenn, LLC, which would purchase some property in College Park, Georgia and convert it into condominiums. (Id. at ¶¶ 35, 59). Plaintiffs allege that Defendants contacted Plaintiffs to solicit investments, and in concert, represented to Plaintiffs that their investment in Manor Glenn would yield a guaranteed 12% return. (Id. at ¶ 58).

Plaintiffs further contend that Defendant Team Real Estate Management, LLC, by and through its members and managers, solicited a total of $3.2 million from Plaintiffs and others to capitalize Manor Glenn. Each Plaintiff purchased ownership interest in Manor Glenn at a value of $32,000.00 for each percent of the LLC (Id. at ¶ 63). On May 6, 2014, through the Member Interest Transfer Agreement, all ownership interest in Manor Glenn was transferred to Plaintiffs in proportion to their investments. (ECF No. 40-1). On the same day, the Amended and Restated Operating Agreement became effective. (ECF No. 40-2).

Plaintiffs allege that Defendant Team Real Estate Management consistently failed to provide an accounting of Manor Glenn, LLC. (Id. at ¶ 59). Prior to filling the lawsuit, individual Plaintiffs made requests to Defendants for status updates and accounting of funds, including the balance of the Team Real Estate Title Services, LLC's escrow account, which were ignored. (Id. at ¶ 66, ¶ 111). When Defendants gave Plaintiffs access to a financial spreadsheet, the records indicated checks and bills being paid to and by unrelated entities. (Id. at ¶ 67, 110).

Plaintiffs further allege that since the initial offering, Defendants lied to Plaintiffs. (Id. at ¶ 59). For example, Defendants represented that the purchase price of the property was $2,482,400.80, but it was in fact $1,725,000.00. (Id. at ¶ 60). Moreover, Plaintiffs claim that there was a willful diversion of corporate assets to the personal project of its manager as well as grossly negligent operation and supervision of Manor Glenn. (Id. at ¶ 64). Other examples of Defendants misconduct include: (1) committing waste by allowing the property to deteriorate significantly until Defendants' removal as managers in late 2015 (Id. at ¶ 65); (2) failing to start construction (Id. at ¶ 74); (3) failing to provide security for the property (Id. at ¶ 74); (4) failing to report in a timely manner the theft of air conditioning units that were stolen from the property on February 23, 2015 to authorities and insurance agency (Id. at ¶ 85); (5) refusing to provide an Examination Under Oath to Seneca Insurance concerning the theft of the air conditioning units (Id. at ¶ 87); (6) failing to provide regular status reports (Id. at ¶ 85); (7) failing to maintain adequate insurance coverage (Id. ); (8) paying the manager a management fee in contravention of the Operating Agreement (Id. at ¶ 80); (9) beginning the conversion of property to condominiums in contravention of the Operating Agreement (Id. ).

As a result of the alleged wrongdoings, Plaintiffs filed this fifteen-count action alleging breach of contract, fraud, breach of fiduciary duty in violation of Florida state law, and accounting, among other counts. Defendants filed the instant Motion arguing that this Court lacks subject matter jurisdiction and that Plaintiffs have failed to state a cause of action as to all Defendants. [ECF No. 48 at 2].

II. DISCUSSION

Defendants move to dismiss the SAC on three grounds: (1) lack of subject matter jurisdiction; (2) failure to state a cause of action; and (3) failure to plead with specificity.

When deciding Rule 12(b) motions to dismiss, a district court first addresses any jurisdictional challenges. See Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 575, 119 S.Ct. 1563, 143 L.Ed.2d 760 (1999) ; Llano Funding Grp., LLC v. Gallo, No. 9:14-CV-81562, 2015 WL 12791482 at *1-2 (S.D. Fla. 2015) (Rosenberg, J.). Therefore, this Court will address each of Defendants' grounds for dismissal in the same order.

A. Subject Matter Jurisdiction

"A party invoking federal court's diversity jurisdiction must allege ‘facts’ that show that federal subject matter jurisdiction exists." Golden v. Jericho All-Weather Opportunity Fund, LLP, No. 17-CV-23241, 2017 WL 3738704, at *1 (S.D. Fla. 2017) (Scola, J.) (citing Travaglio v. Am. Express Co., 735 F.3d 1266, 1268 (11th Cir. 2013) ). Then, an opposing party can challenge subject matter jurisdiction either facially or factually through a 12(b)(1) motion. See Fed. R. Civ. P. 12(b)(1) ; Int'l Oil Trading Co., LTD, v. Al-Saleh, No. 11-CV-22645, 2012 WL 13012775, at *1 (S.D. Fla. Mar. 3, 2012) (Martinez, J.). In resolving a facial challenge to subject matter jurisdiction, a court takes the allegations in the complaint as true and looks to see if the plaintiff has alleged a basis for jurisdiction.

McElmurray v. Consol. Gov't of Augusta-Richmond County, 501 F.3d 1244, 1251 (11th Cir. 2007) ; Al-Saleh, 2012 WL 13012775, at *1. On the other hand, in a factual challenge contesting the existence of subject matter jurisdiction in fact, "matters outside the pleading, such as testimony and affidavits are considered." McElmurray, 501 F.3d at 1251. If there is a factual challenge, then the burden is on the party invoking federal jurisdiction to prove that jurisdiction exists. Al-Saleh, 2012 WL 13012775, at *1.

A federal court has subject matter jurisdiction over civil actions between "citizens of different States and in which citizens or subjects of a foreign state are additional parties." 28 U.S.C. § 1332(a)(3). "Citizenship is equivalent to domicile for purposes of diversity jurisdiction." Travaglio v. Am. Express Co., 735 F.3d 1266, 1269 (11th Cir. 2013) (internal quotations omitted). Domicile, in turn, entails residence and an intention to remain there indefinitely. Id.

For purposes of determining diversity jurisdiction, the citizenship of a limited liability corporation (LLC) is the citizenship of each of its members. Rolling Greens MPH, L.P, v. Comcast SCH Holdings, LLC, 374 F.3d 1020, 1022 (11th Cir. 2004) (per curiam); Golden, 2017 WL 3738704, at *1. If a member of an LLC is itself an LLC, the citizenship of the LLC "must be traced through however many layers of partners or members there may be." Orchid Quay, LLC, v. Suncor Bristol Bay, LLC, 178 F.Supp.3d 1300, 1304 (S.D. Fla. 2016) (Marra, J.) (quoting Zambelli Fireworks Mfr. Co., Inc. v. Wood , 592 F.3d 412, 420 (3d Cir. 2010) ).

Here, Defendants contest subject matter jurisdiction arguing that Manor Glenn, which is listed in the complaint as a nominal defendant, should be realigned as a plaintiff. (ECF No. 48, p. 9). Further, Defendants contends that once Manor Glenn is realigned as a plaintiff, complete diversity is destroyed because at the end of Manor Glenn's management chain is Candelaria Barrera—a Florida resident. (Id. at p. 7, 10, Ex. A-C). Defendants offer as evidence screengrabs of public records maintained by the Florida Department of State, Division of Corporations showing the chain of management. (Id. ).

Even if Manor Glenn is realigned as a plaintiff in this action, Defendants' argument does not adequately challenge jurisdiction and fails. For purposes of diversity jurisdiction, it is the citizenship of an LLC's members —not its managers—that is relevant. See, e.g., Rolling Greens, 374 F.3d at 1022. In the SAC, Plaintiffs listed the four LLCs that are members of Manor Glenn. (ECF No. 40, ¶ 4). Then, Plaintiffs listed the citizenship and residence of each of the members of the LLCs (Id. at ¶¶ 5-19). All of the members are citizens of Argentina or Texas. (Id. ) Accordingly, every Plaintiff is diverse from every Defendant and thus, § 1332(a)(3) is satisfied.

B. Failure to State a Claim

Under Rule 8(a)(2) of the Federal Rules...