United States District Court, N.D. California, San Jose Division
ORDER GRANTING MOTION TO DISMISS; DISMISSING ACTION WITHOUT PREJUDICE [Re: ECF 7]
BETH LABSON FREEMAN, District Judge.
Plaintiff Kerry Mainini ("Plaintiff") in this action seeks a declaration of the validity and enforceability of a limited liability company operating agreement. See Compl., ECF 1. Before the Court is the Motion to Dismiss by defendant Dona Lisa Johnson ("Defendant"). Def.'s Mot., ECF 7. For the reasons stated herein, Defendant's motion is GRANTED.
Plaintiff, a domiciliary of the state of California, alleges that he and Defendant, an Arizona resident, are co-owners of Pamela Drive Apartments, LLC ("Pamela LLC"), a limited liability company whose sole asset is an apartment building located at 225 Pamela Drive in Mountain View, California. Compl. ¶¶ 1-2, 7. Plaintiff contends that he is the majority member of Pamela LLC with a 51% membership interest, and that Defendant owns a minority interest of 45.84%. Id. ¶¶ 1-2, 14-15. Plaintiff alleges that Defendant now claims that she owns a 50% interest in Pamela LLC and that the Pamela LLC Operating Agreement is invalid and unenforceable. Id. ¶¶ 16-17. Plaintiff accordingly seeks a declaration that the agreement is valid and enforceable, and that Defendant's share of the LLC is limited to 45.84%. Id. ¶ 18. The parties requested and attended a settlement conference with a magistrate judge in January 2015 but were unable to settle their differences. See ECF 20, 22, 23.
Complicating matters, after Plaintiff filed the instant action in July 2014, Defendant and third party Daniel Mainini sued Plaintiff in Santa Clara County Superior Court. Def.'s Request for Judicial Notice ("RJN") Exh. A, ECF 7-1. In a complaint filed October 9, 2014, Defendant and Mr. Mainini sought, among other things, to dissolve three limited liability companies-Fruitdale Gardens, Tiera II, and Pamela-in which the three parties have a varying degree of interest. The plaintiffs in state court also sought to hold Plaintiff liable for breach of fiduciary duty, sought an accounting on all of the companies and properties at issue between the three individuals, as well as a declaration of rights under the Pamela LLC and Tiera II LLC operating agreements. Id. On February 19, 2015, the judge in the state court action granted Plaintiff's motion to compel arbitration on a number of claims concerning Fruitdale Gardens and Tiera II. The court declined, however, to stay the claims concerning Pamela LLC, observing that "there is no federal law issue in the federal case" and that "the federal case is a subset of the dispute framed in this case about the Pamela Agreement." See Pl.'s Statement of Recent Decision Exh. A, ECF 24. The state court action is still pending as of this writing.
Defendant presently seeks to dismiss this action on the ground that Plaintiff failed to join Daniel Mainini as an indispensable party to the dispute here. Def.'s Mot. 8-10. In the alternative, Defendant asks this Court to decline declaratory judgment jurisdiction pursuant to the jurisprudential principles enumerated by the United States Supreme Court in Brillhart v. Excess Insurance Company of America, 316 U.S. 491 (1942) and reaffirmed in Wilton v. Seven Falls Co., 515 U.S. 277 (1995). Id. at 13-15. The Court addresses each argument in turn.
II. FAILURE TO JOIN INDISPENSABLE PARTY
Defendant contends that this action should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(7) due to Plaintiff's failure to join Daniel Mainini as an indispensable party to the dispute concerning the Pamela LLC operating agreement. Def.'s Mot. 8-10. Plaintiff contends that Mr. Mainini is not an indispensable party to the sole claim for declaratory relief in this action. Pl.'s Opp. 6-7, ECF 8. The Court agrees with Plaintiff.
When a defendant moves to dismiss under Federal Rule of Civil Procedure 12(b)(7) for failure to join an indispensable party under Rule 19, the court engages in a three-step inquiry. Salt River Project Agr. Imp. and Power Dist. v. Lee, 672 F.3d 1176, 1178-79 (9th Cir. 2012). First, the court must determine whether the absent party is necessary-that is, required to be joined-under Rule 19(a). Id. at 1179. A party may be necessary under Rule 19(a) if: (1) the court cannot accord complete relief among existing parties; (2) the absent party has an interest in the action and resolving the action in his absence may as a practical matter impair or impede his ability to protect that interest; or (3) the absent party has an interest in the action and resolving the action in his absence may leave an existing party subject to inconsistent obligations because of that interest. Id. Second, if an absent party is necessary, the court must determine whether it is feasible to order joinder of the absent party. Id. Third, if joinder is not feasible, the court must determine whether the case can proceed without the absent party or whether the absent party is indispensable such that dismissal is required. Id.
It is clear that if Mr. Mainini is deemed to be a necessary party under Rule 19, his joinder in this action would not be feasible-as both he and Plaintiff are residents of California, joining Mr. Mainini would defeat this Court's subject matter jurisdiction over the action, which is solely premised upon 28 U.S.C. § 1332. Def.'s Mot. 9-10; see Compl. ¶ 3. However, the Court is unpersuaded that Mr. Mainini is an indispensable party. Despite arguing that "complete relief in the Federal Court Action is not possible, absent the inclusion of [Mr.] Mainini, " Defendant makes no showing on this front other than to argue that "Plaintiff's allegations grossly oversimplify the issues between the Parties, which go far beyond the validity and/or enforceability of the purported Pamela Drive Operating Agreement." Id. at 8. While this dispute does indeed appear to be part of a larger dispute between Plaintiff, Mr. Mainini, and Defendant, there is no showing that Mr. Mainini has any interest-direct or indirect-in the Pamela LLC. That Mr. Mainini has no actual interest in Pamela LLC appears, in fact, to be undisputed. See Pl.'s Opp. 6. Nor is there any evidence to suggest that Mr. Mainini's interest in the other limited liability companies at issue in the state court action would be impaired by a declaration of rights under the Pamela LLC, or that any party here would be subject to inconsistent obligations if Mr. Mainini is not joined. As such, Defendant has failed to demonstrate that Mr. Mainini is a necessary party to this action.
The Court accordingly rejects Defendant's argument that the Complaint should be dismissed pursuant to Rule 12(b)(7) for failure to join Daniel Mainini as an indispensable party.
III. DECLARATORY JUDGMENT JURISDICTION
In the alternative to her Rule 12(b)(7) argument, Plaintiff requests that the Court decline to hear this declaratory judgment action. Def.'s Mot. 13-15.
"In a case of actual controversy within its jurisdiction... any court of the United States... may declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C. § 2201(a) (emphasis added). As a preliminary matter, the Act requires that there be an actual case or controversy over which the district court has subject matter jurisdiction. Id .; Gov't Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1223 (9th Cir. 1998). Both of these requirements are met, as this Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332, and there is clearly a dispute between Plaintiff and Defendant concerning the validity, enforceability, and terms of the Pamela LLC operating agreement, particularly as Defendant has filed her own lawsuit concerning this dispute in state court. Even so, the language of the Declaratory Judgment Act is "deliberately cast in terms of permissive, rather than mandatory, authority, " Public Serv. Comm'n of Utah v. Wycoff Co., 344 U.S. 237, 250 (1952) (J. Reed, concurring), and a district court is vested ...