MRH RNMA I Limited Partnership LLC v. Beck

          ORDER

          David G. Campbell, United States District Judge.

         This is a declaratory judgment action concerning the validity of an attempted assignment and transfer of certain limited partnership interests. Defendant has moved for dismissal based on the Court's inherent discretion in declaratory judgment cases, or alternatively based on the Colorado River abstention doctrine. Doc. 8. The motion is fully briefed (Docs. 12, 13), and the Court finds that oral argument is not necessary. For reasons stated below, the Court will grant the motion pursuant to the Court's discretion under the Declaratory Judgment Act, 28 U.S.C. § 2201.

         I. Background.

         Defendant Gregory Beck and Plaintiff MRH RNMA I Limited Partner, LLC contest whether Beck and the 25 other limited partners in Recorp New Mexico Associates Limited Partnership (“RNMA”) were successfully terminated as limited partners. RNMA is one of six entities that initially joined together to develop a master planned community known as Rio West on about 12, 000 acres in New Mexico. Doc. 1, ¶¶ 49-50. In 2007, with the help of Sandoval County, New Mexico, the Rio West developers drilled two exploratory groundwater wells on Rio West. Doc. 8-1 at 12. The subsequent financial demise of the Rio West developers and problems with the wells resulted in a complex, multi-party dispute in Arizona state court that has been ongoing for more than seven years.^[1] IMH Special Asset NT 168 v. Aperion Communities, LLLP, No. CV2010-010943/CV2010-010990 (consolidated).

         That state action was originally brought in 2010 by IMH Financial Corporation (“IMH”) against the former owner of Recorp Partners, Inc. (“RPI”). IMH is Plaintiff's parent corporation. Doc. 1, ¶ 3. RPI is the general partner of RNMA. Id. ¶ 8. After IMH obtained a multi-million-dollar judgment in the state case, the state court appointed receivers over the assets that IMH and the other creditors would acquire to satisfy their judgments. The state court continues to oversee the receiver's management of the assets and adjudicate related disputes (“State Receivership Action”).

         In the State Receivership Action, IMH obtained 100% of the ownership interests in RPI, a 12% interest in RNMA, and an interest in each of the other five Rio West developers. IMH formed a subsidiary, Stockholder LLC (“Stockholder”), to which it assigned its ownership of RPI. Doc. 1, ¶¶ 3-4. The state court appointed a receiver over Stockholder. Id. IMH formed a separate subsidiary, Plaintiff MRH RNMA I, to which it assigned the 12% RNMA interest. Doc. 12 at 2. Beck's limited partnership interest in RNMA amounts to 6.6%. Doc. 1, ¶ 41. The approximately 25 other limited partners, who are not parties to this case, collectively own the remaining RNMA interests.^[2] Id. ¶ 7.

         Plaintiff alleges that RPI, acting through Stockholder's receiver-appointed president, terminated the limited partnership interests of Beck and the other non-IMH-affiliated partners and transferred those interests to Plaintiff in April 2017. Doc. 1, ¶ 93.

         Plaintiff seeks a declaratory judgment that this termination and assignment was validly executed pursuant to RNMA's partnership agreement. Doc. 1, ¶ 112. Beck responds that RPI had no authority to terminate these interests because more than 75% of the limited partners voted to remove RPI as general partner before the attempted termination.^[3]Doc. 8 at 11. Beck made this same argument in a motion he filed in the State Receivership Action. Doc. 8-1 at 76-85, Motion for Order that RPI Take No Action as General Partner of RNMA, State Receivership Action (Jan. 23, 2017). Beck's motion to dismiss this case, however, is not based on the merits of his argument. Beck instead seeks discretionary dismissal in favor of allowing this dispute to be resolved in the ongoing State Receivership Action. Doc. 8.

         Attached to Beck's motion are various documents from the State Receivership Action, including Judge Mullins's minute entry dated February 22, 2017. Doc. 8-1 at 61-74 (“Minute Entry”). In the detailed Minute Entry, Judge Mullins denies a joint emergency motion filed by IMH and the receiver to authorize RNMA and another Rio West developer to accept a $1.4 million loan from an IMH subsidiary on what she describes as “unreasonable” terms. Id. The proposed loan was to be used to repair and remediate leaks in the Rio West wells that began in December 2015 and significantly worsened in December 2016. Id.; Doc. 1, ¶¶ 55-73. The terms of the proposed loan “virtually ensure[d] default, ” which would have resulted in IMH taking over all of RNMA's assets. Doc. 8-1 at 67.

         The Minute Entry acknowledged Beck's argument that RPI was no longer general partner as an additional reason to deny the motion, stating that “the role of the Receiver as General Partner is in dispute.” Doc. 8-1 at 70. But Judge Mullins declined to rule on Beck's motion because there was not yet a complete record on the factual issues it raised. Id. at 70-71 (“The Court is unwilling to disregard the concerns raised by . . . Beck.”).

         II. The Declaratory Judgment Act.

         The Supreme Court has “repeatedly characterized the Declaratory Judgment Act as ‘an enabling Act, which confers a discretion on the courts rather than an absolute right upon the litigant.'” Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995) (quoting Public Serv. Comm'n of Utah v. Wycoff Co., 344 U.S. 237, 241 (1952)). When deciding whether to hear claims under the Declaratory Judgment Act, district courts should (1) avoid “needless determination of state law issues, ” (2) discourage “forum shopping, ” and (3) avoid “duplicative litigation.” R.R. St. & Co. Inc. v. Transp. Ins. Co., 656 F.3d 966, 975 (9th Cir. 2011) (citing Gov't Emps. Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1998)); see also Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942). Applying the factors, the Court finds dismissal proper.

         A. Needless Determination of State Law Issues.

         This case does not involve a “compelling federal interest” given that it is based on diversity of citizenship and involves no federal question. Cont'l Cas. Co. v. Robsac Indus., 947 F.2d 1367, 1371 (9th Cir. 1991) (Where “the sole basis of jurisdiction is diversity of citizenship, the federal interest is at its nadir.”), overruled on other grounds by Dizol, 133 F.3d 1220. One could argue that this case presents an issue of particular concern to Arizona because it involves an Arizona receivership and an issue already ...