United States District Court, D. Arizona
MRH RNMA I Limited Partnership LLC, a Delaware limited liability company, Plaintiff,
Gregory M. Beck, a California resident, Defendant.
G. Campbell, United States District Judge.
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.
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. IMH Special Asset NT 168
v. Aperion Communities, LLLP, No.
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”).
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. Id.
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.
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.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.
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.
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.”).
The Declaratory Judgment Act.
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.
Needless Determination of State Law Issues.
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 ...