United States District Court, N.D. Alabama, Southern Division
CHARLES J. SCHAFER, individually and as a member of 314 Charleston Blvd., LLC, Plaintiff,
DENNIS CROSBY, Defendant.
MEMORANDUM OPINION AND ORDER
G. CORNELIUS U.S. MAGISTRATE JUDGE
matter concerns a dispute between two members of a limited
liability company, 314 Charleston Blvd, LLC (the
"LLC"). The Amended Complaint invokes federal
diversity jurisdiction exclusively. (Doc. 26 at 2). The
parties have consented to magistrate judge jurisdiction
pursuant to 28 U.S.C. § 636(c). (Doc. 16). Presently
pending is the motion filed by the defendant, Dennis Crosby,
to dismiss the Amended Complaint. (Doc. 28). The motion is
fully briefed and is ripe for adjudication. (Docs. 32, 33).
As explained below, the motion is due to be granted in part
and denied in part.
plaintiff, Charles Schafer, initiated this matter by filing a
complaint in this court on October 5, 2016. (Doc. 1). In
response to the initial complaint, Crosby filed a motion to
dismiss or, alternatively, for a more definite statement.
(Doc. 7). The court granted the motion to the extent it
sought a more definite statement to clarify the basis for
federal subject matter jurisdiction. (Doc. 25). In particular,
the order noted it was unclear whether the plaintiff was
asserting derivative claims on behalf of the LLC. The order
further noted the assertion of derivative claims would
require joinder of the LLC, necessarily destroying complete
diversity of citizenship. (Id. at 2-3).
subsequently filed the Amended Complaint. (Doc.
While the Amended Complaint adds details regarding the
LLC's formation, purpose, and activities, it also
includes some of the same ambiguous language making it
unclear whether it asserts claims that are derivative in
nature. (Id.). Crosby responded with a motion to
dismiss, including the same arguments presented in the motion
to dismiss the original complaint and presenting the
additional ground that complete diversity is lacking because
Schafer's claims are derivative in nature. (Doc. 28).
Schafer's response to the motion to dismiss includes a
request to strike portions of the Amended Complaint which
could be construed as asserting derivative claims. (Doc. 32
at 2). Crosby replied. (Doc. 33).
Amended Complaint alleges the LLC was formed under South
Carolina law on April 3, 2005. (Doc. 26 at 2). Originally,
the LLC had three members: the two parties to this matter,
each holding a 16.65% interest; and Bruce Ibs, who held the
remaining interest. (Id.). The LLC was created to
purchase an investment property located in Charleston, South
Carolina. (Id.). Shafer and Crosby each invested
$170, 000 to obtain a $1, 003, 000 mortgage from Bank of
America to purchase the property. (Id. at 3). Plans
to destroy and replace the existing structure did not come to
fruition, and it was used as a rental property; Ibs performed
work to improve the property, increasing its value.
(Id. at 2-3). With the increased value of the
property, Schafer and Crosby obtained and personally
guaranteed a $900, 000 equity line from Bank of America.
(Id. at 3). Crosby and Schafer used the equity line
to repay themselves for their original down-payments and
deposited the remaining equity line funds into the LLC's
checking account with Bank of America. (Id.).
passed away in September 2006, and Bank of America
subsequently foreclosed on the property. (Doc. 26 at 2-3).
Crosby and Shafer had claims against Ibs's estate, which
they settled in exchange for $50, 000 and the extinguishment
of Ibs's interest in the LLC. (Id. at 3).
Following the settlement, Crosby and Schafer were the sole
members of the LLC, each holding a 50% interest.
(Id.). The $50, 000 settlement with Ibs's estate
was paid to Crosby. (Id.). At some point, Crosby
closed the LLC's checking account with Bank of America
and transferred the remaining equity line funds to an account
with Wachovia. (Id.).
September 19, 2011, Bank of America sued Schafer and Crosby
in Jefferson County Circuit Court on the equity line. (Doc.
26 at 3). Shafer was dismissed from the lawsuit and Crosby
eventually settled with Bank of America for an unknown amount
of unknown origin. (Id. at 3-4). Meanwhile, Schafer
repeatedly deposited rental proceeds from the property into
the LLC's Wachovia checking account. (Id. at 4).
Shafer also made loans to the LLC which have not been repaid.
(Id. at 5). After Wells Fargo assumed control over
Wachovia, it informed Schafer he was no longer allowed to
access the LLC's accounts. (Id. at 4). At that
time, the balance of the LLC's account was at least $217,
168.17. (Id.). Additionally, Crosby deposited the
$50, 000 settlement proceeds from the estate of Ibs into a
separate account. (Id.).
April 28, 2014, and again on April 7, 2016, Schafer made a
demand on Crosby for an accounting of the LLC's funds and
expenditures. (Doc. 26 at 4). Crosby did not respond to
either demand. (Id. at 5). Crosby also denied
Schafer access to the LLC's books and has failed to
account for the LLC's financial transactions.
(Id.). The Amended Complaint claims Schafer is
entitled to half of the LLC's funds and also generally
alleges Crosby: (1) has misappropriated funds in the
LLC's bank accounts; (2) is withdrawing those funds for
his personal use; and (3) failed to honor a compensation
agreement with Shafer. (Id. at 5-7). On these facts,
the Amended Complaint asserts claims for an accounting,
breach of fiduciary duty, and conversion. (Id. at
STANDARD OF REVIEW
Rule of Civil Procedure 8(a)(2) requires only 'a short
and plain statement of the claim showing that the pleader is
entitled to relief,' in order to 'give the defendant
fair notice of what the … claim is and the grounds
upon which it rests.'" Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v.
Gibson, 355 U.S. 41, 47 (1957)). Rule 8 "does not
require 'detailed factual allegations,' but it
demands more than an unadorned, the
defendant-unlawfully-harmed-me accusation." Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Twombly, 550 U.S. at 555). "A pleading that
offers 'labels and conclusions' or 'a formulaic
recitation of the elements of a cause of action will not
do.'" Id. at 678 (quoting Twombly,
550 U.S. at 555, 557) (internal quotation marks omitted).
survive a motion to dismiss for failure to state a claim on
which relief may be granted brought pursuant to Rule
12(b)(6), "a complaint must contain sufficient factual
matter, accepted as true, to 'state a claim to relief
that is plausible on its face.'" Id.
(quoting Twombly, 550 U.S. at 570). "A claim
has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged." Id. (citing Twombly, 550
U.S. at 556). "The plausibility standard is not akin to
a 'probability requirement,' but it asks for more
than a sheer possibility that a defendant has acted
unlawfully." Id. "Where a complaint pleads
facts that are merely consistent with a defendant's
liability, it stops short of the line between possibility and
plausibility of entitlement to relief." Id.
(quoting Twombly, 550 U.S. at 557) (quotation marks
explained below, the undersigned concludes: (1) this court
has jurisdiction over the claims presented in the Amended
Complaint; (2) the claim for conversion-governed by Alabama
law-is due to be dismissed; and (3) the motion to dismiss is
due to be ...