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Schafer v. Crosby

United States District Court, N.D. Alabama, Southern Division

November 5, 2018

CHARLES J. SCHAFER, individually and as a member of 314 Charleston Blvd., LLC, Plaintiff,



         This 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.

         I. BACKGROUND

         The 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).[1] 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).

         Schafer subsequently filed the Amended Complaint. (Doc. 26).[2] 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).

         The 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.).

         Ibs 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.).

         On 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.).

         On 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 5-8).


         "Federal 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).

         To 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 omitted).


         As 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 ...

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