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DT Grat JMT, LLC v. Keeney

United States District Court, E.D. Kentucky, Northern Division, Covington

November 9, 2017

DT GRAT JMT, LLC, et al. PLAINTIFFS
v.
KURTIS KEENEY, et al. DEFENDANTS

          MEMORANDUM OPINION & ORDER

          David L. Bunning, United States District Judge

         Defendants Kurtis Keeney, Dennis Williams, Nathan Smith, Management-SSK, LLC (“Management-SSK”), Augusta Home Sales, LLC (“Augusta Home Sales”), Declaration Homes, LLC (“Declaration Homes”), and MHC Management, LLC (“MHC Management”) (collectively “Defendants”) seek dismissal of Plaintiffs' lawsuit. (Doc. # 38). Specifically, Defendants claim that dismissal is appropriate for five separate reasons: (1) the Court lacks subject matter jurisdiction; (2) the Plaintiffs have failed to join the real parties in interest; (3) Counts Two, Three, and Four are barred by the statute of limitations; (4) the Plaintiffs have failed to state a claim upon which relief can be granted; and (5) the lawsuit, in reality, is a lawsuit to dissolve the various business entities. Id. The Court having heard oral argument on November 3, 2017, and Plaintiffs' having subsequently filed a Motion for Leave to File Supplemental Authority (Doc. # 69) to which the Defendants have responded (Doc. # 70), the Motion to Dismiss is fully briefed (Docs. # 44, 59, 69), and is ripe for the Court's review. For the reasons that follow, Defendants' Motion to Dismiss (Doc. # 38) is granted and Plaintiffs' claims are dismissed.

         1. FACTUAL AND PROCEDURAL BACKGROUND

         In essence, this action concerns Defendants' alleged fraudulent conduct, self-dealing, and mismanagement of thirteen limited-liability companies that are collectively referred to as the “Park Companies.” Beginning in 2011, Plaintiffs DT GRAT JMT, LLC (“DT GRAT”), SG LV, LLC (“SG LV”), Temecula Holdings, LLC (“Temecula”), and SG LV 2, LLC (“SG LV 2”) initiated a business relationship with Defendant Keeney, in which DT GRAT, SG LV, Temecula, SG LV 2, Keeney, and his associates organized thirteen limited-liability companies to purchase mobile-home parks. (Doc. # 1 at ¶ 9). Together, the thirteen limited-liability companies are collectively referred to as the “Park Companies.” Id. at ¶ 17. The individual limited-liability companies that form the Park Companies are as follows: (1) 10427 Hickory, LLC (“Hickory”); (2) Valley Station 1, LLC (“Valley Station”); (3) V-Station, LLC (“V-Station”); (4) Paducah MHC, LLC (“Paducah”); (5) Carrollton MHC, LLC (“Carrollton”); (6) Alexandria MHC, LLC (“Alexandria”); (7) Campbell 27, LLC (“Campbell”); (8) Owensboro MHC, LLC (“Owensboro”); (9) Walton MHC, LLC (“Walton”); (10) Cincy MHP, LLC (“Cincy MHP”); (11) Vanderburgh MHC, LLC (“Vanderburgh”); (12) MH Acceptance, LLC (“MH Acceptance”); and (13) Evansville MHC, LLC (“Evansville”). Id. Notably, these thirteen limited-liability companies are not named parties in this action.

         Keeney serves as the managing-member of the thirteen limited-liability companies that form the Park Companies pursuant to each limited-liability company's operating agreement. Id. at ¶ 10. Plaintiffs are also members of those limited-liability companies.[1] (Doc. # 15 at ¶ 16-17). The parties' membership in these limited-liability companies gave rise to this lawsuit-namely, Defendants' alleged fraudulent conduct, self-dealing, and mismanagement of the limited-liability companies that form the Park Companies.

         In addition to the Park Companies, Keeney also separately manages four other limited-liability companies, referred to by Plaintiffs as the “Keeney Business Entities.” Id. at ¶ 19. The Keeney Business Entities are: (1) Management-SSK, (2) Augusta Home Sales, (3) Declaration Homes, and (4) MHC Management, all of which are named Defendants in this action. Id. Keeney provides management services to the Park Companies through Management-SSK. Id. at ¶ 18. Plaintiffs do not have a membership interest in the Keeney Business Entities. Id. However, both Defendants Williams and Smith have membership interests in the Keeney Business Entities. Id.

         The operating agreements for ten of the thirteen limited-liability companies that form the Park Companies state that “prior to the end of the year, the Manager shall provide to the Members a proposed annual budget for the next calendar year.”[2] (Doc. # 1 at ¶ 31). The operating agreements further provide that “[t]he budget must be approved in writing by the Members.” Id. However, the Complaint alleges that annual budgets have “not been consistently provided to Plaintiffs, or approved by the members, yet Keeney continues to disburse funds without the written consent required by the operating agreements.” Id. at ¶ 32.

         The operating agreements further permit the limited-liability companies to “enter into a contract, action, or transaction … between the Company and any other Person in which one or more of its Members, or Manager … have a financial or personal interest, only if approved by Members holding a Majority Interest.” Id. at ¶ 33. The Complaint alleges that financial documents show Keeney “made transfers to the Keeney Business Entities” from ten of the limited-liability companies that form the Park Companies without seeking consent from Plaintiffs prior to making the transfers, as required by the operating agreements. Id. at ¶ 35-36. Furthermore, despite Plaintiffs' requests, Keeney has allegedly failed to provide an accounting detailing the transactions. Id.

         In 2016, Plaintiffs sought to end their business relationship with Keeney, Smith, and Williams and relied upon Keeney and Management-SSK to sell the mobile-home parks owned by the Park Companies. (Doc. # 15 at ¶ 40). Keeney provided potential purchasers financial documents relating to the Park Companies and Plaintiffs became aware of Keeney's alleged financial mismanagement. Id. at ¶ 41. Plaintiffs allege that they uncovered transactions between the Park Companies and the Keeney Business Entities that occurred without the consent of DT GRAT or SG LV 2. Id. Upon discovering the transactions, Plaintiffs employed Stephen Mann, an independent, third-party Certified Public Accountant, to review the financial information provided to them by Keeney. Id. at ¶ 43. Mann concluded that the amounts misappropriated by Keeney to the Keeney Business Entities total $11, 720, 821.11.[3] Id. The Amended Complaint further alleges that Defendants Smith, Williams, and the Keeney Business Entities “knowingly participated and gave Keeney substantial assistance or encouragement in effectuating the transfer of funds from the Park Companies to the Keeney Business Entities.” Id. at ¶ 48.

         Because of the Defendants' alleged misdeeds, Plaintiffs have brought claims alleging breach of contract, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and fraud.[4] (Doc. # 15 at 26-27).

         II. ANALYSIS

         A. Standard of Review

         To survive a Rule 12(b)(6) motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The standard is met when the facts in the complaint allow “the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. The complaint need not contain “detailed factual allegations, ” but must contain more than mere “labels and conclusions” or “a formulaic recitation of the elements of a cause of action.” Id. Instead, the “[f]actual allegations must be enough to raise a right to relief above the speculation level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

         B. The Court lacks subject ...


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