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Harbour v. Sirico

United States District Court, M.D. Louisiana

May 31, 2019

MICHAEL HARBOUR, ET AL.
v.
LOUIS ANTHONY SIRICO, ET AL.

          RULING ON MOTION TO INTERVENE

          ERIN WILDER-DOOMES, UNITED STATES MAGISTRATE JUDGE

         Before the Court is a Motion to Intervene Pursuant to Rule 24 (the “Motion to Intervene”)[1]filed by LL Hotels, LLC (“LL Hotels”). Plaintiffs, Michael Harbour (“Harbour”) and Tasman Holdings, LLC (“Tasman”) (collectively, “Plaintiffs”), have filed an opposition, [2] and LL Hotels has filed a Reply.[3] For the reasons set forth herein, the Motion to Intervene[4] is granted[5] and the Clerk is directed to file the Verified Complaint-in-Intervention[6] along with the exhibits attached thereto[7] into the record.

         I. Background

         On October 25, 2018, Plaintiffs filed a Suit on Continuing Unconditional Guaranties (the “Petition”) in state court against Louis Anthony Sirico (“Sirico”) and Lisa Grace Loud (“Loud”) (collectively, “Defendants”) to recover certain amounts allegedly due pursuant to guarantees executed by Defendants related to two primary loans in favor of LL Hotels for the purpose of renovating a Baton Rouge hotel.

         Plaintiffs allege that Harbour is the holder and owner in due course of a promissory note executed by LL Hotels in the principal amount of $1, 589, 537, 85 (the “Harbour Note”)[8] and that Tasman is the holder and owner in due course of a promissory note executed by LL Hotels in the principal amount of $1, 050, 000.00 (the “Tasman Note”).[9] Plaintiffs allege that in connection with both Notes, Defendants executed “Continuing Unconditional Guarantee” agreements (the “Guarantees”) by which “Sirico and Loud absolutely and unconditionally guaranteed, on a solidary or joint and several basis with [LL Hotels], the full and punctual payment and satisfaction of the indebtedness” owed by LL Hotels to either Harbour or Tasman.[10] Plaintiffs further allege that the Harbour Note was secured by a Multiple Indebtedness Mortgage, and that following seizure and sale of the mortgaged property and application of a resulting $262, 500.00 credit, LL Hotels owes Harbour a total of $2, 068, 026.79 with continuing interest.[11] With respect to the Tasman Note, Plaintiffs allege that LL Hotels owes Tasman a total of $1, 710, 528.75 with continuing interest.[12]Based on the Guarantees, Plaintiffs seek to recover these amounts from Sirico and Loud.[13]

         On November 30, 2018, Defendants filed a Notice of Removal based on the assertion that this Court has jurisdiction pursuant to 28 U.S.C. § 1332 “since the parties to this case are citizens of different states and the amount in controversy exceeds $75, 000.00, exclusive of interest and costs.”[14] Defendants filed an Amended Notice of Removal on December 17, 2018 wherein they allege they are both domiciled in Quebec, Canada, [15] and that Harbour and Tasman are both citizens of California.[16] On February 14, 2019, LL Hotels filed the instant Motion to Intervene[17] seeking to intervene as of right pursuant to Fed.R.Civ.P. 24(a). Alternatively, LL Hotels seeks to permissively intervene pursuant to Fed.R.Civ.P. 24(b).[18] Plaintiffs' opposition to the Motion to Intervene does not address the requirements for intervention under either Rule 24(a) or 24(b); instead, Plaintiffs contend that the Motion to Intervene must be denied because this Court lacks subject matter jurisdiction over LL Hotels' claims and argues that LL Hotels is not, pursuant to Fed.R.Civ.P. 19(a), a necessary party.[19]

         Per the proposed Complaint-in-Intervention, LL Hotels alleges that Sirico and Loud formed LL Hotels “as a vehicle through which to purchase a hotel in Louisiana”[20] and that renovations to the hotel “were to be funded in significant part through a loan provided by Harbour.”[21] LL Hotels asserts that it contracted with Matt Morris (“Morris”) of Complete Construction Contractors, LLC (“Complete Construction”) to complete the remodeling of the hotel and that Complete Construction was originally required to submit its invoices to a third party inspector, Michael Stein (“Stein”), prior to Sirico, Loud, or a previous investor in the hotel, Nancy Chillag (“Chillag”), authorizing payment to Complete Construction.[22] Despite this initial arrangement, following Chillag's withdrawal of her investment, LL Hotels and Harbour executed an amendment to the Harbour Note which provided, inter alia, that Harbour would pay Complete Construction directly.[23] LL Hotels alleges that Harbour then “caused two wire transfers to be made directly to Complete Construction totaling in excess of $1 million”[24] “for work that had not been verified by Stein” thereby “drastically reducing the funds available for LL Hotels to complete the project.”[25] LL Hotels further asserts that when finally inspected, the work done by Complete Construction was “woefully inadequate” and that Complete Construction was terminated as the contractor for the hotel.[26]

         LL Hotels alleges that because of the payments made directly to Complete Construction for inadequate work, Sirico and Loud negotiated with Harbour “to come to a revised arrangement” and “sought to secure substitute funding that would allow LL Hotels to retire its debt to Harbour.”[27]LL Hotels alleges that despite Harbour's multiple representations that he was willing to “work with Defendants and LL Hotels to avoid foreclosure and achieve an amicable resolution to retire his loan through a new loan with a substitute lender, ”[28] Harbour was actually “working behind the scenes” to injure Defendants' and LL Hotels' interest in the hotel.[29] Specifically, LL Hotels asserts that after providing Harbour with a copy of an appraisal showing the hotel's “upon completion” and “upon stabilization” market values, Harbour secretly purchased LL Hotels' loan and thereafter refused to allow another bank to pay off the first mortgage “thereby torpedoing the new funding arrangement that Defendants and LL Hotels had worked so hard to secure.”[30]

         “Despite all of the challenges caused by Harbour and his cohorts, ” LL Hotels alleges that “Defendants and LL Hotels managed to keep the hotel running as a going concern” until May 3, 2016, when “Harbour's attorney and members of a private security firm” demanded Sirico immediately vacate the hotel.[31] LL Hotels asserts that “Harbour's agents then closed the hotel and forced the guests to leave, thereby causing significant damage to its good will” and further “failed to secure the property, leaving the hotel open for looters.”[32] “As a direct and foreseeable result” of vandalization and looting, LL Hotels asserts that the value of the hotel was greatly decreased and that the credit LL Hotels received via the foreclosure sale of the mortgaged property was “far less” than it should have been.[33] LL Hotels contends that Harbour was “in league” with Morris and Chillag “to strip LL Hotels of its interest in the hotel, obtain the property at a discount, and then secure a double-recovery by suing Defendants on their personal guarantees.”[34]

         Based on these factual allegations, through its proposed Verified Complaint-In-Intervention, LL Hotels seeks to assert claims of, inter alia, breach of contract (based on Harbour's alleged unauthorized payments of loan proceeds to Complete Construction), [35] breach of fiduciary duty (based on “waste of the mortgage collateral”), [36] fraud (based on Harbour's alleged blocking of LL Hotels' substitute funding), [37] detrimental reliance, [38] unjust enrichment, [39] breach of good faith and fair dealing, [40] and tortious interference with business relations.[41] The same factual allegations supporting LL Hotels' claims were set out in Defendants' previously filed (and now withdrawn) Counterclaim[42] and form the basis of many of Defendants' affirmative defenses.[43]

         II. Law and Analysis

         A. LL Hotels Is Aligned with Defendants and Therefore the Court May Exercise Supplemental Jurisdiction Over LL Hotels' Claims

         The Court's subject matter jurisdiction in based in diversity. Per the Amended Notice of Removal, Plaintiffs are citizens of California and Defendants are citizens of Canada.[44] Although LL Hotels does not adequately allege its own citizenship in either its Motion to Intervene or the proposed Complaint-in-Intervention, [45] it asserts that its intervention “will destroy diversity, because certain of its members are citizens of California, as is, upon information and belief, Harbour”[46] and therefore its intervention will require remand to state court.[47] While Plaintiffs dispute LL Hotels' statement of citizenship, [48] they argue that the Motion to Intervene should be denied because “this Court does not have subject matter jurisdiction over LL Hotels' claims, ”[49] because “[i]t is a matter of black letter law that the court does not have supplemental jurisdiction over a plaintiff-intervenor's claims where intervention would destroy diversity jurisdiction.”[50] Because the Court aligns LL Hotels as a defendant in this action, supplemental jurisdiction extends to LL Hotels' claims and LL Hotels' intervention would not require remand.

28 U.S.C. § 1367(a) provides that:
Except as provided in subsections (b) and (c) or as expressly provided otherwise by Federal statute, in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties.

         “The question under section 1367(a) is whether the supplemental claims are so related to the original claims that they form part of the same case or controversy, or in other words, that they ‘derive from a common nucleus of operative fact.'”[51] Here, LL Hotels' claims form part of the same case or controversy because LL Hotels' proposed claims “concern the same core factual issue”[52] as that raised in the current litigation. Plaintiffs seek to recover monies allegedly owed to them pursuant to Guarantees related to the Harbour and Tasman Notes executed by LL Hotels. Plaintiffs allege that LL Hotels owes a total of $2, 068, 026.79 with continuing interest to Harbour[53]and a total of $1, 710, 528.75 with continuing interest to Tasman.[54] Based on Defendants' Guarantees related to the two Notes, Plaintiffs seek to recover these same amounts from Sirico and Loud.[55] LL Hotels seeks to assert claims through its intervention that could operate as a set off of any amounts LL Hotels owes under the Notes (and therefore any amounts owed by the Defendants). The Defendants have also asserted affirmative defenses to this suit based on the same facts.

         “That does not end the inquiry, however”[56] because the Court must also “‘examine § 1367(b) to determine if any of its exceptions apply….'”[57] Pursuant to 28 U.S.C. § 1367(b), “[i]n any civil action of which the district courts have original jurisdiction founded solely on section 1332…the district courts shall not have supplemental jurisdiction…over claims by persons…seeking to intervene as plaintiffs under Rule 24…when exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional requirements of section 1332.”[58] Accordingly, the exception to the exercise supplemental jurisdiction applies only if LL Hotels is seeking to intervene as a plaintiff in this matter (and then only if LL Hotels' citizenship is not diverse from Defendants).[59] Although LL Hotels' citizenship is not set out in any of the pleadings and is not clear, [60] LL Hotels' citizenship is not relevant and the exception to the exercise of supplemental jurisdiction set out in § 1367(b) is inapplicable because the Court aligns LL Hotels as a defendant.

         “In this Circuit, ‘the generally accepted test of proper alignment is whether the parties with the same ‘ultimate interests' in the outcome of the action are on the same side.'”[61] “To that end, [the Court] must ‘look beyond the pleadings, and arrange the parties according to their sides in the dispute' to ensure that the parties have a ‘collision of interest[s]' over the ‘principal purpose of the suit' and the ‘primary and controlling matter in dispute.'”[62]

         Here, the principal purpose of Plaintiffs' suit is to recover monies allegedly due pursuant to the Guarantees executed by Sirico and Loud. Defendants assert as defenses to Plaintiffs' action that Plaintiffs' recovery is barred “by Harbour's prior material breaches, including, but not limited to, the payment of more than $1 million in loan proceeds directly to Complete Construction without following the procedures set forth in the parties' contracts;” “the doctrine of unclean hands in connection with, inter alia, the equitable remedy of foreclosure;” “waste of the collateral;” and “Harbour's breach of fiduciary duty in connection with the foreclosure.”[63] Like Defendants, LL Hotels seeks to bar or limit Plaintiffs' recovery of the same amounts (albeit allegedly due pursuant to the Harbour and Tasman Notes) based on the same allegedly unscrupulous acts committed by Plaintiffs. Accordingly, there is a “collision of interests” as between Plaintiffs on the one side and Defendants and LL Hotels on the other. Based on this party alignment, this Court can exercise supplemental jurisdiction over LL Hotels' claims pursuant to 28 U.S.C. § 1367(a), and the exception set out in § 1367(b) (which applies only to claims brought by persons seeking to intervene as plaintiffs) does not apply.[64] Accordingly, LL Hotels' intervention does not destroy this Court's subject matter jurisdiction.[65]

         B. LL Hotels May Intervene Pursuant to Fed.R.Civ.P. 24(b)

         i. The Motion to Intervene is Timely

         As noted above, LL Hotels seeks to intervene as of right pursuant to Rule 24(a) or alternatively, to permissively intervene pursuant to Rule 24(b). “Whether leave to intervene is sought under section (a) or (b) of Rule 24, the application must be timely.”[66] The timeliness of a motion to intervene is a matter committed to the sound discretion of the trial court.[67] Timeliness “is not limited to chronological considerations but ‘is to be determined from all the circumstances.'”[68] The Fifth Circuit has set forth four factors to consider when evaluating whether a motion to intervene is timely: (1) the length of time during which the proposed intervenor should have known of his interest in the case before he petitioned to intervene; (2) the extent of prejudice that those parties already in the litigation would suffer “as a result of the would-be intervenor's failure to apply for intervention as soon as he actually knew or reasonably should have known of his interest in the case;” (3) the extent of prejudice to the proposed intervenor if he is not allowed to intervene; and (4) the existence of “unusual circumstances militating either for or against a determination that the application is timely.”[69]

         Here, Plaintiffs filed suit on October 25, 2018.[70] The case was removed by Defendants on November 30, 2018.[71] No. scheduling conference is currently set.[72] Plaintiffs do not contend that the Motion to Intervene is untimely, nor is there any assertion that any party would be prejudiced if LL Hotels intervenes. Given the early procedural posture of this suit, the Court finds that the Motion to Intervene is timely.

         ii. LL Hotels May Intervene Pursuant to Rule 24(b)

         Plaintiffs do not address any of the requirements for intervention pursuant to Rule 24 and instead focus on the potential jurisdictional defect in LL Hotels' proposed intervention. Because LL Hotels may permissively intervene pursuant to Rule 24(b), it is not necessary to also consider whether LL Hotels can also intervene as of right pursuant to Rule 24(a)(2).[73]

         Pursuant to Rule 24(b), LL Hotels may be allowed to permissively intervene if: (1) the Motion to Intervene is timely;[74] (2) LL Hotels “has a claim or defense that shares with the main action a common question of law or fact;”[75] and (3) the Court determines that allowing the intervention will not “unduly delay or prejudice the adjudication of the original parties' rights.”[76]“Permissive intervention ‘is wholly discretionary with the [district court]…even though there is a common question of law or fact, or the requirements of Rule 24(b) are otherwise satisfied.'”[77]“Rule 24(b) necessarily vests broad discretion in the district court to determine the fairest and most efficient method of handling a case with multiple parties and claims.”[78]

         As stated above, the Court finds that the Motion to Intervene is timely. Further, for the same reasons LL Hotels' proposed claims form part of the same case or controversy for purposes of the exercise of supplemental jurisdiction, LL Hotels' proposed claims share common questions of law and fact with the main action. Finally, LL Hotels' intervention will not prejudice other parties. As noted above, this case is in its early procedural stages. While it appears that LL Hotels and Defendants are, for many purposes, one in the same, [79] Plaintiffs do not contest LL Hotels' assertion that the claims asserted in the proposed Complaint in Intervention “are properly asserted by LL Hotels” rather than by the individual Defendants.[80] Moreover, if LL Hotels is not allowed to intervene in this suit, disposition of the issue of the amount owed by the Defendants would proceed without LL Hotels' involvement.[81] Given the related nature of Defendants' and LL Hotels' assertions, and the fact that both Defendants' affirmative defenses and LL Hotels' proposed claims in intervention challenge the amounts due to Harbour and Tasman, LL Hotels may permissively intervene in this action pursuant to Rule 24(b).[82]

         III. Conclusion

         For the reasons set forth herein, the Motion to Intervene Pursuant to Rule 24[83] is GRANTED and the Clerk is directed to file the Verified Complaint-in-Intervention[84] along with the exhibits attached thereto[85] into the record.

---------

Notes:

[1] R. Doc. 21.

[2] R. Doc. 26.

[3] R. Doc. 29.


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