Michael Goldstein v. Roxborough Real Estate LLC ( 2018 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 18-1354
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MICHAEL GOLDSTEIN, Appellant
v.
ROXBOROUGH REAL ESTATE, LLC; BRENDA HOPKINS
____________________________________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil No. 3-15-cv-03835)
District Judge: Honorable Peter G. Sheridan
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Submitted Pursuant to Third Circuit LAR 34.1(a)
November 2, 2018
Before: KRAUSE, SCIRICA and NYGAARD, Circuit Judges
(Opinion filed November 6, 2018)
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OPINION*
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PER CURIAM
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
Michael Goldstein appeals pro se from the District Court’s order granting
judgment on the pleadings to the defendants. For the reasons detailed below, we will
affirm the District Court’s judgment.
In 2006, Goldstein and others formed four limited partnerships to purchase
property in Philadelphia. Defendant Roxborough Real Estate, LLC (RRE) was the
general partner and was responsible for managing the limited partnerships and their
assets. Defendant Brenda Hopkins was an employee of RRE. According to Goldstein’s
complaint, in 2008, he audited RRE’s accounting and discovered that the defendants had
failed to keep accurate records and had grossly mismanaged the partnerships. Goldstein
contends that this mismanagement forced the partnerships to abandon the properties to
the lender banks and led to the partnerships’ insolvency. Goldstein then assumed the role
of general partner, obtained the interests of the non-defendant partners, and brought this
action, raising claims of fraud, breach of contract, negligent supervision, detrimental
reliance, breach of fiduciary duty, and conversion.
The District Court ruled that the parties were required to arbitrate the dispute and
administratively terminated the matter. Goldstein appealed. We concluded that it was
not clear whether Goldstein sought to proceed on his own behalf or on behalf of the
partnerships, and thus remanded the matter to the District Court for further proceedings.
See Goldstein v. Roxborough Real Estate LLC, 677 F. App’x 796, 800 (3d Cir. 2017)
(not precedential). On remand, the District Court granted judgment on the pleadings to
the defendants, concluding that one of Goldstein’s claims was barred by the applicable
2
statute of limitations and that the remainder could be asserted only derivatively through
the partnership, not directly by Goldstein. Goldstein then took this appeal.
We have appellate jurisdiction under 28 U.S.C. § 1291. We review the District
Court’s order granting the defendants’ motion for judgment on the pleadings de novo.
See In re Fosamax (Alendronate Sodium) Prods. Liab. Litig. (No. II), 751 F.3d 150, 156
n.11 (3d Cir. 2014).
Under Pennsylvania law (which applies here, see Goldstein, 677 F. App’x at 799
n.4), a partner in a limited partnership has standing1 to personally assert a direct action
against another partner if he has sustained “an actual or threatened injury that is not
solely the result of an injury suffered or threatened to be suffered by the limited
partnership.” 15 Pa. Cons. Stat. § 8691(b). On the other hand, “[w]hen a limited partner
alleges wrongs to the limited partnership that indirectly damaged a limited partner by
rendering his contribution or interest in the limited partnership valueless, the limited
partner is required to bring his claim derivatively on behalf of the partnership.” Weston
v. Northampton Pers. Care, Inc., 62 A.3d 947, 957 (Pa. Super. Ct. 2013) (quotation marks
omitted). In those circumstances, “such a claim belongs to, and is an asset of, the
corporation.” Hill v. Ofalt, 85 A.3d 540, 548 (Pa. Super. Ct. 2014).
We agree with the District Court that while Goldstein has attempted to assert his
claims directly, he is required to assert them derivatively. In his complaint, Goldstein
1
While the issue might also be characterized as involving the identity of the real party in
interest, see Frank v. Hadesman & Frank, Inc., 83 F.3d 158, 159–60 (7th Cir. 1996), we
will use the terminology that the Pennsylvania courts have used, see, e.g., Weston, 62
A.3d at 956-60.
3
alleges that he was harmed by the defendants’ misconduct because his contribution to and
interest in the partnerships lost value and the creditors of the partnerships have pursued
judgments against him as the personal guarantor of loans to the partnership. However,
these injuries are “dependent upon and derivative to the [partnership’s] injury.” Id. at
551-52 (so holding with respect to claim that the defendant’s “waste, mismanagement,
and theft of corporate assets caused the corporation to default on its loan and then caused
the Small Business Association to institute proceedings based upon Appellant’s personal
guarantees”); Weston, 62 A.3d at 957; see also United States v. Acorn Tech. Fund, L.P.,
429 F.3d 438, 447 (3d Cir. 2005). Therefore, the District Court did not err in concluding
that Goldstein is not permitted to assert these claims directly.2
Goldstein argues that, even if his claims must generally be pursued derivatively,
we should recognize an exception described in § 7.01(d) of the ALI Principles of
Corporate Governance. Under this exception, a Court may, in its discretion, treat a
derivative action against a closely held corporation as a direct action if doing so will not
“(i) unfairly expose the corporation or the defendants to a multiplicity of actions, (ii)
materially prejudice the interests of creditors of the corporation, or (iii) interfere with a
fair distribution of the recovery among all interested persons.” Id. We question whether
the Pennsylvania Supreme Court would adopt this exception; the Superior Court has
expressly refused to do so, see Hill, 85 A.3d at 556, and the legislature has not included
2
In his amended complaint, Goldstein lists only himself as the plaintiff. Because he is
not a lawyer, he would not be permitted to represent the partnerships pro se in federal
court. See, e.g., Murray ex rel. Purnell v. City of Phila., 901 F.3d 169, 170–71 (3d Cir.
2018).
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this exception in the relevant statutes, see 15 Pa. Cons. Stat. §§ 8691–92. Moreover,
even if the Supreme Court were to recognize this exception, it is best applied in cases
where the entity’s “solvency is not in question,” ALI Principles of Corporate Governance
§ 7.01 cmt. e.; see also Frank, 83 F.3d at 161-62, and Goldstein has alleged that the
partnerships here are insolvent. Therefore, the District Court was not required to apply
this exception here.3
Accordingly, we will affirm the District Court’s judgment.
3
Goldstein also argues that the District Court lacked subject-matter jurisdiction, but we
are satisfied that the parties are completely diverse. More specifically, the record reveals
that Goldstein is a citizen of New Jersey, while Hopkins and Richard Diamond are
citizens of California. See Goldstein, 677 F. App’x at 800 (stating that the parties
“remain diverse”); McCann v. Newman Irrevocable Tr., 458 F.3d 281, 286 (3d Cir. 2006)
(explaining that, in determining an individual’s citizenship, the Court will consider,
among other things, a driver’s license).
5