Opinion
CV 04-360-BR.
July 29, 2004
DAVID A. BLEDSOE, Perkins Coie LLP, Portland, OR, C. DANA HOBART, MARY H. CHU, Hennigan, Bennett Dorman LLP, Los Angeles, CA, Attorneys for Plaintiff.
STEVEN K. BLACKHURST, Ater Wynne LLP, Portland, OR, PETER J. COVINGTON, ROBERT A. MUCKENFUSS, Helms Mullis and Wicker, PLLC, Charlotte, NC, Attorneys for Defendants.
OPINION AND ORDER
This matter comes before the Court on Defendant Banc of America Securities, LLC's (BAS) Motion to Dismiss or Stay (#36). For the reasons that follow, the Court GRANTS BAS's Motion to Dismiss.
BACKGROUND
This dispute arises from a series of contracts the parties entered into in April, July, and October 2002 in which BAS agreed to provide services to Evergreen related to the refinancing and restructuring of Evergreen's existing debt.
Evergreen is an Oregon corporation. BAS is a Delaware corporation with its principal place of business in North Carolina.
In May 2003, BAS brought an action in the state court in North Carolina against Evergreen and seven wholly-owned subsidiary corporations of Evergreen for breach of contract and unjust enrichment. Evergreen and its subsidiaries moved to dismiss BAS's claims for lack of personal jurisdiction and failure to state a claim or, alternatively, to stay the case based on forum non conveniens. The state court denied their motion, and Evergreen and its subsidiaries appealed the court's order. The North Carolina trial court has stayed this action pending appeal.
In April 2004, Evergreen brought an action in this Court against BAS for breach of contract, fraud, negligent misrepresentation, and declaratory judgment. This action is based on the same contracts that are at issue in the North Carolina state court action.
Evergreen asserts this Court has subject matter jurisdiction based on diversity of citizenship under 28 U.S.C. § 1332. Evergreen, however, did not join as plaintiffs in this action any of its subsidiaries who are named defendants in the North Carolina action and who are co-obligees of Evergreen in the July 2002 contract, which is one of the disputed contracts in both this action and the North Carolina state court action. One such subsidiary, Evergreen Aviation Ground Logistics Enterprise, Inc. (EAGLE), is a Delaware corporation. Thus, if EAGLE were joined in this action, this Court would lack subject matter jurisdiction based on diversity of citizenship because both EAGLE and BAS are Delaware corporations.
STANDARDS
Colorado River Abstention. Colorado River deference to state court proceedings rests on "considerations of [w]ise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation.'" Travelers Indemnity Co. v. Madonna, 914 F.2d 1364, 1367 (9th Cir. 1990) (citing Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976)). Because of the "virtually unflagging obligation of the federal courts to exercise the jurisdiction given them, . . . generally the rule is that `the pendency of an action in the state court is no bar to proceedings concerning the same matter in the Federal court having jurisdiction.'" Id. (internal citations omitted).
The Court must consider the following factors to determine whether Colorado River abstention is appropriate: (1) whether either the state or federal court has exercised jurisdiction over a res, (2) the relative convenience of the forums, (3) the desirability of avoiding piecemeal litigation, (4) the order in which jurisdiction was obtained by the concurrent forums, (5) whether state or federal law controls, (6) whether the state proceeding is adequate to protect the parties' rights, and (7) whether the exercise of jurisdiction would promote forum shopping. Id. at 1367-68.
Failure to Join Indispensable Party — Fed.R.Civ.P. 19.
Fed.R.Civ.P. 19 provides the standards for determining whether dismissal of an action for nonjoinder of an absent party is required. Rule 19(a) sets out a two-part analysis: (1) the court must determine whether the absent party is "necessary" to the action, and (2) if a party is necessary but joinder is not feasible, the court must determine whether the party is "indispensable," and, "in equity and good conscience," whether the action should proceed without the absent party.
Under Fed.R.Civ.P. 19(b), if an indispensable party cannot be joined, the court "shall determine whether in equity and good conscience the action should proceed among the parties before it." The court must consider: (1) the extent to which a judgment rendered in the person's absence might be prejudicial to the person or to those already parties; (2) the extent to which the prejudice can be lessened or avoided by protective provisions in the judgment, by the shaping of relief, or other measures; (3) whether a judgment rendered will be adequate; and (4) whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder.
Rule 19 is designed to protect absent parties as well as those before the court from multiple litigation, inconsistent judicial determinations, or the impairment of interests or rights. CP Nat'l Corp. v. Bonneville Power Admin., 928 F.2d 905, 911 (9th Cir. 1991). Rule 19 also is designed to further the public's interest "in avoiding repeated lawsuits on the same essential subject matter." Id. at 912 (citing Fed.R.Civ.P. 19 advisory committee's notes). Because Rule 19 protects interests beyond those of the parties before the court, the absence of necessary parties may be raised by the Court sua sponte at any stage of the litigation. Id. at 911-12. Generally, determinations under Rule 19 are left to the sound discretion of the trial court. Kescoli v. Babbitt, 101 F.3d 1304, 1309 (9th Cir. 1996).
DISCUSSION
In its motion, BAS originally moved to dismiss or to stay this action on Colorado River abstention grounds. See Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 813 (1976). In its reply memorandum, however, BAS contends Evergreen's subsidiaries are indispensable parties under Fed.R.Civ.P. 19(b), joinder of the subsidiaries is not possible because it would defeat diversity jurisdiction, and, therefore, the Court should dismiss Evergreen's Complaint. Evergreen, however, asserts the subsidiaries are not indispensable parties and do not have to be joined in this action.
As noted, Evergreen's subsidiaries are co-obligees with Evergreen in the July 2002 contract at issue in this action. Coobligees to a contractual obligation are indispensable parties in an action to enforce the obligation. Nike, Inc. v. Comercial Iberica de Exclusivas Deportivas, S.A., 20 F.3d 987 (9th Cir. 1994) (citing Harrell Sumner Contracting Co., Inc. v. Peabody Petersen Co., 546 F.2d 1227, 1228 (5th Cir. 1977)). See also 7 Charles Alan Wright, Arthur R. Miller Mary K. Kane, Federal Practice Procedure § 1613 (3d ed. 2001).
Nonetheless, Evergreen asserts joinder of its subsidiaries in this action is not necessary because (1) Evergreen can obtain complete relief without joinder of the subsidiaries, (2) the subsidiaries have not claimed an interest in the litigation and are parties to only one of the contracts at issue, (3) Evergreen can adequately represent its wholly-owned subsidiaries, and (4) there is no evidence the subsidiaries' absence will create a substantial risk to BAS of multiple or inconsistent obligations.
Evergreen cites Altmann v. Republic of Austria, 142 F. Supp.2d 1187 (C.D. Cal. 2001) to support its argument that co-obligees are not indispensable or even necessary parties when they do not assert an interest in the issues involved in the litigation. The Court, however, finds Evergreen's reliance on Altmann is misplaced. In Altmann, an heir to the owner of original paintings that were stolen by the Nazis and subsequently possessed by the Austrian government brought an action to recover the paintings. The heir had a 25% interest in the paintings. Although other heirs owned the remaining interest in the paintings and were aware of the litigation, they did not claim an interest in the paintings. Under those circumstances, the court found the absent heirs were not indispensable parties. Altmann, 142 F. Supp.2d at 1213-14. Altmann, however, did not involve co-obligees to contracts who disclaimed their interest in the contract in order to create diversity jurisdiction in a court action brought by another co-obligee to the contract.
In Nike, the court found there was no compelling business reason for a wholly-owned subsidiary's assignment of its interest in a contract only three days before Nike filed its complaint. The court concluded the assignment was collusively done to remove any obstacle to diversity jurisdiction. 20 F.3d at 992. The court held: "[W]hen a wholly-owned subsidiary assigns a claim to its parent, such assignments are presumptively ineffective to create diversity jurisdiction." Id. at 991. See also Acton Co. Inc. of Mass. v. Bachman Foods, Inc., 668 F.2d 76 (1st Cir. 1982).
This case is similar to Acton. A breach-of-contract action was filed in New York state court against a parent corporation and its subsidiary. The defendant subsidiary corporation in the state court action then brought a diversity action relating to the same contract in the United States District Court for the District of Massachusetts without joining its parent corporation. If the parent corporation had been joined, diversity jurisdiction would have been destroyed. The parent corporation, however, was a co-obligee under the contract at issue. The First Circuit affirmed the district court's dismissal of the federal court action for failure to join an indispensable party. The court noted with approval that the district court "emphasiz[ed] the existence of a pending state court action raising identical issues to which all necessary actors were parties." Acton, 668 F.2d at 81.
As in Nike and Acton, the Court concludes Evergreen's subsidiaries are indispensable parties to this action, and, therefore, joinder is necessary to protect the interests of the parties. Despite Evergreen's conclusory assertion that it will adequately represent the interests of its subsidiaries in this matter as if the parent and subsidiary corporations were not independent entities, Evergreen has previously asserted in the state court case that its subsidiary corporations are truly independent. See Affidavit of Timothy Wahlberg, President of Evergreen. Wahlberg stated "[e]ach of the defendant subsidiaries is a separate and distinct corporate entity with each having its own by-laws, articles of incorporation, officers, directors, and business activities." Pl.'s Resp. Mem., Chu Decl., Wahlberg Aff. ¶ 2. Under such circumstances, the Court is not satisfied Evergreen has the ability to protect the subsidiaries' interests in the absence of an express assignment of those interests by the subsidiaries. In addition, Evergreen has failed to explain why BAS would not be subject to inconsistent obligations to the co-obligee subsidiaries if those subsidiaries are not joined in this action. Finally, in the pending North Carolina state action, all parties are joined and all parties have the ability to protect their separate interests.
Plaintiff filed an unopposed request that the Court take judicial notice (#14) of Timothy Wahlberg's Affidavit. The Court does so.
In summary, the Court finds Evergreen's wholly-owned subsidiary corporations are indispensable parties, and their joinder is not feasible in this action because joinder would divest this Court of subject matter jurisdiction under 28 U.S.C. § 1332. See Fed.R.Civ.P. 19(b). Under Fed.R.Civ.P. 12(h)(3), "[w]henever it appears by suggestion of the parties that the court lacks jurisdiction of the subject matter, the court shall dismiss the action." Accordingly, the Court grants BAS's Motion to Dismiss. In light of this ruling, the Court need not address the merits of BAS's Colorado River abstention argument.
CONCLUSION
For these reasons, the Court GRANTS Defendant BAS's Motion to Dismiss (#36) and, accordingly, DISMISSES Plaintiff Evergreen's Complaint with prejudice.IT IS SO ORDERED.