Opinion
Case No. 01-2293-JAR
October 9, 2002
This matter is before the Court on defendants' motion to dismiss (Doc. 51). Defendants seek an order dismissing this case on the basis that the Court lacks subject matter jurisdiction or in the alternative, that plaintiffs failed to join an indispensable party. Defendants also seek an evidentiary hearing if the Court is unable to rule on the motion based on the pleadings. Plaintiffs filed a Response (Doc. 59), and defendants filed a Reply (Doc. 60). The Court has reviewed the parties' filings and for the reasons set forth below, defendants' motion shall be denied.
I. BACKGROUND
When considering a motion to dismiss, the Court assumes the truth of all well-pleaded factual allegations and makes all possible reasonable inferences in favor of the plaintiff. Thus, for purposes of defendants' motion to dismiss, the Court takes the following allegations of facts from plaintiffs' Amended Complaint ("complaint").
In March of 1998, Signature Automotive, Inc. ("Signature"), as lessor, and defendant TAC Enterprises, Inc. ("TAC"), as lessee, entered into a "Master Motor Vehicle Lease Agreement" ("TAC Master Lease"). TAC assigned its interest in the TAC Master Lease to defendant Fleet Solutions ("Fleet") and Signature assigned its interest in the lease to plaintiff TW Financial Services Company, L.L.C. ("TW Financial"). Eventually, TW Financial's interest in the TAC Master Lease was acquired by the other named plaintiffs by virtue of various financing transactions.
In May of 1998, Fleet, as lessor, and DT Limousine Service, Inc. ("DT"), as lessee entered into a Master Motor Vehicle Lease Agreement ("DT Lease"). Pursuant to the DT Lease, DT leased a total of 232 vehicles from Fleet. According to plaintiffs, the vehicles leased to DT were the same vehicles leased to Fleet pursuant to the TAC Master Lease. Accordingly, the vehicles leased to DT were done so pursuant to a sub-lease.
Simultaneous with execution of the DT Lease, DT and Fleet also entered into a loan agreement ("DT Loan Agreement") whereby Fleet loaned DT $2,375,235. In exchange for the loan, DT assigned Fleet all of its accounts receivable and its title and interest in certain global positioning system ("GPS") equipment. Additionally, DT granted mortgages in favor of Fleet on seven parcels of real estate. The loan was capitalized into the DT Lease and DT was to re-pay the loan through the monthly payments on the DT Lease. According to plaintiffs, this resulted in an over funding of the DT Lease.
DT eventually stopped making payments to Fleet on the DT Lease and, as a result, TAC ceased making payments due to Signature/TW Funding on the TAC Master Lease. DT discontinued all business operations, and allegedly abandoned some of the vehicles subject to the DT Lease. Plaintiffs charge that Fleet attempted to liquidate some of the vehicles abandoned by DT.
In May of 1999, Fleet, as lessor, entered into a Master Motor Vehicle Lease Agreement ("Milepost Lease") with Milepost Inns, Inc. ("Milepost"), as lessee. Pursuant to the Milepost Lease, Fleet agreed to lease Milepost 122 vehicles. The leased vehicles, according to plaintiffs, were vehicles originally leased to Fleet under the TAC Master Lease and then sublet to DT under the DT Lease.
On September 30, 1999, when TAC was in substantial default to Signature/TW Financial under the TAC Master Lease, defendants TAC, Pennant Rent-A-Car, Inc., Dalene K. Thoms and Donald C. Thoms, and Reliable Motors, Inc., a non-party, entered into a Settlement Agreement with Signature and plaintiff TW Financial. The Settlement Agreement modified the financial obligations under the TAC Master Lease. Essentially, the Settlement Agreement released TAC from the remaining financial obligations under the TAC Master Lease, which was approximately $5.25 million, in exchange for certain obligations. TAC and/or Fleet agreed to pay TW Financial $5,000 per month for sixty months. Additionally, Fleet agreed to assign to TW Financial certain mortgages and deeds of trust that had been granted to Fleet by DT in connection with the DT Loan Agreement. Fleet also agreed to assign to TW Financial all of its rights under the Milepost Lease and all of its rights under the DT Loan Agreement and the other documents executed in connection therewith. Finally, Fleet agreed to "take whatever efforts are necessary, so long as it does not require a financial expenditure on [its] part, to assist TW in maximizing the value of all of the assets [or collateral] being assigned to TW Financial under the terms of the Settlement Agreement."
The Court will use the terms "Settlement Agreement" and "contract" synonymously when referring to this agreement.
Plaintiffs claim defendants breached many aspects of the Settlement Agreement described above. The alleged breach of the Settlement Agreement forms the basis for this lawsuit. Plaintiffs claim that defendants breached the Settlement Agreement by accepting payments from Milepost, under the Milepost Lease, and then failing to pay those monies to TW Financial as required by the Settlement Agreement. Plaintiffs also contend that defendants failed to pay TW Financial insurance proceeds received that related to the collateral assigned to TW Financial under the Settlement Agreement; and that defendants failed to pay TW Financial proceeds received from the liquidation of some of the collateral. Further, plaintiffs claim that defendants made only one $5,000 monthly payment during the period between September 30, 1999 and October 11, 2000.
Plaintiffs brought this diversity action for breach of fiduciary duty, breach of contract, unjust enrichment, conversion, accounting, and attorneys' fees. In addition to answering plaintiffs' complaint, defendants alleged many counterclaims against plaintiffs including breach of contract, breach of duty of good faith and fair dealing, quantum meruit, unjust enrichment, offset, and breach of fiduciary duty. Defendants now seek to have the action dismissed for lack of subject matter jurisdiction and/or failure to join an indispensable party.
II. STANDARD OF REVIEW
A party seeking to invoke the jurisdiction of a federal court must demonstrate that the case rests within the court's jurisdiction. The burden of proof on this issue depends on whether the defendant raises a facial or factual attack. If the defendant attacks the sufficiency of a plaintiff's complaint as it relates to subject matter jurisdiction it is considered a facial attack and the court accepts the veracity of all well-pleaded facts in the plaintiff's complaint and views both the facts and all reasonable inferences in the light most favorable to the plaintiff.
United States v. Bustillos, 31 F.3d 931, 933 (10th Cir. 1994).
Holt v. United States, 46 F.3d 1000, 1002 (10th Cir. 1995).
A factual attack challenges the underlying facts in the complaint upon which plaintiff has predicated subject-matter jurisdiction. When defendant raises such a factual attack, the court has wide discretion to allow affidavits, hold an evidentiary hearing, or consider other evidence in solving the factual dispute. Consideration of such evidence does not convert the motion to dismiss into a motion for summary judgment. If, however, defendant raises a factual attack and resolution of jurisdictional issues is intertwined with the merits of the case, the court is required to find jurisdiction exists and construe defendant's motion a motion for summary judgment.
Id. at 1003.
Id.
Id.
Bell v. United States, 127 F.3d 1226, 1228 (10th Cir. 1997). See also Williamson v. Tucker, 645 F.2d 404, 415 (5th Cir. 1981).
III. DISCUSSION A. Lack of Subject Matter Jurisdiction
Defendants seek to have plaintiffs' case dismissed on the basis that the Court lacks subject matter jurisdiction. Defendants claim that one or more of the named plaintiffs do not appear to have an interest in the claims they are asserting. The foundation of defendants' motion to dismiss, as it applies to TW Financial, is that the Settlement Agreement at issue indicates that an entity by the name of TW Financial Services, Inc., was a party to the Settlement Agreement, not TW Financial Services Company, L.L.C., the named plaintiff. Defendants also claim that plaintiffs' complaint does not demonstrate that the other named plaintiffs, TW Funding Company XII, L.L.C. ("Funding Company XII"), TW Funding Company VIII, L.L.C. ("Funding Company VIII"), and Wilmington Trust Company ("Wilmington Trust"), have an interest in the Settlement Agreement.To the extent defendants have mounted a facial attack to the sufficiency of plaintiffs' complaint as it relates to subject matter jurisdiction, defendants' motion is denied. Plaintiffs' complaint alleges there is complete diversity between the parties and the amount in controversy exceeds $75,000. The complaint also alleges that TW Financial entered into a contract with defendants and that defendants breached the contract. Finally, plaintiffs' complaint avers that TW Financial's interest in the leases underlying the Settlement Agreement is now held by Funding Company XII, Funding Company VIII, and Wilmington Trust. Taking these well-pleaded facts as true, the Court finds plaintiffs' complaint is sufficient to confer jurisdiction upon the Court and denies defendants' motion to dismiss to the extent it raises a facial attack on the Court's subject matter jurisdiction.
See 28 U.S.C. § 1332.
Analyzing a factual attack on the court's subject matter jurisdiction is a bit more complicated. As noted above, a factual attack challenges the underlying facts in the complaint upon which plaintiffs have predicated subject matter jurisdiction. Usually, in such a situation, the court must address the merits of the jurisdictional claim by resolving the factual disputes between the parties. In solving the factual disputes between the parties the court has the authority to order discovery, consider extrinsic evidence and hold evidentiary hearings to determine whether jurisdiction lies with the court. However, when jurisdictional facts are "inextricably intertwined" with the merits of the case, "the proper course of action . . . is to find that jurisdiction exists and deal with the objection as a direct attack on the merits of the plaintiff's case." This is accomplished by converting defendants' Rule 12(b)(1) motion into a Rule 56 motion for summary judgment. The Court finds it unnecessary to follow the usual procedure of notifying the parties of the Court's intention to convert the motion to dismiss and permitting them an opportunity to submit materials relevant to a Rule 56 motion, because both plaintiffs and defendants referenced material outside complaint and the answer. The Tenth Circuit has held that "when a party [references] material beyond the pleadings in support of or opposing a motion to dismiss, the prior action on the part of the parties puts them on notice that the judge may treat the motion as a Rule 56."
Valentin v. Hospital Bella Vista, 254 F.3d 358, 363 (1st Cir. 2001).
Id. at 363-64.
Williamson v. Tucker, 645 F.2d at 415 (explaining that courts should "refus[e] to treat indirect attacks on the merits as [Federal Rule of Civil Procedure] 12(b)(1) motions."). See also Bell, 127 F.3d at 1228; Garcia v. Copenhaver, Bell Assocs., 104 F.3d 1256, 1261 (11th Cir. 1997) (citations omitted).
Bell, 127 F.3d at 1228. Note that this is an exception to the general rule that Rule 12(b)(1) motions may not be converted into motions for summary judgment. See id.
See Wheeler v. Hurdman, 825 F.2d 257, 260 (10th Cir. 1987) (characterizing a Rule(b)(1) motion as a Rule 56 motion).
Defendants assert that the Court lacks jurisdiction over the subject matter because it appears there is no "case or controversy" within the meaning of that phrase in Article III of the Constitution. According to defendants, none of the named plaintiffs have demonstrated that they have an interest in the Settlement Agreement at issue in this case. The Court finds that defendants contention is so "inextricably intertwined" with the merits of plaintiffs' case that the issue is not properly decided in a motion to dismiss. The Court reaches this conclusion because whether plaintiffs have some actionable interest in the Settlement Agreement is central to plaintiffs' claims. Indeed, an entity that is not a party to a contract cannot sue on the contract unless it has some other status conferring upon it the right to sue on the contract. Consequently, the Court will treat defendants' motion to dismiss as a Rule 56 motion for summary judgment.
See U.S. CONST. art. III § 2 (standing for the proposition that federal courts only have power to adjudicate actual cases and controversies). See also Powell v. McCormack, 395 U.S. 486, 512-13 (1969) (noting that a federal district court lacks jurisdiction over the subject matter "if it is not a `case or controversy'" within the meaning of Article III of the Constitution) (citations omitted).
Gulf Oil Corp. v. Copp Paving Co., Inc., 419 U.S. 186, 213 n. 10 (1974) ("Where the jurisdictional issue is more closely linked to the merits, disposition of the jurisdictional issue on motion becomes inappropriate).
See Bell, 127 F.3d at 1228.
Summary judgment should be granted when "there is no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law." Essentially, the inquiry is "whether the evidence presents a sufficient disagreement requiring submission to a jury or whether it is so one-sided that one party must prevail as a matter of law."
Id. (quoting Fed.R.Civ.P. 56(c)).
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986).
The moving party bears the burden of demonstrating the absence of a genuine issue of material fact. This may be met by showing that there is a lack of evidence to support the nonmoving party's case. Once the moving party properly supports its motion for summary judgment, the burden shifts to the nonmoving party to show that there is a genuine issue of material fact left for trial. "A party opposing a properly supported motion for summary judgment may not rest on mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial." Therefore, the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. The court must consider the record in the light most favorable to the nonmoving party.
See Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).
See Anderson, 477 U.S. at 256.
Id.
See id.
Bee v. Greaves, 744 F.2d 1387, 1396 (10th Cir. 1984).
The Court will first address defendants' motion as it applies to plaintiff TW Financial. As stated above, defendants claim that plaintiff TW Financial cannot sue on the contract because the contract in question refers to TW Financial Services, Inc., instead of TW Financial Services Company, L.L.C., the named plaintiff. Plaintiffs argue that the inclusion of the term "Inc." in the Settlement Agreement was simply a typographical error. To support its contention, plaintiffs provided deposition testimony from the individual who signed the Settlement Agreement on behalf of TW Financial, John Rosenlund. According to Mr. Rosenlund, he signed the Settlement Agreement on behalf of the entity that had entered into the TAC Master Lease, TW Financial Services Company, L.L.C. Plaintiffs argue that to dismiss the action on the basis that the contract contains the word "Inc." instead of "L.L.C." would be to elevate form over substance. The Court agrees.
Defendants have not offered any evidence indicating that TW Financial Services Company and TW Financial Services Inc., are not the same entity or that there was some mistake as to the identity of the parties to the Settlement Agreement. In fact, defendants admit that they may very well be the same entity. Considering the record in the light most favorable to plaintiffs, the Court finds that the deposition testimony of Mr. Rosenlund is adequate to establish that there remains a genuine issue of material fact for trial. Whether TW Financial Services Company, L.L.C. and TW Financial Services, Inc., are the same entity for the purpose of the Settlement Agreement is a genuine issue of material fact that must be left to the jury.
The Court also finds that summary judgment is not proper as to Funding Company XII, Funding Company VIII, and Wilmington Trust. Defendants' motion makes much ado about plaintiffs' failure to timely produce documents substantiating its position that the named plaintiffs have an interest in the Settlement Agreement. Defendants concede that plaintiffs did eventually produce "835 pages of material" relating to their right to bring this action, but, according to defendants' attorney, "counsel has not had time to sort out what plaintiffs produced." Thus, defendants have not presented any evidence indicating plaintiffs do not have an interest in the contract; nor have defendants shown a lack of evidence as to that issue. Defendants merely contend that they have not had time to thoroughly review documentation produced by plaintiffs.
In response, plaintiffs set forth the basis on which each plaintiff has an interest in the Settlement Agreement. According to plaintiffs' papers filed with the Court, plaintiffs Funding Company VIII and Funding Company XII are special purpose entities formed by TW Financial for the purpose of borrowing money from lenders to finance the leases underlying the Settlement Agreement. In exchange for financing, TW Financial sold, assigned and/or contributed the leases to the respective special purpose entity. TW Financial acted as the lease servicing agent for the special purpose entity and managed its assets. Plaintiffs claim that as a result of the transactions described above, Funding Company XII and Funding Company VIII have an interest in the leases underlying the Settlement Agreement.
Plaintiff Wilmington Trust asserts that it has an interest in this litigation because TW Financial abandoned its remaining interest in the leases underlying the Settlement Agreement to Wilmington Trust. According to plaintiffs, TW Financial entered into a "Credit Agreement" with a lending institution by the name of First Union. Pursuant to the Credit Agreement, First Union made loans and "other certain financial accommodations" available to TW Financial. To secure TW Financial's performance obligations under the Credit Agreement, First Union took a security interest and a lien upon "all chattel paper consisting of all leases of personal property, and all inventory and/or equipment consisting of all of the personal property leased pursuant to such chattel paper and all returned and repossessed items of inventory and equipment previously related to such chattel paper." TW Financial eventually became unable to perform its obligations under the Credit Agreement.
Thereafter, in October of 2000, TW Financial filed a petition for bankruptcy. A Plan of Liquidation ("Plan") was filed in December of 2000. Pursuant to the Plan, Wilmington Trust was designated as the trustee for the TW Liquidating Trust ("Trust"). The Trust was specifically formed for the purpose of taking title to the collateral, including all leases, previously pledged to First Union. Pursuant to the Plan, and as designated by First Union, TW Financial abandoned all of its remaining interest in the property described above to Wilmington Trust.
Thus, according to plaintiffs, Wilmington Trust has an interest in one or more of the leases that were the subject of the Settlement Agreement.
Finally, plaintiffs claim that TW Financial has a continuing interest in the Settlement Agreement because pursuant to the Plan, the two leases underlying the Settlement Agreement, reverted to TW Financial for the benefit of its unsecured creditors.
The Court reiterates that it is defendants' burden, as the moving party, to show the absence of a genuine issue of material fact; and they have failed to do so. While it is less than clear exactly what interest each party has in the Settlement Agreement, the Court finds that whether Funding Company XII, Funding Company VIII, and Wilmington Trust have a right to sue on the contract remains a material issue of fact.
B. Failure to Join an Indispensable Party
Defendants also contend that this case should be dismissed pursuant to Rule 12(b)(7) for failure to join an indispensable party. Defendants, as the proponents of a 12(b)(7) motion, have the "burden of producing evidence showing the nature of the interest possessed by an absent party and that the protection of that interest will be impaired by the absence." Defendants' burden can be satisfied by providing "affidavits of persons having knowledge of these interests as well as other relevant extra-pleading evidence." If it is found that the absent party should be joined, rather than dismissing the case, the court will usually allow the party to be joined. If the party is considered "indispensable" and cannot be joined, then dismissal is proper.
Citizen Band Potawatomi Indian Tribe v. Collier, 17 F.3d 1292, 1293 (10th Cir. 1994).
Id. (quoting Martin v. Local 147, Int'l Bhd. of Painters, 775 F. Supp. 235, 236-37 (N.D.Ill. 1991)).
Defendants argue that there "may" be an indispensable party by the name of Canadian Imperial Bank of Commerce ("CIBC"). Defendants do not make arguments as to why CIBC is an indispensable party or provide any other evidence in that regard. Defendants merely assert that CIBC may be the real party of interest. Defendants' blanket allegations clearly do not establish their burden as described above. Consequently, defendants' motion to dismiss for failure to join an indispensable party shall be denied.
IV. CONCLUSION
Defendants' motion to dismiss for lack of subject matter jurisdiction is converted into a motion for summary judgment because the facts surrounding defendants' challenge to the Court's jurisdiction are so "inextricably intertwined" with the merits of plaintiffs' case that the issue is not properly decided in a motion to dismiss. Thus, the Court makes a preliminary finding that jurisdiction exists. In ruling on the converted motion for summary judgment, the Court finds that defendants failed to meet their burden of demonstrating there is no material issue of fact.
The Court also finds that defendants have failed to meet their burden as to their motion to dismiss for failure to join an indispensable party. Finally, the Court denies defendants' request for an evidentiary hearing. Defendants requested an evidentiary hearing so that plaintiffs could present evidence regarding the adequacy of subject matter jurisdiction. Because the Court made a preliminary finding of jurisdiction and proceeded to the merits via a summary judgment analysis, an evidentiary hearing is unnecessary. Furthermore, an evidentiary hearing would be improper because it would essentially force plaintiffs to try the same issue that will be before the jury at trial.
IT IS THEREFORE BY THE COURT ORDERED that the Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction, Motion to Dismiss for Failure to Join an Indispensable Party, and Alternatively, Request for Evidentiary Hearing (Doc. 51) are denied.