Summary
ending the Rule 19 analysis at step one when the court found the absent party was not necessary to the action
Summary of this case from Equal Employment Opportunity Commission v. BellOpinion
Case No. 03-1035-JTM
November 6, 2003
MEMORANDUM AND ORDER
This matter comes before the court on the defendant's motion to dismiss (Dkt. No. 4) and the plaintiffs motion to supplement (Dkt. No. 10). The motions are fully briefed and ripe for disposition. For the reasons stated below, the court denies the defendant's motion and grants the plaintiffs motion to supplement.
I. Statement of Facts
The plaintiff seeks recovery on a Note issued to Productization (PI) by the defendant. The Note was assigned to the plaintiff. The plaintiff alleges that it is now holder of the Note and that the Note is past due.
PI is a Kansas corporation. PI ic no longer a functioning entity; the plaintiff assumed PI'c business operations. PI ic a wholly-owned subsidiary of the plaintiff which acquired all of its issued and outstanding stock: The plaintiff acquired this interest as part of a stock, purchase agreement with the defendant in which he sold all his interest in PI to the plaintiff. The stock purchase agreement closed December 1, 1999. PI win either be merged or dissolved out of existence no later than June 30, 2003.
As part of the PI buyout, the plaintiff agreed to hire the defendant to run PI pursuant to a three year employment agreement. The defendant and PI thereafter signed the employment agreement whereby the defendant's employment as president of PI was to continue until December 31, 2002 unless earlier terminated in accordance with Section 5.1 of the agreement or unless the parties mutually agreed to an extension thereof.
The plaintiff was named as a third-party beneficiary of the employment agreement as a result of its 100% equity ownership of PI. The plaintiff also guaranteed Pi's performance under the employment agreement pursuant to a written guarantee made a part of the agreement.
PI never had a manufacturing or fabricating capability and subcontracted those functions from premises in Independence, Kansas housing an office and engineering staff. The premises were leased by the plaintiff for a thirty-seven month term ending December 31, 2002, which date coincided with the termination of the employment agreement between the defendant and PI.
In early 2002, the planning for the transition began and on March 13, 2002, all of Pi's employees were informed of the proposed move and integration. The physical move of all office equipment, documents, drawings, related material and personnel was completed before December 20, 2002, after which date the defendant locked the plaintiff out of the facility even though the lease ran through December 31, 2002. The defendant alleges that he was attempting to prevent further attempts by the plaintiff to interfere with his opportunity to earn his entire incentive compensation.
The defendant alleges that the plaintiffs' liability is premised upon the breach of contract of its guarantee, PI, and the actions of PI are being imputed to the actions of the plaintiff. The plaintiff denies any liability under the employment agreement, and contends that if there is any liability, the plaintiff is the real party in interest as it has assumed all liabilities of PI.
The defendant intends to file suit against the plaintiff and PI in Montgomery County district court in the state of Kansas.
In his reply, the defendant notifies the court he has brought suit against PI and the plaintiff in Kansas state court, Montgomery District Court Case No. 03-C-CV-46-I.
II. Standard
"Under Rule 12(b)(7), Fed.R.Civ.P., the court may dismiss a case for failure to join a necessary and indispensable party under Rule 19. The court exercises discretion in deciding a Rule 12(b)(7) motion." Kansas City Royalty Company, L.L.C. v. Thoroughbred Associates, L.L.C., 215 F.R.D. 628, 630 (D.Kan. 2003) (citations omitted). "Defendant bears the burden to produce evidence which shows the nature of the interest possessed by an absent party and that such party's absence will impair the protection of that interest." Id. (citations omitted). "Defendant can satisfy this burden with affidavits of persons having knowledge of the interest as well as other relevant extra-pleading evidence." Id. (citations omitted).
III. Analysis
The defendant contends PI is a necessary and indispensable party to this case. As PI is a Kansas corporation, the defendant argues asserting a claim against PI would destroy diversity jurisdiction. Accordingly, the defendant requests dismissal pursuant to Fed.R.Civ.Pro. 19(b).
The Tenth Circuit discussed the analysis of Rule 19 in Rishell v. Jane Phillips Episcopal Mem. Medical Ctr., 94 F.3d 1407, 1411 (10th Cir. 1996) stating:
Determining whether an absent party is indispensable requires a two-part analysis. The court must first determine under Rule 19(a) whether the party is necessary to the suit and must therefore be joined if joinder is feasible. If the absent party is necessary but cannot be joined, the court must then determine under Rule 19(b) whether the party is indispensable. If so, the suit must be dismissed
(citations omitted). Under Rule 19(a), party must be joined if:
(1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.
Considering the factors set out in Rule 19(a), the court finds that PI is not a necessary party requiring joinder. Both the plaintiff and the defendant can be afforded complete relief regardless of whether PI is added to the lawsuit. This action involves the recovery of the Note; the defendant may assert any affirmative defenses regarding the Note even if PI is not present. "The assertion of affirmative defenses which may turn upon, and even require adjudication of, the actions or rights of non-parties does not require joinder of those parties." EquiMed, Inc. v. Genstler, M.D., 170 F.R.D. 175, 179-80 (D.Kan. 1996) (citation omitted).
Additionally, to the extent that PI has any interest in this matter it will not be impaired The defendant acknowledges that PI is a wholly-owned subsidiary of the plaintiff. Thus, PI's interest will be protected by the plaintiff as it guaranteed PI's performance under the employment agreement. See also Pujol v. Shearson American Express, Inc., 877 F.2d 132, 135 (1st Cir. 1989) (finding subsidiary not an indispensable party as its interests were "virtually identical" to those of its parent). Indeed, adding PI to this matter would amount to adding a purely nominal party, as it ic now merged into the plaintiff "Where `a litigant is not a real party in interest or is purely a nominal or formal party,' its interest in the action may be overlooked in determining jurisdiction." Int'l Union v. Bristol Brass Co., 123 F.R.D. 431, 433 (D.Conn. 1989) (citations omitted). In support of his position the defendant cites Johnson Johnson v. Coopervision, Inc., 720 F. Supp. 1116 (D.Del. 1989) where the court found the subsidiary to be an indispensable party. However, the defendant overlooks the fact that in Johnson Johnson the subsidiary played a more active role in the matter. In Johnson Johnson, the disputed assets and liabilities were assigned to the subsidiary. Id. at 1119. The subsidiary also played a key role in the negotiations between the parent company and the defendant. Id. at 1120. Here, the parent company has assumed all liabilities of the subsidiary and the subsidiary is no longer a functioning entity.
Finally, the defendant is not at risk of incurring inconsistent obligations, as plaintiff, if successful in this action, will make only one recovery on the Note.
Thus, the court finds that PI is not a necessary party to the case and denies the defendant's motion to dismiss.
The plaintiff also argues the defendant's claim is a permissive rather than compulsory counterclaim. As the court finds PI is not a necessary party to the suit, it is not required to decide this question.
IV. Motion to supplement
The plaintiff brings a motion to supplement its response. The plaintiff seeks to aver that Pi's merger into the plaintiff was effective March 26, 2003. The court finds that this supplement does not prejudice the defendant as it merely confirms the plaintiffs earlier contention that "PI will either be merged or dissolved out of existance no later than June 30, 2003." Accordingly, the court grants the plaintiffs motion; the court considered this supplemented fact in the preceding analysis.
The court thus DENIES the defendant's motion to dismiss (Dkt. No. 4) and GRANTS the plaintiffs motion to supplement (Dkt. No. 10).
IT IS SO ORDERED.