Opinion
Jeffrey Schreiber, Kevin A. Fritz, Meister Seelig & Fein LLP, New York, NY, for Plaintiff.
Sharon L Barbour, Daniel Hershel Tabak, Cohen & Gresser, LLP, New York, NY, for Defendant.
MEMORANDUM ORDER
JED S. RAKOFF, U.S.D.J.
Before the Court is the motion of third-party defendant Judith Lowinger to intervene in the first-party action between plaintiff Morris & Judith Family Partnership, LLC (the "LLC") and defendant Fidelity Brokerage Services LLC ("Fidelity"), and to dismiss the action for failure to join a necessary and indispensable party. ECF No. 40. The LLC opposes, ECF No. 44, and Fidelity takes no position. For the reasons below, Ms. Lowinger’s motion is denied.
Familiarity with all prior proceedings is here assumed. In brief, this action arises from a dispute over an investment account that the LLC had with Fidelity. In 2004, the LLC was formed to manage the assets of Judith Lowinger and her husband Morris Lowinger. ECF No. 13, Ex. A. The LLC’s Operating Agreement lists Morris and Judith as the two members, see id. at 2, 10, and it lists the initial contribution of $ 7,800,000 as being made by both Morris and Judith, id. at 11. It also lists Morris and his son Richard Lowinger as the managers of the LLC. Id. at 9.
When the LLC was formed, Morris opened a Fidelity brokerage account in the LLC’s name. Complaint ¶ 20 ("Compl."), ECF No. 1, Ex. A. Morris was listed as the only "authorized person" on the account application, id. ¶ 22, and he was listed as the only individual authorized on the account agreement to transact business, id. ¶¶ 26-27. Morris died on April 28, 2014, thereby dissolving the LCC under the Operating Agreement and Delaware law. Id. ¶¶ 32-33.
Fidelity was informed of Morris’s death, and Judith demanded thereafter that the LLC account’s assets be transferred to her personal accounts. Id. ¶¶ 38-39. On November 12, 2014, Fidelity transferred the entire balance of the Partnership account to Judith’s personal accounts. Id. ¶ 46. The balance at that time was roughly $ 12,000,000. Id. ¶ 41
On September 7, 2018, the LLC and Richard, on behalf of Morris’s estate, brought a one-count breach of contract action against Fidelity in New York state court. On September 27, 2018, Fidelity removed the case to this Court. ECF No. 1. Fidelity then moved to dismiss the complaint, ECF No. 11, and in a Memorandum Order dated November 16, 2018, this Court dismissed Morris’s estate as a plaintiff, but otherwise denied Fidelity’s motion, ECF No. 22.
On November 28, 2018, Fidelity brought a third-party complaint against Judith for indemnification, breach of warranty, and contribution. ECF No. 26. On December 20, 2018, Judith answered Fidelity’s complaint. ECF No. 38. Thereafter, Judith filed a declaratory action against Richard and the LLC in Delaware state court. ECF No. 41, Ex. I. In the Delaware action, Judith seeks a declaration that she is the sole member and 100% owner of the LLC and a declaration that Richard was validly removed as the LLC’s manager. Id. ¶¶ 22, 30. On January 11, 2019, Judith filed the instant motion to intervene as of right in the first-party action between the LLC and Fidelity, and to dismiss the action for failure to join a necessary and indispensable party. ECF No. 40. The LLC opposes, ECF No. 44, and Fidelity takes no position.
Rules 24 and 19 of the Federal Rules of Civil Procedure govern intervention and necessary joinder, respectively. As relevant here, Rule 24(a) (2) requires a court to grant a motion to intervene where "(1) the motion is timely; (2) the applicant asserts an interest relating to the property or transaction that is the subject of the action; (3) the applicant is so situated that without intervention, disposition of the action may, as a practical matter, impair or impede the applicant’s ability to protect its interest; and (4) the applicant’s interest is not adequately represented by the other parties." MasterCard Int’l Inc. v. Visa Int’l Serv. Ass’n, 471 F.3d 377, 389 (2d Cir. 2006). Rule 19(a) (1) (B) (i), in turn, provides that "[a] person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction must be joined as a party if: ... that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person’s absence may ... as a practical matter impair or impede the person’s ability to protect the interest." This rule and Rule 24(a) (2) "are intended to mirror each other." MasterCard, 471 F.3d at 390.
Unless otherwise indicated, in quoting cases all internal quotation marks, alterations, emphases, footnotes, and citations are omitted.
Judith argues that she has satisfied the requirements of Rules 24 (a) (2) and 19 (a) (1) (B) (i) because she is "one of the central figures in the ownership dispute underlying the" first-party action. Memorandum of Law in Support of Third-Party Defendant Judith Lowinger’s Motion to Intervene and to Dismiss Plaintiff[ ] Morris & Judith Family Partnership, LLC’s Action 13 ("Judith Mem."), ECF No. 42. At bottom, the instant dispute between the LLC and Fidelity turns on whether Fidelity was authorized to transfer the LLC’s assets to Judith, and this latter issue, Judith argues, turns on the nature of Judith’s ownership interest in the LLC and her ability to remove Richard as a manager. See ECF No. 22, at 7-9. Judith further argues that her interest "is not adequately served by the [LLC] and Fidelity" because the LLC is adverse to Judith and Fidelity "is merely the facilitator of the transfer and therefore has no incentive to protect Judith’s interest in the money, let alone her membership status." Judith Mem. 11.
Furthermore, Judith argues, while she has satisfied the requirements of Rules 24 (a) (2) and 19 (a) (1) (B) (i), her presence as a first-party defendant would destroy diversity because she and the LLC are both citizens of New York. Id. at 12; see 28 U.S.C. § 1332(a) (1). Accordingly, Judith argues that the first-party action must be dismissed for failure to join an indispensable party under Rule 19(b), which provides that, "[i]f a person who is required to be joined if feasible cannot be joined, the court must determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed." See Fed.R.Civ.P. 19 (b) ("The factors for the court to consider include: (1) the extent to which a judgment rendered in the person’s absence might prejudice that person or the existing parties; (2) the extent to which any prejudice could be lessened or avoided ... (3) whether a judgment rendered in the person’s absence would be adequate; and (4) whether the plaintiff would have an adequate remedy if the action were dismissed for nonjoinder.").
The Court agrees that Judith has a strong interest in the first-party action and that her presence in that action would destroy diversity. However, Judith has failed to show that she cannot adequately protect her interest in her current role as a third-party defendant. Under Rule 14 (a) (2) (C), a third-party defendant "may assert against the plaintiff any defense that the third-party plaintiff has to the plaintiff’s claim." And under Rule 14 (a) (2) (D), a third-party defendant "may also assert against the plaintiff any claim arising out of the transaction or occurrence that is the subject matter of the plaintiff’s claim against the third-party plaintiff." This is true even where the third-party defendant is not diverse from the plaintiff. See Metro Foundation Contractors, Inc. v. Arch Insurance Co., 498 Fed.Appx. 98, 102 (2d Cir. 2012). As a result, if Judith finds that Fidelity is not adequately defending her ownership interest in the LLC or her ability to remove Richard as a manager, she can raise her own defenses against the LLC or can bring a claim, including a declaratory judgment claim, against the LLC directly.
The Second Circuit’s decision in Viacom International, Inc. v. Kearney is instructive on this point. 212 F.3d 721 (2d Cir. 2000). In that case, plaintiff Viacom sued defendant/third-party plaintiff Kearney, who sued third-party defendant/fourth-party plaintiff Conolog, which sued fourth-party defendant Taylor Forge. Id. at 723-24. Kearney, which had filed counterclaims against Viacom, moved to dismiss the entire action on the grounds that Taylor Forge was a necessary and indispensable party to its counterclaims against Viacom, but was non-diverse and would destroy subject matter jurisdiction. Id. at 724.
The district court granted Kearney’s motion, but the Second Circuit vacated. Id. at 728. The court held that it did not have to decide whether Taylor Forge was a necessary or indispensable party because "Taylor Forge was already present in the litigation and could have joined with Kearney in asserting its ... claims against Viacom without destroying the court’s subject matter jurisdiction." Id. at 726. "In other words," the court explained, "as a jurisdictional matter, it is feasible for Taylor Forge to file any claims necessary to protect its interests in this case." Id. ; see id. at 727 (describing how "a non-diverse fourth-party defendant such as Taylor Forge may bring claims against plaintiff Viacom" under Rule 14(a) ). Accordingly, the Second Circuit held that the district court had abused its discretion in dismissing the action under Rule 19. Id. at 728.
Viacom’s logic applies to the instant case. As a third-party defendant, Judith can raise any defenses that she has to the LLC’s claims, and she can also bring any relevant claims against the LLC without destroying subject matter jurisdiction. Judith has not explained, in her papers or at oral argument, what more she would need in order to protect her interests.
For these reasons, Judith’s motion to intervene and dismiss is denied. The Clerk is directed to close the entry at docket number 40.
As noted at oral argument, discovery in this case is extended to February 28, 2019, to be followed by a summary judgment schedule of moving papers on March 8, 2019, answering papers on March 15, 2019, reply papers on March 20, 2019, and a final pretrial conference— including oral argument on any summary judgment motions— on March 27, 2019 at 4:00 PM.
SO ORDERED.