Opinion
CIVIL ACTION NO. 01-1944
October 16, 2001
MINUTE ENTRY
This matter comes before the Court on motion to dismiss filed by the defendants and the plaintiff's motion to dismiss defendant Richard M. Martin, Jr. ("Martin"). Having considered the record, the memoranda of counsel and the law, the Court has determined that this matter is subject to dismissal in the event the Magistrate Judge does not allow the motion to amend.
In this declaratory action, the plaintiffs seek dissolution of a referral agreement. Original jurisdiction is based on diversity, although it is undisputed that diversity of citizenship did not exist at the time this complaint was filed due to the inclusion of Martin, a nondiverse party defendant. A motion to amend to allege an alternative basis for subject matter jurisdiction is pending before the magistrate.
It is widely acknowledged that the Court may exercise its discretion to refuse to hear a declaratory action if an alternative remedy is more effective. See: Wright Miller, 10A Civil: Federal Practice Procedure § 2758 (West). The Fifth Circuit recently restated that the criteria to be considered in determining whether to maintain a declaratory action include: (1) whether there is a pending state action in which all of the matters in controversy may be fully litigated; (2) whether the plaintiff filed suit in anticipation of a lawsuit filed by the defendant; (3) whether the plaintiff engaged in forum shopping in bringing the suit; (4) whether possible inequities in allowing the declaratory plaintiff to gain precedence in time or to change forums exist; (5) whether the federal court is a convenient forum for the parties and witnesses; (6) whether retaining the lawsuit in federal court would serve the purposes of judicial economy; and (7) whether the federal court is being called on to construe a state judicial decree involving the same parties and entered by the court before whom the parallel state suit between the same parties is pending. Vulcan Materials Co. v. City of Tehuacana, 238 F.3d 382 (5th Cir. 2001).
At the same time, the plaintiff's motion can be considered as one under Fed.R.Civ. p. 21, seeking to drop the nondiverse party in order to establish diversity.
It must be reiterated, however, that a prerequisite to dropping a party under Rule 21 because the party's citizenship destroys the court's subject matter jurisdiction over the case, is that the party's presence in the action is not required by Rule 19. When this is not the case, Rule 19 rather than Rule 21 applies and may result in the dismissal of the action.
Rule 21 provides, in pertinent part: "Parties may be dropped or added by order of the court on motion of any party or of its own initiative at any stage of the action and on such terms as are just."
Charles A. Wright, Arthur R. Miller Mary Kane, 7 Federal Practice Procedure § 1685 (West 2001).
Under Rule 19(a), a party should 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.
Rule 19(b) provides that if a party described by Rule 19(a) can not be joined:
[T]he court shall determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person being thus regarded as indispensable. The factors to be considered by the court include: first, to what extent a judgment rendered in the person's absence might be prejudicial to the person or those already parties; second, the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; third, whether a judgment rendered in the person's absence will be adequate; fourth, whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder.
Here, Martin has presented an affidavit that he has "an independent, priority personal fee interest" in this matter which is "separate and distinct from any other fee claim made or to be made by any other attorneys." (Rec. Doc. 16, Exh. "A"). The diverse law firm with which he is associated, and its partners, are also named as defendants in this matter.
There is no real dispute that Martin is a party covered by Rule 19 (a). While the plaintiff argues that the referral agreement at issue is only with the diverse law firm, it presents no proof to establish that fact or controvert Martin's affidavit, which enhances Martin's personal interest in the referral to the equivalent of a partner for purposes of this analysis. For purposes of Rule 19(a), the Court finds that complete relief cannot be accorded the remaining parties, and that Martin's claimed interest is such that his absence may impair or impede his ability to protect his interest and may leave the remaining parties subject to a substantial risk of multiple or inconsistent obligations.
Indeed, the plaintiff admits in its reply memorandum that it "was under the impression that [Martin] was a partner . . ." That impression would necessarily have existed at the time the agreement was made.
The Court also finds that Martin qualifies as an indispensable party for purposes of Rule 19(b). It should be remembered that the plaintiff is seeking rescission of the contract. A judgment involving the nature of that contract without Martin might be prejudicial to him, any judgment needs to include his interest and the plaintiff can refile this matter in state court. In fact, these considerations mirror the general rule that joint obligees, to whom an obligation is owed, usually are considered indispensable under Rule 19. Charles A. Wright, Arthur R. Miller Mary Kane, 7 Federal Practice Procedure § 1613 (West 2001); James W. Moore, 2 Moore's Federal Practice § 19.06[4] (Lexis 2000). "Similarly, all parties to a contract and `others having a substantial interest in it' are `indispensable' in an action to rescind or set aside the contract: `(N)o procedural principle is more deeply imbedded in the common law than that, in an action to set aside a lease or contract, all parties who may be affected by the determination of the action are indispensable.'" Hon. David Hittner, Federal Civil Procedure Before Trial § 7:114 (Rutter 2001), quoting Virginia Sur. Co. v. Northrop Grumman Corp., 144 F.3d 1243, 1248 (9th Cir. 1998). "In cases seeking reformation, cancellation, rescission, or otherwise challenging the validity of a contract, all parties to the contract probably will have a substantial interest in the outcome of the litigation and their joinder will be required." Charles A. Wright, Arthur R. Miller Mary Kane, 7 Federal Practice Procedure § 1613 (West 2001)
The plaintiff seeks in the alternative that this matter be remanded to a certain state court. However, this Court is powerless to do that, where this matter was filed originally here and not removed from state court.
As noted initially, this matter has been filed as a declaratory action. All of the interested parties may be joined in state court, and the plaintiff claims that the agreement is governed by Louisiana law. The original complaint presents no compelling reason in favor of exercising discretionary jurisdiction over this matter.
Accordingly, IT IS ORDERED that the motion to dismiss filed by the defendants is CONDITIONALLY GRANTED and the plaintiff's motion to dismiss defendant Richard M. Martin, Jr. ("Martin") is DENIED. (Rec. Docs. 3, 13).
The Court does not intend its ruling here to affect in any way the motion to amend the complaint pending in front of the magistrate. Any dismissal, however, is not effective until that motion is determined.