Opinion
00 Civ. 6445 (AKH)(THK)
January 9, 2002
MEMORANDUM OPINION AND ORDER
This action was referred to me by the Honorable Alvin K. Hellerstein, United States District Judge, for general pretrial supervision. The action arises out of Defendant Duncan's alleged wrongdoing while acting as an attorney for Plaintiff, The Randolph Foundation. Currently before the Court is Defendant Duncan's motion to amend his Answer, pursuant to Rule 15 of the Federal Rules of Civil Procedure. Defendant seeks to add an additional affirmative defense: failure of Plaintiffs to join a necessary and indispensable party. For the reasons that follow, Defendant's motion is granted.
BACKGROUND
Defendant, Robert Duncan, is an attorney licensed in the State of New York. As such, he provided legal services to The Randolph Foundation, a charitable trust established under the last will and testament of H. Smith Richardson. Plaintiff Higgins and Plaintiff Richardson are trustees of The Randolph Foundation, and bring their claims in that capacity. Plaintiffs allege that Defendant Duncan, through his communications and dealings with representatives of the Smith Richardson Foundation, a charitable foundation also established by H. Smith Richardson, acted adversely to the interests of The Randolph Foundation. As a result of these allegedly improper dealings with the Smith Richardson Foundation, Plaintiffs have brought four causes of action against Duncan: 1) breach of fiduciary duty, 2) breach of contract, 3) breach of the implied covenant of good faith and fair dealing, and 4) constructive fraud.
Defendant now moves to amend his Answer in order to assert the affirmative defense of failure to join a necessary and indispensable party. He asserts that, since the contract for legal services which Plaintiffs claim was breached was, in fact, between The Randolph Foundation and Duncan's former law firm, DeForest Duer, the law firm is a necessary and indispensable party to this action. In response, Plaintiffs assert that the amendment should not be allowed because Defendant's undue delay in seeking to amend the Answer would result in prejudice to Plaintiffs, and because the proposed amendment would be futile. In the alternative, Plaintiffs request that if the amendment is allowed, the affirmative defense should be subsequently dismissed.
DISCUSSION
Rule 15(a) of the Federal Rules of Civil Procedure provides that "leave [to amend] shall be freely given when justice so requires." Accordingly, the Supreme Court and Second Circuit have repeatedly held that leave to amend should be denied only in limited circumstances, for reasons such as undue delay, bad faith, futility of the amendment, or resulting prejudice to the Opposing party. See Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230 (1962); Mackensworth v. S.S. American Merchant, 28 F.3d 246, 251 (2d Cir. 1994); John Hancock Life Ins. Co. v. Amerford Int'l Corp., 22 F.3d 458, 462 (2d Cir. 1994); Cresswell v. Sullivan Cromwell, 922 F.2d 60, 72 (2d Cir. 1990).
I. Undue delay
Defendant allowed almost seven months to pass between the date he filed his Answer, October 31, 2000, and the date he first sought consent to amend it, by sending a letter to Plaintiffs on April 20, 2001. Plaintiffs argue that Duncan was well aware of his association with his law firm at the time the Answer was filed, and should therefore have filed the instant motion earlier in the litigation. Duncan's explanation for the delay is that he became aware of the contractual relationship between his law firm and Plaintiffs only after having had a chance to inspect the firm's files.
Although the Court views Defendant's explanation with some degree of skepticism, it is well established that mere delay does not provide a basis to deny leave to amend. See Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir. 1993); Burgee ex rel. Burgee Architects v. Patrick, No. 91 Civ. 3023 (MJL), 1996 WL 227819, at **2-4 (S.D.N.Y. May 3, 1996); ESI Montgomery County, Inc. v. Montenay Int'l Corp., 899 F. Supp. 1061, 1069 (S.D.N.Y. 1995). "Delay must be considered in context; not all delay will result in denial of a motion to amend."Oneida Indian Nation of New York State v. County of Oneida, N.Y., 199 F.R.D. 61, 74 (N.D.N.Y. 2000); see also Messier v. Southbury Training School, No. 3:94-CV-1706, 1999 WL 20907, at *3 (D. Conn. Jan. 5, 1999) ("mere delay, absent a showing of bad faith or undue prejudice, does not provide a basis for denial of leave to amend") (citing State Teachers Retirement Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir. 1981)); Litton Indus. v. Lehman Bros. Kuhn Loeb, Inc., 734 F. Supp. 1071, 1078 (S.D.N.Y. 1998) (granting motion to amend that was submitted over three years after filing of the complaint, since the plaintiff set forth "colorable grounds" for amendment and defendant would not be unduly prejudiced). However, "[a] district court plainly has discretion to deny leave to amend where the motion is made after an inordinate delay, no satisfactory explanation is made for the delay, and the amendment would prejudice the defendant." MacDraw, Inc. v. CIT Group Equipment Financing, Inc., 157 F.3d 956, 962 (2d Cir. 1998) (citations and internal quotation marks omitted); see also Rotter v. Leahy, 93 F. Supp.2d 487, 499 (S.D.N.Y. 2000) (holding that in order to successfully oppose a motion to amend based upon undue delay, the moving party "must make a showing of substantial and undue prejudice resulting from the delay").
In determining what constitutes undue prejudice, courts "generally consider whether the assertion of the new claim or defense would (i) require the opponent to expend significant additional resources to conduct discovery and prepare for trial; (ii) significantly delay the resolution of the dispute; or (iii) prevent the plaintiff from bringing a timely action in another jurisdiction." Monahan v. New York City Dept. of Corrections, 214 F.3d 275, 284 (2d Cir. 2000), cert. denied, 531 U.S. 1035, 121 S.Ct. 623 (2000) (internal quotation marks and citation omitted);see also Oneida Indian Nation, 199 F.R.D. at 76-77.
In the instant case, although some additional discovery will be required to determine whether DeForest Duer is a necessary and indispensable party to the action, such as obtaining documents that explain the contractual relationship between Duncan and DeForest Duer, and between Plaintiffs and DeForest Duer, there is no basis to conclude that such discovery would be unduly burdensome. Cf. United States ex rel. Maritime Admin. v. Continental Illinois Nat'l Bank Trust Co., 889 F.2d 1248, 1255 (2d Cir. 1989) (" [T]he adverse party's burden of undertaking discovery, standing alone, does not suffice to warrant denial of a motion to amend a pleading."); accord Assam v. Deer Park Spring Water, Inc., 163 F.R.D. 400, 408 (E.D.N.Y. 1995); ESI Montgomery County, Inc., 899 F. Supp. at 1068. Moreover, whether or not DeForest Duer is a party to this action, Defendant would be entitled to take discovery on the issue of whether the law firm had an attorney-client relationship with Plaintiffs, since that relationship would have a bearing on Plaintiffs' claims against Defendant, who is purported to have acted as an individual attorney, rather than as a partner of the DeForest Duer law firm. See discussion, infra at 9-11. There has been no showing that allowing the amendment would, in itself, significantly delay the resolution of this action; this case is still in the early stages of discovery. Finally, there is no evidence of bad faith on the part of Defendant in filing his motion to amend, since the fact that a party may have had evidence to support a proposed amendment earlier in the litigation does not, by itself, give rise to an inference of bad faith. See Oneida Indian Nation, 199 F.R.D. at 80 ("when the Opponent of an amendment asserts that the movant is acting in bad faith, there must be something more than mere delay or inadvertance") (citing Primetime 24 Joint Venture and Primetime 24 Relay Corp. v. DirectTV, Inc., No. 99 Civ. 3307 (RMB) (MHD), 2000 WL 426396, at *5 (S.D.N.Y. Apr. 20, 2000)).
Therefore, Defendant's motion to amend his Answer will not be denied on the ground of undue delay.
II. Futility
Plaintiffs also assert that Defendant's motion should be denied because the proposed amendment would be futile. According to Plaintiffs, their claims only involve Duncan's actions in his individual capacity, and not his actions in his capacity as a partner of DeForest Duer. Therefore, they contend, DeForest Duer is not a necessary party to the action. Moreover, even if the law firm is deemed a necessary party, Plaintiffs argue that the amendment would be futile since Duncan cannot show that DeForest Duer is an indispensable party to the action. Because the addition of DeForest Duer as a party would destroy the Court's diversity jurisdiction, Plaintiffs contend that if it is a necessary party, but not an indispensable party, its joinder would be disallowed.See Rules 19(a) and (b), Fed.R.Civ.P. It follows, Plaintiffs argue, that if DeForest Duer is not an indispensable party, and cannot be joined, Defendant's proposed amendment is futile.
In determining whether a proposed amendment is futile, a court should review the amendment under "a standard analogous to the standard of review applicable to a motion to brought under Rule 12(b)(6)." Rotter, 93 F. Supp.2d at 497; see also Nettis v. Levitt, 241 F.3d 186, n. 4 (2d Cir. 2001) ("Determinations of futility are made under the same standards that govern Rule 12(b)(6) motions to dismiss"); A.V. by Versace, Inc. v. Gianni Versace, S.p.A., 87 F. Supp.2d 281, 298 (S.D.N.Y. 2000) ("[I]f the proposed amendment would be subject to `immediate dismissal' for failure to state a claim or on some other ground, the Court will not permit the amendment."). Thus, a motion to amend will not be denied as futile unless the amendment is "frivolous or facially insufficient." Weg v. Macchiarola, 729 F. Supp. 328, 341 (S.D.N.Y. 1990); see also Schwimmer v. Guardian Life Ins. Co., No. 93 Civ. 0428 (RWS), 1996 WL 146004, at *3 (S.D.N.Y. Apr. 1, 1996) (granting leave to amend where amendment was "not so frivolous or outlandish to render it futile," even though amended complaint would not with stand summary judgment motion); Hall v. Prendergast, No. 91 Civ. 3829 (CSH), 1992 WL 88143, at *4 (S.D.N.Y. Apr. 22, 1992) ("A proposed amendment is considered futile if it is `clearly frivolous.'") (citation omitted); Lerman v. Chuckleberry Publishing, Inc., 521 F. Supp. 228, 231 (S.D.N.Y. 1981) ("[U]ness a proposed claim is clearly frivolous or legally insufficient on its face, the court should not consider the merits of a claim or defense on a motion to amend.").
Rule 19 of the Federal Rules of Civil Procedure sets out the procedures for the joinder of persons needed for a just adjudication. Rule 19 poses two questions: first, under Rule 19(a), the Court is required to ask whether the proposed party is "necessary" to the action, that is, whether the party should be joined if feasible; if the proposed party cannot be joined, then Rule 19(b) is triggered, which poses the question of whether the Court could, "in equity and good conscience, proceed in the party's absence." See 6247 Atlas Corp. v. Marine Insur. Co., Ltd., 155 F.R.D. 454 (S.D.N.Y. 1994); Ente Nazionale Idrocarburi v. Prudential Sec. Group, 744 F. Supp. 450, 456 (S.D.N.Y. 1990).
A. DeForest Duer as a Necessary Party
Initially, therefore, the Court must determine whether there is any basis for Duncan to assert that DeForest Duer is a necessary party under Rule 19(a). Rule 19(a) provides that a party shall be deemed necessary to a litigation 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(a), Fed.R.Civ.P.
"It is well established that a party to a contract which is the subject of the litigation is considered a necessary party." Ryan v. Volpone Stamp Co., Inc., 107 F. Supp.2d 369, 387 (S.D.N.Y. 2000); see also Global Discount Travel Services, LLC v. Trans World Airlines, Inc., 960 F. Supp. 701, 707-708 (S.D.N.Y. 1997) ("As a direct party to the contract which is under dispute, Karabu is a necessary party to this litigation for at least three reasons articulated under Fed.R.Civ.P. 19(a)."); Kawahara Enterprises, Inc. v. Mitsubishi Electric Corp., No. 96 Civ. 9631 (MBM), 1997 WL 589011, at *3 (S.D.N.Y. Sept. 22, 1997) (holding that parties to contract were necessary parties to breach of contract action); Ragan Henry Broadcast Group, Inc. v. Hughes, No. 91-CV-6157, 1992 WL 151308, at *2 (E.D.Pa. June 19, 1992) ("Generally, where rights sued upon arise from a contract, all parties thereto must be joined.");cf. Travelers Indem. Co. v. Household Intern., Inc., 775 F. Supp. 518, 527 (D.Conn. 1991) ("The court's research has failed to find any case on similar facts that has held that a party to a contract is not an indispensable party. In fact, precedent supports the proposition that a contracting party is the paradigm of an indispensable party.").
Moreover, under New York Partnership law, all partners are jointly liable for the performance of contracts entered into by the partnership.See New York Partnership Law § 26(2). As joint obligors, partnerships are necessary parties to breach of contract actions brought against individual partners, who are performing under a third-party's contract with the partnership. See Cunard Line Ltd. v. Abney, 540 F. Supp. 657, 659-60 (S.D.N.Y. 1982). New York law does not make joint obligors immune from suit as individuals. See id. Nevertheless, where a plaintiff brings a suit against a partner, alleging a breach of contract, under New York law, the partner has the right to insist that his partnership be joined in the action, where possible, unless the partnership is insolvent and unable to pay its debts. Federal Deposit Ins. Corp. v. Shea Gould, No 95 Civ. 5491, 1997 WL 401822 (S.D.N.Y. July 17, 1997); see also National Union Fire Ins. Co. of Pittsburgh, Pa. v. Robert Christopher Associates, 691 N.Y.S.2d 35, 44 (1st Dep't 1999) ("Only where a creditor seeks to dispense with joining the partnership as a defendant in an action upon the debt need it be affirmatively shown that pursuing the claim against the partnership would be futile because of its insolvency or inability to pay"); Midwood Dev. Corp. v. K 12th Assocs., 537 N.Y.S. 237, 239 (2d Dep't 1989); N.Y. Partnership Law § 26(2). "Indeed, a complaint that fails to allege that a partnership is insolvent and unable to pay its debts is insufficient to state a claim for breach of contract against the partners as individuals." Tehran-Berkeley Civil and Environmental Engineers v. Tippetts-Abbett-McCarth-Stratton, 888 F.2d 239, 243 (2d Cir. 1989); see also Cunard, 540 F. Supp. at 659-60; Wisnous v. Telsey, 367 F. Supp. 885, 859 (S.D.N Y 1973). However, suit may be brought against an individual partner without joining the Partnership, where breach of contract is alleged under a contract that only involves the partner acting independently of the partnership. See Federal Deposit Ins. Corp. v. Shea Gould, No. 95 Civ. 5491 (JFK), 1997 WL 401822, at *14 (S.D.N.Y. 1997) (allowing a plaintiff to amend his complaint to assert a breach of implied contract claim against a partner as an individual, where the claim was distinct from the breach of contract claim brought against the partnership).
For these reasons, it is clear that if Duncan was performing as a partner in DeForest Duer, the firm would have a clear interest in the subject of this action, and Plaintiffs would be unable to secure complete relief in the absence of the firm.
In contrast, in a tort action against a member of a partnership, liability of the other partners is joint and several; in such cases, the partnership is not a necessary party. See Jones Knitting Corp. v. A.M. Pullen Co., 50 F.R.D. 311, 314 (S.D.N.Y. 1970).
Therefore, whether DeForest Duer is a necessary party in this action turns on whether it is a party to the contract that The Randolph Foundation alleges Duncan breached. Plaintiffs allege that they had a contractual relationship with Defendant Duncan as an independent attorney, whereby Duncan provided legal services in exchange for money payments. See Complaint §§ 38-39; Plaintiffs' Memorandum of Law, at 3, 7, 9-11. This alleged contractual relationship forms the basis of Plaintiffs' breach of contract and breach of the implied covenant of good faith and fair dealing claims. Plaintiffs contend that they are only asserting claims against Duncan for acts that arise out of an attorney-client relationship that was personal to him and the Plaintiffs. Because no relief is being sought against the DeForest Duer firm, Plaintiffs argue that it will not be prejudiced by not being joined in this action, and therefore is not a necessary party. See Plaintiffs' Memorandum of Law, at 9 n. 4.
Defendant claims that any legal services provided by him were provided pursuant to an agreement between Plaintiffs and the DeForest Duer firm, and that he was acting in his capacity as a partner at that law firm at all times relevant to this action. Defendant further argues that billing records from the firm support this position. See Defendant's Notice of Motion § 7.
Although "[t]here is no requirement that a suit against one party for breach of one contract requires the presence of another party who may have breached a different contract," Philip Morris Capital Corp. v. Century Power Corp., 788 F. Supp. 794, 797 (S.D.N.Y. 1992), at this early stage of the proceedings, it is not yet clear whether a separate contract existed between Plaintiffs and Duncan as an individual attorney, to which DeForest Duer was not a party. Although Plaintiffs assert that they are suing Defendant as an individual, rather than as a partner at DeForest Duer, Duncan is entitled to demonstrate that no contractual relationship existed between himself and Plaintiffs, independent of DeForest Duer. Thus, it would not be frivolous for Duncan to amend his Answer to assert that DeForest Duer is a necessary party to the action.
That, however, does not end the inquiry, because DeForest Duer's joinder as a necessary party is not feasible. Under Rule 19(a), in deciding whether joinder is feasible, the Court must decide first if the potential joiners are subject to service of process and second, if their joinder will deprive the court of jurisdiction. Plaintiffs' contend that, as a New York partnership, DeForest Duer cannot be joined to this diversity action pursuant to Rule 19(a) because it would defeat the Court's jurisdiction. See 28 U.S.C. § 1332. Defendant does not disagree that the joinder of DeForest Duer would defeat the Court's diversity jurisdiction, since both Plaintiffs and the DeForest Duer law firm are citizens of New York. Therefore, in order for the proposed amendment not to be futile, Defendant would have to be able to show that DeForest Duer could be deemed an indispensable party. This is because, if DeForest Duer were deemed a necessary, but not an indispensable party, its joinder would be disallowed as defeating diversity jurisdiction. If, however, DeForest Duer were deemed a necessary and indispensable party, the amendment of the Answer would not be futile because Rule 19(b) of the Federal Rules of Civil Procedure would require that the action be dismissed.
Defendant Duncan is a citizen of New Jersey.
B. DeForest Duer as an Indispensible Party
Rule 19(b) of the Federal Rules of Civil Procedure governs whether a case may proceed in the absence of a party deemed indispensable. It provides:
"If a person as described in subdivision (a)(1) — (2) hereof cannot be made a party, the 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."
Fed.R.Civ.P. 19(b). The Supreme Court has summarized the four factors which must be considered pursuant to Rule 19(b) in determining whether a litigation may proceed in the absence of an indispensable party: (1) whether the party sought to be joined has an interest in having a forum and whether an adequate alternate forum exists; (2) the interest of the party seeking joinder in avoiding "multiple litigation, or inconsistent relief, or sole responsibility for a liability that he shares with another;" (3) "the interest of the outsider whom it would have been desirable to join;" (4) "the interest of the courts and the public in complete, consistent, and efficient settlement of controversies."Provident Tradesmens Bank Trust Co. v. Patterson, 390 U.S. 102, 109-11, 88 S.Ct. 733, 737-39 (1968); see also Klockner Stadler Hurter, Ltd. v. Insurance Co. of Pennsylvania, 785 F. Supp. 1130, 1133 (S.D.N Y 1990) (discussing Provident Tradesmens' analysis of Rule 19(b)'s four factors); Ente Nazionale Idrocarburi, 744 F. Supp. at 458-62. As courts have observed, "the concept of indispensability does not concern the Court's subject matter jurisdiction as much as it deals with the ability or right of the Court to make an adjudication. The major question is whether the court can render a decision which will not impair the rights of the absent party." Ente Nazionale Idrocarburi, 744 F. Supp. at 456 (citing J. Moore et al., Moore's Federal Practice § 19.05 [2] n. 6, at 19-77); see also Lipton v. Nature Co., 781 F. Supp. 1032, 1034 (S.D.N.Y. 1992) ("the Rule 19 motion regarding indispensability of parties . . . [is] addressed to the court's equitable discretion. Necessary and indispensable parties can only be determined in the context of the particular litigation; the inquiry must be a fact-based one.").
The Court must therefore determine whether DeForest Duer could, assuming the facts as alleged by Defendant are true, be deemed an indispensable party.
As a possible party to the contract that was allegedly breached, and a joint obligor of Defendant Duncan, DeForest Duer would have a substantial interest in the resolution of the action. Moreover, the interests of DeForest Duer would not necessarily be adequately represented by Duncan, since he is no longer a partner in the firm. Furthermore, a finding in this action that the contract was breached could significantly prejudice DeForest Duer in a subsequent action brought against it, if Duncan is determined to have been acting in his capacity as a partner of the firm. Finally, there is no dispute that an adequate alternative forum for bringing this action exists.
Plaintiffs' reliance on deBruyne v. Clay, No. 94 Civ. 4707 (JSM), 1997 WL 471039 (S.D.N.Y. Aug. 18, 1997), for the proposition that a lawyer's former law firm does not need to be joined in a breach of contract action against the lawyer, arising out of the lawyer's provision of legal services, is misplaced. In deBruyne, the plaintiff's claims did not arise out of legal services provided by the defendant, but from the defendant's fiduciary duties as a trustee. Thus, the court concluded that the relationship between the defendant and the plaintiff in deBruyne did not involve acts "performed by [defendant] in the ordinary course and in furtherance of the business of the partnership." deBruyne, 1997 WL 471039, at *7, The deBruyne court was aided in that determination by the fact that defendant's contract with his law firm specifically excluded work the defendant performed as a trustee, and provided that he should be compensated directly for such work. Neither of these factors exists in this action. Here, the breach of contract claims arise out of Defendant's alleged misconduct in providing legal services to Plaintiffs. These are the type of services he would have provided as a partner of the DeForest Duer law firm. Indeed, even Plaintiffs seem to acknowledge that Defendant may have claims for contribution or indemnification against DeForest Duer arising out of this action. See Plaintiff's Memorandum of Law, at 9. Moreover, accepting Duncan's assertions as true, which the Court must at this early stage of the proceedings, the services he rendered were "performed . . . in the ordinary course and in furtherance of the business of the partnership." Id.
While Plaintiffs may ultimately prevail on a summary judgment motion brought by Defendant, or at trial, based upon their theory of a contractual relationship between themselves and Duncan, at this stage of the proceedings it is not obviously futile for Duncan to claim that he was performing as a partner of the DeForest Duer law firm, therefore making the firm an indispensable party. Thus Duncan's proposed amendment to his Answer is not futile.
For the same reasons, Plaintiffs' cross-motion to dismiss Duncan's affirmative defense — that Plaintiffs failed to join a necessary and indispensable party — must be denied.
Given the requirement contained in Rule 15(a) of the Federal Rules of Civil Procedure, that "leave [to amend] shall be freely given when justice so requires," Defendant's motion to amend his Answer is granted.
CONCLUSION
For the foregoing reasons, Defendant's Motion to Amend the Answer is granted. The Amended Answer should be filed forthwith.
SO ORDERED.