Opinion
CV 00-1345-BR.
July 5, 2001.
J. STEPHEN WERTS, KARL HAUSAFUS, Preston Gates Ellis LLP Portland, OR., Attorneys for Plaintiffs.
WILLIAM L. LARKINS, JR., JULIE R. VACURA, Larkins Vacura, LLP, Portland, OR., Attorneys for Defendants.
OPINION and ORDER
This matter comes before the Court on Defendants' Motion to Dismiss (#10). Defendants seek dismissal pursuant to Fed.R.Civ.P. 12(b)(1) and (7) for failure to join necessary parties and lack of a justiciable controversy. For the reasons that follow, the Court DENIES Defendants' Motion.
FACTUAL BACKGROUND
Plaintiffs, three Iowa corporations, are successors-in-interest lessees under a ground lease of certain real property in Washington County, Oregon. The lease commenced in 1978 with an initial term of 99 years and an option to renew for two additional 25-year terms. Plaintiffs seek a declaratory judgment interpreting a rent-adjustment clause in the lease. The lease provides a formula for adjusting the rental payments in 2009, the 31st year of the lease, and again in the 61st year.
The original lessors were Constance and William Robinson, husband and wife, and Chester and Evelyn Robinson, husband and wife. William Robinson and Evelyn Robinson are now deceased. Constance Robinson, as personal representative of William Robinson's estate, is also named as a defendant.
The lease was originally entered into in 1978 between the Robinsons and MTR Company, a joint venture. In 1979, MTR assigned its interest and obligations under the lease to Koll/Intereal Northwest. At some point, Koll/Intereal Northwest assigned its interest to Koll/Intereal Portland. In 1986, Koll/Intereal Portland and the Robinsons entered into a Second Lease Amendment. The amendment adjusted the rental-calculation provision in Section 2.1 of the lease and allowed Koll/Intereal Portland to divide the leased property into parcels that it could then assign to others. Pursuant to the Second Lease Amendment, the leased property was divided into two parcels. Lessee Koll/Intereal Portland assigned all of its interest in and obligations under the lease as to one of the parcels to Nimbus Center Associates, an Oregon joint venture. Plaintiffs ultimately became lessees of the other parcel.
At the time the leased property was divided into two parcels, the parties to the lease executed and recorded a "Lessor's Estoppel Certificate" in which lessor agreed:
The Lessor's Estoppel Certificate is not part of the record, but it is described in the Second Amendment to the Ground Lease that is attached to the Complaint.
(1) to treat the Ground Lease with respect to the Segregated Portion of the Leased Premises as an independent and separate lease in favor of Nimbus Center Associates, as the lessee, (2) that Nimbus Center Associates would have an independent obligation to Lessor with respect to payment of rental, and the performance of the other terms and conditions of the Ground Lease with respect to the Segregated Portion of the Leased Premises, (3) that Nimbus Center Associates would have the right with respect to the Segregated Portion of the Leased Premises, to renew, pursuant to Section 1.2 of the Ground Lease, the Term of the Ground Lease and that Nimbus Center Associates would have the right to purchase, pursuant to Section 17 of the Ground Lease, all independently of any action or inaction of any other lessee under the Ground Lease, and (4) that Lessee was released from the performance of any of the obligations of the lessee under the terms of the Ground Lease with respect to the Segregated Portion of the Ground Lease.
(Emphasis added.)
The Second Amendment to the lease also contains a provision setting forth the parties' disagreement as to the proper interpretation of Section 2.1 of the lease (rent-adjustment clause) and expressly preserving each party's right to assert its interpretation. Plaintiffs succeeded to their lessees' interest after the Second Amendment was executed.
DISCUSSION
Plaintiffs allege their disagreement with Defendants as to the proper interpretation of the rent-adjustment clause is impeding Plaintiffs' ability to sell their interest in the lease. Plaintiffs seek a declaration as to the proper interpretation of the rent-adjustment clause.
Defendants move to dismiss Plaintiffs' Complaint pursuant to Fed.R.Civ.P. 12(b)(1)for lack of subject matter jurisdiction. They assert dismissal is required because Plaintiffs' Complaint does not present a justiciable controversy. Defendants also move to dismiss under Fed.R.Civ.P. 12(b)(7) for failure to join indispensable parties.
I. Justiciable Controversy Analysis
Defendants move to dismiss Plaintiffs' Complaint under Rule 12(b)(1) for lack of subject matter jurisdiction. Defendants contend Plaintiffs' action does not present an actual controversy as required by the Declaratory Judgment Act and is not ripe for review.
A. Standards Under Fed.R.Civ.P. 12(b)
On a motion to dismiss under Fed.R.Civ.P. 12(b), all allegations in the complaint are considered true and are construed in Plaintiffs' favor. Meek v. County of Riverside, 183 F.3d 962, 965 (9th Cir.), cert. denied, 120 S.Ct. 499 (1999). A court should not dismiss a complaint, thus depriving the plaintiff of an opportunity to establish his or her claims at trial, "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). When Defendants raise issues that question the Court's ability to exercise subject matter jurisdiction over an action, the Court may look beyond the pleadings and examine affidavits and other documents in resolving the issue of subject matter jurisdiction. Berardinelli v. Castle Cooke, Inc., 587 F.2d 37 (9th Cir. 1978). Plaintiffs have the burden to establish the court has subject matter jurisdiction. Association of American Medical Colleges v. United States, 217 F.3d 770 (9th Cir. 2000).
B. Plaintiffs' Complaint Presents a Justiciable Controversy
The Declaratory Judgments Act provides "In a case of actual controversy within its jurisdiction . . . any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C. § 2201(a). Jurisdiction to award declaratory relief exists only in a case of actual controversy. American States Ins. Co. v. Kearns, 15 F.3d 142, 144 (9th Cir. 1994). The "actual controversy" requirement is identical to Article III's constitutional case or controversy requirement. Id. "`Basically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.'" Wickland Oil Terminals v. Asarco, Inc., 792 F.2d 887, 893 (9th Cir. 1986) (quoting Maryland Casualty Co. v. Pacific Coal Oil Co., 312 U.S. 270, 273 (1941)).
A case is ripe for adjudication when the essential facts that establish the right to declaratory relief have already occurred. Wickland Oil Terminals, 792 F.2d at 893. Accordingly, Defendants argue the matter is not ripe for adjudication because Plaintiffs seek interpretation of a clause in the lease that will not take effect until 2009.
Plaintiffs alleged in their Complaint that their dispute with Defendants concerning the proper interpretation of the rent-adjustment clause renders a sale of their interest in the lease "impracticable." Complaint at ¶ 23. Plaintiffs allege they recently attempted to sell their interest in the lease and were unable to consummate the sale due to Defendants' conflicting interpretation. Defendants dispute these allegations. Neither party offered evidence beyond the Complaint to support their positions. The Court must, therefore, consider all allegations in the Complaint to be true and construe them in Plaintiffs' favor. Meek v. County of Riverside, 183 F.3d at 965. Under that standard, the Court finds an actual controversy exists. See Gilbert, Segall and Young v. Bank of Montreal, 785 F. Supp. 453 (S.D.N.Y. 1992) (dispute concerning the penalty that would be due upon early termination of a long-term lease constituted an actual controversy even though the tenant had not yet terminated the lease).
II. Joinder of Parties Under Fed.R.Civ.P. 19
Defendants argue this case must be dismissed because of Plaintiffs' failure to join certain parties who are necessary to the action.
A. Standards Under Fed.R.Civ.P. 19
Federal Rule of Civil Procedure 19 sets forth the standards for determining whether joinder of additional parties is necessary. The Court's determination of a party's indispensability under Rule 19 rests in the sound discretion of the trial judge. Walsh v. Centeio, 692 F.2d 1239, 1243 (9th Cir. 1982). Defendants, as the parties moving for dismissal, have the burden to show the absent parties are indispensable. Makah Indian Tribe v. Verity, 910 F.2d 555, 558 (9th Cir. 1990).
B. Interests of the Absent Parties
Defendants assert three separate parties or groups of parties are necessary to this action.
1. The Children of Chester Robinson
First, Defendants claim four children of Chester Robinson should be named as additional defendants because they "presently own fee interests in the real property" that is the subject of the lease. Plaintiffs do not object to joinder of the Robinson children as additional defendants and have agreed to amend their Complaint accordingly. Moreover, joinder of these individuals will not affect the Court's diversity jurisdiction. Defendants' Motion as it pertains to the children of Chester Robinson is, therefore, moot.
2. H.A. Andersen
Defendants also assert H.A. Andersen is a necessary party by virtue of a guaranty he made in favor of the lessors at the time the original lease was executed in 1978. Andersen agreed to guarantee the obligations of MTR Company, the original lessee, under the lease. Defendants contend Andersen's guaranty extends to the obligations of the current lessees and, therefore, any interpretation of the lease will affect Andersen's obligations under the guaranty. Andersen is a resident of Oregon, and his joinder as a plaintiff would destroy diversity.
3. Nimbus Center Associates
Defendants argue Nimbus is a necessary party to this action because its lease contains the same disputed language that is the subject of Plaintiffs' action. Defendants contend Nimbus must be joined as a plaintiff because its interest as a lessee is the same as that of Plaintiffs. Joinder of Nimbus, an Oregon joint venture, as a plaintiff would destroy diversity and require dismissal.
C. Rule 19 Does Not Require Joinder of Nimbus or Andersen
Rule 19 provides:
(a) Persons to be Joined if Feasible. A person who is subject to service of process whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action 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. If the person has not been so joined, the court shall order that the person be made a party. If the person should join as a plaintiff but refused to do so, the person may be made a defendant, or, in a proper case, an involuntary plaintiff. If the joined party objects to venue and joinder of that party would render the venue of the action improper, that party shall be dismissed from the action.
Under Rule 19(a), a court must first determine whether the absent party is "necessary" to the suit; i.e., one who should be joined if feasible. If the person should be joined but cannot (because, for example, joinder would divest the court of jurisdiction), the court then must determine under Rule 19(b) whether the party is "indispensable" and whether the suit should be dismissed in "equity and good conscience." Makah Indian Tribe, 910 F.2d at 558. "The inquiry is a practical one and fact specific [citation omitted] and is designed to avoid the harsh results of rigid application." Id. (citing Eldredge v. Carpenters 46 Northern California Joint Apprenticeship Training Comm., 662 F.2d 534, 537 (9th cir. 1981), cert. denied, 459 U.S. 917 (1982)).
1. Complete Relief Can be Accorded to the Parties Without Joinder of Additional Parties
To determine whether an absent party is necessary under Rule 19(a), the court must first decide whether complete relief can be accorded to those who are already parties to the action in the absence of the unjoined party. The effect a decision may have on the absent party is not material at this stage of the analysis. Janney Montgomery Scott, Inc. v. Shepard Niles, Inc., 11 F.3d 399, 405 (11th Cir. 1993). Here, none of the absent parties is necessary for the Court to grant the relief requested by Plaintiffs, namely a declaratory judgment interpreting the rent-adjustment clause of the lease. The first requirement of Rule 19(a)(1), therefore, is met.
2. The Court's Decision in This Case Will Not Impair or Impede Any Legally-Protected Interests of Nonparties
Rule 19(a) also requires the Court to determine whether a nonparty claims a legally-protected interest in the suit and whether determination of the rights of the parties presently before the Court would impair or impede the nonparty's ability to protect that interest. Fed.R.Civ.P. 19(a)(2)(i). The nonparty's interest must be more than a financial stake and more than speculation about a future event. Makah Indian Tribe, 910 F.2d at 558.
There is no evidence before the Court that either Andersen or Nimbus claims any interest in this litigation. Defendants, nonetheless, argue both have interests that would be impaired by proceeding without them. Defendants contend Andersen's guaranty continues to guarantee the obligation of the current lessee. Defendants also contend the outcome of Plaintiffs' declaratory judgment suit could materially change Andersen's obligation under the guaranty. Defendants rely on Marshall-Wells Co. v. Tenney, 118 Or. 373, 244 P. 84 (1926), to support their argument. The court in Marshall-Wells held any material change in the obligation of the debtor without the guarantor's consent would release the guarantor from liability. In Marshall-Wells, the defendant guaranteed the debt of Multnomah Iron Works to Marshall-Wells Co. After the execution of the guaranty, Multnomah Iron Works became insolvent and its principals entered into an agreement to transfer control of the company to a creditors' committee. The court held this transfer of control and certain decisions made by the creditors' committee materially changed the guarantor's obligation and discharged the guarantor's liability. Under the reasoning in Marshall-Wells, a complete change in the identity of the debtor, as occurred here when MTR Company assigned its interest to Koll/Intereal Northwest, would also discharge the guarantor. It is questionable, therefore, whether Andersen's guaranty remains in effect.
Even assuming, however, Andersen's guaranty remains in effect, this Court's interpretation of the lease could not impair or impede Andersen's alleged interest. An interpretation of a clause in the lease would not change the terms of the lease or materially alter the guarantor's obligations. A court's task in interpreting contractual language is to determine the intent of the parties rather than to make new terms or to modify the bargain. Anderson v. Jensen Racing, Inc., 324 Or. 570, 575-76, 931 P.2d 763 (1997). See also Or. Rev. Stat. § 42.230. Andersen has no interest that would be impaired or impeded by a decision in this case.
Defendants contend Nimbus has a legally-protected interest in the outcome of this litigation because Nimbus, as lessee of the segregated portion of the Robinsons' property, is bound by the same lease terms as Defendants. This argument also fails. Nimbus would not be bound by this Court's interpretation of Defendants' lease; thus, Nimbus has no interest that would be impaired or impeded by this litigation. See Stevens v. Horton, 161 Or. App. 454 (1999) (issue preclusion will not operate to bind a nonparty unless the nonparty was in privity with a party to the underlying action).
3. The Absence of Nonparties Does Not Subject Defendants to a "Substantial Risk of Incurring Double, Multiple, or Otherwise Inconsistent Obligations"
Rule 19(a)(2)(ii) requires the Court to decide whether continuation of the action without the absent parties would expose Defendants to the "substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest." This provision of Rule 19 is implicated only when a nonparty's absence produces a substantial risk of inconsistent obligations for those who are already parties. Southwest Center for Biological Diversity v. Babbitt, 150 F.3d 1152, 1155 (9th Cir. 1998).
Defendants contend Andersen and Nimbus are indispensable parties because they could bring separate lawsuits and require Defendants to litigate more than once concerning contract language which Plaintiffs challenge here. Any such risk, however, is not sufficient in this case to render either party indispensable under Rule 19.
Andersen is bound by the terms of his guaranty contract rather than the terms of the lease. Andersen is obligated under the guaranty to pay, upon lessor's demand, "the full amount . . . of Lessee's indebtedness to Lessor" if the lessee defaults in its obligations under the lease. Andersen is not a party to the lease and could not sue to enforce it or to seek interpretation of its terms. The risk of litigation arising from Andersen's separate guaranty agreement does not render Andersen necessary to this action for interpretation of a lease to which Andersen is not a party.
Defendants also contend the possibility of a second lawsuit by Nimbus to interpret identical language in its separate lease is sufficient to render Nimbus necessary to this action. This, however, is a risk Defendants assumed when they segregated the leased premises and agreed to treat the lease of the segregated portion as a separate and independent lease. See Helzberg's Diamond Shops, Inc. v. Valley West Des Moines Shopping Center, Inc., 564 F.2d 816, 820 (8th Cir. 1977) (A party is not indispensable to an action to determine rights under a lease simply because that party's rights or obligations under a separate lease will be affected by the result of the action). Defendants rely on Walsh v. Centeio, 692 F.2d 1239 (9th Cir. 1982) to support their argument that the possibility of a separate suit by Nimbus renders Nimbus a necessary party. Walsh involved a suit brought by three of five beneficiaries of multiple, jointly-administered trusts for removal of the trustee. The court applied the general rule that all beneficiaries are needed for a just adjudication of an action to remove trustees and require an accounting. 692 F.2d at 1243. The particular and unique facts surrounding the establishment of the multiple trusts were critical to the court's decision in Walsh, but are not relevant to Plaintiffs' claim for interpretation of a lease. The Walsh court did not, as Defendants assert, find the risk of multiple litigation sufficient to render the absent beneficiaries indispensable. At best, the court appropriately noted the risk of multiple litigation was one factor in the Rule 19 analysis. That recognition, under the unique facts presented in Walsh, does not compel a finding of indispensability in this case. Nimbus is not a party to the lease at issue and is not, therefore, a necessary party. See Northrop Corp. v. McDonnell Douglas Corp., 705 F.2d 1030, 1044 (9th Cir.), cert. denied, 464 U.S. 849 (1983) (a nonparty to a commercial contract is not generally a necessary party to adjudication of rights under the contract).
In summary, the Court holds, in the exercise of its discretion, that neither Andersen nor Nimbus are necessary parties under Rule 19(a); therefore, the Court does not need to proceed to an analysis of whether they are indispensable under Rule 19(b). See Janney Montgomery Scott, Inc. v. Shepard Niles, Inc., 11 F.3d 399 (3d Cir. 1993).
CONCLUSION
Based on the foregoing, the Court DENIES Defendants' Motion to Dismiss (#10).
IT IS SO ORDERED.