Challenge Homes, Inc. v. Greater Naples Care Center, Inc. and Wendell L. Kramer, 669 F.2d 667, 11th Cir. (1982)
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Scribd Government DocsChallenge Homes, Inc. v. Greater Naples Care Center, Inc. and Wendell L. Kramer, 669 F.2d 667, 11th Cir. (1982)
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Scribd Government Docs669 F.
2d 667
CHALLENGE HOMES, INC., Plaintiff-Appellant,
v.
GREATER NAPLES CARE CENTER, INC. and Wendell L.
Kramer,
Defendants-Appellees.
No. 81-5017.
United States Court of Appeals,
Eleventh Circuit.
March 5, 1982.
Reid E. Robison, Oklahoma City, Okl., for McAfee & Taft.
William C. Crenshaw, Miami, Fla., for plaintiff-appellant.
Dempsey & Slaughter, P. A., A. Thomas Mihok, Orlando, Fla., for
defendants-appellees.
Appeal from the United States District Court for the Southern District of
Florida.
Before VANCE, KRAVITCH and CLARK, Circuit Judges.
KRAVITCH, Circuit Judge:
Challenge Homes, Inc., (Challenge) appeals from the district court's dismissal
of its action against Greater Naples Care Center, Inc. (GNCC) and Wendell L.
Kramer. The district court found that a party who could not be joined in the
action was indispensable under Fed.R.Civ.P. 19, thus mandating dismissal. We
reverse.
I. Background
2
In its original complaint Challenge sought judgment against GNCC, Wendell L.
Kramer, and Lowell D. Kramer for cancellation of a lease, an accounting, and
damages for all profits from the lease. Lowell Kramer at one time was
president and chairman of the board of directors of Challenge. Wendell Kramer,
his brother, is the sole owner and president of GNCC. The complaint alleged
that Lowell Kramer breached his fiduciary duty to Challenge by causing it to
lease a nursing home to GNCC at a rental rate substantially lower than the
market value with an option to purchase at a price below fair market value. It
further alleged that Wendell Kramer knowingly assisted his brother in this
breach of fiduciary duty. The original suit was dismissed without prejudice for
failure to allege the citizenship of the individual defendants.1 Challenge filed an
amended complaint making the requisite citizenship allegations, but eliminating
as a party defendant Lowell Kramer, whose joinder would have destroyed
diversity of citizenship and divested the court of its jurisdiction under 28 U.S.C.
1332. The appellees then filed a motion to dismiss, alleging in part that
Lowell was an indispensable party under Rule 19.
II. The Indispensability of Lowell Kramer
3
Both parties have vigorously argued whether the breach of fiduciary duty
alleged in this case is a tort or a breach of contract under Florida law. We
decline to reach this issue, however, because Rule 19 was enacted "to eliminate
formalistic labels that restricted many courts from an examination of the
practical factors of individual cases." Smith v. State Farm Fire & Casualty Co.,
633 F.2d 401, 405 (5th Cir. 1980) (quoting 7 Wright and Miller, Federal
Practice & Procedure: Civil 1601 (1972)).2 See Provident Tradesmens Bank
& Trust Co. v. Patterson, 390 U.S. 102, 118, 88 S.Ct. 733, 742, 19 L.Ed.2d 936
(1967); Haas v. Jefferson National Bank, 442 F.2d 394, 398 (1971). Moreover,
regardless of the proper characterization of the injury to Challenge, we
conclude that Lowell Kramer is not an indispensable party under Rule 19.
Rule 19 states a two-part test for determining whether a party is indispensable.
First, the court must ascertain under the standards of Rule 19(a) whether the
person in question is one who should be joined if feasible. If the person should
be joined but cannot be (because, for example, joinder would divest the court of
jurisdiction) then the court must inquire whether, applying the factors
enumerated in Rule 19(b), the litigation may continue.3 See, e.g., Provident
Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 88 S.Ct. 733, 19
L.Ed.2d 936 (1967). Our first step in analyzing the case at bar, therefore, is to
decide whether Lowell Kramer is a person who should be joined if feasible
under Rule 19(a). In making this decision, "pragmatic concerns, especially the
effect on the parties and the litigation," control. Smith, supra at 405. See
Provident Tradesmens, supra.
Rule 19(a) states in relevant part:
(a) Persons to be Joined if Feasible. A person who is subject to service of
process and 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 his
absence, complete relief cannot be accorded among those already parties, or (2)
he claims an interest relating to the subject of the action and is so situated that
the disposition of the act in his absence may (i) as a practical matter impair or
impede his 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 his claimed interest.
Viewing these factors in light of "pragmatic concerns," we conclude that
Lowell Kramer is not a person who should be joined if feasible. As to the first
factor, the only persons with any interest in the lease at issue are Challenge and
GNCC, both of whom are before the court. Thus Challenge can be granted
complete relief, in the form of cancellation of the lease and an accounting if
appropriate, without joining Lowell Kramer in the suit. Cf. Broussard v.
Columbia Gulf Transmission Co., 398 F.2d 885 (5th Cir. 1968) (complete relief
could not be granted to plaintiffs, owners of property, without all owners joined
as parties).
The second part of Rule 19(a) focuses on possible prejudice either to the absent
party, Rule 19(a)(2)(i), or the present litigants, Rule 19(a)(2)(ii). Analysis of
this part of the joinder test presents a closer issue. Lowell Kramer
unquestionably has an interest in this litigation inasmuch as any recovery by
Challenge against GNCC necessarily would be based on a finding that Lowell
Kramer breached his fiduciary duty to Challenge and was aided by his brother
Wendell and GNCC. Thus we must inquire whether the absence of Lowell
Kramer in any way jeopardizes his interests or subjects any party to multiple or
inconsistent obligations.
Because Lowell Kramer is not a party to this suit and will not have an
opportunity to litigate his involvement in the questioned transaction, he will not
be legally bound by the judgment under principles of res judicata or collateral
estoppel. See, e.g., Stovall v. Price Waterhouse Co., 652 F.2d 537, 540 (5th Cir.
1981). Thus Lowell Kramer will have a full opportunity to litigate his
participation in any fraud should either Challenge or GNCC sue him at some
future time for damages for his alleged breach of fiduciary duty. The fact that
the judgment in this suit would have no legally preclusive effect as to Lowell
Kramer, however, does not end the analysis. A court may not:
9
proceed
without considering the potential effect on nonparties simply because they
are not "bound" in the technical sense. Instead as Rule 19(a) expresses it, the court
must consider the extent to which the judgment may "as a practical matter impair or
impede his ability to protect" his interest in the subject matter.
10
Provident Tradesmens, supra, 390 U.S. at 110, 88 S.Ct. at 738.
11
Accordingly, in Schutten v. Shell Oil Co., 421 F.2d 869 (5th Cir. 1970) the
court found that an absent person was one to be joined if feasible under Rule
19(a) despite the lack of legal preclusion by res judicata or collateral estoppel.
In Schutten the plaintiffs, claiming ownership of certain lands leased by Shell
Oil from the Board of Commissioners of the Orleans Levee District, sued to
evict Shell and obtain an accounting for profits. Noting that the adverse claim
of ownership would both interfere with the Board's royalty collection and cast a
cloud on its title to the property, the court found that the litigation as a practical
matter would prejudice the Board's interests. See also Doty v. St. Mary Parish
Land Co., 598 F.2d 885 (5th Cir. 1979) (in suit against landowners, mineral
lessee was indispensable). Similarly, in Haas v. Jefferson National Bank, 442
F.2d 394 (5th Cir. 1971) plaintiff Haas sought an injunction against the bank to
issue 1691/2 shares of its stock to him. Haas asserted that he and Charles
Glueck had purchased shares in the bank jointly, and that the bank knew of his
interest but nevertheless, at Glueck's request, transferred the shares to a second
bank as collateral for a loan. The court held that Glueck was a party to be
joined if feasible partly because transfer of the stock to Haas would prejudice
Glueck's ownership and control of all the shares.4
12
We find Haas, Schutten, and similar cases distinguishable from the case before
us, however. Lowell Kramer, unlike the absent persons in Haas and Schutten,
has absolutely no interest in the subject matter of the suit, i.e., the lease. Hence
judgment against GNCC for cancellation of the lease and an accounting would
have no effect, practical or otherwise, on Lowell Kramer. As a result, we
conclude that his interest in this suit would not be prejudiced by his absence as
a party.
13
The final consideration is whether, given Lowell Kramer's interest in the
litigation, GNCC might be subject to multiple or inconsistent liability. As we
noted above, only Challenge and GNCC have any interest in the lease; thus
GNCC's liability can extend only to Challenge and in any case will be finally
resolved in this suit. Cf. Haas, supra (judgment in favor of Haas without Glueck
as a party could leave bank open to double liability should Glueck later win a
separate suit against the bank). The only other possible prejudice to GNCC
would arise if the corporation claimed indemnity from Lowell Kramer for all or
part of its liability. Because, as explained above, Kramer would not be legally
bound by a judgment in this case, GNCC could theoretically lose a later suit for
indemnity against Kramer. GNCC, however, may protect itself against this
possibility by impleading Lowell Kramer under Rule 14.5 Consequently,
GNCC also suffers no prejudice by the absence of Lowell Kramer. See Smith v.
State Farm Fire & Casualty Co., 633 F.2d 401, 405 (5th Cir. 1980).
14
Because Lowell Kramer does not fit any of the Rule 19(a) tests for persons who
should be joined if feasible, he a fortiori is not an indispensable party under
Rule 19. Accordingly, we reverse the district court's dismissal order.
15
REVERSED.
Challenge is a Minnesota corporation with its principal place of business in
Oklahoma. Lowell Kramer is a Minnesota citizen. GNCC and Wendell Kramer
are both citizens of Florida
The Eleventh Circuit, in the en banc case Bonner v. City of Prichard, 661 F.2d
1206 (11th Cir. 1981), adopted as precedent the decisions of the former Fifth
Circuit
Rule 19(b) states in relevant part:
(b) Determination by Court Whenever Joinder not Feasible. 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 him 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.
For the full text of Rule 19(a), see infra.
As many courts and commentators have noted, the term "indispensable party"
is merely a conclusion arrived at after completing the analysis in Rule 19. Only
when a court finds that a person is one who should be joined but cannot be and
that the litigation cannot go forward without the missing person is the label
"indispensable" appropriate. See, e.g., Provident Tradesmens Bank & Trust Co.
v. Patterson, 390 U.S. 102, 119, 88 S.Ct. 733, 743, 19 L.Ed.2d 936 (1968);
Schutten v. Shell Oil Co., 421 F.2d 869, 873 (5th Cir. 1970); 7 Wright &
Miller, Federal Practice and Procedure 1604 at 32 (1972); Advisory
Committee's Notes to Amendments to Rules of Civil Procedure, 39 F.R.D. 69,
93 (1966).
4
The court also noted that a judgment in favor of Haas could leave the bank
open to double liability, because Glueck, who would not be bound by the
judgment, could later sue the bank in a separate action and win. Thus Glueck
also met the test of Rule 19(a)(2)(ii)
Such joinder would come under the ancillary jurisdiction of the court, so that
the case could go forward despite lack of complete diversity. E.g., Revere
Copper & Brass, Inc. v. Aetna Casualty & Surety Co., 426 F.2d 709, 715 (5th
Cir. 1970). The plaintiff, however, may not assert any claims against the thirdparty defendant which do not have an independent jurisdictional basis. Owen
Equipment & Erection Co. v. Kroger, 437 U.S. 365, 98 S.Ct. 2396, 57 L.Ed.2d
274 (1978)
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