JAMES P. O'HARA, Magistrate Judge.
Plaintiff, Jeffrey S. Green, a member and manager of 63rd Street Enterprises, LLC ("the LLC") brings this diversity action against two former managers and officers of the LLC, Christian Blake and Joshua Leonard. Plaintiff's original complaint alleged that defendants made misrepresentations to plaintiff to induce him to invest in the LLC, breached fiduciary duties owed the LLC's members, converted LLC assets for their own use, and failed to produce an accounting of the LLC's income and expenses. On August 12, 2019, the presiding U.S. District Judge, Carlos Murguia, ruled that plaintiff's breach-of-fiduciary-duty, conversion, and accounting claims sought "redress of duties owed directly to the LLC and all its members, not any special duties owed exclusively to plaintiff,"
Plaintiff now has filed two interrelated motions seeking to reassert the derivative claims as a representative of the LLC: (1) a motion for leave to file an amended complaint under Rule 23.1 asserting derivative claims (in addition to his direct claim) (ECF No. 39); and (2) a motion under Fed. R. Civ. P. 20 to join himself as a plaintiff "derivatively on behalf of [the LLC]" and to join as a defendant in the derivative action Lynn Ebel, Blake's wife (ECF No. 37). The undersigned U.S. Magistrate Judge, James P. O'Hara, concludes the LLC is a necessary and indispensable party to the proposed derivative action and that the LLC cannot be joined without destroying the court's subject-matter jurisdiction. Therefore, it is recommended that Judge Murguia deny leave to file the proposed amended complaint as futile. The motion to add parties in the derivative action should then be denied as moot.
Under Fed. R. Civ. P. 15(a)(2), once a responsive pleading has been filed, "a party may amend its pleading only with the opposing party's written consent or the court's leave." Rule 15(a)(2) directs the court to "freely give leave when justice so requires." The decision whether to grant leave to amend is within the discretion of the district court.
Fed. R. Civ. P. 12(b)(7) permits a court to dismiss a case if a plaintiff has failed to join a necessary and indispensable party as required by Fed. R. Civ. P. 19.
Second, if the court determines that the absent party is necessary, "the court then considers whether joinder is feasible—i.e., whether the person is subject to service of process and whether joinder will deprive the court of subject matter jurisdiction."
Finally, "if the absent person is necessary, but joinder is not feasible, the court must decide whether that person is indispensable."
Applying the three-step analysis to the derivative action plaintiff proposes to bring, the undersigned finds that the LLC is a necessary and indispensable party whose joinder is not feasible. Without the LLC as a party, the proposed claims would be dismissed.
Judge Murguia addressed the first step of the Rule 19 analysis in his August 12, 2019 order. After concluding he "need not determine whether the LLC is a necessary and indispensable party under Federal Rule of Civil Procedure 19" because, at that time, plaintiff had expressed an "eagerness `to avoid . . . asserting a derivative claim,'"
Under the second step of the analysis, plaintiff concedes joinder of the LLC is not feasible because "the joinder of the limited liability company will deprive this Court of subject matter jurisdiction."
Because joining the LLC, a necessary party, is not feasible, the undersigned proceeds to the third step of the analysis: weighing the factors set out in Rule 19(b) to determine whether the LLC is an indispensable party. "Applying these factors, courts appear unanimous in concluding that the party on whose behalf a derivative claim is brought is indispensable and one whose absence warrants dismissal."
Even without this wealth of authority indicating the LLC is an indispensable party to the derivative claims plaintiff seeks to add, the circumstances here warrant such a finding. First, no one disputes the LLC is a "separate legal entity with rights and obligations distinct from those of its members."
Second, the court finds proceeding with the derivative action in the absence of the LLC could prejudice defendants by placing them at risk of litigating a subsequent proceeding brought by the LLC over the same issues. Plaintiff has supplied letters from managers of the LLC stating the LLC will not pursue its own right of action against defendants (or the proposed new defendant, Ebel).
Finally, plaintiff concedes he has "a remedy by filing a state court action,"
In weighing these factors, the undersigned cannot conclude that, "in equity and good conscience, the action should proceed" without the LLC.
Because the LLC is a necessary and indispensable party under Rule 19, it would be clearly futile to add plaintiff's proposed derivative claims to the action, as they would be subject to immediate dismissal. The undersigned therefore recommends that Judge Murguia deny plaintiff's motion for leave to file an amended complaint that adds derivative claims (ECF No. 39). This ruling should be without prejudice to plaintiff filing a new motion for leave to amend his direct action.
Plaintiff's second motion, to join himself as a plaintiff and Ebel as a defendant in his proposed derivative action, becomes moot if the court does not permit the derivative claims to proceed. The undersigned therefore recommends that Judge Murguia deny plaintiff's motion to join parties (ECF No. 37) as moot.
As a final matter, the undersigned notes that defendants' responses to the motion for leave to amend and the motion to join parties suggest the court dismiss this entire action because it was not brought in Oregon. The undersigned recommends that Judge Murguia direct defendants to file a separate motion to dismiss should they still seek such relief after a decision is made on the instant motions.
IT IS THEREFORE RECOMMENDED that plaintiff's motion for leave to file an amended complaint (ECF No. 39) be denied on its merits and that plaintiff's motion for leave to join parties in a derivative suit (ECF No. 37) be denied as moot.
The parties are hereby informed that, within 14 days after being served with a copy of this report and recommendation, they may, pursuant to 28 U.S.C. § 636(b)(1) and Fed. R. Civ. P. 72, file written objections to the report and recommendation. A party must file any objections within the 14-day period allowed if it wants to have appellate review of the proposed findings of fact, conclusions of law, or the recommended disposition. If a party does not timely file objections, no court will allow appellate review.