ROBERT D. MARIANI, District Judge.
The issue that has been placed before this Court is whether the action of Plaintiffs, Lamar Advantage GP Company, LLC, and Lamar Central Outdoor, LLC, (hereinafter "Lamar" or "the Lamar Plaintiffs") must be dismissed pursuant to Federal Rule of Civil Procedure 19 for failure to join Landmark Infrastructure Holding Company, LLC, Bank of America, N.A., and Wilmington Trust National Association, who are the assignees of certain leases between Defendant Joyce, as lessor, and Lamar, as the assignee of Chancellor Media Corporation. For the reasons that follow, the Court finds that the assignees of Joyce are indispensable parties whose joinder would destroy complete diversity as among the parties to this action, therefore requiring that Lamar's complaint, and the entirety of the action, be dismissed.
In order to engage in the required analysis of this issue, the procedural history of this case must be recounted.
On July 3, 2013, Lamar filed suit against Gerard Joyce, individually, Lofts at the Mill, LP, and Lofts GP, LLC (Doc. 1).
On July 31, 2013, the action against Lofts at the Mill, LP and Lofts GP, LLC, was dismissed without prejudice pursuant to a stipulation between the Plaintiff and all Defendants (Doc. 10).
On November 4, 2013, this Court granted Lamar's Motion for Leave to File an Amended Complaint in this case. (Doc. 20). Defendant Joyce then moved to dismiss the Amended Complaint. (Doc. 23). The matter was fully briefed and this Court, by Order dated June 16, 2014 (Doc. 33) denied Defendant's motion to dismiss. In the Memorandum Opinion accompanying this Court's Order, the Court referenced the allegations of Lamar's Amended Complaint, specifically that on October 23, 1998, Chancellor Media Corporation ("Chancellor") and Defendant Joyce entered into a Settlement Agreement and Mutual Release ("Agreement") (Doc. 32, at 2). The Settlement Agreement and Mutual Release whose provisions were alleged in the Amended Complaint to have been breached, is of record in this case (Doc. 85-2).
Paragraph 2D of that Agreement provides as follows:
(Doc. 85-2 at 4-5).
Joyce moved to dismiss Lamar's Amended Complaint on a single basis — that the Agreement bars competition only with Chancellor, not Joyce. (Doc. 24, at 8).
This Court denied Joyce's motion to dismiss on the following basis:
(Doc. 32 at 5).
Lamar filed a Second Amended Complaint on December 23, 2014. (Doc. 55). Attached to the Second Amended Complaint is a document entitled "Inter company Transfer and Assignment." (Doc. 55-1, Ex. K). That agreement recites that as of August 11, 1999, "Lamar Media Corp. acquired (directly or indirectly) ownership of all subsidiaries of the Chancellor Sellers then holding outdoor advertising assets (collectively, `Chancellor Outdoor Subsidiaries'), and as a result Lamar Media Corp. acquired all outdoor advertising assets and operations of the Chancellor Outdoor Subsidiaries located in the Scranton, Pennsylvania metropolitan area (collectively `Chancellor's Scranton Area Outdoor Assets')". Lamar Central Outdoor, LLC, as assignor, then assigned all of its "right, title and interest in, to and under Chancellor's Scranton Area Outdoor Assets (and the Agreement), to" Lamar Advantage GP Company assignee. (Id.).
The assignment between Lamar Central Outdoor, LLC, and Lamar Advantage GP Company, LLC, was undertaken because a prior, written assignment between these parties had not been located and according to this transfer agreement "Lamar Media Corp. desires that Assignor perfect the assignment of the Chancellor's Scranton Area Outdoor Assets (including the Joyce agreement) to Assignee herein." (Id.).
As to the claims of Lamar that Joyce had violated the non-compete provisions of the Settlement Agreement and Release entered into by Joyce and Chancellor which had been assigned to Lamar, Lamar filed a motion for partial summary judgment on January 22, 2015. (Doc. 58). Previously, Joyce had filed a motion for summary judgment on September 26, 2014. (Doc. 38). These motions were referred to Magistrate Judge Carlson for a Report and Recommendation ("R&R").
Judge Carlson issued his R&R on August 28, 2015. (Doc. 66). Judge Carlson recommended that "Lamar's motion for summary judgment (Doc. 58) be granted but only insofar as it seeks a legal judgment that it is the successor-in-interest to Chancellor and entitled to seek enforcement of its rights under the 1998 Settlement Agreement." (Id. at 23). In all other respects, Judge Carlson recommended that Lamar's motion be denied and that, likewise, the motion for summary judgment of Joyce also be denied.
This Court, by Order dated September 15, 2015 (Doc. 67), and in the absence of objections from either plaintiffs or defendant, adopted the R&R, granted plaintiffs' motion for partial summary judgment insofar as it sought a judicial determination that the plaintiffs are legally entitled to seek enforcement of the Settlement Agreement that provides the basis for this action. This Court further ruled that "[a]s a matter of law, Plaintiffs have standing to enforce their rights under the 1998 Settlement Agreement as successor-in-interest to Chancellor's rights." (Id. at 2). The plaintiffs' motion was denied in all other respects and the defendant's motion for summary judgment was likewise denied.
By Order dated September 23, 2015, trial was scheduled to begin in this case on February 22, 2016, and a final pretrial conference was set for February 12, 2016. (Doc. 70). In accordance with this Court's scheduling order, the parties filed pre-trial memoranda on February 8, 2016. (Docs. 91, 94).
Defendant Joyce's pre-trial memorandum made several assertions, including that Joyce took no action that violated the terms of the non-compete provisions set forth in the Settlement Agreement and Mutual Release. (Doc. 94, at 6-8). Joyce also presented his contentions that he did not engage in a material breach of the non-compete provisions of the Settlement Agreement and Mutual Release. (Id. at 8-11).
In addition, Joyce responded to the position taken by the plaintiffs that it was their intention to rescind the Settlement Agreement and to terminate the Site Leases and Facility Lease entered into as part of the Settlement Agreement by Joyce and Chancellor, with Chancellor's interest having been assigned to Lamar. (Id. at 11-13). Lamar had contended that Joyce's violation of the non-compete provisions of the Agreement constituted a material breach which excused Lamar from further performance under the Agreement. In response, Joyce argued that the site leases and facility lease had been assigned by Joyce or his companies to entities, who, if joined as defendants, would destroy complete diversity as between the plaintiffs and Joyce, and thus deprive the Court of jurisdiction. Joyce's pre-trial memorandum stated in part:
(Id. at 12).
The issue of the non-joinder of indispensable parties having been raised by Joyce, the Court, at the pretrial conference, engaged in a discussion of the issue with counsel for the parties. At the pretrial conference, an attempt was made to identify the entities to which Joyce had assigned the Site Leases and Facility Lease. Among the assignments which were identified as being currently in effect were assignments to Bank of America and Landmark Dividend. Counsel for Lamar confirmed Lamar's position that if it were successful in this action, it intended to terminate the Site Leases and Facility Lease which Joyce had assigned to Bank of America and Landmark Dividend. Counsel for Joyce described the nature and purpose of these assignments as follows:
(Off. Pretrial Tr., Feb. 12, 2016, at 10).
After extended discussion as to the application of Federal Rule of Civil Procedure 19, as well as a discussion of Lamar's knowledge of the assignment of these leases occurring after the commencement of this litigation (id. at 10-15), the Court inquired as to whether Lamar would agree that the leases which had been assigned to the non-diverse third parties would be unaffected by any verdict or judgment in Lamar's favor. Counsel for Lamar did not agree to such an approach:
(Id. at 15).
This Court's Order entered February 12, 2016 (Doc. 99), immediately following the pretrial conference, summarizes the issue of joinder of the non-diverse third party assignees as raised in the defendant's pretrial memorandum and as discussed at the pretrial conference. The Order granted Plaintiff thirty days "to make a determination of all assignees of the Lamar-Joyce leases who shall be joined as Defendants in this matter, as well as to identify any other indispensable parties, who shall likewise be joined ('the Supplemental Discovery Period')." (Id. at ¶ 2).
The Order further granted Plaintiffs an additional thirty days "from the expiration of the Supplemental Discovery Period . . . within which to effect the joinder of all indispensable parties." (Id. at ¶ 3).
Finally, the February 12, 2016, Order of this Court provided that within sixty days of the date of the Order, "Plaintiff shall submit of record a report of any assignee or other indispensable party whose joinder will deprive the Court of its jurisdiction. If any such indispensable parties exist, the parties shall have fourteen (14) days from the date on which Plaintiff submits its report to file briefs in support of their respective positions as to `whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed,' Fed. R. Civ. P. 19 (b), pursuant to Federal Rule 19 and applicable case law." (Id. at ¶ 4).
By Order dated March 4, 2016, the Supplemental Discovery Period was extended to April 14, 2016, and Plaintiffs were granted until May 14, 2016 "to effectuate the joinder of indispensable parties" as well as "to submit a report to the Court identifying the assignees and/or indispensable parties whose joinder will deprive the Court of its jurisdiction in this matter." (Doc. 102, at ¶¶ 2, 3). The parties were further granted 14 days from the date Plaintiffs submitted the aforementioned report to file briefs on the issue of whether, "in equity and good conscience, the action should proceed among the existing parties or should be dismissed . . ." (Id. at ¶ 4).
On May 10, 2016, the Lamar Plaintiffs moved to amend their Second Amended Complaint to permit the addition of certain "Joyce affiliated entities" who were identified as Lofts at the Mills, LP., Lofts GP, LLC, AMB Investments of Pennsylvania, Inc. and May Acquisition, LLC. (Doc. 104). Thus, the Lamar Plaintiffs sought leave to file the Third Amended Complaint attached to their motion (Doc. 104-1).
Lamar's motion seeking leave to file a Third Amended Complaint, alleged:
(Doc. 104, at ¶ 12).
In that same motion, the Lamar Plaintiffs asserted that "Joyce had also made an assignment of the lease payments for the Scranton facility lease which was at issue in this litigation on February 24, 2015. The assignment of the facility lease was to Bank of America, N.A. Bank of America, N.A. in turn assigned its interest in the leases and rents subject to the 1998 Settlement Agreement to Wilmington Trust, National Association on August 5, 2015." (Id. at ¶ 9). The Lamar Plaintiffs, however, did not seek in their motion for leave to file a Third Amended Complaint leave to add Bank of America, Landmark Infrastructure Holdings Company, LLC ("Landmark") or the Wilmington Trust.
Lamar Plaintiffs, in their brief in support of their motion to file a Third Amended Complaint (Doc. 107) offered:
(Id. at 6).
The filing by the Lamar Plaintiffs of a motion for leave to file a Third Amended Complaint without joining the non-diverse third party assignees of Joyce prompted this Court to issue an Order on May 23, 2016. (Doc. 112). In that Order, this Court noted that "the submissions thus far from Plaintiffs have not complied with the framework set forth in the Court's Order for identifying the `assignee or other indispensable party whose joinder will deprive the Court of its jurisdiction [i]f any such indispensable parties exist.'" (Id. at 1). The Court's Order continued:
(Id. at 2).
The letter of counsel for the Lamar Plaintiffs dated May 13, 2016 (Doc. 108) identified "the following potential parties as assignees of Joyce/Lofts/ABM Investments of Pennsylvania, Inc., and May Acquisition, LLC, as assignees of those entities: (1) Landmark Infrastructure Holding Company, LLC; (2) Bank of America, N.A., and (3) Wilmington Trust, National Association, As Trustee for Morgan Stanley Bank of America Merrill Lynch Trust 2015-C24, Commercial Mortgage Pass-Through Certificates, Series 2015-C24."
The letter further stated that "[t]he Lamar Entities wish to inform the Court that they will submit their brief consistent with the Court's directive which will include analysis under Federal Rule of Civil Procedure 19 as to whether the foregoing parties are indispensable so that the Court can make a determination as to whether it will relinquish jurisdiction in this matter." (Id.).
Counsel for the Lamar Plaintiffs, by letter dated May 31, 2016 (Doc. 113), identified the non-diverse assignees of Joyce whose joinder, Plaintiffs' counsel acknowledged, would deprive this Court of jurisdiction over this matter. Specifically, Plaintiffs' counsel wrote:
(Id.).
Thereafter, the Lamar Plaintiffs filed a "Memorandum of Law in Opposition to Compulsory Joinder of Parties". (Doc. 114). Defendant Joyce, in turn, filed a brief "in Support of his Position that Dismissal of Plaintiffs' Claims is Merited since Equity and Justice require Joinder of Indispensable Parties that Would Deprive the Court of Jurisdiction." (Doc. 115).
Following the Court lifting the stay of briefing on Plaintiff's Motion to Add Parties (Doc. 116), Defendant Joyce filed his brief in opposition to Plaintiffs' motion to file a Third Amended Complaint (Doc. 117).
In his Brief in Support of his Position that Dismissal of Plaintiffs' Claims is Merited since Equity and Justice require Joinder of Indispensable Parties that Would Deprive the Court of Jurisdiction (Doc. 115), Joyce begins by asserting that the Lamar Plaintiffs have made it clear to the Court that they are pursuing rescission of the Settlement Agreement and that "such rescission would result in Plaintiffs' termination of the site leases and facility leases (collectively, the "Leases"), that were contemplated in the Settlement Agreement and eventually entered into with Joyce." (Id. at 1). Quoting Krupa v. Hilcorp Energy I LP, 2014 WL 2506144, at *13 (W.D. Pa. 2014 and Fluent v. Salamanca Indian Lease Authority, 928 F.2d 542, 547 (2d Cir. 1991), for the proposition that "it is well settled that `in an action to set aside a lease or a contract, all parties who may be affected by the determination of the action are indispensable'", Joyce argues:
(Doc. 115, at 6-7).
Defendant Joyce then argues that "each assignee is a party to at least one of the Leases which Plaintiffs seek to invalidate," and that "[i]f a judgment is granted in Plaintiffs' favor then they intend to terminate the Leases; [t]ermination of the Leases will directly impact the rights of the assignees, who are parties to the Leases." (Id. at 8). Joyce further argues that if the Plaintiffs are successful they will either "simply cease making rental payments pursuant to the Leases or Plaintiffs will notify the assignees of the judgment in this matter and seek to enforce it as to them. Either of these options directly implicates the rights of the assignees and more than likely results in secondary litigation involving Plaintiffs, the assignees, and potentially Joyce." (Id. at 9).
Joyce further argues that the non-diverse third party assignees of his assignments will be unavoidably prejudiced if this action were to proceed in their absence. Joyce maintains that if Plaintiffs are successful in obtaining the rescission of the Settlement Agreement and the concomitant invalidation of the Leases entered into under the Settlement Agreement, termination of those Leases will be to the prejudice of the assignees whose rights will have been unprotected throughout the litigation. (Id. at 10).
Joyce also contends that should this Court dismiss this action for lack of complete diversity, the Plaintiffs will have an adequate remedy in state court since the Settlement Agreement is governed by Pennsylvania law and all issues as to necessary and indispensable parties "could be decided in one matter." This, Joyce argues, "eliminates the risk of duplicative or inconsistent litigation." (Id. at 11).
Similarly, Joyce, in his Brief in Opposition to Plaintiffs' Motion to File a Third Amended Complaint (Doc. 117), asserts that Landmark, Bank of America, N.A., and Wilmington Trust are necessary and indispensable parties under Rule 19 "because they are the present holders of the Leases, and are entitled to be a party to an action where the validity of those Leases is being challenged." (Id. at 4-5). Thus, Joyce argues "because these parties are indispensable and must be joined, such joinder would deprive this Court of jurisdiction." (Id. at 5).
Joyce also defends the timing of his assertion that the non-diverse third party assignees are indispensable parties, stating first that Lamar proceeded through the discovery phase of this case without ever asserting or otherwise indicating that they intended to seek termination of the Leases if they were successful in their claims that Joyce engaged in a material breach of the Settlement Agreement by violating the non-compete provisions therein. Thus, Joyce argues that he "did not know of any issue that would potentially implicate indispensable parties. Upon the first notification of Plaintiffs' intent to seek rescission of the Settlement Agreement and resultant intent to terminate the Leases, Joyce promptly raised the issue of indispensable parties." (Id. at 5). Joyce also notes that the failure to join a party under Rule 19(b) is a defect that "is so basic that it can be raised after trial, and either the district court or any appellate court may raise the issue sua sponte." (Id.) (quoting 1 James Wm. Moore & Kevin Shirey, Moore's Federal Practice, ¶ 19.3 (2015)).
Joyce argues again that "Landmark, BOA, and Wilmington Trust are `necessary parties' under this subsection of Rule 19(a) [Rule 19(a)(1)(A)] because the Court would not be able to grant the relief the Plaintiffs are seeking (terminating the Leases) without mandating joinder of the parties to whom the Leases are assigned." (Doc. 117, at 7). Joyce again submits that the prejudice which would result if the assignees are not joined cannot be lessened or avoided in that the invalidation of the leases should Lamar be successful in this action would "directly affect and prejudice the assignees who are parties to the Leases." (Id. at 9). Joyce further states that he "cannot envision any protective measure in the judgment which might preclude the prejudice to the assignees that will come from invalidating the Leases." (Id.) Thus, Joyce requests that this Court deny Plaintiffs' Motion to File a Third Amended Complaint because that Complaint "does not join three necessary and indispensable parties to said claims, and consequently it would not survive a motion to dismiss." (Id. at 12).
The Lamar Plaintiffs, in their proposed Third Amended Complaint, "acknowledge that by virtue of the recent assignment by Joyce and/or AMB Investments and Lofts at the Mill, L.P., of their lease interests to Landmark and Bank of America and Wilmington Trust, these assignees possess a putative interest in the outcome of this litigation that would, in this Honorable Court's discretion, warrant their joinder." (Doc. 104-1, ¶ 59).
Lamar then asserts in the next paragraph that when it was made aware of the assignments of certain site leases to Landmark on or about February 3, 2016, it "promptly notified Landmark of this litigation and advised Landmark that it was seeking a judicial declaration that by virtue of Joyce's violation of the 1998 Settlement Agreement, Lamar was entitled to a discharge of all of its obligations to perform under the subject leases." (Id. at ¶ 60).
The Lamar Plaintiffs further assert that the joinder of Landmark and Wilmington Trust is not required because they "do not meet the criteria for being a necessary party under Rule 19(a)." (Id. at ¶ 61). Alternatively, Lamar asserts that should the Court find that Landmark and Wilmington Trust are necessary parties, their joinder is not feasible "because joinder would defeat diversity of citizenship and deprive this Court of jurisdiction." (Id. at ¶ 62).
The Lamar Plaintiffs also claim that the joinder of Landmark, Bank of America and Wilmington Trust "will work a substantial hardship and prejudice to Lamar by requiring them to essentially begin this litigation all over again by virtue of what amount to several `eleventh hour' conveyances by Joyce on the eve of trial in order to avoid a merits determination as to whether Lamar is entitled to relief." (Id. at ¶ 63).
Finally, Lamar Plaintiffs claim that "both Landmark and Bank of America, and Wilmington Trust were aware of the instant litigation and chose to enter into these transactions and assignment with Joyce notwithstanding the instant litigation." (Id. at ¶ 64).
Thus Lamar requests that this Court enter an Order declaring that Landmark, Bank of America, and Wilmington Trust "are not indispensable parties under F.R.C.P. 19 and permit the action to proceed among the parties named in this Third Amended Complaint." (Doc. 104-1, at 24).
The Lamar Plaintiffs, in their "Memorandum of Law In Opposition to Compulsory Joinder of Parties" (Doc. 114) note that Landmark, Bank of America, N.A., and Wilmington Trust are all Delaware companies (id. at 2 n.2) and that by letter dated May 13, 2016, "Plaintiffs' counsel advised the Court of the identity of the above-named non-diverse assignees of the defendant" (id. at 3). Plaintiffs argue that their suit may proceed against Joyce without the joinder of the third party non-diverse assignees because they "are not indispensable parties under Rule 19(b)." (Id. at 12).
In support of this argument, the Lamar Plaintiffs rely upon Janney Montgomery Scott, Inc. v. Shepard Niles, Inc., 11 F.3d 399 (3d Cir. 1993). (Doc. 114, at 4-6). Lamar likens the facts of the present case to those in Janney where only one co-obligor was made a defendant by Janney and the Court determined that the other co-obligor need not be joined because that co-obligor, the Underwood Group, Ltd., which was the parent of Shepard Niles, was jointly and severally liable to Janney and need not be joined by Janney should it decide to proceed against Shepard Niles only. Janney, 11 F.3d at 409. Thus, Lamar argues that "[i]f the Agreement in question could be construed or interpreted as a contract imposing joint and several liability on its co-obligors, the Court stated that `complete relief may be granted in a suit against only one of them.'" (Doc. 114, at 5)(quoting Janney at 406). Lamar therefore argues that:
(Doc. 114, at 5-6).
On this basis, the Lamar Plaintiffs argue that the Court can afford complete relief to them without the joinder of Joyce's third party non-diverse assignees so that they are not necessary parties under Rule 19(a)(1)(A).
With respect to the requirements of Rule 19(a)(1)(B)(i), Lamar asserts that "[a]s none of Defendant's assignees have claimed an interest in this matter or otherwise attempted to join the litigation as a party, F.R.C.P. 19(a)(1)(B) is not applicable to the analysis of whether they are necessary parties to this litigation." (Id. at 6). Yet, Lamar also argues that if the Court finds that the assignees of Joyce have claimed an interest in this matter, where an action results in a "`persuasive precedent' against an absent party, the disposition of the action in that party's absence does not impair or impede that party's ability to protect its interest within the meaning of Rule 19(a)(2)(i)." (Id. at 7) (citing Gen. Refractories Co. v. First State Ins. Co., 500 F.3d 306, 317(3d Cir. 2007)). Again, Lamar argues that Joyce's assignees are not necessary parties under Rule 19(a)(1)(B)(i).
As to Rule 19(a)(1)(B)(ii), Lamar argues that if it is successful in establishing that Joyce engaged in a material breach of the Settlement Agreement and it accordingly terminates the Leases which have been assigned by Joyce to the non-diverse third party assignees, Joyce's assignees "would likely pursue breach of contract, contribution and/or indemnification claims against the Defendant[; h]owever, Defendant would not be subject to `the substantial risk of double, multiple or otherwise inconsistent obligations' in any subsequent litigation pursued by its assignees." (Doc. 114, at 7-8). Lamar argues that if the Court determines that the Agreement and the underlying Leases are terminated, "the assignees' claims against the Defendant would simply be to recover the consideration amount they bargained for and expected to receive, i.e., future lease payments." (Id. at 8). Lamar then concludes this argument by stating: "As the Defendant was already compensated by the assignees based on the amounts it received in exchange for assigning the leases, no reasonable argument can be made that the Defendant would somehow now be subjected to `double, multiple or otherwise inconsistent obligations' if the Court terminated the Agreement and the underlying leases." Accordingly, Lamar argues that Defendant's assignees "are not necessary parties under Rule 19(a)(1)(B)(ii)." (Id.).
Lastly, the Lamar Plaintiffs acknowledge they "would be able to re-file the action and seek the same remedies in state court against all parties" if this Court were to dismiss this case for lack of subject matter jurisdiction because of the non-joinder of Defendant's non-diverse third party assignees. Lamar argues, however, that requiring the Plaintiffs to do so would result "in considerable delay and increased costs" and that it is unfair to place these burdens upon the Plaintiffs because Joyce "intentionally attempted to destroy diversity in this matter on the eve of trial when he made the lease assignments." (Id. at 11).
Lamar concludes with the request that this Court allow the matter to proceed "among the existing parties who are all diverse." (Id. at 12).
As stated at the outset of this Opinion, the fundamental issues before this Court are whether, under Federal Rule of Civil Procedure 19, the non-diverse lease assignees of Defendant Joyce must be joined as parties in this case under Rule 19(a) and, if they must be so joined, whether they are indispensable parties whose joinder, because it will operate to destroy complete diversity in this case, requires that this Court dismiss the Lamar Plaintiffs' Complaint.
In order to resolve these issues, a careful application of Rule 19 is required, and accordingly we begin with the Rule itself. Rule 19 provides:
Fed. R. Civ. P. 19.
Our Circuit, in General Refractories Company v. First State Insurance Company, discussed each of the requirements of Rule 19 for determining whether under subsection (a) a party may be deemed a "necessary party" who must be joined and whether such party must be deemed an "indispensable" party under subsection (b) whose joinder, if not feasible, will require the dismissal of a complaint.
The Court in General Refractories began its analysis as follows:
500 F.3d at 312.
The Court, after setting out the text of Rule 19(a), noted that "[c]ourts treat clauses (1) and (2) in the disjunctive just as the rule phrases them." Id. The Court explained this statement, quoting its prior decision in Koppers Co. v. Aetna Gas. & Sur. Co., 158 F.3d 170, 174 (3d Cir. 1998) as follows: "As Rule 19(a) is stated in the disjunctive, if either subsection is satisfied, the absent party is a necessary party that should be joined if possible". Id. Further, the Court made clear that:
Id. at 313.
Id. (italics in original).
The Court then focused on Rule 19(a)(2) stating:
Id. at 316.
As for the other requirement of the former Rule 19(a)(2)(ii), now set forth as Rule 19(a)(1)(B)(ii), the Court in General Refractories explained the Court's duty under this section, stating "a Court must decide whether continuation of the action would expose named parties to the `substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.'" Id. at 317.
The application of Rule 19 requires a court, once it determines that a party is a "necessary" party under Rule 19, to then determine whether the party is "indispensable" under Rule 19(b). Thus, the Court in General Refractories continued:
500 F.3d at 319.
The Court discussed the four factors listed in Rule 19(b), first noting that:
Id. at 320.
Once again, quoting its prior decision in Janney, the Court emphasized that "`[a] defendant's right to contribution or indemnity from an absent non-diverse party does not render that absentee indispensable pursuant to Rule 19.'" Id. at 320 (quoting Janney, 11 F.3d at 412).
As to the third factor under Rule 19(b), the Court observed that this element allows the Court to consider "whether a judgment rendered in the person's absence will be adequate", and further observed that it "allows the court to consider whether the relief it grants will prove an adequate remedy for the plaintiff." Id. at 320-321. The Court repeated its admonition that "[t]he right to contribution and indemnity should not, therefore, be considered to cause inadequacy of the resulting judgment." Id. at 321.
Lastly, with respect to the fourth factor in Rule 19(b) — "whether the plaintiff would have an adequate remedy if the action were dismissed for non-joinder" — the Court viewed Rule 19 as "counsel[ing] that courts should consider whether there is any assurance that the plaintiff, if dismissed, could sue effectively in another forum where better joinder would be possible." Id.
With this analytical framework, we now address the particulars of the Rule 19 issues before this Court.
First, this Court must determine whether the absent parties, Landmark, Bank of America, and Wilmington Trust are "necessary" to this action. We begin with Rule 19(a)(1)(A). There, the question presented is whether the absence of each or any of these non-diverse third party assignees of Defendant Joyce prevents the Court from according complete relief among the existing parties to this action. Here, it appears that the Court can accord complete relief among the parties already in this case. Should Lamar prevail on its breach of contract claim against Joyce, and further, should Lamar establish that Joyce's breach of contract is a material breach, then Lamar will be excused from further performance under the Settlement Agreement and accordingly may terminate the leases which were entered into by its assignor, Chancellor, with Joyce and which are specifically referenced in paragraph 2B and 2C of the Settlement Agreement (Doc 85-2). See LJL Transp., Inc. v. Pilot Air Freight Corp., 962 A.2d 639, 641 (Pa. 2009) ("[W]e conclude that Pennsylvania law permits the immediate termination of such a contract [i.e., a contract that includes an express provision granting the breaching party the right to cure before the contract is terminated] when there is a material breach of the contract so serious it goes directly to the heart and essence of the contract, rendering the breach incurable . . ."). See also, Int'l Diamond Importers, Ltd., v. Singularity Clark, L.P., 40 A.3d. 1261, 1271 (Pa. Super. 2012) ("a `material breach' relieves a non-breaching party of its obligation to perform . . .").
Thus, were Lamar to prevail in this action and, in so doing, establish that Joyce's breach of the Settlement Agreement was indeed material, Lamar would be excused from further performance. This would in turn mean that Lamar could properly terminate, or fail to comply with, the leases that its assignor, Chancellor, had entered into with Joyce and which have now been assigned by Joyce to the third party non-diverse assignees named above. The result of such a termination of the leases assigned to Landmark, Bank of America, and Wilmington Trust is the cessation of lease payments from Lamar to Landmark, Bank of America, and Wilmington Trust. But certainly as to the entities "already named" as parties to this action, General Refractories, supra at 313, this Court can accord complete relief.
Rule 19(a)(1)(B), on the other hand, requires a different conclusion. The three third-party, non-diverse assignees clearly claim an interest relating to the subject of this action and are in fact so situated that disposing of the action in the assignees' absence will "as a practical matter impair or impede" each assignee's ability to protect its interest. See Rule 19(a)(1)(B)(i); Moore's Federal Rules Pamphlet 2017, § 19.4[1][b] ("Under the second test of Rule 19(a)(1)(B), if the absentee has an interest in the subject of the action that could be impaired or impeded or that might leave the present parties subject to inconsistent obligations, the absentee is a required party. 4 MOORE'S FEDERAL PRACTICE §19.03 [3],[4] (Matthew Bender 3d ed.)").
Landmark, Bank of America, and Wilmington Trust, as assignees of Joyce have an interest relating to the subject of this action, the protection of which may be impaired by their absence in this proceeding.
In Krupa v. Hilcorp Energy I LP, 2014 WL 2506144 (W.D. Pa. 2014), the Court adopted the Report and Recommendation of the Magistrate Judge and held that the assignees of certain leases were indispensable parties in an action where the plaintiffs sought a declaratory judgment that the leases were void ab initio and that any purported assignments of the rights under those leases were also void ab initio.
The Court granted the plaintiffs' motion for remand to state court. The Magistrate Judge, whose Report and Recommendation had been adopted, had written:
2014 WL 2506144, at *13.
The Salamanca Indian Lease decision, relied upon in Krupa, leaves no question that parties who are affected by an action to set aside a lease or a contract are indispensable:
As in Krupa, the Lamar Plaintiffs here seek to invalidate the leases which Joyce entered into with Lamar's assignor, Chancellor, as part of its claimed remedy for the material breach of the Settlement Agreement which it asserts has been engaged in by Joyce. In doing so, Lamar has, as did the plaintiff in Krupa, "plac[ed] at issue the validity of all the subsequent assignments of those Leases." Krupa, 2014 WL 2506144, at 13.
Should it be determined that Joyce has in fact engaged in a material breach of the Settlement Agreement and that the Lamar Plaintiffs are entitled to terminate the leases which have been assigned to the non-diverse assignees, Landmark, Bank of America, and Wilmington Trust, then, as in Krupa, the rights and interests of these assignees would be directly placed at risk of termination. In effect, the lease payments which the Lamar Plaintiffs would otherwise pay to any one or all of these non-diverse third party assignees would cease. In those circumstances, that the interests of these assignees would be impaired is beyond dispute.
The conclusion that Landmark, Bank of America, and Wilmington Trust are parties who must be joined and in fact are indispensable to this case is significantly buttressed by the decision in Denkmann Associates v. International Paper Company, 132 F.R.D. 168 (M.D. La. 1990). There, the District Court held that the assignee of certain timber rights under two agreements was an indispensable party in a suit by a predecessor in interest seeking to rescind the lease agreements. Since the assignee, IP Timberlands Operating Company, Ltd. ("IPTO") was determined to be an indispensable party and IPTO could not be named as a party without destroying diversity jurisdiction, the action was dismissed.
In Denkmann, the plaintiff, Denkmann Associates, filed suit against International Paper Company seeking rescission of two agreements involving timber lease and mineral rights in Louisiana and Mississippi ("the 1945 Agreements"). Under the 1945 Agreements, the timber interests of properties owned by Denkmann Lumber Company were transferred to Southern Kraft for a period of 99 years. Southern Kraft then assigned all of its interest in the 1945 Agreements to International Paper. International Paper then transferred all of its interest to IP Timberlands, Ltd., and IP Timberlands transferred its interest to IPTO. 132 F.R.D. at 169. Denkmann Lumber Company, in turn, assigned its interest in the 1945 Agreements to Denkmann Associates and others. Id.
International Paper filed a motion to dismiss for failure to join an indispensable party and for lack of subject matter jurisdiction, asserting that the four factor test set forth in Rule 19(b) required a finding that IPTO was an indispensable party. International Paper argued that since IPTO held almost 100% of the timber rights under the leases and was the party in possession of the subject premises, its presence was required as a party indispensable to the resolution of the action.
The Court identified the issue before it as follows:
Id. at 171.
The District Court first found that "substantial doubt" existed as to whether complete relief could be accorded between Denkmann and International Paper. The Court reasoned:
Id. at 172.
The Court found that "IPTO should be joined as a party since complete relief cannot be accorded without its presence under Rule 19(a)(1)." The Court added that "[furthermore, IPTO's interest will be prejudiced without its presence under Rule 19(a)(2)(i)." Id. at 175.
Since diversity of citizenship was lacking as between IPTO and Denkmann, such that joinder of IPTO would destroy diversity jurisdiction, the Court then addressed whether the action could proceed without IPTO or whether the case must be dismissed for failure to join an indispensable party. Id. at 175-176.
Denkmann argued that neither it nor International Paper would be prejudiced if the case proceeded to trial without IPTO. Id. at 176. However the Court determined that the prejudice which IPTO would suffer if it were excluded as a party required its joinder. The Court explained:
132 F.R.D. at 176.
The Court's analysis in Denkmann has application to the case here where the third party non-diverse assignees of Joyce will suffer prejudice if this case proceeds in their absence, such as the Court in Denkmann found IPTO would face if it were not joined as a party. In this case, the Joyce third party non-diverse assignees expect to receive payments from the Lamar Plaintiffs for an additional 11 years. (See Settlement Agreement and Mutual Release, Doc. 85-2, dated October 23, 1998, and establishing terms of 30 years for the site leases (¶ 2(b)(i)) and a term of 30 years for the facility lease ¶ 2(c))). Should a judgment issue in this case rescinding the agreement between Joyce and Lamar on the basis of a material breach of that agreement by Joyce, the third party assignees' rights which were derived from Joyce's assignment of the leases entered into under the Settlement Agreement would be subject to termination, even though Landmark, Bank of America, and Wilmington Trust would not be parties to this action and would not have participated in this determination. Like the court in Denkmann, this Court believes such a procedure is not in the interest of justice or judicial economy. As in Denkmann, where that court observed that there was an available forum in which all the parties could litigate all of the issues at the same time, there is likewise such a forum here as will be addressed later in this Opinion.
Moreover, the court in Denkmann made clear that its decision was consonant with the principle that "an assignee of an agreement is generally an indispensable party to an action to terminate that agreement." 132 F.R.D. 178.
The Lamar Plaintiffs assert, citing to Janney, that joinder of the Joyce non-diverse third party assignees is not necessary since "[i]f the Agreement in question could be construed or interpreted as a contract imposing joint and several liability on its co-obligors, the Court [in Janney] stated that `complete relief may be granted in a suit against only one of them.'" (Doc. 114, at 5). The Lamar Plaintiffs then argue that:
(Id. at 5-6). Accordingly, the Lamar Plaintiffs argue that "because the Court can afford complete relief to the Plaintiff without joinder of Defendant's assignees, Defendant's assignees are not necessary parties under Rule 19(a)(1)(A)." (Id. at 6).
The Lamar Plaintiffs misread the decision in Janney. In that breach of contract action, Janney brought suit against only one of the two co-obligors who might be liable to it. Janney brought suit against Shepard Niles but not against its parent corporation, the Underwood Group, Ltd. Janney contended it was entitled under its Investment Banking Agreement to serve as an advisor to Underwood and its subsidiaries, including Shepard Niles, and to assist them in obtaining private placement financing to refinance Shepard Niles' debt obligations. 11 F.3d at 402. Subsequently, Underwood obtained private placement financing for Shepard Niles, although not through Janney. Janney in turn contended that it provided substantial advice and support to Underwood and Shepard Niles and was therefore entitled to a contingent fee for its services. Id. at 402-403. Shepard Niles sought judgment on the pleadings against Janney for failure to join Underwood as an indispensable party. Id. at 403. The Court concluded that because the agreement between Janney and Underwood could be construed to impose joint and several liability, Underwood was not a necessary party under Rule 19(a) and that complete relief could be granted as between Shepard Niles and Janney without Underwood's presence. Id. at 406. This decision turned on the Court's determination that, consistent with principles of joint and several liability, a co-obligor is not a party whose joinder is required by Rule 19:
11 F.3d at 409.
Janney provides no support for the Lamar Plaintiffs because the joinder of co-obligors is not at issue here as it was in Janney. The co-obligors there, who were alleged to owe a fee to Janney, were Shepard Niles and its parent company, Underwood. Here, Joyce and its third party assignees are co-obligees, rather than co-obligors, in that Joyce initially was entitled to the lease payments to be made by the Lamar Plaintiffs for the leases granted to them under the terms of the Settlement Agreement and the third party non-diverse assignees, Landmark, Bank of America, and Wilmington Trust, became entitled to receive the lease payments from the Lamar Plaintiffs for the site and facility leases as assignees of Joyce with respect to those leases.
Significantly, the decision in Janney leaves no question that joint obligees are indispensable parties. In Janney, the Court discussed the First Circuit's decision in Acton Co. v. Bachman Foods, Inc. There, Acton Co., Inc. of Massachusetts ("ACIM"), filed suit, alleging that Bachman had breached an agreement that it had entered into with ACIM and Acton Corp., ACIM's parent company. The suit sought damages and a declaratory judgment that no enforceable agreement existed between Bachman and ACIM. The Court held that Acton Corp., as a co-obligee of the agreement, was an indispensable party and must be joined, despite the fact that the joinder of Acton Corp. would defeat diversity. Janney, 11 F.3d at 408. The First Circuit's concern focused on the ability of Acton Corp., as a co-obligee on the agreement with Bachman, to bring a separate cause of action against Bachman that could subject Bachman to double liability on the same claim that ACIM was making in the federal action.
Distinguishing Acton on the basis that Shepard-Niles and Underwood were co-obligors, the Court in Janney nonetheless recognized that joint obligees, like Acton Corp. and ACIM, are indispensable parties whose nonjoinder requires dismissal:
Id. at 408.
Here, Joyce and the third party assignees are obligees in that they are entities to whom a duty, in this case the duty to make lease payments, is owed. They are as such indispensable parties as joint obligees under Janney. Thus, the case law with respect to the necessary joinder of parties, including assignees, who have an interest in a contract or a lease sought to be rescinded, as well as the status of Joyce and his third party non-diverse assignees as obligees, require their joinder.
As a result, the issue that now remains before this Court is whether such joinder is feasible. This in turn requires the application of the four factors set forth in Rule 19(b)(1-4).
Where, as here, a court determines that a party must be joined under Rule 19(a), but that doing so is not "feasible", "then the court analyzes Rule 19(b) to determine if `in equity and good conscience,' the necessary party is indispensable." Foster Owners Co., LLC v. Farrell, 2015 WL 778758, at *3 (D.N.J. 2015). "In other words, where joinder is procedurally infeasible, the court must evaluate whether `the action should proceed among the existing parties or should be dismissed.' Fed.R.Civ.P. 19(b); see also Guthrie Clinic Ltd. v. Travelers Indem. Co. of Ill., 104 Fed. Appx. 218, 221 n.4 (3d Cir. 2004)." Id.
These Rule 19(b) principles were distilled by the Court in General Refractories and stated as follows:
500 F.3d. at 319.
The Court in General Refractories turned to the four factors listed in Rule 19(b) which a court must consider in determining whether, where joinder of an absent party is not feasible, the action should proceed among the existing parties or should be dismissed.
The application of the four factors compels the conclusion here that the action should not proceed among the existing parties and instead should be dismissed. We now discuss the application of those factors which warrant that conclusion.
This Court, in its discussion of Krupa v. Hillcorp Energy, supra, has already recognized the principle that "in an action to set aside a lease or a contract, all parties who may be affected by the determination of the action are indispensable." Krupa, 2014 WL 2506144, at *13. This principle underlies the ruling in Denkmann Associates, supra, 132 F.R. D. at 178 ("[a]n assignee of an agreement is generally an indispensable party to an action to terminate that agreement."). Here, the Joyce non-diverse third party assignees expect to receive lease payments for the Site Leases and Facility Lease from Lamar as the assignee of Chancellor under the Settlement Agreement between Chancellor and Joyce for the next 11 years. (See Settlement Agreement and Mutual Release, Doc. 85-2, dated October 23, 1998, and establishing terms of 30 years for the site leases (¶ 2(b)(i)) and a term of 30 years for the facility lease (¶ 2(c))). Clearly, the assignees, as the entities who expect to receive payments from the Lamar Plaintiffs, have a substantial stake in the subject action at issue here and a judgment rendered in each assignee's absence would prejudice that assignee in a direct and significant way.
As in Denkmann, "[i]t is possible and indeed probable" that the assignees may have certain defenses that would not be asserted in this Court as a result of their absence and "which might require the state court to relitigate all or part of this action." Denkmann, 132 F.R.D. at 172.
As noted in General Refractories, "the first factor under Rule 19(b) overlaps considerably with the Rule 19(a) analysis." 500 F.3d at 320. This court, having found that under Rule 19(a)(1)(B) the third party assignees of Joyce claim an interest relating to the subject matter of this action and are so situated that disposing of this action in their absence may impair or impede their ability to protect their interests, also finds under Rule 19(b)(1) that a judgment rendered in the absence of the third party assignees of Joyce would prejudice their interests, specifically their right to receive lease payments from Lamar in the circumstance where Lamar obtains a judgment terminating those leases on the basis of Joyce's material breach of the Settlement Agreement.
Here, the prejudice that would ensue with respect to the third party non-diverse Joyce assignees cannot be lessened or avoided by protective provisions in the judgment or by otherwise shaping the relief to which the Lamar Plaintiffs would be entitled should they succeed in establishing that Joyce engaged in a material breach of the Settlement Agreement.
At the pretrial conference held in this matter on February 12, 2016, the Lamar Plaintiffs expressed their firm intention to seek the termination of the site and facility leases to which they are a party with Joyce. Counsel for Lamar, in response to a suggestion from the Court that the issue of the indispensability of Joyce's non-diverse third party assignees might be avoided if the Lamar Plaintiffs agreed not to pursue the termination of those leases if they were successful in their suit against Joyce, specifically declined to agree to such a protective provision in the judgment or to the shaping of any relief to which Lamar may be entitled if successful in this action. (See Off. Pretrial Tr., Feb. 12, 2016, at 15). As a result, it is clear that there are no protective provisions, nor any manner in which the Court could shape relief, or take other measures, which could lessen or avoid the prejudice that the non-diverse assignees would suffer were they not joined. It also bears noting that Plaintiffs have offered none.
For the reasons offered with respect to factor one under Rule 19(b), a judgment rendered in the absence of the non-diverse assignees, would not be adequate. Such a judgment implicates fundamental considerations of procedural due process if it were advanced by the Lamar Plaintiffs as grounds for terminating their obligation to make payments under the site and facility leases which had been assigned to the Joyce assignees. This conclusion follows unavoidably from the accession of the Joyce assignees to the rights of Joyce under the site and facility leases and, specifically, the right to receive the lease payments from Lamar for the remaining term of those leases.
"Rule 19 counsels that courts should consider whether there is any assurance that the plaintiff, if dismissed, could sue effectively in another forum where better joinder would be possible." Gen. Refractories, 500 F.3d at 321.
The Lamar Plaintiffs, in their Memorandum in Opposition to Compulsory Joinder of Parties, acknowledge that "[i]f the Court did dismiss the case for lack of subject matter jurisdiction based on the non-joinder of Defendant's assignees, the Plaintiffs would be able to re-file the action and seek the same remedies in state court against all parties." (Doc. 114, at 11). The statement of the Lamar Plaintiffs is correct. Pennsylvania has specifically provided, at 42 Pa.C.S.A. §5103(b), that "[w]here a matter is filed in any United States court for a district embracing any part of this Commonwealth and the matter is dismissed by the United States court for lack of jurisdiction, any litigant in the matter filed may transfer the matter to a court or magisterial district of this Commonwealth by complying with the transfer provisions set forth in paragraph (2)." The full text of § 5103 is set forth as follows:
42 Pa.C.S.A. § 5103.
577 A.2d. 907, 909 (Pa. Super. 1990), app. denied, 593 A.2d 422 (Pa. 1991).
The Court in Williams also made clear that:
Id.
In Williams, the federal district court had previously dismissed the action because "appellants are citizens of Pennsylvania and F.L. Smithe Machine Co., Inc. is a Pennsylvania corporation, thus preventing the exercise of diversity jurisdiction by the federal court." Id. at 908. See also, Windle v. Earl, 2012 WL 1694542 (E.D. Pa. 2012) (Where diversity of citizenship is lacking, plaintiff could still seek relief in state court under§ 5103)(a)(b)).
Because the joinder of Landmark, Bank of America or Wilmington Trust would destroy complete diversity and because this Court has found that each of these assignees is an indispensable party to the pending action between the Lamar Plaintiffs and Joyce, this Court has determined in accordance with the factors set forth in Rule 19(b)(1-4) that this action should not proceed among the existing parties and instead should be dismissed for lack of jurisdiction.
As previously mentioned, in addition to the parties' briefing on the issue of whether the assignees, and in particular the non-diverse assignees, are indispensable parties and must be joined, Plaintiffs also filed a Motion to Add Additional Parties (Doc. 104). Specifically, Plaintiffs moved to add Lofts at the Mills, LP., Lofts GP, LLC, AMB Investments of Pennsylvania, Inc., and May Acquisition, LLC, all entities whose joinder would not defeat diversity.
"The court should freely give leave [to amend] when justice so requires." Fed. R. Civ. P. 15(a)(2). The Supreme Court has described Federal Rule 15 as follows:
Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 S.Ct. 222 (1962) (internal citations omitted); see also Arthur v. Maersk, Inc., 434 F.3d 196, 204 (3d Cir. 2006) ("Among the factors that may justify denial of leave to amend are undue delay, bad faith, and futility.").
Here, the Court has already found that non-diverse assignees Landmark Infrastructure Holding Company, LLC, Bank of America, N.A., and Wilmington Trust National Association are indispensable parties who must be joined. Therefore, allowing Plaintiffs to amend their Complaint to add the proposed parties would be futile, in that the three indispensable parties would remain absent from this action. Plaintiffs' motion will therefore be denied.
For the foregoing reasons, the Court will dismiss this action for lack of subject matter jurisdiction. A separate Order shall issue.
Fed.R.Civ.P. 19(b).
