Civil Procedure Flashcards
Is a nonparty to a lawsuit a “required party” when adjudication of the issues in its absence may impair its interest and subject a party to the suit to the risk of inconsistent obligations?
Developer is a required party to the Builder v. Lender lawsuit. Developer has an interest in the disbursement of the funds under its agreement with Lender, and that interest will be impaired if Lender is ordered to pay the funds to Builder. Moreover, Lender runs the risk of facing inconsistent obligations if it is ordered to pay the funds to Builder and Developer subsequently sues Lender to recover the money itself.
Is Developer a person “required to be joined if feasible” to the Builder v. Lender action under Federal Rule of Civil Procedure 19(a)? Explain
If the court were to render a decision in the Builder v. Lender action in the absence of Developer, that decision would impair Developer’s interests as a practical matter and expose Lender to the risk of inconsistent obligations. Developer is therefore a required party to the Builder v. Lender action if its joinder is feasible.
FRCP 19
Pursuant to Federal Rule of Civil Procedure 19(a)(1), a person is a required party to a federal action and must be joined (if joinder is feasible) if any of the following is true:
(A) in that person’s absence, the court cannot accord complete relief among existing parties; or
(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person’s absence may:
(i) as a practical matter impair or impede the person’s ability to protect the interest; or
(ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.
Fed. R. Civ. P. 19(a)
Application
Here, Developer is a required party under both prongs of Rule 19(a)(1)(B). In the first place, Developer claims an interest in the loan agreement, which is the subject of Builder’s action. If Builder wins the lawsuit against Lender, the result will not bind Developer, but the funds in dispute will be paid to Builder, and Developer will be obligated to pay them back to Lender pursuant to the agreement. While Developer may be able to sue Builder to recover the funds, its ability to protect its interests under the loan agreement will be impaired “as a practical matter” if it is not a party to the suit.
Developer is also a required party because the failure to join Developer as a party leaves Lender “subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations.” The court could rule that Lender improperly withheld the funds under the loan agreement and order Lender to pay the money to Builder. But if that happened, Developer could then sue Lender in a separate lawsuit for improperly paying the funds to Builder. As Developer would not be a party in the Builder v. Lender suit, and thus would not be bound in that suit, Lender would be at risk of being found liable to Developer for the money it paid to Builder.
Pursuant to Rule 19(a), Developer must be joined as a party to the action if it is subject to service of process and if its joinder will not deprive the court of subject-matter jurisdiction. See Point Two.
[NOTE: Some examinees may note that Lender could seek to join Developer as a party pursuant to Federal Rule 22 (interpleader). While that is true, the question asks only about Rule 19. In addition, joining Developer through interpleader would not solve the fundamental problem here—that Developer’s joinder will destroy diversity. See Point Two.]
May an LLC be joined as a party to a federal lawsuit brought under the court’s diversity jurisdiction when members of the LLC have the same citizenship as both the plaintiff and the defendant in the original lawsuit?
However, the joinder of Developer to the lawsuit is not feasible because its joinder would destroy the court’s subject-matter jurisdiction. First, joinder would destroy complete diversity. An LLC takes the citizenship of each of its members, and so Developer is a citizen of both State A and State B. Thus, if Developer were joined as a defendant, it would not be diverse from the plaintiff Builder, a State B citizen. If Developer were joined as an involuntary plaintiff, it would not be diverse from Lender, a State A citizen. Second, the court would not have supplemental jurisdiction because the statute does not apply to parties joined under Rule 19.
Would joinder of Developer deprive the court of subject-matter jurisdiction? Explain.
As an LLC, Developer has the same citizenship as its members: Amy, who is a citizen of State A, and Barbara, who is a citizen of State B. Thus, Developer is not diverse from either Builder or Lender, and so joinder of Developer would deprive the court of subject-matter jurisdiction.
Diversity
Builder’s lawsuit against Lender is based on state law and was filed in federal court based on the court’s diversity jurisdiction. 28 U.S.C. § 1332. In an action based on section 1332, there must be complete diversity. That is, each plaintiff in the case must have citizenship different from that of each defendant. Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806). Further, the amount in controversy must be more than $75,000.
Application
Here, there is plainly diversity jurisdiction over Builder’s suit against Lender. A corporation is a citizen of the state in which it is incorporated and also of the state in which it has its principal place of business. 28 U.S.C. § 1332(c)(1). Here, Builder is both incorporated in State B and has its principal place of business there, so it is a citizen of State B. Lender, on the other hand, is incorporated and has its principal place of business in State A, so it is a citizen of State A. The parties are diverse, and Builder is seeking a recovery of at least $100,000, which satisfies the amount-in-controversy requirement.
However, adding Developer (an LLC) as a party would destroy diversity. For diversity purposes, an LLC’s citizenship is the same as the citizenship of each of its members. Americold Realty Trust v. Conagra Foods, Inc., 577 U.S. 378 (2016). Here, Developer has two members, Amy and Barbara. Because Amy and Barbara are individuals, their citizenship is determined by their domicile. The facts state that Amy is a domiciliary (and thus citizen) of State A and Barbara is a domiciliary (and thus citizen) of State B. Hence, Developer is a citizen of both State A and State B.
If Developer were joined as a defendant to the Builder v. Lender lawsuit, its presence would destroy diversity because it, like the plaintiff Builder, is a citizen of State B. If it were joined as an involuntary plaintiff, its presence would still destroy diversity because it, like defendant Lender, is also a citizen of State A.
The diversity problem cannot be avoided by asserting supplemental jurisdiction over a claim by Builder against Developer claiming nonpayment of the $100,000. The supplemental jurisdiction statute provides that supplemental jurisdiction cannot be asserted with respect to claims against persons joined pursuant to Rule 19 if “exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional requirements of section 1332.” 28 U.S.C. § 1367(b).
In short, Developer cannot be joined without depriving the court of subject-matter jurisdiction. For that reason, its joinder is not feasible.
When a required party cannot be joined to a federal lawsuit, should the suit be dismissed if the plaintiff can obtain an adequate remedy in state court through an action that includes the required party?
The court should dismiss the action rather than allowing it to proceed in Developer’s absence. A court should proceed in the absence of a required party if it can do so “in equity and good conscience.” Here, the facts suggest that the court should dismiss the action. Not only will proceeding be prejudicial to both Developer and Lender, but there is an adequate available alternative for Builder: a suit in a State A state court.
When a required party cannot be joined to a federal lawsuit, should the suit be dismissed if the plaintiff can obtain an adequate remedy in state court through an action that includes the required party?
Because the federal court cannot join Developer, a necessary party, it should probably dismiss the case. Builder could bring the case in a state court in State A against both Developer and Lender, and a State A court could fashion a remedy that would provide full relief in the matter.
When joinder is not feasible
When joinder of a required party is not feasible, the court “must determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed.” Fed. R. Civ. P. 19(b). This is a fact-based inquiry, and much is left to the discretion of the district court. The court must consider the plaintiff’s interest in having a forum, the defendant’s interest in avoiding duplicative litigation and the risk of multiple liability, the interest of the nonjoined party, and the public interest in efficient and complete litigation of controversies. Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 109–111 (1968).
Rule 19 identifies several factors for the court to consider, including the extent of prejudice to the absent party or existing parties if the litigation proceeds, the extent to which the court could mitigate that prejudice by shaping relief, the adequacy of a judgment rendered in the absence of the missing party, and whether the plaintiff would have an adequate remedy if the action were dismissed.
Application
Here, the facts strongly support dismissal of Builder v. Lender. The most important consideration is that Builder appears to have a more-than-adequate alternative remedy available: it could file suit against both Developer and Lender in a state court in State A. Both Developer and Lender are State A entities and would be subject to personal jurisdiction in State A. A state court in State A would likely be no less convenient for Builder than the State A federal court in which it has filed its action. There is nothing in the facts to suggest that there is anything preventing Builder from bringing such an action.
Moreover, as discussed in Point One, proceeding with this action in the absence of Developer creates substantial risks of prejudice to both Developer and Lender. While the federal court could provide an adequate remedy to Builder by ordering Lender to pay the money to Builder, there is no obvious way it could protect Developer or protect Lender against the risk of inconsistent liability if it granted such relief. See, e.g., Republic of the Philippines v. Pimentel, 553 U.S. 851 (2008) (dismissal is appropriate where a claimant to the money or property under dispute is absent and there is no good way to protect that claimant’s interest or shield a party from risk of double liability). There is simply no good reason for the federal court to proceed under these circumstances when a state court action in which all required parties would be present could be pursued by Builder. Builder v. Lender should be dismissed.
