Dickson v. Murphy , 202 F. App'x 578 ( 2006 )

Opinions of the United
2006 Decisions States Court of Appeals
for the Third Circuit
10-6-2006
Dickson v. Murphy
Precedential or Non-Precedential: Non-Precedential
Docket No. 05-4728
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"Dickson v. Murphy" (2006). 2006 Decisions. Paper 345.
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 05-4728
____________
JEFFREY S. DICKSON;
DAVIS YACHT SALES, INC.,
Appellants
v.
WENDELL MURPHY, JR.;
MARK ROBERTS
____________
On Appeal from the United States District Court
for the Middle District of Pennsylvania
(D.C. No. 04-cv-01687)
District Judge: Honorable James M. Munley
____________
Submitted Under Third Circuit LAR 34.1(a)
September 13, 2006
Before: FUENTES, FISHER and McKAY,* Circuit Judges.
(Filed October 6, 2006)
____________
OPINION OF THE COURT
____________
*
The Honorable Monroe G. McKay, United States Circuit Judge for the Tenth
Circuit, sitting by designation.
FISHER, Circuit Judge.
Jeffrey S. Dickson and Davis Yacht Sales, Inc. appeal the District Court’s
dismissal of their claims against Wendell Murphy, Jr. The issue on appeal is whether the
District Court erred in granting a motion to dismiss for failure to join indispensable
parties who were signatories of the two agreements at issue in this case. For the reasons
that follow, we will affirm the dismissal.
I.
As we write only for the parties, who are familiar with the factual context and the
procedural history of the case, we will set forth only those facts necessary to our analysis.
Wendell Murphy, Jr., entered into an Asset Purchase Agreement (“Agreement”) to
purchase the assets of Davis Yacht Sales, Inc. (“Yacht Sales”) and Davis & Dickson
Enterprises, Inc. (“Enterprises, Inc.”).1 Jeffrey S. Dickson is the sole owner and President
of Yacht Sales, the sole owner of Davis & Dickson Enterprises, LLC (“Enterprises,
LLC”), and a fifty-percent owner of Enterprises, Inc. The other fifty percent of
Enterprises, Inc. is owned by Carson R. Davis, Jr., and Barbara Davis. In turn,
Enterprises, Inc. owns one hundred percent of Davis Boat Works, Inc., Carolina Yacht
Interiors, Inc., Carolina Welders, Inc., Buddy Davis & Associates, Inc., Mill Landing
Marine Maintenance Center, Inc., and Davis Resources Management, Inc. The sellers on
1
Although the caption still includes Mark Roberts as an appellee, Mr. Roberts is no
longer a party to this dispute because Dickson and Yacht Sales voluntarily dismissed their
claim against Mr. Roberts on July 16, 2005.
2
the Agreement are all of these corporations, Carson Davis, Barbara Davis, and Dickson.
Murphy entered into a second agreement, the Boat Agreement, to purchase a boat and
boat slips from Davis Boat Works, Inc., Yacht Sales, and Dickson. Both of these
agreements provide that they are governed by North Carolina law and lawsuits under the
Boat Agreement must be brought in North Carolina courts.
Dickson is a citizen of Pennsylvania and Yacht Sales is a Pennsylvania
corporation. Every other corporation that signed the two agreements are North Carolina
corporations, and Murphy, Carson Davis and Barbara Davis are citizens of North
Carolina.
Murphy decided not to go through with the terms of the Agreement. Dickson and
Yacht Sales brought suit in the United States District Court for the Middle District of
Pennsylvania against Murphy based on diversity of citizenship. The complaint alleged
various fraud, contract and quasi-contract claims related to the two agreements. Murphy
and others brought suit in a North Carolina state court against Dickson, Yacht Sales and
all of the other signatories to the two agreements. Then, Murphy moved to dismiss the
federal court complaint for failure to join indispensable parties or in the alternative
improper venue. The District Court granted Murphy’s motion to dismiss for failure to
join indispensable parties. Dickson and Yacht Sales now appeal.
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II.
The District Court had jurisdiction over this diversity suit pursuant to 28 U.S.C.
§ 1332 because for diversity purposes Dickson and Yacht Sales are citizens of
Pennsylvania, and Murphy is a citizen of North Carolina. We have appellate jurisdiction
over the final order of the District Court dismissing the claims pursuant to 28 U.S.C.
§ 1291.
Federal Rule of Civil Procedure 19 determines whether a non-joined party is
indispensable and must be joined in the action. The first step of the analysis is to decide
whether the non-joined party must be joined. If the court determines that the non-joined
party must be joined and that joinder is not feasible, the next step of the analysis is to
determine whether the non-joined party is indispensable under Rule 19(b). If the court
determines that the non-joined party is indispensable, the suit must be dismissed. See
Janney Montgomery Scott, Inc. v. Shepard Niles, Inc., 11 F.3d 399, 404 (3d Cir. 1993).
We exercise plenary review over the District Court’s determinations that are
conclusions of law, but we review only for clear error the subsidiary findings of fact. We
review for abuse of discretion the District Court’s Rule 19(b) determination that a party is
indispensable and that dismissal is required because the party’s joinder would destroy
subject matter jurisdiction in diversity.
A.
Rule 19(a) states in pertinent part:
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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 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.
Fed. R. Civ. P. 19(a). The District Court found that the non-joined parties were necessary
parties because they were signatories to one or both of the agreements.
Dickson and Yacht Sales argue that the non-joined parties are not necessary to this
action because the non-joined corporations have no claims being pursued in this action.
However, the complaint alleges that Murphy interfered with the business of Davis Boat
Works, Inc., a non-joined party, by contacting vendors. Additionally, under the terms of
the Agreement, the non-joined parties as sellers contracted to conduct its operations
according to its ordinary and usual course of business. Considering the complaint alleges
breach of contract claims, whether or not the sellers fulfilled their side of the bargain is
very relevant to this action.
We recognized a distinction between co-obligees and co-obligors in the context of
Rule 19(a) in our decision in Janney Montgomery Scott, Inc. See Janney, 11 F.3d at 408.
In Janney, we were faced with the question of whether Rule 19(a) required joinder of a
co-obligor to a contract. See id. at 402. In our analysis we explained that generally a co-
obligor was not necessary. See id. at 413. However, co-obligees usually are
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indispensable parties. We pointed to one commentator’s explanation that “[j]oint
obligees, … [as compared to joint obligors], usually have been held indispensable parties
and their nonjoinder has led to a dismissal of the action.” Id. (citing Federal Practice &
Procedure § 1614 at 182-85). Additionally, the Advisory Committee note to Rule 19(a)
explains that:
[c]lause (1) stresses the desirability of joining those persons in whose
absence the court would be obliged to grant partial or “hollow” rather than
complete relief to the parties before the court. The interests that are being
furthered here are not only those of the parties, but also that of the public in
avoiding repeated lawsuits on the same essential subject matter.
Bank of Am. Nat’l Trust & Savs. Assoc. v. Nilsi, 844 F.2d 1050, 1055 n.5 (3d Cir. 1988)
(citing Fed. R. Civ. P. 19(a) Advisory Committee note to the amended rule).
Dickson, Yacht Sales and the other non-joined signatories are co-obligees under
the agreements. An obligee is “[o]ne to whom an obligation is owed.” See Black’s Law
Dictionary 1106 (8th ed. 2004). Murphy owed obligations to all of the signatories. The
claims that are being pursued in this action relate to the conduct of Murphy in relation to
Davis Boat Works, Inc. Adjudication of this action absent the non-joined signatories will
not further the public interest of preventing lawsuits on the same essential matter.
Because we agree with the District Court that the non-joined signatories to the
agreements are necessary parties under Rule 19(a), we will affirm this finding by the
District Court.
Rule 19(a) requires joinder of necessary parties if feasible. It is not disputed that
joinder in this case is not feasible because joinder of any of the non-joined parties will
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defeat complete diversity. Like Murphy, all of the non-joined parties are citizens of
North Carolina for diversity purposes. In order for a federal court to have jurisdiction in a
diversity suit, complete diversity of citizenship must exist. See City of Indianapolis v.
Chase Nat’l Bank, 314 U.S. 63, 69 (1941). The District Court did not err in determining
that the non-joined parties were necessary parties under Rule 19(a) and that their joinder
was not feasible.
B.
When a court determines that joinder is necessary under Rule 19(a) and that
joinder is not feasible, the court must then determine whether the non-joined party is
indispensable under Rule 19(b). See HB General Corp. v. Manchester Partners, L.P., 95
F.3d 1185, 1190 (3d Cir. 1996). The question under Rule 19(b) is whether “in equity and
good conscience” the court should proceed without the non-joined parties. Fed. R. Civ.
P. 19(b). Rule 19(b) provides factors that should be considered by the court in making
the determination of whether to proceed or dismiss the action. Those factors include:
[F]irst, to what extent a judgment rendered in the person’s absence might be
prejudicial to the person 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.
Fed. R. Civ. P. 19(b). This is not an exhaustive list of factors that can be considered, but
they are the most important factors. See Gardiner v. V.I. Water & Power Auth., 145 F.3d
635, 640-41 (3d Cir. 1998). The District Court determined that the rights of the absent
7
signatories would be prejudiced if they were not present, and that Dickson and Yacht
Sales had an adequate remedy in state court. It considered the pending North Carolina
state court case that involves the same issues as the present action and includes all of the
signatories as defendants. Additionally, the District Court considered the fact that both of
the agreements provide that North Carolina law applies and the Boat Agreement provides
that any lawsuits should be brought in North Carolina state court.
The first factor favors dismissal because the analysis under this factor “overlaps
considerably with the Rule 19(a) analysis.” Gardiner v. V.I. Water & Power Auth., 145
F.3d 635, 641 n.4 (3d Cir. 1998). As we explained in our Rule 19(a) analysis, a judgment
rendered in this action may prejudice Murphy because he may be subject to multiple
identical claims and multiple or inconsistent judgments in other actions.
The second factor considers whether a judgment or a remedy can be shaped in
order to lessen the prejudice of not having the non-joined parties involved in the action.
Dickson and Yacht Sales argue that there is an identity of interests between them and the
other signatories because all of the people with the power to bring suit on behalf of the
non-joined signatories are before the District Court; Dickson controls all of the absent
corporations. In support of this argument, Dickson and Yacht Sales rely on our decision
in HB General Corp. v. Manchester Partners, L.P., 95 F.3d 1185 (3d Cir. 1996). In HB
General, we held that in a suit between partners of a partnership the partnership itself was
a necessary party under Rule 19(a), but was not indispensable under Rule 19(b). Id. at
1190-91. We determined that non-joinder of the partnership would not leave the
8
defendant partner subject to multiple identical claims because the court could protect his
interests by enjoining “all of the partners from bringing a subsequent suit on behalf of the
[p]artnership.” Id. In the present case, the District Court cannot enjoin all of the
individuals or corporations who could bring a subsequent lawsuit. Dickson is not the sole
shareholder of Enterprises, Inc. and the other shareholders are not before the Court; the
Court cannot enjoin the other shareholders from bringing a subsequent derivative suit on
behalf of the corporation. Furthermore, there are two absent signatories who are
individuals, Carson Davis and Barbara Davis. There is a difference between an absent
entity and an absent human being. HB General, 95 F.3d at 1193 n.3. Relief cannot be
shaped so as to lessen prejudice to Murphy.
The third factor, whether a judgment will be adequate, also weighs in favor of
dismissal. The United States Supreme Court has interpreted this factor to be a
determination of the interest of the public in having a dispute completely, consistently and
efficiently resolved. See Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S.
102, 111 (1968). Under the agreements in the present action, the non-party signatories
can bring claims against Murphy and Murphy has brought claims against them. Such
additional litigation is inefficient and could lead to inconsistent determinations.
Finally, the fourth factor of whether an adequate remedy exists for the plaintiff if
the action is dismissed is answered in the affirmative. Although this factor is not
dispositive, it is clear that the North Carolina courts would be an appropriate forum. See
Bank of Am. Nat’l Trust & Savs. Assoc. v. Nilsi, 844 F.2d 1050, 1055 (3d Cir. 1988).
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In balancing these factors, we find that the District Court did not abuse its
discretion in determining that the non-joined parties were indispensable to this action
under Rule 19(b).
III.
Because we agree with the District Court’s determination that the non-joined
parties are indispensable under Rule 19, we will affirm the judgment of the District Court.
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