Caytrans Proj Srv v. BBC Chartering ( 2021 )

Case: 20-30623 Document: 00515903587 Page: 1 Date Filed: 06/17/2021
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
June 17, 2021
No. 20-30623 Lyle W. Cayce
Clerk
Caytrans Project Services Americas, Limited,
Plaintiff—Appellant,
versus
BBC Chartering & Logistics GmbH & Company KG; BBC
Global GmbH & Company KG; BBC Chartering USA, LLC,
Defendants—Appellees.
Appeal from the United States District Court
for the Eastern District of Louisiana
USDC No. 2:20-CV-414
Before Owen, Chief Judge, and Davis and Dennis, Circuit Judges.
Per Curiam:*
Plaintiff, Caytrans Project Services Americas, Ltd. (“Caytrans”),
appeals the district court’s judgment granting the Rule 12(b)(7) motion to
dismiss filed by Defendants, BBC Chartering & Logistics GmbH & Co. KG,
BBC Global GmbH & Co. KG, and BBC Chartering USA, LLC. In their
*
Pursuant to 5th Circuit Rule 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5th Circuit Rule 47.5.4.
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motion, Defendants asserted that Caytrans failed to join an indispensable
party required by Rule 19, and because the party’s joinder would destroy the
court’s diversity jurisdiction, Caytrans’s complaint had to be dismissed. For
the reasons set forth below, we VACATE and REMAND.
I. BACKGROUND
In 2006 Caytrans, a corporation domiciled in Louisiana, entered into
a Shareholders’ Agreement (“Agreement”) with BBC Chartering &
Logistics GmbH & Co. KG (“BBC”), domiciled in Germany. The
Agreement created a Louisiana limited liability company, Caytrans BBC,
LLC (“Company”), to operate chartered marine vessels. Caytrans and BBC
each owned 50 percent of the shares in the Company. In 2016 BBC
transferred its shares to BBC Global GmbH & Co. KG (“BBC Global”), also
domiciled in Germany, at which point Caytrans continued to own 50 percent
of the Company’s shares, and BBC Global owned the other 50 percent.
In its complaint, Caytrans asserted that it agreed with BBC that two
commercial agents, BBC (USA) LP (“BBC USA”) and Dan-Gulf Shipping,
Inc. (“Dan-Gulf”), would be appointed to assist with the Company’s
operations. Caytrans further alleged that the Agreement required BBC or
BBC USA to perform “[a]ll accounting for the Company” and to “submit
monthly accounting to the Board” and that the Agreement required BBC to
maintain the Company’s bank account. According to Caytrans, a 2008
addendum to the Agreement provided that all references to BBC USA in the
Agreement referred to Defendant, BBC Chartering USA, LLC (“BBC
Chartering USA”), whose sole member is BBC Global.
Caytrans further stated in its complaint that BBC hired Dan-Gulf’s
controller, Deepak N. Jagtiani (“Jack”), to perform these accounting
services for the Company. Caytrans explained that BBC paid 50 percent of
Jack’s salary and benefits and that Dan-Gulf paid the other 50 percent since
2
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Jack continued to work for Dan-Gulf as its controller. Caytrans alleged that
although BBC, BBC Global and/or BBC Chartering USA were
“responsible” for the Company’s accounting, “they did absolutely nothing
to monitor and supervise Jack’s handling of [the Company’s] finances or the
status of [the Company’s] accounts.” Caytrans asserted: “Among other
things, they did not ask Jack to send them regular financial statements, bank
statements or other financial records needed to satisfy their duty to properly
handle [the Company’s] accounting.”
In January 2019, Jack informed the management of the Company and
the management of Dan-Gulf that there were not enough funds on hand to
meet either companies’ obligations. On January 15, 2019, the Company and
Dan-Gulf “instructed Jack to provide complete financial information to
them.” On February 5, 2019, Jack abruptly resigned and never returned to
work. Investigation into the companies’ financial situations revealed that
Jack had embezzled approximately $5.9 million from the Company over a 10-
year period.
Caytrans stated that it has not been able to recover any of the stolen
funds from Jack, but that it, one of its affiliates, the Company, an agent of the
Company, and Dan-Gulf have all sued Jack and others in state court to
recover as much of the losses as possible. Caytrans contended that BBC and
BBC Global, however, have resisted allowing the Company to pay any
portion of the costs for investigating the losses and pursuing the recovery of
the losses from Jack and others. Additionally, Caytrans asserted that, in
January 2020, it discovered that BBC and/or BBC Global have “been
competing with [the Company] for business and diverting business away
from [the Company]” for their sole benefit and to the detriment of the
Company and Caytrans. Caytrans also alleged that BBC Chartering USA
ceased carrying out its duties as the Company’s agent and diverted business
away from the Company and to its sole member, BBC Global.
3
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Based on the allegations relating to Jack’s embezzlement, Caytrans
asserted claims against Defendants for breach of their contractual obligations
to monitor and supervise the Company’s accounting and bank accounts,
breach of their fiduciary duty to fulfill their “accounting duties in good faith
and with ordinary diligence,” and gross negligence in “failing to have
adequate safeguards in place to prevent theft and failing to discover the
embezzlement.” Based on the allegations that Defendants were diverting
business away from the Company, Caytrans asserted that they breached their
fiduciary duty of loyalty to the Company by self-dealing and engaging in
unfair trade practices in violation of Louisiana law.
As to the damages resulting from Defendants’ breach of their
contractual and fiduciary duties and gross negligence relating to Jack’s
embezzlement, Caytrans asserted that the Company lost approximately $5.9
million and that, “as a 50% shareholder” of the Company, it “derivatively
was damaged” by almost $2.9 million. As to the damages resulting from
Defendants’ alleged self-dealing and unfair trade practices, Caytrans
asserted that the Company suffered a “business loss, and a loss of reputation
in the market, all in an amount to be proven at trial,” and that “as a 50%
shareholder” of the Company, Caytrans “derivatively was damaged by 50%
of this business loss.”
In response to Caytrans’s complaint, Defendants filed the
Rule 12(b)(7) motion to dismiss at issue in this appeal. They asserted that
because Caytrans’s complaint set forth a derivative action, Caytrans was
required to join the Company as a party under Rule 19. 1 Defendants
contended that once the Company was properly joined as a defendant,
1
Defendants also argued that Caytrans failed to plead properly a derivative action
under Rule 23.1. The issue became moot, however, by the filing of Caytrans’s verified third
amended complaint, which complied with Rule 23.1.
4
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however, the district court would lack subject matter jurisdiction over the
action because Caytrans and the Company are nondiverse. 2 Therefore, the
action had to be dismissed.
In opposition to the motion, Caytrans acknowledged that the
Company is a required party under Rule 19(a) because this is a derivative
action. Caytrans asserted, however, that the Company is not an indispensable
party under the factors set forth in Rule 19(b); therefore, its joinder was not
mandatory, and diversity jurisdiction was present.
The district court granted Defendants’ motion to dismiss. It reviewed
the Rule 19(b) factors, determining that three of the four factors indicated
that the Company was an indispensable party and favored dismissal. Caytrans
filed a motion for reconsideration, which the district court denied. This
timely appeal followed.
II. DISCUSSION
Rule 19(a) directs the district court to join “required” parties “if
feasible.” 3 But, “[w]hen joining a required party is not feasible, such as when
joining that party would destroy diversity [jurisdiction], the court must
determine whether the party is ‘merely necessary’ to the litigation, or in fact
‘indispensable.’” 4 Specifically, Rule 19(b) instructs the district court to
consider the following four factors to “determine whether, in equity and
good conscience, the action should proceed among the existing parties or
2
In Harvey v. Grey Wolf Drilling, Co., 542 F.3d 1077, 1080 (5th Cir. 2008), this
Court held that “the citizenship of a LLC is determined by the citizenship of all of its
members.” Consequently, the Company is a citizen of Louisiana and Germany. Thus,
whether the Company is joined as a plaintiff or defendant, diversity jurisdiction would be
lacking.
3
Fed. R. Civ. P. 19(a).
4
Moss v. Princip, 913 F.3d 508, 515 (5th Cir. 2019) (citation omitted).
5
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should be dismissed:” (1) the extent to which a judgment rendered in the
person’s absence might prejudice that person or the existing parties; (2) the
extent to which any prejudice could be lessened or avoided by protective
provisions in the judgment, shaping the relief, or other measures;
(3) whether a judgment rendered in the person’s absence would be adequate;
and (4) whether the plaintiff would have an adequate remedy if the action
were dismissed for nonjoinder. 5
This Court has noted that “Rule 19 militate[s] in favor of a highly
practical, fact-based decision.” 6 “While the indispensability of a party is a
question of federal law, a federal court can look to state law to determine the
relative interest that the party has in the litigation.” 7 The decision whether a
party is indispensable can be made only after considering the “context of
particular litigation.” 8 This Court reviews the district court’s decision to
dismiss for failure to join an indispensable party under an abuse-of-discretion
standard. 9
A. Extent to which a judgment rendered in the Company’s absence
might prejudice the Company or Defendants
The district court determined that the first Rule 19(b) factor, the
extent to which a judgment rendered in the Company’s absence might
prejudice the Company or Defendants, weighed in favor of a finding that the
Company was an indispensable party.
5
Fed. R. Civ. P. 19(b).
6
Pulitzer-Polster v. Pulitzer, 784 F.2d 1305, 1309 (5th Cir. 1986).
7
Whalen v. Carter, 954 F.2d 1087, 1096 n.8 (5th Cir. 1992) (citations omitted).
8
Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 118 (1968).
9
Pulitzer-Polster, 784 F.2d at 1309.
6
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(1) Prejudice to the Company
The district court noted that as a Louisiana limited liability company
(“LLC”), the Company was “wholly separate” from its members and that
its separate status “suggest[ed] separate interests—interests unrepresented
and therefore unprotected here.” Because a judgment rendered in the
Company’s absence would fail to account for the Company’s “distinct
interests,” the district court determined that such judgment would “plainly
prejudice” the Company.
Caytrans rightly points out, however, that the district court did not
describe what those “separate and unprotected interests” were. Caytrans
disputes that the Company has any separate interests that are not fully
protected by the existing parties, as “this is a purely internal dispute between
the only two members of [the Company] concerning the operation of that
limited liability company.”
On appeal, Defendants attempt to identify the Company’s separate
and unprotected interests. They assert that the Company must be joined so
that the Company can answer Caytrans’s allegations against it for “not acting
as it should.” Caytrans, however, has not alleged any wrongdoing by the
Company. Defendants also assert that if the Company is not a party, it cannot
defend itself against allegations concerning its own negligence in this matter.
Again, however, Caytrans has not alleged that the Company was negligent,
but that Defendants were, and states that it “has no intention of arguing that
[the Company] [wa]s negligent.”
Relying on a recent case from this Court, Caytrans asserts that the
Company’s interests in this action, whatever they may be, are fully protected
because its only two members (Caytrans and BBC/BBC Global) are both
parties to this suit. In Moss v. Princip, the plaintiffs were two partners and
limited liability members of a four-person partnership and a four-person
7
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LLC. 10 They sued the other two partners and limited liability members, the
partnership, and the LLC in state court, alleging fraud, breach of fiduciary
duty, breach of the partnership agreement, and conversion. 11
The defendants removed to federal court on the basis of diversity
jurisdiction. After a jury trial and a verdict in favor of the plaintiffs, the
defendants moved to dismiss the case, arguing that the district court never
had subject matter jurisdiction because the partnership and the LLC were
nondiverse. The plaintiffs responded by moving to dismiss the partnership
and LLC as dispensable nondiverse parties. The district court granted the
plaintiffs’ motion, and this Court affirmed. 12
This Court determined that the district court did not abuse its
discretion in dismissing the partnership and LLC as dispensable parties to
preserve its diversity jurisdiction. The parties agreed that the partnership
was a “required” party under Rule 19(a). The defendants further asserted
that the partnership was “indispensable” under Rule 19(b). Noting that
Rule 19 requires a “flexible and pragmatic” approach in evaluating a party’s
indispensability, and discussing cases from other circuits, 13 this Court
affirmed the district court’s judgment because “the partnership’s interests
were fully represented by each of its partners, all of whom were before the
court.” 14
10
913 F.3d 508, 512 (5th Cir. 2019).
11
Id.12
Id. at 513.
13
Id. at 517–18 (citing Hooper v. Wolfe, 396 F.3d 744 (6th Cir. 2005); HB Gen. Corp.
v. Manchester Partners, L.P., 95 F.3d 1185 (3d Cir. 1996); Curley v. Brignoli, Curley & Roberts
Assocs., 915 F.2d 81 (2d Cir. 1990)).
14
Moss, 913 F.3d at 519.
8
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This Court further noted that although the plaintiffs raised claims for
damages “derivative” of the partnership’s rights, the presence of the
partnership was not necessary to protect the partnership or the parties from
prejudice. This was shown by the fact that the partnership played a “purely
passive” role throughout the litigation, “reflecting the reality that its
interests did not diverge from the interests represented by the four individual
partners and that its presence played no distinct role in the outcome of the
suit against the individuals.” 15 This Court further noted that any risk of
duplicative litigation brought by the partnership itself could be cured through
injunctive relief fashioned by the district court. 16 Because the defendants did
not argue that the LLC should be treated differently from the partnership for
the jurisdictional inquiry, this Court extended its analysis to the LLC and
held that the district court also properly dismissed the LLC. 17
Our decision in Moss reflects the “highly practical, fact-based
decision” a court should make when determining the indispensability of a
party. 18 As applied here, Moss requires a determination whether the
Company’s interests vary from those of Caytrans or BBC/BBC Global such
that the Company would play a distinct role in this lawsuit. If the Company’s
interests do not diverge from Caytrans or BBC/BBC Global, then the
Company’s presence is not required to protect its interests.
In this case, the district court noted that as a Louisiana LLC, the
Company is “wholly separate” from its members. The court concluded that
the Company’s separate status under Louisiana law “suggest[ed] separate
15
Id.
16
Id.
17
Id. at 521.
18
See Pulitzer-Polster v. Pulitzer, 784 F.2d 1305, 1309 (5th Cir. 1986).
9
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interests—interests unrepresented and therefore unprotected here.” But the
court did not engage in an analysis of the facts to determine whether the
Company’s interests (although separate under Louisiana law) varied in
reality from those of Caytrans or BBC/BBC Global. Our decision in Moss
suggests that because the only two limited liability members of the Company
are parties to the suit, then any interest of the Company will be protected.
Specifically, to the extent that the Company has valid claims against
BBC/BBC Global, Caytrans can advance those claims; to the extent that the
Company has valid claims against Caytrans, BBC/BBC Global can advance
those claims. Moreover, Caytrans has alleged no wrongdoing on the part of
the Company such that the Company might need to play a distinct role here,
and Caytrans has confirmed that it has no intention of asserting such
allegations in this suit.
As the district court noted, the procedural posture of Moss was
different from the instant matter. The case was on appeal after a jury trial had
been completed, and a verdict rendered in the plaintiffs’ favor. The Supreme
Court has noted that after a judgment has been rendered, there is “a strong
additional interest” under Rule 19(b) in preserving a district court’s
judgment. 19 The different procedural posture, however, does not render Moss
inapplicable here. Our holding in Moss was not dependent upon the
procedural posture of the case. Rather, we emphasized in Moss that “Rule 19
requires courts to be ‘flexible and pragmatic’ in evaluating a party’s
indispensability, a call demanding attention to the case at hand.” 20
19
Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 110 (1968).
20
Moss, 913 F.3d at 517 (citation omitted). The district court’s decision in Orpheum
Property, Inc. v. Coscina, No. 17-6480, 2018 WL 1518471, at *1 (E.D. La. Mar. 28, 2018),
reflects the type of evaluation required by Rule 19(b). In that case, the plaintiff asserted a
derivative claim on behalf of a Louisiana LLC. The plaintiff was the only member of the
company, and the district court noted that, at the time of the suit, the company had no
10
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In this matter, the district court focused on the separateness of the
Company under Louisiana’s LLC law, but it did not engage in the practical
and highly fact-based analysis our Rule 19(b) precedent requires in
determining whether the Company would be prejudiced by its absence from
this lawsuit. In response to the panel’s questioning during oral argument,
defense counsel confirmed that the Company is no longer operating, but that
it still has a bank account and is receiving restitution payments as required by
the judgment from the federal criminal proceeding against Jack.21 Although
counsel stated that the district court was informed about the status of the
Company, the record does not indicate that the district court was aware of
this information.
Because the status of the Company is highly relevant to the
determination whether, in practical terms, the Company will suffer any
prejudice as a result of its absence from this lawsuit, we vacate the district
court’s decision as to this factor and remand so that the district court may
reevaluate this factor.
(2) Prejudice to Defendants
The first Rule 19(b) factor also requires consideration of the extent to
which a judgment rendered in the Company’s absence might prejudice
Defendants. As Caytrans argues, in evaluating the potential prejudice to
Defendants, the district court erroneously focused on the absence of the
assets or income and was “all but dead.” Id. at *7. The court further noted that if the
lawsuit was successful and damages recovered, those funds rightly belonged to the
company because it was a derivative lawsuit. Id. Therefore, there was no prejudice to the
company, and its joinder was not required. Id.
21
The panel questioned counsel regarding the status of the Company after noting
that Dan-Gulf’s website indicated in May 2020 that the Company was “being dissolved.”
11
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other defendants named in the state-court litigation against Jack rather than
on the Company’s absence.
Although the pending state-court litigation is relevant to the third
factor under Rule 19(b) (discussed below), it is not helpful in determining
whether the absence of the Company in this action prejudices Defendants.
The claims against the Defendants are that they breached their contractual
obligations and fiduciary duties of accounting and monitoring and were
grossly negligent. The Company’s absence will not hinder Defendants from
presenting a defense to these claims. They presumably could also assert
third-party demands against the defendants named as joint tortfeasors in the
state court suit. Under Rule 14(a)(1), Defendants may bring a claim against a
“nonparty who is or may be liable to it for all or part of the claim against it.”22
With respect to the claims that Defendants engaged in self-dealing and unfair
trade practices, the Company’s absence will not prevent Defendants from
asserting a defense.
In sum, contrary to the district court’s determination, and as the
record now stands, the first factor under Rule 19(b) does not appear to weigh
in favor of a finding that the Company is an indispensable party. However,
because the district court did not have the benefit of complete information
regarding the status of the Company, we vacate its determination regarding
this factor and remand.
B. The extent to which any prejudice could be lessened or avoided by
protective provisions in the judgment, shaping the relief, or other
measures
As discussed above, there appears to be no prejudice to the Company
or Defendants if this action proceeds in the Company’s absence. The district
22
Fed. R. Civ. P. 14(a)(1).
12
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court determined that this factor was neutral. Caytrans states that the court
in the pending state proceeding ordered the plaintiffs to arbitrate their claims
against the company (Paychex) issuing salary checks to Jack. Caytrans further
points out that if Paychex breached its contract with the Company, then it
can be liable under New York law for the entire loss, without reduction for
comparative fault. Caytrans submits that the district court could stay this
matter pending the outcome of the arbitration, for instance. In the event that
the arbitration results in plaintiffs’ favor, Defendants in this lawsuit will
benefit. In light of our remand of this matter, the district court will have the
opportunity to explore whether a stay might be one of the “other measures”
contemplated by Rule 19(b).
C. Whether a judgment rendered in the Company’s absence would
be adequate
The Supreme Court has interpreted the third Rule 19(b) factor to refer
to “the interest of the courts and the public in complete, consistent, and
efficient settlement of controversies.” 23 As stated by the Court, the
“adequacy of the judgment” factor centers on the “public stake in settling
disputes by wholes, whenever possible, for clearly the plaintiff, who himself
chose both the forum and the parties defendant, will not be heard to complain
about the sufficiency of relief obtainable against them.” 24
The district court determined that this factor weighed in favor of a
finding that the Company was an indispensable party because a judgment
rendered in its absence would be “inefficient, incomplete, and (potentially)
inconsistent” with the judgment that might issue in the state court
proceeding. The district court noted that the instant action and the state
23
Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 111 (1968).
24
Id.13
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court proceeding arise from the same theft and seek recovery for the same
loss. Although the district court stated that the state court would have
jurisdiction over all parties and all claims, the parties informed this Court on
appeal that the claims against Paychex have been sent to arbitration. As with
the second factor, and in light of our remand, the district court will have the
opportunity to reevaluate this factor with respect to the claims involving
Jack’s embezzlement.
With respect to Caytrans’s claims against Defendants for self-dealing
and unfair trade practices, however, the third Rule 19(b) factor does not
weigh in favor of finding the Company indispensable. As Caytrans points out,
those claims do not overlap with any of the claims pending in state court.
Therefore, there are no inefficiency concerns with respect to those claims.
D. Whether Caytrans would have an adequate remedy if the action
were dismissed for nonjoinder
The final Rule 19(b) factor instructs the district court to consider
whether, if the action is dismissed for nonjoinder of an indispensable party,
the plaintiff will be able to obtain an adequate remedy in an alternate forum. 25
The district court should consider whether any applicable limitations period
has expired since the institution of the plaintiff’s action. 26
In its ruling, the district court noted that no party had “suggested”
that Caytrans’s claims against Defendants would be prescribed if the instant
action were dismissed. Caytrans subsequently refiled its claims in state court.
However, Caytrans states in its reply brief that after it refiled its claims in
state court, BBC Chartering USA raised prescription and peremption
exceptions/defenses in its answer. In light of these developments, we also
25
Whalen v. Carter, 954 F.2d 1087, 1097 (5th Cir. 1992).
26
Id.14
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vacate the district court’s decision on this factor and remand for
reevaluation.
Based on the foregoing, the district court’s judgment is VACATED,
and this matter is REMANDED for further proceedings consistent with
this opinion.
15