664 F.2d 1136 (9th Cir. 1981), 80-3068, American Triticale, Inc. v. Nytco Services, Inc.

Docket Nº:80-3068, 80-3114.
Citation:664 F.2d 1136
Party Name:AMERICAN TRITICALE, INC., an Idaho corporation, Plaintiff-Appellant, v. NYTCO SERVICES, INC., a Minnesota corporation; Steven Franz, an individual and a resident of the State of Oklahoma; J. H. Minet & Company, a Canadian corporation, authorized to do business in the United States with service agents in New York; Lloyd's Underwriters and Insurance
Case Date:December 28, 1981
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 1136

664 F.2d 1136 (9th Cir. 1981)

AMERICAN TRITICALE, INC., an Idaho corporation, Plaintiff-Appellant,

v.

NYTCO SERVICES, INC., a Minnesota corporation; Steven Franz,

an individual and a resident of the State of Oklahoma; J. H.

Minet & Company, a Canadian corporation, authorized to do

business in the United States with service agents in New

York; Lloyd's Underwriters and Insurance Companies, a

British corporation, authorized to do business in the United

States with service agents in New York; Excess Insurance

Company, Ltd., Harbor Insurance Company, Turegum Insurance

Company Ltc., Union America Insurance Company, Bellefonte

Insurance Company, Mentor Insurance Company, Yasuda Fire &

Marine Insurance, North Atlantic Insurance Company,

Insurance Company of the State of Pennsylvania, St. Paul

Fire and Marine Insurance Company; various insurance

companies authorized to do business in the United States

with service agents in New York; Insurance Companies I

through XX; John Does I through XX, Defendants-Appellees.

Nos. 80-3068, 80-3114.

United States Court of Appeals, Ninth Circuit

December 28, 1981

Page 1137

[Copyrighted Material Omitted]

Argued and Submitted Aug. 6, 1981.

Page 1138

Joseph M. Coughlan, Coughlan, Coughlan & Korn, Boise, Idaho, for plaintiff-appellant.

Hawley, Troxell, Ennis & Hawley, Boise, Idaho, on brief, for defendants-appellees.

Gary D. Babbitt, Boise, Idaho, for Nytco.

Christopher C. Burke, Boise, Idaho, for Steven Franz.

Appeal from the United States District Court for the District of Idaho.

Page 1139

Before SCHROEDER and ALARCON, Circuit Judges, and HATFIELD [*], District Judge.

ALARCON, Circuit Judge:

American Triticale, Inc. (hereinafter "American") appeals the district court's order of partial summary judgment for Nytco Services, Inc. (hereinafter "Nytco") and Steven Franz on several counts in American's third amended complaint. 1 In granting partial summary judgment the court concluded that: (1) American was not the real party in interest pursuant to Fed.R.Civ.P. 17(a) 2 and, therefore, was not the proper party to maintain the action; (2) American had agreed contractually to indemnify Nytco against the losses alleged in the suit; and (3) the action was barred by the doctrines of res judicata and collateral estoppel. The district court had jurisdiction on the basis of diversity of citizenship pursuant to 28 U.S.C. § 1332 (1976). For the reasons stated below we reverse the judgment of the district court.

I.

FACTUAL BACKGROUND

On February 1, 1974, American, an Idaho corporation with its principal place of business in Idaho, and Nytco, a Minnesota corporation authorized to do business in Oklahoma, entered into a contract for the "field warehousing" 3 of American's grain at a warehouse facility in Turpin, Oklahoma. The purpose of this field warehousing arrangement was to secure a portion of American's grain inventory as collateral for a $750,000 commercial line of credit which American sought from the Irving Trust Company (hereinafter "Irving Trust"), a New York banking corporation.

The contract consisted of several documents 4 which, collectively, enumerated the

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duties and responsibilities of the parties. American agreed to sublease to Nytco certain storage facilities in Turpin, Oklahoma, which American had leased from Howard and Dorothy Franz. Nytco agreed to operate a public warehouse at those facilities, accept the grain deposited for storage by American, and issue warehouse receipts covering that grain to Irving Trust. American agreed to undertake the daily operation of the warehouse, supply the labor necessary for the handling, storage, and safekeeping of the grain and bound itself to pay a schedule of storage charges to Nytco. 5 American also agreed to "indemnify and hold harmless (Nytco) from any financial loss or any other loss, damage, claim, legal liability or expense resulting directly or indirectly from any of the acts of (American), its officers, agents or employees...." 6

In exchange for non-negotiable warehouse receipts issued upon American's grain stored at the Oklahoma warehouse, Irving Trust provided American with a $750,000 line of credit. American actually borrowed $450,000 of this line but defaulted on repayment of the loan. Consequently, Irving Trust filed suit for repayment in the United States District Court for the Southern District of New York on June 10, 1975, and obtained a judgment on September 8, 1976.

On April 1, 1975, Howard and Dorothy Franz, the owners of the Oklahoma warehouse, filed a petition in the district court of Beaver County, Oklahoma, against American and Nytco for failure to pay rent. They sought attachment of the grain stored in the warehouse as satisfaction for the judgment. Nytco answered the petition, denying generally the allegations in the complaint and cross-claimed, seeking to restrain the Franzes from interfering with the possession of the stored grain. Nytco also interpleaded Irving Trust as holder of the warehouse receipts.

American answered and cross-claimed against Howard and Dorothy Franz. It denied generally the allegations in the complaint, alleged that the Franzes defrauded American and converted large amounts of stored grain worth more than $755,000, and demanded an accounting. Irving Trust appeared and contested any attempt to cancel the warehouse receipts.

On May 23, 1979, the Beaver County District Court entered a judgment which dismissed the claims of Howard and Dorothy Franz and those of American for failure to

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appear. The remaining claims were dismissed upon stipulation of the Franzes, Nytco and Irving Trust. Furthermore, it was stipulated by those same parties that Irving Trust was entitled to receive all funds derived from a judicial sale of the grain at the Oklahoma warehouse. 7

American instituted the present action in the United States District Court for the District of Idaho on February 18, 1976. In its third amended complaint American sought punitive damages and alleged that Nytco and Steven Franz: (1) negligently and intentionally lost or permitted to be removed substantial portions of the stored grain; (2) refused to account for the grain and overcharged American for storage; (3) negligently and in breach of contract permitted American's grain to be co-mingled and rendered unfit for seed purposes; and (4) interfered with an advantageous business relationship. American also alleged that subsequent to the discovery of the grain losses, Steven Franz purchased the remaining grain in breach of his fiduciary duty to American. Nytco and Steven Franz moved for partial summary judgment on May 29, 1979. On October 16, 1979, the district court granted partial summary judgment for Nytco and Franz from which American now appeals.

II.

REAL PARTY IN INTEREST

The district court concluded that pursuant to Article 7 of the Uniform Commercial Code, (hereinafter "U.C.C."), title to the grain accompanied transfer of the non-negotiable warehouse receipts and was held by Irving Trust. 8 The court held that American was not a real party in interest and could not maintain an action against Nytco or Franz for alleged breach of the field warehousing agreement or tortious conduct involving the stored grain.

Whether American is the real party in interest under Fed.R.Civ.P. 17(a) in this federal diversity suit is dependant upon whether American is a proper party to maintain this action under applicable state law. See Peters v. Lines, 275 F.2d 919, 928 (9th Cir. 1960); Iowa Public Service Co. v. Medicine Bow Coal Co., 556 F.2d 400, 404 (8th Cir. 1977); Virginia Electric & Power Co. v. Westinghouse Electric Corp., 485 F.2d 78, 83 (4th Cir. 1973); 6 C. Wright and A. Miller, Federal Practice & Procedure § 1544, p. 647 (1971). It is well settled that a federal court exercising diversity jurisdiction must apply substantive state law. Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Motschenbacher v. R. J. Reynolds Tobacco Co., 498 F.2d 821, 823 (9th Cir. 1974).

Although this action was filed in the Federal District Court in Idaho, the complaint alleges a breach of contract to be performed in Oklahoma and tortious actions which, if true, occurred in Oklahoma. Well-established principles of jurisprudence require that a federal court exercising diversity jurisdiction must apply the conflict-of-laws-rules of the state in which the federal court is located when the laws of more than one jurisdiction arguably apply to the issue to be decided. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941); Sarlot-Kantarjian v. First Pennsylvania Mortgage Trust, 599 F.2d 915, 917 (9th Cir.

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1979); Strassberg v. New England Mutual Life Insurance Co., 575 F.2d 1262, 1263 (9th Cir. 1978).

We are thus required to consult Idaho conflict-of laws-rules to decide whether the law of Idaho or Oklahoma applies to the question of whether American is a proper party to maintain this suit. We are unaware of any Idaho law which provides an appropriate conflict-of-laws rule with respect to causes of action sounding in contract or tort which arise in a foreign state. We therefore apply general choice of law principles to determine which state's law governs in this situation. See Commercial Insurance Co. of Newark v. Pacific-Peru Construction Corp., 558 F.2d 948, 952 (9th Cir. 1977); Dashiell v. Keauhou-Kona Co., 487 F.2d 957, 960 (9th Cir. 1973) (absent appropriate state law, the Restatement (Second) of the Conflict of Laws provide guidance as to general conflicts principles). Under Section 196 of the Restatement (Second) of the Conflict of Laws (1971), 9 we apply Oklahoma law to determine whether American has the right to maintain a suit against Nytco and Franz because Oklahoma is the situs of the warehouse...

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