Jett v. Phillips & Associates

• Decision Date: 29 March 1971
• Docket Number: 184-70 and 185-70.,No. 183-70,183-70
• Citation: 439 F.2d 987
• Parties: Charles C. JETT, Plaintiff-Appellant and Cross Appellee, v. PHILLIPS & ASSOCIATES, an unincorporated association, Defendant-Appellee, Joseph J. Phillips and Jack R. Alexander, Defendants, Henry C. Roth, Defendant-Appellant, Richard A. Williams, Henry Chapman and Leslie J. Gottwald, Defendants-Appellees and Cross Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

439 F.2d 987 (1971)

Charles C. JETT, Plaintiff-Appellant and Cross Appellee, v. PHILLIPS & ASSOCIATES, an unincorporated association, Defendant-Appellee, Joseph J. Phillips and Jack R. Alexander, Defendants, Henry C. Roth, Defendant-Appellant, Richard A. Williams, Henry Chapman and Leslie J. Gottwald, Defendants-Appellees and Cross Appellants.

Nos. 183-70, 184-70 and 185-70.

United States Court of Appeals, Tenth Circuit.

March 29, 1971.

Edward H. Sherman, Denver, Colo., for appellant and cross appellee.

John R. Hickisch, Denver, Colo., for appellees and cross appellants.

Before HILL, SETH and HOLLOWAY, United States Circuit Judges.

HILL, Circuit Judge.

This is a diversity suit wherein appellant Jett is seeking to recover on a promissory note.

The facts are largely undisputed. Phillips & Associates was an unincorporated association organized by one Joseph J. Phillips. In 1967, the unincorporated association was involved in a business venture and was in need of financing for the venture. To obtain the necessary financing, Joseph Phillips approached appellant Jett for a $16,000 loan. On August 16, 1967, Jett met with Joseph Phillips, one Jack R. Alexander, and one Henry C. Roth for the purpose of completing a loan agreement. At the meeting, Jett received in exchange for $16,000, a promissory note in a like amount signed by Joseph Phillips for Phillips & Associates and signed individually by Joseph Phillips, Jack R. Alexander and Henry C. Roth. Accompanying the promissory note was a memorandum agreement setting out the terms of the loan, including the fact that Jett, in addition to interest on the note, would receive a 15 per cent interest in the Phillips & Associates enterprise. The agreement also specified that Phillips & Associates was composed of Richard A. Williams, Henry Chapman and Leslie J. Gottwald in addition to Jett, Phillips, Alexander and Roth. However, only Jett, Phillips & Associates, Joseph Phillips, Alexander and Roth were signatories to the agreement.

Sometime after the note was issued and the loan agreement was executed, a second memorandum agreement was prepared and executed. The second agreement was signed by Joseph Phillips for Phillips & Associates and by appellees Williams, Chapman and Gottwald. By the terms of the second agreement, Williams, Chapman and Gottwald agreed to guarantee Jett's note.¹

The suit was tried to the court. The trial judge dismissed the action against Joseph J. Phillips because he was deceased when the suit was instituted and no substitution of parties was sought. Phillips & Associates was dismissed as a party defendant because the unincorporated association's presence in the suit destroyed the diversity of citizenship necessary for the federal court's jurisdiction. On findings of fact and conclusions of law, 307 F.Supp. 432, the trial judge entered judgment against Alexander and Roth in the sum of $22,191.30. Judgment against appellees Williams, Chapman and Gottwald was denied. Jett appeals from the trial judge's dismissal of Phillips & Associates as a party defendant and from his denial of judgment against appellees Williams, Chapman and Gottwald. Williams, Chapman and Gottwald cross-appeal.

The most difficult issue on this appeal is whether the trial judge erred in dismissing Phillips & Associates, the unincorporated association, in order to preserve diversity jurisdiction over the matter. In coming to the conclusion that Phillips & Associates should be dismissed from the action, the trial judge first considered the fact that Jett himself was a member of that unincorporated association. From this the trial court reasoned that Jett as plaintiff was not diverse from himself as a member of the defendant association and, consequently the presence of Phillips & Associates in the lawsuit as a party defendant destroyed the federal court's diversity jurisdiction. To preserve diversity jurisdiction, the trial judge deemed it necessary to dismiss defendant Phillips & Associates.

On appeal Jett contends that the trial court should not have dismissed Phillips & Associates and that the correct procedure in the circumstances would have been for the trial judge to realign the parties according to their actual interest. Jett argues that his real interest lies as plaintiff in the action and that his technical membership in the defendant association should not be allowed to defeat his real interest as plaintiff in the action. Appellees, on the other hand, in their cross-appeal, contend that the trial court should have dismissed the whole action when it found an absence of diversity between the parties.

We cannot, however, agree with either party's submission of error, and it is our view that the trial judge properly exercised the discretionary power vested in himself by Rule 21 of the Federal Rules of Civil Procedure, 28 U.S.C., when he dismissed the unincorporated association from the lawsuit. Rule 21 states, "Parties may be dropped or added by order of the court on motion of any party or of its own initiative at any stage of the action and on such terms as are just." This court has interpreted Rule 21 to mean, "Parties of course may be dropped in order to achieve the requisite diversity of citizenship if their presence is not essential to a just and meaningful adjudication."²

As indicated, the court's power to dismiss parties is circumscribed insofar as under Rule 19(b) the court cannot proceed without an indispensable party. But it is clear that the unincorporated association was not an indispensable party to the action on the note. The association was a co-maker of the note, and thereby was jointly and severally liable on the instrument along with the other co-makers, Phillips, Alexander and Roth. By the very nature of this joint and several liability, it was not necessary for Jett, as the obligee, to proceed against each and every joint obligor on the note. Conversely, each obligor was not indispensable to an action on the note.³ Hence the unincorporated association was not such a party under Rule 19(b) without which the court could not have proceeded.

It follows from what has been said that the trial judge in his sound discretion was empowered to dismiss Phillips & Associates as a party litigant. And on review, this court will reverse only upon a showing that it was a clear abuse of discretion for the trial court to dismiss Phillips & Associates.

Whether the trial judge abused his discretion in dismissing Phillips & Associates depends upon whether in point of law the trial judge was correct in determining that Phillips & Associates' continued presence in the lawsuit destroyed the court's diversity jurisdiction. In answering this question we first note that for the purposes of diversity jurisdiction, the citizenship of an unincorporated association is the citizenship of the individual members of the association.⁴ Hence, in a diversity suit against an unincorporated association, the...