Abel v. American Art Analog, Inc.

• Decision Date: 29 February 1988
• Docket Number: No. 87-1366,87-1366
• Citation: 838 F.2d 691
• Parties: Joel S. ABEL, v. AMERICAN ART ANALOG, INC. and Michael D. Zellman and Philip Cohen. Appeal of AMERICAN ART ANALOG, INC. and Philip Cohen.
• Court: U.S. Court of Appeals — Third Circuit

Page 691

838 F.2d 691

Joel S. ABEL, v. AMERICAN ART ANALOG, INC. and Michael D. Zellman and Philip Cohen Appeal of AMERICAN ART ANALOG, INC. and Philip Cohen.

No. 87-1366.

United States Court of Appeals Third Circuit.

Argued Dec. 2, 1987.

Decided Feb. 1, 1988.

Rehearing and Rehearing

In Banc Denied

Feb. 29, 1988.

Harold E. Kohn, Jeanne P. Wrobleski (argued), Kohn, Savett, Klein & Graf, P.C., Philadelphia, Pa., for appellants.

Harry Lore (argued), Robert F. Simone, Philadelphia, Pa., for appellee.

Before WEIS, HIGGINBOTHAM, and ROSENN, Circuit Judges.

OPINION OF THE COURT

ROSENN, Circuit Judge.

This diversity action raises interesting questions of partnership law growing out of an unusual business arrangement between the plaintiff-appellee, Joel S. Abel, and his co-partners, on the one hand, and the defendants-appellants, Philip Cohen and his wholly owned corporation, American Art Analog, Inc. (American), on the other. Abel brought suit against the defendants charging them with tortious interference with his partnership arrangements. After a trial to a jury in the United States District Court for the Eastern District of Pennsylvania, Abel obtained a judgment in the sum of $677,483 against both defendants. The district court denied defendants' motions for a directed verdict, for judgment notwithstanding the verdict (judgment NOV), for a new trial, and for dismissal for lack of federal jurisdiction. The defendants appeal and we reverse.

I.

In December 1983, Michael Zellman, S. Robert Jacobs, and Joel Abel (the Partners or Group) entered into an oral partnership agreement to create and develop the American Art Analog, a three-volume reference book encompassing nineteenth and twentieth century American canvas art. ¹ The Group agreed to divide any profits from the venture equally, with Zellman receiving an additional ten percent of any proceeds derived from the Analog's first five thousand sales. Moreover, each of the Partners undertook discrete responsibilities for the book's completion with Zellman serving as technical and research director, Jacobs as project director, and Abel as marketing director. At no time did the parties reduce the terms of their agreement to writing.

To attract outside investors, the partnership produced a ten page prototype of the Analog in September 1984. The prototype contained an explanation of the art valuation techniques utilized in the Analog, biographical depictions of the represented artists, and color photographs of the relevant art works. Additionally, the partnership produced a "blue book," or prospectus, consisting of a budget for producing and marketing the Analog, and a five-year projection of revenues and profits. ² Soon after the completion of the prototype and the blue book, the Partners had several disagreements culminating in a substantial modification of Jacobs' partnership role.

In September 1984, the three partners met with Philip Cohen at the Philadelphia offices of their mutual accounting firm, Laventhol and Horwath, to discuss Cohen's potential investment in the Analog. ³ As a consequence of that and subsequent meetings, Cohen formed American Art Analog, Inc., a company whose sole function was the production, sale, and distribution of the Analog. Cohen invested in excess of $900,000 in American and became the sole owner of its capital stock. Under the terms of their arrangement with Cohen, the Partners had no ownership position in American, but would receive thirty percent of the corporation's profits; Cohen would be entitled to the remaining seventy percent. The Partners were not, however, required to share in American's losses. Finally, as part of the agreement, Zellman and Abel were hired as salaried employees of American. ⁴ At no time were the terms of Cohen's agreement with the Partners reduced to writing.

In December 1984, Cohen directed Zellman to terminate Abel's salaried employment at American. ⁵ Cohen additionally induced Zellman to breach the oral agreement entitling Abel to his share of the thirty percent profit position. ⁶ In February 1986, Cohen's counsel informed Zellman that he too had been terminated. The Analog went on sale in March 1986.

Abel filed a complaint against Cohen, American, and Zellman on September 12, 1985. ⁷ On April 3, 1986, a jury found Cohen and American liable for wrongful interference with the Abel, Zellman, and Jacobs partnership agreement. In response to specific interrogatories, the jury found that: (1) in 1983, plaintiffs Abel, Zellman, and Jacobs entered into a partnership agreement to develop the project known as American Art Analog; (2) about December 1984, defendant Cohen directed that plaintiff Abel not participate in the American Art Analog project knowing that Abel and Zellman continued to be partners in the project; (3) before December 1984, the partnership of Abel, Zellman, and Jacobs entered into a partnership with Cohen to finance, publish, and market the American Art Analog; (4) under the terms of the "second partnership" agreement with Cohen, Abel and Zellman were to receive thirty percent and Cohen was to receive seventy percent of the profits. After a separate trial on damages, a jury awarded Abel $622,500 for pecuniary losses of benefits of contract rights resulting from wrongful interference, $6,500 for consequential losses for which wrongful interference was a substantial causal factor, and $48,483 for emotional distress. Judgment was entered for $677,483.

II.

Initially, the defendants challenge the jurisdiction of the district court arguing that Abel's non-joinder of indispensable parties Zellman and Jacobs mandates dismissal pursuant to Fed.R.Civ.P. 19(b). Because Zellman and Jacobs are citizens of Pennsylvania, defendants observe that their joinder would defeat diversity. ⁸

Fed.R.Civ.P. 19(a) denotes those parties whose joinder is necessary for a just adjudication of an action:

(a) Persons to be Joined if Feasible. 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 his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his 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 reasons of his claimed interest....

Rule 19(a) guarantees that all parties interested in a particular lawsuit have both the chance to affect the outcome, and the benefit of finality as to the judgment rendered. White Hall Building Corp. v. Profexray Division of Litton Industries, Inc., 387 F.Supp. 1202 (E.D.Pa.1974); aff'd, 578 F.2d 1377 (3d Cir.1978). If the requisites of Rule 19(a) are satisfied, a court must next determine whether "in equity and good conscience" the action should proceed without the absent party. See Challenge Homes Inc. v. Greater Naples Care Center, Inc., 669 F.2d 667, 669 (11th Cir.1982). Rule 19(b) codifies the factors to be considered by a court contemplating dismissal:

[F]irst, to what extent a judgment rendered in the person's absence might be prejudicial to him 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.

Because we conclude that Zellman and Jacobs are not necessary parties pursuant to Rule 19(a), we need not determine whether the factors articulated in Rule 19(b) compel us to dismiss the action for lack of subject matter jurisdiction. Contrary to defendants' contentions, plaintiff is not asserting the interests of the partnership, but merely his personal entitlement to approximately one-third of the thirty percent profit position. ⁹ In other words, Abel's profit interest was readily severable from that of Zellman and Jacobs. A jury might therefore easily calculate Abel's rights and damages independently of the other members of the alleged partnership. ¹⁰ Turning to the factors enumerated in Rule 19(a), we observe that the severability of Abel's claim permitted the district court to accord complete relief to the parties before it. Similarly, we note that Zellman and Jacobs' absence did not subject the defendants to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations. Once Abel's claim is decided, no further suits between the plaintiff and the defendants are possible. Concededly, Cohen might ultimately be found liable to Zellman and Jacobs for their respective profit shares, but any subsequent liability would be independent of that determined here. We therefore conclude that the district court did not abuse its discretion in refusing to dismiss the complaint for nonjoinder of indispensable parties.

III.

We now consider the merits of the appeal. The defendants contend that the partnership among Zellman, Abel, and Jacobs completed the objectives for which it was formed, and was therefore dissolved as a matter of Pennsylvania law. ¹¹ Simply stated, Cohen and American assert that they cannot wrongfully interfere with a non-existent partnership. We agree.

Under Pennsylvania law, the existence of a partnership is a question of fact. Silco Vending Company v. Quinn, 315 Pa.Super. 367, 461 A.2d 1324, 1326 (1983). In determining whether the district court correctly denied defendants' motions for a directed verdict and for judgment NOV, we must examine the record and all inferences reasonably capable of being drawn therefrom in a light most favorable to the non-moving p...