Airlines Reporting Corp. v. S AND N TRAVEL, INC., CV 93-0396 (JBW).
| Decision Date | 26 July 1994 |
| Docket Number | No. CV 93-0396 (JBW).,CV 93-0396 (JBW). |
| Parties | AIRLINES REPORTING CORPORATION, Plaintiff, v. S AND N TRAVEL, INC., d/b/a Superior Travel, Ephraim Schwartz, and Walter Newmark, Defendants. |
| Court | U.S. District Court — Eastern District of New York |
Jones, Day, Reavis & Pogue, New York City by Harold K. Gordon, Jones, Day, Reavis & Pogue, Washington, DC by Thomas F. Cullen, Jr., Kathryn M. Fenton, for plaintiff Airlines Reporting Corp.
Lichtenberg & Gross, P.C., New York City by Murray Lichtenberg, Roberts & Hundermark, Chevy Chase, MD by Barry Roberts, for defendants S and N Travel, d/b/a Superior Travel, Ephraim Schwartz, and Walter Newmark.
Defendants move to dismiss for lack of subject matter jurisdiction on the grounds that diversity of citizenship is lacking and that the amount in controversy does not exceed $50,000. The motion must be granted. Airlines Reporting Corporation ("ARC") was not the real party in interest until assignments were collusively made for the purpose of obtaining federal jurisdiction in violation of 28 U.S.C. § 1359. The citizenship of the assignors of the claims will be considered for the purpose of determining diversity of citizenship. In addition, the claims cannot be aggregated for the purpose of determining the amount in controversy.
The result is unfortunate since ARC serves a useful purpose in reducing litigation costs and in facilitating a sound relationship between travel agencies and airlines in the public interest. Restructuring of ARC's operations or legislation to permit the kind of representative suit brought here might be useful, but such changes are beyond the court's power.
ARC is a Delaware, not-for-profit corporation with its principal place of business in Arlington, Virginia. It was organized in 1984 by members of the Air Transport Association of America, the trade association of domestic air carriers, to act as a clearinghouse and collection agent for transactions between air carriers and travel agents who issue airline tickets. Its shareholders are major domestic air carriers. One hundred and forty three domestic air carriers have entered into a "Carrier Services Agreement" with ARC granting ARC the power of attorney to enter into contracts with travel agents on behalf of the carriers. Pursuant to that power, ARC enters into "Agent Reporting Agreements" with travel agents on behalf of the air carriers.
As part of its role as an intermediary between the airlines and travel agents, ARC distributes standard ticket stock, performs credit checks on travel agents, and administers a claims procedure; agents remit to ARC money owed to the carriers for airline tickets issued by the agents. The Carrier Services Agreement gives ARC the power of attorney to collect money owed to the carriers by the travel agents and to pursue joint legal action against a travel agent on behalf of the carriers as part of the collection process.
Defendant S and N Travel ("S & N") is a New York corporation with its principal place of business in New York. Defendants Ephraim Schwartz and Walter Newmark are both New York residents.
On October 16, 1989, ARC entered into an Agent Reporting Agreement with S & N. ARC and S & N are the sole signatories to the agreement. The Agent Reporting Agreement, however, explicitly states that ARC is contracting with the agent on behalf of the carriers. See Agent Reporting Agreement, Section XXVIII(B).
The complaint alleges that from December 1988 through September 1990, S & N, doing business as Superior Travel, issued airline tickets worth $374,711.68, for which it never paid ARC or the carriers. ARC claims that the following amounts are owed to each of the carriers:
Carrier Amount
Claimed
American $ 13,219.23
Continental 28,385.49
Delta 6,377.77
Eastern 20,838.76
Northwest 16,141.50
TWA 13,837.13
United 27,652.69
Pan Am 90,475.85
USAir 9,473.19
Lan Chile 4,150.34
Air Portugal 1,496.94
Olympic 11,800.58
Alitalia 15,101.59
Air France 13,235.62
KLM 15,315.42
Iberia 6,465.12
Quantas 1,795.70
Swiss Air 7,907.24
El Al Israel 858.52
Scandinavian 5,235.12
British Airways 19,444.11
Aeromexico 700.79
UTA 4,053.84
Cathay Pacific 11,890.04
Thai Airways 2,796.42
Lufthansa 2,716.06
Austrian Air 5,882.80
America West 6,464.51
MGM Grand Air 10,999.31
=================================
Total $374,711.68
At least two of the carriers have their principal place of business in New York. There is no evidence of the citizenship of the other carriers in the record.
ARC initiated this lawsuit in order to collect the money owed to the air carriers. Subsequently, each of the carriers assigned its claim to ARC. The assignment agreements read, in part:
For value received assignor hereby transfers, assigns, and sets over to assignee, for collection, free and clear of any claims, liens, or other encumbrances whatsoever, all of assignor's right, title and interest, legal and equitable, in and to any and all claims submitted to the assignee which arise from the default of Superior Travel pursuant to the Agent Reporting Agreement and the Carrier Services Agreement.
(Emphasis added.) ARC admits that the money it collects will be paid to the individual carriers, less the cost of prosecuting the lawsuit. The assignments were made after ARC received the defendants' motion to dismiss for lack of subject matter jurisdiction. ARC describes the consideration paid by ARC for the assignments as follows:
... ARC's provision of a streamlined and cost-effective process for the reporting of carrier transactions by ARC accredited travel agents and the collection of funds generated by such transactions.
Plaintiff Airlines Reporting Corporation's Responses and Objections to Defendants' First Set of Interrogatories, Response to Interrogatory 5.
ARC also admits that at least part of the reason the carriers executed the assignments was their desire to remain in federal court. See Response of Plaintiff Airlines Reporting Corporation to Defendants' Renewed Motion to Dismiss, p. 14. The affidavit of John J. McHugh provides other reasons for the assignments. It asserts that because the defendants have a debt greater than $50,000, and because S & N voluntarily withdrew from ARC's approved list of agents, there is evidence that the defendants perpetrated a fraud on ARC and the air carriers. The recent indictment of defendant Walter Newmark for fraud against ARC supports this conclusion. As a result of this possible fraud, ARC asserts that it wants to prevent the carriers from entering into individual settlement agreements with the defendants. ARC argues that the assignments will reduce duplication of effort, save costs, and result in a greater recovery for the individual carriers.
Consolidation of the airline claims in one federal suit would reduce burdens on the court. Forcing an individual claim by each airline into state courts would, however, discourage enforcement of some or all airline claims and thus might benefit defendants.
If a contract is signed by an agent, and the instrument as a whole demonstrates the intent of the parties that the agent signed on behalf of a principal, and the agency relationship and the identity of the principal are clearly disclosed in the contract, then the principal, and not the agent, is a party to the contract. Restatement (Second) of Agency § 157 (1958). Cf. Colonial Securities, Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 461 F.Supp. 1159, 1165 (S.D.N.Y. 1978). An agent cannot maintain an action on a contract in his own name on behalf of his principal unless he is a party to the contract, a transferee, or a holder of an interest in the contract. Colonial Securities, 461 F.Supp. at 1165 (citing Restatement (Second) of Agency §§ 363, 372 (1958)).
Rule 17 of the Federal Rules of Civil Procedure requires that a lawsuit be brought in the name of the real party in interest to the suit. Rule 17(a) states, in part:
Every action shall be prosecuted in the name of the real party in interest. An executor, administrator, guardian, bailee, trustee of an express trust, a party with whom or in whose name a contract has been made for the benefit of another, or a party authorized by statute may sue in that person's own name without joining the party for whose benefit the action is brought....
A person authorized to bring suit solely on the basis of a power of attorney is not a real party in interest; courts have uniformly denied such a party the right to sue in its own name. See Titus v. Wallick, 306 U.S. 282, 59 S.Ct. 557, 83 L.Ed. 653 (1939); 3A Moore's Federal Practice § 17.10 (1993). Cf. Asociacion Nacional De Pescadores A Pequena Escala O Artesanales De Colombia v. Dow Quimica De Colombia S.A., 988 F.2d 559, reh'g denied, 5 F.3d 530 (5th Cir.1993), cert. denied, ___ U.S. ___, 114 S.Ct. 685, 126 L.Ed.2d 653 (1994); ICON Group, Inc. v. Mahogany Run Dev. Corp., 829 F.2d 473 (3d Cir.1987). An assignee for the purposes of collection holds legal title to the debt and is a real party in interest, even though the assignee must account to the assignor for whatever is recovered in the action. See Titus v. Wallick, 306 U.S. 282, 59 S.Ct. 557, 83 L.Ed. 653 (1939); Rosenblum v. Dingfelder, 111 F.2d 406, 407 (2d Cir.1940); Wright, Miller & Kane, Federal Practice and Procedure: Civil 2d § 1545 (1990).
Citizenship of the real party in interest is determinative for diversity purposes. Wright, Miller & Kane, supra, § 1556. Although one may be a real party in interest in the sense that the action is properly...
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