Boise Cascade Corp. v. Wheeler

• Decision Date: 10 September 1976
• Docket Number: No. 75 Civ. 6072-LFM.,75 Civ. 6072-LFM.
• Parties: BOISE CASCADE CORPORATION, Plaintiff, v. E. Todd WHEELER and the Perkins & Will Partnership, Defendants.
• Court: U.S. District Court — Southern District of New York

419 F. Supp. 98

BOISE CASCADE CORPORATION, Plaintiff, v. E. Todd WHEELER and the Perkins & Will Partnership, Defendants.

No. 75 Civ. 6072-LFM.

United States District Court, S. D. New York.

September 10, 1976.

Hart & Hume, and Bernstein, Weiss, Parter, Coplan & Weinstein, New York City, for defendant The Perkins & Will Partnership by Joseph A. Bergadano, Norman Coplan and Barbara W. Thompson, New York City.

Reid & Priest, New York City, for plaintiff by Louis H. Willenken, New York City.

OPINION

MacMAHON, District Judge.

Defendants E. Todd Wheeler and The Perkins & Will Partnership (hereinafter referred to collectively as "Perkins & Will" or "Architect") move, pursuant to Rules 12(b) and 19, Fed.R.Civ.P., to dismiss the amended complaint for plaintiff's failure to join an indispensable party plaintiff whose joinder would destroy diversity jurisdiction in this case.

Plaintiff Boise Cascade Corporation ("Boise") is a Delaware corporation having its principal place of business in Idaho. Perkins & Will is a partnership of architects, none of whose members are citizens of Delaware or Idaho. Several partners, however, are citizens of New York. Perkins & Will asserts on this motion that Walter Kidde Constructors Incorporated ("Kidde"), an existing New York corporation, is the real party in interest and an indispensable party to this suit.

It is well settled that, for purposes of diversity jurisdiction, a partnership is a citizen of each state of which a general partner is a citizen¹ and a corporation is a citizen of the state of incorporation and the state where its principal place of business is located.² Thus, if Kidde, the New York corporation, is an indispensable party plaintiff, it cannot be joined because diversity will be destroyed since several members of Perkins & Will, the defendant partnership, are also citizens of New York and the complaint must therefore be dismissed.

In order to place this motion in proper context, a review of the factual background of the suit is necessary.³ On October 29, 1968, Kidde made a written contract with the Mt. Sinai Hospital of Hartford, Connecticut (the "Hospital") to act as general contractor on a certain construction project. Paragraph 46 of the General Conditions of that contract forbade Kidde from assigning "the whole or any part of this contract or any monies due or to become due hereunder without the written consent" of the Hospital. Perkins & Will acted as the architect for this project.

During the course of construction, a number of differences and disputes arose, resulting in Kidde's making various claims for money due because of "changes, extras, and delays." Pursuant to the contract, arbitration proceedings between Kidde and the Hospital were commenced on Kidde's claim for $9,645,787.

While these proceedings were pending, the Hospital, on April 20, 1973, demanded arbitration with Perkins & Will, stating as the nature of the dispute "the arbitration instituted by Walter Kidde Constructors Inc. against the Mt. Sinai Hospital . . ." and claiming for relief "so much of damages claimed by Walter Kidde Constructors Inc. which were the fault of the Architects and their Engineers."

Through various proceedings in the New York courts, the two arbitrations were consolidated. Thus, Perkins & Will stands as a "third party defendant" to the Hospital in the consolidated Kidde-Hospital-Architect arbitration.

Arbitration hearings commenced in September 1975 but were suspended in November 1975 as a result of the disqualification of one of the arbitrators by the Supreme Court, New York County. That arbitration has not yet recommenced.

The within action, asserting a direct claim by Boise against the Architect for $10 million in compensatory damages and $10 million in punitive damages, was commenced on December 5, 1975.⁴ The amended complaint alleges that Boise:

"was at all times mentioned in this complaint, by itself and another corporation merged into Boise, sole stockholder of Walter Kidde Constructors Incorporated (`Kidde') until February 1973; was responsible for the completion of construction and any losses arising out of a Kidde contract to construct a hospital in Hartford, Connecticut (hereafter `Project'), and is entitled to the proceeds and is responsible for the expenses of all claims arising out of the Project."⁵

It is this assertion of "responsibility" and "entitlement" which is the basis for Boise's contention that it is the sole real party in interest in this action and which Perkins & Will disputes on this motion.

As we have noted, Kidde contracted with the Hospital in October 1968. At that time, Ebasco Industries Inc. ("Ebasco"), a New York corporation, was the sole stockholder of Kidde. In April 1969, Ebasco was merged into Boise, which thereupon became Kidde's sole stockholder. Boise sold all of Kidde's stock to A. M. Kinney, Inc. ("Kinney") on February 2, 1973, pursuant to a written sale agreement (the "Sale Agreement") signed by Boise and Kinney, but not by Kidde.

To support its contention that it is the "owner" of the claims asserted here, Boise depends upon certain provisions in the Sale Agreement which provide in pertinent part:

"10. Assets and liabilities. All assets and liabilities of Kidde, and its subsidiaries, as of the time of this sale, shall belong to and be assumed by Boise. . . .

11. Claims. All existing and future claims by and against Kidde arising out of work performed by Kidde . . . prior to time of closing of this sale . . shall be litigated or arbitrated, or defended against by Boise, at its expense, in the name of Kidde. Boise shall be entitled to all net and after-tax proceeds from said claims and shall be liable to Kidde and Kinney for all damages adjudged, decreed, awarded, or assessed against Kidde or Kinney in connection with said claims. . . .

12. Unperformed Contracts. Kinney and Boise recognize the existence of four categories of wholly or partly unperformed contracts to which Kidde, and/or any of its subsidiaries, is now a party.

(a) Contracts that Boise desires Kidde to complete or cause to be completed, for Boise's account, namely, Mt. Sinai Hospital . . .."

Boise contends that, by virtue of these provisions, it "retained" substantially all of Kidde's assets and liabilities, including the claims arising from the Hospital project. Perkins & Will disagrees, asserting that Boise cannot "retain" what it never owned; that is, the claim asserted in this action belonged to the contracting party, Kidde, an existing legal entity under New York law, which at no time signed, adhered to, or acquiesced in the Sale Agreement, nor assigned these claims in any other way. According to defendants, therefore, Kidde is an indispensable party to this action.

Rule 19(a), Fed.R.Civ.P., describes a person needed for just adjudication as one who should be joined 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 reason of his claimed interest."

It is readily apparent that Kidde would be a "proper party" to this action if joinder were permissible. It, and not Boise, entered the construction contract, and an arbitration proceeding in Kidde's name is presently pending against the Hospital in which the Architect has been joined as a party. Plaintiff asserts, however, that for a number of reasons Kidde is neither "necessary" nor "indispensable" to this action.

First, Boise claims that, as sole stockholder of Kidde from 1969 to 1973, it had the right to do whatever it pleased with the corporate property of Kidde, which would include all claims arising from the Hospital project, and, therefore, it was entitled to "retain" these claims in the Sale Agreement.

This argument falls before the long-standing principle of New York law that a corporation's property rights are entirely distinct from those of its shareholders and that

"even complete ownership of capital stock does not operate to transfer the title to corporate property and that ownership of capital stock is by no means identical with or equivalent to ownership of corporate property."⁶

Plaintiff next contends that Kidde acted, at least some of the time, as a "dummy" and that Boise performed a substantial portion of the work. In this respect, Boise is asking us to "pierce the corporate veil" in order to find that it is the sole party in interest. However, it is axiomatic that a...