Cloverleaf Standardbred Owners Ass'n, Inc. v. National Bank of Washington, 82-1221

• Decision Date: 25 February 1983
• Docket Number: No. 82-1221,82-1221
• Citation: 699 F.2d 1274
• Parties: CLOVERLEAF STANDARDBRED OWNERS ASSOCIATION, INC., Appellants, v. The NATIONAL BANK OF WASHINGTON, a banking corporation of the District of Columbia, et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1274

699 F.2d 1274

226 U.S.App.D.C. 122

CLOVERLEAF STANDARDBRED OWNERS ASSOCIATION, INC., Appellants, v. The NATIONAL BANK OF WASHINGTON, a banking corporation of the District of Columbia, et al.

No. 82-1221.

United States Court of Appeals District of Columbia Circuit.

Argued Dec. 6, 1982.

Decided Feb. 25, 1983.

Appeal from the United States District Court for the District of Columbia (D.C. Civil Action No. 81-00301).

Richard E. Rice, Baltimore, Md., for appellants. Warren K. Rich and Stephen P. Kling, Baltimore, Md., were on the brief, for appellants.

Richard T. Tomar, Washington, D.C., for appellees.

Before GINSBURG and SCALIA, Circuit Judges, and McGOWAN, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge GINSBURG.

GINSBURG, Circuit Judge:

This appeal challenges a district court order dismissing a civil action because a party "needed for just adjudication" under Rule 19 of the Federal Rules of Civil Procedure ¹ could not be joined as a defendant without destroying diversity jurisdiction. ² The matter in controversy revolves around a contract between two Maryland citizens, plaintiff-appellant Cloverleaf Standardbred Owners Association, Inc. (Cloverleaf) and Laurel Harness Racing Association, Inc. (Laurel). Cloverleaf voluntarily dismissed the complaint as to Laurel, pursuant to Fed.R.Civ.P. 41(a)(1), and sought to proceed solely against defendant-appellee, the National Bank of Washington (NBW or Bank), a District of Columbia corporation. NBW has no direct relationship to Cloverleaf, but it holds Laurel's deposit accounts and has made sizable loans to Laurel. Cloverleaf seeks satisfaction of its contract claim against Laurel by reaching funds deposited with NBW by Laurel.

Emphasizing that the agreement between Cloverleaf and Laurel is pivotal to Cloverleaf's complaint, the district court determined: 1) Laurel was "needed for just adjudication"

                ;  2) because both Cloverleaf and Laurel were Maryland citizens and the case did not arise under federal law, joinder of Laurel was not possible;  3) in light of the particular facts and circumstances presented, dismissal was preferable to adjudication without Laurel.   See Park v. Didden, 695 F.2d 626, 628-29 (D.C.Cir.1982).  Reviewing this determination under an "abuse of discretion" standard, see Walsh v. Centeio, 692 F.2d 1239 (9th Cir.1982), we affirm
                

I. BACKGROUND

Cloverleaf is a Maryland organization representing owners, drivers, and trainers of harness racing horses; the absent party, Laurel, owned and operated Laurel Raceway, a harness racing track. The contract on which Cloverleaf's complaint turns provided that Laurel would pay to Cloverleaf as racing purses a fixed percentage of the betting proceeds. In turn, Cloverleaf would distribute the purses to its members, retaining a small share for administrative expenses. Cloverleaf alleges that Laurel failed to pay $32,423.70 to cover expense reimbursements due Cloverleaf, and commenced this action to recover that amount with interest.

Laurel had established several deposit accounts at NBW. In 1978 and 1979, Laurel experienced financial setbacks and borrowed, in a series of loans, a total of $4,850,000 from the Bank. When Laurel defaulted on these loans, NBW offset the funds in Laurel's accounts against the debt. Cloverleaf contends that the Bank wrongfully included in the setoff the amount Laurel owes Cloverleaf.

The complaint in this action named both NBW and Laurel as defendants. NBW moved to dismiss the action, pursuant to Fed.R.Civ.P. 12(b)(1), for lack of subject matter jurisdiction. Joint Appendix (J.A.) 36-45. Complete diversity of citizenship between the parties was plainly absent since Cloverleaf and Laurel both had Maryland citizenship. To cure the absence of complete diversity, Cloverleaf filed a notice voluntarily dismissing the complaint as to Laurel. J.A. 47. NBW then sought dismissal under Fed.R.Civ.P. 19 on the ground that Laurel was a person "needed for just adjudication" without whom the action should not proceed. J.A. 60-64. On January 29, 1982, the district court granted NBW's motion observing, inter alia, that "the absence of [Laurel] from a proceeding to determine the rights and obligations of Cloverleaf as they pertain to money held by [NBW] would hamper a determination by the Court since the very agreement at issue is between [Laurel] and Cloverleaf." J.A. 4. The district court stressed the absence at that time of any "readily apparent impediments to reinstitution of th[e] suit in the local court of the District of Columbia," where "Cloverleaf can obtain a determination of its rights and obligations under the agreement with [Laurel] as well as the responsibilities of [NBW] with respect to the [Laurel] accounts." J.A. 4.

II. ANALYSIS

A. Standard of Review

We address initially the degree of deference due to a district court's reasoned explanation of its decision to dismiss an action pursuant to Rule 19. The Ninth Circuit recently addressed this issue and held that de novo balancing should not occur on appeal; instead, the district court's application of Rule 19(b)'s "equity and good conscience" test should be reviewed under an "abuse of discretion" standard. See Walsh v. Centeio, supra, 692 F.2d at 1241-43; Bakia v. County of Los Angeles, 687 F.2d 299, 301 (9th Cir.1982). ³ We agree.

The Rules Advisory Committee has noted that the 1966 revision of Rule 19 was designed to steer analysis away from the "technical and abstract character[ization] of the rights or obligations of the persons whose joinder [is] in question," and to direct attention instead to "the pragmatic considerations We do not stray today from this court's recent opinion in Park v. Didden, supra, in which we did not reach the "abuse of discretion" or de novo review issue. The district court in Park, without attempting any reasoned explanation, had dismissed an action "for failure to join necessary and indispensable parties." Concluding that the district court had "misunderstood and therefore misapplied" Rule 19, id., 695 F.2d at 627, we reversed the dismissal order. Intelligent exercise of "judgmental discretion" was not possible in Park because the district court misread the Rule. Here, however, the district judge proceeded as the Rule instructs and looked, finally, to Rule 19(b)'s "equity and good conscience" test. When the decision by the court of first instance reflects a clear understanding that the Rule calls for practically-oriented consideration of the competing interests at stake, we should not balance the equities anew. Instead, we should proceed as a court of review and respect the district court's evaluation if we discern no abuse of discretion. ⁵

                which should be controlling."    Fed.R.Civ.P. 19 advisory committee notes on the 1966 amendments.  The Rule, as revised, does eliminate district court discretion to dismiss for nonjoinder simply because an absentee fits Rule 19(a)'s description.  District judges are plainly instructed to continue on to the Rule 19(b) determination "whether in equity and good conscience the action should proceed among the parties before [the court], or should be dismissed, the absent person being regarded as indispensable." 4   This Rule 19(b) language "leaves the district judge with substantial discretion in considering which factors to weigh and how heavily to emphasize certain considerations in deciding whether the action should go forward in the absence of someone needed for a complete adjudication of the dispute."    7 C. Wright & A. Miller, Federal Practice and Procedure, Sec. 1604 at 45-46 (1972).  As the Ninth Circuit observed, the ultimate question Rule 19(b) poses is not "a purely legal issue";  it calls for the exercise of "judgmental discretion."    A district judge, "closer to the arena," is often better situated than is an appellate panel "to survey the practicalities involved in the litigation."   Walsh v. Centeio, supra, 692 F.2d at 1242 (quoting Broussard v. Columbia Gulf Transmission Co., 398 F.2d 885, 889 (5th Cir.1968))
                

B. The Merits

1. Cloverleaf's unsupported assertions in the district court.

Over two months after NBW sought dismissal of the action under Rule 19, Cloverleaf filed a memorandum, dated January 8, 1982, in which it added to other arguments against dismissal the assertion that "Laurel is defunct, and at most at shell corporation." J.A. 77. Cloverleaf further suggested that Laurel is perhaps owned by NBW, citing "speculation" that NBW holds "a substantial portion of the [Laurel] stock by virtue of foreclosure on defaulted loans, secured by stock." J.A. 77. Cloverleaf presented nothing to document the assertion that "Laurel is a defunct shell without resources or assets," J.A. 78 n. 4, and the district court rejected the "unsupported and unverified" allegation as "a statement upon which the Court cannot rely." J.A. 4 n. ^*.

In the same January 8 submission, Cloverleaf alleged for the first time that it "already ha[d] secured a judgment against Laurel ... in a state court proceeding," J.A. 78, but "ha[d] been unable to execute on this judgment." J.A. 78 n. 4. Five days later, however, Cloverleaf reported to the district court that it had made an inadvertent error. J.A. 82-83. In fact, Cloverleaf said, Laurel had defaulted in the state (Maryland) action, but Cloverleaf did not "have a default judgment entered"; instead, Cloverleaf "abandoned" the case when NBW, named as a co-defendant, "secured a dismissal on jurisdictional grounds." It would have been futile, Cloverleaf claimed, to "secur[e] a default judgment against Laurel." J.A. 82.

On appeal Cloverleaf again referred to Laurel's "defunct" or bankrupt status and the suspicion that NBW owned "a substantial portion of the stock of Laurel." Appellant's Brief at 13 n. 5; Reply Brief at 3. After oral argument, we granted Cloverleaf's request for leave to file supplemental material and received two documents: (1) a copy of a certificate from the Maryland...