Maldonado v. Valsyn S.A., Civil No. 04-1808(SEC).

• Decision Date: 05 June 2006
• Docket Number: Civil No. 04-1808(SEC).
• Citation: 434 F.Supp.2d 90
• Parties: Richard MALDONADO, et al., Plaintiffs v. VALSYN S.A., Defendant.
• Court: U.S. District Court — District of Puerto Rico

434 F.Supp.2d 90

Richard MALDONADO, et al., Plaintiffs v. VALSYN S.A., Defendant.

Civil No. 04-1808(SEC).

United States District Court, D. Puerto Rico.

June 5, 2006.

Jose A. Hernandez-Mayoral, Hernandez Mayoral Law Office, San Juan, PR, Juan H. Saavedra-Castro, Juan H. Saavedra Castro Law Office, San Juan, PR, for Plaintiffs.

Edwin Prado-Galarza, Prado, Nunez & Associates, PSC, San Juan, PR, Carlos A. Garcia-Perez, Goldman Antonetti & Cordova, San Juan, PR, PHV Stuart A. Jackson, Stuart A. Jackson Law Office, New York, NY, for Defendants.

OPINION AND ORDER

CASELLAS, Senior District Judge.

Pending before the Court is Plaintiffs' motion for joinder of Emusica Publishing LLC (herein "Emusica") (Docket # 133). Emusica has filed an opposition and a supplemental opposition (Dockets ## 138 143). Per the testimony, arguments and evidence presented in the May 30, 2006 evidentiary hearing, and the applicable law, Plaintiffs' motion will be DENIED.

Plaintiffs invoke Rule 25(c) alleging that since during the course of this litigation (on July of 2005) Emusica acquired the copyrights at issue in this case, it must be joined as a party defendant. Plaintiffs' request must be denied on two counts: (1) Emusica is not a successor in interest of Valsyn, S.A. ("Valsyn"), and (2) it appears that a different corporation, not Emusica, was the party appearing as purchaser in the July 2005 agreement. Let's see.

Rule 25(c) provides that "[i]n the case of any transfer of interest, the action may be continued by or against the original party, unless the court upon motion directs the person to whom the interest is transferred to be substituted in the action or joined with the original party." Rule 25(c) Fed. R.Civ.P. However, joinder under Rule 25(c) lies in the discretion of the Court. Pacamor Bearings, Inc. v. Minebea Co., Ltd., 892 F.Supp. 347, 360 (D.N.H.1995).

Rule 25(c) is a procedural vehicle; it does not create substantive rights. Citibank v. Grupo Cupey, Inc., 382 F.3d 29, 32 (1st Cir.2004) (citations omitted). "The most significant feature of Rule 25(c) is that it does not require that anything be done after an interest has been transferred. The action may be continued by or against the original party, and the judgment will be binding on his successor in interest." 7C Wright, Miller & Kane, Federal Practice and Procedure: Civil 2d § 1958 at p. 555. Its purpose is to prevent that assets, which are subject to litigation, be transferred to a third party, allowing a defendant to sabotage plaintiffs' efforts of reaching the assets should liability on defendant attach. Although the rule refers to a "transfer of interest" without more, joinder is appropriate only when the party which is sought to be joined could be called to respond for the liability of the original party. See Moody v. Albemarle Paper Co., 50 F.R.D. 494, 498 (E.D.N.C.1970) (finding that because the company that was sought to be joined could have the burden of liability, joinder under Rule 25(c) was proper). As such, it is not only the transfer of assets in litigation that calls for a Rule 25(c) joinder, but also the possibility that the party to be joined could be held accountable for the actions of the original party.

Accordingly, courts have applied the doctrine of successor in interest in order to decide whether successor liability is possible and joinder warranted. A corporation is a successor in interest of another if one of these four (4) requirements can be established: (1) the transferee of assets has made an assumption of liability (implied or explicit); (2) the transfer of assets is a de facto merger between the two corporations; (3) the transferee corporation is a mere continuation of the seller corporation; or (4) the transfer of assets was fraudulent. See e.g., Arnold Graphics Indus., Inc. v. Indep. Agent Ctr., Inc., 775 F.2d 38, 42-3 (2nd Cir.1985); Luxliner P.L. Exp., Co. v. RDI/Luxliner, Inc., 13 F.3d 69, 73-4 (3d Cir.1993); Libutti v. United States, 178 F.3d 114, 124 (2nd Cir. 1999); Dayton v. Peck, Stow & Wilcox Co., 739 F.2d 690, 691 (1st Cir.1984).

In the instant case, there is no evidence that the transaction between Emusica and Valsyn meets any of the foregoing criteria. In fact, it appears that Emusica expressly rejected any assumption of liability in the sales agreement; is a completely separate entity from Valsyn (i.e. no common shareholders, officers, management or assets); Emusica has its own attorneys and would lead its own defense in this case; and Emusica acquired the copyrights in what appears to be a bona fide cash transaction. See e.g., Explosives Corp. of Am. v. Garlam Enter. Corp., ...