Prescription Plan Service Corp. v. Franco, 429

• Decision Date: 04 April 1977
• Docket Number: D,No. 429,429
• Citation: 552 F.2d 493
• Parties: PRESCRIPTION PLAN SERVICE CORP., Plaintiff-Appellant, v. Albert FRANCO, Individually and as Administrator et al., Defendants-Appellees. ocket 76-7281.
• Court: U.S. Court of Appeals — Second Circuit

Page 493

552 F.2d 493

PRESCRIPTION PLAN SERVICE CORP., Plaintiff-Appellant, v. Albert FRANCO, Individually and as Administrator et al Defendants-Appellees.

No. 429, Docket 76-7281.

United States Court of Appeals Second Circuit.

Argued Dec. 8, 1976.

Decided April 4, 1977.

Milton Horowitz, New York City, for plaintiff-appellant.

Edward M. Katz, New York City (Sidney H. Kalban, Phillips & Capiello, New York City, of counsel), for defendants-appellees Wall, Barisic, Miller, Martin, Bocker and Rich.

Steven S. Miller, New York City (Proskauer, Rose, Goetz & Mendelsohn, New York City, of counsel), for defendants-appellees Franco, Hickey, Riley, Marcus, Ristine, Denys and Gundling.

Before MEDINA, OAKES and GURFEIN, Circuit Judges.

OAKES, Circuit Judge:

This appeal is from a judgment of the United States District Court for the Southern District of New York, Gerard L. Goettel, Judge, dismissing the action for want of either federal question or diversity jurisdiction. We affirm dismissal of the federal question claim but reverse and remand on the diversity issue with directions to grant leave to amend the complaint.

Appellant, a New York corporation, pursuant to contract administered and serviced a pharmaceutical benefit program for the National Maritime Union's Pension and Welfare Plan (the Plan). The Plan, established in 1950 under Section 302(c) of the Labor Management Relations Act of 1947 (LMRA), 29 U.S.C. § 186(c), has its place of business in New York City and is governed by the laws of New York. It is administered by twelve trustees, six representing the Union and six representing employers of Union members. The Plan has a full-time Administrator, who was named as a defendant here along with the trustees.

Following the Plan's notice to appellant that its contract would be terminated (pursuant to a termination clause), appellant filed suit, alleging that it was fraudulently induced to enter into contracts with the Plan and to believe that it could continue contractual relations despite the express termination provisions; that the size and activity of the Plan were misrepresented; that there was a fraudulent scheme by the defendants to divert funds from the Plan to the Union's use and to ensure that the program appellant administered would not operate successfully; and that the defendants breached the contract. Although the administrator and the trustees were sued both individually and in their official capacities, service of process was made upon a lawyer authorized only to accept service for them in their official capacities. Federal question jurisdiction was alleged under 28 U.S.C. § 1331, with appellant claiming that the matter in controversy arose under Section 302(e) of the LMRA, 29 U.S.C. § 186(e), and the Welfare and Pension Plan Disclosure Act of 1958, Pub.L.No.85-836, 72 Stat. 997 (repealed in 1975 and currently incorporated by the Employee Retirement Income Security Act of 1974, Pub.L.No.93-406, 88 Stat. 829, into scattered sections of 29 U.S.C. (Supp. V 1975)). Diversity jurisdiction was also alleged, pursuant to 28 U.S.C. § 1332.

Federal Question Jurisdiction

Appellant concedes that it cannot bring a direct statutory action under either of the acts cited in its complaint. It invokes federal question jurisdiction by urging us to create a "federal common law tort." Despite our statement to the contrary over twenty years ago, Fitzgerald v. Pan American World Airways, Inc., 229 F.2d 499, 502 (2d Cir. 1956), it is now clear that, in appropriate cases, the federal courts may recognize or create common law torts, see, e. g., Bivens v. Six Unknown Named Agents, 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971); Ivy Broadcasting Co. v. American Telephone & Telegraph Co., 391 F.2d 486, 490-92 (2d Cir. 1968), and that " § 1331 jurisdiction will support claims founded upon federal common law . . .," Illinois v. City of Milwaukee, 406 U.S. 91, 100, 92 S.Ct. 1385, 1391, 31 L.Ed.2d 712 (1972), citing Ivy Broadcasting Co. v. American Telephone & Telegraph Co., supra, 391 F.2d at 492. As we held in Ivy Broadcasting, however, federal jurisdiction may not be invoked merely on the strength of "some reference to federal law" in a case:

(T)hat federal law furnishes a necessary ingredient of a claim is insufficient as a basis for federal jurisdiction, unless the claim presents an issue requiring construction of an Act of Congress or unless a distinctive policy of an Act of Congress requires that federal principles control the disposition of the claim.

391 F.2d at 493. Appellant has failed to meet this standard and has thus failed to show that its claim is one of those "few and restricted" instances in which federal common law should be developed, Wheeldin v. Wheeler, 373 U.S. 647, 651, 83 S.Ct. 1441, 10 L.Ed.2d 605 (1963).

In a case with facts more sympathetic to a federal common law claim than those in the instant case where the plaintiff, as a union member suing for denial of a pension, was at least an intended beneficiary of LMRA § 302(c)'s provisions this court recently noted that such a beneficiary could not obtain federal jurisdiction under § 302(e) for a claim of breach of fiduciary duty. The court also expressed "considerable doubt" about creating federal common law from § 302's jurisdictional grant. Lugo v. Employees Retirement Fund, 529 F.2d 251, 255 (2d Cir.), cert. denied, --- U.S. ----, 97 S.Ct. 81, 50 L.Ed.2d 88 (1976). It follows a fortiori that there is no federal question jurisdiction over appellant's suit.

Appellant's reliance on Textile Workers Union v. Lincoln Mills, 353 U.S. 448, 77 S.Ct. 923, 1 L.Ed.2d 972 (1957), is misplaced. Lincoln Mills did hold that a federal grant of jurisdiction could be the basis for implying federal substantive remedies, but the Supreme Court there was deciding a choice-of-law question whether to apply state or federal law to suits for violation of labor contracts in a context in which jurisdiction in the federal courts was clear under LMRA § 301(a), 29 U.S.C. § 185(a). Here, by contrast, appellant's claim does not fall within the jurisdictional terms of the statutes on which it relies. The Lincoln Mills holding, moreover, rested on a careful examination of congressional intent to provide substantive remedies under LMRA § 301; no similar intent is even suggested by appellant here. While the Lincoln Mills Court believed § 301 was intended to be read broadly, 353 U.S. at 456, 77 S.Ct. 923, the principal statute at issue here, § 302, has consistently been read narrowly by this court, Lugo v. Employees Retirement Fund, supra, 529 F.2d at 255; Cuff v. Gleason, 515 F.2d 127 (2d Cir. 1975) (per curiam). The district court correctly held that it lacked federal question jurisdiction over appellant's suit.

Diversity Jurisdiction

The district court also held that it lacked diversity jurisdiction, on the ground that complete diversity of citizenship did not exist. Appellant is a New York corporation, and three of the defendants, the administrator and two of the trustees, are apparently citizens of New York. Upon appellant's motion to drop these three as defendants, the court held that the two trustees were indispensable parties; all conceded that the administrator was not indispensable. ¹

In reaching the conclusion that the two New York trustees were indispensable, the district court failed to consider the teachings of Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 88 S.Ct. 733, 19 L.Ed.2d 936 (1968), the leading case interpreting the criteria for determining indispensable parties, criteria enumerated in Fed.R.Civ.P. 19(b). ² See also Kamhi v. Cohen, 512 F.2d 1051 (2d Cir. 1975). The Provident Tradesmens case requires in general that a "flexible" approach be taken to issues relating to indispensable parties, Clarkson Co. v. Shaheen, 544 F.2d 624, 628 (2d Cir. 1976); a mechanical determination of who is an indispensable party is clearly inappropriate in light of Rule 19(b)'s reference to "equity and good conscience." See also 7 C. Wright & A. Miller, Federal Practice and Procedure § 1610, at 97 (1972) (suggesting that there should be very few cases terminated for lack of complete diversity based on presence of nondiverse indispensable party).

In the Provident Tradesmens case, Mr. Justice Harlan for the Court discussed the four "factors" that Rule 19(b) requires a court to consider. ³ First, the court is to weigh the interest of the plaintiff in having a forum, with the strength of this interest dependent upon "whether a satisfactory alternative forum exists." 390 U.S. at 109, 88 S.Ct. at 738. Second, the defendant's interest in avoiding multiple litigation, inconsistent relief and sole responsibility for a liability jointly shared must be considered. Id. at 110, 88 S.Ct. at 738. Third, there is the interest of any outsider "whom it would have been desirable to join," as to which the court must evaluate whether the outsider's ability to protect his interest will be impaired or impeded by a judgment in his absence. Id. Finally, "the interest of the courts and the public in complete, consistent, and efficient settlement of controversies" must be assessed. Id. at 111, 88 S.Ct. at 739. Weighing these interests in this case, we do not think that the two New York trustees should be considered indispensable parties.

Appellant has no satisfactory alternative forum outside of New York, since the contract in issue was made in New York and declares New York law to govern it, the principal business dealings between appellant and the Plan occurred in New York, and both appellant and the Plan are organized under New York law. While appellees assert that appellant has an available forum in New York state court, they present no evidence that appellant could bring "the same action, against the same parties plus (the nondiverse ones), in a state court." Provident Tradesmens Bank & Trust Co. v. Patterson, supra, 390 U.S. at 112, 88 S.Ct. at 739 (emphasis added)...