Pujol v. Shearson/American Exp., Inc.

• Decision Date: 01 March 1989
• Docket Number: No. 88-1993,88-1993
• Citation: 877 F.2d 132
• Parties: Francisco PUJOL, Plaintiff, v. SHEARSON/AMERICAN EXPRESS, INC., et al., Defendants, Appellees, Appeal of Ana Bonelli de Pujol, Plaintiff. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 132

877 F.2d 132

14 Fed.R.Serv.3d 89

Francisco PUJOL, Plaintiff, v. SHEARSON/AMERICAN EXPRESS, INC., et al., Defendants, Appellees Appeal of Ana Bonelli de Pujol, Plaintiff.

No. 88-1993

United States Court of Appeals First Circuit.

Heard March 1, 1989.

June 5, 1989.

Harold D. Vincente with whom Wallace Gonzalez Oliver was on brief, for appellant.

Philippe M. Salomon with whom Roger D. Netzer, Sharon L. Schnieder, Willkie Farr & Gallagher, New York City, Jay Garcia Gregory and Fiddler Gonzalez & Rodriguez, San Juan, P.R., were on brief, for defendants, appellees.

Before BREYER and SELYA, Circuit Judges, and CAFFREY, ^* Senior District Judge.

BREYER, Circuit Judge.

This case is the remnant of litigation that Francisco Pujol and his wife Ana Bonelli de Pujol started against Shearson/American Express, Inc. ("Shearson"), basically claiming that Shearson improperly harmed Pujol, the President of its Puerto Rico Subsidiary (the "Subsidiary") while trying to cover up wrongdoing that Pujol had discovered.

In a previous decision, Pujol v. Shearson/American Express, Inc., 829 F.2d 1201 (1st Cir.1987), we dismissed a host of claims that Pujol and Bonelli had brought against Shearson. But, we also held that Bonelli had stated causes of action for her own independent injuries. Pujol, 829 F.2d at 1208-09. We remanded those claims to the district court. Subsequently, that court dismissed Bonelli's claims, primarily because it believed that Fed.R.Civ.P. 19(b) required her to join the Subsidiary, as an indispensable party. Since joinder of the Subsidiary would destroy diversity jurisdiction, the district court dismissed the suit. Bonelli appeals. We agree with most of her claims.

I. Indispensable Party

The basic question in this appeal is whether this case, as primarily characterized by the complaint and a few other documents in the record, falls within the scope of Rule 19(b). To understand this "indispensable party" issue, one must keep in mind both the language of Bonelli's complaint and the essential elements of Rule 19(b).

A. The Complaint. Bonelli's complaint now essentially consists of claims that Shearson invaded her privacy, converted and wrongfully attached her property, engaged in malicious prosecution, and negligently caused her emotional distress, when its officers and employees charged her husband, Francisco Pujol, with serious wrongdoing, fired him, started arbitration proceedings against him, and seized personal papers from his office. To be more specific, Bonelli's complaint says that Francisco Pujol, formerly president of the Subsidiary, discovered that employees of the Subsidiary "had continued selling Shearson ... securities to residents of Puerto Rico under the fraudulent and false representation that the income therefrom was tax exempt;" that Shearson continued a "coverup" of the fraud by preparing an inadequate disclosure letter; that Pujol discovered "a number of" Subsidiary "transactions involving misuse of eligible ... funds in violation of the United States Internal Revenue Code" and several other laws; that Pujol expressed concern about these illegalities, and about "serious deficiencies in the internal controls" of Shearson and the Subsidiary, to officials of Shearson; and that Shearson officials, instead of punishing the wrongdoers, suspended Pujol, accused him of "serious wrongdoing," seized "files and all belongings of Pujol and plaintiff Bonelli, including private documents of Bonelli which were in Pujol's office," and took various other steps "covering up the fraudulent conspiracies, and illegal actions on the part of Shearson and its officers."

B. Rule 19. Rule 19(b), which governs indispensable parties, works in two steps. Step one requires the district court to decide whether a person fits the definition of those who should "be joined if feasible" under Rule 19(a). That is to say, is the person (what used to be called) a "necessary" party? See Provident Tradesmens Bank v. Patterson, 390 U.S. 102, 118, 88 S.Ct. 733, 742, 19 L.Ed.2d 936 (1968). Rule 19(a) says that a person should be joined, when feasible,

if (1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's 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 the claimed interest.

If the person is a "necessary" party (i.e., fits the definition of 19(a)), but joinder is not feasible, the court must take step two. It must decide, using four "factors," whether "in equity and good conscience the action should proceed among the parties before it, or should be dismissed." That is to say, is the party "indispensable?" Rule 19(b) says that

The factors to be considered by the court include: first, to what extent a judgment rendered in the person's absence might be prejudicial to the person or those already parties; second, the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; third, whether a judgment rendered in the person's absence will be adequate; fourth, whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder.

In applying Rule 19--a Rule that comes freighted with history, see Provident Bank, 390 U.S. at 120-25, 88 S.Ct. at 743-46; C. Wright, The Law of Federal Courts 458-61 (4th ed.1983); Hazard, "Indispensable Party: The Historical Origin of a Procedural Phantom," 61 Colum. L.Rev. 1254 (1961)--we must keep in mind the fact that this Rule aims to achieve a practical objective. Provident Bank, 390 U.S. at 106-07, 88 S.Ct. at 736-37 (finding of indispensability under Rule 19 "must be based on stated pragmatic considerations"); Pulitzer-Polster v. Pulitzer, 784 F.2d 1305, 1309 (5th Cir.1986) (Rule 19 "militate[s] in favor of a highly practical, fact-based decision"); Schutten v. Shell Oil Co., 421 F.2d 869, 874 (5th Cir.1970) ("The watchwords of Rule 19 are 'pragmatism' and 'practicality.' "). Rule 19, together with the related Rules 20 (persons who may be joined as "permissive" parties), 23 (class actions), and 24 (intervention), aims "to achieve judicial economies of scale by resolving related issues in a single lawsuit," while at the same time preventing "the single lawsuit from becoming fruitlessly complex or unending." Smuck v. Hobson, 408 F.2d 175, 179 (D.C.Cir.1969). These rules seek to involve "as many apparently concerned persons as is compatible with efficiency and due process." Id. (quoting Nuesse v. Camp, 385 F.2d 694, 700 (D.C.Cir.1967)); Friedenthal, Kane & Miller, Civil Procedure 336 (1985) ("The basic objective underlying all claim and party joinder rules is rendering complete justice with as little litigation as possible.").

Thus, when applying Rule 19(a), a court essentially will decide whether considerations of efficiency and fairness, growing out of the particular circumstances of the case, require that a particular person be joined as a party. When applying Rule 19(b), the court will ask whether it is so important, in terms of efficiency or fairness, to join this person, that, in the person's absence, the suit should not go forward at all. See Provident Bank, 390 U.S. at 119, 88 S.Ct. at 743 (the decision whether to dismiss under Rule 19(b) "must be based on factors varying with the different cases, some such factors being substantive, some procedural, some compelling in themselves, and some subject to balancing against opposing interests"); Acton Co., Inc. of Massachusetts v. Bachman Foods, Inc., 668 F.2d 76, 78 (1st Cir.1982) (Rule 19 "furthers several related policies, including the public interest in preventing multiple and repetitive litigation, the interest of the present parties in obtaining complete relief in a single action, and the interest of absentees in avoiding" prejudice); Notes of Advisory Committee on Rule 19 ("persons materially interested in the subject of an action ... should be joined as parties so that they may be heard and a complete disposition made. When this comprehensive joinder cannot be accomplished ... the case should be examined pragmatically and a choice made" between proceeding in their absence and dismissing the case); Friedenthal, Kane & Miller, supra, at 335 (Rule 19 must be viewed in terms of a "continuum of interests" and demands a "flexible case-by-case analysis"); C. Wright, supra, at 462.

With these general considerations in mind, we turn to the relevant language of Rule 19. In this case, the first step in the Rule 19 analysis consists of deciding whether the Subsidiary "claims an interest relating to the subject of" Bonelli's "action and is so situated that the disposition of the action" in its absence may "as a practical matter impair or impede" the Subsidiary's "ability to protect that interest." Rule 19(a)(2)(i). If the Subsidiary fails to satisfy this test, it is not even a "Rule 19(a) person" who should be joined "if feasible," let alone a Rule 19(b) "indispensable party." The district court thought that the Subsidiary satisfied this test, but we do not.

For one thing, the Subsidiary's interests in this case are virtually identical to those of Shearson. Shearson, to win the case, will want to show that no one behaved improperly at its Subsidiary, that Pujol's charges were without foundation, and that its own actions in response to Pujol's baseless accusations were therefore reasonable. This is precisely what the Subsidiary would wish to show. Moreover, since Shearson owns all the stock in the Subsidiary, and (as the parties apparently concede) the Subsidiary is a mere "corporate shell" existing separately from Shearson only on paper,...