Pulitzer-Polster v. Pulitzer

• Decision Date: 21 March 1986
• Docket Number: No. 85-3145,P,PULITZER-POLSTE,85-3145
• Parties: Carol H.laintiff-Appellant, v. Samuel C. PULITZER, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1305

784 F.2d 1305

4 Fed.R.Serv.3d 48

Carol H. PULITZER-POLSTER, Plaintiff-Appellant, v. Samuel C. PULITZER, Defendant-Appellee.

No. 85-3145.

United States Court of Appeals, Fifth Circuit.

March 21, 1986.

As Amended May 23, 1986.

David Stone, Randall A. Smith, Denise M. Pilie, New Orleans, La., for plaintiff-appellant.

Jack M. Weiss, Mary Louise Strong, Bronfin, Heller, Steinberg & Berins, Fred Bronfin, Polack, Rosenberg, Rittenberg & Endon, Leon H. Rittenberg, Jr., New Orleans, La., for defendant-appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before BROWN, JOHNSON and JOLLY, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

This is the case of the family tie that came untied. Carol Pulitzer-Polster seeks damages from her uncle Samuel C. Pulitzer, because of his alleged improprieties when acting as the sole voting trustee of Wembley Industries, Inc., the world's largest manufacturer of men's neckwear. Before this suit was filed in federal court, Carol, her mother and her sister had brought suit in Louisiana state court arising out of the same dispute. The federal district court dismissed the suit under Rule 19 because of Carol's failure to join her mother and sister as indispensable parties. To have joined the mother and sister would have defeated the diversity jurisdiction of the federal court. The question is whether the district court abused its discretion in dismissing the suit, rather than allowing it to proceed in the absence of these parties.

I

Samuel Pulitzer and his brother Emmanuel Pulitzer founded the predecessor of Wembley Industries in 1925. Emmanuel was the father of Carol Pulitzer-Polster and Susan Pulitzer, and the husband of Lillian Pulitzer, now Lillian Pulitzer Smith.

In 1964, Samuel and Emmanuel Pulitzer created a voting trust into which they put 100 percent of the voting stock of Wembley Industries. The voting trust made Samuel and Emmanuel co-trustees and provided that the survivor would become the sole trustee. In 1967 Emmanuel Pulitzer died, and, pursuant to the voting trust, Samuel Pulitzer succeeded to twenty-five percent of the voting stock of Wembley Industries, and Carol succeeded to twelve-and-one-half percent of the voting stock. Susan became the beneficiary of a trust that held twelve-and-one-half percent of the voting stock. The trustees were Samuel, Lillian and Carol.

Samuel was the sole voting trustee from 1967 until 1984, when the voting trust expired by its own terms. The basis of the dispute is the accusation that during the period between 1967 and 1984 Samuel mismanaged the corporation and illegally attempted to exclude Emmanuel's widow and daughters from its benefits, allegedly in order to benefit his own children, and to acquire Lillian's, Susan's and Carol's stock at a low price. In 1980, Carol, Lillian, and Susan brought an action in Louisiana state court against Samuel and his two sons, Sydney and Arthur, who were also shareholders, directors and officers of Wembley, and two other directors and officers of Wembley. They did not present the claim to Wembley before filing suit. The action sought to overturn the voting trust, require an accounting, require the defendants to restore allegedly wrongly paid monies and declare employment contracts between Wembley and the defendants null and void. The action also sought attorney's fees and other costs. The petition alleges that the plaintiffs sue both individually and derivatively on behalf of Wembley.

The petition in the state case alleges that the defendants violated their fiduciary duties to the plaintiffs in their capacities as directors and officers, and also that Samuel violated "a further and special duty" in his capacity as the trustee of the voting trust. The petition also alleges that Samuel caused the corporation to award to himself and his sons employment contracts that were not in the corporation's best interests because they paid too much for too long to unsuccessful management.

While the first action was languishing in the state court, Carol filed this action in federal court against Samuel. Carol sought damages for Samuel's alleged breaches of fiduciary duty under the voting trust agreement. Carol did not join Lillian and Susan. For purposes of this appeal, despite the parties' dispute on the question, we shall assume that Carol is a citizen of California as she claims. Samuel is a citizen of Louisiana. Lillian is a citizen of Louisiana. Because Susan's sole interest is as a beneficiary of another active trust, the citizenship of the trustees controls, and two of them, Samuel and Lillian, are citizens of Louisiana. It is undisputed, therefore, that joinder of Lillian and Susan would destroy diversity jurisdiction.

The district court dismissed Carol's action because Carol had not joined Lillian and Susan. The district court stated that one of the purposes of Rule 19 of the Federal Rules of Civil Procedure was the avoidance of multiple litigation, and that both the federal and state lawsuits seemed to be seeking the same objectives.

II

Carol argues that the district court abused its discretion in dismissing her case under Rule 19. According to Carol, Susan and Lillian are not necessary or indispensable parties to her federal cause of action under Rule 19(a) because complete relief can be afforded in the federal action without Lillian and Susan, since the federal action seeks only damages for Carol. For the same reason, Carol maintains, her federal suit will not impede Lillian or Susan in pursuing their state court remedies, nor will it expose Samuel to the risk of inconsistent obligations. Carol also argues that, even if the state and federal suits are similar, similarity is irrelevant under Rule 19, which is concerned with protecting absent parties, not eliminating multiple litigation.

Samuel insists that the cases are not only similar, but are in many respects identical. This close similarity is relevant because it illuminates the factors that are denoted in Rule 19. Samuel places great stress on the practical consequences of permitting the federal suit to go forward, pointing to the many possible procedural and substantive difficulties that will result if two judgments, one by the federal and one by the state court, are rendered. Finally, he contends that the plaintiff will not be prejudiced by the dismissal of this case, since the state suit is available for addressing all the wrongs she alleges in her federal suit.

III

The ultimate question in this appeal is whether the district court abused its discretion when it dismissed the federal suit for failure to join indispensable parties. In addressing this question, we must consider each of the several factors listed in Rule 19. We must decide whether, in the absence of Lillian and Susan, complete relief can be afforded to Carol. We must decide whether Lillian and Susan claim an interest relating to the subject of the federal action, and whether they are so situated that a decision in their absence might impair or impede their ability to protect this interest, or whether the defendant, Samuel Pulitzer, might be exposed to a substantial risk of multiple or inconsistent obligations by reason of Lillian's and Susan's unrepresented interests if this case were allowed to proceed.

If consideration of these factors leads us to the conclusion that Lillian and Susan are persons who should be joined, then we reach the next level of inquiry, whether the district court abused its discretion in dismissing the action. We turn to Rule 19(b) and consider the factors enumerated there and the interests the Rule protects. We consider the prejudice to the absent persons, whether relief can be shaped to avoid prejudice to absent persons, the interest in obtaining an adequate judgment that achieves a complete resolution of the dispute between the parties, and the adequacy of the plaintiff's other remedies if the action is dismissed for nonjoinder.

IV

The federal rules seek to bring all persons that may have an interest in the subject of an action together in one forum so that the lawsuit can be fairly and completely disposed of. Fed.R.Civ.P. 19 advisory committee note. In accord with this goal, Rule 19 seeks to bring into a lawsuit all those persons who ought to be there by requiring joinder. ¹ In circumstances where the litigation should not proceed without absent persons, the federal suit should be dismissed.

The 1966 amendments to Rule 19 militate in favor of a highly practical, fact-based decision. ² This emphasis constitutes a clear break from the often technical pre-1966 rulings under Rule 19 that commonly relied on fine, legal distinctions between types of interest, distinctions that were not concerned with the question whether all the parties in interest had been joined. The new emphasis on pragmatism meant that courts could now freely consider various harms that the parties and absentees might suffer. Rule 19's emphasis on a careful examination of the facts means that a district court will ordinarily be in a better position to make a Rule 19 decision than a circuit court would be. Consequently, a district court's decision to dismiss for failure to join an indispensable party is properly reviewed under an abuse-of-discretion standard. Broussard v. Columbia Gulf Transmission Co., 398 F.2d 885, 889 (5th Cir.1968). Furthermore, when an initial appraisal of the facts indicates that a possibly necessary party is absent, the burden of disputing this initial appraisal falls on the party who opposes joinder. Boles v. Greeneville Housing Authority, 468 F.2d 476, 478 (6th Cir.1972) (Tuttle, J., sitting by designation).

Rule 19 provides a two-step analysis for deciding whether to dismiss an action for failure to join an absent party, the issue presented by this case. First, Rule 19(a) provides a framework for deciding whether a given person should be joined. Second, if joinder is called for, then Rule 19(b) ...