Walsh v. Centeio

• Citation: 692 F.2d 1239
• Decision Date: 02 November 1982
• Docket Number: No. 81-4123,81-4123
• Parties: Kaikilani Robinson WALSH, Susanna Boekenoogen, and Aileen Kragness, Plaintiffs-Appellants, v. Mildred T. CENTEIO, Herman G.P. Lemke, Chinn Ho, and Capital Investment of Hawaii, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1239

692 F.2d 1239

Kaikilani Robinson WALSH, Susanna Boekenoogen, and Aileen

Kragness, Plaintiffs-Appellants, v. Mildred T. CENTEIO, Herman G.P. Lemke, Chinn Ho, and Capital

Investment of Hawaii, Inc., Defendants-Appellees.

No. 81-4123.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 9, 1982.

Decided Nov. 2, 1982.

William F. Quinn, Goodsill, Anderson & Quinn, Honolulu, Hawaii, for plaintiffs-appellants.

Frank D. Gibson, Jr., Rosemary T. Fazio, Honolulu, Hawaii, argued, for defendants-appellees; D. Scott MacKinnon, John Jubinsky, Honolulu, Hawaii, on brief.

Appeal from the United States District Court for the District of Hawaii.

Before MERRILL, GOODWIN and ANDERSON, Circuit Judges.

J. BLAINE ANDERSON, Circuit Judge:

Plaintiffs appeal from the dismissal of this action for nonjoinder of indispensable parties under Fed.R.Civ.P. 19(b). ¹ Plaintiffs, residents of Oregon, are three of five beneficiaries under five inter vivos and five testamentary trusts. Two Hawaii residents are beneficiaries of the remaining two inter vivos and two testamentary trusts. Defendants Centeio, Lemke, and Ho, also residents of Hawaii, are trustees of all ten trusts. Defendant Capital Investment of Hawaii, Inc. (hereinafter "CIH") is a corporation organized under Hawaii law in which defendant Ho holds an ownership interest. Jurisdiction is grounded on diversity of citizenship. 28 U.S.C. Sec. 1332(a)(1).

The precise nature of the ten trusts is of key importance to this appeal. The instruments creating the inter vivos and testamentary trusts specifically require that each trust be separate and distinct from any other. ² The beneficiary of each trust is entitled to separate income under separate accounts. The corpus of each trust consists primarily of a separate fractional interest in the undivided whole of various real property located in Hawaii.

The instruments also provide, however, for joint administration and management of the several trusts, specifically with respect to the trustees. The Indenture of Trust requires that "there shall at all times be three and the same Trustees of all of the trusts by this Indenture of Trust created." The will devises certain property in trust jointly to the three trustees, and directs that "[t]here shall at all times be ... three Trustees of all the trusts by this will created."

Plaintiffs filed suit in the United States District Court for the District of Hawaii, alleging various instances of mismanagement, self-dealing, and breaches of fiduciary duty by the trustees. Plaintiffs also allege that trust funds were invested in and loans made to CIH without the knowledge and consent of beneficiaries. Plaintiffs sought removal of the trustees, surcharges, damages, and establishment of a constructive trust as to monies earned by CIH through dealings with the trust.

Defendants moved to dismiss the action for nonjoinder of indispensable parties, namely, the Hawaii beneficiaries. The district court granted defendants' motion, reasoning that although the settlor clearly established ten separate trusts, he also intended an overall plan whereby the trusts would be administered "in a unified manner" with "one group of trustees." The court then stated:

"The beneficiaries who have not joined in this action are indispensable parties if this intent of the settlor is not to be frustrated. Failure to join them makes it impossible to grant total relief in this matter in terms of removing these trustees and appointing new ones. This is because those beneficiaries, in a subsequent action in this or another Court, could challenge the right and authority of the successor trustees, if appointed, to administer their individual trust estates. In addition they could petition the Court to appoint other individuals as trustees. If there is not unitary administration by way of one set of trustees, each and every beneficiary could petition for a separate set of trustees. Such consequences and the possible results would be destructive of the settlor's intent."

I. STANDARD OF REVIEW

The parties disagree on the applicable standard of reviewing dismissals under Rule 19(b). Defendants advance the abuse of discretion standard, while plaintiffs contend the issue is one of law subject to de novo review. Since briefing and oral argument in this case, we decided Bakia v. County of Los Angeles, 687 F.2d 299 (9th Cir. 1982) (per curiam), where we held for the first time that abuse of discretion is the appropriate standard of review in Rule 19 cases. Because we feel the outcome of the instant case turns on the standard of review, we provide further rationale for applying the abuse of discretion standard.

In support of their argument for de novo review, plaintiffs observe that a number of appellate courts, including the Ninth Circuit, have raised the indispensability issue sua sponte. See, e.g., Fidelity & Casualty Co. v. Reserve Insurance Co., 596 F.2d 914 (9th Cir. 1979); Anrig v. Ringsby United, 591 F.2d 485 (9th Cir. 1978), revised on denial of rehearing and rehearing en banc, 603 F.2d 1319 (1979). We do not read these cases as either mandating application of the de novo standard or requiring the indispensability issue to be raised sua sponte in every case. We independently analyzed Anrig under Rule 19 to determine if certain defendants could be dismissed out in order to preserve proper venue. Anrig, 591 F.2d at 591-92. In Fidelity, we held that jurisdiction was lacking under 28 U.S.C. Sec. 1345 and we analyzed the case sua sponte under Rule 19 to determine the existence of an alternative basis for jurisdiction. Fidelity, 596 F.2d at 916-18. In those cases, this court applied Rule 19 independently because the district courts had failed to do so; it does not follow that when the district court does apply Rule 19 we must independently review that application. In most cases, we prefer instead to defer to the district court's discretion. Thus, in Sams v. Beech Aircraft Corp., 625 F.2d 273, 278 (9th Cir. 1980), we refused the parties' request to apply Rule 19(b) sua sponte, instead remanding "to the district court for it to exercise its discretion and give complete balance to the competing equities under Rule 19(b)" (footnote omitted).

Plaintiffs also cite numerous cases, and we have found others, in which appellate courts have reversed lower court decisions relating to indispensability without stating that the trial judge had abused his discretion. See, e.g., Bonnet v. Trustees of Schools, 563 F.2d 831 (7th Cir. 1977); Prescription Plan Service Corp. v. Franco, 552 F.2d 493 (2d Cir. 1977); Federal Resources Corp. v. Shoni Uranium Corp., 408 F.2d 875 (10th Cir. 1969). Indeed, the vast majority of appellate decisions in this court and others engage in an independent analysis under Rule 19(b) and contain no reference to any standard of review whatever. E.g., Eldredge v. Carpenters 46 Northern California Counties Joint Apprenticeship and Training Committee, 662 F.2d 534 (9th Cir. 1981); United States v. Navajo Freightlines, Inc., 525 F.2d 1318, 1322 (9th Cir. 1975). Aside from Bakia, we have found only one case squarely addressing the standard of review under Rule 19(b), and it did so in a footnote. In Pasco International (London) Ltd. v. Stenograph Corp., 637 F.2d 496 (7th Cir. 1980), the court, after concluding that the district court had "erred" in dismissing under Rule 19(b), noted:

"We are mindful that we are reviewing a matter arguably within the discretion of the district court. This is the apparent standard of review set out in Hansen v. Peoples Bank of Bloomington, 594 F.2d 1149, 1150 (7th Cir. 1979). Other Seventh Circuit decisions have reversed findings of indispensability, however, without stating that the district court judge abused his discretion. See, e.g., Bio-Analytical Services, Inc. v. Edgewater Hospital, Inc., 565 F.2d 450 (7th Cir. 1977), cert. denied, 439 U.S. 820, 99 S.Ct. 84, 58 L.Ed.2d 111 (1978); Bonnet v. Trustees of Schools of Township 41 North, 563 F.2d 831 (7th Cir. 1977). A Rule 19(b) determination is not one that obviously requires such deference to the district court although we are willing to accept this standard for our review of this case."

Pasco, 637 F.2d at 505-06 n. 22. ³ Other courts allude to abuse of discretion as the appropriate standard of review, while at the same time engaging in their own independent analyses. For example, in Broussard v. Columbia Gulf Transmission Co., 398 F.2d 885 (5th Cir. 1968), the court, after evaluating the case in light of Rule 19, stated:

"We therefore find that in equity and good conscience the district court correctly exercised its discretion by dismissing the suit. We add, moreover, that the pragmatical approach elevates the role of judgmental discretion in the joinder problem. While this discretion may not have the constrictions of a clearly erroneous rule, we must be mindful that the district judge is closer to the arena and is often in a better position to survey the practicalities involved in the litigation."

Id. at 889. See also Kamhi v. Cohen, 512 F.2d 1051, 1055 (2d Cir. 1975) ("we will try to employ Judge Hand's pragmatic approach to determine whether Judge Neaher's discretion was properly exercised"); Glenny v. American Metal Climax, Inc., 494 F.2d 651, 653 (10th Cir. 1974) ("we must determine the importance of each factor on the facts of each particular case and in light of equitable considerations. In making this determination we recognize that operation of Rule 19(b) depends to a large degree on the careful exercise of discretion by the district court").

Notwithstanding the paucity of definitive authority on this subject, we are convinced that the abuse of discretion standard should apply. As the Supreme Court recognized in Provident Trademens Bank & Trust Co. v. Patterson, 390 U.S. 102, 88 S.Ct. 733, 19 L.Ed.2d 936 (1968), there is no prescribed formula for determining indispensability. "The decision...