07-3444-cv CP Solutions PTE, LTD. v. Gen. Elec. Co.
1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 -------- 4 August Term, 2008 5 6 (Argued: December 1, 2008 Decided: January 6, 2009) 7 8 Docket No. 07-3444-cv
9 -----------------------------------------------------------X 10 CP SOLUTIONS PTE, LTD., 11 12 Plaintiff-Appellant, 13 14 - v. - 15 16 GENERAL ELECTRIC CO., GE INDUSTRIAL SYSTEMS, 17 GE MULTILIN POWER MGMT LENTRONICS, GE FANUC 18 AUTOMATION NA and GE METER, 19 20 Defendants-Appellees. 21 -----------------------------------------------------------X 22 Before: McLAUGHLIN, B.D. PARKER, Circuit Judges, and KOELTL, 23 District Judge.* 24 25 Plaintiff appeals the dismissal of its complaint for lack of
26 subject matter jurisdiction by the United States District Court 27 for the District of Connecticut (Arterton, J.). 28 REVERSED AND REMANDED.
*
The Honorable John G. Koeltl of the United States District Court for the Southern District of New York, sitting by designation.
1 ROBERT K. KRY, Baker Botts LLP, 2 Washington, D.C. (Michael S. Goldberg, 3 Jeffrey A. Lamken, Alexandra M. Walsh, 4 Baker Botts LLP, Washington, D.C.; 5 Elizabeth Acee, Tyler Cooper, New Haven, 6 Connecticut, on the brief), for 7 Plaintiff-Appellant. 8 9 THOMAS J. DONLON, Robinson & Cole, LLP, 10 Stamford, Connecticut, for Defendants- 11 Appellees.
12 PER CURIAM: 13 Plaintiff CP Solutions PTE, LTD. (“CP Solutions”) appeals 14 from a judgment of the United States District Court for the 15 District of Connecticut (Arterton, J.) dismissing its complaint 16 for lack of diversity jurisdiction. The defendants moved to 17 dismiss because both CP Solutions and defendant GE Multilin Power 18 Management Lentronics (“GE Multilin”) were foreign citizens. The 19 district court held that GE Multilin was indispensable and 20 therefore could not be dropped as a party, leaving the court 21 without subject matter jurisdiction. Because we conclude that GE 22 Multilin was not an indispensable party, we REVERSE the district 23 court’s judgment and REMAND. 24 BACKGROUND 25 CP Solutions alleged the following in its complaint. In 26 December 2002, CP Solutions, a Singapore corporation, contracted 27 with a Malaysian entity called Tru-Tech Electronics (“Tru-Tech”). 28 CP Solutions agreed to procure parts that Tru-Tech needed in 29 order to assemble electrical products under agreements with
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1 various General Electric (“GE”) companies, including GE Multilin. 2 As part of the GE companies’ arrangement with Tru-Tech, they 3 furnished Tru-Tech with circuits to be integrated into the 4 electrical products. Tru-Tech, which was required to pay for the 5 circuits, ran up a large debt to the GE companies. Pursuant to a 6 set-off clause in their contracts, the GE companies were 7 permitted to deduct any amount that Tru-Tech owed them from the 8 amount payable to Tru-Tech for the electrical products. 9 Because of the debt, CP Solutions refused to procure parts 10 for Tru-Tech without assurance from the GE companies that they 11 would not claim a set-off against payments owed to CP Solutions. 12 In January 2003, the GE companies orally agreed either to pay CP 13 Solutions directly or to guarantee payment, and not to claim a 14 set-off against monies due CP Solutions. The GE companies later 15 made similar statements in writing. In July 2003, however, the 16 GE companies denied that they had a contract with CP Solutions 17 and claimed a set-off for the amount Tru-Tech owed them against 18 payments due CP Solutions. 19 In April 2004, CP Solutions sued GE Co., GE Industrial 20 Systems, GE Fanuc Automation North America, GE Meter, and GE 21 Multilin in the Central District of California, seeking damages 22 for breach of contract, fraud, and other causes of action. The 23 complaint alleged that GE Multilin was a “business entity, form 24 unknown, with its principal place of business in
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1 . . . Ontario, Canada.” CP Solutions did not differentiate among 2 the defendants, but instead alleged that the GE employees whose 3 actions were central to the claims bound all of the defendants 4 and that the defendants were agents of one another. Jurisdiction 5 was based on diversity of citizenship. 6 In December 2004, the district court in California 7 transferred the case to the District of Connecticut. The parties 8 proceeded to discovery. In November 2006, more than two years 9 after the case was filed, the defendants moved to dismiss the 10 suit for lack of subject matter jurisdiction. They argued that 11 diversity of citizenship did not exist because both CP Solutions 12 and GE Multilin were foreign citizens. The defendants also 13 maintained that GE Multilin was an indispensable party and 14 therefore could not be dropped to preserve jurisdiction. 15 CP Solutions opposed the motion to dismiss on the grounds 16 that: (1) GE Multilin Power Management Lentronics, the party 17 named in the complaint, never existed; (2) a Canadian subsidiary 18 of GE Co. named GE Multilin, Inc. existed until it was dissolved 19 in February 2004, with its assets and liabilities passing to 20 another GE company; and (3) a nonexistent or dissolved entity is 21 not an indispensable party pursuant to Federal Rule of Civil 22 Procedure 19. CP Solutions also proposed to amend the complaint 23 to omit GE Multilin and to allege that only GE Co. breached the 24 contract.
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1 In January 2007, the district court granted the defendants’ 2 motion to dismiss. The court recognized that a nondiverse party 3 can be dropped from a suit to preserve diversity jurisdiction, 4 but held that GE Multilin (which it construed to be GE Multilin, 5 Inc.) could not be omitted because it was indispensable to CP 6 Solutions’s breach-of-contract claim. The court reasoned that 7 “[a] party to a contract which is the subject of the lawsuit ‘is 8 the paradigm of an indispensable party.’” CP Solutions PTE, LTD. 9 v. Gen. Elec. Co., 470 F. Supp. 2d 151, 157 (D. Conn. 2007) 10 (quoting Travelers Indem. Co. v. Household Int’l, Inc., 775 F. 11 Supp. 518, 527 (D. Conn. 1991)). The court also refused to allow 12 CP Solutions to file its amended pleading. 13 CP Solutions moved for reconsideration. In July 2007, the 14 district court adhered to its ruling. The court applied four 15 factors relevant to determining whether a party is indispensable 16 and found that: (1) a judgment rendered without GE Multilin as a 17 party might deprive CP Solutions of the opportunity to recover 18 all of its damages, (2) the court could not conceive of a way to 19 minimize this prejudice, (3) omitting GE Multilin would likely 20 lead to piecemeal litigation, and (4) CP Solutions could sue all 21 of the defendants in state court. 22 CP Solutions now appeals.
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1 DISCUSSION 2 We review a district court’s decision as to whether a party 3 is indispensable for abuse of discretion. Universal Reins. Co. 4 v. St. Paul Fire & Marine Ins. Co., 312 F.3d 82, 87 (2d Cir. 5 2002). A court abuses its discretion if its decision rests on an 6 error of law or a clearly erroneous factual finding, or cannot be 7 located within the range of permissible choices. Zervos v. 8 Verizon N.Y., Inc., 252 F.3d 163, 169 (2d Cir. 2001). 9 District courts possess original jurisdiction over actions 10 between “citizens of a State and citizens or subjects of a 11 foreign state,” and between “citizens of different States and in 12 which citizens of a foreign state are additional parties.” 28 13 U.S.C. § 1332(a)(2), (3). Diversity jurisdiction does not exist, 14 however, “where on one side there are citizens [of a State] and 15 aliens and on the opposite side there are only aliens.” 16 Universal Licensing Corp. v. Paola del Lungo S.p.A., 293 F.3d 17 579, 581 (2d Cir. 2002). The parties agree that CP Solutions and
18 GE Multilin are both foreign citizens and that therefore 19 diversity is lacking unless CP Solutions can amend the complaint 20 to omit GE Multilin.1
21 Federal Rule of Civil Procedure 21 allows a court to drop a 22 nondiverse party at any time to preserve diversity jurisdiction,
1 CP Solutions does not challenge the district court’s conclusion that, by naming GE Multilin as a defendant, it intended to sue GE Multilin, Inc., the Canadian corporation dissolved in 2004. We therefore accept that conclusion for purposes of this appeal.
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1 Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 832 (1989), 2 provided the nondiverse party is not “indispensable” under Rule 3 19(b),2 see Curley v. Brignoli, Curley & Roberts Assocs., 915 4 F.2d 81, 89 (2d Cir. 1990). Rule 19(b) specifies four factors: 5 (1) whether a judgment rendered in a person’s absence might 6 prejudice that person or parties to the action, (2) the extent to 7 which any prejudice could be alleviated, (3) whether a judgment 8 in the person’s absence would be adequate, and (4) whether the 9 plaintiff would have an adequate remedy if the court dismissed 10 the suit. Fed. R. Civ. P. 19(b). 11 In its initial decision, the district court did not apply 12 these factors but instead adopted a bright-line rule that all 13 parties to a contract are indispensable. Such a rule is 14 inconsistent with Rule 19(b)’s flexible standard. See Universal 15 Reins., 312 F.3d at 87 (noting “the flexible nature of [the] Rule 16 19(b) analysis”); Jaser v. N.Y. Prop. Ins. Underwriting Ass’n, 17 815 F.2d 240, 242 (2d Cir. 1987) (“[A] court should take a 18 flexible approach when deciding what parties need to be present 19 for a just resolution of the suit.”). Indeed, we have previously
2 Effective December 1, 2007, Rule 19(b) no longer uses the term “indispensable.” See Fed. R. Civ. P. 19 Advisory Committee’s note to 2007 amendment (“[‘Indispensable’] has been discarded as redundant.”). We use the term here for the sake of convenience.
In all other respects, we cite the present version of Rule 19.
There is no substantive difference between the present rule and the rule as applied by the district court prior to the 2007 amendment. See Republic of Philippines v. Pimentel, 128 S. Ct.
2180, 2184 (2008).
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1 rejected a party’s attempt to rely on the same argument that the 2 defendants assert here. See Merrill Lynch & Co. v. Allegheny 3 Energy, Inc., 500 F.3d 171, 180 (2d Cir. 2007). This case amply 4 demonstrates the frailties of so rigid a rule. 5 Although the district court in its decision on 6 reconsideration identified the correct Rule 19(b) factors, it 7 abused its discretion in applying the factors. As to the first 8 two factors, the district court improperly relied on prejudice to 9 CP Solutions. Whatever prejudice to CP Solutions there might be, 10 it is prejudice the plaintiff is willing to bear and therefore 11 should not have troubled the district court. And any prejudice 12 caused by GE Multilin’s absence is considerably less than the 13 prejudice to CP Solutions from dismissal after more than two 14 years of litigation. 15 The relevant question is whether the defendants will be 16 prejudiced if GE Multilin is dropped. See, e.g., Universal 17 Reins., 312 F.3d at 88 (evaluating prejudice to parties arguing 18 that joinder was required). The other GE defendants maintain 19 that they will be prejudiced because a judgment for CP Solutions 20 might hold them accountable for GE Multilin’s wrongdoing. They 21 also argue that a judgment for CP Solutions without GE Multilin 22 might impair GE Multilin’s ability to defend itself in a later 23 action. We find no merit in these contentions.
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1 Given the absence from the complaint of any action 2 attributable only to GE Multilin, the chance that GE Multilin’s 3 actions were the sole or primary cause of CP Solutions’s damages 4 appears remote. In addition, CP Solutions offered to amend the 5 complaint to allege that only GE Co. breached the contract. This 6 amendment would ensure that only GE Co. would be subject to 7 liability, and only by virtue of its own duties and actions. See 8 Fed. R. Civ. P. 19(b)(2) (requiring courts to consider possible 9 methods to avoid prejudice). Even if this were not the case, the 10 other GE defendants could seek to bring a claim against GE 11 Multilin or its successor company. See Janney Montgomery Scott, 12 Inc. v. Shepard Niles, Inc., 11 F.3d 399, 412 (3d Cir. 1993) 13 (rejecting argument that defendant would unfairly bear all of the 14 plaintiff’s losses on breach-of-contract claim due to non-joinder 15 because defendant could bring indemnity or contribution action 16 against absent person). 17 The potential prejudice to GE Multilin also fails to support 18 the district court’s conclusion. GE Multilin is dissolved and 19 has no assets. We doubt that CP Solutions would be eager for the 20 chance to procure blood from a stone. The district court’s 21 finding to the contrary is unsupported by anything in the record. 22 Nor is there any indication that CP Solutions would want to 23 pursue the GE subsidiary that acquired GE Multilin’s assets and 24 liabilities, especially in light of the proposed amended
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1 complaint attributing wrongdoing only to GE Co. Such farfetched 2 hypotheticals are insufficient to establish the prejudice that 3 Rule 19(b) contemplates. See Fed. R. Civ. P. 19(b) Advisory 4 Committee’s note to 1966 amendment (noting that courts should 5 consider whether the prejudice would be “immediate and serious, 6 or remote and minor”). 7 Moreover, even if GE Multilin’s conduct remained relevant 8 after it was dropped as a party, GE Co. could champion its 9 interest. See Pujol v. Shearson/Am. Exp., Inc., 877 F.2d 132, 10 135 (1st Cir. 1989) (Breyer, J.) (finding no prejudice to dropped 11 subsidiary in part because parent company would adequately 12 represent its interests). GE Co. and GE Multilin are represented 13 by the same counsel, and the defendants have not alerted us to 14 any evidence that suggests GE Co.’s and GE Multilin’s interests 15 are adverse. See, e.g., Prescription Plan Serv. Corp. v. Franco, 16 552 F.2d 493, 497 (2d Cir. 1977) (finding no prejudice to dropped 17 parties because “counsel for those remaining in the case will be 18 no less vigorous in their advocacy because they represent two 19 fewer persons”). 20 As to the third Rule 19(b) factor, a judgment in GE 21 Multilin’s absence would be adequate. “[A]dequacy refers to the 22 ‘public stake in settling disputes by wholes, whenever 23 possible.’” Republic of Philippines, 128 S. Ct. at 2193 (quoting 24 Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102,
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1 111 (1968)). Thus, this factor concerns the “‘social interest in 2 the efficient administration of justice and the avoidance of 3 multiple litigation.’” Id. (quoting Ill. Brick Co. v. Illinois, 4 431 U.S. 720, 738 (1977)). As we have explained, piecemeal 5 litigation is improbable. In contrast, it would be far more 6 efficient to bring the case to final judgment in federal court 7 than to send the parties to state court for a do-over. 8 In evaluating this factor, “[w]e are influenced by the 9 procedural posture in which this case comes to us.” Merrill 10 Lynch, 500 F.3d at 180. Although the case has not yet been 11 tried, the parties have litigated for over two years, including 12 conducting discovery. It would make little sense to require them 13 to start over in state court simply because an asset-less, 14 dissolved subsidiary of a diverse defendant cannot be joined in 15 federal court. See Newman-Green, 490 U.S. at 836 (holding that 16 when a defect in diversity jurisdiction can be corrected, 17 “requiring dismissal after years of litigation would impose 18 unnecessary and wasteful burdens on the parties, judges, and 19 other litigants waiting for judicial attention”). 20 Finally, although CP Solutions might be able to sue GE 21 Multilin together with the other defendants in state court, that 22 consideration is far outweighed by the unfairness to CP Solutions 23 and the harm to judicial economy resulting from dismissal. As we 24 have said, “when federal diversity jurisdiction will exist if
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1 nondiverse parties are dropped, the bare fact that a state court 2 forum is available does not, by itself, make it appropriate to 3 dismiss the federal action.” Samaha v. Presbyterian Hosp. in 4 City of N.Y., 757 F.2d 529, 531 (2d Cir. 1985) (per curiam). 5 Because the question of indispensability is a matter 6 committed to the district court’s discretion, Universal Reins., 7 312 F.3d at 87, ordinarily we might vacate the judgment and 8 remand for reconsideration. In this case, however, we do not 9 believe it would be within the permissible range of choices to 10 conclude that GE Multilin is indispensable. See Zervos, 252 F.3d 11 at 169. We therefore reverse the district court’s decision and 12 remand with instructions to allow the case to proceed without GE 13 Multilin. 14 CONCLUSION 15 For the foregoing reasons, we REVERSE the judgment of 16 dismissal and REMAND the case to the district court with 17 instructions to allow CP Solutions to amend the complaint to drop 18 GE Multilin as a party.