Knopfler v. Schraiber (In re Schraiber)

107 B.R. 899, 1989 Bankr. LEXIS 2127
United States Bankruptcy Court, N.D. Illinois·Decided November 17, 1989·No. Bankruptcy No. 87 B 17144; Adv. No. 88 A 877·Published·Cited by 2 cases

Opinion

MEMORANDUM OPINION ON CROSS-DEFENDANT’S MOTION TO DISMISS CROSS-COMPLAINT

JACK B. SCHMETTERER, Bankruptcy Judge.

Alexander Knopfler, trustee for the bankruptcy estate of Milton Schraiber (“Debtor”), filed herein his Adversary Complaint which names as defendants those parties who claim an interest in the Oak Mill Shopping Center (“the Mall”). Count 1 seeks a declaration that Debtor owned the Mall through certain entities which were merely his alter ego. It seeks authority for Trustee to sell the Mall on behalf of the bankruptcy estate. Should the Court find that Oak Mill Shopping Center Associates (“OMSCA”) and/or Oak Mill Associates (“OMA”) are bona fide partnerships which have ownership interests in the Mall, Count 56 seeks to wind up affairs of these partnerships and have Debtor’s share distributed to the estate. See Alexander Knopfler, Trustee v. Milton Schraiber, mem. op. (Bankr.N.D.Ill. May 23,1989) (Denying Motion to Dismiss Count 56).

Certain defendants who assert they are partners in OMSCA (“Cross-Claimants”)1 have filed a cross-claim against Betty Schraiber (Debtor’s wife), Steven Schraiber (Debtor’s son), and Irene Thon (Debtor’s secretary) (collectively “Cross-Defendants”). They seek a declaration that OMSCA is the rightful owner of the entire Mall and that OMA is a fictitious entity. The cross-claim also seeks a declaration that Cross-Defendants do not own capital interests in OMSCA.2

Cross-Defendants plus Marc Schraiber (Debtor’s son) and Randi Kanter (Debtor’s daughter) have moved to dismiss the cross-claim on various grounds, including the failure to join certain parties that Cross-Defendants assert are indispensable under Federal Rule of Civil Procedure 19.3 Specifically, the cross-claim does not join Marc Schraiber or Randi Kanter, each of whom claim to be a partner in OMSCA, nor does it join Trustee. Marc Schraiber and Randi Kanter were joined by Trustee as defendants to the Adversary Complaint, and are thus parties to this case. However, although they join in the motion of Cross-Defendants they have not sought to intervene as parties to the cross-claim.

INDISPENSABLE PARTIES UNDER RULE 19

Cross-Claimants respond to Cross-Defendants’ motion by broadly asserting that “a plaintiff may choose the persons whom he will sue.” Cross-Claimants’ Br. at 6. This of course is an overstatement. A plaintiff’s right to decide who to pursue in a lawsuit is subject to possible interests of other parties and the public’s interest “in avoiding repeated lawsuits on the same essential subject matter.” Evergreen Park Nursing & Convalescent Home, Inc. v. American Equitable Assurance Co., 417 F.2d 1113, 1115 (7th Cir.1969) (quoting Ad[902]*902visory Committee Notes to Rule 19). See 7 Wright, Miller & Kane, Federal Practice and Procedure § 1601 at 18. These countervailing interests of other parties are protected by Rule 19 F.R.Civ.P. (Bankr.R.7019) which governs joinder of parties needed for adjudication. The purpose of that Rule is to protect interests of parties already before the court, absent parties, and the public from multiple litigation and the possibility of inconsistent judicial determinations. Evergreen Park, 417 F.2d at 1115; 7 Federal Practice § 1602 at 21.

The application of Rule 19 closely follows its structure.4 It must first be determined whether the party who is not joined is a person described in either of the two subsections of part (a) of the Rule. Evergreen Park, 417 F.2d at 1115. Specifically, the question is whether failure to join the omitted party prevents the court from rendering complete relief, or alternatively whether the absent party is so situated that the failure to join him or her will impair that party’s interest or expose the named parties to the risk of multiple and potentially inconsistent adjudications. If either of these situations exist, the absent party must be joined if feasible. If joinder is not feasible, the court must determine whether in equity and good conscience it should proceed without this party by analyzing the factors enumerated in part (b) of the Rule (see fn. 8). Only if the court then determines that it should not proceed is the party deemed indispensable and the Complaint dismissed.

A. The Trustee and Lyons Bank

The Trustee and Lyons Savings Bank must be joined under requirements of Rule 19. Count I of Trustee’s Complaint seeks declaratory judgment that the trust which holds nominal title to the Mall is the alter ego of Debtor and that in effect the Mall was owned outright by Debtor and is now property of the Debtor’s bankruptcy estate under § 541. Cross-Claimants specifically ask this court to “declare and adjudge that OMSCA is the rightful owner of Oak Mill Shopping Center.” To grant Cross-Claimants’ requested relief therefore would also implicitly resolve the issues in Trustee’s Count I.

A very similar issue was raised earlier in this proceeding. Lyons Savings Bank (“Lyons”), a party asserting that it held a secured interest in the Mall, claimed that it was improperly joined in the Trustee’s complaint. The Court rejected this claim, reasoning that Lyons was indispensable because the estate’s interest in the property could not be fully determined without resolving the extent and nature of Lyons’ lien on such property. Knopfler, Trustee v. Milton Schraiber, 97 B.R. 937, 942 (Bankr.N.D.Ill.1989). The Court explained that:

[It] must join a party to a suit where the rights of the parties to the suit cannot be fully adjudicated without a determination [903]*903of the joined party's interest in the subject matter of the cause. 3A J. Moore, Moore’s Federal Practice ¶ 19.01 — 1[1], p. 19-17 and 19-19 (2d ed. 1987)....
[A]s a party holding a secured interest in the subject property, it is a necessary party to Count 1 which seeks to adjudicate ownership of that property and the nature and amount of liens thereon. It is thus inconceivable that the court could grant complete relief to the Trustee absent Lyons’ joinder in this proceeding.

This same reasoning is equally applicable to Cross-Claimants’ efforts to have OMS-CA’s ownership of the Mall adjudicated without joining Trustee, who claims that the estate owns the Mall, as a defendant. Trustee is therefore a party described in Rule 19(a). For these same reasons, Lyons should also be joined as a defendant in the cross-claim.

There is no reason why joinder of Trustee and Lyons as defendants in the cross-claim is not feasible. They are already parties in this case. Therefore they must both be joined for the cross-claim to proceed, and Cross-Claimants are by separate order granted time to do this. See Federal Practice § 1604 at 64 (“Once it has been decided that a person whose joinder is feasible should be brought into the action, the claimant should be given a reasonable opportunity to add that person.”). Accordingly, it is not necessary to consider the factors under Rule 19(b).

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Knopfler v. Schraiber (In re Schraiber), 107 B.R. 899, 1989 Bankr. LEXIS 2127 (Ill. 1989).

107 B.R. 899 (Knopfler v. Schraiber (In re Schraiber)) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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