Thermoset Corporation v. Building Materials Corp of America

Opinion

Case: 15-13942 Date Filed: 03/02/2017 Page: 1 of 16

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT ________________________

No. 15-13942 ________________________

D.C. Docket No. 0:14-cv-60268-JIC

THERMOSET CORPORATION, a Florida corporation f.k.a. Thermoset Roofing Corp.,

Plaintiff-Appellant,

versus

BUILDING MATERIALS CORP OF AMERICA, a Delaware corporation d.b.a. GAF Materials Corporation, ROOFING SUPPLY GROUP ORLANDO LLC, a Delaware limited liability company,

Defendants-Appellees.

________________________

Appeal from the United States District Court for the Southern District of Florida ________________________

(March 2, 2017) Case: 15-13942 Date Filed: 03/02/2017 Page: 2 of 16

Before HULL, MARTIN, and EBEL, ∗ Circuit Judges.

MARTIN, Circuit Judge:

Thermoset Corporation (“Thermoset”), a roofing contractor, brought this

product liability action in Florida state court against Building Materials

Corporation (“GAF”) and Roofing Supply Group Orlando (“RSGO”), a

manufacturer and a distributor of roofing materials (collectively, “the defendants”).

GAF removed the case to federal court based on diversity jurisdiction, and the

District Court granted summary judgment to the defendants. Thermoset appealed.

Shortly afterwards, it became apparent that RSGO was not a diverse party at the

time of removal. In light of this jurisdictional defect, Thermoset asks us to remand

the entire case back to state court. After careful consideration, and with the benefit

of oral argument, we vacate the District Court’s summary judgment order and

remand with instructions to send this case back to the state court for further

proceedings.

I. BACKGROUND AND PROCEDURAL HISTORY

A. THERMOSET SUES GAF AND RSGO OVER MALFUNCTIONING ROOFING SYSTEM

Thermoset is a roofing contractor organized under Florida law with its

principal place of business in Florida. In 2005, Thermoset entered into a “Master

∗ Honorable David M. Ebel, United States Circuit Judge for the Tenth Circuit Court of Appeals, sitting by designation. 2 Case: 15-13942 Date Filed: 03/02/2017 Page: 3 of 16

Select Roofing Contractor Agreement” with GAF, a manufacturer of roofing

products and systems incorporated in Delaware with a principal place of business

in New Jersey. This agreement enabled Thermoset to use GAF’s products on

various jobs, and over time, Thermoset developed a working relationship with

GAF’s representatives.

Thermoset and its affiliates were hired to install a roof system at Lynden

Pindling International Airport in Nassau, Bahamas. The system had to satisfy

certain project requirements because of the Bahamian climate. It had to be able to

withstand certain wind velocities and uplift pressures. Thermoset asked GAF if it

manufactured a roof system that fit these specifications. Dario Miranda, GAF’s

senior commercial specialist, told Thermoset that GAF had something called the

“TPO system” that met the requirements and used a water-based adhesive (“H2O

adhesive”). Thermoset also discussed the TPO system and the project

requirements with Bob Vitale, an employee of RSGO. RSGO is a distributor of

GAF roofing products organized as a limited liability company under Delaware

law with a principal place of business in Texas. Thermoset says it relied on

recommendations from RSGO and GAF to buy roofing materials and components

for the TPO system from RSGO.

Thermoset began work on the project in March 2010. However, portions of

the TPO system’s outer membrane soon became detached from the insulation in

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several places. The same thing happened when Tropical Storm Nicole struck

Nassau, even though those winds were weaker than the wind velocities that the

roofing system was required by the specifications to withstand. Thermoset notified

GAF and RSGO of the TPO system’s malfunction. Although RSGO issued an

$82,000 credit to Thermoset for return of the H2O adhesive and certain

replacement materials, Thermoset says this amount didn’t fully compensate for its

damages. Thus, it continued to make demands from GAF and RSGO for

compensation and assistance with repairs, but to no avail.

Thermoset says it incurred losses upwards of $1 million. To recover these

losses, it filed suit in Florida state court against the defendants on December 31,

2013. Thermoset made claims for breach of the implied warranty of

merchantability; breach of implied warranty of fitness for a particular purpose;

breach of express warranty; negligent misrepresentation; and violation of Florida’s

Deceptive and Unfair Trade Practices Act, Fla. Stat. §§ 501.201–213. On

February 3, 2014, GAF removed the case to federal court. Specifically, it invoked

the District Court’s diversity jurisdiction. After the parties conducted discovery,

the defendants jointly moved for summary judgment. The District Court granted

summary judgment to the defendants. Thermoset appealed.

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B. JURISDICTIONAL ISSUE

After Thermoset filed its notice of appeal, this Court noticed that the

pleadings below did not sufficiently allege the citizenship of RSGO, as is required

to invoke the District Court’s diversity jurisdiction. See 28 U.S.C. § 1332(a).

Specifically, because “a limited liability company is a citizen of any state of which

a member of the company is a citizen,” Rolling Greens MHP, L.P. v. Comcast

SCH Holdings, L.L.C., 374 F.3d 1020, 1022 (11th Cir. 2004) (per curiam), the

pleadings were required (but failed) to provide the citizenship of each member of

RSGO. Thus, we inquired of the parties how they thought this defect could and

should be cured. See Mallory & Evans Contractors & Eng’rs, LLC v. Tuskegee

Univ., 663 F.3d 1304, 1304 (11th Cir. 2011) (per curiam) (“We are obligated to

raise concerns about the district court’s subject matter jurisdiction sua sponte.”).

From the answers to the jurisdictional question, it became apparent that RSGO was

in fact not diverse at the time of removal. One of its members was—like

Thermoset—a Florida citizen.

II. DISCUSSION

The threshold issue now before us is therefore whether we have diversity

jurisdiction. Belleri v. United States, 712 F.3d 543, 547 (11th Cir. 2013) (“We

may not consider the merits . . . unless and until we are assured of our subject

matter jurisdiction.”). The defendants admit RSGO was not a diverse party at the

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time of removal. However, they say both this Court and the District Court can

properly exercise diversity jurisdiction over the entire case because RSGO is a

nominal party whose citizenship should not be considered for jurisdictional

purposes. In the alternative, the defendants argue we should dismiss the non-

diverse RSGO under Federal Rule of Civil Procedure 21 in order to preserve

diversity jurisdiction over the rest of the case. For its part, Thermoset says RSGO

is a real party in interest whose citizenship cannot be ignored. Thermoset also

urges us not to use our Rule 21 powers to dismiss RSGO, but to instead vacate the

District Court’s summary judgment order for lack of subject-matter jurisdiction

and remand the entire case back to Florida state court. We conclude that (1)

RSGO is a real party in interest and not a nominal party; and (2) dismissal of

RSGO pursuant to Rule 21 would not be proper. We discuss each conclusion in

turn.

A. RSGO IS NOT A NOMINAL PARTY

Federal courts are courts of limited subject-matter jurisdiction. See PTA–

FLA, Inc. v. ZTE USA, Inc., 844 F.3d 1299, 1305 (11th Cir. 2016). A district

court can hear a case only if it has “at least one of three types of subject matter

jurisdiction: (1) jurisdiction under specific statutory grant; (2) federal question

jurisdiction pursuant to 28 U.S.C. § 1331; or (3) diversity jurisdiction pursuant to

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28 U.S.C. § 1332(a).” Id. (quotation omitted). GAF invoked the District Court’s

diversity jurisdiction here, and it is clear that neither of the other types apply.

In order for a district court to properly exercise diversity jurisdiction over a

case, the action must be between “citizens of different States.” 28 U.S.C.

§ 1332(a)(1). Also, “diversity jurisdiction is determined at the time of filing the

complaint or, if the case has been removed, at the time of removal.” PTA–FLA,

844 F.3d at 1306. The defendants now acknowledge that RSGO was, like

Thermoset, a citizen of Florida at the time of removal. Thus, it appears the District

Court did not have diversity jurisdiction over this action.

Yet we are mindful that federal courts “must disregard nominal or formal

parties and rest jurisdiction only upon the citizenship of real parties to the

controversy.” Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 461, 100 S. Ct. 1779,

1782 (1980). So if RSGO is a nominal party, then this Court and the District Court

can ignore its citizenship and exercise diversity jurisdiction over the entire action.

This Court has acknowledged “there is no bright-line rule” for distinguishing

between real and nominal parties. Payroll Mgmt., Inc. v. Lexington Ins. Co., 566

F. App’x 796, 799 (11th Cir. 2014) (per curiam) (unpublished). In Tri-Cities

Newspapers, Inc. v. Tri-Cities Printing Pressmen and Assistants’ Local 349, 427

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F.2d 325 (5th Cir. 1970),1 we defined “nominal or formal parties” as those that are

“neither necessary nor indispensable” to the action. Id. at 327. We also said “[t]he

ultimate test” for whether a defendant is nominal is “whether in the absence of the

defendant, the Court can enter a final judgment consistent with equity and good

conscience which would not be in any way unfair or inequitable to plaintiff.” Id.

(quotation omitted and alteration adopted).

Under this test, RSGO is more than just a nominal defendant. At the time

this case was removed to federal court, RSGO’s absence would have put

Thermoset at risk of receiving inadequate relief. Florida is not a joint-and-several

liability state. Under Florida law, a defendant in a product liability action (like

GAF) is liable only for the amount of damages proportional to its percentage of

fault. See Fla. Stat. § 768.81(3). Thus, if RSGO were not at the trial, GAF could

argue that RSGO caused the problems, so GAF was not at fault for Thermoset’s

damages. If the factfinder agreed, GAF would pay nothing, leaving Thermoset

with incomplete relief. This demonstrates a significant risk that a final judgment in

RSGO’s absence would be “unfair or inequitable” to Thermoset. Tri-Cities

Newspapers, 427 F.2d at 327.

1 In Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir. 1981) (en banc), we adopted as binding precedent all decisions of the former Fifth Circuit handed down before October 1, 1981. Id. at 1209. 8 Case: 15-13942 Date Filed: 03/02/2017 Page: 9 of 16

The defendants argue RSGO may be categorized as a nominal party because

GAF agreed to defend and fully indemnify RSGO for any losses resulting from an

adverse judgment. But if RSGO is not present at trial, so as to have its name

appear on the verdict form, the jury would have no opportunity to assess its

liability in the first place. Without such a jury finding, Thermoset could not be

sure of identifying, much less recovering, RSGO’s share of any damages owed in

this action. Thus with RSGO absent from the case, a promise of indemnification

by GAF does nothing to ensure adequate relief for Thermoset.

The defendants also say RSGO is a nominal party because it played “no

active role in the alleged warranty, design, or manufacture” of the roof system, and

was merely a middleman. We take this as an argument that RSGO’s absence could

not have put Thermoset at risk of receiving incomplete relief because RSGO could

not have been held liable for any portion of Thermoset’s damages as a mere

middleman. However, Thermoset has pointed to evidence indicating that RSGO

was more than a just a go-between insofar as Robert Vitale, an employee of

RSGO, made roofing material recommendations to Thermoset.2 And even if

RSGO was just a middleman that sold the roofing materials to Thermoset, it could

2 The defendants admit in their answer to the jurisdictional question that Thermoset discussed the purchase of roofing materials for the project with Mr. Vitale, but they allege for the first time on appeal that Mr. Vitale was an employee of Roofing Supply Group, LLC, not RSGO. Even though this allegation, if true, might absolve RSGO of liability under some of Thermoset’s theories, neither defendant made this allegation in the District Court. Beyond that, even accepting this premise as true, RSGO could still be held liable under Thermoset’s implied warranty theories. 9 Case: 15-13942 Date Filed: 03/02/2017 Page: 10 of 16

still be liable for some portion of Thermoset’s damages under Thermoset’s implied

warranty theories. For example, under Florida law, a warranty that a seller’s goods

are merchantable (fit for their ordinary purposes) is implied if the seller “is a

merchant with respect to goods of that kind.” Fla. Stat. § 672.314. Thus, a seller

can breach this implied warranty by doing nothing more than being a merchant of

certain products and selling those products. As a result, RSGO cannot demonstrate

that its absence would not have created any risk of inadequate relief.

B. DISMISSING RSGO TO PRESERVE JURISDICTION WOULD NOT BE PROPER

Because RSGO is a real party in interest, its non-diverse citizenship destroys

federal jurisdiction for this case. However, Federal Rule of Civil Procedure 21

gives us the power to dismiss a non-diverse party like RSGO in order to preserve

jurisdiction over the rest of the case and “rescue an otherwise valid judgment.”

Molinos Valle Del Cibao, C. por A. v. Lama, 633 F.3d 1330, 1343 (11th Cir.

2011); accord Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 832–37, 109

S. Ct. 2218, 2222–25 (2011). The Supreme Court has instructed us to use this

power “sparingly.” Newman-Green, 490 U.S. at 837, 109 S. Ct. at 2225.

Specifically, we can dismiss a non-diverse party “only if no party will be

prejudiced by the dismissal.” Molinos, 633 F.3d at 1343. Under Newman-Green,

this prejudice determination requires us to look at two factors. See Molinos, 633

F.3d at 1343. First, we must decide whether the non-diverse party is 10 Case: 15-13942 Date Filed: 03/02/2017 Page: 11 of 16

“indispensable” under Federal Rule of Civil Procedure 19. Id. “If the [non-

diverse] party is indispensable, then we must dismiss the entire case [for lack of

subject-matter jurisdiction]”—we cannot dismiss the non-diverse party and keep

the rest of the case. Id. Second, if the non-diverse party is not indispensable, “we

must inquire whether the presence of the non-diverse party provided the other side

with a tactical advantage in the litigation.” Id. at 1344.

Rule 19 establishes a two-step inquiry for deciding whether RSGO is

indispensable. First, we must consider whether RSGO is a “required party” under

clause (a)(1). If RSGO is “required,” then we move to a second step and ask

whether “in equity and good conscience, the action should proceed” without

RSGO under subsection (b). And if we conclude that the case should not continue

without RSGO, then RSGO is an indispensable party and we must dismiss the

entire case. See Molinos, 633 F.3d at 1343.

Under Rule 19’s two-step inquiry, we conclude RSGO is an indispensable

party. First, RSGO is a “required party” under clause (a)(1) because “the court

cannot accord complete relief among existing parties” in RSGO’s absence. Fed. R.

Civ. P. 19(a)(1)(A). As we described above, RSGO’s absence would put

Thermoset at risk of receiving incomplete relief because Florida is not a joint-and-

several liability state. There are also other plausible ways in which RSGO’s

absence could prevent Thermoset from receiving complete relief (or any relief at

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all). For example, a jury might find that no implied warranties existed between

GAF and Thermoset because there was no privity between them. 3 If so, the only

entity from which Thermoset could recover damages is RSGO. Beyond that, if we

dismiss RSGO, the only way Thermoset could ensure itself complete relief would

be by bringing another action against RSGO in state court over the same injury.

But clause (a)(1) of Rule 19 was designed to protect not only the interests of the

parties, but also the interests of “the public in avoiding repeated lawsuits on the

same essential subject matter.” Fed. R. Civ. P. 19 advisory committee’s note to

1966 amendment. In light of both the text and the purpose of clause (a)(1), RSGO

is a required party.

Second, under subsection (b) of Rule 19, we cannot conclude “in equity and

good conscience” that the suit should continue without RSGO. Subsection (b)

instructs us to consider four factors to make this determination: (1) the extent to

which a judgment rendered in RSGO’s absence might prejudice RSGO or the other

parties; (2) “the extent to which any prejudice could be lessened or avoided by”

“protective provisions in the judgment,” “shaping the relief,” or “other measures”;

(3) whether a judgment rendered in [RSGO’s] absence would be adequate; and (4)

whether Thermoset would have an adequate remedy if we dismissed the entire

case. Fed. R. Civ. P. 19(b)(1)–(4). These factors “are not intended to exclude

3 Indeed, GAF made exactly this argument below in both its motion to dismiss and its response to Thermoset’s motion for summary judgment. 12 Case: 15-13942 Date Filed: 03/02/2017 Page: 13 of 16

other considerations which may be applicable in particular situations,” so we may

incorporate other factors into our analysis if they are relevant. Fed. R. Civ. P. 19

advisory committee’s note to 1966 amendment. We will consider each of these

factors, although not in order.

The third factor listed in subsection (b) (whether a judgment rendered in

RSGO’s absence would be adequate) closely parallels the “required party” test in

clause (a)(1) (whether such a judgment can accord complete relief among existing

parties). Thus, the “required party” analysis applies here: RSGO’s absence would

create a significant risk of inadequate relief for Thermoset because (1) Florida is

not a joint-and-several liability state; and (2) there are other plausible scenarios in

which RSGO’s absence from this action could prevent Thermoset from recovering

all of its lawful damages. The third subsection (b) factor therefore weighs against

continuing this action without RSGO as a party.

The second subsection (b) factor (whether there are any available measures

for lessening or avoiding the prejudicial effects of rendering a judgment in

RSGO’s absence) “meshes” with the third factor. Fed. R. Civ. P. 19 advisory

committee’s note to 1966 amendment. The defendants do not identify any

measures that any party or the court could take to mitigate the risk of inadequate

relief that RSGO’s absence would create. As we have explained, GAF’s

indemnification agreement with RSGO would not lessen this risk. This factor

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therefore also militates against finding that this case can and should proceed

without RSGO.

In contrast, the first factor in subsection (b) (the extent to which a judgment

rendered in RSGO’s absence might prejudice RSGO or the existing parties) does

not weigh against dismissing RSGO to retain jurisdiction over the rest of the case.

This factor considers whether RSGO would be adversely affected if it were

dismissed from the action, and whether a judgment rendered in RSGO’s absence

would have collateral consequences on GAF or Thermoset. Fed. R. Civ. P. 19

advisory committee’s note to 1966 amendment. For this factor, neither Thermoset

nor the defendants argue that dismissing RSGO would prejudice RSGO or have

adverse collateral consequences on GAF or Thermoset. This factor therefore bears

little weight in our decision.

The fourth and last subsection (b) factor strongly weighs against proceeding

without RSGO. This factor asks whether Thermoset would have an adequate

remedy if we dismissed the entire action. Upon our dismissal of the case,

Thermoset could continue its action against both GAF and RSGO in state court

(which is where it initially filed the case before GAF removed it to federal court).

Because RSGO would be a party to that action, Thermoset would not be at risk of

receiving incomplete relief and would therefore have an adequate remedy. The

fact that Thermoset would have an adequate remedy in state court points in favor

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of dismissing the entire action instead of continuing it in federal court without

RSGO as a party.

One more factor that weighs against dismissing RSGO to preserve

jurisdiction over the rest of the action is the fact that GAF invoked the District

Court’s diversity jurisdiction. Had Thermoset initiated its action in federal district

court, we might have reason to think that sending the entire case back to state court

would unfairly benefit Thermoset and conflict with “equity and good conscience.”

Fed. R. Civ. P. 19(b). But this is not what happened here. GAF removed this case

from state court to federal court. This meant it was GAF’s burden to prove

diversity jurisdiction. See Molinos, 633 F.3d at 1340. Allowing this action to

continue without RSGO would therefore unfairly reward GAF for the jurisdictional

defect it created and should have known about all along.

The defendants raise another equitable consideration to argue against

dismissal of the entire action. This is, of course, the fact that this case has already

been litigated to a final judgment. In support, they draw attention to the Supreme

Court’s statement that “[o]nce a diversity case has been tried in federal court . . .

considerations of finality, efficiency, and economy become overwhelming.”

Caterpillar Inc. v. Lewis, 519 U.S. 61, 75, 117 S. Ct. 467, 476 (1996). However,

unlike in Caterpillar, this case has not yet gone to trial, so “considerations of

finality, efficiency, and economy” are not yet “overwhelming.” See id. Also, the

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defendants conceded at oral argument that at least some of the written discovery

and deposition testimony obtained in the course of these federal proceedings could

be reused in state court if we dismiss the entire case from federal court. See Fla.

Stat. § 90.803(22) (providing an exception to hearsay for former testimony); Fla.

R. Civ. P. 1.330. Thus, Florida law would allow the parties to mitigate a portion of

the waste created by remanding the case back to state court. Finally, we are

mindful that dismissing RSGO would create inefficiency in any event because

Thermoset would respond to RSGO’s dismissal by suing RSGO over the same

subject matter in state court. On this record, the fact that this case has already been

litigated to summary judgment does not convince us to continue this action in

federal court without RSGO as a party.

III. CONCLUSION

Because RSGO is not a nominal party, its non-diverse citizenship cannot be

ignored for jurisdictional purposes. And because RSGO is an indispensable party

under Rule 19, we cannot preserve jurisdiction over the rest of the case by

dismissing RSGO. As a result, we vacate the District Court’s summary judgment

order and send this case back to the District Court with instructions to remand it to

the Florida state court for further proceedings.

VACATED AND REMANDED.