Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-95-07284/USCOURTS-caDC-95-07284-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 9, 1996 Decided June 14, 1996

No. 95-7284

PAUL S. BURKA,

AND

ROBERT A. BURKA, TRUSTEES,

APPELLANTS

v.

AETNA LIFE INSURANCE COMPANY, ET AL.,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 94cv00975)

Peter A. Greenburg argued the cause and filed the briefs for appellants.

Paul J. Kiernan argued the cause for appellee Aetna Life Insurance Company, with whom Gloria B.

Solomon was on the brief.

Charles H. Fleischer argued the cause for appellee The American University, with whom Michael

William Sacks was on the brief.

Before: EDWARDS, Chief Judge, GINSBURG and ROGERS, Circuit Judges.

Opinion for the Court filed by Chief Judge EDWARDS.

EDWARDS, Chief Judge: Through a 1993 foreclosure sale, appellee Aetna Life Insurance

Company acquired property located in the District of Columbia ("D.C." or "the District") that

previously had been owned by a family trust of which appellants Paul S. Burka and Robert A. Burka

are presently trustees. Aetna subsequently arranged to sell the property to appellee American

University ("AU"), a nonprofit D.C. institution that plansto use the property for itslaw school. After

Aetna and AU had entered into a purchase agreement, but before the sale took place, the Burkasfiled

suit in the D.C. Superior Court challenging Aetna's ownership of the property or, in the alternative,

claiming that the size of a commercial building located on the property was larger than a Declaration

of Easement and Agreement ("Declaration") concerning the property permitted.

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1Rule 25(c) states, in part, that:

[i]n case of any transfer of interest, the action may be continued by or against the

original party, unless the court upon motion directs the person to whom the

interest is transferred to be substituted in the action or joined with the original

party.

FED. R. CIV. P. 25(c). Because it continues to hold a mortgage on the subject property, Aetna did

not actually seek a complete substitution, but rather proposed to have AU "joined with the

original party," as Rule 25(c) authorizes. 

2Rule 19 states, in part, as follows:

(a) Persons to be Joined if Feasible. A person who is subject to service of

process and whose joinder will not deprive the court of jurisdiction over the

subject matter of the action shall be joined as a party in the action if (1) in the

person's absence complete relief cannot be accorded among those already parties,

or (2) the person claims an interest relating to the subject of the action and is so

situated that the disposition of the action in the person's absence may (i) as a

practical matter impair or impede the person's ability to protect that interest or (ii)

leave any of the persons already parties subject to a substantial risk of incurring

double, multiple, or otherwise inconsistent obligations by reason of the claimed

interest. If the person has not been so joined, the court shall order that the person

be made a party....

(b) Determination by Court Whenever Joinder not Feasible. If a person as

described in subdivision (a)(1)-(2) hereof cannot be made a party, the court shall

determine whether in equity and good conscience the action should proceed

among the parties before it, or should be dismissed, the absent person being thus

Because Aetna is a Connecticut corporation and the Burkas are citizens of the District of

Columbia and Maryland, Aetna was able to remove the case to the federal District Court based on

diversity jurisdiction. After the District Court granted summary judgment in favor of Aetna on all

counts ofthe Burkas' complaint, Aetna conveyed the property to AU, but retained a security interest.

On appeal, this court upheld the District Court's grant of summary judgment as to all claims except

the allegation that the size of the building on the property violated the Declaration; the court

remanded this claim because the District Court had not addressed it. Burka v. Aetna Life Ins. Co.,

56 F.3d 1509 (D.C. Cir. 1995) (per curiam) ("Burka I").

Following the remand, but before a scheduled evidentiary hearing on the building-size issue,

the partiessubmitted a series of proceduralmotions, which formthe basis ofthe instant appeal. First,

on July 6, 1995, Aetna moved to add AU as a defendant pursuant to Federal Rule of Civil Procedure

("Rule") 25(c).1 A week later, the Burkas moved to join AU as a defendant pursuant to Rule 19,2and

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regarded as indispensable. The factors to be considered by the court include: first,

to what extent a judgment rendered in the person's absence might be prejudicial to

the person or those already parties; second, the extent to which, by protective

provisions in the judgment, by the sharing of relief, or other measures, the

prejudice can be lessened or avoided; third, whether a judgment rendered in the

person's absence will be adequate; fourth, whether the plaintiff will have an

adequate remedy if the action is dismissed for nonjoinder.

FED. R. CIV. P. 19(a) & (b). By its terms, Rule 19 is a much broader provision for the addition of

parties to a law suit than is Rule 25. Generally, Rule 25 is focused on the "substitution of

parties," when, for example, there has been a "transfer of interest" under Rule 25(c). However, a

"substitution" under Rule 25 does not necessarily mean the replacement of one party with another; 

for, as seen in Rule 25(c), a "person to whom the interest is transferred" may be "substituted" or

"joined with the original party." To the extent that Rule 25(c) allows for "joinder," it may overlap

with the provisions of Rule 19. The application of each rule, however, is quite distinct. 

3Section 1447(e) provides that:

[i]f after removal the plaintiff seeks to join additional defendants whose joinder

would destroy subject matter jurisdiction, the court may deny joinder, or permit

joinder and remand the action to the State court.

28 U.S.C. § 1447(e) (1994). As an alternative to their request for remand under section 1447(e),

the Burkas sought voluntary dismissal without prejudice pursuant to Rule 41. 

sought to amend their complaint to add claims against AU. Because the Rule 19 joinder of AU as

a defendant would have destroyed diversity, the Burkas also asked the federal court to remand the

case to the Superior Court pursuant to 28 U.S.C. § 1447(e) (1994).3 Four days after the Burkas filed

their motions, AU requested leave to amend and supplement the answer previously filed by Aetna.

AU also asserted a counterclaim against the Burkas relating to actions taken by them during the

pendency of the first appeal to this court.

ByMemorandumOpinion and Order, the District Court granted Aetna's motion to substitute

AU, denied the Burkas' motions both to join AU and remand or dismissthe case, granted the Burkas'

motion to amend the complaint, and granted AU's motion to amend and supplement the answer.

Burka v. Aetna Life Ins. Co., 894 F. Supp. 28 (D.D.C. 1995). On interlocutory appeal, the Burkas'

principal claim is that the District Court erred in permitting AU to be added as a defendant pursuant

to Rule 25(c) rather than Rule 19 and/or section 1447(e), and in refusing to remand or dismiss the

case for lack of subject matter jurisdiction once AU was added.

We conclude, however, that the District Court was well within its discretion in granting

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4

In light of our conclusion that the District Court properly applied Rule 25(c) to add AU as a

defendant in this case, we also find that 28 U.S.C. § 1367(b) (1994)which, in diversity cases,

precludes supplemental jurisdiction over claims by or against non-diverse parties added under

certain rules other than Rule 25presents no impediment to the District Court's exercise of

supplemental jurisdiction over claims between the Burkas and AU. Further, we find no error in

the District Court's granting of both the Burkas' motion to amend their complaint and AU's

motion to supplement and amend the answer. 

Aetna's Rule 25(c) motion, and in doing so before considering the Burkas' joinder requests. We find

nothing in the law suggesting that Rule 19 and/or section 1447(e) must come into play and trump

Rule 25(c) as a method for adding a party when, as here, Rule 25(c) clearly is applicable, particularly

where the Rule 25(c) motion is first in time. Further, the Supreme Court's decision in FreeportMcMoRan Inc. v. K N Energy, Inc., 498 U.S. 426 (1991) (per curiam), which we find fully applicable

to this case, establishesthat the addition of a non-diverse party pursuant to Rule 25(c) generally does

not deprive the District Court of subject matter jurisdiction, and hence does not require remand or

dismissal. Although Freeport-McMoRan indicates that there might be an exception if the new party

was actually an indispensable party at the beginning ofthe litigation, we agree with the trial court that

AU was not such a party. Therefore, we affirm the District Court's rulings on the parties' procedural

motions.4

I. BACKGROUND

Little more need be said here concerning the details and history of the parties' underlying

property dispute, which is duly recounted in Burka I. See 56 F.3d at 1510-12. For present purposes,

we focus on the District Court's August 2, 1995, decision disposing of the parties' procedural

motions. The District Court framed the issues before it and capsulized its reasoning as follows:

The key question presented by the instant pleadings is how, as a matter of

procedure, [AU]should become a part ofthis case. All parties, including [AU], agree

that AU should be a defendant in this suit because it now owns the subject property.

However, the [Burkas] quarrel with Aetna and AU over whether the proper vehicle

for accomplishing this objective is Rule 25(c) or, as the [Burkas] urge, Rule 19....

It is obviousthat the reason why the [Burkas] argue for joinder under Rule 19

is that, under 28 U.S.C. § 1447(e), the Court could remand the case to Superior

Court ifsuch joinder would destroy diversity.... The option of remanding the case is

evidently not available to the Court if AU is substituted in as a party defendant

pursuant to Rule 25(c). Because all parties agree that AU is a proper party to this

case (and the [Burkas'] argument is solely designed to change the forum in which this

case is heard), and because Rule 25(c) properly applies to this case on its face, the

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5Although the trial court found that the application of Rule 25(c) did not trigger the

application of section 1447(e), it nonetheless addressed the four factors identified in Wyant v.

National Railroad Passenger Corp., 881 F. Supp. 919 (S.D.N.Y. 1995), for determining whether,

in furtherance of fundamental fairness, a court should exercise its discretion under section 1447(e)

to permit joinder (and thereby remand):

(1) any delay, and the reasons for the delay, in seeking to amend; (2) any resulting

prejudice to the defendant; (3) the likelihood of multiple litigation; and (4) the

Court disagrees with the [Burkas] that joinder under Rule 19 followed by remand to

the Superior Court is the appropriate course.

Burka, 894 F. Supp. at 29-30.

Turning to its more detailed analysis, the District Court first addressed the applicability of

Rule 25(c). The court found that Rule 25(c) "plainly appl[ies] to the instant suit," because "Aetna

transferred its interest in the subject property to AU for business reasons unrelated to this litigation"

after the suit was filed. Id. at 30. The court also determined that, under the Supreme Court's

decision in Freeport- McMoRan, applying Rule 25(c) to add AU as a party defendant would not

deprive the court of jurisdiction. Id.; see also Freeport-McMoRan, 498 U.S. at 428 (The Court

made clear that "diversity of citizenship is assessed at the time the action isfiled ... [and] ifjurisdiction

exists at the time an action is commenced,such jurisdiction may not be divested by subsequent events

... [including] the addition of a nondiverse party to the action" pursuant to Rule 25(c).).

While acknowledging that "28 U.S.C. § 1447(e) does not allow a court to retain jurisdiction

over a case where a non-diverse party is joined," the District Court nevertheless refused to deny the

Rule 25 substitution, observing that the Burkas "have not cited a case ... where substitution under

Rule 25 in a removed action triggered the application of ... § 1447(e), or where application of §

1447(e) trumped application of Rule 25 and Freeport-McMoRan in circumstances where both rules

could arguably apply." Burka, 894 F. Supp. at 30 n.1. Thus, given that all parties agreed that AU

should be a party defendant in the case, and given that "Rule 25(c) neatly applies to accomplish this

uncontested end," the District Court saw "no reason why [Aetna's] Motion to Substitute should not

be granted." Id. at 30.

Turning to the Burkas' motions, the court considered and rejected appellants' requests for

joinder and remand pursuant to section 1447(e).5 The court also rejected as without merit the Burkas'

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plaintiffs' motivation in moving to amend.

Burka, 894 F. Supp. at 31 (quoting Wyant, 881 F. Supp. at 923). The court found that these

factors weighed against the allowance of remand-inducing joinder under section 1447(e), because,

inter alia, the Burkas had waited unjustifiably long to pursue joinder; a remand would prejudice

appellees because resolution of the remaining claims in Superior Court would proceed

considerably more slowly than in the District Court (time being of the essence for AU to move its

law school to the property); judicial economy favored resolution of all remaining issues in the

court already intimately familiar with the history of the dispute, especially given that the claims

raised before the District Court and those raised before the Superior Court were virtually

identical; and the Burkas' motivation in seeking joinder amounted to improper "forum-shopping,"

there being no other reason for the Burkas' "otherwise superfluous Motion [but] to obtain a

remand." Id. at 31-32. 

6We also find no basis for appellants' suggestion that AU implicitly requested, and the District

Court implicitly granted, Rule 24 intervention and that, therefore, part (b) of the supplemental

jurisdiction statute bars the District Court from exercising supplemental jurisdiction over claims

by and against AU. See 28 U.S.C. § 1367(b) (1994). Further, we reject as without merit

appellants' belated argument, raised for the first time in their reply brief, that part (a) of section

1367 does not afford the District Court supplemental jurisdiction over the claims between

appellants and AU because those claims are not part of "the same case or controversy" as the

original dispute between appellants and Aetna, as required under the statute. See 28 U.S.C. §

1367(a) (1994). 

contention that AU had actually been an indispensable party at the onset of this litigation due to its

already having entered into a contract to purchase the subject property before the Burkas filed suit

and that, therefore, the court lacked subject matter jurisdiction over the case.

Although the District Court judge expressed "absolute[ ]" certainty as to the correctness of

his decision regarding the parties' procedural motions, the court nevertheless granted the Burkas'

request to certify the case for interlocutory appeal in order to conserve judicial resources. Id. at 33.

We granted the Burkas' petition for appeal by Order filed December 1, 1995.

II. ANALYSIS

Appellants mount two principal arguments to challenge the District Court's rulings on the

parties' procedural motions: (1) that a Rule 25(c) addition was not available on the facts of this case

and that, in any event, adding AU as a defendant pursuant to Rule 25(c) would require remand to the

D.C. Superior Court; and (2) that, even if a Rule 25(c) addition would not require remand, the

District Court had no discretion to add AU to the case per Aetna's Rule 25(c) motion while in the

same decision refusing to apply Rule 19 and/or section 1447(e) to join AU as a defendant per

appellants' request. We find neither argument persuasive.6

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Appellants'first contentionthat Rule 25(c) isinapplicable in this caseis patentlymeritless.

We review the District Court's ruling on a Rule 25(c) motion only for abuse of discretion, see Bauer

v. Commerce Union Bank, 859 F.2d 438, 441 (6th Cir. 1988) ("[O]rders [granting Rule 25(c)

substitution] are reviewed only for abuse of discretion."), cert. denied, 489 U.S. 1079 (1989); PropJets, Inc. v. Chandler, 575 F.2d 1322, 1324 (10th Cir. 1978) ("Substitution of a successor in interest

or its joinder as an additional party under Rule 25(c) is generally within the sound discretion of the

trial court."), and we find no abuse in thisinstance. Rather, we agree with the District Court that the

facts of this case fall squarely within the language and purpose of Rule 25(c), and we find no basis

for any suggestion that Rule 25(c)'s applicability should be avoided merely because this is a removal

case.

Similarly, there is no basisfor appellants' contention that the holding of Freeport-McMoRan

does not extend to removal cases. The Court there stated:

the well-established rule that diversity of citizenship is assessed at the time the action

is filed. We have consistently held that if jurisdiction exists at the time an action is

commenced, such jurisdiction may not be divested by subsequent events.... Diversity

jurisdiction, once established, is not defeated by the addition of a nondiverse party to

the action [under Rule 25(c)]. A contrary rule could well have the effect of deterring

normal businesstransactions during the pendency of what might be lengthy litigation.

Such a rule is not in any way required to accomplish the purposes of diversity

jurisdiction.

498 U.S. at 428-29. In other words, under Freeport- McMoRan, it is clearly understood that, as a

general rule, the addition of a non-diverse party pursuant to Rule 25(c) does not deprive the District

Court ofsubject matter jurisdiction. This general rule is equally applicable both in removal cases and

cases originally brought in federal court. Cf. Saint Paul Mercury Indem. Co. v. Red Cab Co., 303

U.S. 283, 294-95 (1938) (In a slightly different context, the Court observed "that in a suit properly

begun in the federal court the change of citizenship of a party does not oust the jurisdiction," and

"[t]he same rule governs a suit originally brought in a state court and removed to a federal court."

(emphasis added)).

The only potential caveat alluded to in Freeport-McMoRan is that a Rule 25(c) addition of

a non-diverse partymay destroy diversity jurisdiction (and hence, in a case removed fromstate court,

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7

28 U.S.C. § 1447(c) (1994) provides that, in a case removed from state court, "[i]f at any

time before final judgment it appears that the district court lacks subject matter jurisdiction, the

case shall be remanded." 

require remand) if the added party was indispensable at the time the action began.7See 498 U.S.

at 428 (Upon noting that the non-diverse successor in interest was not indispensable at the

commencement ofthe action, theCourt remarked, "Our casesrequire no more than this."). However,

this case does not pose the narrow exception suggested by Freeport-McMoRan. The District Court

ruled that AU was not an indispensable party at the commencement of this action, and we review a

trial court's ruling on indispensability only for abuse of discretion. See Kickapoo Tribe of Indians v.

Babbitt, 43 F.3d 1491, 1495 (D.C. Cir. 1995).

In this case, there is ample support for the District Court's conclusion that AU was not

indispensable at the time appellants brought suit against Aetna. See Burka, 894 F. Supp. at 32. To

begin with, appellants' indispensability argument isseverely undermined by appellants' failure to seek

joinder of AU as a defendant at an earlier stage of this case. As the District Court observed,

appellants "brought their Motion to Join AU at the eleventh hourafter the Court of Appeals had

ruled against themonmost ofthe issuesraised in theirComplaintand proffered no legitimate reason

for the delay." Id. at 31. Appellants now attempt to excuse their delay in seeking joinder by

suggesting that they did not know of the purchase contract between Aetna and AU at the time the

complaint wasfiled. However, the complaint itself manifests appellants' awareness that, "[a]t the time

it placed its successful bid [at the 1993 foreclosure sale] Aetna had in hand an offer from The

American University to purchase all rights and interest which were the subject of such endeavored

foreclosure sale." Complaint ¶ 20, reprinted in Joint Appendix 22. Moreover, appellants' counsel

conceded before the District Court "that he considered joinder of AU at the beginning of this

litigation but, for [tactical] reasons... carefullycrafted theComplaint to avoid alleging liabilityagainst

AU." Burka, 894 F. Supp. at 31. Under these circumstances, appellants' conscious decision not to

join AU at the beginning of this action militates against a finding that AU was indispensable at that

time. Cf. Judwin Properties, Inc. v. United States Fire Ins. Co., 973 F.2d 432, 434 (5th Cir. 1992)

(per curiam) (In rejecting a plaintiff's attempt to dismiss an appeal for lack of subject matter

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jurisdiction resulting from the failure to join allegedly indispensable parties, the court noted that the

plaintiff's choice not to sue or join the missing parties earlier "indicates that [the plaintiff] deemed

such action unnecessary," and "[s]uch a decision should not be the basis for an offensive use of Rule

19.").

Further, appellants have cited no case holding that the existence of a purchase contract (much

less an offer to purchase) rendersthe contract purchaser perse indispensable to a suit concerning the

subject property. Moreover, given that the property had not yet been transferred to AU's ownership

when appellants filed suit, AU's absence from the litigation would not have prevented binding and

conclusive resolution of appellants' primary challenge to Aetna's ownership of the property, which

wasthe focus ofthe case prior to Aetna'ssuccessful motion for summary judgment on the ownership

issue. Neither was AU rendered indispensable at the beginning of this litigation as a result of

appellants' alternative claim that the size of the building on the property violated the Declaration, for

AU had no interest in the size of the building at that time. Thus, there is no reason to doubt that the

general rule espoused by the Supreme Court in Freeport-McMoRan is fully applicable to the instant

case, and we reject appellants' contention that the District Court was deprived of subject matter

jurisdiction when it granted Aetna's request to add AU as a defendant in this case pursuant to Rule

25(c).

Like the District Court, we are not persuaded by appellants' unsupported contention that a

Rule 25(c) addition itselftriggersthe application ofsection 1447(e)'sremand requirement in this case.

See Burka, 894 F. Supp. at 30 n.1. Beyond the obvious fact that the Rule 25(c) motion here was

made by the defendant, Aetna, whereassection 1447(e), by itsterms, applies onlywhen "the plaintiff

seeks to join additional defendants," 28 U.S.C. § 1447(e) (1994) (emphasis added), we also find

nothing in the law to suggest that a transfer-of-interest-based substitution or addition under Rule

25(c) is a form of "joinder" within the meaning of section 1447(e). As the Court made clear in

Freeport-McMoRan, 498 U.S. at 428, in a Rule 25(c) transfer-of-interest case, "if jurisdiction exists

at the time an action is commenced, such jurisdiction may not be divested by subsequent events."

Thus, we agree with the District Court that "[t]he option of remanding the case [provided for in

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section 1447(e)] is evidently not available to the Court if AU is substituted in as a party defendant

pursuant to Rule 25(c)." Burka, 894 F. Supp. at 29.

Appellants also challenge the decision of the District Court by arguing, in essence, that the

court ruled on the parties' proceduralmotions with an eye toward preserving jurisdictionand avoiding

remand, and that, in so doing, the court impermissibly resorted to a "naming game" in order to exploit

the differing ramifications of a Rule 25 addition versus Rule 19/section 1447(e) joinder of a

non-diverse party. However, we find nothing in the law suggesting that either Rule 19 or section

1447(e) trumps Rule 25(c) when all may be applicable, especially when the Rule 25 motion is filed

first in time. The District Court certainly was within its discretion in considering the Rule 25(c) issue

first, and, having properly found Rule 25(c) applicable, the court was in no way obligated to apply

some other method of party addition that would necessitate a remand.

In short, we find that the judgment of the District Court is exactly right. AU was properly

added as a defendant pursuant to Rule 25(c), and the District Court properly continues to assert

jurisdiction over the entire case.

III. CONCLUSION

For the reasons set forth above, the decision of the District Court disposing of the parties'

procedural motions is affirmed.

So ordered.

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