Of the District of Rhode Island, sitting by designation. * 

# U nit edSta tes C ou rt o f A pp eal s

For t h e Firs t C ircu it

Nos. 07-1317, 07-1318 B. FERNÁNDEZ & HNOS, INC.; CARIBBEAN WAREHOUSE LOGISTICS, INC.,

Pl ainti ffs-A ppell ants/ Cross-Appellants,

v . KELLOGG USA, INC.; KELLOGG CARIBBEAN SERVICES COMPANY, INC.,

Defendants-Appellees/Cross-Appellants.

ABC INSURANCE; XYZ SURETY COMPANY; PREFERRED INSURANCE; JOHN DOE; RICHARD ROE,

Defendants.

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO [Hon. Jaime Pieras, Jr., Senior U.S. District Judge]

Before Torruella and Howard, Circuit Judges, and Smith, District Judge. *

Gael Mahony, with whom Holland & Knight LLP, Alfredo Fernández Martinez and Delgado & Fernández, LLP were on brief, for appellants. Ricardo F. Casellas, with whom Casellas Alco v e r & Burgos, P.S.C. was on brief, for appellees.

February 14, 2008-2- H OW A R D , C i r c u i t Judge . Before us are an appeal and cross-appeal arising from an a c t i o n brought by B. Fernández &
H nos., Inc. ("BFH") and Caribbean Warehouse Logistics ("CWL") against Kellogg USA, Inc. ("Kellogg USA") in the United States District Court for the District of Puerto Rico. Jurisdiction was based on diversity of citizenship. The d i s t r ict court dismissed the case, finding that Kellogg Caribbean Services, Inc. ("Kellogg Caribbean"), a non-party entitled to intervene in the matter, was an indispensable party to the action under Federal Rule of Civil Procedure 19 whose joinder would destroy complete diversity.

In the a p p eal, plaintiff BFH challenges the district court's indispensability determination. BFH argues that the court erroneously denied two motions that would have rendered Kellogg Caribbean dispensable to its action against Kellogg USA. In the cross-appeal, Kellogg USA and Kellogg Caribbean protest the court's decision, upon dismissal of BFH's action, to deny them costs and attorneys' fees.

We conclude that, even had the court gra n t e d BFH's motions, consideration of the Rule 19 factors guiding the indispensability analysis continue to support the dismissal. Additionally, we find no error in the district court's denial of costs and fees. Thus, we affirm the district court's judgment.Kellogg USA and Kellogg Caribbean are affiliates o f e ach other 1 and subsidiaries of non-party Kellogg Company. -3- I. Background We have previously discussed i n detail the relevant background facts of this case. See B. Fernández & Hnos., Inc. v. Kellogg USA, Inc., 440 F.3d 541 (1st Cir. 2006) ("Kellogg I"). We provide a similar rehearsal here, gleaned from the record as it stands. This dispute involves four players: Kellogg USA, a Michigan company that manufactures cereal p r oducts in the United
States . K e l l o g g C a r i b b e a n , a P u e r t o R i c o c o m p a n yt h a t p r o m o t e s, sell s a n d d i s t r i b u t e s K e l l o g g p r o d u c t s i n P u e r t o R i c o ; B F H, a 1 Puerto Rico company that distributes Kellogg products in Puerto Rico; and CWL, a Puerto Rico company and affiliate of B F H that provides logistical and warehousing services.

Fo r a n u m b e r o f y e a r s , B F H w a s K e l l o g g C o m p a ny's exclusive agent in Puerto Rico. BFH purchased certain Kellogg brand cereal products for resale to customers in Pue r t o R ico, acting pursuant to written distribution agreements with v arious Kellogg entities. BFH also developed and implemented marketing plans for Kellogg products in Puerto Rico.

In 1992, BFH's r e l ationship with the Kellogg family of companies began to change. I n t h a t year, BFH signed a nonexclusive, written distributi o n agreement with Kellogg USA ("the-4-

1992 agreement"). The 1992 agreement would serve as the last written distribution ag r e e ment between BFH and a Kellogg entity. Further, Kellogg Caribbean was incorporated in 1993 and took over BFH's duties of developing and implementing marketing plans for Kellogg cereal products in Puerto Rico. Sometime after Ke l l ogg C a r i b b e a n ' s i n c o r p o r a t i o n , K e l l o g g U S A a s s i g n e d i t s r i g h ts and obligations under the 1992 agreement to Kellogg Caribbean.

During and after these developments, BFH continued to purchase Kellogg products for resale in Puerto Rico. In 1996, BFH established a distribution center to house its inventory of Kellogg products and, at Kellogg Caribbean's urging, created an affiliate company, CWL, to provide logistic and warehousing services at the
center. In Octo b e r 2004, Kellogg Caribbean and BFH signed an Inventory Repurchase agreement ("the 2004 agreement") under which Kellogg Car i b b ean purchased BFH's inventory of Kellogg products. A purpose of this agreement was to allow Kellogg Caribbean to

conso lidate its warehouse and administrative functions into one facility. The 2004 agreement als o notified BFH that Kellogg Caribbean had been assigned Kellogg USA's interest in the 1992 agreement and provided that the 2004 agreement and "the activities it contem p l a tes do not extinguish, supersede, or terminate the [1992 agreement], which, except as expressly modified by this [2004
agre e m e n t ] , c o n t i n u e s i n f u l l f o r c e a n de f f e c t . " T h e 1992-5-

agreement, however, contained terms indicating that it expired in December of 1992.

After purchasing BFH's inventory of Kellogg products, Kellogg Caribbean hired CWL to manage Kellogg Caribbean's warehouse operation. There was no written contract for these services.

In November of 2004, Kellogg Caribbean informed BFH that it w a s e xercising a provision in the 1992 agreement entitling Kellogg Caribbean to sell Kellogg's "Cereal in a Cup" and "Fruit Snacks" products directly to Puerto Rico retailers. BFH would remain the distributor of other Kellogg products.

BFH, contending that Kellogg Caribbean's decision violated its exclusive right to distrib u t e Kellogg products in Puerto Rico, sued Kellogg USA in the United States District Court for the District of Puerto Rico. Jurisdiction was premised on diversity of citizenship. Specifically, BFH claimed that Kellogg USA, by permitting "it or its affiliates" to sell "Cereal in a Cup" and "Fruit Snacks" directly to retailers, had violated Puerto Rico Law 75 (P.R. Laws Ann. tit. 10 § 278), a statute prohibiting a principal from terminating a distribution agreement with a dealer without just cause. BFH claimed that its exclusive right to distribute Kellogg products derived from an unwritten, longstanding exclusive distribution agreement with Kellogg USA.

While the action was pending, Kellogg Caribbean notified
C W L t h a t i t w a s e n d i n g t h e i r w a r e h o u s e s e r v i c e s a g r e e m e n t . As aThe district court had denied intervention after concluding that 2 Kellogg Caribbean's interests were sufficiently represented by Kellogg USA. We disagreed noting, among other things, that "The potential for this litigation to have a greater adverse impact on Kellogg Caribbean is a sufficient basis for concluding that Kellogg USA may not serve as an adequate proxy." Id. (citing Nat. Union Fire Ins. Co. v. Rite Aid of S. Carolina, Inc., 210 F.3d 246, 251 (4th Cir. 2000)). -6- result of this decision, BFH moved to join CWL as a plaintiff and to amend its complaint to add a count alleging t h a t K e l logg USA "and/or its affiliates" vio l a t ed Law 75 by terminating the warehouse services agreement. The district court granted the motions. The plaintiffs sought declaratory and injunctive relief, as well as damages.

After BFH and CWL secured a temporary restraining order requiring CWL's reinstatement at the distribution center, Kellogg Caribbean moved "to intervene and dismiss for lack of an indispensable p arty." The district court denied Kellogg Caribbean's motion to intervene and, after an evidentiary hearing, entered a preliminary injunction requiring Kellogg USA "and/or its affiliates" to specifically perform the agreements with BFH and CWL pending trial. Kellogg Caribbean appealed from the denial of its motion to intervene, and Kellogg USA and Kellogg Caribbean filed an interlocutory appeal from the entry of the preliminary injunction.

In that a p p e a l w e concluded that Kellogg Caribbean met the requirements for intervention. Kellogg I, 440 F.3d a t 547. 2 We noted, how e v e r , that intervention was not feasible because it-7-

would destroy the district court's diversity jurisdiction (Kellogg
C a ribbean, like BFH and CWL, is a Puerto Rico company)
. I d. Accordingly, we vacated the preliminary injunction and remanded to the district court with instructions to determine whether Kellogg Caribbean was indispensable to BFH's ac t i o n against Kellogg USA. If Kellogg Caribbean was indispensable, then the action could not proceed in federa l c o u rt. Fed. R. Civ. P. 19(b); see id. We observed that Kellogg Caribbean would be considered indispensable if BFH a n d CWL continued to seek injunctive relief requiring Kellogg Caribbean to perform under certain agreements. Kellogg I, 440 F.3d at 548.

On remand, BFH sought both to remove CWL as a party and to file an amended complaint. Taking its cue from our opinion in Kellogg I, BFH's proposed amended complaint excluded all claims rel a t i n g to CWL and requested only money damages against Kellogg USA rather than injunctive relief.

The district court denied both BFH's motion to drop CWL and t h e m otion to amend the complaint. The court concluded that Kellogg Caribbean was indispensable to BFH's action against Kellogg USA and consequently dismissed BFH's action without prejudice. Sua sponte, the court also denied K e l logg USA and Kellogg Caribbean costs and attorneys' fees. II. Discussion Both sides appeal. BFH challenges the district court's-8-

dismissal of the action, arguing that the court erroneously concluded that Kellogg Caribbean was indispensable to BFH's action against Kellogg USA. In their cross-appeal Kellogg USA and Kellogg Caribbean assert error in the dis t r ict court's decision to deny them costs and attorneys' fees. A. Indispensability We determined in Kellogg I that Kellogg Caribbean could not intervene in BFH's action against Kellogg US A b e c ause its intervention would destroy diversity jurisdiction. Kellogg I, 440 F.3d at 548. Further, it was clear to us that Kellogg Caribbean was an indispensable part y i nsofar as the requested injunctive relief applied to it. Id. Now, BFH attempts to modify the action so as to render Kellogg C arribean dispensable. The critical question in this round, then, is "whether in equity and good conscience" the action may proceed in Kellogg Caribbean's absence. Fed. R. Civ. P. 19(b). If we conclude that it cannot, the action must be dismissed and Kellogg Caribbean labeled an "indispensable" party. See 4 Moore's Federal Practice § 19.05(1)(a) (3d ed. 2000) (noting that on dismissal of a case for non-joinder of the absentee under Rule 19(b) the absentee is then retroactively labeled "indispensable").

Federal Rule of C i v i l Procedure 19(b) specifies four factors to guide the indispensability inquiry. These include:

(1) To what extent a judgment rendered in the person's absence might be prejudicial to the-9- person or those already parties; (2) the extent to which, by protective provisions in t h e j u d g m e n t , b y t h e s h a p i n g o f r e l i ef, or other measures, the prejudice can be lessened or avoided; (3) whether a judgment rendered in the person's absence w i l l b e a d e q u a t e ; ( 4 ) whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder.

Fed. R. Civ. P. 19(b). The Second Circuit has observed that no set weight is afforded to any of the factors, Associated Dry Goods Corp. v. Towers Fin. Corp., 920 F.2d 1121, 1124 (2dC i r . 1 9 9 0). Moreover, the specified factors do not constitute an exhaustive canvass, and a court may take into account other considerations in determining whether or not to proceed without the absentee as long as they are relevant t o t h e q uestion of whether to proceed in "equity and good conscience." In re Cambridge Biotech Corp., 186 F.3d 1356, 1369 (Fed. Cir. 1999) (citation omitted); Fed. R. Civ. P. 19, advisory committee note ("The factors . . . are not intended to exclude other c o nsiderations which may be applicable in particular situations."). In the e nd, the indispensability analysis involves "the balancing of competing interests" and "must b e s t e e p e d i n p r a g m a t i c c o n s i d e r a t i o n s . " I n r e O l y m p i c Mills Corp., 477 F.3d 1, 9 (1st Cir. 2007) (citing Travelers Indem. Co. v. Dingwell, 884 F.2d 629, 635 (1st Cir. 1989)).

The f o u n d a t i o n o f B F H ' s a r g u m e n t i s i t s c l a i m t h a t the district court erroneously denied its motions to drop CWL as a party and to amend the complaint. As a result, the court analyzedBFH appears to concede that with CWL as co-plaintiff, and under 3 its first amended complaint which requested in j u n c tive relief, Kellogg Caribbean is an indispensable party. As noted, we stated as much in Kellogg I. See Kellogg I, 440 F.3d at 548. We have no hesitation in proce e d i ng to answer the 4 indispensability question. Although a district court is generally in t h e p r e f e r r e dp o s i t i o n t o m a k e a n i n d i s p e n s a bility determination, and should normally be given the first opportunity to analyze the question, we have noted that some situations favor us deciding the joinder issue on appeal. See Olympic Mills Corp., 477 F.3d at 9 (citing Takeda v. Nw. Nat'l Life. Ins. Co., 765 F.2d 815, 818 n.2 (9th Cir. 1985) ("Although in some cases it might be desirable to remand to allow a district court to determine whether a non-diverse party is indispensable, we have the power to decide the joinder issue on appeal")). The record being clear and co m p l e t e , a n db e c a u s e w e h a v e a l r e a d yr e m a n d e dt h i s m a t t e r o nce before, for reasons of economy we proceed to analyze the question ourselves on the basis of the proposed second amende dc o m plaint.

-10- the indispensability issue as if CWL were s t ill a party to the action and as framed by t h e f irst amended complaint. Had BFH's 3 motion been granted, the argument c o n t i nues, Kellogg Caribbean

wou l d b e dispensable because the motions served to eliminate any
pr e j u d i ce Kellogg Caribbean might suffer as a result of BFH's action agai n s t K ellogg USA proceeding in Kellogg Caribbean's absence. We need not determine whether the district court erroneously denied BFH's motions t o amend because, even had the court granted t h e motions, Kellogg Caribbean would remain indis p e n sable to the action. There are two reasons for this 4 conclusion.-11- 1. First, all four 19(b) factors still militate in favor of finding Kellogg Caribb ean indispensable to BFH's action against Kellogg USA. The first factor concerns the potential prejudice to the absentee if the action goes forward
. B FH appears to suggest tha t d r o p p i n g C W L a s a p a r t y a n d r e m o v i n g c l a i m s r e l a t i n g t o CWL would eliminate a potential s o urce of prejudice to Kellogg Caribbean's interests because BFH's action against Kellogg USA will not require any interpretation of CWL's warehouse services agreement with Kellogg Caribbean.

But this course, at most, would onl y e liminate one potential source of prejudice. If BFH secures a judgment against Kellogg USA, the ju d g m ent could still harm Kellogg Caribbean's interest in an entirely different agreement -- its 2004 agreement with BFH. The judgment would effectively stand for the proposition that BFH and Kellogg USA have an exclusive, unwritten distribution agreement. Although the judgment may not have collateral estoppel effec t a g a inst Kellogg Caribbean as a non-party, such a judgment would serve as persuasive precedent that the 2004 agreement Kellogg Caribbean reached with BFH is invalid to the extent that the 2004
agreeme n t established that Kellogg USA assigned a non-exclusive, written distribution agreement with BFH to Kellogg Caribbean. That precedent could prejudice Kellogg Caribbean in futu r e litigation whether K e l l o g g Caribbean is attempting to enforce or defend theBFH contends that this potential source o f p rejudice is a 5 chimera. It argues that Kellogg USA could not have assigned any interest in the 1992 agreement because the agreement, according to its terms, had expired in 1992. Its argument mis s e s t h e p oint. Kellogg Caribbean argues t hat the 2004 agreement explicitly establishes that the 1992 agreement is still in operation. There is language in the 2004 agreement that arguably supp o r t s this contention. If BFH prevails in establishing that it has an exclusive, unwritten distribution agreement with Kellogg USA, however, the judgment would serve to substantially weaken Kellogg Caribbean's argument regarding the validity of the 2004 agreement and, thus, its ability to enforce or defend the agreement itself.

-12- 2 0 0 4 a g reement. See Acton Co. of Mass. v. Bachman Foods, Inc., 5 668 F.2d 76, 78 (1st Cir. 1982) ("Even if
. . . [the absent party] would not be legally bound [by the prior ruling], an adverse ruling would be a persuasive precedent i n a subsequent proceeding, and would weaken . . . [the absent party's] bargaining position for settlement purposes"); NLRB v. Doug Neal Mgmt. Co., 620 F.2d 1133, 1139 ( 6 t h Cir. 1980) ("It is not necessary that an absent person would be bound by the judgment in a technical sense. It is enough that as a practical matter his rights will be affected.") (citation omitted)). Nonetheless, BFH points to 19(b)'s second f a c tor and argues that a court could shape relief in this case to minimize or elimi n a t e the prejudicial effect of proceeding without Kellogg Caribbean. During our first examination of this case we did state that on remand the district court could consider shaping relief in such a manner so as to avoid prejudicing Kellogg Ca r i bbean's interests. Kellogg I, 440 F.3d a t 5 4 8 (noting money damages may-13-

prove an appropriate a l ternative). BFH argues that because its proposed amended complaint seeks money damages rather than injunctive relief, the possibility of prejudice to Kellogg
Car i b b e a n is eliminated. It contends that money damages, unlike injunctive relief, will not compel Kellogg USA to sell exclusively to BFH and consequently, that Kellogg Caribbean in no way will be forced to perform under BFH's agreement with Kellogg USA.

The argument is unconvincing. As an initial matter, it is not at all clear that money damages could be awarded in this case. In its proposed amended complaint, BFH states that Kellogg USA has breached an exclusive , u nwritten distribution agreement. Unsurprisingly, BFH does not, however, suggest that this agreement has any set expiration date. Moreover, although BFH suggested at oral argument that it is willin g t o limit the damage request, it also acknowledges that damages it has suffered as a result of Kellogg USA's alleged breach are "not easily calculable . . . and increase on a daily basis." Given the apparent recurring nature of the alleged breach, a n d the admitted difficulty in quantifying money damages, some form of in j u nctive relief may be necessary. See 12 Corbin on Contracts § 1142 at 194 (interim ed. 2002) (noting
money damages may be inadequate and specific performance necessary if, among other things, there is a recurring injury which requires "multiple actio n s for damages" and there is "difficulty in determining the amount of dam a g es to be awarded for defendant's-14-

breach"). But even assuming an award of money damages could be fashioned pursuant to a judgment in favor of BFH, as we have said the j u d g ment itself could still prejudice Kellogg Caribbean. Although an award of money damages wo u l d not require Kellogg Caribbean to perform under BFH's agreement with K e l l ogg USA, the judgment itself would s t i l l serve as persuasive precedent that Kellogg Caribbean's 2004 agreement with BFH, at least to the extent that it extends the 1992 agreement, is invalid. The potential for prejudice remains no matter how relief is sliced. See Picciotto v. Cont'l Cas. Co., 2008 U.S. App. LEXIS 206, at *22 (1st Cir. January 7, 2008) (noting that "the prejudice to [the absentee] would result from the p o tential outcome of the litigation itself, not the specific terms of any judgment"); Schutten v. Shell Oil Co., 421 F.2d 86 9 , 8 7 5 ( 5th Cir. 1970) ("[W]e are unable to envision a decree which would effectively settle any controversy between the appellants and the present defendant . . . without doing substantial practical injury to the [absentee.]").

The third and fourth 19(b) factors also favor finding Kellogg Caribbean indispensable. The t hird factor concerns whether, if the action proceeds without the absentee, the judgment rendered will be adequate. A judgment is "adequate" if it furthers the public interest in "complete, consistent, ande f f i cient" resolution of controversies. See Provident Tradesmens Bank & Trust-15-

Co. v. Patterson, 390 U.S. 102, 111 (1968) (noting third factor concerns "public stake in settling disputes by wholes, whenever possible").

Here, proceeding without Kellogg Caribbean would not further this public interest for two reasons. First, it would not efficiently resolve the dispute in this case. As we have emphasized, and as BFH acknowledges, the question of whether or not
BF H h a s a n e x c l u s i v e a g r e e m e n t w i t h K e l l o g g U S A d e p e nds in significant part on the meaning and effect of the 2004 agreement that BFH reached with Kellogg Caribbean. That is a question with which Kellogg Caribbean's rights are inextricably bound. See Envirotech v. Bethlehem Steel Corp., 729 F.2d 70, 75 (2d Cir. 1984) (affirming district court's finding of indispensability where court concluded absentee possessed rights that were "inextricably intertw i n e d " with issues bound to be raised in action against defendant).

Second, proceeding without Kellogg Caribbean would unnecessarily create the possibility of inconsistent judgments. For example, BFH could secure a judgment against Kellogg USA after proving that it has an exclusive, unwritten agreement with Kellogg USA that Kellogg USA breached. We explained that such a judgment could practically prejudice Kellogg Caribbean, but we have also noted that the judgement may not have a collateral estoppel effect against Kellogg Caribbean. Therefore, it remains possible that in-16-

a different action another court could conclude that BFH has a nonexclusive, written agreement with Kellogg Caribbean by virtue of a valid assignment of the 1992 agreement by Kellogg USA.

With respect to the fourth and final 19(b) factor, we do
not see why BFH will be without an adequate remedy if we uphold the district court's dismissal of the actio n . W e a re aware of no impediment, not of its own making, preventing BFH from pursuing its asserted cause of action in the courts of the Commonwealth of Puerto Ric o . S e e Picciotto, 2008 U.S. App. LEXIS 206, at *22 (noting that court's indispensability finding would remain unchanged even if party w a s b a r r e dfrom pursuing a remedy in an alternative forum because bar resulted from p a r t y 's litigation strategy). 2.

Turning to the second reason, in Kellogg I we foresaw the possibility that Kellogg Caribbean could be so central to this dispute as to render it indispensable to any action concerning the dispute. See Kellogg I, 4 4 0 F . 3 d at 548 (noting district court "could decide that Kell o g g Caribbean's involvement in the underlying dispute is so extensive that it is indispensable to a proper adjudi c a t i o n of the case and therefore dismiss the action entirely"). The prediction has come to pass.

In H.D. Corp. of Puerto Rico v. Ford Motor Co., 791 F.2d 987 (1st Cir. 1986), we noted that one of the interests Rule 19(b)-17-

concerns is “the interest of the outsider whom it would have been desirable to join.” Id. a t 9 92 (citing Provident Tradesmans, 390 U.S. at 108). In H.D. Corp., the plaintiff had not sued an aff i l i ate, the defendant’s parent company. In analyzing the interest of the absentee, we observed that the parent was alleged, inter alia, to have been a signatory to agreements that were
centr a l t o the dispute, and as well to have wrongfully induced a breach of a key agreement. In light of these observations, we said that it would impractical to proceed without the absentee. So too, here. As was true of the ab s e ntee in H.D. Corp., Kellogg Caribbean's alleged role here is apparent from the face of the proposed second amended complaint. One count alleges with respect to the October 2004 agreement that an "affiliate [of Kellogg USA] used words and insidious machinations to induce BFH to execute the October 15, 2004 [sic] purported amendment. Without such words and insidious machinations BFH would not have executed the amendment." Beyond this, even ignoring BFH's 2004 agreement with Kellogg Caribbean entirely, a close reading of the proposed amended complaint reveals that BFH identifies Kellogg Caribbean as playing a significant role throughout the course of Kellogg USA's alleged legal violations. The complaint contains over twenty references to an unnamed affiliate that carried out the actions which BFH contends constituted a violation of Law 75. The unnamed affiliate-18-

is Kellogg Caribbean. For example, the proposed complaint states that on November 1, 2004 Kellogg Company and Kellogg USA "acting through their affiliate notified BF H i n writing that . . . the aff i l iate would begin selling directly to customers." It is uncontested that Kellogg Caribbean was the entity that notified BFH in writing that it would begin selling Kellogg's "Cereal in a Cup" and Kellogg's "Fruit Snacks" direct to customers via its own sales force. Given that Kellogg Caribbean was a c e n tral player -– perhaps even the primary actor –- in the alleged breach, the practical course here, as it was in H.D. Corp., is to proceed in a forum where the absentee may be joined. See Freeman v. Northwest Acceptance Corp . , 754 F.2d 553, 559 (5th Cir. 1985) (finding absentee indispensable where absentee "'becomes more than a key witness whose testimony would be of inestimable value [and] [i]nstead emerges as an active participant'" in alleged legal violation) (quoting Hass v. Jefferson Nat'l Bank, 442 F.2d 394, 398 (5th Cir. 1 9 7 1)); Circle Indus., Div. of Nastasi-White, Inc. v. City Fed. Sav. Bank, 749 F. Supp. 447, 456 (E.D.N.Y. 1999) (finding absentee indispensable where plaintiff's claim s of fraud were grounded on actions taken by absentee party).

In sum, considering especially the potential prejudice to Kellogg Caribbean if the federal action proceeds in its absence and the centrality of Kellogg Caribbean's alleged role in the dispute,Although the district court properly dismissed t h i s action 6 without prejudice, we may quibble with the manner in which it did so. The court appeared to add Kellogg Caribbean to the action and then dismiss the action, on the ground that it no longer possessed subject matter jurisdiction o v e r t he case. More likely, Kellogg Caribbean should not have been joined in the first place precisely because joining Kellogg Caribbean as a party would destroy subject matter jurisdiction. See 7C Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice & Procedure § 1917, at 477-78 (2d ed. 1986). Thus, the t h e a c t i o n should have been dismissed for non-joinder of Kellogg Caribbean pursuant to Rule 19(b). -19- the interests weigh decidedly toward find i n g Kellogg Caribbean in d i s p e n s a b l e . C o n s e q u e n t l y , w e a f f i r mt h e d i s t r i c t c ourt's dismissal of the action. 6 B. Costs and attorneys' fees In their cross-appeal, Kellogg USA and Kellogg Caribbean contend that the district court's sua sponte denial of costs and attorneys' fees without explanation consti t u ted an abuse of discretion. We note that it appears neither party had the opportunity to file a bill of c o s t s or a motion for attorneys' fees. As to the denial of costs, the cont e n tion is that, because the court dismissed BFH's action against Kellogg USA, the Kellogg entities are prevailing parties and are presumptively entitled to recover their costs of suit under Federal Rule of Civil Procedure 54(d). The Kellogg entities identify two grounds in support of their request for attorneys' fees. First, they assert that when a party prevails under Law 75 a court may grant that party attorneys' fees. Second, they claim that BFH made baseless-20-

factual allegations in its pleadings. As a result, attorneys' fees

are war r a n ted under 28 U.S.C. § 1927, which permits a court to grant fees as a sanction for abusive litigation tactics.

We review the denial of both cost s a n dattorneys' fees for abuse of discretion. See Janeiro v. Urological Surgery Prof'l Ass'n, 457 F.3d 130, 143 (1st Cir. 2006). There is a background presumption favoring cost recovery for prevailing parties. In Re Two App e a l s A r i s ing Out of the San Juan Dupont Plaza Hotel Fire Litig., 994 F.2d 956, 963 (1st Cir. 1993). When denying costs, a district court must offer an explanation for doing so unless the basis for denying c o s t s i s " readily apparent on the face of the record." Id. (concluding district court abused its discretion in denying c o s t s without explanation where basis for denial was not apparent from the record); see also Templeman v. Chris Craft Corp., 770 F.2 d 2 4 5 , 249 (1st Cir. 1985) (reversing district court's denial of costs to prevailing party where court failed to give valid ex p l a n a tion for denial and record supported an award of costs).
Ass u m i ng that Kellogg USA and Kellogg Caribbean can be considered prevailing parties within the ambit of cost recovery doctrine, the district court's unexplained decision to deny costs does not constitute an abuse of discretion because the reason for its denial is readily apparent from t h e r ecord. This case, like

man y o t her cases calling for an indispensability determination-21-

under R u le 19(b), presented a close question that required considered balancing. A s s u ch, the record supports the district court's d e termination that each side should bear its own costs.
See S an Juan Dupont Plaza Hotel Fire Litig., 994 F.2d at 963 (citin g W h i t e & W h i t e , I n c . v . Am . H o s p . S u p p l y C o r p . , 7 8 6 F.2d 728, 730 (6th Cir. 1986) (noting where case proves "close and difficult" district cou r t ' s denial of costs may be appropriate exercise of discretion)).

As to attorneys' fees, Kellogg USA and Kellogg Caribbean do not explain in their opening brief why they should be entitled to fees, but rather make the argument in their reply brief. Accordingly, the argument is waived. Willis v. Brown University, 184 F.3d 20, 27 (1st Cir. 1999). In any event, the district court did not abuse its discretion in d e nying attorneys' fees. Attorneys' fees are recoverable in diversity cases wh e r e a state law provides the r i g h t t o r ecover such fees. See McLane, Graf, Raulerson & Middleton, P.A. v. Rechberger, 280 F.3d 26, 42 (1st Cir. 2002) (quoting Alyeska Pipeline Serv. Co. v. The W i l d e r ness Soc'y, 421 U.S. 240, 260 n.31 (1974)). But to the extent that Kellogg USA and Kellogg Caribbean prevailed, they did so under Rule 19(b) and not under Law 75. Therefore, the section of Law 75, (P.R. Laws Ann. tit. 10 § 278e), which purportedly entitles a prevailing part y t o recover attorneys' fees, is simply notWe additionally note that an award of att o rneys' fees under Law 7 75 is within the district court's discretion. P.R. Laws Ann. Tit. 10 § 278e. -22- o p e rable. Additionally, we find no merit in Kellogg USA and

7 Kellogg Caribbean's charge that BFH engaged in abusive litigation tactics that would warrant a fee award under 28 U.S.C. § 1927.

AFFIRMED