Opinion ID: 203154
Heading Depth: 2
Heading Rank: 1

Heading: Indispensability

Text: We determined in Kellogg I that Kellogg Caribbean could not intervene in BFH's action against Kellogg. USA because 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 party insofar as the requested injunctive relief applied to it. Id. Now, BFH attempts to modify the action so as to render Kellogg Carribean 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 Civil 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 person or those already parties; (2) the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; (3) whether a judgment rendered in the person's absence will be adequate; (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 (2d Cir.1990). 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 to the question 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 considerations which may be applicable in particular situations.). In the end, the indispensability analysis involves the balancing of competing interests and must be steeped in pragmatic considerations. In re Olympic 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 foundation of BFH's argument is its claim that the district court erroneously denied its motions to drop CWL as a party and to amend the complaint. As a result, the court analyzed the indispensability issue as if CWL were still a party to the action and, as framed by the first amended complaint. [3] Had BFH's motion been granted, the argument continues, Kellogg Caribbean would be dispensable because the motions served to eliminate any prejudice Kellogg Caribbean might suffer as a result of BFH's action against Kellogg USA proceeding in Kellogg Caribbean's absence. We need not determine whether the district court erroneously denied BFH's motions to amend because, even had the court granted the motions, Kellogg Caribbean would remain indispensable to the action. [4] There are two reasons for this conclusion.
First, all four 19(b) factors still militate in favor of finding Kellogg Caribbean indispensable to BFH's action against Kellogg USA. The first factor concerns the potential prejudice to the absentee if the action goes forward. BFH appears to suggest that dropping CWL as a party and removing claims relating to CWL would eliminate a potential source 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 only eliminate one potential source of prejudice. If BFH secures a judgment against Kellogg USA, the judgment 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 effect against Kellogg Caribbean as a nonparty, 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 agreement established that Kellogg USA assigned a non-exclusive, written distribution agreement with BFH to Kellogg Caribbean. That precedent could prejudice Kellogg Caribbean in future litigation whether Kellogg Caribbean is attempting to enforce or defend the 2004 agreement. [5] See Acton Co. of Mass. v. Bachman Foods, Inc., 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 in 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 (6th 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 factor and argues that a court could shape relief in this case to minimize or eliminate 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 Caribbean's interests. Kellogg I, 440 F.3d at 548 (noting money damages may prove an appropriate alternative). BFH argues that because its proposed amended complaint seeks money damages rather than injunctive relief, the possibility of prejudice to Kellogg Caribbean 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, unwritten 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 willing to 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, and the admitted difficulty in quantifying money damages, some form of injunctive 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 actions for damages and there is difficulty in determining the amount of damages to be awarded for defendant's 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 judgment itself could still prejudice Kellogg Caribbean. Although an award of money damages would not require Kellogg Caribbean to perform under BFH's agreement with Kellogg USA, the judgment itself would still 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., 512 F.3d 9, 18 (1st Cir.2008) (noting that the prejudice to [the absentee] would result from the potential outcome of the litigation itself, not the specific terms of any judgment); Schutten v. Shell Oil Co., 421 F.2d 869, 875 (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 third 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, and efficient resolution of controversies. See Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 111, 88 S.Ct. 733, 19 L.Ed.2d 936 (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 BFH has an exclusive agreement with Kellogg USA depends 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 intertwined 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 a different action another court could conclude that BFH has a non-exclusive, 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 action. We are 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 Rico. See Picciotto, 512 F.3d at 18-19 (noting that court's indispensability finding would remain unchanged even if party was barred from pursuing a remedy in an alternative forum because bar resulted from party's litigation strategy).
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, 440 F.3d at 548 (noting district court could decide that Kellogg Caribbean's involvement in the underlying dispute is so extensive that it is indispensable to a proper adjudication 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) concerns is the interest of the outsider whom it would have been desirable to join. Id. at 992 (citing Provident Tradesmens, 390 U.S. at 108, 88 S.Ct. 733). In H.D. Corp., the plaintiff had not sued an affiliate, 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 central to 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 absentee 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 is Kellogg Caribbean. For example, the proposed complaint states that on November 1, 2004 Kellogg Company and Kellogg USA acting through their affiliate notified BFH in writing that . . . the affiliate 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 central 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 Haas v. Jefferson Nat'l Bank, 442 F2d 394, 398 (5th Cir.1971)); Circle Indus., Div. of Nastasi-White, Inc. v. City Fed. Say. Bank, 749 F.Supp. 447, 456 (E.D.N.Y.1990) (finding absentee indispensable where plaintiff's claims 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, the interests weigh decidedly toward finding Kellogg Caribbean indispensable. Consequently, we affirm the district court's dismissal of the action. [6]