Court Opinion

ID: 4696598
Source: CourtListenerOpinion
Date Created: 2021-06-17 18:00:55.043066+00
Date Added: 2024-06-11T08:05:41.338967
License: Public Domain

Case: 20-30623     Document: 00515903587         Page: 1     Date Filed: 06/17/2021

              United States Court of Appeals
                   for the Fifth Circuit                           United States Court of Appeals
                                                                            Fifth Circuit

                                                                          FILED
                                                                      June 17, 2021
                                  No. 20-30623                       Lyle W. Cayce
                                                                          Clerk

   Caytrans Project Services Americas, Limited,

                                                           Plaintiff—Appellant,

                                       versus

   BBC Chartering & Logistics GmbH & Company KG; BBC
   Global GmbH & Company KG; BBC Chartering USA, LLC,

                                                         Defendants—Appellees.

                  Appeal from the United States District Court
                     for the Eastern District of Louisiana
                            USDC No. 2:20-CV-414

   Before Owen, Chief Judge, and Davis and Dennis, Circuit Judges.
   Per Curiam:*
          Plaintiff, Caytrans Project Services Americas, Ltd. (“Caytrans”),
   appeals the district court’s judgment granting the Rule 12(b)(7) motion to
   dismiss filed by Defendants, BBC Chartering & Logistics GmbH & Co. KG,
   BBC Global GmbH & Co. KG, and BBC Chartering USA, LLC. In their

          *
            Pursuant to 5th Circuit Rule 47.5, the court has determined that this
   opinion should not be published and is not precedent except under the limited
   circumstances set forth in 5th Circuit Rule 47.5.4.
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                                   No. 20-30623

   motion, Defendants asserted that Caytrans failed to join an indispensable
   party required by Rule 19, and because the party’s joinder would destroy the
   court’s diversity jurisdiction, Caytrans’s complaint had to be dismissed. For
   the reasons set forth below, we VACATE and REMAND.
                              I. BACKGROUND
          In 2006 Caytrans, a corporation domiciled in Louisiana, entered into
   a Shareholders’ Agreement (“Agreement”) with BBC Chartering &
   Logistics GmbH & Co. KG (“BBC”), domiciled in Germany. The
   Agreement created a Louisiana limited liability company, Caytrans BBC,
   LLC (“Company”), to operate chartered marine vessels. Caytrans and BBC
   each owned 50 percent of the shares in the Company. In 2016 BBC
   transferred its shares to BBC Global GmbH & Co. KG (“BBC Global”), also
   domiciled in Germany, at which point Caytrans continued to own 50 percent
   of the Company’s shares, and BBC Global owned the other 50 percent.
          In its complaint, Caytrans asserted that it agreed with BBC that two
   commercial agents, BBC (USA) LP (“BBC USA”) and Dan-Gulf Shipping,
   Inc. (“Dan-Gulf”), would be appointed to assist with the Company’s
   operations. Caytrans further alleged that the Agreement required BBC or
   BBC USA to perform “[a]ll accounting for the Company” and to “submit
   monthly accounting to the Board” and that the Agreement required BBC to
   maintain the Company’s bank account. According to Caytrans, a 2008
   addendum to the Agreement provided that all references to BBC USA in the
   Agreement referred to Defendant, BBC Chartering USA, LLC (“BBC
   Chartering USA”), whose sole member is BBC Global.
          Caytrans further stated in its complaint that BBC hired Dan-Gulf’s
   controller, Deepak N. Jagtiani (“Jack”), to perform these accounting
   services for the Company. Caytrans explained that BBC paid 50 percent of
   Jack’s salary and benefits and that Dan-Gulf paid the other 50 percent since

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   Jack continued to work for Dan-Gulf as its controller. Caytrans alleged that
   although BBC, BBC Global and/or BBC Chartering USA were
   “responsible” for the Company’s accounting, “they did absolutely nothing
   to monitor and supervise Jack’s handling of [the Company’s] finances or the
   status of [the Company’s] accounts.” Caytrans asserted: “Among other
   things, they did not ask Jack to send them regular financial statements, bank
   statements or other financial records needed to satisfy their duty to properly
   handle [the Company’s] accounting.”
          In January 2019, Jack informed the management of the Company and
   the management of Dan-Gulf that there were not enough funds on hand to
   meet either companies’ obligations. On January 15, 2019, the Company and
   Dan-Gulf “instructed Jack to provide complete financial information to
   them.” On February 5, 2019, Jack abruptly resigned and never returned to
   work. Investigation into the companies’ financial situations revealed that
   Jack had embezzled approximately $5.9 million from the Company over a 10-
   year period.
          Caytrans stated that it has not been able to recover any of the stolen
   funds from Jack, but that it, one of its affiliates, the Company, an agent of the
   Company, and Dan-Gulf have all sued Jack and others in state court to
   recover as much of the losses as possible. Caytrans contended that BBC and
   BBC Global, however, have resisted allowing the Company to pay any
   portion of the costs for investigating the losses and pursuing the recovery of
   the losses from Jack and others. Additionally, Caytrans asserted that, in
   January 2020, it discovered that BBC and/or BBC Global have “been
   competing with [the Company] for business and diverting business away
   from [the Company]” for their sole benefit and to the detriment of the
   Company and Caytrans. Caytrans also alleged that BBC Chartering USA
   ceased carrying out its duties as the Company’s agent and diverted business
   away from the Company and to its sole member, BBC Global.

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           Based on the allegations relating to Jack’s embezzlement, Caytrans
   asserted claims against Defendants for breach of their contractual obligations
   to monitor and supervise the Company’s accounting and bank accounts,
   breach of their fiduciary duty to fulfill their “accounting duties in good faith
   and with ordinary diligence,” and gross negligence in “failing to have
   adequate safeguards in place to prevent theft and failing to discover the
   embezzlement.” Based on the allegations that Defendants were diverting
   business away from the Company, Caytrans asserted that they breached their
   fiduciary duty of loyalty to the Company by self-dealing and engaging in
   unfair trade practices in violation of Louisiana law.
           As to the damages resulting from Defendants’ breach of their
   contractual and fiduciary duties and gross negligence relating to Jack’s
   embezzlement, Caytrans asserted that the Company lost approximately $5.9
   million and that, “as a 50% shareholder” of the Company, it “derivatively
   was damaged” by almost $2.9 million. As to the damages resulting from
   Defendants’ alleged self-dealing and unfair trade practices, Caytrans
   asserted that the Company suffered a “business loss, and a loss of reputation
   in the market, all in an amount to be proven at trial,” and that “as a 50%
   shareholder” of the Company, Caytrans “derivatively was damaged by 50%
   of this business loss.”
           In response to Caytrans’s complaint, Defendants filed the
   Rule 12(b)(7) motion to dismiss at issue in this appeal. They asserted that
   because Caytrans’s complaint set forth a derivative action, Caytrans was
   required to join the Company as a party under Rule 19. 1 Defendants
   contended that once the Company was properly joined as a defendant,

           1
           Defendants also argued that Caytrans failed to plead properly a derivative action
   under Rule 23.1. The issue became moot, however, by the filing of Caytrans’s verified third
   amended complaint, which complied with Rule 23.1.

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   however, the district court would lack subject matter jurisdiction over the
   action because Caytrans and the Company are nondiverse. 2 Therefore, the
   action had to be dismissed.
           In opposition to the motion, Caytrans acknowledged that the
   Company is a required party under Rule 19(a) because this is a derivative
   action. Caytrans asserted, however, that the Company is not an indispensable
   party under the factors set forth in Rule 19(b); therefore, its joinder was not
   mandatory, and diversity jurisdiction was present.
           The district court granted Defendants’ motion to dismiss. It reviewed
   the Rule 19(b) factors, determining that three of the four factors indicated
   that the Company was an indispensable party and favored dismissal. Caytrans
   filed a motion for reconsideration, which the district court denied. This
   timely appeal followed.
                                       II. DISCUSSION
           Rule 19(a) directs the district court to join “required” parties “if
   feasible.” 3 But, “[w]hen joining a required party is not feasible, such as when
   joining that party would destroy diversity [jurisdiction], the court must
   determine whether the party is ‘merely necessary’ to the litigation, or in fact
   ‘indispensable.’” 4 Specifically, Rule 19(b) instructs the district court to
   consider the following four factors to “determine whether, in equity and
   good conscience, the action should proceed among the existing parties or

           2
            In Harvey v. Grey Wolf Drilling, Co., 542 F.3d 1077, 1080 (5th Cir. 2008), this
   Court held that “the citizenship of a LLC is determined by the citizenship of all of its
   members.” Consequently, the Company is a citizen of Louisiana and Germany. Thus,
   whether the Company is joined as a plaintiff or defendant, diversity jurisdiction would be
   lacking.
           3
               Fed. R. Civ. P. 19(a).
           4
               Moss v. Princip, 913 F.3d 508, 515 (5th Cir. 2019) (citation omitted).

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   should be dismissed:” (1) the extent to which a judgment rendered in the
   person’s absence might prejudice that person or the existing 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 the person’s absence would be adequate;
   and (4) whether the plaintiff would have an adequate remedy if the action
   were dismissed for nonjoinder. 5
          This Court has noted that “Rule 19 militate[s] in favor of a highly
   practical, fact-based decision.” 6 “While the indispensability of a party is a
   question of federal law, a federal court can look to state law to determine the
   relative interest that the party has in the litigation.” 7 The decision whether a
   party is indispensable can be made only after considering the “context of
   particular litigation.” 8 This Court reviews the district court’s decision to
   dismiss for failure to join an indispensable party under an abuse-of-discretion
   standard. 9
   A.     Extent to which a judgment rendered in the Company’s absence
          might prejudice the Company or Defendants
          The district court determined that the first Rule 19(b) factor, the
   extent to which a judgment rendered in the Company’s absence might
   prejudice the Company or Defendants, weighed in favor of a finding that the
   Company was an indispensable party.

          5
              Fed. R. Civ. P. 19(b).
          6
              Pulitzer-Polster v. Pulitzer, 784 F.2d 1305, 1309 (5th Cir. 1986).
          7
              Whalen v. Carter, 954 F.2d 1087, 1096 n.8 (5th Cir. 1992) (citations omitted).
          8
              Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 118 (1968).
          9
              Pulitzer-Polster, 784 F.2d at 1309.

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          (1) Prejudice to the Company
          The district court noted that as a Louisiana limited liability company
   (“LLC”), the Company was “wholly separate” from its members and that
   its separate status “suggest[ed] separate interests—interests unrepresented
   and therefore unprotected here.” Because a judgment rendered in the
   Company’s absence would fail to account for the Company’s “distinct
   interests,” the district court determined that such judgment would “plainly
   prejudice” the Company.
          Caytrans rightly points out, however, that the district court did not
   describe what those “separate and unprotected interests” were. Caytrans
   disputes that the Company has any separate interests that are not fully
   protected by the existing parties, as “this is a purely internal dispute between
   the only two members of [the Company] concerning the operation of that
   limited liability company.”
          On appeal, Defendants attempt to identify the Company’s separate
   and unprotected interests. They assert that the Company must be joined so
   that the Company can answer Caytrans’s allegations against it for “not acting
   as it should.” Caytrans, however, has not alleged any wrongdoing by the
   Company. Defendants also assert that if the Company is not a party, it cannot
   defend itself against allegations concerning its own negligence in this matter.
   Again, however, Caytrans has not alleged that the Company was negligent,
   but that Defendants were, and states that it “has no intention of arguing that
   [the Company] [wa]s negligent.”
          Relying on a recent case from this Court, Caytrans asserts that the
   Company’s interests in this action, whatever they may be, are fully protected
   because its only two members (Caytrans and BBC/BBC Global) are both
   parties to this suit. In Moss v. Princip, the plaintiffs were two partners and
   limited liability members of a four-person partnership and a four-person

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   LLC. 10 They sued the other two partners and limited liability members, the
   partnership, and the LLC in state court, alleging fraud, breach of fiduciary
   duty, breach of the partnership agreement, and conversion. 11
           The defendants removed to federal court on the basis of diversity
   jurisdiction. After a jury trial and a verdict in favor of the plaintiffs, the
   defendants moved to dismiss the case, arguing that the district court never
   had subject matter jurisdiction because the partnership and the LLC were
   nondiverse. The plaintiffs responded by moving to dismiss the partnership
   and LLC as dispensable nondiverse parties. The district court granted the
   plaintiffs’ motion, and this Court affirmed. 12
           This Court determined that the district court did not abuse its
   discretion in dismissing the partnership and LLC as dispensable parties to
   preserve its diversity jurisdiction. The parties agreed that the partnership
   was a “required” party under Rule 19(a). The defendants further asserted
   that the partnership was “indispensable” under Rule 19(b). Noting that
   Rule 19 requires a “flexible and pragmatic” approach in evaluating a party’s
   indispensability, and discussing cases from other circuits, 13 this Court
   affirmed the district court’s judgment because “the partnership’s interests
   were fully represented by each of its partners, all of whom were before the
   court.” 14

           10
                913 F.3d 508, 512 (5th Cir. 2019).
           11
                Id.
           12
                Id. at 513.
           13
              Id. at 517–18 (citing Hooper v. Wolfe, 396 F.3d 744 (6th Cir. 2005); HB Gen. Corp.
   v. Manchester Partners, L.P., 95 F.3d 1185 (3d Cir. 1996); Curley v. Brignoli, Curley & Roberts
   Assocs., 915 F.2d 81 (2d Cir. 1990)).
           14
                Moss, 913 F.3d at 519.

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          This Court further noted that although the plaintiffs raised claims for
   damages “derivative” of the partnership’s rights, the presence of the
   partnership was not necessary to protect the partnership or the parties from
   prejudice. This was shown by the fact that the partnership played a “purely
   passive” role throughout the litigation, “reflecting the reality that its
   interests did not diverge from the interests represented by the four individual
   partners and that its presence played no distinct role in the outcome of the
   suit against the individuals.” 15 This Court further noted that any risk of
   duplicative litigation brought by the partnership itself could be cured through
   injunctive relief fashioned by the district court. 16 Because the defendants did
   not argue that the LLC should be treated differently from the partnership for
   the jurisdictional inquiry, this Court extended its analysis to the LLC and
   held that the district court also properly dismissed the LLC. 17
          Our decision in Moss reflects the “highly practical, fact-based
   decision” a court should make when determining the indispensability of a
   party. 18 As applied here, Moss requires a determination whether the
   Company’s interests vary from those of Caytrans or BBC/BBC Global such
   that the Company would play a distinct role in this lawsuit. If the Company’s
   interests do not diverge from Caytrans or BBC/BBC Global, then the
   Company’s presence is not required to protect its interests.
          In this case, the district court noted that as a Louisiana LLC, the
   Company is “wholly separate” from its members. The court concluded that
   the Company’s separate status under Louisiana law “suggest[ed] separate

          15
               Id.
          16
               Id.
          17
               Id. at 521.
          18
               See Pulitzer-Polster v. Pulitzer, 784 F.2d 1305, 1309 (5th Cir. 1986).

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   interests—interests unrepresented and therefore unprotected here.” But the
   court did not engage in an analysis of the facts to determine whether the
   Company’s interests (although separate under Louisiana law) varied in
   reality from those of Caytrans or BBC/BBC Global. Our decision in Moss
   suggests that because the only two limited liability members of the Company
   are parties to the suit, then any interest of the Company will be protected.
   Specifically, to the extent that the Company has valid claims against
   BBC/BBC Global, Caytrans can advance those claims; to the extent that the
   Company has valid claims against Caytrans, BBC/BBC Global can advance
   those claims. Moreover, Caytrans has alleged no wrongdoing on the part of
   the Company such that the Company might need to play a distinct role here,
   and Caytrans has confirmed that it has no intention of asserting such
   allegations in this suit.
           As the district court noted, the procedural posture of Moss was
   different from the instant matter. The case was on appeal after a jury trial had
   been completed, and a verdict rendered in the plaintiffs’ favor. The Supreme
   Court has noted that after a judgment has been rendered, there is “a strong
   additional interest” under Rule 19(b) in preserving a district court’s
   judgment. 19 The different procedural posture, however, does not render Moss
   inapplicable here. Our holding in Moss was not dependent upon the
   procedural posture of the case. Rather, we emphasized in Moss that “Rule 19
   requires courts to be ‘flexible and pragmatic’ in evaluating a party’s
   indispensability, a call demanding attention to the case at hand.” 20

           19
                Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 110 (1968).
           20
              Moss, 913 F.3d at 517 (citation omitted). The district court’s decision in Orpheum
   Property, Inc. v. Coscina, No. 17-6480, 2018 WL 1518471, at *1 (E.D. La. Mar. 28, 2018),
   reflects the type of evaluation required by Rule 19(b). In that case, the plaintiff asserted a
   derivative claim on behalf of a Louisiana LLC. The plaintiff was the only member of the
   company, and the district court noted that, at the time of the suit, the company had no

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           In this matter, the district court focused on the separateness of the
   Company under Louisiana’s LLC law, but it did not engage in the practical
   and highly fact-based analysis our Rule 19(b) precedent requires in
   determining whether the Company would be prejudiced by its absence from
   this lawsuit. In response to the panel’s questioning during oral argument,
   defense counsel confirmed that the Company is no longer operating, but that
   it still has a bank account and is receiving restitution payments as required by
   the judgment from the federal criminal proceeding against Jack.21 Although
   counsel stated that the district court was informed about the status of the
   Company, the record does not indicate that the district court was aware of
   this information.
           Because the status of the Company is highly relevant to the
   determination whether, in practical terms, the Company will suffer any
   prejudice as a result of its absence from this lawsuit, we vacate the district
   court’s decision as to this factor and remand so that the district court may
   reevaluate this factor.
           (2)     Prejudice to Defendants
           The first Rule 19(b) factor also requires consideration of the extent to
   which a judgment rendered in the Company’s absence might prejudice
   Defendants. As Caytrans argues, in evaluating the potential prejudice to
   Defendants, the district court erroneously focused on the absence of the

   assets or income and was “all but dead.” Id. at *7. The court further noted that if the
   lawsuit was successful and damages recovered, those funds rightly belonged to the
   company because it was a derivative lawsuit. Id. Therefore, there was no prejudice to the
   company, and its joinder was not required. Id.
           21
            The panel questioned counsel regarding the status of the Company after noting
   that Dan-Gulf’s website indicated in May 2020 that the Company was “being dissolved.”

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   other defendants named in the state-court litigation against Jack rather than
   on the Company’s absence.
          Although the pending state-court litigation is relevant to the third
   factor under Rule 19(b) (discussed below), it is not helpful in determining
   whether the absence of the Company in this action prejudices Defendants.
   The claims against the Defendants are that they breached their contractual
   obligations and fiduciary duties of accounting and monitoring and were
   grossly negligent. The Company’s absence will not hinder Defendants from
   presenting a defense to these claims. They presumably could also assert
   third-party demands against the defendants named as joint tortfeasors in the
   state court suit. Under Rule 14(a)(1), Defendants may bring a claim against a
   “nonparty who is or may be liable to it for all or part of the claim against it.”22
   With respect to the claims that Defendants engaged in self-dealing and unfair
   trade practices, the Company’s absence will not prevent Defendants from
   asserting a defense.
          In sum, contrary to the district court’s determination, and as the
   record now stands, the first factor under Rule 19(b) does not appear to weigh
   in favor of a finding that the Company is an indispensable party. However,
   because the district court did not have the benefit of complete information
   regarding the status of the Company, we vacate its determination regarding
   this factor and remand.
   B.     The extent to which any prejudice could be lessened or avoided by
          protective provisions in the judgment, shaping the relief, or other
          measures
          As discussed above, there appears to be no prejudice to the Company
   or Defendants if this action proceeds in the Company’s absence. The district

          22
               Fed. R. Civ. P. 14(a)(1).

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   court determined that this factor was neutral. Caytrans states that the court
   in the pending state proceeding ordered the plaintiffs to arbitrate their claims
   against the company (Paychex) issuing salary checks to Jack. Caytrans further
   points out that if Paychex breached its contract with the Company, then it
   can be liable under New York law for the entire loss, without reduction for
   comparative fault. Caytrans submits that the district court could stay this
   matter pending the outcome of the arbitration, for instance. In the event that
   the arbitration results in plaintiffs’ favor, Defendants in this lawsuit will
   benefit. In light of our remand of this matter, the district court will have the
   opportunity to explore whether a stay might be one of the “other measures”
   contemplated by Rule 19(b).
   C.     Whether a judgment rendered in the Company’s absence would
          be adequate
          The Supreme Court has interpreted the third Rule 19(b) factor to refer
   to “the interest of the courts and the public in complete, consistent, and
   efficient settlement of controversies.” 23 As stated by the Court, the
   “adequacy of the judgment” factor centers on the “public stake in settling
   disputes by wholes, whenever possible, for clearly the plaintiff, who himself
   chose both the forum and the parties defendant, will not be heard to complain
   about the sufficiency of relief obtainable against them.” 24
          The district court determined that this factor weighed in favor of a
   finding that the Company was an indispensable party because a judgment
   rendered in its absence would be “inefficient, incomplete, and (potentially)
   inconsistent” with the judgment that might issue in the state court
   proceeding. The district court noted that the instant action and the state

          23
               Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 111 (1968).
          24
               Id.

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   court proceeding arise from the same theft and seek recovery for the same
   loss. Although the district court stated that the state court would have
   jurisdiction over all parties and all claims, the parties informed this Court on
   appeal that the claims against Paychex have been sent to arbitration. As with
   the second factor, and in light of our remand, the district court will have the
   opportunity to reevaluate this factor with respect to the claims involving
   Jack’s embezzlement.
          With respect to Caytrans’s claims against Defendants for self-dealing
   and unfair trade practices, however, the third Rule 19(b) factor does not
   weigh in favor of finding the Company indispensable. As Caytrans points out,
   those claims do not overlap with any of the claims pending in state court.
   Therefore, there are no inefficiency concerns with respect to those claims.
   D.     Whether Caytrans would have an adequate remedy if the action
          were dismissed for nonjoinder
          The final Rule 19(b) factor instructs the district court to consider
   whether, if the action is dismissed for nonjoinder of an indispensable party,
   the plaintiff will be able to obtain an adequate remedy in an alternate forum. 25
   The district court should consider whether any applicable limitations period
   has expired since the institution of the plaintiff’s action. 26
          In its ruling, the district court noted that no party had “suggested”
   that Caytrans’s claims against Defendants would be prescribed if the instant
   action were dismissed. Caytrans subsequently refiled its claims in state court.
   However, Caytrans states in its reply brief that after it refiled its claims in
   state court, BBC Chartering USA raised prescription and peremption
   exceptions/defenses in its answer. In light of these developments, we also

          25
               Whalen v. Carter, 954 F.2d 1087, 1097 (5th Cir. 1992).
          26
               Id.

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   vacate the district court’s decision on this factor and remand for
   reevaluation.
          Based on the foregoing, the district court’s judgment is VACATED,
   and this matter is REMANDED for further proceedings consistent with
   this opinion.

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