Court Opinion

ID: 2960295
Source: CourtListenerOpinion
Date Created: 2015-09-17 17:46:44.848567+00
Date Added: 2024-06-11T14:59:13.129969
License: Public Domain

07-3444-cv
     CP Solutions PTE, LTD. v. Gen. Elec. Co.

 1                        UNITED STATES COURT OF APPEALS

 2                            FOR THE SECOND CIRCUIT

 3                                     --------

 4                               August Term, 2008

 5

 6   (Argued: December 1, 2008                    Decided: January 6, 2009)

 7

 8                             Docket No. 07-3444-cv

 9   -----------------------------------------------------------X
10   CP SOLUTIONS PTE, LTD.,
11
12                     Plaintiff-Appellant,
13
14               - v. -
15
16   GENERAL ELECTRIC CO., GE INDUSTRIAL SYSTEMS,
17   GE MULTILIN POWER MGMT LENTRONICS, GE FANUC
18   AUTOMATION NA and GE METER,
19
20                  Defendants-Appellees.
21   -----------------------------------------------------------X
22   Before:   McLAUGHLIN, B.D. PARKER, Circuit Judges, and KOELTL,
23             District Judge.*
24
25         Plaintiff appeals the dismissal of its complaint for lack of

26   subject matter jurisdiction by the United States District Court

27   for the District of Connecticut (Arterton, J.).

28         REVERSED AND REMANDED.

     *
       The Honorable John G. Koeltl of the United States District
     Court for the Southern District of New York, sitting by
     designation.
 1                            ROBERT K. KRY, Baker Botts LLP,
 2                            Washington, D.C. (Michael S. Goldberg,
 3                            Jeffrey A. Lamken, Alexandra M. Walsh,
 4                            Baker Botts LLP, Washington, D.C.;
 5                            Elizabeth Acee, Tyler Cooper, New Haven,
 6                            Connecticut, on the brief), for
 7                            Plaintiff-Appellant.
 8
 9                            THOMAS J. DONLON, Robinson & Cole, LLP,
10                            Stamford, Connecticut, for Defendants-
11                            Appellees.

12   PER CURIAM:

13        Plaintiff CP Solutions PTE, LTD. (“CP Solutions”) appeals

14   from a judgment of the United States District Court for the

15   District of Connecticut (Arterton, J.) dismissing its complaint

16   for lack of diversity jurisdiction.    The defendants moved to

17   dismiss because both CP Solutions and defendant GE Multilin Power

18   Management Lentronics (“GE Multilin”) were foreign citizens.       The

19   district court held that GE Multilin was indispensable and

20   therefore could not be dropped as a party, leaving the court

21   without subject matter jurisdiction.    Because we conclude that GE

22   Multilin was not an indispensable party, we REVERSE the district

23   court’s judgment and REMAND.

24                              BACKGROUND

25        CP Solutions alleged the following in its complaint.     In

26   December 2002, CP Solutions, a Singapore corporation, contracted

27   with a Malaysian entity called Tru-Tech Electronics (“Tru-Tech”).

28   CP Solutions agreed to procure parts that Tru-Tech needed in

29   order to assemble electrical products under agreements with

                                     2
 1   various General Electric (“GE”) companies, including GE Multilin.

 2   As part of the GE companies’ arrangement with Tru-Tech, they

 3   furnished Tru-Tech with circuits to be integrated into the

 4   electrical products.   Tru-Tech, which was required to pay for the

 5   circuits, ran up a large debt to the GE companies.   Pursuant to a

 6   set-off clause in their contracts, the GE companies were

 7   permitted to deduct any amount that Tru-Tech owed them from the

 8   amount payable to Tru-Tech for the electrical products.

 9        Because of the debt, CP Solutions refused to procure parts

10   for Tru-Tech without assurance from the GE companies that they

11   would not claim a set-off against payments owed to CP Solutions.

12   In January 2003, the GE companies orally agreed either to pay CP

13   Solutions directly or to guarantee payment, and not to claim a

14   set-off against monies due CP Solutions.   The GE companies later

15   made similar statements in writing.   In July 2003, however, the

16   GE companies denied that they had a contract with CP Solutions

17   and claimed a set-off for the amount Tru-Tech owed them against

18   payments due CP Solutions.

19        In April 2004, CP Solutions sued GE Co., GE Industrial

20   Systems, GE Fanuc Automation North America, GE Meter, and GE

21   Multilin in the Central District of California, seeking damages

22   for breach of contract, fraud, and other causes of action.    The

23   complaint alleged that GE Multilin was a “business entity, form

24   unknown, with its principal place of business in

                                      3
 1   . . . Ontario, Canada.”   CP Solutions did not differentiate among

 2   the defendants, but instead alleged that the GE employees whose

 3   actions were central to the claims bound all of the defendants

 4   and that the defendants were agents of one another.    Jurisdiction

 5   was based on diversity of citizenship.

 6        In December 2004, the district court in California

 7   transferred the case to the District of Connecticut.   The parties

 8   proceeded to discovery.   In November 2006, more than two years

 9   after the case was filed, the defendants moved to dismiss the

10   suit for lack of subject matter jurisdiction.   They argued that

11   diversity of citizenship did not exist because both CP Solutions

12   and GE Multilin were foreign citizens.   The defendants also

13   maintained that GE Multilin was an indispensable party and

14   therefore could not be dropped to preserve jurisdiction.

15        CP Solutions opposed the motion to dismiss on the grounds

16   that: (1) GE Multilin Power Management Lentronics, the party

17   named in the complaint, never existed; (2) a Canadian subsidiary

18   of GE Co. named GE Multilin, Inc. existed until it was dissolved

19   in February 2004, with its assets and liabilities passing to

20   another GE company; and (3) a nonexistent or dissolved entity is

21   not an indispensable party pursuant to Federal Rule of Civil

22   Procedure 19.   CP Solutions also proposed to amend the complaint

23   to omit GE Multilin and to allege that only GE Co. breached the

24   contract.

                                      4
 1        In January 2007, the district court granted the defendants’

 2   motion to dismiss.   The court recognized that a nondiverse party

 3   can be dropped from a suit to preserve diversity jurisdiction,

 4   but held that GE Multilin (which it construed to be GE Multilin,

 5   Inc.) could not be omitted because it was indispensable to CP

 6   Solutions’s breach-of-contract claim.      The court reasoned that

 7   “[a] party to a contract which is the subject of the lawsuit ‘is

 8   the paradigm of an indispensable party.’” CP Solutions PTE, LTD.

 9   v. Gen. Elec. Co., 470 F. Supp. 2d 151, 157 (D. Conn. 2007)

10   (quoting Travelers Indem. Co. v. Household Int’l, Inc., 775 F.

11   Supp. 518, 527 (D. Conn. 1991)).       The court also refused to allow

12   CP Solutions to file its amended pleading.

13        CP Solutions moved for reconsideration.       In July 2007, the

14   district court adhered to its ruling.      The court applied four

15   factors relevant to determining whether a party is indispensable

16   and found that: (1) a judgment rendered without GE Multilin as a

17   party might deprive CP Solutions of the opportunity to recover

18   all of its damages, (2) the court could not conceive of a way to

19   minimize this prejudice, (3) omitting GE Multilin would likely

20   lead to piecemeal litigation, and (4) CP Solutions could sue all

21   of the defendants in state court.

22        CP Solutions now appeals.

                                        5
 1                                DISCUSSION

 2        We review a district court’s decision as to whether a party

 3   is indispensable for abuse of discretion.   Universal Reins. Co.

 4   v. St. Paul Fire & Marine Ins. Co., 312 F.3d 82, 87 (2d Cir.

 5   2002).   A court abuses its discretion if its decision rests on an

 6   error of law or a clearly erroneous factual finding, or cannot be

 7   located within the range of permissible choices.    Zervos v.

 8   Verizon N.Y., Inc., 252 F.3d 163, 169 (2d Cir. 2001).

 9        District courts possess original jurisdiction over actions

10   between “citizens of a State and citizens or subjects of a

11   foreign state,” and between “citizens of different States and in

12   which citizens of a foreign state are additional parties.”      28

13   U.S.C. § 1332(a)(2), (3).    Diversity jurisdiction does not exist,

14   however, “where on one side there are citizens [of a State] and

15   aliens and on the opposite side there are only aliens.”

16   Universal Licensing Corp. v. Paola del Lungo S.p.A., 293 F.3d

17   579, 581 (2d Cir. 2002).    The parties agree that CP Solutions and

18   GE Multilin are both foreign citizens and that therefore
19   diversity is lacking unless CP Solutions can amend the complaint
20   to omit GE Multilin.1

21        Federal Rule of Civil Procedure 21 allows a court to drop a

22   nondiverse party at any time to preserve diversity jurisdiction,

     1
       CP Solutions does not challenge the district court’s conclusion
     that, by naming GE Multilin as a defendant, it intended to sue GE
     Multilin, Inc., the Canadian corporation dissolved in 2004. We
     therefore accept that conclusion for purposes of this appeal.
                                       6
 1   Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 832 (1989),

 2   provided the nondiverse party is not “indispensable” under Rule

 3   19(b),2 see Curley v. Brignoli, Curley & Roberts Assocs., 915

 4   F.2d 81, 89 (2d Cir. 1990).   Rule 19(b) specifies four factors:

 5   (1) whether a judgment rendered in a person’s absence might

 6   prejudice that person or parties to the action, (2) the extent to

 7   which any prejudice could be alleviated, (3) whether a judgment

 8   in the person’s absence would be adequate, and (4) whether the

 9   plaintiff would have an adequate remedy if the court dismissed

10   the suit.   Fed. R. Civ. P. 19(b).

11        In its initial decision, the district court did not apply

12   these factors but instead adopted a bright-line rule that all

13   parties to a contract are indispensable.   Such a rule is

14   inconsistent with Rule 19(b)’s flexible standard.   See Universal

15   Reins., 312 F.3d at 87 (noting “the flexible nature of [the] Rule

16   19(b) analysis”); Jaser v. N.Y. Prop. Ins. Underwriting Ass’n,

17   815 F.2d 240, 242 (2d Cir. 1987) (“[A] court should take a

18   flexible approach when deciding what parties need to be present

19   for a just resolution of the suit.”).   Indeed, we have previously

     2
       Effective December 1, 2007, Rule 19(b) no longer uses the term
     “indispensable.” See Fed. R. Civ. P. 19 Advisory Committee’s
     note to 2007 amendment (“[‘Indispensable’] has been discarded as
     redundant.”). We use the term here for the sake of convenience.
     In all other respects, we cite the present version of Rule 19.
     There is no substantive difference between the present rule and
     the rule as applied by the district court prior to the 2007
     amendment. See Republic of Philippines v. Pimentel, 128 S. Ct.
     2180, 2184 (2008).

                                      7
 1   rejected a party’s attempt to rely on the same argument that the

 2   defendants assert here.   See Merrill Lynch & Co. v. Allegheny

 3   Energy, Inc., 500 F.3d 171, 180 (2d Cir. 2007).     This case amply

 4   demonstrates the frailties of so rigid a rule.

 5        Although the district court in its decision on

 6   reconsideration identified the correct Rule 19(b) factors, it

 7   abused its discretion in applying the factors.     As to the first

 8   two factors, the district court improperly relied on prejudice to

 9   CP Solutions.   Whatever prejudice to CP Solutions there might be,

10   it is prejudice the plaintiff is willing to bear and therefore

11   should not have troubled the district court.   And any prejudice

12   caused by GE Multilin’s absence is considerably less than the

13   prejudice to CP Solutions from dismissal after more than two

14   years of litigation.

15        The relevant question is whether the defendants will be

16   prejudiced if GE Multilin is dropped.   See, e.g., Universal

17   Reins., 312 F.3d at 88 (evaluating prejudice to parties arguing

18   that joinder was required).   The other GE defendants maintain

19   that they will be prejudiced because a judgment for CP Solutions

20   might hold them accountable for GE Multilin’s wrongdoing.      They

21   also argue that a judgment for CP Solutions without GE Multilin

22   might impair GE Multilin’s ability to defend itself in a later

23   action.   We find no merit in these contentions.

                                      8
 1        Given the absence from the complaint of any action

 2   attributable only to GE Multilin, the chance that GE Multilin’s

 3   actions were the sole or primary cause of CP Solutions’s damages

 4   appears remote.   In addition, CP Solutions offered to amend the

 5   complaint to allege that only GE Co. breached the contract.       This

 6   amendment would ensure that only GE Co. would be subject to

 7   liability, and only by virtue of its own duties and actions.          See

 8   Fed. R. Civ. P. 19(b)(2) (requiring courts to consider possible

 9   methods to avoid prejudice).   Even if this were not the case, the

10   other GE defendants could seek to bring a claim against GE

11   Multilin or its successor company.       See Janney Montgomery Scott,

12   Inc. v. Shepard Niles, Inc., 11 F.3d 399, 412 (3d Cir. 1993)

13   (rejecting argument that defendant would unfairly bear all of the

14   plaintiff’s losses on breach-of-contract claim due to non-joinder

15   because defendant could bring indemnity or contribution action

16   against absent person).

17        The potential prejudice to GE Multilin also fails to support

18   the district court’s conclusion.       GE Multilin is dissolved and

19   has no assets.    We doubt that CP Solutions would be eager for the

20   chance to procure blood from a stone.      The district court’s

21   finding to the contrary is unsupported by anything in the record.

22   Nor is there any indication that CP Solutions would want to

23   pursue the GE subsidiary that acquired GE Multilin’s assets and

24   liabilities, especially in light of the proposed amended

                                        9
 1   complaint attributing wrongdoing only to GE Co.    Such farfetched

 2   hypotheticals are insufficient to establish the prejudice that

 3   Rule 19(b) contemplates.    See Fed. R. Civ. P. 19(b) Advisory

 4   Committee’s note to 1966 amendment (noting that courts should

 5   consider whether the prejudice would be “immediate and serious,

 6   or remote and minor”).

 7        Moreover, even if GE Multilin’s conduct remained relevant

 8   after it was dropped as a party, GE Co. could champion its

 9   interest.     See Pujol v. Shearson/Am. Exp., Inc., 877 F.2d 132,

10   135 (1st Cir. 1989) (Breyer, J.) (finding no prejudice to dropped

11   subsidiary in part because parent company would adequately

12   represent its interests).    GE Co. and GE Multilin are represented

13   by the same counsel, and the defendants have not alerted us to

14   any evidence that suggests GE Co.’s and GE Multilin’s interests

15   are adverse.     See, e.g., Prescription Plan Serv. Corp. v. Franco,

16   552 F.2d 493, 497 (2d Cir. 1977) (finding no prejudice to dropped

17   parties because “counsel for those remaining in the case will be

18   no less vigorous in their advocacy because they represent two

19   fewer persons”).

20        As to the third Rule 19(b) factor, a judgment in GE

21   Multilin’s absence would be adequate.    “[A]dequacy refers to the

22   ‘public stake in settling disputes by wholes, whenever

23   possible.’”    Republic of Philippines, 128 S. Ct. at 2193 (quoting

24   Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102,

                                       10
 1   111 (1968)).   Thus, this factor concerns the “‘social interest in

 2   the efficient administration of justice and the avoidance of

 3   multiple litigation.’” Id. (quoting Ill. Brick Co. v. Illinois,

 4   431 U.S. 720, 738 (1977)).    As we have explained, piecemeal

 5   litigation is improbable.    In contrast, it would be far more

 6   efficient to bring the case to final judgment in federal court

 7   than to send the parties to state court for a do-over.

 8        In evaluating this factor, “[w]e are influenced by the

 9   procedural posture in which this case comes to us.”    Merrill

10   Lynch, 500 F.3d at 180.     Although the case has not yet been

11   tried, the parties have litigated for over two years, including

12   conducting discovery.   It would make little sense to require them

13   to start over in state court simply because an asset-less,

14   dissolved subsidiary of a diverse defendant cannot be joined in

15   federal court.   See Newman-Green, 490 U.S. at 836 (holding that

16   when a defect in diversity jurisdiction can be corrected,

17   “requiring dismissal after years of litigation would impose

18   unnecessary and wasteful burdens on the parties, judges, and

19   other litigants waiting for judicial attention”).

20        Finally, although CP Solutions might be able to sue GE

21   Multilin together with the other defendants in state court, that

22   consideration is far outweighed by the unfairness to CP Solutions

23   and the harm to judicial economy resulting from dismissal.       As we

24   have said, “when federal diversity jurisdiction will exist if

                                       11
 1   nondiverse parties are dropped, the bare fact that a state court

 2   forum is available does not, by itself, make it appropriate to

 3   dismiss the federal action.”    Samaha v. Presbyterian Hosp. in

 4   City of N.Y., 757 F.2d 529, 531 (2d Cir. 1985) (per curiam).

 5        Because the question of indispensability is a matter

 6   committed to the district court’s discretion, Universal Reins.,

 7   312 F.3d at 87, ordinarily we might vacate the judgment and

 8   remand for reconsideration.    In this case, however, we do not

 9   believe it would be within the permissible range of choices to

10   conclude that GE Multilin is indispensable.   See Zervos, 252 F.3d

11   at 169.   We therefore reverse the district court’s decision and

12   remand with instructions to allow the case to proceed without GE

13   Multilin.

14                                 CONCLUSION

15        For the foregoing reasons, we REVERSE the judgment of

16   dismissal and REMAND the case to the district court with

17   instructions to allow CP Solutions to amend the complaint to drop

18   GE Multilin as a party.

                                       12