decided: October 7, 1958.
THE PERTH AMBOY NATIONAL BANK, A BANKING CORPORATION ORGANIZED UNDER THE LAWS OF THE UNITED STATES, APPELLANT.
Before KALODNER, STALEY and HASTIE, Circuit Judges.
KALODNER, Circuit Judge.
This appeal arises out of the dismissal by the district court of a counterclaim asserted by the Perth Amboy National Bank ("Bank") against Irving Brodsky. The district court based its dismissal both on the failure of Bank to join indispensable parties and on the merits.
Our attention will be directed solely to the indispensable parties issue inasmuch as we deem it to be critical and dispositive on this appeal.
The facts are detailed in the district court's opinion, D.C.N.J.1957, 156 F.Supp. 316. Only the following facts, relevant to our consideration, need here be stated. On May 14, 1956, Brodsky, a New York resident, and a stockholder in Bank, commenced an action against it to adjudicate the invalidity of the annual stockholders meeting held on January 10, 1956 and the election of directors thereafter. Bank answered Brodsky's complaint and filed a counterclaim seeking an adjudication that a certain leasehold agreement entered into between Bank and one Charles F. Noyes was null and void and of no effect. Bank had sold an office building, part of which it occupied, to Noyes in July 1954 and co-incident with the sale executed a lease for its banking quarters for a 21-year term at an annual net rental of $18,000. Brodsky, together with three others, on April 1, 1955, acquired title, by purchase, to the office building subject to the Bank's lease. Bank paid rent to Brodsky and his co-title holders from April 1, 1955 until the filing of the counterclaim on June 18, 1956 pursuant to a notice to do so which had been given to it at the time Brodsky et al. took title.
The notice referred to reads as follows:
"Pamb Realty Associates
New York 18, N.Y.
April 1, 1955
"Mr. E. F. Blakey, President
The Perth Amboy National Bank
Perth Amboy, New Jersey
"This is to advise you that the undersigned has purchased the building and premises at the corner of Smith and State Streets, Perth Amboy, New Jersey, in which you are the tenant under a lease heretofore made on July 15, 1954 Eugene D. Jauregui as landlord, and The Perth Amboy National Bank as tenant.
"Kindly pay all rent and other charges from and after April 1, 1955 to Pamb Realty Associates, Room 2906, 1441 Broadway, New York City.
"Very truly yours,
Pamb Realty Associates
By Bernard H. Kayden
With respect to the nature of the title held by Brodsky et al., Bank made these assertions in its counterclaim.
Par. 1. First Count:*fn2
"Bernard H. Kayden, Herbert J. Kayden, Irving Brodsky and Henry Smith are the owners of certain premises commonly known as 313 State Street, in the City of Perth Amboy, County of Middlesex and State of New Jersey, holding said property individually and as partners under the partnership name of Pamb Realty Associates; all of said persons being residents of the State of New York."
Part. 11. First Count:
"Upon the same date as aforesaid, namely, April 1, 1955, the aforesaid Harry Casper [nominee of Ralph F. Noyes] did convey the aforementioned premises to Bernard H. Kayden, Herbert J. Kayden, Irving Brodsky, plaintiff herein, and Henry Smith, who presently hold title n fee simple to the aforesaid premises."
Prior to the hearing on the counterclaim, Brodsky withdrew his complaint against Bank. The hearing on the counterclaim was concerned almost entirely with evidence offered by Bank to establish that the lease which it sought to have nullified was tainted by fraud practiced by those in control of its affairs at the time the office building was sold and the lease negotiated. Incidentally, no testimony was adduced to show that Brodsky or his co-title holders were in the picture at the time of the sale or the negotiation of the lease. With respect to the nature of the title held by Brodsky and his co-title holders Bank rested on the assertions made in its counterclaim.
The District Court found as a fact (Par. 6, Findings of Fact) "that [the] property was conveyed to Brodsky and his three associates as co-tenants" and (Par. 7, Findings of Fact) "Brodsky and his co-tenants were not in any way involved in the consummation of the sale and leaseback between the Bank and Charles F. Noyes."
On review of the record we can find no reason to say that the finding of the District Court that Brodsky and his three associates held title as co-tenants, or tenants in common, was "clearly erroneous" and accordingly it must prevail. In this connection it may be pointed out that under New Jersey law it is settled that "* * * the burden of establishing a partnership is upon the one who alleges it to exist, Cornell v. Redrow, 60 N.J.Eq. 251, 47 A. 56 * * *."*fn3 Here there was indeed no direct evidence offered that Brodsky and his co-title holders were engaged in any partnership, and in their reply to the counterclaim they specifically denied that they held title to the bank building as co-partners.
The District Court's fact-finding that the title was held by Brodsky and his associates as tenants in common calls into play the rule that failure to join indispensable parties is fatal to any complaint or counterclaim. Here the counterclaim sought to nullify the lease on real estate held by four tenants in common and since any adjudication would affect the interest of all the tenants they were indispensable parties.
In Knikel v. Spitz, 1908, 74 N.J.Eq. 581, 70 A. 992, in which a suit to cancel deeds on the ground of fraud, brought by the heirs of the ancestor, it was held (at page 994 of 70A.) that "* * * all these tenants in common should be joined as parties." See also Rule 19(a), Federal Rules of Civil Procedure, 28 U.S.C.A. As long ago as Shields v. Barrow, 1854, 17 How. 129, 139, 15 L. Ed. 158, indispensable parties were defined as: "Persons who not only have an interest in the controversy, but an interest of such a nature that a final decree cannot be made without either affecting that interest, or leaving the controversy in such a condition that its final determination may be wholly inconsistent with equity or good conscience." For an excellent discussion of "indispensable parties" see State of Washington v. United States, 9 Cir., 1936, 87 F.2d 421; see also Martucci v. Mayer, 3 Cir., 1954, 210 F.2d 259.
In conclusion it need only be said that it is so crystal clear that the interests of Brodsky's co-title holders would be affected by the adjudication of nullity with respect to the Bank's lease that there was here a failure to join indispensable parties and such failure is fatal.
For the reasons stated the judgment of the District Court dismissing the counterclaim will be affirmed.