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Janney Montgomery Scott, Inc. v. Shepard Niles

filed: December 8, 1993.

JANNEY MONTGOMERY SCOTT, INC., APPELLANT
v.
SHEPARD NILES, INC., APPELLEE



Appeal from the United States District Court for the Eastern District of Pennsylvania. (D.C. Civil Action No. 92-01581).

Present: Stapleton, Hutchinson and Roth, Circuit Judges.

Author: Hutchinson

Opinion OF THE COURT

HUTCHINSON, Circuit Judge.

Appellant, Janney Montgomery Scott, Inc. ("Janney"), appeals an order of the United States District Court for the Eastern District of Pennsylvania granting appellee, Shepard Niles, Inc.'s ("Shepard Niles") motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c) for failure to join an indispensable party in Janney's breach of contract action. The person whose non-joinder resulted in dismissal is Shepard Niles' parent corporation, The Underwood Group, Ltd. ("Underwood"), a citizen of Pennsylvania. In doing so, the district court had to make an initial determination that Underwood, Shepard Niles' parent, was a necessary party under Rule 19(a) before it could hold that Underwood was an indispensable party under Rule 19(b) whose non-joinder required dismissal because joinder would deprive the district court of diversity jurisdiction. Initially, the district court had subject matter jurisdiction in diversity because Janney is a citizen of Pennsylvania and Shepard Niles is a citizen of New York.

In Shepard Niles' motion to dismiss for failure to join Underwood, it stated that Underwood, its parent and the sole signatory to the contract Janney sued on, was both necessary and indispensable to Janney's action under Rule 19. The question before us is whether the district court could give complete relief to the parties before it without prejudice to them or the absent person, Underwood, in a breach of contract action against only one of the two co-obligors that might be liable to Janney, the obligee on the contract. If the relief Janney requests does not prejudice the absent co-obligor, Underwood, or subject either Janney or Shepard Niles to a threat of duplicative or inconsistent judgments, Underwood is not a necessary party under Rule 19(a). If Underwood is not a necessary party under Rule 19(a), we need not reach the question whether it is indispensable under Rule 19(b). In this case, we have concluded that Underwood will not be prejudiced and neither Janney nor Shepard Niles will be subjected to duplicative or inconsistent judgments. Therefore, we hold that Underwood is not a necessary party under Rule 19(a). Accordingly, we will reverse the district court's order granting Shepard Niles' motion to dismiss without reaching the question whether Underwood is indispensable under Rule 19(b).

I. Factual & Procedural History

Janney is an investment banking corporation organized under Pennsylvania law with its principal place of business in Philadelphia, Pennsylvania. Underwood is a closely-held Pennsylvania corporation*fn1 with its principal place of business in Pennsylvania; Shepard Niles is incorporated under New York law, with its principal place of business in New York.

On January 12, 1990, Janney and Underwood executed an Investment Banking Agreement ("Agreement"). In it, Janney agreed to serve as an advisor to Underwood and its subsidiaries, including Shepard Niles, and to assist them in obtaining private placement financing to refinance Shepard Niles' debt obligations. Janney Montgomery Scott, Inc. v. Shepard Niles, Inc., Civ. A. No. 92-1581, at * 2 n.1 (E.D. Pa. Jan. 6, 1993). The agreement stated "Janney Montgomery Scott Inc. [sic] ("JMS") is delighted to serve as the exclusive investment banking advisor for The Underwood Group, Ltd. and subsidiaries ("Underwood" or the "Company") in connection with the proposed Private Placement financing." Id. (emphasis added). Under the Agreement, Janney agreed to introduce Underwood to potential sources for the financing Shepard Niles wanted to obtain and to provide substantial ongoing support in securing such financing.

In February 1990, when Janney's efforts had yet to show concrete results, Underwood entered into negotiations with Unibank PLC and its parent corporation Unibank A/S (collectively "Unibank")*fn2 to provide private placement financing that its subsidiary, Shepard Niles, needed. By the fall of 1990, Unibank and Ampco-Pittsburgh Corporation ("Ampco") had given Shepard Niles the financing it needed.*fn3 Janney did not introduce either of these two companies to Underwood and its subsidiaries, but Janney does allege that it provided substantial advice and support to Underwood and Shepard Niles throughout the negotiations. It contends that under the Agreement this advice and support entitle it to a contingent fee which it seeks to recover from Shepard Niles in this action and from Underwood in the related state action that Janney filed in the Philadelphia Court of Common Pleas on October 4, 1990, against Underwood, Shepard Niles, and Underwood's two other subsidiaries. Janney Montgomery Scott, Inc. v. The Underwood Group, No. 90-1118 (Phila. Common Pleas filed Oct. 4, 1990). In addition, on October 23, 1991, after some discovery in the state action, Janney filed an action in the district court against Unibank for tortious interference with contract. Janney Montgomery Scott, Inc. v. Unibank PLC, Civil Action No. 91-6616 (E.D. Pa. filed Oct. 23, 1991).

On February 7, 1992, in the federal action against Unibank for tortious interference with contract, Janney filed a motion to amend its complaint to add Shepard Niles as a defendant. The district court denied it. Thereafter, on March 17, 1992, Janney filed the present breach of contract action against Shepard Niles. Shepard Niles responded with a Federal Rule of Civil Procedure 12(b)(6) motion to dismiss or, in the alternative, to stay the federal action while Janney's case was pending in common pleas. The district court denied this motion. After the pleadings in the district court had closed and discovery was nearly completed, Shepard Niles filed its Rule 12(c) motion for judgment on the pleadings for failure to join Underwood as an indispensable party. On January 4, 1993, the district court granted Shepard Niles' Rule 12(c) motion. In the meantime, Janney had filed a motion to consolidate its breach of contract action against Shepard Niles with its tort action against Unibank, but the district court's order dismissing the action against Shepard Niles mooted Janney's motion to consolidate. Janney has timely appealed the order granting Shepard Niles' Rule 12(c) motion for judgment on the pleadings and dismissing of the breach of contract action for non-joinder.

II. Jurisdiction & Standard of Review

Because Shepard Niles is a New York citizen for diversity purposes and Janney is a citizen of Pennsylvania, the district court had subject matter jurisdiction over this breach of contract action pursuant to 28 U.S.C.A. § 1332 (West Supp. 1993). We have appellate jurisdiction over the final order of the district court dismissing it pursuant to 28 U.S.C.A. § 1291 (West 1993).

This Court reviews for abuse of discretion a district court's Rule 19(b) determination that a party is indispensable and that dismissal is required because the party's joinder would destroy subject matter jurisdiction in diversity. See Sindia Expedition, Inc. v. Wrecked & Abandoned Vessel, 895 F.2d 116, 121 (3d Cir. 1990); Steel Valley Auth. v. Union Switch & Signal Div., American Standard, Inc., 809 F.2d 1006, 1010 (3d Cir. 1987), cert. dismissed, 484 U.S. 1021 (1988). We have not, however, expressly adopted an abuse of discretion standard in reviewing a district court's Rule 19(a) determination that a person's joinder is necessary. Cf. Field v. Volkswagenwerk AG, 626 F.2d 293, 298 (3d Cir. 1980) (reversing district court's Rule 19(a) determination and stating only that "[the district court's] refusal to dismiss the claim was error ") (emphasis added); see also Travelers Indem. Co. v. Dingwell, 884 F.2d 629, 634 n.10 (1st Cir. 1989) (leaving open "whether Rule 19(a) determinations by the district court are reviewable de novo or only for abuse of discretion").

Responding to this uncertainty, Janney argues that the standard of review as to whether a party is "necessary" under Rule 19(a) is plenary instead of the deferential abuse of discretion standard that applies to a district court's decision that a party who should be joined under subsection (a) is indispensable under Rule 19(b). To the extent that a district court's Rule 19(a) determination is premised on a Conclusion of law, we agree with Janney that our scope of review is plenary. We, however, review any subsidiary findings of fact only for clear error.

The United States Court of Appeals for the Ninth Circuit has similarly applied a de novo standard of review when a district court bases a Rule 19 decision on its interpretation of applicable state law:

The district court concluded that [the absent party] had an interest in [the] action that could be impaired under the California law of collateral estoppel. While Fed.R.Civ.P. 19 cases are generally reviewed under an abuse of discretion standard, to the extent that the determination of [the absent party's] interest and its impairment under Fed.R.Civ.P. 19(a)(2) involved an interpretation of California collateral estoppel law, it is reviewed under a de novo standard.

Aguilar v. Los Angeles County, 751 F.2d 1089, 1092 (9th Cir. 1985) (citations omitted), cert. denied, 471 U.S. 1125, 86 L. Ed. 2d 273, 105 S. Ct. 2656 (1985); see also Western Maryland Ry. Co. v. Harbor Ins. Co., 285 U.S. App. D.C. 460, 910 F.2d 960, 963 n.6 (D.C. Cir. 1990) ("We review ...


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