to Defendants' Second Motion for Summary Judgment, p. 32.
Plaintiffs contend that DE'76 is entitled to damages arising from defendant Marks' arrangement with Miron, arguing that it occurred during the course of the attorney client relationship of DE'76 and defendant law firm and as such, is subject to strict scrutiny. Defendants respond by asserting that DE'76 was not damaged by the Marks-Miron arrangement. Miron's contingency arrangement was disclosed to the partnership and only his share of the recovery from Israel was paid by the partnership. Miron then paid Marks a portion of his proceeds. Defendants argue that the private arrangement between Marks and Miron did not diminish the total amount available for distribution to the partnership.
Although we do not condone defendant Marks' questionable conduct, which could possibly subject him to disciplinary proceedings,
plaintiffs have failed to demonstrate any injury to DE'76 as a result of defendants' actions. DE'76 paid no more to Miron than had been agreed pursuant to the contingency fee arrangement. Plaintiffs fail to specify any injury or the nature of the damages sought to be recovered as a result of defendants' actions. Plaintiffs have therefore "failed to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 323, 106 S. Ct. at 2552. Accordingly, the Marks-Miron arrangement may not form the basis of recovery in this action,
and defendants' motion for summary judgment with respect to this arrangement is granted.
B. Failure To Make a Demand
In response to the ruling that plaintiffs bring this suit as a derivative action, plaintiffs filed their Verified Amended Complaint on April 26, 1986. Plaintiffs failed to make a demand on Desert Exploration, Ltd. ("DE Ltd."), the managing general partner of DE'76, alleging that such a demand would be futile and therefore should be excused. Defendants now urge the Court to dismiss the Amended Complaint for failure to comply with the demand requirements of Fed. R. Civ. P. 23.1.
Rule 23.1 provides that parties bringing derivative actions must "allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors . . . and the reasons for the plaintiff's failure to obtain the action or not making the effort." Demand on the directors is intended "to give the derivative corporation itself the opportunity to take over a suit which was brought on its behalf in the first place, and thus to allow the directors the chance to occupy their normal status as conductors of the corporation's affairs." Lewis v. Graves, 701 F.2d 245, 247 (2d Cir. 1983) (quoting Elfenbein v. Gulf & Western Industries, Inc., 590 F.2d 445, 450 (2d Cir. 1978)) (citations omitted).
Defendants urge this Court to dismiss this amended complaint because of plaintiffs' failure to make a demand on DE Ltd. as the managing general partner of DE'76. Such a demand is excused, however, if the demand would be "futile," "useless," or "unavailing." Kaster v. Modification Systems, Inc., 731 F.2d 1014, 1017 (2d Cir. 1984) (citations omitted). Demand is presumptively futile "where the directors are antagonistic, adversely interested, or involved in the transaction attacked." Lewis v. Graves, 701 F.2d at 248; see Abramowitz v. Posner, 672 F.2d 1025, 1033 (2d Cir. 1982).
Plaintiffs allege that a demand on DE Ltd. would have been futile and should be excused in that: 1) both the general partner of DE'76, Levitt Overseas Exploration Associates, Ltd. ("LEOA"), and its general partner, DE Ltd., no longer existed at the time of the filing of this action; 2) at all times after plaintiffs learned of the unlawful payment to the arbitrator, DE Ltd. was owned by William White and defendant Feldman together or defendant Feldman alone; 3) defendant Feldman was the sole owner of DE Ltd. at the time it was dissolved; and 4) defendant Feldman was actively involved in the alleged wrongdoing and therefore could not be expected to bring suit against himself or his law partners.
Defendants contend that plaintiffs' allegations are factually inaccurate and legally insufficient to excuse the failure to make a demand. Defendants' Memorandum at 39. "The decision as to whether a plaintiff's allegations of futility are sufficient to excuse demand depends on the particular facts of each case and lies within the discretion of the district court." Gaubert v. Federal Home Loan Bank Bd., 274 U.S. App. D.C. 153, 863 F.2d 59, 68 n. 10 (D.C. Cir. 1988) (quoting Lewis v. Graves, 701 F.2d at 248); see also Clark Enterprises, Inc. v. Holywell Corp., 559 F. Supp. 1307, 1310 (E.D.Va.1983); 7C Wright & Miller, Federal Practice & Procedure, § 1831 at 107 (1986). Viewing the available facts in the light most favorable to the plaintiffs, as we must at this stage of the proceedings, plaintiffs have demonstrated to the Court with the requisite particularity that a demand would have been futile. "When . . . a plaintiff can provide the court with sufficient facts to justify an inference that the board is not worthy of that confidence and demand would be a pointless formality, the requirement may be excused as futile." Gaubert, 863 F.2d at 69. Plaintiffs persuasively argue that whatever the sequence of dissolution of the various corporations, defendant Feldman was both a dominant or sole shareholder of those corporations and a member of defendant law firm accused of malpractice. In both those roles he could well be considered a "director [who was] antagonistic, adversely interested or involved in the transaction attacked." Lewis, 701 F.2d at 248.
Therefore, we find defendants' argument that plaintiffs have failed to comply with the demand requirements of Fed. R. Civ. P. 23.1 without merit.
C. Failure to Join an Indispensable Party
Equally without merit is defendants' contention that this complaint should be dismissed for failure to join DE'76 and its partners as indispensable parties. Defendants additionally have asserted that DE'76 and its partners are indispensable parties to this lawsuit, and that plaintiffs' failure to join them is fatal to this action. Fed. R. Civ. P. 19.
Fed. R. Civ. P. 19 provides a two pronged analysis for joinder of parties. Rule 19(a) provides for the joinder of non-parties related in various ways to the action, and who are "subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action . . ." DE'76 was dissolved in December 1983 and all of its assets distributed around May 1984. Amended Complaint para. 17, Ex. 1. This Court previously held that this action can be maintained on behalf of DE'76, although dissolved, as a "settling of accounts" or "winding up of business." (Order of July 17, 1986 at 2-3, Green, J.) "To rule otherwise . . ." continued Judge Green, "would produce a highly inequitable result." Id.
While arguing that DE'76, now dissolved, is not an indispensable party, plaintiffs assert alternatively that DE'76 has been properly brought into this action by service of process on defendant Meyer Feldman, general partner of DE'76 as of December 23, 1983, just prior to its dissolution.
Defendants argue that DE'76 and its partners, LOEA and DE Ltd., have not been served, claiming that although defendant Feldman was served and entered an appearance, he has been dismissed as a defendant in his capacity as a former general partner of DE'76 (Memorandum Opinion, September 23, 1988) and remains as a defendant only as a partner of defendant law firm.
Defendants fail to address the second prong of the Rule 19 analysis, which is controlled by "pragmatic and equitable considerations." Lone Star Industries, Inc. v. Redwine, 757 F.2d 1544, 1552 (5th Cir. 1985). Inability to join a party who meets the criteria in Rule 19(a) is not necessarily fatal. Wichita & Affiliated Tribes of Oklahoma v. Hodel, 252 U.S. App. D.C. 140, 788 F.2d 765, 774 (D.C. Cir. 1986). Rather, Rule 19(b) provides that if such a person "cannot be made a party, the court shall determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person being thus regarded as indispensable."
Rule 19(b) and the advisory committee's note on the rule articulate a number of factors to assist courts in determining whether a party is indeed "indispensable" to the action. Fortuin v. Milhorat, 683 F. Supp. 1, 3 (D.D.C. 1988). In applying this "somewhat amorphous standard," Wichita, 788 F.2d at 774, the rule instructs the court to consider, among other things, the following four factors:
first, to what extent a judgment rendered in the person's absence might be prejudicial to the person or those already parties; second, 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; third, whether a judgment rendered in the person's absence will be adequate; fourth, whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder.
Fed. R. Civ. P. 19(b). These four factors are not "rigid, technical tests, but rather 'guides to the overarching equity and good conscience determination.'" Wichita, 788 F.2d at 774 (quoting Cloverleaf Standardbred Owners Assoc. v. National Bank of Washington, 226 U.S. App. D.C. 122, 699 F.2d 1274, 1279 n. 11 (D.C. Cir. 1983)). Having weighed the relevant factors, it is clear that in "equity and good conscience," this action should proceed with the parties before us.
The first relevant factor concerns the impact of a judgment in this case on the absent party [DE'76 and its limited partners] and the possible exposure of the defendants to future claims by the absentee. Since DE'76 is no longer in existence and plaintiffs have been permitted to bring this suit derivatively only for the purpose of "settling accounts," it is unlikely that defendants will be subject to any serious threat of future claims brought by or on behalf of the corporation. See Lone Star Industries, 757 F.2d at 1551-1552 (dissolved corporation held not an indispensable party in Rule 19(b) analysis).
Of less concern are the second and third factors. Since the absent party, DE'76, is now dissolved, any relief granted against the defendant law firm and its members would be adequate and "can be shaped so as to avoid prejudice to the absent party." Fed. R. Civ. P. 19(b).
Most important for the purposes of this case, the final factor that Rule 19(b) mentions is "whether the plaintiff will have an adequate remedy if the action is dismissed for non-joinder." Dismissal of this action for failure to join DE'76 would effectively deny plaintiffs relief in any forum. "A court should be extra cautious in dismissing a case for nonjoinder where the plaintiff 'will not have an adequate remedy elsewhere.'" Wichita, 788 F.2d at 777 (quoting Park v. Didden, 225 U.S. App. D.C. 4, 695 F.2d 626, 631 n. 13 (D.C. Cir. 1982)).
The decision whether or not to dismiss a case under Rule 19(b) resides primarily in the discretion of district court judges. Naartex Consulting Corp. v. Watt, 232 U.S. App. D.C. 293, 722 F.2d 779, 788-789 (D.C. Cir. 1983), cert. denied 467 U.S. 1210, 104 S. Ct. 2399, 81 L. Ed. 2d 355 (1984); Samson Tug & Barge Co., Inc. v. United States, 695 F. Supp. 25, 28-29 (D.D.C. 1988). In addition, Rule 19(b) is not intended to exclude considerations, not enumerated, that are applicable in a particular case. Lone Star Industries, 757 F.2d at 1551 (citations omitted).
This court previously resolved this issue against defendants in an Order issued on July 17, 1986, and refused to review the issue again in a Memorandum Opinion on September 23, 1988, holding that the "law of the case" rule applied. (Memorandum Opinion, September 23, 1988 at 12).
Therefore, evaluating the factors set forth in Rule 19(b), it is clear that "in equity and good conscience" this action should proceed.
Accordingly, defendants' motion for summary judgment for failure to join an indispensable party is denied.
For the reasons stated above, defendants' motion for summary judgment is granted only with respect to any recovery from the Marks-Miron financial arrangement and denied as to the remainder.
An order consistent with the foregoing has been entered this day.
Order - August 7, 1990, Filed
Upon consideration of defendants' second motion for summary judgment, plaintiffs' opposition thereto, and the entire record herein, and for the reasons stated in an accompanying Memorandum Opinion entered this day, it is by the Court this 7th day of August, 1990,
ORDERED that defendants' motion is granted in part and denied in part; it is
ORDERED that summary judgment is entered in favor of defendants with respect to any recovery from the Marks-Miron arrangement; it is
ORDERED that in all other respects defendants' second motion for summary judgment is denied; and it is
FURTHER ORDERED that counsel for the parties shall appear before the Court for a status call on this matter on September 20, 1990, at 9:30 a.m. Counsel should be prepared to discuss the future course of this litigation.