United States District Court, W.D. Virginia, Lynchburg Division
ACA Financial Guaranty Corporation and UMB Bank, N.A., Plaintiffs,
City of Buena Vista, Virginia, ET AL., Defendants.
K. MOON SENIOR UNITED STATES DISTRICT JUDGE.
plaintiffs in this case, a bank and a bond insurer, assert an
enforceable obligation either in contract or tort against the
defendants to receive repayment stemming from the refinancing
of a municipal golf course. Before the Court is a Rule
12(b)(7) motion to dismiss for failure to join a necessary
party. The motion relates to two deeds of trust executed in
favor of plaintiff UMB Bank's predecessor. The deeds of
trust pledged real estate as collateral in the event that the
defendants (the City of Buena Vista, Virginia and its
recreational authority) did not repay the bank. Defendants
contend that the Trustees to the deeds are necessary parties
whose presence is mandatory but would destroy the diversity
jurisdiction of the Court.
prevail, Defendants must show that: first, the Trustees are
necessary parties under Rule 19(a); second, their addition to
the case would destroy complete diversity of citizenship; and
third, the case cannot fairly proceed without the Trustees,
per Rule 19(b). The motion fails at the second step. The
Trustees (who are Virginia citizens) should be added to this
case as defendants. This leaves them on the same side of the
case as the original Virginia defendants. Complete diversity
is therefore preserved, and Defendants' Rule 12(b)(7)
motion will be denied.
Court, in looking to Virginia law, previously held that the
Trustees are necessary parties who “must, ” in
the parlance of Rule 19(a), be joined. Dkt. 29, available
at 2017 WL 3431592 (W.D. Va. Aug. 9, 2017); see
Delta Fin. Corp. v. Paul D. Comanduras & Assocs.,
973 F.2d 301, 305 (4th Cir. 1992) (holding that while federal
standards ultimately govern, a “federal court must look
to the state-law relationships between the parties when
determining which parties are, as a practical matter,
necessary for a just adjudication of the case.”). The
next inquiry for Rule 12(b)(7) purposes, then, was whether
adding the Trustees would jeopardize jurisdiction. The Court,
however, previously lacked sufficient information to
ascertain the Trustees' citizenship, so it ordered
supplemental briefing on that and other issues bearing on the
Rule 12(b)(7) motion. (Dkt. 30).
parties now agree that the Trustees are Virginians. (Dkt. 36
at 2; dkt. 37 at 1-2). So the question presented is: Should
they be aligned as plaintiffs or defendants? Because
Defendants are citizens of Virginia, see Complaint
¶¶ 3-4, aligning the Trustees as plaintiffs would
destroy complete diversity and require a Rule 19(b) analysis
to see if the case could proceed without them. On the other
hand, if the Trustees are aligned as defendants, complete
diversity remains (because Plaintiffs are citizens of
Maryland, New York, and Missouri), an indispensability
analysis is unnecessary, and Defendants' motion to
dismiss would fail.
deciding how to align parties, the Fourth Circuit uses the
“principal purpose test, ” which entails two
steps. U.S. Fid. & Guar. Co. v. A & S Mfg.
Co., 48 F.3d 131, 133 (4th Cir. 1995); see City of
Indianapolis v. Chase Nat. Bank, 314 U.S. 63, 69-70
(1941). “First, the court must determine the primary
issue in the controversy. Next, the court should align the
parties according to their positions with respect to the
primary issue.” A & S Mfg., 48 F.3d at
Fourth Circuit has not provided an expansive explanation of
how to identify a case's “primary issue.”
Nonetheless, the “primary issue” inquiry is seen
as a top-level summary of the claims rather than a discrete,
narrow legal issue presented by the case. This point is best
shown by considering how other courts have framed the matter.
• In a debt collection lawsuit by a phone company
against a telephone customer, the plaintiffs primary purpose
“was to collect [the customer's] debt.”
Palisades Collections LLC v. Shorts, 552 F.3d 327,
337 (4th Cir. 2008).
• In a declaratory judgment action by an insurer against
the insured and other insurers to determine which policies
provided coverage for environmental liability, the Fourth
Circuit concluded that the primary issue was whether the
insurers owed the insured a duty to defend and a duty to
indemnify. U.S. Fid. & Guar. Co. v. A & S Mfg.
Co., 48 F.3d 131, 134 (4th Cir. 1995); see Lott v.
Scottsdale Ins. Co., 811 F.Supp.2d 1220, 1224 (E.D. Va.
• In a shareholder declaratory judgment derivative
action to gain control of the company, the primary issue was
whether the individual defendant “is a shareholder
and/or has an interest” in the company. Gressette
v. Sunset Grille, Inc., 447 F.Supp.2d 533, 536-37
• In a case filed to confirm an arbitration award
terminating a sports ownership group from control over a
team, the primary issue was “whether to confirm an
arbitration award that terminated [defendant's]
leave” from the league. Canadian Am. Ass'n of
Prof'l Baseball, Ltd. v. Ottawa Rapidz, 686
F.Supp.2d 579, 588 (M.D. N.C. 2010).
• In a tort and contract case by a remediation company
over unpaid invoices, the primary issue was the plaintiffs
goal of receiving compensation for the work it performed.
Ryan Envtl, Inc. v. Hess Oil Co., 718 F.Supp.2d 719,
728 (N.D. W.Va. 2010).
light of these authorities, the primary issue here is whether
Defendants have breached various documents or acted
tortiously by refusing to repay Plaintiffs for financing of a
golf course. This framing accurately summarizes the heart of
Plaintiffs' claims. Their “principal purpose for
filing [this] suit, ” Palisades, 552 F.3d at
337, is to achieve to receive recompense in some form-such as
payment, or possession and control of the encumbered property
(or both)- for what Plaintiffs believe to be the City's
wrongful refusal to appropriate funds. (E.g.,
Complaint ¶¶ 43-47, 60-64, 68-69, 71, 76, 88, 92,
97, 101, 108, 119, 131-35).
the Court must align the Trustees with respect to this issue.
The Trustees are best understood as being adverse to
Plaintiffs' purpose. The claims and relief they desire
would upset the status quo in a way would largely
oust (or at least diminish) the Trustees' usual role. For
instance, by filing their lawsuit, Plaintiffs seek to have
this Court decide whether the terms of the deeds of trust
were breached, a determination which would ordinarily be left
to the Trustees. (See Complaint ¶¶ 60,
62-63). Under § 4.4 of the deeds of trust, the Trustees
have the power to adjudge whether the deeds of trust are
satisfied and, if not, to: foreclose on the properties;
repair and maintain them; and “manage and
operate” them in order to make the payments Plaintiffs
allege are owed. Yet Plaintiffs' lawsuit effectively asks
the Court to assume the Trustees' role. (E.g.,
Complaint ¶¶ 71 (seeking permission “to