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Acosta v. Reliance Trust Co.

United States District Court, D. Minnesota

January 7, 2019

R. Alexander Acosta, Secretary of Labor, U.S. Department of Labor, Plaintiff,
v.
Reliance Trust Company; Steven R. Carlsen; Paul A. Lillyblad; Kelli Watson; and Kurt Manufacturing Company, Inc., Employee Stock Ownership Plan, Defendants.

          Barbara A. Goldberg, Martha Frydl, and Ruben R. Chapa, for Plaintiff.

          Bradley R. Armstrong and Terese A. West, and Pierce G. Hand IV and William Bard Brockman, for Defendant Reliance Trust Company.

          Alan I. Silver, Brittany B. Skemp, Casey D. Marshall, and Jonathan P. Norrie, for Defendants Steven R. Carlsen, Paul A. Lillblad, Kelli Watson, and Kurt Manufacturing Company, Inc., Employee Stock Ownership Plan.

          MEMORANDUM OPINION AND ORDER

          SUSAN RICHARD NELSON, UNITED STATES DISTRICT JUDGE

         This case centers around an October 2011 stock purchase transaction, in which Defendants allegedly violated the Employee Retirement Security Act (“ERISA”) by causing the Kurt Manufacturing Company's Employee Stock Ownership Plan (“ESOP”) to substantially overpay for a majority stake in the company's stock. (See generally Am. Compl. [Doc. No. 46].) More specifically, Plaintiff Department of Labor (“DOL”) accuses Defendants of breaching their fiduciary duties to the ESOP, and of causing the ESOP to enter into a prohibited transaction with then-majority stakeholder William Kuban (“Kuban”). (Id. ¶¶ 80-90.) The DOL did not name Kuban's Estate in the complaint.[1] The question before the Court is whether Kuban's Estate (hereinafter “Kuban”) must be joined to this action as a “necessary party” under Fed.R.Civ.P. 19(a), or under Fed.R.Civ.P. 21.

         The parties submitted full briefing on this issue. (See Def.'s Br. in Support of Mot. [Doc. No. 63] (“Def.'s Br.”); Pl.'s Br. in Opp. to Mot. [Doc. No. 67] (“Pl.'s Opp. Br.”); Def.'s Reply Br. [Doc. No. 69].)[2] Moreover, after the Court heard oral argument on October 3, 2018, the parties submitted supplemental briefing. (See Def.'s Supp. Br. [Doc. No. 73]; Pl.'s Supp. Br. [Doc. No. 77].)

         For the following reasons, Defendant Reliance Trust Company's motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(7), or alternatively to add a party under Rule 21, is denied.

         I. LEGAL STANDRD

         Fed. R. Civ. P. 19(a)(1)(B)(i) provides that, “[a] person who is subject to service of process and whose joinder will not deprive the court of subject-matter jurisdiction must be joined if, ” “that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person's absence may, as a practical matter, impair or impede the person's ability to protect the interest.”

         Thus, as an initial matter, the rule “requires that [an absent person] not only have an interest related to the subject of the action, but that person must affirmatively claim an interest.” Am. Ins. Co. v. St. Jude Med., Inc., 597 F.Supp.2d 973, 978 (D. Minn. 2009). Although absent parties are generally “not required to formally claim an interest in [the litigation], ” courts in this District have been “disinclined to force” aware, but nonetheless absent, parties to participate in litigation by way of Rule 19. St. Paul Mercury Ins. Co. v. Order of St. Benedict, Inc., No. 15-cv-2517 (DSD/KMM), 2017 WL 780572, at *2 n.5 (D. Minn. Feb. 28, 2017).

         Moreover, “the mere fact the underlying litigation will affect or otherwise impact a non-party's interests, ” such as the absent party's involvement in a related “contribution or indemnification” agreement, “does not mean the non-party is indispensable.” EEOC v. Cummins Power Generation, Inc., 313 F.R.D. 93, 102 (D. Minn. 2015). Rather, “‘necessary parties under Rule 19(a) are only those parties whose ability to protect their interests would be impaired because of that party's absence from the litigation.'” Id. (quoting MasterCard Int'l Inc. v. Visa Int'l Serv. Ass'n, Inc., 471 F.3d 377, 387 (2d Cir. 2006)). Courts in this Circuit have repeatedly held that an absent party's interest in litigation is not “impair[ed] or imped[ed]” “because of that party's absence from the litigation” if an existing party “has the same interest in establishing the facts that [the absent party] does.” Gwartz v. Jefferson Memorial Hosp. Ass'n, 23 F.3d 1426, 1429 (8th Cir. 1994); accord St. Paul Mercury Ins. Co., 2017 WL 780572, at *2; Guggenberger v. Minnesota, 198 F.Supp.3d 973, 1035 (D. Minn. 2016); Cummins, 313 F.R.D. at 102; St. Jude Med., Inc., 597 F.Supp.2d at 978.

         Fed. R. Civ. P. 21 provides that, “[o]n motion or on its own, [a] court may at any time, on just terms, add . . . a party.” This Rule exists “to obviate the harsh common law adherence to technical rules of joinder.” Hallady v. Verschoor, 381 F.2d 100, 108 (8th Cir. 1967). As such, the Rule affords “the trial court a broad discretion in the matter of dropping or adding parties.” Lohman v. General Am. Life Ins. Co., 478 F.2d 719, 728 (8th Cir. 1973). However, courts in this Circuit seldom apply Rule 21 in the context of adding non-party defendants, and, as best this Court can tell, the Rule operates in parallel to the Rule 19(a) standard outlined above. See, e.g., Teamsters Local Union No. 116 v. Fargo-Moorhead Auto. Dealers Ass'n, 620 F.2d 204, 205-06 (8th Cir. 1980).

         II. ANALYSIS

         Here, Reliance argues that Kuban is a required party under Rule 19(a)(1)(B)(i). In support of this argument, Reliance primarily relies on an October 2011 “Limitation Agreement” between Reliance (acting as Trustee of the ESOP), Kuban, and the Kurt Manufacturing Company, in which Kuban (the “Seller” of stock) agreed to “reduce” “the purchase price of the ESOP Stock” “in the event that there is a final determination (from which no appeal is taken) by the Internal Revenue Service, Department of Labor, or a court of competent jurisdiction that the purchase price of the ESOP Stock from the Seller [Kuban] was for more than ‘adequate consideration.'” (Brockman Declaration [Doc. No. 34], Ex. A (“Limitation Agreement”) § 3.1(d).) In Reliance's view, this agreement “automatically” obligates Kuban “to reimburse the ESOP” if this Court finds in favor of the DOL here. (Def.'s Br. at 9-10.) Accordingly, Reliance argues, because “whether the ESOP overpaid for [Kuban's] shares” is “the core issue” in both this case and the Limitation Agreement, and because Kuban supposedly “has no ability to protect that interest if this case proceeds in [his] absence, ” Kuban must be joined under either Fed.R.Civ.P. 19(a)(1)(B)(i) or Fed.R.Civ.P. 21. (Id. at 9.) Reliance also ...


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