Goose Pond AG, Inc. v. Duarte Nursery Inc. et al

Filing 68

ORDER signed by Chief District Judge Kimberly J. Mueller on 10/13/2020 DENYING 18 Motion to Dismiss; SETTING a further Scheduling Conference for 12/17/2020 at 02:30 PM in Courtroom 3 (KJM) before Chief District Judge Kimberly J. Mueller; and DIRECTING the parties to file an updated Joint Status Report within 21 days. (Coll, A)

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UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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GOOSE POND AG, INC.,

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No. 2:19-cv-02631-KJM-DB

Plaintiff,
v.

ORDER

DUARTE NURSERY, INC. et al.,

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Defendants.

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Defendants Duarte Nursery, Inc., James Duarte and John Duarte (collectively, the

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“Duarte parties” or “Duarte”) move to dismiss plaintiff Goose Pond Ag, Inc.’s (“Goose Pond”)

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complaint for failure to join an indispensable party. Mot., ECF No. 18. Plaintiff opposes the

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motion. Opp’n, ECF No. 20. Defendants replied. Reply, ECF No. 27. The court submitted the

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motion without oral argument. Having carefully reviewed the moving papers and the applicable

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law, the court DENIES the motion.

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I.

BACKGROUND
This case arises from Goose Pond’s purchase of approximately 1,505 acres of real

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property in Tehama County, California (the “Tehama property”) from the Duarte parties. First

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Am. Compl. (“FAC”) ¶ 1, ECF No. 16. John Duarte contacted Goose Pond’s agent, Farmland

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Management Services (“Farmland”), to ask if Farmland or any of its clients were interested in

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buying the property. Id. ¶ 2. Goose Pond was interested in purchasing the property and its agents
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informed the defendants it intended to develop the property into a walnut orchard. Id. ¶ 3. Upon

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this purchase and development, Farmland would act as Goose Pond’s lessee in running the walnut

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orchard. Id. ¶ 58. Goose Pond alleges the defendants knew the property could not be developed

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for use as an orchard because there were sensitive vernal pools and wetlands on the property and

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that the property was located in an area denoted as habitat for protected species under the

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Endangered Species Act. Id. ¶ 3. Defendants allegedly disclosed to Goose Pond only that there

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were approximately 40 acres of wetlands or other lands jurisdictional to the waters of the United

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States on the property, leaving the remainder suitable for development. Id. However, Goose

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Pond alleges defendants knew or should have known significantly more of the property had

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jurisdictional wetlands and endangered species habitat, yet concealed and failed to disclose the

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true facts to them prior to the sale’s closing. Id. ¶¶ 3–4.

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Following Goose Pond’s purchase of the property, the United States Government

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brought a civil enforcement action against Goose Pond and Farmland for Clean Water Act

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violations. Id. ¶ 5; see also United States of America v. Roger J. LaPant Jr. et al. (hereinafter

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“LaPant”), No. 2:16-cv-01498-KJM-DB.1 The LaPant action alleged Goose Pond and Farmland

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operated earthmoving equipment and heavy machinery so as to discharge pollutants into the

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waters of the United States without a permit. LaPant Compl. ¶¶ 112–123, LaPant ECF No. 1.

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The government also named as defendants the owner of the property prior to the Duarte parties’

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ownership, Roger J. LaPant, Jr., and his company J & J Farms. See generally id. In exchange for

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dismissal from the LaPant case, Goose Pond and Farmland entered into a consent decree, which

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makes them jointly and severally liable for a total of $5.3 million in civil penalties and

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remediation costs. Order Approving Consent Decree at 2, LaPant ECF No. 105. The consent

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decree also enjoins them, their successors and their assigns from using approximately 616 acres

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of the property, which they must set aside as a conservation reserve. Id.

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Goose Pond’s first cause of action in this case alleges the Duarte defendants
breached the express terms of the purchase contract and the common law duty to disclose when
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The court takes judicial notice of the docket in the related case of LaPant for purposes of this
motion.
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they failed to provide various environmental assessments material to the sale. FAC ¶ 70. As a

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result of defendants’ failure to disclose, Goose Pond faced damages from the inability to develop

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the property as a walnut orchard for investment purposes, resulting in lost profits and other

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expenditures. FAC ¶ 73. The complaint also alleges, as a proximate result of the breach, Goose

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Pond and Farmland unknowingly continued with farming and development activities, which

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became the basis of the LaPant case. FAC ¶ 74. Plaintiffs characterize Goose Pond and

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Farmland’s entry into the LaPant consent decree as an effort to mitigate their damages. Id.

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Goose Pond alleges the same facts underpinning its second cause of action, breach of the implied

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covenant of good faith and fair dealing, FAC ¶¶ 82–85, and the third claim for fraudulent

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inducement, FAC ¶¶ 97-98, causing substantially the same damage. Goose Pond also brings a

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fourth claim for unjust enrichment, which does not specify the precise nature of the damages.

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FAC ¶¶ 100–102.

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Farmland is not a party to the action. Because it is a California corporation,

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Farmland’s joinder would destroy diversity. Goose Pond and Farmland Answer ¶ 12, LaPant

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ECF No. 19 (“Defendants admit that Farmland Management Services is a corporation registered

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in the State of California[.]”). Defendants assert that because the operative complaint alleges

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Farmland has been damaged along with Goose Pond by the same predicate acts, Farmland is a

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necessary party to the action; because their joinder as a plaintiff would destroy diversity, they are

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an indispensable party. They argue the court must therefore dismiss the action for failure to join a

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necessary party under Federal Rule of Civil Procedure 12(b)(7).

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II.

LEGAL STANDARD

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Defendants may move to dismiss a complaint for plaintiff’s failure to join a party

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required under Federal Rule of Civil Procedure 19. Fed. R. Civ. P. 12(b)(7). Under Rule 19, an

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absent party must be joined if:

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(A) in that person’s absence, the court cannot afford
complete relief among existing parties; or
(B) 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:
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as a practical matter impair or impede the
person’s ability to protect the interest; or

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leave an existing party subject to a substantial
risk of incurring double, multiple, or otherwise
inconsistent obligations because of the interest.

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Fed. R. Civ. P. 19(a)(1). The court must perform a three-step analysis to determine if a party is

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required to be joined under Rule 19. E.E.O.C. v. Peabody W. Coal Co., 400 F.3d 774, 779 (9th

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Cir. 2005). The three steps of the inquiry are: (1) is the absent party required to be joined if

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feasible under Rule 19(a) (i.e., a necessary party); (2) if so, is it feasible to order that the absent

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party be joined; and (3) if joinder is not feasible, can the case proceed without the absent party, or

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is the absent party indispensable such that the action must be dismissed? Lennar Mare Island,

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LLC v. Steadfast Ins. Co., 139 F. Supp. 3d 1141, 1149–50 (E.D. Cal. 2015) (citing Salt River

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Project Agr. Imp. & Power Dist. v. Lee, 672 F.3d 1176, 1179 (9th Cir. 2012)).
Even when a party has an interest in the litigation, that party may not be necessary

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under Rule 19(a) if it is “adequately represented” by a present party. Salt River, 672 F.3d at

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1179. However, the absent party must be properly before the court by being subject to adequate

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service and subject matter jurisdiction. Id. If joinder would destroy subject matter jurisdiction

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because the parties would no longer have complete diversity of citizenship, the exercise of

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jurisdiction is not feasible. Peabody W. Coal Co., 400 F.3d at 779.
If joinder is not feasible, the court must consider whether the action may proceed

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among the existing parties in equity and good conscience. Fed. R. Civ. P. 19(b). Courts often

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term a necessary party without whom the action could not equitably proceed “indispensable.”

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Fed. R. Civ. P. 19 advisory committee’s note; see also Peabody W. Coal Co., 400 F.3d at 780.

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Indispensable parties are those “who not only have an interest in the controversy, but an interest

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of such a nature that a final decree cannot be made without either affecting that interest, or

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leaving the controversy in such a condition that its final termination may be wholly inconsistent

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with equity and good conscience.” Peabody W. Coal Co., 400 F.3d at 780 (quoting Shields v.

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Barrow, 58 U.S. 130, 139 (1854)).

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“The rule emphasizes practical consequences and its application depends on the

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circumstances of each case.” Takeda v. Northwestern Nat. Life Ins. Co., 765 F.2d 815, 819 (9th

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Cir. 1985) (citations omitted). “The inquiry is a practical one and fact specific and is designed to

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avoid the harsh results of rigid application.” Makah Indian Tribe v. Verity, 910 F.2d 555, 558

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(9th Cir. 1990) (internal citations omitted). “The moving party has the burden of persuasion in

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arguing for dismissal.” Id. (citation omitted).

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III.

DISCUSSION
As discussed below, the court finds Farmland is a necessary party, but not an

indispensable one.
A. Farmland is a Necessary Party
1. The Court Can Furnish Complete Relief Without Farmland
The court could provide complete relief to the parties without Farmland’s

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presence. Fed. R. Civ. P. 19(a)(1)(A). The question of whether complete relief is available is

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“concerned with consummate rather than partial or hollow relief as to those already parties, and

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with precluding multiple lawsuits on the same cause of action.” Northrop Corp. v. McDonnell

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Douglas Corp., 705 F.2d 1030, 1043 (9th Cir. 1983). “This portion of the rule is concerned only

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with relief as between the persons already parties, not as between a party and the absent person

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whose joinder is sought.” Eldredge v. Carpenters 46 N. Cal. Counties Joint Apprenticeship and

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Training Comm., 662 F.2d 534, 537 (9th Cir. 1981) (internal quotation marks, citations omitted).

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Here, Goose Pond alleges various theories arising from its deal with the Duarte

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defendants, for breach of its contract with the Duarte defendants and for misrepresentations made

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to it. It seeks to be made whole for diminution in the value of its investment in the Tehama

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property and for its costs in settling the LaPant action. Nothing suggests Goose Pond would

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receive incomplete relief on these claims in Farmland’s absence.

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Defendants argue Farmland has claims against them that are effectively the same,

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that the failures to disclose also damaged Farmland, who spent money “buying trees, working the

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property, and, ultimately, paying off the United States to satisfy the Consent Decree.” Mot. at 9.

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Yet the possibility of Farmland’s claims would not constitute the “multiple lawsuits on the same
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cause of action,” which Rule 19 is intended to avoid; while the transaction or occurrence is the

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same, Farmland’s cause of action for its damages, if it chooses to bring it, is discrete from Goose

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Pond’s. Northrop Corp., 705 F.2d at 1043. By contrast, the avoidance of multiple lawsuits as

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applicable here is concerned with avoiding a piecemeal series of suits by an existing party, each

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providing only “partial or hollow” relief. Id. This scenario has arisen frequently where plaintiffs

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are unable to obtain declaratory and injunctive relief against absent parties and are thus unable to

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obtain full redress. See, e.g., U.S. ex rel. Morongo Band of Mission Indians v. Rose, 34 F.3d 901,

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907–08 (9th Cir. 1994). Because there appears to be no such risk to Goose Pond here, Farmland

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is not a necessary party under the “complete relief” test of Rule 19(a)(1)(A).

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2. Farmland’s Interest Impaired by Judgment in Its Absence?
Under Federal Rule of Civil Procedure 19(a)(1)(B), an absent party may be

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necessary if it claims a legally protected interest in the subject matter of the action, and if

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resolution in its absence would impair its interest as a practical matter. Dawavendewa v. Salt

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River Proj. Act. Imp. and Power Dist., 276 F.3d 1150, 1155 (9th Cir. 2002). “The interest must

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be more than a financial stake and more than speculation about a future event.” Makah Indian

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Tribe, 910 F. 2d at 558 (citations omitted). As Goose Pond’s lessee on the Tehama property,

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Farmland has a legally protected interest in the value of its leasehold, and thus, the subject matter

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of the action. If Goose Pond’s allegations are true, Farmland’s purpose in entering into the farm

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lease was to put the land to use as a walnut orchard, yet the property was largely unfit for that

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purpose, resulting in wasted expense and ultimately a sizeable civil penalty in the LaPant action.

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Insofar as Farmland’s lease was predicated on being able to work the land as a walnut orchard,

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Duarte’s alleged misrepresentations would have impaired its interest in the leasehold.

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There is a risk of prejudice to an absent party’s legal interest where the absent

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party could be collaterally estopped from relitigating the same issues. Takeda, 765 F.2d at 820–

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21. The court need not engage in detailed hypotheticals about collateral estoppel in future

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litigation to find the possibility of prejudice. Id. at 821 (citing Aguilar v. Los Angeles Cty., 751

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F.2d 1089, 1094 (9th Cir. 1985)). “[C]ollateral estoppel bars the relitigation of issues actually

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adjudicated in previous litigation.” Janjua v. Neufeld, 933 F.3d 1061, 1065 (9th Cir. 2019)
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(citation omitted). For issue preclusion to apply, four conditions must exist: “(1) the issue at

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stake was identical in both proceedings; (2) the issue was actually litigated and decided in the

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prior proceedings; (3) there was a full and fair opportunity to litigate the issue; and (4) the issue

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was necessary to decide the merits.” Oyeniran v. Holder, 672 F. 3d 800, 806 (9th Cir. 2012). A

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party not present in a prior action can be collaterally estopped if it is in privity with a party in the

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earlier action. United States v. Bhatia, 545 F. 3d 757, 759 (9th Cir. 2008) (citing United States v.

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ITT Rayonier, Inc., 627 F.2d 996, 1000 (9th Cir. 1980)).

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As lessor and lessee, Goose Pond and Farmland are in privity. Furthermore, their
legal interests are, as defendants note, closely aligned, although the court can distinguish their

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claims not arising from their joint liability for the consent decree. Because any claims Farmland

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might have against defendants would likely be predicated on the same misrepresentations Goose

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Pond alleges, identical issues would be at play in a hypothetical Farmland suit. As in Takeda,

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765 F.2d at 821, the court need not precisely determine what issues in this suit could estop

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Farmland in future litigation. Because issues decided against Goose Pond could collaterally estop

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Farmland in a future litigation, there is a possibility of prejudice from proceeding in Farmland’s

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absence. Id. Therefore, proceeding in Farmland’s absence may as a practical matter impair or

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impede its ability to protect its interests.

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3. Does Judgment Without Farmland Risk Multiple or Inconsistent

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Obligations?

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If collateral estoppel would not apply in a hypothetical future action, the

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possibility could arise of leaving defendants “subject to a substantial risk of incurring double,

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multiple, or otherwise inconsistent obligations because of [Farmland’s] interest.” Fed. R. Civ. P.

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19(a)(1)(B)(ii). If the court’s determination of identical issues in this case does not bind

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Farmland, Farmland could conceivably obtain future relief inconsistent with the results here.

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4. Farmland is a Necessary Party

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For all the foregoing reasons, Farmland is a necessary party to the action. The

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court now turns to whether the action must be dismissed.

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B. It is Not Feasible to Join Farmland

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Joinder of a necessary party is not feasible when joinder would destroy subject

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matter jurisdiction. Fed. R. Civ. P. 19(a)(1); see also Peabody W. Coal Co., 400 F. 3d at 779.

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The court lacks subject matter jurisdiction for state law claims where there is not complete

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diversity of citizenship between the parties. 28 U.S.C. § 1332; accord Owen Equipment &

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Erection Co. v. Kroger, 437 U.S. 365, 377 (1978).

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Here, Farmland is, like the Duarte parties, a citizen of California. See Goose Pond

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and Farmland Answer ¶ 12; LaPant ECF No. 19. Thus, joining Farmland would destroy diversity

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and render the court without subject matter jurisdiction. Joinder is not feasible.

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C. Farmland is Not Indispensable

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Rule 19(b) instructs the court to weigh four factors in determining whether

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Farmland is indispensable: (1) prejudice from the status quo; (2) the extent to which any prejudice

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could be lessened or avoided; (3) whether a judgment rendered in Farmland’s absence would be

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adequate; and (4) whether the plaintiff would have an adequate remedy if the action were

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dismissed for nonjoinder. White v. Univ. of California, 765 F.3d 1010, 1027–28 (9th Cir. 2014).

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These factors are not exclusive; they are “relevant considerations drawn from the experience

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revealed in the decided cases.” Fed. R. Civ. P. 19(b) advisory committee note (1966). The

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decision should “be made in the light of pragmatic considerations,” id., and “its application

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depends on the circumstances of each case.” Takeda, 765 F.2d at 819 (citations omitted).

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Duarte argues that because liability for the LaPant consent judgment is at issue,

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this case is a common-fund type case, where prejudice is “inevitable” without necessary parties.

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Mot. at 11 (citing Makah Indian Tribe, 910 F.2d at 560). But as discussed above, the LaPant

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consent judgment affects only a portion of the case. Goose Pond sues for damage to its interest in

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the development of the property as well. A recovery on that theory would not detract from

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Farmland’s ability to recover for its own separate damage to the value of its leasehold.

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Furthermore, Goose Pond is correct that Duarte is not prejudiced by Farmland’s absence because

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Federal Rule of Civil Procedure 14(a) allows Duarte to implead Farmland in a claim for

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contribution or indemnity. Southwest Administrators, Inc. v. Rozay’s Transfer, 791 F. 2d 769,

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777 (9th Cir. 1986).

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The same ability to implead also lessens or avoids prejudice. The Ninth Circuit

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has joined other circuits in holding dismissal for failure to join an indispensable party is

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inappropriate where impleader under Rule 14(a) is available. E.E.O.C. v. Peabody W. Coal Co.,

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610 F.3d 1070, 1086–87 (9th Cir. 2010) (Peabody III).

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Because Farmland and Goose Pond have distinct causes of action for different

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damages, it is not clear how judgment for Goose Pond would be inadequate without Farmland.

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While Duarte asserts “accommodating this litigation to proceed in this Court requires splitting

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this dispute up,” Mot. at 12, it is not accurate to say this is a single dispute. While the transaction

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or occurrence is the same, the resulting disputes are distinct.

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While Farmland is plainly important to the case, it is not indispensable, and any of

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the ill effects Rule 19 is intended to avoid are mitigated or minimized by the availability of

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impleader under Rule 14.

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IV.

CONCLUSION
For the foregoing reasons, Duarte’s motion to dismiss for failure to join an

indispensable party is DENIED. This order resolves ECF No. 18.
The court sets a further scheduling conference on December 17, 2020 at 2:30 P.M.

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The court ORDERS the parties to file an updated Joint Status Report addressing the subjects

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addressed in Eastern District Local Rule 240(a), within twenty-one (21) days of this order.

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IT IS SO ORDERED.
DATED: October 13, 2020.

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