CapitalPlus Equity, LLC v. Tutor Perini Building Corp. (PLR1)
MEMORANDUM AND ORDER; Before the court is a motion filed by Tutor to dismiss or transfer this action 12 . Tutor's motion to dismiss or for change of venue 12 is DENIED, and CapitalPlus' motion to strike 22 is DENIED as moot. The stay in this case is LIFTED. The parties may proceed with trial preparation in accordance with the scheduling order. Signed by District Judge Pamela L. Reeves on 11/20/17. (ADA)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
CAPITALPLUS EQUITY, LLC,
TUTOR PERINI BUILDING CORP., )
MEMORANDUM AND ORDER
CapitalPlus Equity, LLC, has brought this action against Tutor Perini Building
Corp. alleging breach of contract, misrepresentation, and fraud. Before the court is a
motion filed by Tutor to dismiss or transfer this action [R. 12]. Because the allegations of
the complaint contain sufficient factual matter to establish personal jurisdiction over Tutor
in the Eastern District of Tennessee, defendant’s motion is denied.
I. Factual Background
CapitalPlus is a Nevada limited liability company with its principal place of
business in Knoxville, Tennessee. Tutor is an Arizona corporation with its principal place
of business in Phoenix, Arizona.
CapitalPlus is a financial services company specializing in lending funds to
CapitalPlus entered into a lending agreement whereby
CapitalPlus agreed to lend The Espinosa Group funds in connection with various
construction projects. Tutor is the general contractor for a project located in Philadelphia,
Pennsylvania. Espinosa had a subcontract with Tutor for work on the Pennsylvania project.
In connection with the project, Tutor required Espinosa to provide a bond to
guarantee the performance and payment of its obligations under the subcontract. Tutor
informed Espinosa and CapitalPlus that Tutor would not make any payments to Espinosa
for its work until Espinosa provided a Letter of Credit (LOC) that guaranteed Espinosa’s
ability to perform its work. Tutor and CapitalPlus engaged in extensive discussions and
negotiations over a period of several months with respect to the LOC and associated escrow
agreement. CapitalPlus alleges the discussions and negotiations, multiple phone calls, and
emails were exchanged between CapitalPlus and Tutor from their offices in Tennessee and
Pennsylvania, respectively. As a result of the discussions and negotiations, Tutor and
CapitalPlus agreed that CapitalPlus would post $500,000 collateral to an escrow account
to be established with Zions First National Bank. The LOC states that any demand must
be presented at CapitalPlus’ office in Knoxville, Tennessee, and that the LOC would be
“governed by and construed in accordance with the laws of the State of Tennessee.”
CapitalPlus agreed to provide the LOC only if Tutor certified that Espinosa was in
compliance with the terms of its subcontract.
Tutor provided CapitalPlus with the
requested letter of compliance stating there was no uncured breach of contract and all
completed work and material provided was acceptable to Tutor. Based on this letter of
compliance, CapitalPlus issued the LOC. CapitalPlus states it would not have issued the
LOC without the letter of compliance from Tutor. CapitalPlus alleges that Tutor was aware
at the time of the issuance of the LOC that Espinosa was not in compliance with the terms
of the subcontract. Rather, Tutor issued the certification of compliance in order to receive
the LOC from CapitalPlus.
After receiving the LOC, Tutor issued a letter stating that Espinosa was in material
breach of its subcontract. Tutor also sent a letter to CapitalPlus’ office in Knoxville,
demanding disbursement of $500,000 from the escrow account because of Espinosa’s
alleged default on the subcontract. CapitalPlus states that Tutor misrepresented Espinosa’s
compliance with the subcontract to CapitalPlus’ detriment and that CapitalPlus, rather than
Tutor, is entitled to the funds deposited in the escrow account.
Tutor moves to dismiss the complaint on the grounds that this court lacks both
general and specific personal jurisdiction over Tutor; the complaint fails to state a claim
for fraudulent inducement; failure to join indispensable parties; and alternatively, venue is
more proper in the Eastern District of Pennsylvania on the basis of forum non conveniens.
Tutor argues the complaint should be dismissed because of a lack of personal
jurisdiction. CapitalPlus bears the burden of demonstrating that personal jurisdiction
exists. Youn v. Track, Inc., 324 F.3d 409, 417 (6th Cir. 2003). A district court may decide
to rule on the jurisdictional issue upon a full trial record, after an evidentiary hearing, or
merely on the basis of a written record. Welsh v. Gibbs, 631 F.2d 436, 438 (6th Cir. 1980).
This matter has been fully briefed by the parties and affidavits and exhibits have been filed.
There is no need for an evidentiary hearing in this matter and the motion will be decided
on the record.
When a court decides the issue on the basis of the written record alone, plaintiff
needs only to make a prima facie case of jurisdiction. To survive a motion to dismiss,
plaintiff needs only to “demonstrate facts which support a finding of jurisdiction.” Id. The
burden on plaintiff is relatively slight. The court considers the pleadings and affidavits in
the light most favorable to the plaintiff. Any conflicts between facts contained in the
parties’ affidavits must be resolved in the plaintiff’s favor. See Neogen Corp. v. Neo Gen
Screening, Inc., 282 F.3d 883, 887 (6th Cir. 2002) (the court does not consider facts
proffered by the defendant that conflict with those proffered by the plaintiff); Air Prods. &
Controls, Inc. v. Safetech Int’l, Inc., 503 F.3d 544, 549 (6th Cir. 2007) (a court disposing of
a Rule 12(b)(2) motion does not weigh the controverting assertions of the party seeking
dismissal). Dismissal under Rule 12(b)(2) is proper only if the specific facts alleged by
plaintiff, taken as a whole, fail to state a prima facie case for personal jurisdiction.
Bridgeport Music, Inc. v. Still N The Water Pub., 327 F.3d 472, 478 (6th Cir. 2003). Thus,
as long as the plaintiff is able to “demonstrate facts which support a finding of jurisdiction,”
the motion to dismiss will be denied, even in the face of controverting evidence presented
by the moving party. Serras v. First Tenn. Bank Nat’l Ass’n, 875 F.2d 1212, 1214 (6th Cir.
CapitalPlus alleges federal jurisdiction pursuant to 28 U.S.C. § 1332, diversity of
citizenship. In diversity cases, federal courts apply the substantive law of the forum state
to determine whether personal jurisdiction exists over a defendant, subject to constitutional
limitations. Aristech Chem. Int’l Ltd. V. Acrylic Fabricators Ltd., 138 F.3d 624, 627 (6th
Cir. 1998). The court must determine that a defendant comes within the boundaries of the
state’s long-arm statute as well as the requirements of constitutional due process. Id.
Under the Tennessee long-arm statute, a federal court is permitted to exercise jurisdiction
over a defendant if such jurisdiction is within the boundaries of constitutional due process.
Chenault v. Walker, 36 S.W.3d 45, 52 (Tenn. 2001). Where a state long-arm statute
extends to the limits of constitutional due process, the court need only determine whether
exercising personal jurisdiction over the defendant would violate constitutional due
process. Artistech, 138 F.3d at 627.
In order for a non-resident defendant to be subject to the jurisdiction of a court, the
defendant must have “certain minimum contacts . . . such that the maintenance of a suit
does not offend traditional notions of fair play and substantial justice.” Int’l Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945). A defendant’s minimum contacts with the forum
state may create two types of personal jurisdiction, general or specific. Daimler AG v.
Bauman, 134 S. Ct. 746, 748 (2014).
General jurisdiction over a defendant exists where the defendant’s contacts with the
forum state are “continuous and systematic” such that a defendant should “reasonably
anticipate being haled into court there.” Helicopteros Nacionales de Columbia, S.A., 466
U.S. 408 U.S. 408, 416 (1984). General jurisdiction allows a defendant to be sued in the
forum state even where the cause of action has no relation to the contacts that the defendant
has made in that state because the defendant is essentially “at home” in the forum state. Id.
Here, CapitalPlus does not argue that Tutor is subject to general personal jurisdiction in
the Eastern District of Tennessee. Therefore, the court will analyze whether specific
jurisdiction exists over Tutor in this court.
Specific jurisdiction allows a defendant to be sued in the forum state only where the
issues of the suit derive from or are connected to the contacts that establish jurisdiction.
Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 2851 (2011). The
existence of specific jurisdiction is determined by looking at the relationship among the
defendant, the forum, and the litigation. Keeton v. Hustler Magazine, Inc., 465 U.S. 770,
For a court to exercise specific jurisdiction that is consistent with
constitutional due process, the defendant’s “suit-related conduct must create a substantial
connection with the forum state.” Walden v. Fiore, 134 S. Ct. 115, 1121 (2014).
The Sixth Circuit has established a three-part test to determine whether the court
may exercise specific jurisdiction over a particular defendant. First, the defendant must
purposefully avail himself of the privilege of acting in the forum state or causing a
consequence in the forum state.
Second, the cause of action must arise from the
defendant’s activities there. Finally, the acts of the defendant or consequences caused by
the defendant must have a substantial enough connection with the forum state to make the
exercise of jurisdiction over defendant reasonable. Southern Machine Co. v. Mohasco
Indus. Inc., 401 F.2d 374, 381 (6th Cir. 1968).
1. Purposeful Availment
The purposeful availment requirement is considered the most important
requirement. Id. The defendant must have purposefully availed itself of the “privilege of
acting in the forum state or causing a consequence in the forum state.” Id. Requiring that
the defendant take purposeful steps in the forum state ensures that a defendant’s “random,
fortuitous, or attenuated” contacts with the forum state will not subject it to being haled
into court there. Burger King v. Rudzewicz, 471 U.S. 462, 475 (1985). Additionally, the
defendant’s relationship with the forum state must arise out of the contacts that the
defendant itself created with the forum state. Id. The unilateral activity of the plaintiff or
a third party cannot be the basis of exercising personal jurisdiction over the defendant. Id.
Although not decisive, the plaintiff or third party’s contacts with the forum state may be
significant or important to the due process analysis because the defendant’s contacts with
the forum state may be intertwined with the transactions with the plaintiff or third party.
Walden, 134 S. Ct. at 1122.
Particularly important to this case is that where a defendant has created “continuing
obligations between himself and the resident of the forum, he manifestly has availed
himself of the privilege of acting there and thus is subject to regulation and sanctions in the
forum state for the consequences of his activities.” Burger King, 471 U.S. at 473. The
court must look at the quality of the contacts to demonstrate purposeful availment, not just
the quantifiable number of contacts that a defendant has with the forum state. LAK, Inc. v.
Deer Creek Enterprises, 885 F.2d 1293, 1302 (6th Cir. 1989). The physical presence of the
defendant itself in the forum state is not required for a court to have personal jurisdiction
over the defendant; however, the minimum contacts requirement must still be met. Int’l
Shoe, 326 U.S. at 316.
Viewing the facts in the light most favorable to CapitalPlus, the series of
communications Tutor directed to CapitalPlus in Tennessee for the express purpose of
inducing CapitalPlus to issue the LOC are sufficient to establish specific personal
Tutor knowingly directed activity into Tennessee by negotiating and
executing a LOC and escrow agreement, which carried with them mutual obligations for
performance within the state. All of the emails and other correspondence Tutor sent to and
received from CapitalPlus in negotiating the terms and conditions of the LOC and escrow
agreement were sent to or received from Tennessee. When a nonresident defendant
transacts business by negotiating and executing a contract via telephone and letters to a
Tennessee resident, then the defendant has purposefully availed himself of the forum by
creating a continuing obligation in the forum. See Cole v. Mileti, 133 F.3d 433, 436 (6th
Cir. 1998). The express terms of the LOC made it reasonably foreseeable that Tutor would
be haled into court in Tennessee in the event of breach or other dispute over its terms or
operation. The LOC expressly required any request for payment be presented at
CapitalPlus’ office in Knoxville, Tennessee and that the LOC would be “governed by and
construed in accordance with the laws of the State of Tennessee.”
Next, CapitalPlus alleges the communications regarding the LOC and escrow
agreement contained materially false content and were delivered with fraudulent intent.
When the actual content of the communications into the forum gives rise to an intentional
tort action, that alone can constitute purposeful availment. See Neal v. Janssen, 270 F.3d
328, 332 (6th Cir. 2001).
2. Arising From
The second criterion under Southern Machine asks whether the plaintiff’s claims
“arise from” the defendant’s contacts with Tennessee. The Sixth Circuit has observed that
the “arising from” prong is met when the operative facts arise from the defendant’s contacts
with the state. Bird v. Parsons, 289 F.3d 865, 875 (6th Cir. 2002). Here, the operative facts
for CapitalPlus’ claims are clearly related to Tutor’s contacts with Tennessee. Tutor
contacted CapitalPlus in Tennessee. Tutor’s compliance letter was sent to CapitalPlus in
Tennessee, and Tutor intended CapitalPlus to rely on the alleged misrepresentations in
taking an action in Tennessee – the issuance of the LOC and escrow agreement. And,
CapitalPlus’ resulting damages occurred in Tennessee. When a defendant has purposefully
availed itself of acting in the forum by entering into a contract with a party there, and the
cause of action is for breach of that contract, then the cause of action naturally arises from
the defendant’s activities in the forum state. Cole, 133 F.3d at 436.
The third prong of the Southern Machine test requires that the exercise of personal
jurisdiction over the defendant in the forum state must be reasonable. Southern Machine,
401 F.2d at 381. This requires a substantial connection between the forum state and the
acts of the defendant or the consequences caused by the defendant. Id. Where the first two
criteria of the Southern Machine test are met, “an inference of reasonableness” arises such
that only the unusual case will not meet the reasonableness prong. Theunissen v. Matthews,
935 F.2d 1454, 1461 (6th Cir. 1991).
When a defendant has purposefully directed his actions to the forum state or its
residents, the defendant is required to present a “compelling case that the presence of some
other considerations would render jurisdiction unreasonable.” Id. Such considerations
include the following factors: (1) the burden on the defendant; (2) the interests of the forum
state; (3) the plaintiff’s interest in obtaining relief; and (4) other states’ interests in securing
the most efficient resolution of the controversy. Id. This issue may be disposed of
relatively easily because the defendant faces an inference of reasonableness and has
presented little to show that defending this suit in Tennessee is unreasonable or
Tutor voluntarily conducted business with a Tennessee company, entering into
extended negotiations with CapitalPlus and entering into a business transaction, which
transaction was contractually agreed to be governed by the laws of the State of Tennessee.
Moreover, Tennessee has an interest in enforcing its laws and protecting the interests of its
citizens. Further, Tennessee has a strong interest in resolving a contract dispute involving
a Tennessee business and a Tennessee choice-of-law provision where the harm occurs
within Tennessee. Similarly, CapitalPlus has a strong interest in obtaining relief in the
state where it resides. The court finds there is a sufficiently substantial connection between
Tutor and Tennessee to make the exercise of personal jurisdiction over Tutor fair and
reasonable. Tutor’s motion to dismiss the complaint on the grounds that this court lacks
personal jurisdiction over Tutor is without merit, and the motion is denied.
Tutor moves the court for an order transferring this action to the Eastern District of
Pennsylvania pursuant to 28 U.S.C. § 1404(a) as alternative relief.
For the convenience
of parties and witnesses, and in the interest of justice, a district court may transfer any civil
action to any other district or division where it might have been brought. 28 U.S.C. §
1404(a). Section 1404(a) is permissive in nature, and as its language suggests, district
courts have broad discretion in considering motions thereunder. Encore Med. LP v.
Kennedy, 861 F.Supp.2d 886, 895 (E.D.Tenn. 2012). The burden is on the moving party
to establish the need for a change of venue, and if the moving party fails to make such a
showing, then the plaintiff’s choice of forum will be given deference. Gomberg v. Shosid,
2006 WL 1881229 at *10 (E.D.Tenn. 2006).
The threshold consideration is whether the action is one that could have originally
been brought in the proposed transferee district court. Id. CapitalPlus concedes that it
could have brought its claims in the Eastern District of Pennsylvania.
The second step is a balancing of factors. A court may consider any factor that
would make the eventual trial easy, expeditious, and inexpensive. Cherokee Export Co. v.
Chrysler Int’l Corp., 142 F.3d 432 (6th Cir. 1998). In ruling on a motion to transfer under
§ 1404(a), a district court will consider the following nine private and public interests: (1)
convenience of witnesses; (2) availability of judicial process to compel the attendance of
unwilling or uncooperative witnesses; (3) location of relevant documents or records, and
the relative ease of access to sources of proof; (4) residence and convenience of the parties;
(5) relative financial means and resources of the parties; (6) locus of the operative facts and
events that gave rise to the dispute or lawsuit; (7) each judicial forum’s familiarity with the
governing law; (8) the deference and weight accorded to the plaintiff’s choice of forum;
and (9) trial efficiency, fairness, and the interests of justice based on the totality of the
circumstances. Mardini v. Presidio Dev. LLC, 2011 WL 111245 at *6 (E.D. Tenn. 2011).
Unless the balance is strongly in favor of the defendant, a plaintiff’s choice of forum should
rarely be disturbed. Nicol v. Koscinski, 188 F.2d 537, (6th Cir. 1951).
The court finds that only one of the nine relevant considerations arguably weighs in
favor of transfer. The first factor, the convenience of the witnesses, weighs against transfer.
Under this factor, the court considers the relevance and the materiality of the information
that the key witnesses will provide in the litigation. In Re Genentech, Inc., 566 F.3d 1338,
1343 (Fed. Cir. 2009). The party seeking transfer must clearly specify the essential
witnesses to be called and must make a general statement of what their testimony will
cover. Smith v. Kyphon, Inc., 578 F.Supp.2d 954, 963 (M.D. Tenn. 2008). The residence
of each key witness is also important. Kendell v. Whig Enters. LLC, 2016 WL 354876 at
*7 (S.D. Ohio Jan. 29, 2016). The party requesting transfer must show that the witnesses
will be “severely inconvenienced” if the litigation proceeds in the plaintiff’s chosen forum.
Malibu Boats, LLC v. Nautique Boat Co., 2014 WL 202379 at *5 (E.D. Tenn. Jan. 16,
2014). Here, Tutor has not specified the witnesses to be called, what their testimony will
cover, or the residence of such witnesses.
The second factor, availability of judicial process to compel the attendance of
unwilling or uncooperative witnesses, is neutral. Judicial process is available to compel
witnesses in the Eastern District of Tennessee as well as the Eastern District of
Pennsylvania. Section 404(a) provides for transfer only to a more convenient forum, not
to an equally convenient forum.
The third factor, location of the relevant documents or records, and the relative ease
of access to sources of proof, weighs in favor of transfer. Tutor argues that a determination
of Espinosa’s conduct on the project and the default under the LOC by reason of such
conduct is necessary in order to prove the validity of the letter of compliance and to address
CapitalPlus’ allegations that the letter of compliance was fraudulent and/or contained a
misrepresentation which fraudulently induced CapitalPlus to issue the LOC. Such a
determination will involve the books and records of Tutor, which are located in
Pennsylvania, the depositions of Tutor’s employees located in Pennsylvania, and the books
and records of Espinosa, and the depositions of employees and principals of Espinosa.
Because CapitalPlus alleges fraud in the inducement of the contract, the court finds that
evidence tending to show whether Espinosa was in compliance with the project subcontract
is relevant to CapitalPlus’ fraud charge. CapitalPlus argues this case is entirely about
determining the respective rights and obligations of Tutor and CapitalPlus with regard to
the LOC and escrow agreement, nothing more. CapitalPlus states all of the emails and
other correspondence Tutor sent to and received from CapitalPlus in negotiating the terms
and conditions of the LOC and escrow agreement were sent to or received from Tennessee.
Presumably, both parties have access to this evidence in their respective offices. However,
to the extent that Espinosa’s performance of the contract in Pennsylvania is relevant to the
fraud charge, this factor weighs in favor of transfer.
The fourth factor, residence and convenience of the parties, is neutral.
One of the
parties will be inconvenienced to some extent by having to litigate in either the Eastern
District of Tennessee (which will be convenient for CapitalPlus but not for Tutor) or the
Eastern District of Pennsylvania (which will be convenient for Tutor but not for
The fifth factor, relative financial means and resources of the parties, weighs against
transfer. Tutor does not contend that it lacks the financial means to defend itself against
litigation in this district.
The sixth factor, locus of the operative facts and events that gave rise to the dispute
or lawsuit, weighs against transfer.
As stated previously, the operative facts for
CapitalPlus’ claims took place in Tennessee. Tutor contacted CapitalPlus in Tennessee.
Tutor’s compliance letter was sent to CapitalPlus in Tennessee, and Tutor intended
CapitalPlus to rely on the alleged misrepresentations in taking an action in Tennessee – the
issuance of the LOC and escrow agreement. CapitalPlus’ resulting damages occurred in
The seventh factor, each judicial forum’s familiarity with the governing law, is
neutral. The agreement at issue contains a Tennessee choice of law provision, but does not
contain a Tennessee choice of forum provision. The court is confident that the district
court in Pennsylvania is equally capable of adjudicating plaintiffs’ claims in accordance
with Tennessee law.
The eighth factor, the deference and weight accorded to the plaintiff’s choice of
forum, weighs against transfer. CapitalPlus chose to bring this action in its home state of
Tennessee. Unless the balance of factors is strongly in favor of the defendant, the
plaintiff’s choice of forum should rarely be disturbed. Gulf Oil Corp. v. Gilbert, 330 U.S.
501, 508 (1947).
Finally, the court finds that ninth factor, the interests of justice, weighs against
transfer. Under § 1404(a), issues of “systemic integrity and fairness . . . come under the
heading of the interest of justice.” Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22,
30 (1988). Section 1404(a) was designed to prevent unnecessary inconvenience and
expense to parties, witnesses and the public. Continental Grain Co. v. The FBL-585, 364
U.S. 19, 21 (1960). Considering that most of the factors that the court has reviewed up to
this point weigh against transfer, the court finds nothing in the record to support transfer
under this factor. The interest of justice, therefore, does not require transfer.
Tutor argues that the LOC’s integration clause precludes CapitalPlus’ fraudulent
inducement claim. Generally, merger or integration clauses are routinely incorporated in
agreements in order to signal to the courts that the parties agree that the contract is to be
considered completely integrated. See Security Watch, Inc. v. Sentinel Sys. Inc., 176 F.2d
369, 372 (6th Cir. 1999). However, courts hold that merger clauses should not be used to
restrict the scope of the proof with regard to a fraudulent inducement claim. See Lowe v.
Gulf Coast Dev. Inc., 1991 WL 220576 at *5 (Tenn.Ct.App. Nov. 1, 1991); Expresit
Convenience Stores, LLC v. Transaction Tracking Techs. Inc., 2007 WL 30737 at *8 (M.D.
Tenn. Jan. 29, 2007).
In Lowe, the Tennessee Court of Appeals stated:
The principle of integration embodies the rule that all prior statements or
negotiations are merged into a written contract intended by the parties to be
a complete expression of their agreement. It does not apply in cases
involving fraud or mistake, and, therefore, it should not be used to restrict
the scope of the proof with regard to the [plaintiff’s] fraudulent inducement
Id. at *5.
Moreover, although contracts are presumed to contain the true intention of the
parties and should be enforced as written, Tenn. Code Ann. § 47-50-112 provides that
“nothing herein shall limit the right of any party to contest the agreement on the basis that
it was procured by fraud or limit the right of any party to assert any other rights or defenses
provided by common law or statutory law in regard to contracts.” Thus, Tennessee law
recognizes that the presence of an integration clause does not defeat a claim for fraudulent
inducement. Accordingly, the court finds the LOC’s integration clause does not preclude
consideration of the pre-contractual evidence in reviewing the fraudulent inducement
Next, Tutor argues that the complaint should be dismissed for failure to join two
indispensable parties – Espinosa and Zions First National Bank. Tutor avers that Espinosa
is a necessary party because it is the contractual relationship between Espinosa and Tutor
that may have led, in part, to Espinosa’s default under the subcontract.
Federal Rule of Civil Procedure 12(b)(7) provides for dismissal of a plaintiff’s claim
when the plaintiff fails to join an indispensable party as required by Federal Rule of Civil
Procedure 19. Under Rule 19(a), a plaintiff must join a party when “in that person’s
absence, the court cannot accord complete relief among existing parties.” A party seeking
dismissal under Rule 12(b)(7) bears the burden of showing the nature of the interest
possessed by an absent party and that the protection of that interest will be impaired by his
absence. See Boles v. Greeneville Housing Auth., 468 F.2d 476, 478 (6th Cir. 1982).
In order to determine whether Espinosa is an indispensable party1, the court follows
a two-step process. First, the court decides whether Espinosa qualifies as a “necessary”
party pursuant to Rule 19(a). A party is necessary where the party “is needed for just
adjudication” A party is needed for just adjudication if: (1) complete relief cannot be given
to existing parties in its absence; (2) disposition in its absence may impair its ability to
protect its interest in the controversy; or (3) its absence would expose existing parties to
substantial risk of double or inconsistent obligations. Safeco Ins. Co. v. City of White
House, 36 F.3d 540, 546 (6th Cir. 1994). Second, if a party qualifies as “necessary,” the
court must then determine its dispensability. A person or entity is only indispensable,
within the meaning of Rule 19 if it is necessary, its joinder cannot be effected, and the court
determines that it will dismiss the pending case rather than proceed in the case without the
absentee. Glancy v. Taubman Centers, Inc., 373 F.3d 656, 666 (6th Cir. 2004).
As Tutor has presented no facts or citation to legal authority regarding its assertion that Zions First National Bank
is an indispensable party, the court will deem the issue waived.
Here, CapitalPlus states that no matter the outcome of the dispute with Tutor,
Espinosa will not receive any proceeds from the LOC/escrow agreement. Nothing in the
complaint seeks to adjudicate Espinosa’s rights, as Espinosa is not a party to the LOC.
Well-settled doctrine governing letters of credit recognizes that a letter of credit is a
contract between the bank and the beneficiary that is separate and distinct from the
commercial contract between the beneficiary and the bank’s customer. Marino Indus.
Corp. v. Chase Manhattan Bank, NA, 686 F.2d 112, 115 (2nd Cir. 1982) (“the letter of credit
is not tied to or dependent upon the underlying commercial transaction”). Tennessee
statutes governing letters of credit are consistent with this general principle. Tenn. Code
Ann. § 47-5-103(d) provides:
Rights and obligations of an issuer to a beneficiary or nominated person
under a letter of credit are independent of the existence, performance, or
nonperformance of a contract or arrangement out of which the letter of credit
arises or which underlies it, including contracts or arrangements between the
issuer and the applicant and between the applicant and the beneficiary.
Therefore, the court finds that the LOC is independent from the Pennsylvania
construction project to which it relates. Espinosa’s absence will not prevent the court from
adjudicating complete relief between CapitalPlus and Tutor. In addition, Espinosa’s
interests will not be impaired; nor will Tutor face the possibility of multiple lawsuits or
jeopardy of double recovery. Accordingly, Tutor’s motion to dismiss for failure to join
Espinosa as an indispensable party is denied.
In light of the foregoing discussion, Tutor’s motion to dismiss or for change of
venue [R.12] is DENIED, and CapitalPlus’ motion to strike [R. 22] is DENIED as moot.
The stay in this case is LIFTED. The parties may proceed with trial preparation in
accordance with the scheduling order.
IT IS SO ORDERED.
UNITED STATES DISTRICT JUDGE
UNITED STATES DISTRICT
A S S
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