H5 Capital-Seattle Real Estate LLC v. Onni Capital, LLC

Filing 18

ORDER denying Defendant's 10 Motion to Dismiss. Signed by Judge Richard A. Jones.(MW)

Case 2:20-cv-00801-RAJ Document 18 Filed 02/16/21 Page 1 of 6

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HONORABLE RICHARD A. JONES

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

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H5 CAPITAL – SEATTLE REAL ESTATE,
LLC,

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Case No. 2:20-cv-00801-RAJ

Plaintiff,

ORDER DENYING MOTION TO
DISMISS

v.
ONNI CAPITAL, LLC,

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Defendant.

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I.

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INTRODUCTION

This matter comes before the Court on Defendant’s Fed. R. Civ. P. 12(b)(7)

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Motion to Dismiss for Failure to Join a Party Under Rule 19. Dkt. # 10. Having

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considered the submissions of the parties, the relevant portions of the record, and the

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applicable law, the Court finds that oral argument is unnecessary. For the reasons below,

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the motion is DENIED.
II. BACKGROUND

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In escrow is a $2.5 million deposit. It was left there after a deal between the

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parties fell through. The question of this litigation is whether the $2.5 million deposit is

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refundable or not. The question currently before this Court is whether the escrow holder

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must be joined as a necessary party.

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ORDER – 1

Case 2:20-cv-00801-RAJ Document 18 Filed 02/16/21 Page 2 of 6

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Plaintiff H5 Capital – Seattle Real Estate, LLC (“H5”) owns the land and building

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located at 121 Boren Avenue North in the South Lake Union neighborhood of Seattle,

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Washington (“Property”). Dkt. # 11 at 8. On August 19, 2019, H5 and Defendant Onni

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Capital, LLC (“Onni”) entered an option agreement. Dkt. # 15-1 at 2-15. Under that

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agreement, Onni was granted the exclusive right, for a set period, to buy the Property. Id.

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In exchange, Onni agreed to pay $500,000 to an “escrow holder,” First American Title

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Insurance Company (“First American”). Id. at 2. And if Onni exercised the option, it

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agreed to pay an additional $500,000 to First American as a “nonrefundable” deposit for

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the Property. Id. at 2-3.

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On December 19, 2019, Onni exercised the option. Dkt. # 1 Ex. A. The parties

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entered a purchase agreement for the Property the same day. Dkt. # 11 Ex. A. At the

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time, Onni had already delivered $1 million to First American, comprising of the two

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option payments, $500,000 for the option itself and $500,000 for the exercise of the

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option. Id. at 9. Under the purchase agreement, Onni agreed to make yet another

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payment to First American, an additional $1.5 million for an “earnest money deposit,”

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bringing the total deposit to $2.5 million (“Disputed Funds”). Id. at 10; Dkt. # 1 ¶ 19.

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First American still holds the Disputed Funds in escrow. Dkt. # 16 ¶ 3.

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Months later, before the deal closed, Onni terminated the agreement. Dkt. # 1 Ex.

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B. It claimed that its performance under the purchase agreement became “impracticable”

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given the COVID-19 pandemic. Id. To that end, Onni instructed First American to

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return the Disputed Funds. Id.

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On May 27, 2020, H5 sued Onni. Dkt. # 1. H5 claims that Onni breached both

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the option agreement and the purchase agreement. Id. ¶¶ 36-41. The Disputed Funds, it

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claims, are non-refundable and must be paid to H5. Id. ¶ 31. Besides damages, H5 asks

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the Court to declare which party is entitled to the Disputed Funds. Id. ¶ 43.

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Weeks later, Onni moved to dismiss under Federal Rule of Civil Procedure

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12(b)(7) for failure to join a necessary party. Dkt. # 10. Onni argues that First American

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ORDER – 2

Case 2:20-cv-00801-RAJ Document 18 Filed 02/16/21 Page 3 of 6

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is a required and indispensable party under Rule 19. Id. According to Onni, because

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joining First American would destroy diversity jurisdiction and because the Court cannot

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proceed without it, the Court should dismiss this action. Id.
III. DISCUSSION

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Compulsory joinder is governed by Federal Rule of Civil Procedure 19.

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Confederated Tribes of Chehalis Indian Reservation v. Lujan, 928 F.2d 1496, 1498 (9th

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Cir. 1991). The inquiry is two-fold. Id. First, the court must determine whether an

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absent party is “necessary” to an action. Id. Then, if the party is necessary and cannot be

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joined, the court must determine whether the party is “indispensable” such that in “equity

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and good conscience” the action should be dismissed. Id. Only if the court determines

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that the absent party is a required party does it proceed to the second Rule 19 inquiry.

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Alto v. Black, 738 F.3d 1111, 1126 (9th Cir. 2013). “The inquiry is a practical, fact-

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specific one, designed to avoid the harsh results of rigid application.” Dawavendewa v.

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Salt River Project Agr. Imp. & Power Dist., 276 F.3d 1150, 1154 (9th Cir. 2002).

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A.

Necessary Party

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First American is not a necessary party. The inquiry ends there, and the Court

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need go no further. To determine whether an absent party is “necessary,” Rule 19(a)

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provides yet another two-part analysis. Confederated Tribes, 928 F.2d at 1498. “First,

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the court must consider if complete relief is possible among those parties already in the

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action.” Id. Second, it must consider whether the absent party “claims a legally

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protected interest in the subject of the suit such that a decision in its absence will

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[] impair or impede its ability to protect that interest; or [] expose [the parties] to the risk

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of multiple or inconsistent obligations by reason of that interest.” Dawavendewa, 276

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F.3d at 1155.

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Part two is inapplicable: First American does not claim a legally protected interest

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in the Disputed Funds. Onni argues that First American, as an “escrow holder” under the

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purchase agreement, “has an interest in this lawsuit.” Dkt. # 10 at 7. It has an interest,

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ORDER – 3

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Onni says, because First American retains “actual possession” of the Disputed Funds.

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Dkt. # 17 at 5. This is of no moment. Rule 19(a)(1)(B) asks whether the absent party

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“claims an interest relating to the subject of the action.” First American makes no such

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claim to the Disputed Funds that it holds in escrow. Rather, it expressly declares that it

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“has no pecuniary interest in those funds” and that it will hold the funds only until it

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receives “mutual written instructions from the parties.” Dkt. # 16 ¶ 3. At such time, it

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says, it “will disburse the funds in accordance with those instructions.” Id. Given that

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First American claims no interest in the subject of this lawsuit, it is not a required party

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under Rule 19(a)(1)(B). Thus, to be considered a required party, Onni must rely on a

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different subsection, Rule 19(a)(1)(A), and must show that without First American the

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Court cannot accord “complete relief” among the parties.
i.

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Complete Relief

“Complete relief ‘is concerned with consummate rather than partial or hollow

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relief as to those already parties, and with precluding multiple lawsuits on the same cause

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of action.’” Alto, 738 F.3d at 1126 (quoting Disabled Rights Action Comm. v. Las Vegas

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Events, Inc., 375 F.3d 861, 879 (9th Cir. 2004)). To be “complete,” the relief must be

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“meaningful . . . as between the parties.” Id. (emphasis omitted).

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Onni’s principal argument is that no “complete relief” can be awarded if First

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American is not joined. Dkt. # 10 at 6-8; Dkt. # 17 at 4-6. The argument goes, because

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the Court does not have jurisdiction over First American, First American will be under no

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obligation to disburse the Disputed Funds after the Court determines who the funds

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belong to. Dkt. # 10 at 7. According to Onni, “anything short of an order directing First

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American to release these funds . . . is not ‘complete relief.’” Dkt. # 17 at 5. In its

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response, H5 argues that no party is alleging any wrongdoing by First American and thus

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there is no relief to obtain against it. Dkt. # 13 at 9. First American is only “implicated”

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in this case, H5 says, because it is holding the Disputed Funds “until the Court ascertains

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whether the[] [funds] should be disbursed to H5 or Onni Capital.” Id. Then, based on

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ORDER – 4

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First American’s own representations in this action, it will disburse the funds upon

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receiving the parties’ “mutual written instructions.” Id. at 10. Onni argues that First

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American’s assurances are “meaningless.” Dkt. # 17 at 5.

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Meaningful relief is complete relief. Should either party prevail, the Court may

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indeed fashion relief that is more than partial or hollow—thus meaningful—yet short of

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an order directing First American to release the Disputed Funds. For example, the Court

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may declare who the Disputed Funds belong to. That is meaningful relief between H5

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and Onni, even if it does not bind First American directly. Sure, after declaratory

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judgment, some coordination with First American shall be required. But, for purposes of

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compulsory joinder, the Court may assume First American’s compliance.

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For example, in Alto v. Black, former members of an Indian tribe sued the Bureau

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of Indian Affairs (“BIA”). 738 F.3d at 1115-19. Under the tribe’s constitution, the BIA

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had ultimate authority over membership decisions, and the BIA disenrolled the former

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members from the tribe. Id. In their complaint, the former members did not name the

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tribe as a defendant. Id. The tribe appeared in the action and moved to dismiss, arguing

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that the former members failed to join the tribe as a necessary party. Id. at 1118.

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On appeal, the Ninth Circuit held that complete relief could be granted without the tribe

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and that joinder was not required. Id. at 1126-27. It reasoned that the district court could

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provide the following relief: it could rule for the former tribe members, vacate the BIA’s

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disenrollment decision, and remand to the BIA for redetermination. Id. at 1126. This,

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the Ninth Circuit said, would have been “meaningful” relief between the parties, “even if

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it d[id] not bind the [absent t]ribe directly.” Id. Significant here, the Ninth Circuit held

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that it could assume some compliance from the absent tribe even though it was not a

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party: “We may assume that the [absent tribe] will [] abide by the BIA’s decision, as it is

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committed by its own Constitution to do, and will also, consistently with its Constitution,

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provide [the former tribe members] with . . . membership.” Id. at 1127.

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ORDER – 5

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The Court likewise assumes that First American will honor its commitments. Just

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as the tribe in Alto was bound to its constitution, First American is bound by the option

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and purchase agreements. First American’s chief responsibility under those agreements

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is to hold and disburse funds. Further, First American has declared under penalty of

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perjury in this lawsuit that it claims no interest in the Disputed Funds and will disburse

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them once it receives “mutual written instructions from the parties.” Dkt. # 16 ¶ 3. The

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Court has no reason to think that First American will flout either of these promises. Once

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First American disburses the funds to the prevailing party, that party will have been

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granted complete and meaningful relief.

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Onni argues that First American’s representations are “meaningless,” for a

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“possibility exists” that First American will never receive “mutually written instructions”

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given just how contentious the parties’ dispute is. Dkt. # 17 at 5. That may be true of the

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moment. At this stage, the parties are reluctant to provide mutual written instructions,

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understandably so given that ownership of $2.5 million is in dispute. But the Court

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surmises that they will be more amenable later, once the Court declares who the Disputed

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Funds belong to. If they are not, and if one or both parties hold out, then that becomes a

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matter of judicial enforcement, which the Court hopes to avoid.

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In sum, Onni’s view of what relief is meaningful or complete is much too narrow.

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The Court holds that First American is not a necessary party and that complete relief may

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be awarded without it.
IV. CONCLUSION

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For the reasons stated above, the Court DENIES the motion.

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DATED this 16th day of February, 2021.

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The Honorable Richard A. Jones
United States District Judge

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ORDER – 6