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CUNARD LINE LTD. v. ABNEY

June 7, 1982

CUNARD LINE LIMITED, Plaintiff,
v.
Michael D. ABNEY, et al., individually and as Co-Partners doing business under the firm name of Coopers & Lybrand, Defendants



The opinion of the court was delivered by: KNAPP

MEMORANDUM AND ORDER

The case is before us on defendant's motion to dismiss the amended complaint.

 The plaintiff, Cunard Line Limited (Cunard), is a corporation incorporated in Great Britain. On July 27, 1981, invoking the Court's diversity jurisdiction, Cunard filed a complaint against Coopers & Lybrand (Coopers), one of the so-called "big eight" national partnerships of certified public accountants. The allegations in the complaint tell of much that had gone awry with the design and installation of a computer system which Coopers had agreed to develop for Cunard. The details of the underlying dispute are not germane to this motion, except that the complaint stated a claim for breach of contract (the contract claim), one for fraud, and one for professional malpractice (the tort claims). Several million dollars in damages were sought.

 On September 14, 1981 Coopers moved to dismiss for lack of subject matter jurisdiction on the ground that one of its partners was an alien. Consequently-defendant argued-Coopers was also an alien for jurisdictional purposes and, there being an alien corporation and an alien partnership on either side of the controversy, diversity jurisdiction was lacking. A few days later, on September 17, 1981, Cunard started a "parallel action" against Coopers in New York State Supreme Court.

 At oral argument on the motion to dismiss the original complaint, plaintiff observed that defendant's jurisdictional objections could be obviated by the expedient of filing an amended complaint which did not name the partnership as defendant, but named as individual defendants all Coopers' partners except the alien. Consequently, on October 2, 1981 we granted the motion to dismiss the original complaint, without prejudice to the filing of an amended one. *fn1" Such amended complaint was filed the very same day, and is identical in substance to the original one. However, rather than naming Coopers as a defendant, it named several hundred individual partners believed by Cunard to be United States citizens, purporting to sue them "individually and as co-partners doing business" under the name of Coopers. Now before us is defendant's motion to dismiss the amended complaint.

 On December 18, 1981 we heard oral argument on this second motion. Coopers then contended that Cunard was, for jurisdictional purposes, not only an alien corporation but also a citizen of New York State because it had "its principal place of business" in New York City. See 28 U.S.C. § 1332(c). Consequently, jurisdiction would be lacking on the additional ground that there would be a controversy between New York citizens: a New York corporate plaintiff against a partnership with New York members. The plaintiff argued, on the other hand, that the facts showed that Cunard had its principal place of business in England and that, in any event, Cunard could only be a citizen of Great Britain since the "dual citizenship" provision, 28 U.S.C. § 1332(c), did not apply to alien corporations. Without ruling, we suggested from the Bench that, at least as to the legal question, the better view appeared to be the one advocated by defendant. Thereupon plaintiff announced that it would cut this legal Gordian knot by doing, again, what it had done once before: file yet another amended complaint naming as defendants only those partners of Coopers who were neither aliens nor citizens of New York. Therefore we could dispense, there and then, with any legal argument about the applicability of the "dual citizenship" statute to foreign corporations and with any factual inquiry about the extent of Cunard's contacts with New York State. Thus poised, the motion was taken under advisement. *fn2" These preliminary skirmishes have not hindered pre-trial discovery, which continues on the understanding that its fruits will be available whether the litigation ultimately proceeds in this Court or in the "parallel" state action.

 Discussion

 A. Introduction

 The motion to dismiss the amended complaint raises three distinct questions: (a) do the tort claims state viable causes of action against the individual defendants named in the complaint? (b) does the contract claim state a cause of action against such defendants? and (c) may the partnership itself be sued in this Court by the device of individually suing fewer than all of its members?

 The first of these questions is easily answered by a simple "Yes": we have subject matter jurisdiction over the named partners (at least as to those several hundred who are not New York citizens), and the complaint states a tort claim against them. With respect to the remaining two questions, however, the answer is "No." For reasons we shall separately discuss, we conclude that whereas we have subject matter jurisdiction over the diverse individual partners, as to them the contract claim must be dismissed for failure to state facts giving rise to relief under New York law; and that we have no subject matter jurisdiction over any action-in tort or contract-against the partnership itself.

 B. The Contract Claim Against Individual Partners

 Section 26(2) of the New York Partnership Law makes partners jointly liable for the performance of contracts entered into by the partnership. The joint nature of the obligation does not imply that the joint obligor is immune from being sued individually. Caplan v. Caplan (1935) 268 N.Y. 445, 448, 198 N.E. 23. It only gives the joint obligor the right to insist that the plaintiff join other such obligors if joinder be possible. *fn3" Jones Knitting v. A. M. Pullen & Co. (S.D.N.Y.1970), 50 F.R.D. 311 at 315. And, upon following a prescribed procedure, see New York Civil Practice Law § 5201; Detrio v. United States (5th Cir. 1959) 264 F.2d 658, 661, a plaintiff may hold a joint obligor personally liable on a joint obligation.

 This general rule applies to individual partners since they are a genus in the wider family of joint obligors. However, for partners there is, under New York law, a prerequisite to individual liability on a joint partnership obligation: "resort may be had against them only if the joint or partnership property is insufficient to pay the firm debts or it appears there can be no effective remedy without resort to individual property." Wisnouse v. Telsey (S.D.N.Y.1973) (Weinfeld, J.), 367 F. Supp. 855, 859, and cases there cited at note 7. Indeed, a complaint that fails to allege that a partnership is insolvent and unable to pay its debts is insufficient to state a claim for breach of contract against the partners as individuals. Pine Plains Lumber Corp. v. Messina (3rd Dep't 1981) 78 A.D.2d 271, 435 N.Y.S.2d 381, 384. See also Helmsley v. Cohen (1st Dep't 1977) 56 A.D.2d 519, 391 N.Y.S.2d 522, 523.

 No such allegation was made in this case, and it clearly seems unwarranted. Indeed, the plaintiff specifically observed that the possibility that this partnership-one of the "big eight" national accounting firms-might not be able to satisfy a judgment was an "unlikely event." See Tr. of Hearing of December 18, 1981 at 28. Cf. Pine Plains Lumber Corp. v. Messina, supra, 435 N.Y.S.2d at 384 (allowing amendment to complaint to plead insolvency). It follows that the complaint ...


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