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Envirotech Corp. v. Bethlehem Steel Corp.

decided: February 17, 1984.


Bethlehem Steel Corporation appeals from a judgment of the District Court for the Southern District, Robert W. Sweet, Judge, dismissing Bethlehem's counterclaim against CAPC Corporation for lack of complete diversity.

Lumbard, Oakes and Kearse, Circuit Judges.

Author: Lumbard

LUMBARD, Circuit Judge:

Plaintiff-appellee Chemico Air Pollution Control Corporation (CAPC Corporation) brought a diversity suit in the Southern District, Robert W. Sweet, Judge, against Bethlehem Steel Corporation, a Delaware corporation, for breach of contract. Bethlehem counterclaimed against CAPC Corporation and its parent company, Envirotech Corporation, also a Delaware Corporation, for breach of contract arising out of the same transaction. When it was subsequently revealed that Envirotech had been the real party in interest in the original claim against Bethlehem, the district court dismissed that claim for lack of diversity. To protect the counterclaim from dismissal as well, Bethlehem offered to drop Envirotech as a counterclaim defendant, and proceed against CAPC Corporation alone. Judge Sweet refused that request, on the ground that Envirotech was an indispensible party to the counterclaim under Fed. R. Civ. P. 19(b), and dismissed the counterclaim as well for lack of subject matter jurisdiction. Bethlehem appeals from the latter determination.

We affirm.


This dispute concerns seven contracts executed from 1977 to 1979 between Bethlehem and various corporate entities, all controlled by Envirotech. Each of the contracts called for Bethlehem to purchase "quench cars," a pollution control device used in the production of metallurgic coke.

As the jurisdictional difficulties in the case arise from the complicated corporate history of Envirotech and its relevant affiliated entities, we start with an outline of that history. In November, 1975, Envirotech purchased Chemico Air Pollution Control Company (Chemico Company) from an outside corporation, to acquire its quench car technology. Chemico Company was made a division of Envirotech. In February and March, 1977, Chemico Company entered into four contracts to sell quench cars to Bethlehem.

In late February, 1977, Envirotech purchased all of the stock of the Fowler Engineering Corporation, apparently to obtain the firm's New York engineering license, and changed Fowler's name to Chemico Air Pollution Control Corporation (CAPC Corporation), a wholly owned independent subsidiary of Envirotech. In April, 1977, Envirotech transferred to CAPC Corporation nearly all of the assets and property of Chemico Company, expressly including the four contracts executed earlier that year between Bethlehem and Chemico Company/Envirotech. Bethlehem consented to the assignment of the contracts.*fn1

In October, 1978, for tax and accounting reasons, Envirotech and CAPC Corporation entered into a partnership, in which Envirotech held a 99% interest and CAPC Corporation held a 1% interest. CAPC Corporation transferred to the Partnership all its assets and liabilities, including the four Bethlehem contracts.

From March to June, 1979, Bethlehem entered into three more contracts for the purchase of quench cars. Despite the April, 1977, transfer of the four earlier Bethlehem contracts from Chemico Company to CAPC Corporation, these three were again executed in the name of Chemico Company.

In November, 1980, CAPC Corporation, a New York corporation, filed a diversity suit in the Southern District against Bethlehem, a Delaware corporation, for $6 million for breach of contract arising from all seven Bethlehem agreements. In December, 1980, for reasons unrelated to this suit, CAPC Corporation transferred its 1% interest in the Partnership to Envirotech as a dividend, and the Partnership was dissolved. In January, 1981, Bethlehem counterclaimed for $7 million in damages for breach of contract against CAPC Corporation and Envirotech, thus joining Envirotech as a third-party defendant. Presumably in contemplation of possible dismissal of its counterclaim against Envirotech, a Delaware corporation, for lack of diversity, Bethlehem simultaneously filed suit in a New York state court against CAPC Corporation and Envirotech, asserting substantially the same claims raised in the counterclaim. The New York action apparently is still pending.

In April, 1981, CAPC Corporation executed an assignment purporting to transfer all its rights and interests in this lawsuit to Envirotech, although the October, 1978, transfer of CAPC's interests to the Partnership, followed by the December, 1980, transfer of all Partnership interests to Envirotech, apparently had already effected that result.*fn2

In May, 1981, Envirotech filed suit against Bethlehem in California state court, raising the same claim brought by CAPC Corporation in this suit, asserting that it (Envirotech) had become a successor in interest to that suit by virtue of the April, 1981, assignment. The California action was stayed pending disposition of this suit. On September 14, 1981, Envirotech was joined as an additional party plaintiff ...

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