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MURPHY v. GUTFREUND

December 26, 1985

VINCENT B. MURPHY, JR., Plaintiff, against JOHN H. GUTFREUND, RICHARD J. SCHMEELK, GEDALE HOROWITZ, RICHARD G. ROSENTHAL, J. IRA HARRIS, THOMAS W. STRAUSS and WILLIAM J. VOUTE, Liquidators of Salomon Brothers Holding Company and Salomon Brothers, Defendants


The opinion of the court was delivered by: LASKER

LASKER, D.J.

This is the most recent of several motions to dismiss in this case. Defendants now move to dismiss for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1). In the alternative the defendants move for summary judgment. The motion to dismiss under Rule 12(b)(1) is granted.

The facts giving rise to this action are set out in detail at 583 F. Supp. 957 (S.D.N.Y. 1984). The suit arises out of the buyout of Salomon Brothers in 1981 by Phibro Corp. ("Phibro"). Vincent B. Murphy, until 1980 a Salomon Brothers general partner, alleges a breach by defendants of an annuity agreement under which Murphy was to receive $125,000 per year for ten years. Defendants have been sued in their capacity as "Liquidators of Salomon Brothers Holding Company ("SBHC") and Salomon Brothers."

 In an unpublished memorandum issued subsequent to the published opinion in this case, an earlier motion by defendants to dismiss for lack of subject matter jurisdiction was denied on the ground that diversity of citizenship between the parties existed. Murphy v. Gutfreund, No. 82-2394, slip op. (S.D.N.Y. Sept. 17, 1984). The premise of the finding was that defendants were being sued as trustees of a trust. "Since plaintiff entered into the disputed annuity agreement with the liquidating trust after the [Salomon Brothers and SBHC] partnerships ceased to exist, his suit is directed against a trust, albeit one created in order to liquidate pertnerships." Id. at 1. Because he was suing a trust as opposed to a partnership, the plaintiff -- a citizen of New Jersey -- could maintain complete diversity between the parties by omitting as defendants those liquidators and former Salomon general partners who were also citizens of New Jersey, subject only to the requirements as to the joinder of indispensable parties given by Federal Rule of Civil Procedure 19(b). It was concluded that neither the one liquidator nor the ten former Salomon general partners who were citizens of New Jersey (as is the plaintiff) and who are not named as defendants were indispensable parties to this action. Consequently, subject matter jurisdiction was found to exist.

 Subsequently, further discovery relating to jurisdiction was authorized. Defendants now renew their motion to dismiss for lack of subject matter jurisdiction on the ground that the additional facts discovered establish that the suit is one against a partnership, and not against a liquidating trust. Thus, defendants argue, the factual premise of the court's September 17 decision has been removed, and since there is not diversity of citizenship between the plaintiff and each of the Salomon partners, the action must be dismissed. In response, the plaintiff argues first, that the defendants are not in fact a partnership. Second, plaintiff contends that even if his suit is against a partnership, Federal Rule Civil Procedure 19(b) allows him to drop those partners who are not indispensable parties and thus preserve diversity jurisdiction.

 I.

 It is now apparent from the additional discovery taken in this case that no trust was in fact ever created by the Salomon partnerships and that the plaintiff has sued the partnerships. It is true that the First Restated Plan of Dissolution, Liquidation and Termination of Salomon Brothers and SBHC ("Restated Plan") specified that there would be established "a ten-year liquidating trust" with a $40 million fund for the purpose, inter alia, of making annuity payments to former partners such as plaintiff, Restated Plan at 7, *fn1" and provided that the SBHC executive committee, acting as "Liquidators," would become "trustees of the trust," Restated Plan at 12, 14.

 On October 1, 1981, however, when the Phibro buyout took place and implementation of the Restated Plan began, no trust was created. (Nor has one been created since.) At that time, the operating assets of the Salomon partnerships were transferred to Phibro in exchange for cash and debentures which, along with some special investment assets that were retained by the Salomon partnerships, went to two partnerships apparently identical in all but name to Salomon Brothers and SBHC (as those partnerships were constituted on September 30, 1981). Affidavit of Donald M. Feuerstein ("Feuerstein Aff.") at 2, Deposition of Donald M. Feuerstein ("Feuerstein Dep.") at 53-54.

 While the moderately voluminous affidavits and deposition excerpts submitted in support of the motion contain occasional qualifying language, as is not surprising, nevertheless, on the basis of the record as a whole, we find the facts to be as set forth below. On October 1, 1981, as described in the Restated Plan, Salomon Brothers and SBHC were dissolved, the names of the partnerships were changed to SBBD Liquidating Partnership and SBHC Liquidating Partnership respectively, and the members of the executive committee of the partnerships assumed the role of liquidators to wind up the affairs of the partnerships. Restated Plan at 1, 11-12; Feuerstein Dep. at 14, 75, 175. *fn2" What had been contemplated in the Restated Plan as a liquidating trust -- out of which contingent obligations of the partnerships, including annuity payments such as that at issue here, were to be satisfied -- was never created. Instead, up until October 1, 1982, such obligations were satisfied out of the assets held by the SBBD and SBHC Liquidating Partnerships. Feuerstein Dep. at 156-57, 159; Deposition of John H. Gutfreund at 119.

 On October 1, 1982, two additional entities envisioned by the Restated Plan were created. What the Restated Plan had called the "Liquidating Trust" was incarnated as the SB Contingency Fund Partnership, essentially to serve the intended trust's purpose. What the Restated Plan had called the "Special Investment Partnership" was created as the SB Special Investments Holding Company to serve much if its original purpose of holding the special investment assets never transferred to Phibro. Restated Plan at 7-11; Memorandum to the Partners of SBBD and SBHC Liquidating Partnerships. Both new entities were partnerships with the same general partners as the two Liquidating Partnerships and were to be governed in the same manner. See Partnership Agreement of SB Contingency Fund Partnership at 1-3. *fn3"

 Thus, in April of 1982 -- when the present action was initiated -- and at the times of the salient events which form the subject matter of this dispute -- i.e., the August 1981 Salomon executive committee decision to include a non-competition condition in the annuity agreement, plaintiff's subsequent discussions with the executive committee and its decision as to the condition's applicability to him, the October 1981 execution by plaintiff of the annuity agreement, and the January 1982 demand for and denial of the first annuity payment -- there simply was no trust and there accordingly were no trustees in existence. Indeed, even after October 1982 the only targets of a suit by plaintiff on his causes of action were the various Salomon partnerships.

 In sum, the facts lead ineluctably to the conclusion that this action is a suit against a partnership.

 II.

 The law which bears upon the present motion is actually much clearer than the occasionally ferocious arguments of the parties would suggest. For purposes of diversity, a partnership is a citizen of each jurisdiction of which a partner is a citizen. Great Southern Fire Proof Hotel Co. v. Jones, 177 U.S. 449, 456, 44 L. Ed. 842, 20 S. Ct. 690 (1900); Lewis v. Odell, 503 F.2d 445, 446 (2d Cir. 1974); Cunard Line Limited v. Abney, 540 F. Supp. 657, 660 (S.D.N.Y. 1982) (collecting cases). Therefore, under the requirement of complete diversity, Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L. Ed. 435 (1806), a court ...


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