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FAHNESTOCK & CO. INC. v. CASTELAZO

July 11, 1990

FAHNESTOCK & CO. INC., FORMERLY KNOWN AS EDWARD A. VINER & CO., INC., PLAINTIFF,
v.
VICTOR M. CASTELAZO, SR., INDIVIDUALLY AND AS GUARDIAN OF THE PROPERTY OF VICTOR M. CASTELAZO, III AND LAURA C. CASTELAZO, MANUFACTURERS HANOVER TRUST COMPANY AND HAYTHE & CURLEY, DEFENDANTS.



The opinion of the court was delivered by: Sand, District Judge.

OPINION

By order of the New York County Surrogate's Court, defendant Victor M. Castelazo, Sr. ("guardian") was appointed guardian of the property of Victor M. Castelazo, III and Laura C. Castelazo, his infant grandchildren ("infants"). Pursuant to the Surrogate Court's order, all moneys and properties of the infants were paid over and delivered to defendant Manufacturers Hanover Trust Company ("MHT") as depository, and MHT was directed to comply with the directions of the guardian as to the investment or reinvestment of the property and the income collected from that property. Plaintiff's complaint alleges that defendant Haythe and Curley ("H & C") acted as counsel to the guardian and the infants "at all relevant times." In August 1984, the guardian authorized MHT to follow the written instructions of his financial advisor, Toni Vallen ("Vallen"), to sell, deliver or exchange securities held in the custody accounts.

Plaintiff commenced an action against Vallen alleging that she was part of a conspiracy to manipulate the prices of various securities, including those allegedly involved in the transactions which form the basis for this action. The case, Edward A. Viner & Company, Inc. v. Capital Shares, et al., 87 Civ. 7788 (LBS), is presently before this Court along with eight other actions arising out of the same alleged conspiracy.

Plaintiff, through different counsel, commenced this action on February 2, 1990 in the Supreme Court of the State of New York, asserting causes of action against the guardian for breach of contract, against MHT for breach of contract as a third-party beneficiary, and against all the defendants for negligence. The action was removed to this Court on March 1, 1990. Presently before the Court are plaintiff's motion to remand the case to state court and the motions of defendants MHT and H & C to dismiss or for summary judgment and for sanctions.

Plaintiff contends that this action was improperly removed. Specifically, plaintiff argues that its complaint does not state a "separate and independent" claim against defendant Castelazo, the one defendant with diverse citizenship to plaintiff, of the type which would make this action properly removable under 28 U.S.C. § 1441(c). We need not consider plaintiff's argument concerning separateness, however, for we find that there was no reasonable basis for predicting that state law might impose liability against defendants MHT and H & C, and we find that these defendants were joined in this action for the sole purpose of defeating diversity. As a result, we conclude that this action was properly removable under 28 U.S.C. § 1441(a) because without the improper joinder of MHT and H & C, this action would have fallen within this Court's original jurisdiction.

We find no merit to plaintiff's argument that defendants did not remove this action under Section 1441(a). The notice of removal clearly states that removal is taken "[p]ursuant to 28 U.S.C. § 1441(a) and 1441(c)" and that the claims were asserted "for the sole purpose of attempting to prevent or defeat a removal of the Action to [federal] court." See Notice of Removal at 1 & 4.

Discussion

In order to show that the naming of non-diverse defendants was a fraudulent joinder effected to defeat diversity jurisdiction and that the action was therefore properly removable under Section 1441(a), defendants must show bad faith with sufficient certainty and that there is no "reasonable basis for predicting that state law might impose liability on the non-diverse defendant." American Mut. Liability Ins. Co. v. Flintkote Co., 565 F. Supp. 843, 845 (S.D.N.Y. 1983); Green v. Amerada Hess Corp., 707 F.2d 201, 205 (5th Cir. 1983), cert. denied, 464 U.S. 1039, 104 S.Ct. 701, 79 L.Ed.2d 166 (1984); Coker v. Amoco Oil Co., 709 F.2d 1433, 1440 (11th Cir. 1983). All factual and legal issues must be resolved in favor of the plaintiff. S.A. Auto Lube, Inc. v. Jiffy Lube Int'l, Inc., 842 F.2d 946, 950 (7th Cir. 1987). The Court must examine plaintiff's claims to determine whether they have any merit and thus preclude a finding that they were fraudulently asserted to defeat diversity.

There is no basis in fact or under New York law for plaintiff's contract claim against MHT. Under New York law, only an intended beneficiary of a contract may assert a claim as a third party. Port Chester Elec. Constr. Corp. v. Atlas, 40 N.Y.2d 652, 655, 389 N.Y.S.2d 327, 330, 357 N.E.2d 983 (1976). An intended beneficiary is one whose "right to performance is 'appropriate to effectuate the intention of the parties' to the contract and either the performance will satisfy a money debt obligation of the promisee to the beneficiary or 'the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.'" Lake Placid Club Attached Lodges v. Elizabethtown Builders, Inc., 131 A.D.2d 159, 521 N.Y.S.2d 165, 166 (3rd Dep't 1987) (quoting Restatement Second of Contracts § 302(1)(a) & (b) (1979)). See also Septembertide Publishing B. V. v. Stein and Day, Inc., 884 F.2d 675, 679-80 (2d Cir. 1989); Fourth Ocean Putnam Corp. v. Interstate Wrecking Co., Inc., 66 N.Y.2d 38, 45, 495 N.Y.S.2d 1, 5, 485 N.E.2d 208 (1985) (third party's right to enforce contract generally upheld when no one other than third party can recover or language of the contract "clearly evidences an intent to permit enforcement by the third party").

Plaintiff argues that it is the intended third party beneficiary of the written authorization given by the guardian to MHT. This authorization letter reads in full:

  You are authorized and requested at any time and
  from time to time without further approval by the
  undersigned to follow the written instructions of
  —
    Toni Vallen — Valcorp Management Inc. to sell,
  deliver or exchange any securities or other
  property at any time held in my Custody Account,
  against receipt by you of such payment, securities
  or other property, as shall be set forth in such
  written instructions, and to follow such written
  instructions to receive or purchase with and to the
  extent of any cash to my credit with you as
  Custodian or with your Banking Department, or
  otherwise, and make payment therefor against
  receipt of the securities or other property to be
  acquired as set forth in such written instructions.
  This authorization shall continue in full force and
  effect until receipt by your Custody Department of
  written notice from me of the revocation thereof.

Even if we assume that this letter somehow constituted a contract, the clear purpose of the letter was for the guardian, pursuant to his duty to make investment decisions on behalf of the infants, to authorize the custodian of the accounts to follow the instructions of a particular financial advisor. It is entirely implausible that it was the intention of the parties to confer some benefit on a clearing broker acting on behalf of the brokerage firm where the ...


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