United States District Court, Southern District of New York
August 21, 1991
ROBERT H. HAGGERTY, ROBERT C. GRAHAM, AND KIRK PARRISH, INDIVIDUALLY AND ON BEHALF OF ALL OTHER PERSONS WHO ARE CLASS I LIMITED PARTNERS OF COMSTOCK GOLD COMPANY, L.P., PLAINTIFFS,
COMSTOCK GOLD COMPANY, L.P., UNITED MINING CORPORATION, RAYNHAM HALL CONTRACTING, INC., TIMOTHY COLLINS, MAURICE CASTAGNE, GEORGE WERK AND ALICE WERK, DEFENDANTS. HOWARD T. BELLIN, M.D. AND ROBERT M. GILLER, M.D., INTERVENOR-PLAINTIFFS, V. COMSTOCK GOLD COMPANY, L.P., UNITED MINING CORPORATION, RAYNHAM HALL CONTRACTING, INC., TIMOTHY COLLINS, MAURICE CASTAGNE, GEORGE WERK AND ALICE WERK, DEFENDANTS.
The opinion of the court was delivered by: Leisure, District Judge:
ORDER AND OPINION
This is an action for violation of § 10(b) of the Securities
Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b
promulgated thereunder, as well as state law claims for fraud,
rescission, and breach of contract and fiduciary duties. On May
29, 1991, 765 F. Supp. 111, this Court granted a motion for
summary judgment made by defendants Comstock Gold Company,
L.P., United Mining Corporation, Raynham Hall Contracting,
Inc., Timothy Collins and Maurice Castagne (collectively "the
Moving Defendants")*fn1 with respect to plaintiffs' federal
securities fraud claim (the "May 29 Order"). Plaintiffs have
now moved, pursuant to Local Civil Rule 3(j), for reargument of
the May 29 Order. Plaintiffs have also moved, pursuant to
Fed.R.Civ.P. 21, to dismiss defendant Comstock Gold Company
L.P. ("Comstock") from this action in order to restore the
Court's diversity jurisdiction over the remaining state law
In its May 29 Order, the Court granted the Moving Defendants'
motion for summary judgment, dismissing plaintiffs' federal
securities fraud claim. The Court then dismissed plaintiffs'
remaining state law claims, pursuant to United Mine Workers v.
Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966), for
lack of subject matter jurisdiction over those claims.
Plaintiffs have now moved for reargument of the Court's May
29 Order, arguing that the Court erred in dismissing the state
law claims as "pendent" because the amended complaint alleges
both federal question jurisdiction, under 28 U.S.C. § 1331, and
diversity of citizenship jurisdiction, under 28 U.S.C. § 1332.
In addition, and apparently in contradiction to the logic
underlying their motion for reargument, plaintiffs concede that
this Court does not have diversity jurisdiction over this
action, and thus move, pursuant to Fed.R.Civ.P. 21, to dismiss
Comstock from this action so as to restore such jurisdiction.
The Moving Defendants object to plaintiffs' motion to dismiss
Comstock as a defendant in this action. The Moving Defendants
argue that this motion is untimely, and that, in any event,
Comstock is a necessary party that should not be dismissed from
this action. In addition, the Moving Defendants argue that the
findings of fact made by the Court in its May 29 Order apply
with equal force to plaintiffs' state law fraud claim, and
require dismissal of that claim. Finally, the Moving Defendants
have cross-moved for sanctions, pursuant to Fed.R.Civ.P. 11, on
the ground that plaintiffs' instant motion is frivolous.
I. Motion for Reargument
Motions for reargument will be granted only if the Court
overlooked "matters or controlling decisions" which, if
considered by the Court, would have mandated a different
result. See Litton Industries Inc. v. Lehman Brothers Kuhn
Loeb, Inc., 1989 WL 162315, at 4, 1989 U.S.Dist. LEXIS 9145, at
9-10 (S.D.N.Y. 1989); Moll v. U.S. Life Title Insurance Co.,
700 F. Supp. 1284, 1286 (S.D.N.Y. 1988) (Leisure, J.); Bozsi
Limited Partnership v. Lynott, 676 F. Supp. 505, 509 (S.D.N Y
1987). "The standard for granting a motion for reargument is
strict in order to dissuade repetitive arguments on issues that
have already been considered fully by the Court." Ruiz v.
Commissioner of Dept. of Transportation, 687 F. Supp. 888, 890
In the case at bar, plaintiffs do not seek reargument of that
part of the
May 29 Order granting summary judgment dismissing plaintiffs'
federal securities fraud claim.*fn3 Rather, plaintiffs argue
that the Court erroneously described the state law claims in
this action as "pendent." Implicit in this argument is the
notion that this Court has jurisdiction over the state law
claims on the basis of diversity of the citizenship of the
parties. However, plaintiffs concede, as they must, that
diversity of citizenship of the parties does not exist. This
fact is obvious from the face of the amended complaint,
including the caption of this action, in which plaintiffs are
suing, inter alia, a limited partnership in which they are
limited partners. See Carden v. Arkoma Associates,
494 U.S. 185, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990) (citizenship of a
limited partnership is determined by reference to the
citizenship of its limited, as well as its general, partners).
Because there clearly existed no basis for the Court's subject
matter jurisdiction over the non-federal claims other than
pendent jurisdiction, the Court's characterization — and
dismissal — of those claims as "pendent" was correct.
Accordingly, plaintiffs' motion for reargument is denied.
II. Dismissal of Comstock as a Defendant
Plaintiffs have also moved, pursuant to Fed.R.Civ.P. 21, to
dismiss Comstock as a defendant in this action. The purpose of
this motion is to eliminate the non-diverse party, and thus
restore the Court's diversity jurisdiction over plaintiffs'
state law claims.*fn4
As a threshold matter, the Court notes that it is
questionable whether Rule 21 is the proper procedural vehicle
for plaintiffs' motion. The Second Circuit has held in a
Rule 21 was adopted to obviate the harsh common
law adherence to the technical rules of joinder,
and not in order to deal with problems of
defective federal jurisdiction. Here the plaintiff
is not seeking to drop a party in order to cure
defects of misjoinder or nonjoinder. The motion
more properly is an amendment of the pleadings
under Rule 15(a) which would result in the
dismissal of the complaint against [the
non-diverse defendant], or it may be based solely
on the inherent powers of the court to perfect
Kerr v. Compagnie de Ultramar, 250 F.2d 860
, 864 (2d Cir. 1958)
(citations omitted); see also Jaser v. New York Property
Insurance Underwriting Association, 815 F.2d 240
1987); Samaha v. Presbyterian Hospital in the City of New York,
757 F.2d 529
(2d Cir. 1985); Yankee Bank for Finance & Savings,
FSB v. Hanover Square Associates-One Limited Partnership,
693 F. Supp. 1400, 1410 (N.D.N.Y. 1988).*fn5
But cf. Newman-Green,
Inc. v. Alfonzo-Larrain, 490 U.S. 826
, 109 S.Ct. 2218, 104
L.Ed.2d 893 (1989) (Rule 21 may be used by federal appellate
courts to dismiss a dispensable non-diverse party in order to
preserve jurisdiction); Curley v. Brignoli, Curley & Roberts
Associates, 915 F.2d 81
(2d Cir. 1990) (same), cert. denied,
___ U.S. ___, 111 S.Ct. 1430
, 113 L.Ed.2d 484 (1991). Because
the standard for granting the motion is the same whether Rule
21 or Rule 15(a) is relied upon, see Kerr, supra, 250 F.2d at
864; 7 Wright, Miller & Kane, Federal Practice and Procedure §
1685, at 458 (1986) ("it makes no difference whether Rule 15 or
Rule 21 is used"), the Court will deem the motion to have been
properly made under Rule 15(a).
In a case where leave to amend "is sought to eliminate a
defendant in order to preserve diversity jurisdiction, `unless
it appears that a non-diverse defendant cannot be dropped from
an action without prejudice to the remaining defendants, the
[Rule 15(a)] motion should be granted and a failure to do so is
an abuse of discretion.'" Samaha, supra, 757 F.2d at 531
(brackets in Samaha) (quoting Kerr, supra, 250 F.2d at 864).
The Second Circuit has further explained that
[t]he prejudice that matters is the same as that
which determines whether a party is indispensable:
"And the question always is or should be, when
objection is taken to the jurisdiction of the
court by reason of the citizenship of some of the
parties, whether, to a decree authorized by the
case presented, they are indispensable parties,
for if their interests are severable and a decree
without prejudice to their rights can be made, the
jurisdiction of the court should be retained and
the suit dismissed as to them."
Samaha, supra, 757 F.2d at 531 (quoting Horn v. Lockhart, 84
U.S. (17 Wall.) 570, 579, 21 L.Ed. 657 (1873)); see also Jaser,
supra, 815 F.2d at 243-44.
Plaintiffs argue that none of the Moving Defendants will
suffer prejudice should Comstock be dismissed from this action,
and thus Comstock is not an indispensable party. In making this
argument, plaintiffs note that "Comstock is no longer a
functioning entity because all or substantially all of its
assets were forfeited when Comstock defaulted under its mineral
leases in 1986. Although Comstock has not been formally
dissolved, it is for all intents and purposes defunct."
Affidavit of Francis R. Jones, Esq., sworn to on June 21, 1991,
¶ 2. The Moving Defendants, in opposing the motion to drop
Comstock, argue that the motion is untimely, and that Comstock
is a "necessary" party because the amended complaint alleges
wrongdoing by, and seeks damages from, Comstock.*fn6
Neither of these arguments is persuasive. First, as to the
issue of delay, the Moving Defendants have not argued that such
delay, to the extent there was any, has caused any prejudice.
Delay alone, without any indication of bad faith on the part of
the movant, is insufficient to warrant denial of the motion.
Moreover, there existed no need for plaintiffs to move to
dismiss Comstock in order to preserve diversity as long as the
federal securities fraud claim provided a jurisdictional hook
on which their pendent state law claims could hang. Only upon
the dismissal of the
federal claim by the May 29 Order did it become necessary to
seek to dismiss Comstock. Therefore, the instant motion is
timely. See Curley, supra, 915 F.2d 81 (dismissing non-diverse
defendant to restore jurisdiction after bench trial and entry
Second, the Moving Defendants' conclusory assertion that
Comstock is a "necessary" party, without any specific
allegation of prejudice that might result from its dismissal
from this action, is clearly insufficient. The mere fact that
the amended complaint contains averments of wrongdoing by
Comstock, and seeks damages therefrom, does nothing to render
Comstock indispensable, for such is true of any defendant.
Finally, the Moving Defendants' liability is alleged to be
joint and several, which militates against a finding of
indispensability. See Newman-Green, supra, 490 U.S. at 838, 109
S.Ct. at 2226 ("given that all the guarantors (including
Bettison) are jointly and severally liable, it cannot be argued
that Bettison was indispensable to the suit.").*fn7
Accordingly, the Court will dismiss Comstock as a defendant
in this action, with prejudice. See Newman-Green, supra, 490
U.S. at 838, 109 S.Ct. at 2226 (dismissal of non-diverse
defendant with prejudice eliminates concern that the dismissed
defendant may be prejudiced by the dismissal). The Court thus
has subject matter jurisdiction, based on the diversity of the
citizenship of the parties, over plaintiffs' state law claims.
III. Motion for Dismissal of State Law Fraud Claim and
Imposition of Sanctions
The Moving Defendants have argued that the Court's findings
of fact in its May 29 Order require the dismissal of
plaintiffs' state law fraud claim. However, this argument is
best raised in the context of a separate motion fully briefed
by the parties, rather than in its present form as part of an
argument in opposition to plaintiffs' instant motion. Should
the Moving Defendants seek to make such a motion, they shall so
inform the Court and plaintiffs, and establish a briefing
schedule with plaintiffs' consent. No pre-motion conference
will be required.
The Moving Defendants' cross-motion for sanctions is denied.
For the reasons stated above, plaintiffs' motion for
reargument of the Court's May 29 Order is denied. Plaintiffs'
motion to dismiss Comstock as a defendant in this action is
granted, with prejudice. Plaintiffs shall timely serve and file
a second amended complaint consistent with the dismissal of
Comstock from this action. The Moving Defendants' cross-motion
for sanctions is denied.