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WEBER v. KING

July 10, 2000

KEVIN WEBER AND ROBERT WEBER, PLAINTIFFS,
V.
KATHLEEN KING, ROBIN KING, JESSIE MILLER-HERSCHELL, KENNETH PATRICK AND KBS HOLDING COMPANY, INC., DEFENDANTS.



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

Memorandum of Decision and Order

This is, inter alia, a breach of contract action filed by two members of a limited liability company ("LLC") seeking money damages and an injunction preventing the third member of the LLC and her alleged supporters from destroying the LLC's business. At the center of the controversy is a bake shop founded by Defendant Kathleen King aptly named "Kathleen's Bake Shop" which all parties agree has acquired celebrity status in Southampton, N Y where King has been baking cookies and pies to critical acclaim for over 20 years. In 1998, King entered into an agreement with Plaintiff Robert Weber, who had been a long-time employee of Kathleen's Bake Shop, and his brother Kevin to form an LLC through which they would sell, among other products, King's famous chocolate chip cookies on the wholesale market along the Eastern seaboard. Sometime in late 1999, as the cookies continued to be baked fresh daily, the relationship between King and the Webers began to sour. First King filed an action in state court seeking to dissolve the LLC. The Webers, dissatisfied with the progress of the state court action, filed this proceeding against King and three individuals the Webers allege have been picketing in front of the bake shop and destroying its business. The issue before us today is whether the LLC is an indispensable party to this proceeding such that we should dismiss the Webers' action for failure to name it as a party.

RELEVANT BACKGROUND FACTS

King is the 100% owner of the company "KBS Holding Company, Inc." ("KBS"). In hopes of expanding her business to include regional distribution of her baked goods, on January 1, 1998, King sold two-thirds of her business to Plaintiffs Robert and Kevin Weber ("Plaintiffs" or "the Webers") for promissory notes valued at $433,333.33 each (the "Notes"). The vehicle through which the sale was accomplished was a limited liability company named "Kathleen's Bake Shop, LLC" (the "Company"), two-thirds of which was to be owned by the Webers and one-third by KBS.*fn1 The Company leased the premises of the Southampton store from King and paid her a salary as an officer of the Company. Plaintiffs have also opened a baking facility in Richmond, Virginia from which they produce most of the wholesale product. Plaintiffs recently terminated King's employment with the Company, but she retains her one-third ownership interest in the Company.

The parties dispute from which funds Plaintiffs were to make the monthly payments to KBS on their Notes. Plaintiffs claim that all parties agreed that the installment payments would be made from Company funds and charged as distributions to Plaintiffs' capital accounts in the Company. King, on the other hand, claims that Plaintiffs signed the Notes personally and were thus obligated to make regular payments on them regardless of whether Plaintiffs' share of Company profits for any given month were sufficient to cover their installment payments on the Notes.

In or around December 1999, King decided that she was no longer content with the manner in which Plaintiffs were running the Company. She began a campaign of protest which Plaintiffs describe as a "takeover scheme". According to Plaintiffs, "King's plan [was] to cause our promissory notes to KBS to be defaulted to enable her to reacquire our Units assigned as collateral security for the Notes. If successful, King [would] become the sole owner of the Company, and our interests [would] be extinguished." Affidavit of Kevin Weber dated May 17, 2000 (Weber Aff.) at ¶ 9.

On March 17, 2000, KBS filed a complaint in Supreme Court, Suffolk County against Kevin Weber, Robert Weber and the Company seeking money damages for breach of fiduciary duty, self-dealing and waste by the Webers, the dissolution of the Company and an accounting. See Ex. E to Weber Aff. On that same day, the Hon. Lester Gerard issued a temporary restraining order preventing the Webers from, inter alia, selling the Company or any of its assets in order to pay their installment payments on the Notes. The Webers then moved for permission to appeal and to vacate the TRO pending their application. The Appellate Division denied the Webers' motion.

On May 17, 2000, the Webers instituted the present action before this court against King, Robin King (King's sister-in-law), Jessie Miller-Herschell (a friend of King), Kenneth Patrick (a former employee of the Company) and KBS (collectively, "Defendants").*fn2 The Complaint alleges, inter alia, that King breached her contract with the Webers, breached her duty not to impair the value of the Webers' security on the Notes, committed acts of unfair competition, tortiously, maliciously and unlawfully interfered with the Webers' prospective business advantage and prospects and tortiously, maliciously and unlawfully interfered with the Webers' rights under their agreements with KBS. The Webers seek judgment:

• in their favor "in the amount of at least $1,066,666.66";
• enjoining King and her supporters from picketing or inducing others to boycott the Southampton store;
• enjoining King and her supporters from attempting to induce employees not to show up for work, not to use their best efforts for the Company or to quit;
• declaring the agreement providing that the Webers may pay their installment payments on the Notes from Company funds binding and enforceable;
• enjoining King from associating herself with any other bakery within 30 miles of the Southampton store;
• enjoining King from making any public statement concerning the business affairs of the Company or from making any disparaging statement concerning the Company;
• awarding the Webers exemplary damages against each of the defendants.

Defendants have moved to dismiss Plaintiffs' claims for failure to join a necessary and indispensable party pursuant to Fed.R.Civ.P. 12(b)(7). Defendants argue that Plaintiffs failed to join the Company "in order to create the false appearance of diversity jurisdiction." Additional Defendant's Memorandum of Law at 2. They urge that the LLC is a necessary and indispensable party whose joinder is not feasible because it would destroy diversity and deprive this court of subject matter jurisdiction under 28 U.S.C. § 1332. Therefore, Defendants conclude, this action should be dismissed pursuant to Fed. R.Civ.P. 12(b)(7).

Plaintiffs argue that their claims, while they may be brought on behalf of the Company, can also be "asserted by the plaintiffs individually." (Plaintiffs' Memorandum of Law at 8). The Company, therefore, is not a necessary party and, in turn, cannot be deemed an indispensable party. Id. at 7-11.

DISCUSSION

In order to determine whether the Company is an indispensable party, we must perform a two-part inquiry under Fed.R.Civ.P. 19. We must first determine whether the Company is a necessary party under Fed.R.Civ.P. 19(a). Associated Dry Goods Corp. v. Towers Financial Corp., 920 F.2d 1121, 1123 (2d Cir. 1990) ("Unless Rule 19(a)'s threshold standard is met, the court need not consider whether dismissal under Rule 19(b) is warranted"). If the Company is a necessary party, but joinder is not feasible, we must proceed, under Fed.R.Civ.P. 19(b), to "determine whether in equity and ...


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