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United States District Court, S.D. New York

April 29, 2004.


The opinion of the court was delivered by: LORETTA PRESKA, District Judge


On or about September 15, 2003, plaintiff, Michael Newbro, filed a complaint (the "Complaint") against defendants, Kristen Eberhard and Powell Transactions, Ltd., alleging that defendants had been unjustly enriched (First Cause of Action), had obtained Newbro's money under false pretenses (Second Cause of Action), and had converted Newbro's money (Third Cause of Action). The allegations in the Complaint stem from alleged transfers of $87,296 into accounts controlled by Kristen Eberhard and Powell Transactions without Newbro's permission.

According to the Complaint, in December 2000, Newbro and his wife, Konnie Newbro, opened six investment accounts with Kristen Eberhard's husband, Todd Eberhard, and invested more than $5 million in those accounts. (Compl. ¶¶ 6, 12). In February 2003, the Newbros learned that Todd Eberhard had fraudulently transferred some of their funds, without their authorization, to individuals and entities unknown to them. (Compl. ¶ 9).*fn1 Newbro alleges that through the use of forged transfer letters Todd Eberhard fraudulently made three transfers, totaling $87,296.00, from Newbro's accounts to the defendants and that defendants received and benefitted from these fraudulent transfers. (Compl. ¶¶ 14-18, 21-22).

  On or about October 24, 2003, Kristen Eberhard filed a motion to dismiss for failure to join an indispensable party or stay the action pursuant to Rule 12(b)(7) of the Federal Rules of Civil Procedure. In her motion, Kristen Eberhard argued that Todd Eberhard was a necessary and indispensable party under Rule 19 of the Federal Rules of Civil Procedure, and, therefore, the failure to name him as a defendant requires dismissal of the action. Alternatively, Kristen Eberhard submitted that because I will be deciding issues arising out of the relationship between a customer and investment advisor, which implicates the regulatory schemes set up to govern such relationships, I should stay the instant matter pending arbitration between Newbro and Todd Eberhard. Under Rule 12(b)(7), an action must be dismissed for failure to join a party as defined in Rule 19. F.R.C.P. 12(b)(7). Rule 19(a)(1) states that a person is a necessary party and must be joined in an action if: (1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest. F.R.C.P. 19(a). If a person is found to be a necessary party under the Rule 19(a) standard, but cannot be made a party to the action, the Court must decide if the absent party is indispensable requiring dismissal of the action. F.R.C.P. 19(b); Viacom Int'l, Inc. v. Kearney, 212 F.3d 721, 724 (2d Cir. 2000). In determining the indispensability of an absent party, the Court may consider: (1) to what extent a judgment rendered in the person's absence might be prejudicial to the person or those already parties; (2) the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; (3) whether a judgment rendered in the party's absence will be adequate; and (4) whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder. F.R.C.P. 19(b).

  Though I understand and sympathize with Kristen Eberhard's contention that this case is about the alleged wrongdoing of her husband, properly characterized, Newbro's Complaint is not about Todd Eberhard's alleged conduct but rather the alleged acts of Kristen Eberhard and Powell Transactions. Todd Eberhard is neither a necessary nor indispensable party pursuant to Rule 19, and his joinder is not required for a just adjudication. As this case is based on these defendants' alleged improper receipt and retention of funds transferred to them, Todd Eberhard's presence as a party in this matter is not necessary to ensure complete relief for Newbro or protect Todd Eberhard's interests, and the continuation of this matter will not increase the risk that defendants will incur multiple or inconsistent obligations. See F.R.C.P. 19(a). As Todd Eberhard is not a necessary party, neither is he an indispensable party. See F.R.C.P. 19(b); Viacom Int'l, Inc., 212 F.3d at 724.

  As the focus of this case is on defendants' alleged receipt and retention of the funds in question, there is no reason to stay this action pending arbitration between Newbro and Todd Eberhard. Any arbitration between those parties would not concern the wrongdoing alleged to have been committed by defendants, and, therefore, there is no reason why the present action ought to be stayed.

  Finally, that Kristen Eberhard disavows having ever received any of the funds in question does not change the fact that her name appears on the checks as the recipient of the funds and that Newbro's allegations concern defendants' receipt and retention of those funds. At this stage in the litigation, Kristen Eberhard's factual assertions and testimony that she never received any of Newbro's money is irrelevant.

  For the reasons stated above, Kristen Eberhard's motion to dismiss or stay the action (docket no. 5) is denied in all respects.


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