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Morgan Guaranty Trust Co. v. Martin


decided: August 15, 1972.


Swygert, Chief Judge, Stevens, Circuit Judge, and Eschbach,*fn* District Judge.

Author: Per Curiam

The question presented by this case is whether the district court properly dismissed this action under Rule 19, Fed.R.Civ.P., which provides that an action may be dismissed if a person who cannot be joined is regarded as indispensable under the criteria set forth in the rule.


In December 1967, defendant Martin bought $20,630 worth of stock through his broker, Smith, Barney & Co., Morgan Guaranty Trust Company, plaintiff herein, acted for Smith, Barney in transferring the stock and collecting payment. The stock was delivered through Martin's bank, Civic Center Bank, in Chicago. Payment was made by Civic Center through First National Bank of Chicago. First National wired Morgan to charge its account $20,630 and credit Civic Center. Morgan responded that Civic Center had no account with it, and First National then wired that the $20,630 should be paid to Smith, Barney for credit to the account of Martin. The money was so paid and credited and Morgan charged First National's account.

Several days later Morgan received another wire (hereafter referred to as the liquidation wire) from First National which referred to one of the earlier wires and which directed that $20,630 should be charged to its account and applied to liquidate the security drafts under the stock delivery and collection arrangement. Morgan, apparently without checking the earlier transaction, charged First National's account and liquidated the security drafts. When First National discovered that its account had been charged twice, it notified Morgan. Morgan corrected its mistake and immediately sought to recover the $20,630 which it paid to Martin through Smith, Barney. That money was the payment for the stock delivered to Martin by Morgan through Civic Center, and it should have been retained by Morgan in liquidation of the security drafts. Martin had already closed his account with Smith, Barney and had withdrawn the entire balance, including the $20,630. After other attempts to collect the money from Martin failed, Morgan filed this diversity action against Martin to recover the money.

Martin argues that he could not be obligated to Morgan because there was no privity of contract between him and Morgan. We are satisfied, however, as was the district court, that under Illinois law Morgan has stated a claim upon which relief can be granted.*fn1

We need not detail here the various motions, renewed motions, orders, orders on reconsideration, and other documents in the record. It is sufficient to note that in its order of January 19, 1971 (reaffirmed on reconsideration, March 15, 1971), the district court dismissed the action under Rule 19, Fed.R.Civ.P., on the ground that Smith, Barney was an "indispensable" party defendant who could not be joined because its joinder would divest the court of diversity jurisdiction.*fn2

Plaintiff filed a motion for summary judgment and a renewed motion for summary judgment. Several affidavits were filed, including an affidavit of defendant Martin.

Martin admits receipt of the stock and does not deny that he received a sum equivalent to the $20,630 plus other credits in his account when he closed the account with Smith, Barney. He claims he dealt solely with Smith, Barney and never with Morgan, and that he had no knowledge that Morgan claimed any of the money in his account. He asserts that he had many transactions with Smith, Barney and that he had no way of knowing if the $20,630 he received was the same $20,630 paid by Morgan to Smith, Barney for credit to his account. He thus contends that he is liable, if at all, only to Smith, Barney and that Morgan, if it is to recover at all, must proceed against Smith, Barney. Martin does not offer any explanation for the $20,630, such as telling us of some other transaction that would explain this credit to his account. An affidavit of a vice president of Smith, Barney states that the payment received for credit to Martin's account was so credited and that when Martin closed his account it reflected only two transactions -- the $20,630 credit and a $1,875 credit for a rescinded transaction. Martin, in fact, apparently admits that he is not entitled to the money because his argument that Smith, Barney is an indispensable party is based on the theory that (1) Smith, Barney might sue him for the $20,630 and (2) he could offset the $20,630 against what he claims Smith, Barney owes him -- which he would seek in a counterclaim or cross-claim -- as damages for securities law violations in connection with another transaction. Clearly, however, he could not reasonably assume that Smith, Barney miraculously paid him, without contest or even explanation, $20,630 toward a claim as yet unmade.


We turn now to rule 19, Fed.R.Civ.P.*fn3 Subdivision (b) of that rule provides that if a person described in subdivision (a) (1)-(2) cannot be joined, "the court shall determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person being thus regarded as indispensable." The factors to be considered in making that decision are set forth. Before it is necessary to consider those factors, however, it must first be determined if Smith, Barney is "a person as described in subdivision (a) (1)-(2)."

Subdivision (a) (1)-(2) provides that a person should be joined if:

"(1) in his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his 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 his claimed interest."

The district court did not detail the reasons for his conclusion.*fn4 However, given the facts of the case and the contentions of defendant, it would appear that subdivision (a) (2) (ii) is the most relevant. In essence, defendant argues that he might be sued by Smith, Barney, and would therefore be "subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations." We are unpersuaded.

Smith, Barney never indicated any interest in the $20,630 except to request that Martin return it either directly to Morgan or to Smith, Barney for transmittal to Morgan. The uncontradicted affidavit of a vice president of Smith, Barney establishes that the $20,630 was credited to Martin's account as directed.*fn5 Thus, Morgan could hardly sue Smith, Barney for following the instructions on Morgan's own instrument. And unless Smith, Barney repaid Morgan and was subrogated to Morgan's rights, Smith, Barney could hardly sue Martin. The $20,630 never "belonged" to Smith, Barney; it was transmitted to Smith, Barney only for credit to Martin's account. It would thus appear that there is no substantial risk that Martin would be subjected to a suit by Smith, Barney for the $20,630.

The risk is made even more remote by an additional factor. The record contains an affidavit by a vice president of Smith, Barney disclaiming any interest of Smith, Barney in the $20,630. The parties have argued before us the question whether this affidavit is a "judicial admission." We need not decide that question. Since the affidavit is uncontradicted, even if it is not a "judicial admission," it nevertheless provides persuasive support for the proposition that a successful suit -- indeed, any suit at all -- against Martin by Smith, Barney is highly unlikely. The rule requires a substantial risk of double liability. Both the Supreme Court and this court have emphasized that the analysis under the rule should be directed to the practical and not the theoretical.*fn6 We conclude that the affidavit, in the context of this entire record, forecloses any "substantial risk" that Martin will incur double liability if Smith, Barney is not made a party.

The only other claimed prejudice is that Martin's interest in recovering damages from Smith, Barney for securities law violations would be prejudiced if he has to sue Smith, Barney in a separate action and if he cannot retain the $20,630 which might give him a better bargaining position. It is obviously true that complete relief on all claims cannot be afforded as between Smith, Barney and Martin in this action if Smith, Barney is not a party. However, subdivision (a) (1) refers to relief as between those already parties not between a party and the absent person. It cannot seriously be contended that any time party A has a dispute with person B he can litigate that dispute in a case pending between A and C merely because that procedure might be more convenient than suing B in a separate lawsuit. And he certainly is not entitled to retain $20,000 of C's money just so he will be in a better position to bargain with B. Martin's position is unconscionable.

Finally, subdivision (a) (2) (i) does not apply since it refers to the absent person's ability to protect his interest. Smith, Barney not only does not claim any inability to protect its interest; it specifically disclaims any interest.

Since Smith, Barney was not a "person as described in subdivision (a) (1)-(2)," it was an abuse of discretion for the district court to have dismissed the action under Rule 19(b).*fn7

Martin also argues, for the first time on this appeal, that it was First National and not Morgan that sustained the loss and that First National is therefore an indispensable party whose absence justifies dismissal. We find no merit in this belated contention.*fn8


We turn now to plaintiff's request that we direct the district court to enter summary judgment in its favor. Defendant Martin argues that the denial of a motion for summary judgment is interlocutory in nature and therefore unappealable. Thus, he argues that the district court's order denying summary judgment is not before us for review and that we therefore cannot grant summary judgment but must remand the case for trial. We reject this contention.

Whether or not the order denying summary judgment is itself before us,*fn9 it is clear that the case is lawfully before us on appeal from the dismissal order. Section 2106 of Title 28, U.S.C. provides:

"The Supreme Court or any other court of appellate jurisdiction may affirm, modify, vacate, set aside or reverse any judgment, decree, or order of a court lawfully brought before it for review, and may remand the cause and direct the entry of such appropriate judgment, decree, or order, or require such further proceedings to be had as may be just under the circumstances." (Emphasis added.)

The District of Columbia Circuit has observed that this section grants this court "broad discretion in the disposition of a case on appeal." Kosty v. Lewis, 115 U.S.App.D.C. 343, 319 F.2d 744, 749 (1963), cert. denied, 375 U.S. 964, 84 S. Ct. 482, 11 L. Ed. 2d 414. While it would seldom be appropriate for an appellate court to direct the entry of summary judgment, since such a determination is in most instances best left to the discretion of the trial judge, we believe this section makes it clear that we have the power to do so when it would be "just under the circumstances." Cf. Forman v. United States, 361 U.S. 416, 426, 80 S. Ct. 481, 4 L. Ed. 2d 412.

In this case, a motion and a renewed motion for summary judgment were made. Both sides presented affidavits on the issue. Thus, this is not a case in which no motion was made at the trial level or in which the opponent of the motion did not have an opportunity to respond.*fn10 This is not a complex case; it is a simple case with simple facts. We have reviewed the record and have concluded that there is no genuine issue of material fact which should be tried.*fn11 It would be a waste of judicial resources to remand this case for trial.

Accordingly, we think that it is "just under the circumstances" for this court to remand with directions that the district court enter summary judgment for plaintiff. Interest shall be allowed from November 18, 1968.*fn12 It is so ordered.

Reversed and remanded with directions.


Reversed and remanded.

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