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401 North Wabash Venture, LLC v. Ascher Brothers Co.

September 13, 2010

401 NORTH WABASH VENTURE, LLC, PLAINTIFF,
v.
ASCHER BROTHERS CO., INC.; RICHARD N. ASCHER; AND DAVID R. ASCHER, DEFENDANTS.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge

MEMORANDUM OPINION AND ORDER

Ascher Brothers Co., Inc. performed painting and wall covering work in a mixeduse commercial and residential high rise building in Chicago developed by 401 North Wabash Venture, LLC (Wabash). Ascher Brothers filed a mechanic's lien on the property. In response, Wabash filed this action, based on diversity jurisdiction, to quiet title and seeking punitive damages against the company and two of its principals, Richard and David Ascher. Subsequently, Ascher Brothers filed an action in Illinois state court to foreclose its mechanic's lien. Ascher Brothers has moved to dismiss this case, arguing that Wabash has failed to join necessary parties and that joinder of those parties would defeat complete diversity and divest this Court of jurisdiction. For the reasons stated below, the Court denies the motion.

Background

When considering a motion to dismiss a complaint for failure to state a claim, the Court accepts the facts stated in the complaint as true and draws reasonable inferences in favor of the plaintiff. Newell Operating Co. v. Int'l Union of United Auto., Aerospace, and Agr. Implement Workers of Am., 538 F.3d 583, 587 (7th Cir. 2008).

Wabash is the developer of the Trump International Hotel & Tower, a mixed-use commercial, hotel, and residential high rise located at 401 North Wabash Avenue, Chicago. The residential portion of the building consists of condominiums. Wabash holds an ownership interest in the property, including ownership of all condominiums that have not yet been sold.

In March 2007, an agent for Wabash entered into a contract with Ascher for painting and wall covering services in the building. The contract price for the work was originally five million dollars, and during the course of the work several change orders were entered that raised the price to six million dollars. In October 2009, after most of the work had been completed and Ascher Brothers had been paid roughly five million dollars, Ascher Brothers signed a lien waiver confirming that total contract price was $5,905,389.

On February 24, 2010, Wabash prepared a final accounting of the Ascher Brothers contract, which included all adjustments from the change orders as well as credits due to Wabash for work that had originally been included in the contract but ultimately was not completed. Wabash calculated that the final amount owed on the contract was $5,241,013, of which Ascher Brothers had already been paid $5,025,083. Ascher Brothers disputed the final contract amount and refused to sign the accounting.

On February 23, 2010, one day before Wabash provided its final accounting, Ascher Brothers filed a notice of claim for a mechanic's lien with the Cook County Recorder of Deeds. In the notice of claim, Ascher Brothers asserts that the final contract amount for the work it performed for Wabash is $9,180,373.

On March 29, 2010, Wabash filed this lawsuit. It alleges the mechanic's lien is invalid because it falsely claims Wabash owes Ascher Brothers over four million dollars beyond what is actually due. Wabash alleges that the lien places a cloud on its title to the property and prevents it from exercising exclusive possession, dominion, and control over the property. In count one, Wabash asks the Court to quiet title and declare that Wabash owns the property free and clear of any purported interest of Ascher Brothers. In count two, Wabash claims that the mechanic's lien constitutes a "false and malicious publication of a claim that Ascher knows is baseless," namely, that Wabash owes Ascher Brothers over four million dollars. Wabash alleges it has suffered and will continue to suffer damages as a result of the assertion of the lien, including costs incurred to post bonds in amounts in excess of the lien claim. In count three, Wabash seeks punitive damages for Ascher Brothers' conduct.

On May 14, 2010, six weeks after Wabash filed this suit, Ascher Brothers filed a complaint in Illinois state court to foreclose the lien. The foreclosure action names as defendants Wabash, the condominium association, the lender, the construction manager, a credit corporation, and known and subsequent purchasers of condominium units and their lenders.

Ascher Brothers has moved to dismiss Wabash's claims in the present case. Ascher Brothers argues that Wabash has failed to join all the necessary parties to the action and that as a result the case should be dismissed under Federal Rule of Civil Procedure 12(b)(7). Specifically, Ascher Brothers contends that Wabash only owns part of the building, not all of it, and has failed to join as plaintiffs the other parties with ownership interests in the building, including the condominium association, which represents the interests of condominium owners in the common spaces of the residential portion of the building, and individual condominium unit owners. This Court's jurisdiction over Wabash's claim sounds in diversity -- Wabash is a citizen of New York, and Ascher Brothers is an Illinois citizen. According to Ascher Brothers, the absent parties, some of whom are Illinois citizens, are necessary and indispensable parties under Federal Rule of Civil Procedure 19. Ascher Brothers also contends that the missing parties are properly aligned as plaintiffs. For this reason, their joinder would destroy complete diversity of the parties and divest this Court of subject matter jurisdiction. Ascher Brothers thus seeks to dismiss Wabash's claims. In the alternative, Ascher Brothers moves to dismiss under Federal Rule of Civil Procedure 12(b)(1) on the ground that the Court should abstain from hearing this case while the mechanic's lien foreclosure action is pending in state court.

Discussion

A. Failure to join absent parties

In its motion to dismiss, Ascher Brothers argues that Wabash has failed to join all necessary parties to its claim and that joinder of those parties would defeat diversity and divest this court of jurisdiction.

Diversity jurisdiction exists when the amount in controversy exceeds $75,000 and when the case is between citizens of different states. 28 U.S.C. § 1332(a)(1). When evaluating whether there is diversity of citizenship, the Court considers the citizenship of all named parties in addition to that of unnamed indispensable parties and real parties in interest. F. & H.R. Farman-Farmaian Consulting Eng'rs Firm v. Harza Eng'g Co., 882 F.2d 281, 284 (7th Cir. 1989); see also CCC Info. Servs., Inc. V. American Salvage Pool Ass'n, 230 F.3d 342, 346 (7th Cir. 2000).

It is undisputed that there is complete diversity of citizenship between the named parties in this case. Therefore, the relevant inquiry is whether Wabash's failure to join the other condominium owners and the condominium association (the "absent parties") justifies dismissal under Federal Rule of Civil Procedure 12(b)(1). To determine this, the Court must determine whether the absent parties are necessary and indispensable under Federal Rule of Civil Procedure 19.

1. Compulsory counterclaim

Before the Court reaches the Rule 19 analysis, it addresses an argument made by Wabash at the outset of its response to the motion to dismiss. Wabash argues that rather than being filed in state court, Ascher Brothers' claim to foreclose its lien should have been filed as a compulsory counterclaim in this case under Federal Rule of Civil Procedure 13(a). Were this a compulsory counterclaim, Ascher Brothers could join all other parties needed for settlement of the mechanic's lien without defeating this court's diversity jurisdiction. Fed. R. Civ. P. 13(a); By-Prod Corp. v. Armen-Berry Co., 668 F.2d 956, 960 (7th Cir. 1982) ("a compulsory counterclaim requires no independent federal jurisdictional basis.")

Rule 13(a)(1) establishes that "a pleading must state as a counterclaim any claim that -- at the time of service -- the pleader has against an opposing party if the claim: (A) arises out of the transaction or occurrence that is the subject matter of the opposing party's claim; and (B) does not require adding another party over whom the court cannot acquire jurisdiction." Fed. R. Civ. P. 13(a)(1). The first of these requirements appears to be satisfied here. Ascher Brothers' claim to foreclose its lien arises out of the same transaction or occurrence that is the subject matter of Wabash's claim: whether Ascher Brothers can validly claim a lien on title to Wabash's property or whether, instead, the lien waiver it signed in October 2009 is binding.

The second Rule 13(a)(1) requirement also appears to be satisfied. Under Illinois law, a claim to foreclose a mechanic's lien does require joinder of other parties, namely "the owner of the premises, the contractor, all persons in the chain of contracts between the claimant and the owner, all persons who asserted or may assert liens against the premises under this Act, and any other person against whose interest in the premises the claimant asserts a claim." 770 ILCS 60/11(b). This would include the absent condominium owners, mortgage holders, and perhaps the ...


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