United States Court of Appeals
For the First Circuit
Nos. 07-1317, 07-1318
B. FERNÁNDEZ & HNOS, INC.; CARIBBEAN WAREHOUSE LOGISTICS, INC.,
Plaintiffs-Appellants/Cross-Appellants,
v.
KELLOGG USA, INC.; KELLOGG CARIBBEAN SERVICES COMPANY, INC.,
Defendants-Appellees/Cross-Appellants.
ABC INSURANCE; XYZ SURETY COMPANY;
PREFERRED INSURANCE; JOHN DOE; RICHARD ROE,
Defendants.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Jaime Pieras, Jr., Senior U.S. District Judge]
Before
Torruella and Howard, Circuit Judges,
and Smith,* District Judge.
Gael Mahony, with whom Holland & Knight LLP, Alfredo Fernández
Martinez and Delgado & Fernández, LLP were on brief, for
appellants.
Ricardo F. Casellas, with whom Casellas Alcover & Burgos,
P.S.C. was on brief, for appellees.
February 14, 2008
*
Of the District of Rhode Island, sitting by designation.
HOWARD, Circuit Judge. Before us are an appeal and
cross-appeal arising from an action brought by B. Fernández &
Hnos., Inc. ("BFH") and Caribbean Warehouse Logistics ("CWL")
against Kellogg USA, Inc. ("Kellogg USA") in the United States
District Court for the District of Puerto Rico. Jurisdiction was
based on diversity of citizenship. The district court dismissed
the case, finding that Kellogg Caribbean Services, Inc. ("Kellogg
Caribbean"), a non-party entitled to intervene in the matter, was
an indispensable party to the action under Federal Rule of Civil
Procedure 19 whose joinder would destroy complete diversity.
In the appeal, plaintiff BFH challenges the district
court's indispensability determination. BFH argues that the court
erroneously denied two motions that would have rendered Kellogg
Caribbean dispensable to its action against Kellogg USA. In the
cross-appeal, Kellogg USA and Kellogg Caribbean protest the court's
decision, upon dismissal of BFH's action, to deny them costs and
attorneys' fees.
We conclude that, even had the court granted BFH's
motions, consideration of the Rule 19 factors guiding the
indispensability analysis continue to support the dismissal.
Additionally, we find no error in the district court's denial of
costs and fees. Thus, we affirm the district court's judgment.
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I. Background
We have previously discussed in detail the relevant
background facts of this case. See B. Fernández & Hnos., Inc. v.
Kellogg USA, Inc., 440 F.3d 541 (1st Cir. 2006) ("Kellogg I"). We
provide a similar rehearsal here, gleaned from the record as it
stands.
This dispute involves four players: Kellogg USA, a
Michigan company that manufactures cereal products in the United
States. Kellogg Caribbean, a Puerto Rico company that promotes,
sells and distributes Kellogg products in Puerto Rico;1 BFH, a
Puerto Rico company that distributes Kellogg products in Puerto
Rico; and CWL, a Puerto Rico company and affiliate of BFH that
provides logistical and warehousing services.
For a number of years, BFH was Kellogg Company's
exclusive agent in Puerto Rico. BFH purchased certain Kellogg
brand cereal products for resale to customers in Puerto Rico,
acting pursuant to written distribution agreements with various
Kellogg entities. BFH also developed and implemented marketing
plans for Kellogg products in Puerto Rico.
In 1992, BFH's relationship with the Kellogg family of
companies began to change. In that year, BFH signed a non-
exclusive, written distribution agreement with Kellogg USA ("the
1
Kellogg USA and Kellogg Caribbean are affiliates of each other
and subsidiaries of non-party Kellogg Company.
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1992 agreement"). The 1992 agreement would serve as the last
written distribution agreement between BFH and a Kellogg entity.
Further, Kellogg Caribbean was incorporated in 1993 and took over
BFH's duties of developing and implementing marketing plans for
Kellogg cereal products in Puerto Rico. Sometime after Kellogg
Caribbean's incorporation, Kellogg USA assigned its rights and
obligations under the 1992 agreement to Kellogg Caribbean.
During and after these developments, BFH continued to
purchase Kellogg products for resale in Puerto Rico. In 1996, BFH
established a distribution center to house its inventory of Kellogg
products and, at Kellogg Caribbean's urging, created an affiliate
company, CWL, to provide logistic and warehousing services at the
center.
In October 2004, Kellogg Caribbean and BFH signed an
Inventory Repurchase agreement ("the 2004 agreement") under which
Kellogg Caribbean purchased BFH's inventory of Kellogg products.
A purpose of this agreement was to allow Kellogg Caribbean to
consolidate its warehouse and administrative functions into one
facility. The 2004 agreement also notified BFH that Kellogg
Caribbean had been assigned Kellogg USA's interest in the 1992
agreement and provided that the 2004 agreement and "the activities
it contemplates do not extinguish, supersede, or terminate the
[1992 agreement], which, except as expressly modified by this [2004
agreement], continues in full force and effect." The 1992
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agreement, however, contained terms indicating that it expired in
December of 1992.
After purchasing BFH's inventory of Kellogg products,
Kellogg Caribbean hired CWL to manage Kellogg Caribbean's warehouse
operation. There was no written contract for these services.
In November of 2004, Kellogg Caribbean informed BFH that
it was exercising a provision in the 1992 agreement entitling
Kellogg Caribbean to sell Kellogg's "Cereal in a Cup" and "Fruit
Snacks" products directly to Puerto Rico retailers. BFH would
remain the distributor of other Kellogg products.
BFH, contending that Kellogg Caribbean's decision
violated its exclusive right to distribute Kellogg products in
Puerto Rico, sued Kellogg USA in the United States District Court
for the District of Puerto Rico. Jurisdiction was premised on
diversity of citizenship. Specifically, BFH claimed that Kellogg
USA, by permitting "it or its affiliates" to sell "Cereal in a Cup"
and "Fruit Snacks" directly to retailers, had violated Puerto Rico
Law 75 (P.R. Laws Ann. tit. 10 § 278), a statute prohibiting a
principal from terminating a distribution agreement with a dealer
without just cause. BFH claimed that its exclusive right to
distribute Kellogg products derived from an unwritten, longstanding
exclusive distribution agreement with Kellogg USA.
While the action was pending, Kellogg Caribbean notified
CWL that it was ending their warehouse services agreement. As a
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result of this decision, BFH moved to join CWL as a plaintiff and
to amend its complaint to add a count alleging that Kellogg USA
"and/or its affiliates" violated Law 75 by terminating the
warehouse services agreement. The district court granted the
motions. The plaintiffs sought declaratory and injunctive relief,
as well as damages.
After BFH and CWL secured a temporary restraining order
requiring CWL's reinstatement at the distribution center, Kellogg
Caribbean moved "to intervene and dismiss for lack of an
indispensable party." The district court denied Kellogg
Caribbean's motion to intervene and, after an evidentiary hearing,
entered a preliminary injunction requiring Kellogg USA "and/or its
affiliates" to specifically perform the agreements with BFH and CWL
pending trial. Kellogg Caribbean appealed from the denial of its
motion to intervene, and Kellogg USA and Kellogg Caribbean filed an
interlocutory appeal from the entry of the preliminary injunction.
In that appeal we concluded that Kellogg Caribbean met
the requirements for intervention. Kellogg I, 440 F.3d at 547.2
We noted, however, that intervention was not feasible because it
2
The district court had denied intervention after concluding that
Kellogg Caribbean's interests were sufficiently represented by
Kellogg USA. We disagreed noting, among other things, that "The
potential for this litigation to have a greater adverse impact on
Kellogg Caribbean is a sufficient basis for concluding that Kellogg
USA may not serve as an adequate proxy." Id. (citing Nat. Union
Fire Ins. Co. v. Rite Aid of S. Carolina, Inc., 210 F.3d 246, 251
(4th Cir. 2000)).
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would destroy the district court's diversity jurisdiction (Kellogg
Caribbean, like BFH and CWL, is a Puerto Rico company). Id.
Accordingly, we vacated the preliminary injunction and remanded to
the district court with instructions to determine whether Kellogg
Caribbean was indispensable to BFH's action against Kellogg USA.
If Kellogg Caribbean was indispensable, then the action could not
proceed in federal court. Fed. R. Civ. P. 19(b); see id. We
observed that Kellogg Caribbean would be considered indispensable
if BFH and CWL continued to seek injunctive relief requiring
Kellogg Caribbean to perform under certain agreements. Kellogg I,
440 F.3d at 548.
On remand, BFH sought both to remove CWL as a party and
to file an amended complaint. Taking its cue from our opinion in
Kellogg I, BFH's proposed amended complaint excluded all claims
relating to CWL and requested only money damages against Kellogg
USA rather than injunctive relief.
The district court denied both BFH's motion to drop CWL
and the motion to amend the complaint. The court concluded that
Kellogg Caribbean was indispensable to BFH's action against Kellogg
USA and consequently dismissed BFH's action without prejudice. Sua
sponte, the court also denied Kellogg USA and Kellogg Caribbean
costs and attorneys' fees.
II. Discussion
Both sides appeal. BFH challenges the district court's
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dismissal of the action, arguing that the court erroneously
concluded that Kellogg Caribbean was indispensable to BFH's action
against Kellogg USA. In their cross-appeal Kellogg USA and Kellogg
Caribbean assert error in the district court's decision to deny
them costs and attorneys' fees.
A. Indispensability
We determined in Kellogg I that Kellogg Caribbean could
not intervene in BFH's action against Kellogg USA because its
intervention would destroy diversity jurisdiction. Kellogg I, 440
F.3d at 548. Further, it was clear to us that Kellogg Caribbean
was an indispensable party insofar as the requested injunctive
relief applied to it. Id. Now, BFH attempts to modify the action
so as to render Kellogg Carribean dispensable. The critical
question in this round, then, is "whether in equity and good
conscience" the action may proceed in Kellogg Caribbean's absence.
Fed. R. Civ. P. 19(b). If we conclude that it cannot, the action
must be dismissed and Kellogg Caribbean labeled an "indispensable"
party. See 4 Moore's Federal Practice § 19.05(1)(a) (3d ed. 2000)
(noting that on dismissal of a case for non-joinder of the absentee
under Rule 19(b) the absentee is then retroactively labeled
"indispensable").
Federal Rule of Civil Procedure 19(b) specifies four
factors to guide the indispensability inquiry. These include:
(1) To what extent a judgment rendered in the
person's absence might be prejudicial to the
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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 person's absence will be adequate; (4)
whether the plaintiff will have an adequate
remedy if the action is dismissed for
nonjoinder.
Fed. R. Civ. P. 19(b). The Second Circuit has observed that no set
weight is afforded to any of the factors, Associated Dry Goods
Corp. v. Towers Fin. Corp., 920 F.2d 1121, 1124 (2d Cir. 1990).
Moreover, the specified factors do not constitute an exhaustive
canvass, and a court may take into account other considerations in
determining whether or not to proceed without the absentee as long
as they are relevant to the question of whether to proceed in
"equity and good conscience." In re Cambridge Biotech Corp., 186
F.3d 1356, 1369 (Fed. Cir. 1999) (citation omitted); Fed. R. Civ.
P. 19, advisory committee note ("The factors . . . are not intended
to exclude other considerations which may be applicable in
particular situations."). In the end, the indispensability
analysis involves "the balancing of competing interests" and "must
be steeped in pragmatic considerations." In re Olympic Mills
Corp., 477 F.3d 1, 9 (1st Cir. 2007) (citing Travelers Indem. Co.
v. Dingwell, 884 F.2d 629, 635 (1st Cir. 1989)).
The foundation of BFH's argument is its claim that the
district court erroneously denied its motions to drop CWL as a
party and to amend the complaint. As a result, the court analyzed
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the indispensability issue as if CWL were still a party to the
action and as framed by the first amended complaint.3 Had BFH's
motion been granted, the argument continues, Kellogg Caribbean
would be dispensable because the motions served to eliminate any
prejudice Kellogg Caribbean might suffer as a result of BFH's
action against Kellogg USA proceeding in Kellogg Caribbean's
absence.
We need not determine whether the district court
erroneously denied BFH's motions to amend because, even had the
court granted the motions, Kellogg Caribbean would remain
indispensable to the action.4 There are two reasons for this
conclusion.
3
BFH appears to concede that with CWL as co-plaintiff, and under
its first amended complaint which requested injunctive relief,
Kellogg Caribbean is an indispensable party. As noted, we stated
as much in Kellogg I. See Kellogg I, 440 F.3d at 548.
4
We have no hesitation in proceeding to answer the
indispensability question. Although a district court is generally
in the preferred position to make an indispensability
determination, and should normally be given the first opportunity
to analyze the question, we have noted that some situations favor
us deciding the joinder issue on appeal. See Olympic Mills Corp.,
477 F.3d at 9 (citing Takeda v. Nw. Nat'l Life. Ins. Co., 765 F.2d
815, 818 n.2 (9th Cir. 1985) ("Although in some cases it might be
desirable to remand to allow a district court to determine whether
a non-diverse party is indispensable, we have the power to decide
the joinder issue on appeal")). The record being clear and
complete, and because we have already remanded this matter once
before, for reasons of economy we proceed to analyze the question
ourselves on the basis of the proposed second amended complaint.
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1.
First, all four 19(b) factors still militate in favor of
finding Kellogg Caribbean indispensable to BFH's action against
Kellogg USA. The first factor concerns the potential prejudice to
the absentee if the action goes forward. BFH appears to suggest
that dropping CWL as a party and removing claims relating to CWL
would eliminate a potential source of prejudice to Kellogg
Caribbean's interests because BFH's action against Kellogg USA will
not require any interpretation of CWL's warehouse services
agreement with Kellogg Caribbean.
But this course, at most, would only eliminate one
potential source of prejudice. If BFH secures a judgment against
Kellogg USA, the judgment could still harm Kellogg Caribbean's
interest in an entirely different agreement -- its 2004 agreement
with BFH. The judgment would effectively stand for the proposition
that BFH and Kellogg USA have an exclusive, unwritten distribution
agreement. Although the judgment may not have collateral estoppel
effect against Kellogg Caribbean as a non-party, such a judgment
would serve as persuasive precedent that the 2004 agreement Kellogg
Caribbean reached with BFH is invalid to the extent that the 2004
agreement established that Kellogg USA assigned a non-exclusive,
written distribution agreement with BFH to Kellogg Caribbean. That
precedent could prejudice Kellogg Caribbean in future litigation
whether Kellogg Caribbean is attempting to enforce or defend the
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2004 agreement.5 See Acton Co. of Mass. v. Bachman Foods, Inc.,
668 F.2d 76, 78 (1st Cir. 1982) ("Even if . . . [the absent party]
would not be legally bound [by the prior ruling], an adverse ruling
would be a persuasive precedent in a subsequent proceeding, and
would weaken . . . [the absent party's] bargaining position for
settlement purposes"); NLRB v. Doug Neal Mgmt. Co., 620 F.2d 1133,
1139 (6th Cir. 1980) ("It is not necessary that an absent person
would be bound by the judgment in a technical sense. It is enough
that as a practical matter his rights will be affected.") (citation
omitted)).
Nonetheless, BFH points to 19(b)'s second factor and
argues that a court could shape relief in this case to minimize or
eliminate the prejudicial effect of proceeding without Kellogg
Caribbean. During our first examination of this case we did state
that on remand the district court could consider shaping relief in
such a manner so as to avoid prejudicing Kellogg Caribbean's
interests. Kellogg I, 440 F.3d at 548 (noting money damages may
5
BFH contends that this potential source of prejudice is a
chimera. It argues that Kellogg USA could not have assigned any
interest in the 1992 agreement because the agreement, according to
its terms, had expired in 1992. Its argument misses the point.
Kellogg Caribbean argues that the 2004 agreement explicitly
establishes that the 1992 agreement is still in operation. There
is language in the 2004 agreement that arguably supports this
contention. If BFH prevails in establishing that it has an
exclusive, unwritten distribution agreement with Kellogg USA,
however, the judgment would serve to substantially weaken Kellogg
Caribbean's argument regarding the validity of the 2004 agreement
and, thus, its ability to enforce or defend the agreement itself.
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prove an appropriate alternative). BFH argues that because its
proposed amended complaint seeks money damages rather than
injunctive relief, the possibility of prejudice to Kellogg
Caribbean is eliminated. It contends that money damages, unlike
injunctive relief, will not compel Kellogg USA to sell exclusively
to BFH and consequently, that Kellogg Caribbean in no way will be
forced to perform under BFH's agreement with Kellogg USA.
The argument is unconvincing. As an initial matter, it
is not at all clear that money damages could be awarded in this
case. In its proposed amended complaint, BFH states that Kellogg
USA has breached an exclusive, unwritten distribution agreement.
Unsurprisingly, BFH does not, however, suggest that this agreement
has any set expiration date. Moreover, although BFH suggested at
oral argument that it is willing to limit the damage request, it
also acknowledges that damages it has suffered as a result of
Kellogg USA's alleged breach are "not easily calculable . . . and
increase on a daily basis." Given the apparent recurring nature of
the alleged breach, and the admitted difficulty in quantifying
money damages, some form of injunctive relief may be necessary.
See 12 Corbin on Contracts § 1142 at 194 (interim ed. 2002) (noting
money damages may be inadequate and specific performance necessary
if, among other things, there is a recurring injury which requires
"multiple actions for damages" and there is "difficulty in
determining the amount of damages to be awarded for defendant's
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breach").
But even assuming an award of money damages could be
fashioned pursuant to a judgment in favor of BFH, as we have said
the judgment itself could still prejudice Kellogg Caribbean.
Although an award of money damages would not require Kellogg
Caribbean to perform under BFH's agreement with Kellogg USA, the
judgment itself would still serve as persuasive precedent that
Kellogg Caribbean's 2004 agreement with BFH, at least to the extent
that it extends the 1992 agreement, is invalid. The potential for
prejudice remains no matter how relief is sliced. See Picciotto v.
Cont'l Cas. Co., 2008 U.S. App. LEXIS 206, at *22 (1st Cir. January
7, 2008) (noting that "the prejudice to [the absentee] would result
from the potential outcome of the litigation itself, not the
specific terms of any judgment"); Schutten v. Shell Oil Co., 421
F.2d 869, 875 (5th Cir. 1970) ("[W]e are unable to envision a
decree which would effectively settle any controversy between the
appellants and the present defendant . . . without doing
substantial practical injury to the [absentee.]").
The third and fourth 19(b) factors also favor finding
Kellogg Caribbean indispensable. The third factor concerns
whether, if the action proceeds without the absentee, the judgment
rendered will be adequate. A judgment is "adequate" if it furthers
the public interest in "complete, consistent, and efficient"
resolution of controversies. See Provident Tradesmens Bank & Trust
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Co. v. Patterson, 390 U.S. 102, 111 (1968) (noting third factor
concerns "public stake in settling disputes by wholes, whenever
possible").
Here, proceeding without Kellogg Caribbean would not
further this public interest for two reasons. First, it would not
efficiently resolve the dispute in this case. As we have
emphasized, and as BFH acknowledges, the question of whether or not
BFH has an exclusive agreement with Kellogg USA depends in
significant part on the meaning and effect of the 2004 agreement
that BFH reached with Kellogg Caribbean. That is a question with
which Kellogg Caribbean's rights are inextricably bound. See
Envirotech v. Bethlehem Steel Corp., 729 F.2d 70, 75 (2d Cir. 1984)
(affirming district court's finding of indispensability where court
concluded absentee possessed rights that were "inextricably
intertwined" with issues bound to be raised in action against
defendant).
Second, proceeding without Kellogg Caribbean would
unnecessarily create the possibility of inconsistent judgments.
For example, BFH could secure a judgment against Kellogg USA after
proving that it has an exclusive, unwritten agreement with Kellogg
USA that Kellogg USA breached. We explained that such a judgment
could practically prejudice Kellogg Caribbean, but we have also
noted that the judgement may not have a collateral estoppel effect
against Kellogg Caribbean. Therefore, it remains possible that in
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a different action another court could conclude that BFH has a non-
exclusive, written agreement with Kellogg Caribbean by virtue of a
valid assignment of the 1992 agreement by Kellogg USA.
With respect to the fourth and final 19(b) factor, we do
not see why BFH will be without an adequate remedy if we uphold the
district court's dismissal of the action. We are aware of no
impediment, not of its own making, preventing BFH from pursuing its
asserted cause of action in the courts of the Commonwealth of
Puerto Rico. See Picciotto, 2008 U.S. App. LEXIS 206, at *22
(noting that court's indispensability finding would remain
unchanged even if party was barred from pursuing a remedy in an
alternative forum because bar resulted from party's litigation
strategy).
2.
Turning to the second reason, in Kellogg I we foresaw the
possibility that Kellogg Caribbean could be so central to this
dispute as to render it indispensable to any action concerning the
dispute. See Kellogg I, 440 F.3d at 548 (noting district court
"could decide that Kellogg Caribbean's involvement in the
underlying dispute is so extensive that it is indispensable to a
proper adjudication of the case and therefore dismiss the action
entirely"). The prediction has come to pass.
In H.D. Corp. of Puerto Rico v. Ford Motor Co., 791 F.2d
987 (1st Cir. 1986), we noted that one of the interests Rule 19(b)
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concerns is “the interest of the outsider whom it would have been
desirable to join.” Id. at 992 (citing Provident Tradesmans, 390
U.S. at 108). In H.D. Corp., the plaintiff had not sued an
affiliate, the defendant’s parent company. In analyzing the
interest of the absentee, we observed that the parent was alleged,
inter alia, to have been a signatory to agreements that were
central to the dispute, and as well to have wrongfully induced a
breach of a key agreement. In light of these observations, we said
that it would impractical to proceed without the absentee. So too,
here.
As was true of the absentee in H.D. Corp., Kellogg
Caribbean's alleged role here is apparent from the face of the
proposed second amended complaint. One count alleges with respect
to the October 2004 agreement that an "affiliate [of Kellogg USA]
used words and insidious machinations to induce BFH to execute the
October 15, 2004 [sic] purported amendment. Without such words and
insidious machinations BFH would not have executed the amendment."
Beyond this, even ignoring BFH's 2004 agreement with
Kellogg Caribbean entirely, a close reading of the proposed amended
complaint reveals that BFH identifies Kellogg Caribbean as playing
a significant role throughout the course of Kellogg USA's alleged
legal violations. The complaint contains over twenty references to
an unnamed affiliate that carried out the actions which BFH
contends constituted a violation of Law 75. The unnamed affiliate
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is Kellogg Caribbean. For example, the proposed complaint states
that on November 1, 2004 Kellogg Company and Kellogg USA "acting
through their affiliate notified BFH in writing that . . . the
affiliate would begin selling directly to customers." It is
uncontested that Kellogg Caribbean was the entity that notified BFH
in writing that it would begin selling Kellogg's "Cereal in a Cup"
and Kellogg's "Fruit Snacks" direct to customers via its own sales
force.
Given that Kellogg Caribbean was a central player -–
perhaps even the primary actor –- in the alleged breach, the
practical course here, as it was in H.D. Corp., is to proceed in a
forum where the absentee may be joined. See Freeman v. Northwest
Acceptance Corp., 754 F.2d 553, 559 (5th Cir. 1985) (finding
absentee indispensable where absentee "'becomes more than a key
witness whose testimony would be of inestimable value [and]
[i]nstead emerges as an active participant'" in alleged legal
violation) (quoting Hass v. Jefferson Nat'l Bank, 442 F.2d 394, 398
(5th Cir. 1971)); Circle Indus., Div. of Nastasi-White, Inc. v.
City Fed. Sav. Bank, 749 F. Supp. 447, 456 (E.D.N.Y. 1999) (finding
absentee indispensable where plaintiff's claims of fraud were
grounded on actions taken by absentee party).
In sum, considering especially the potential prejudice to
Kellogg Caribbean if the federal action proceeds in its absence and
the centrality of Kellogg Caribbean's alleged role in the dispute,
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the interests weigh decidedly toward finding Kellogg Caribbean
indispensable. Consequently, we affirm the district court's
dismissal of the action.6
B. Costs and attorneys' fees
In their cross-appeal, Kellogg USA and Kellogg Caribbean
contend that the district court's sua sponte denial of costs and
attorneys' fees without explanation constituted an abuse of
discretion. We note that it appears neither party had the
opportunity to file a bill of costs or a motion for attorneys'
fees.
As to the denial of costs, the contention is that,
because the court dismissed BFH's action against Kellogg USA, the
Kellogg entities are prevailing parties and are presumptively
entitled to recover their costs of suit under Federal Rule of Civil
Procedure 54(d). The Kellogg entities identify two grounds in
support of their request for attorneys' fees. First, they assert
that when a party prevails under Law 75 a court may grant that
party attorneys' fees. Second, they claim that BFH made baseless
6
Although the district court properly dismissed this action
without prejudice, we may quibble with the manner in which it did
so. The court appeared to add Kellogg Caribbean to the action and
then dismiss the action, on the ground that it no longer possessed
subject matter jurisdiction over the case. More likely, Kellogg
Caribbean should not have been joined in the first place precisely
because joining Kellogg Caribbean as a party would destroy subject
matter jurisdiction. See 7C Charles Alan Wright, Arthur R. Miller
& Mary Kay Kane, Federal Practice & Procedure § 1917, at 477-78 (2d
ed. 1986). Thus, the the action should have been dismissed for
non-joinder of Kellogg Caribbean pursuant to Rule 19(b).
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factual allegations in its pleadings. As a result, attorneys' fees
are warranted under 28 U.S.C. § 1927, which permits a court to
grant fees as a sanction for abusive litigation tactics.
We review the denial of both costs and attorneys' fees
for abuse of discretion. See Janeiro v. Urological Surgery Prof'l
Ass'n, 457 F.3d 130, 143 (1st Cir. 2006). There is a background
presumption favoring cost recovery for prevailing parties. In Re
Two Appeals Arising Out of the San Juan Dupont Plaza Hotel Fire
Litig., 994 F.2d 956, 963 (1st Cir. 1993). When denying costs, a
district court must offer an explanation for doing so unless the
basis for denying costs is "readily apparent on the face of the
record." Id. (concluding district court abused its discretion in
denying costs without explanation where basis for denial was not
apparent from the record); see also Templeman v. Chris Craft Corp.,
770 F.2d 245, 249 (1st Cir. 1985) (reversing district court's
denial of costs to prevailing party where court failed to give
valid explanation for denial and record supported an award of
costs).
Assuming that Kellogg USA and Kellogg Caribbean can be
considered prevailing parties within the ambit of cost recovery
doctrine, the district court's unexplained decision to deny costs
does not constitute an abuse of discretion because the reason for
its denial is readily apparent from the record. This case, like
many other cases calling for an indispensability determination
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under Rule 19(b), presented a close question that required
considered balancing. As such, the record supports the district
court's determination that each side should bear its own costs.
See San Juan Dupont Plaza Hotel Fire Litig., 994 F.2d at 963
(citing White & White, Inc. v. Am. Hosp. Supply Corp., 786 F.2d
728, 730 (6th Cir. 1986) (noting where case proves "close and
difficult" district court's denial of costs may be appropriate
exercise of discretion)).
As to attorneys' fees, Kellogg USA and Kellogg Caribbean
do not explain in their opening brief why they should be entitled
to fees, but rather make the argument in their reply brief.
Accordingly, the argument is waived. Willis v. Brown University,
184 F.3d 20, 27 (1st Cir. 1999). In any event, the district court
did not abuse its discretion in denying attorneys' fees.
Attorneys' fees are recoverable in diversity cases where a state
law provides the right to recover such fees. See McLane, Graf,
Raulerson & Middleton, P.A. v. Rechberger, 280 F.3d 26, 42 (1st
Cir. 2002) (quoting Alyeska Pipeline Serv. Co. v. The Wilderness
Soc'y, 421 U.S. 240, 260 n.31 (1974)). But to the extent that
Kellogg USA and Kellogg Caribbean prevailed, they did so under Rule
19(b) and not under Law 75. Therefore, the section of Law 75,
(P.R. Laws Ann. tit. 10 § 278e), which purportedly entitles a
prevailing party to recover attorneys' fees, is simply not
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operable.7 Additionally, we find no merit in Kellogg USA and
Kellogg Caribbean's charge that BFH engaged in abusive litigation
tactics that would warrant a fee award under 28 U.S.C. § 1927.
AFFIRMED
7
We additionally note that an award of attorneys' fees under Law
75 is within the district court's discretion. P.R. Laws Ann. Tit.
10 § 278e.
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