In a breach of contract case, the issue was whether a party defendant was a necessary defendant in this federal court case filed in Chicago. Two of the defendants, Nafeesa Moosabhoy and Aymen Tyebjee, moved to dismiss the complaint that Shabbir and Munira Nomanbhoy filed in federal court.
The court found that the complaint satisfied the requirements for diversity jurisdiction because Shabbir and Munira were residents of California. They sought relief in the amount of $1.3 million in damages. Moosabhoy and Tyebjee were residents of either Illinois or Texas. However, another obligor under the agreement, Zehra Vahanvaty, who Moosabhoy and Tyebjee alleged breached the contract, was a resident of California. Vahanvaty was claimed to be a necessary party under Rule 19 of the Federal Rules of Civil Procedure, and as a result diversity of citizenship would be destroyed. For diversity of citizenship federal jurisdiction, the plaintiff and defendant must be residents of different states.
In support of the motion by Moosabhoy and Tyebjee, they argued there was no diversity of citizenship. They relied on the Seventh U.S. Circuit of Appeals stating that, “A contracting party is the paradigm of an indispensible party.”
In denying the motion, the federal district court judge said that all contractual parties are not invariably necessary and indispensible to a contract claim.
“The prevailing view among the court of appeals,” the judge continued, “is as follows: (1) contracting parties generally are indispensible to a suit to invalidate the contract; (2) co-obligees under a contract, meaning contracting parties other than the plaintiff whose rights under the contract may have been violated, who therefore are potential co-plaintiffs, are generally indispensible in suits for breach of contract; but (3) co-obligors under a contract, who are potential co-defendants, generally are not indispensible parties in contract disputes that do not involve reformation, cancellation, rescission or otherwise challenge the validity of the contract.” According to the judge, the inclusion of other obligors is left to the plaintiff’s discretion.
Even if Vahanvaty could be held liable for breach of contract, “plaintiffs are entitled to sue only Moosabhoy and Tyebjee, and if they prevail to collect their entire damages from those two defendants.”
The key issue in the case was whether Rule 19 of the Federal Rules of Civil Procedure permits plaintiffs to chose only to sue some of the contract counterparties who may have participated in an alleged breach of contract or, by contrast, whether the rule requires that a lawsuit be dismissed when one such party cannot be joined without destroying the court’s jurisdiction.
In arguing that Vahanvaty is a necessary and indispensable defendant, defendants argued that all parties to a contract are always indispensible parties to lawsuits for breach of contract.
Under Illinois law, all joint obligations and covenants are taken to be joint in federal obligations and covenants. If two or more parties to a contract owe a joint and several duty of performance to another party to the contract and the duty is breached, each may be liable for the entire damages resulting from the failure to perform. Pritchett v. Asbestos Claims Mgmt Corp., 332 Ill.App.3d 890 (2002).
If that rule is applied to this case, that means that even if Vahanvaty breached the contract along with Moosabhoy and Tyebjee, plaintiffs would be entitled to sue only Moosabhoy and Tyebjee, and if they prevail to collect their entire damages from those two defendants.
Applying to this case, that law means that even if Vahanvaty breached the contract along with Moosabhoy and Tyebjee, plaintiffs are entitled to sue only Moosabhoy and Tyebjee, and if they prevail to collect their entire damages from those two defendants.
Accordingly, the general rule is that co-obligors are not necessary and indispensible parties to a contract claim and defendants point to nothing about this case that would warrant making this case an exception. It follows that Rule 12(b)(7) motion to dismiss for failure to join a party under Rule 19 must be denied. The federal court has jurisdiction over this lawsuit.
Shabbir Nomanbhoy, et al. v. Abiturab Boxwala, et al., 12 C 5969 (January 29, 2013).
Kreisman Law Offices has been handling commercial litigation, business disputes and other trial matters for individuals and businesses for more than 37 years, in and around Chicago, Cook County and its surrounding areas, including Mattson, Northbrook, Buffalo Grove, Villa Park, Elmhurst, (Chicago) Beverly , Chicago (Edgewater), Chicago (Ravenswood), Chicago (Andersonville), Brookfield, Evergreen Park, Hinsdale and Flossmoor, Ill.
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