United States Securities and Exchange Commission v. Collector's Coffee Inc.

Background

The Securities and Exchange Commission brought civil-fraud claims against Collector’s Coffee Inc. and Mykalai Kontilai. Secured creditors later intervened and asserted claims involving two Major League Baseball contracts signed by Jackie Robinson in 1945 and 1947. The creditors alleged that Collector’s Coffee acquired the contracts around the time it obtained $5.95 million in loans from certain creditors. They sought a declaration that Collector’s Coffee, rather than the Jackie Robinson Foundation, owned the contracts when the loans were made.

The creditors’ ownership claim, Count Two, was brought only against the Jackie Robinson Foundation. A separate claim, Count One, was brought only against Collector’s Coffee and sought a declaration that the creditors held a first-priority perfected security interest in the contracts. Count One was stayed while the creditors and Collector’s Coffee proceeded with arbitration.

Motion and Report and Recommendation

Collector’s Coffee moved to dismiss Count Two under Federal Rule of Civil Procedure 19, arguing that Collector’s Coffee was a necessary and indispensable party. Magistrate Judge Gabriel Gorenstein recommended denying the motion. He explained that a motion to dismiss for failure to join a required party ordinarily proceeds under Rule 12(b)(7), and that a named party—not a nonparty such as Collector’s Coffee had been as to Count Two—typically brings that motion. He further concluded that a nonparty with an interest in the case should use Rule 24, which governs intervention, but Collector’s Coffee had made clear that it did not want to intervene.

The magistrate judge also granted the Jackie Robinson Foundation’s motion to amend its answer to add a crossclaim against Collector’s Coffee under Count Two. He concluded that Count One, which was subject to arbitration, did not decide Collector’s Coffee’s ownership of the contracts, and that the Jackie Robinson Foundation was not bound by the arbitration agreement between Collector’s Coffee and the creditors.

District Court’s Analysis

Judge Marrero declined to revisit earlier rulings rejecting Collector’s Coffee’s arguments about subject-matter jurisdiction and staying Count Two during the arbitration. The court said Collector’s Coffee gave no basis for reconsidering those rulings.

The court held that Collector’s Coffee’s motion was improper whether characterized as a Rule 19 motion or a Rule 12(b)(7) motion. Because Collector’s Coffee was a nonparty to Count Two before the amendment, the court explained that Rule 24 was the proper procedure for addressing its asserted interest. The court declined to construe the motion as a Rule 24 intervention motion because Collector’s Coffee objected to joining Count Two.

The court also stated that the cited appellate decision did not require it to decide whether Collector’s Coffee was an indispensable party. In any event, the court concluded that Collector’s Coffee had not shown that joining it was infeasible. Through the Jackie Robinson Foundation’s amended answer, Collector’s Coffee had become a party to Count Two and had achieved its stated goal of protecting its interests.

Disposition

The court adopted the Report and Recommendation in its entirety and denied Collector’s Coffee Inc.’s objections to that recommendation. The adopted recommendation denied Collector’s Coffee’s motion concerning dismissal of Count Two and granted the Jackie Robinson Foundation’s motion to amend its answer to add a crossclaim against Collector’s Coffee.