TRIPPS RESTAURANTS OF NORTH CAROLINA, INC., Plaintiff, v. KIMCO REALTY CORPORATION, Defendant.  2:96CV00852
UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF NORTH CAROLINA, GREENSBORO DIVISION
1997 U.S. Dist. LEXIS 961

January 7, 1997, Decided
January 7, 1997, FILED, ENTERED ON DOCKET

DISPOSITION: [*1] Portion of Plaintiff`s motion [Doc. # 6] relating to the addition of Kimco Durham 639, Inc. as a defendant GRANTED. Remainder of Plaintiff`s motion DENIED. Portion of Defendant`s motion to dismiss [Doc. # 8] regarding failure to state a claim on which relief can be granted and failure to join indispensable party Kimco Durham 639, Inc. DENIED AS MOOT. Action REMANDED

COUNSEL: For TRIPPS RESTAURANTS OF NORTH CAROLINA, INC., plaintiff: W. KEARNS DAVIS, JR., BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD, GREENSBORO, NC. STANLEY LEIGH RODENBOUGH, IV, BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD, GREENSBORO, NC.
For KIMCO REALTY CORPORATION, defendant: MICHAEL S. HARRELL, MANNING, FULTON & SKINNER, RALEIGH, NC. THOMAS HAYWOOD STARK, RESEARCH TRIANGLE PARK, NC. 

JUDGES: N. Carlton Tilley, United States District Judge
OPINION BY: N. Carlton Tilley

OPINION:
MEMORANDUM OPINION AND ORDER
TILLEY, District Judge
This matter is before the Court on Plaintiff`s Motion to Amend to Substitute Party, Motion for Injunctive Relief, Motion to Expedite, and Request for Oral Argument [Doc. # 6] and Defendant`s Motion to Dismiss [Doc. # 8]. For the reasons stated herein, Plaintiff`s Motion is GRANTED IN PART AND [*2]  DENIED IN PART. Defendant`s motion regarding failure to join indispensable party Kimco Durham 639, Inc. and failure to state a claim on which relief can be granted is DENIED AS MOOT. This case, including the remainder of Defendant`s motion, is REMANDED to Superior Court, Guilford County.

I.

The facts, primarily drawn from Plaintiff`s Complaint and Motion, briefly are as follows. Plaintiff leased a space in Durham, North Carolina to be used for operation of a restaurant. The original landlord was Pacific Guaranty Retail Development Corporation. Subsequently the property was transferred to AEW Trust # 96. During the part of the leasehold when AEW held the ownership interest, Plaintiff alleges that it experienced repeated difficulties with the site which were never adequately remedied. AEW Trust advised Plaintiff in March of 1996 that the property was again going to be transferred. Plaintiff alleges that it understood the new owner of the property was to be Kimco Realty Corporation. After the sale was complete, Plaintiff continued to complain to Kimco Realty about the problems it was experiencing. At some point in time, Plaintiff stopped tendering its rent and other fees owed under [*3]  the lease and instead paid the fees into an escrow account set up for that purpose. Kimco Realty continued to demand payment of rent from Plaintiff.

This matter was filed by Plaintiff in state court in Guilford County. Plaintiff is a North Carolina corporation and Defendant is a Maryland corporation. Pursuant to 28 U.S.C. § §  1441 and 1446, Defendant removed the action to this court because the parties are diverse. Subsequent to removal, Kimco Durham 639, Inc. [Kimco 639], a North Carolina corporation, filed two suits against Plaintiff in state court in Durham County. One of these actions was for summary ejectment and the other for additional remedies arising out of the lease arrangement. The filing of these actions apparently put Plaintiff on notice that Kimco Realty is not the owner of the property but, instead, that the real owner is Kimco 639. Kimco 639 apparently is a wholly owned subsidiary of Kimco Realty. Upon learning the identity of the true owner, Plaintiff filed a motion to substitute Kimco 639 for Kimco Realty and for an injunction to prevent Kimco 639 from proceeding in its state court actions because those actions would become compulsory counterclaims if the substitution [*4]  of parties is allowed. After that motion was filed, Defendant Kimco Realty filed a motion to dismiss for failure to state a claim on which relief can be granted and for failure to name indispensable parties (Kimco 639, Pacific Guaranty, and AEW Trust).

II.

In its motion, Plaintiff seeks to substitute Kimco 639, the true owner, for Kimco Realty, the current Defendant. Plaintiff seeks to make this substitution under Rule 17(a). Rule 17(a) allows substitution of the "real party in interest." A review of the case law reveals that this provision generally applies to allow substitution of a plaintiff when suit has not been brought by the real party in interest. It is not generally used to substitute one defendant for another.

Plaintiff`s request is better classified as one to join Kimco 639 as Defendant and dismiss Kimco Realty as a party. Such a joinder would typically be governed by Rule 19. Here, however, joinder of Kimco 639 would destroy diversity, the basis of the Court`s subject matter jurisdiction, because both Kimco 639 and Tripps are North Carolina corporations. Therefore, this matter is governed by 28 U.S.C. §  1447(e). Section 1447(e) provides

If after removal the [*5]  plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the State court.

Of all the provisions of the Federal Rules of Civil Procedure, §  1447(e) seems to best fit the situation presented here. Under the circumstances of this case, there are two possible outcomes: (1) deny the joinder and dismiss the case pursuant to Defendant Kimco Realty`s Motion to Dismiss or (2) allow the joinder and remand the case to state court.

The legislative history of §  1447(e) notes that

Proposed section 1447(e) is new. It takes advantage of the opportunity opened by removal from a state court to permit remand if a plaintiff seeks to join a diversity-destroying defendant after removal. Joinder coupled with remand may be more attractive than either dismissal under civil rule 19(b) or denial of joinder. The flexibility built into the framework of Rule 19(b) fully supports this approach.

H.R.Rep. No. 100-889, 100th Cong., 2d Sess., reprinted in 1988 U.S.C.C.A.N 5982, 6033. Furthermore, the question of indispensability which often comes into play under Rule 19 [*6]  is not central to the determination under §  1447(e). See, e.g., Irizarry v. Marine Powers Int`l, 153 F.R.D. 12 (D.P.R. 1994). In Irizarry, the court noted that "virtually every court confronted with this issue has unanimously agreed that the statute compels a court to focus on whether joinder would be `equitable` instead of being based on whether a party is indispensable." Id. at 14. The equitable factors cited by courts in determining whether joinder should be allowed include: (1) the original defendant`s interest in litigating in the federal forum; (2) the extent to which the amendment is sought for the purposes of defeating federal jurisdiction; (3) the degree of dilatory conduct on the part of the plaintiff; (4) the risk that plaintiff will be significantly injured if amendment is not allowed; and (5) any other factor bearing on the equities. See, e.g., Id.; Brown v. Southern Pac. Transp. Co., 132 F.R.D. 451, 455 (E.D. Tex. 1990).

In this case, the equities counsel in favor of allowing joinder of Kimco 639 as Defendant. First, although Plaintiff could have performed a title search to discover that Kimco 639 was the true record owner of the property,  [*7]  there were representations to Tripps on at least two occasions during the period when the property was being transferred by AEW Trust that Kimco Realty was to be the new owner. After the transfer, Kimco Realty was the party who collected and demanded rent of the Plaintiff. In fact, Tripps received a demand letter in June of 1996 from an attorney who stated he was "retained to represent Kimco Realty Corporation in Tripps Restaurants of North Carolina, Inc.`s continuing breach of its lease obligations." (Exhibit B to Exhibit 1 attached to Pl.`s Mot. to Amend [Doc. # 6]). Another letter regarding the lease and Tripps` complaints was written on Kimco Realty letterhead. From all of the representations made by Kimco Realty, it was reasonable for the Plaintiff to believe that Kimco Realty, rather than its wholly owned subsidiary, was the owner of the property. Plaintiff`s failure to realize the true owner until after filing this lawsuit is, if neglect, excusable. Further, any attempt by Plaintiff to refile this suit in state court would most likely be frustrated. Plaintiff`s claims would probably be compulsory counterclaims in Kimco 639`s action filed in state court in Durham. Plaintiff [*8]  would thereby be deprived of its forum choice of Guilford County. Whether the two actions should be consolidated and where they should be litigated is a matter for state court consideration.

Further consideration of the equities of this case reveals that the interest of the original Defendant Kimco Realty in maintaining this action in federal court is nonexistent. Kimco Realty will be removed from this case. Both Kimco Realty and Kimco 639 are represented by the same attorney. By removing the original action to federal court, filing a separate action in state court in the name of Kimco 639, then moving to dismiss the federal court action, the actions of Kimco Realty and Kimco 639 seem calculated to deprive the Plaintiff of its choice of forum and to force it to litigate in Durham County. If that is to be the result in this case, it is a matter for state court determination.

III.

For the reasons stated above, the portion of Plaintiff`s motion [Doc. # 6] relating to the addition of Kimco Durham 639, Inc. as a defendant is GRANTED. The remainder of Plaintiff`s motion is DENIED. The portion of Defendant`s motion to dismiss [Doc. # 8] regarding failure to state a claim on which relief [*9]  can be granted and failure to join indispensable party Kimco Durham 639, Inc. is DENIED AS MOOT. This action is REMANDED to Superior Court, Guilford County pursuant to 28 U.S.C. §  1447(e).

This the 7th day of January, 1997.

N. Carlton Tilley

United States District Judge