District Court Denies Motion to Dismiss For Failure to Join Indispensable Party
In this action for declaratory judgment, Plaintiff sought a ruling that it was not liable to various Defendants for the clean-up costs associated with environmental contamination on a property Plaintiff formerly owned. Plaintiff sold the contaminated property to Defendant 1 pursuant to an acquisition agreement that provided for a 12 year indemnification for certain environmental liabilities. Defendant 1 then sold the property to Defendant 2 with a separate indemnification agreement. Defendant 3 later acquired Defendant 2 and its subsidiary. When Defendant 3 sought to sell the contaminated property to the city in which the property was located, the city first required, both as part of the purchase agreement and through a letter to Plaintiff, that the contamination be sufficiently remedied. Defendant 3 sought indemnification from Defendant 1, which then sought indemnification from Plaintiff. Plaintiff responded to the city’s letter that Defendant 3 was responsible for the clean up, and rejected Defendant 1’s indemnification demand under the argument that it was outside the scope of the acquisition agreement. Plaintiff sought declaratory judgment that it was not liable to any of the Defendants. Defendant 1 moved to dismiss under F.R.C.P. Rule 12(b)(7) for failure to join an indispensable party, arguing that Plaintiff should have joined the city.
The District Court noted that a motion to dismiss under Rule 12(b)(7) is evaluated under the two prong test found in Rule 19. Under that test, the absent party must be found to be a necessary party for adjudication of an issue. If the absent party is found to be necessary, the Court must determine whether the party is indispensable to a fair resolution of the issues. Defendant 1 argued that Plaintiff’s claim that it was not liable to any party for clean up of the site was a collateral attack on the city’s requirement that the site be remedied, and would require rulings on the existence and scope of the city’s order to remediate, such that the city had to be joined. The Court, however, found that whether Plaintiff was obligated under the acquisition agreement to remediate was not dependent on whether the city’s requirement that the site be cleaned was in the form of a “directive or order” as contemplated in the contract, such that the city was not a necessary party. The Court further found that whether the city, in requiring remediation, was acting in its role as environmental regulator or as a private party purchasing the contaminated site was irrelevant to Plaintiff’s contractual obligation to pay, such that it was not a necessary party. Finally, the Court found that resolution of the contractual indemnification issue would not prejudice or affect the interests of the city.Share