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Ysm Realty, Inc., et al v. Marvin Grossbard

February 23, 2011


The opinion of the court was delivered by: Linares, District Judge.



This matter comes before the Court by way of a motion to dismiss filed by Defendants on December 22, 2010 for failure to join a necessary party under Rules 12(b)(7) and 19 of the Federal Rules of Civil Procedure and for failure to state a claim upon which relief can be granted under Rule 12(b)(6). The Court has reviewed the submissions in support of and in opposition to the present motion and decides the matter without oral argument pursuant to Federal Rule of Civil Procedure 78. For the reasons that follow, Defendants' motion is denied.


The following facts are taken from Plaintiffs' Complaint and are accepted as true for the purpose of this motion. Plaintiffs bring this action to recover brokerage commissions allegedly owed to him following Defendants' purchase of real property located at 290 Ballard Road, Middletown, New York. Plaintiffs allege that an oral contract existed between Plaintiff David Scop, a corporate broker licensed in the State of New York, and Defendant Marvin Grossbard, the president of Defendant President Container, Inc., under which Scop would assist Grossbard in finding a property to fit Grossbard's business needs, and in return Grossbard would pay Scop a brokerage commission of one percent of the purchase price. On January 3, 2008, after the alleged oral agreement was made, Scop showed Grossbard the Ballard Road property and introduced him to the seller's real estate broker. In or about June 2008, Scop provided Grossbard with a written brokerage commission agreement. Grossbard refused to sign and "purported to repudiate the Plaintiffs' entitlement to a Buyer's brokerage commission." (Compl. ¶ 34.) At some time thereafter Defendants created an entity under New York law called "SP Realty Associates II, LLC" (hereinafter "SP Realty"), and on or about March 3, 2010 that "wholly-owned single-purpose" entity entered into a contract to purchase a subdivided portion of the Ballard Road property*fn1 for $22,733,895. (Id. at ¶ 41.)

On November 16, 2010, Plaintiffs filed a Complaint in this Court seeking recovery of the unpaid brokerage fee stating causes of action sounding in breach of contract, unjust enrichment, and fraud. Jurisdiction over this matter is based on diversity of citizenship. It is undisputed that Plaintiffs Scop and YSM Realty, Inc., are citizens of New York and that Defendants Grossbard and President Container, Inc., are citizens of New Jersey.


A. Failure to Join a Necessary Party

Defendants argue that SP Realty is a necessary party to this action under Federal Rule of Civil Procedure 19 because SP Realty in fact purchased the Ballard Road property, not Defendants. Defendants further argue that this action should be dismissed because joinder of SP Realty, an entity organized under the laws of New York, would allegedly destroy diversity of citizenship.

Under Rule 19(a), joinder of a necessary party is required if "feasible." Rule 19 states in material part:

A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (A) in the person's absence complete relief cannot be accorded among those already parties, or (B) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.

Fed. R. Civ. P. 19(a)(1). When making a Rule 19 determination, a court may consider evidence outside of the pleadings. Jurimex Kommerz Transit G.m.b.H. v. Case Corp., 201 F.R.D. 337, 340 (D. Del. 2001), aff'd in relevant part, 65 F. App'x 803 (3d Cir. 2003).

As SP Realty has not "claim[ed] an interest" in this action, the Court need only examine whether complete relief can be accorded among the existing parties in SP Realty's absence under Rule 19(a)(1)(A). Here, Plaintiffs' claim for a commission appears to depend upon a determination that SP Realty's purchase of the Ballard Road property, and Defendants' subsequent failure to pay a brokerage commission to Plaintiffs, breached an agreement between Scop and Grossbard. This determination likewise appears to depend upon the ability of Plaintiffs to impute the actions of SP Realty, in purchasing the property, onto Grossbard. Under New York law,*fn2 the doctrine of piercing the corporate veil applies to limited liability companies. Retropolis, Inc. v. 14th St. Dev. LLC, 17 A.D.3d 209, 210 (N.Y. App. Div. 2005). Thus, Plaintiffs' claim likely requires them to pierce the corporate veil of SP Realty, and perhaps other business entities, in order to recover from Grossbard and Defendant President Container. Plaintiffs appear to recognize as much, as the Complaint alleges that the SP Realty is "nothing but the extension or continuation of [Defendant President Container]." (Compl. ¶ 39.) Furthermore, "an action to pierce the corporate veil requires that purported dummy corporations be parties, even if the parent corporation is alleged to be the one which unjustly retains the funds." Stewart Tenants Corp. v. Square Industries, Inc., 269 A.D.2d 246, 248 (N.Y. App. Div. 2000); see also Miramax Film Corp. v. Abraham, 2003 WL 22832384, *9 (S.D.N.Y. 2003) ("under New York law, shell companies are necessary parties in an action to pierce the corporate veil"). Thus, as Plaintiffs here seek relief only from the entities alleged to have unjustly retained the brokerage commission, the existing Defendants, but not from the purported "dummy" entity that transacted the sale, SP Realty, the Court concludes that complete relief cannot be accorded among the existing parties. SP Realty is therefore a necessary party under Rule 19(a) who must be joined if feasible.

Defendants, however, have failed to provide facts from which the Court could conclude that joinder of SP Realty would destroy the Court's subject matter jurisdiction over this action. Citizenship of a limited liability company is determined by the citizenship of its members. Zambelli Fireworks Mfg. Co., Inc. v. Wood, 592 F.3d 412, 420 (3d Cir. 2010). Defendants have certified that SP Realty Associates II, LLC was formed under the laws of the State of New York, and is owned by President Container Holdings II, LLC, which is also a limited liability company that was formed under the laws of the State of New York. President Container Holdings II, LLC is owned by ...

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