Entity that Employed Significant Number of Putative Class Members was an Indispensable Party under Rule 19 of the Federal Rules of Civil Procedure and could not be Joined in Class Action Without Destroying Federal Court Diversity Jurisdiction thus Necessitating Dismissal of Class Action Complaint New York Court Holds
Plaintiff filed a putative class action against Clear Channel Communications and Clear Channel Broadcasting for violations of New York’s labor laws, alleging that defendants “made and continue to make unauthorized deductions from the wages of sales representatives for the New York radio stations that Defendants own and operate.” Mattera v. Clear Channel Communications, Inc., 239 F.R.D. 70, 71-72 (S.D.N.Y. 2006). Plaintiff invoked federal court jurisdiction solely on the basis of diversity, id., at 72. Defense attorneys moved to dismiss the class action complaint for failure to join an indispensable party, id.; the thrust of the defense motion was that the class action failed to name Capstar Radio Operating Company (the owner of the two radio stations where plaintiff worked) as a defendant, and that joinder of Capstar would eliminate diversity jurisdiction thereby compelling dismissal of the action, id., at 73. The district court agreed with the defense and dismissed the class action.
Plaintiff was a sales representative, selling advertising spots or on-air time for two of the 1200+ radio stations defendants own and operate. Mattera, at 72. Sales representatives were received biweekly draws against commissions earned on each sale. The commissions were to be “paid one month after the contract for a sale is executed and the advertising spot purchased is aired,.” But if the customer failed to pay for the service within 120 days then there would be a “charge back,” with the entire amount of the commission deducted from the employee’s next paycheck. According to the allegations in the class action complaint, the customer, “typically an advertising agency or corporation with a longstanding relationship with Defendants,” would pay the bill more than 120 days after service, but in such instances defendants would not reverse the charge back. Id.
After discussing the test for dismissing an action under FRCP Rule 19 for failure to join an indispensable party, Mattera, at 73-74, and summarizing the arguments and factual evidence in support of the positions of the parties, id., at 74-76, the district court agreed with the defense. Even if Capstar was not plaintiff’s employer, it was undisputed that Capstar employed a significant number of putative class members. The district court explained at page 76 that Capstar is a “necessary party” under Rule 19(a) “because it is the employer of a significant number of current sales representatives, all of whom are members of the purported class,” and that it is an “indispensable party” under Rule 19(b) because “Capstar would undoubtedly be prejudiced if a judgment is rendered in this action in its absence, given that the complaint is directed towards Capstar’s own compensation structure and policies.” As the court concluded at pages 76 and 77,
To allow this action to proceed without Capstar would also result in prejudice to Defendants, who risk double liability or, at a minimum, duplicative litigation with respect to the same charge back policy at issue. Because of the preclusive impact of a judgment in favor of [plaintiff] Mattera, the Court cannot shape its relief to ameliorate this prejudice. On the other hand, there is no reason to believe that Mattera will be prejudiced if her complaint is dismissed, as she may easily proceed in state court with her claim.
The federal court next addressed whether jurisdiction exists under the Class Action Fairness Act of 2005 (CAFA); if so, then it would be possible for plaintiff to join Capstar as a party-defendant in the action without destroying federal court jurisdiction. Mattera, at 77. The district court ultimately concluded that while plaintiff met her burden of proving that CAFA applied and provided subject matter jurisdiction over the proposed class action, see id., at 78, defendants had met their burden of establishing that the local controversy exception applied, id., at 78-81. “Accordingly, the Court concludes that it does not have jurisdiction over this matter, under CAFA or otherwise.” Id., at 81. The district court therefore granted the defense motion to dismiss the class action complaint for failure to join an indispensable party because the complaint could not be amended to add that party and preserve federal court diversity jurisdiction. Id.
NOTE: The district court rejected defense arguments that plaintiff bore the burden of establishing that the local controversy exception did not apply. The court explained, ” I am not convinced that a plaintiff who files an action in federal court asserting CAFA jurisdiction must not only make a prima facie showing of jurisdiction under the statute, but should also negate the applicability of the statutory exceptions. It seems contrary to CAFA’s stated purpose of expanding federal court jurisdiction over class actions to allocate to the plaintiff the burden of proving that a CAFA exception does not apply, where the plaintiff, having demonstrated minimal diversity and the requisite class size and amount in controversy under CAFA, has already established a basis for federal jurisdiction.” Mattera, at 79. We note also that because the action was dismissed for lack of federal court jurisdiction, the district court dismissed the class action complaint without prejudice to plaintiff filing suit in New York state court. Id., at 81.