Spencer Sav. Bank, S.L.A. v. Vasta

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SPENCER SAVINGS BANK, S.L.A., and BARRY MINKIN, Plaintiffs, v. PHILIP A. VASTA, CATHERINE A. HIGGINS, JOHN H. MEREY, RICHARD J. LASHLEY, FREDERICK OZDOBA, FRANCESCA OZDOBA, ROBERT MITCHELL, ANDREW FISH, and HOWARD KENT, Defendants.

Civ. No. 21-20485 (KM) (JRA)

United States District Court, D. New Jersey

September 28, 2022

OPINION

KEVIN MCNULTY, U.S.D.J.

This matter comes before the Court on the motion (DE 21)^[1] of Defendants Philip A. Vasta, Catherine A. Higgins, John H Merey, Richard J. Lashley, Frederick Ozdoba, Francesca Ozdoba, Robert Mitchell, Andrew Fish, and Howard Kent (referred to collectively as the “named defendants”) to dismiss the complaint of Plaintiffs Spencer Savings Bank, S.L.A. and Barry Minkin (referred to together as “Spencer”) pursuant to Federal Rule of Civil Procedure 12(b)(7) or, in the alternative, under the Colorado River^[2] abstention doctrine or the first-filed rule. For the reasons set forth below, I will DENY the named defendants' motion to dismiss.

I. BACKGROUND

Spencer Savings Bank is a mutual community savings association in New Jersey. (Compl. ¶ 11). Pursuant to a written policy, all member-depositors of Spencer must either live or work within New Jersey in order to open an account. (Id. ¶¶ 28, 40-41.) This limited membership structure allows the bank to avoid the burden and cost of compliance with the myriad of banking laws and restrictions in other states. (Id. ¶ 28) As a mutual savings association, Spencer has no stockholders and is principally governed by its board of directors. (Id. ¶ 27). Each member-depositor receives one vote in a board election pursuant to the bank's corporate bylaws and New Jersey law. (Id. ¶¶ 27, 30).

In the summer of 2021, a change in Connecticut law prompted Spencer to review its bank account holders to determine if any resided in Connecticut. (Id. ¶ 47). The review identified numerous member-depositors who appeared to reside in Connecticut, raising concerns that some accounts might be in violation of the bank's in-state policy. (Id. ¶ 48.) Spencer engaged in a broader review of its member-depositors to determine if any other noncompliant accounts existed and flagged 1,895 deposit accounts. (Id. ¶ 49.) In August 2021, Spencer mailed a letter to the holder of each flagged account requesting confirmation of New Jersey residency or employment within 25 days. (Id. ¶ 50.) Spencer closed 1,651 accounts for failure to comply with its request. (Id. ¶¶ 51-52.)

The nine named defendants are individuals who do not currently reside or work in New Jersey and whose accounts Spencer closed following the 2021 audit. (Id. ¶ 53.) Spencer believes these individuals opened their accounts for the sole purpose of assisting a third party, Lawrence Seidman, in his longstanding efforts to be elected to Spencer's board of directors. (Id. ¶ 90.) Unlike the named defendants, Seidman is a New Jersey resident. (Id. ¶ 89.) The validity of Seidman's account was not called into question by the audit, and he is not named as a defendant in this action.

On November 10, 2021, the named defendants, Seidman, and two other individuals whose accounts were closed as a result of the audit filed an action in New Jersey state court against Spencer Savings Bank, Minkin, and other members of the bank's board of directors. That state court complaint asserts claims of breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the New Jersey Consumer Fraud Act. (DE 27-2. I will refer to this as the “State Case.”)

On December 13, 2021, Spencer filed this federal action. Spencer filed its amended complaint on December 23, 2021, alleging breach of implied covenant of good faith and fair dealing (Count I); tortious interference with business relationship (Count II); fraud (Count III); and conspiracy (Count IV). (DE 5.) The named defendants have moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(7) for failure to join Seidman as a necessary party under Federal Rule of Civil Procedure 19. (Mot. p. 8.) Alternatively, the named defendants seek to dismiss the complaint under the Colorado River abstention doctrine or the first-filed rule. (Id. pp. 17, 22.) Spencer filed an opposition to the motion (DE 27), to which the named defendants replied (DE 28.)^[3]

II. DISCUSSION

A. Rule 19 - Mandatory Joinder

I turn first to the named defendants' argument that Lawrence Seidman is a necessary and indispensable party under Federal Rule of Civil Procedure 19. (Mot. p. 8.) Federal Rule of Civil Procedure 12(b)(7) provides that a party may move to dismiss the complaint for “failure to join a party under Rule 19.” Fed.R.Civ.P. 12(b)(7). “In reviewing a Rule 12(b)(7) motion to dismiss, the court must accept all factual allegations in the complaint as true and draw all reasonable inferences therefrom in favor of the non-moving party.” Malibu Media, LLC v. Tsanko, No. 12-cv-3899, 2013 WL 6230482, at *7 (D.N.J. Nov. 30, 2013) (citing Jurimex Kommerz Transit G.M.B.H. v. Case Corp., 65 Fed.Appx. 803, 805 (3d Cir. 2003)). Rule 19 “specifies the circumstances in which the joinder of a particular party is compulsory.” Gen. Refractories Co. v. First State Ins. Co., 500 F.3d 306, 312 (3d Cir. 2007). The Rule 19 analysis is three-fold; the court asks first whether the party is “necessary,” then whether joinder of the party is “feasible,” and finally, whether the party is “indispensable.” Fed.R.Civ.P. 19; Janney Montgomery Scott, Inc. v. Shepard Niles, Inc., 11 F.3d 399, 404 (3d Cir. 1993). The party seeking to add a necessary party under Rule 19 “bears the burden of showing why an absent party should be joined.” Disabled in Action of Pa. v. SEPTA, 635 F.3d 87, 97 (3d Cir. 2011).

Under Rule 19(a)(1)(A), a party must be joined if “in that person's absence, the court cannot accord complete relief among existing parties.” Fed.R.Civ.P. 19(a)(1)(A). The named defendants argue that the court cannot accord complete relief in Seidman's absence because Spencer seeks injunctive relief “preventing defendants from attempting . . . to interfere with Spencer's management, governance, and elections.” (Mot. p. 12.) Entering such an order in Seidman's absence, they say, would not prevent him from continuing his allegedly “unlawful campaign . . . to defraud Spencer and its depositors.” Id.

That objection is misconceived. Subsection 19(a)(1)(A) is concerned with whether the district court can “grant complete relief to persons already named as parties to the action; what effect a decision may have on absent parties is immaterial.” Gen. Refractories Co., 500 F.3d at 313; see also Culinary Serv. of Del. Valley, Inc. v. Borough of Yardley, Pa, 385 Fed.Appx. 135, 145 (3d Cir. 2010) (same). Spencer seeks injunctive relief to prevent the named defendants from “attempting to obtain deposit accounts or voting rights with Spencer in violation of Spencer's Membership Policy and/or its T&C Agreement . . . so long as Defendants remain non-residents of the State of New Jersey or work in states other than New Jersey.” (Compl. p. 32.) Spencer has not asked this court to take any such action against Seidman, nor could it. The claim is that the depositors are ineligible and that their accounts must remain canceled because they live and work out of state. Seidman does not fit within that category, in that he appears to be a resident of New Jersey and his account with Spencer remains open. (See id. ¶ 89.) Therefore, I may grant the complete relief sought by Spencer without joining Seidman as a defendant.

Alternatively, an absent party claiming an interest in the action must be joined if disposition of the action would impair the absent party's ability to protect its interest or “leave an existing party subject to a substantial risk of incurring double, multiple or otherwise inconsistent obligations because of the interest.” Fed.R.Civ.P. 19(a)(1)(B). Under either circumstance, the absent party must “claim[] an interest relating to the subject of the action.” Id. Generally, a vague or abstract interest will not suffice; rather, the interest must be “a legally protected interest” that is “relat[ed] to the subject of the action.” GEICO v. Korn, 310 F.R.D. 125, 132 (D.N.J. 2015) (quoting Liberty Mutual Ins. Co. v. Treesdale, Inc., 419 F.3d 216, 230 (3d Cir. 2005)). Further, if the absent party's asserted interest in the action will be fully represented by the parties present, joinder is not required. Owens-Illinois, Inc. v. LakeShore Land Co., Inc., 610 F.2d 1185, 1191 (3d Cir. 1979).

The named defendants assert that proceeding without Seidman would “impair or impede [Seidman's] ability to protect his interest in voting rights of Spencer's membership.” (Mot. pp. 12-13.) According to the named defendants, because Seidman is running for membership of Spencer's board, he has a “significant interest” in the voting rights of Spencer's members. (Id. p. 13.) Seidman's interest in the overall voting rights of Spencer's membership, however, is diffuse. To the extent the named defendants claim that Seidman has an interest in protecting their voting rights, the claim is superfluous. Defendants can fully represent their own interest in being voting member- depositors-the interest truly at stake here-without the joinder of Seidman. See Owens-Illinois, Inc., 610 F.2d at 1191.^[4]

The named defendants also fail to show that they would be subject to inconsistent obligations. See Fed.R.Civ.P. 19 (a)(1)(B)(ii). “[A]n unsubstantiated or speculative risk will not satisfy Rule 19(a) criteria-the possibility of exposure to multiple or inconsistent obligations must be real.” Culinary Serv. of Delaware Valley Inc., 385 Fed.Appx. at 145. The named defendants make a single, conclusory statement that they will be “subject ....