CSNK Working Capital Finance Corp. v. Liquid Capital Exchange, Inc. et al

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
CSNK Working Capital Finance Corp., )
a California Corporation d/b/a )
Bay View Funding, )
)
Plaintiff, ) ORDER GRANTING DEFENDANTS’
) MOTION TO DISMISS
vs. )
) Case No. 1:20-cv-119
Liquid Capital Exchange, Inc., a Delaware )
Corporation, Liquid Capital of the Dakotas )
an unincorporated business entity, and )
Does 1-10 inclusive, )
)
Defendants. )
Before the Court is the Defendants’ motion to dismiss or in the alternative to stay, filed
on September 24, 2020. See Doc. No. 9. The Plaintiff filed a response in opposition to the
motion on October 15, 2020. See Doc. No. 12. The Defendants filed a reply brief on October
29, 2020. See Doc. No. 13. For the reasons set forth below, the motion is granted.
I. BACKGROUND
This action arises from the alleged failure of Marathon Oil Company (“Marathon”) to
pay three invoices totaling $177,432.92 issued to Marathon by a third-party, AG Acquisitions,
Inc. d/b/a Westex Oilfield Services (“Westex”). The work Westex performed for Marathon
occurred at three oil and gas projects located on the Fort Berthold Reservation in western North
Dakota. Work performed on tribal land requires compliance with tribal employment regulations,
which require the work to be performed by contractors who possess a Tier 1 Tribal Employment
Rights Office (“TERO”) license issued by the Three Affiliate Tribes, a/k/a the Mandan, Hidatsa
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and Arikara Nation. In order to facilitate compliance with the tribal regulations, Westex
maintains a business relationship with Diamond Willow Energy, LLC (“Diamond Willow”)
which has a Tier 1 TERO license. The arrangement between Westex and Diamond Willow calls
for Diamond Willow to receive 10% of the amounts billed to Marathon for work performed by
Westex on the Fort Berthold Reservation. The arrangement between Westex and Diamond
Willow became strained when Diamond Willow’s Tier 1 TERO license was suspended. This
lead to payment disputes on the work performed for Marathon. Marathon had master service
agreements with both Westex and Diamond Willow.
Liquid Capital Exchange, Inc. (“Liquid Capital”) and CSNK Working Capital Finance
Corp. d/b/a Bay View Funding (“Bay View”) are both in the factoring business. Factoring
involves the factor purchasing accounts receivable from a business (factoring client) at a
discount and then working to secure payment of the accounts from the customer who owes on
the account. Customers are typically notified that all future payments on the unpaid account
must be made directly to the factor rather than the factoring client. The factor often takes a
security interest in the factoring client’s assets in order to secure repayment. Factoring
agreements are common in the energy industry.
Liquid Capital had a factoring agreement with Westex. Bay View has a factoring
agreement with Diamond Willow. In its factoring agreement with Liquid Capital, Westex
assigned all its claims against Marathon to Liquid Capital. Diamond Willow assigned all its
claims against Marathon to Bay View in their factoring agreement. Marathon made payment on
the invoices to Bay View in the amount of $177,432.92 after signing an agreement with Bay
View wherein Bay View agreed to indemnify and defend Marathon in relation to payment on the
disputed invoices. Bay View has refused to make any payment to Liquid Capital or Westex.
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Westex subsequently placed liens on the three Marathon projects for failure to pay the disputed
invoices. The liens have been assigned to Liquid Capital.
The dispute over payment of the Westex invoices by Marathon has resulted in two
lawsuits. The first case is this federal declaratory judgment action, based upon diversity
jurisdiction, filed by Bay View against Liquid Capital on July 7, 2020. See CSNK Working
Capital Finance Corp. d/b/a Bay View Funding v. Liuquid Capital Exchange, Inc., No. 1:20-cv-
119 (D.N.D. July 7, 2020). In this federal declaratory judgment action Bay View seeks a
declaration that it, rather than Liquid Capital, holds the right to be paid by Marathon for the work
done by Westex and/or Diamond Willow. Bay View also seeks a declaration that Marathon
complied with its legal obligations by paying Bay View. Marathon is not a party to this federal
declaratory judgment action.
The second case was filed by Liquid Capital against Marathon and Bay View on
September 23, 2020, in North Dakota state court. In the state court case Liquid Capital asserts
claims against Marathon for promissory estoppel, breach of contract, unjust enrichment, breach
of duty to pay assignee, foreclosure of liens, and a claim against Bay View for tortious
interference with contract. All six claims are based on state law. On October 23, 2020, Bay
View and Marathon removed the state case to federal court asserting diversity jurisdiction under
28 U.S.C. § 1332. On May 26, 2021, the case was remanded back to state court upon a finding
that diversity was not complete. Both cases boil down to the question of whether Marathon
should have paid Bay View or Liquid Capital. Neither case involves any question of federal law.
Liquid Capital is a Delaware corporation, with its principal place of business located in
Dallas County, Texas. Marathon is an Ohio corporation, with its principal place of business
located in Houston, Texas. Bay View is a California corporation, with its principal place of
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business located in San Jose, California. The Defendants have filed a joint Rule 12(b)(7) motion
to dismiss for failure to join an indispensable party (Marathon). See Doc. No. 9. Bay View
opposes the motion.
II. LEGAL DISCUSSION
Federal Rule of Civil Procedure 12(b)(7) allows a defendant to seek dismissal of a case
for failure to join a party under Federal Rule of Civil Procedure 19. See Fed. R. Civ. P. 12(b)(7).
In analyzing a Rule 12(b)(7) motion, courts must accept as true all well-pleaded factual
allegations and draw all reasonable inferences in favor of the non-moving party. 5C Wright &
Miller, Federal Practice and Procedure § 1359 (3d ed. 2004). The Court is not limited to the
pleadings in its consideration of a Rule 12(b)(7) motion. Id.; Cafesjian v. Armenian Assembly
of Am., Inc., No. 07-2079, 2008 WL 906194 at *4 (D. Minn. Mar. 31, 2008).
Rule 19 of the Federal Rules of Civil Procedure mandates that the court conduct a two-
part inquiry when determining whether an action should be dismissed for failure to join an
indispensable party. Initially, the court must determine whether the absent person’s presence is
“required.” Fed. R. Civ. P. 19(a). If the court determines the absent person’s presence is
“required,” the court must then determine if dismissal is appropriate under Rule 19(b).
Dismissal is appropriate if the moving party demonstrates: (1) an absent and required party
should be joined; (2) the court cannot join the absent, required party; and (3) the case cannot
proceed “in equity or good conscience” without the absent, required party. See Fed. R. Civ. P.
19(b). “The Rule 19 inquiry is a context sensitive one which may vary from case to case.” Two
Shields v. Wilkinson, 790 F.3d 791, 798 (8th Cir. 2015).
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A. RULE 19(a)
An absent person’s presence is “required” in two instances. The first is when complete
relief cannot be accorded among the existing parties because of the absent person. Fed. R. Civ.
P. 19(a)(1)(A). The second is when the absent person claims an interest in the subject of the
action that is of such a character that disposing of the action would either impair or impede that
person’s ability to protect their interest as a practical matter or would leave an existing party in
substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of
the absent person’s interest. See Fed. R Civ. P. 19(a)(1)(B)(i) and (ii). If the presence of an
absent person is “required,” the court must order that the person be joined if feasible. Fed. R.
Civ. P. 19(a)(2).
In this case, the interests of Bay View and Marathon are closely aligned and adverse to
the interests of Liquid Capital. Thus, any joinder of Marathon would necessarily be as a
plaintiff. Bay View’s complaint contains four claims for declaratory relief. All four claims
implicate Marathon’s conduct, rights, and obligations. Any declaration the Court makes in
relation to each claim would necessarily affect Marathon.
Bay View’s primary interest in the dispute is that it has agreed to indemnify Marathon.
Bay View’s prayer for relief as to claims one and two asks the Court make findings as to, among
other things, the parties’ lien priorities and right to payment related to work performed by
Westex and Diamond Willow for Marathon pursuant to contracts between Westex and Marathon
and Diamond Willow and Marathon. See Doc. No. 1, pp. 14-17.
In claim three Bay View seeks a determination that Marathon could only properly
discharge its payment obligation as to the disputed Westex invoices by paying Bay View rather
than Liquid Capital. See Doc. No. 1, p. 18. In claim four Bay View seeks a declaration that
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Marathon was not a party to the agreement between Diamond Willow and Westex to transfer the
disputed accounts and/or invoices to Liquid Capital. See Doc. No. 1, p. 19-20. The essential
determination Bay View seeks is whether Marathon should have paid Bay View or Liquid
Capital. These determinations clearly affect Marathon’s rights and legal obligations. As the
complaint in the state court action demonstrates, the primary dispute is between Liquid Capital
and Marathon. See Doc. No. 10-1. Proceeding with this case without Marathon may impair
Marathon’s ability to protect its interests and put Marathon in a position that affects its defense
in the ongoing state court action. Similarly, Liquid Capital, an existing party, risks inconsistent
judgments if both cases proceed. Marathon’s decision to pay Bay View is at the heart of the
dispute such that to proceed without Marathon would critically impair the Court’s ability to
fashion complete relief.
In both claims three and four Bay View contends it “steps into the shoes of and asserts
this Declaratory Judgment Claim on Marathon’s behalf.” See Doc. No. 1, pp. 18-19. In doing
so Bay View effectively admits Marathon is a required party. Bay View’s suggestion that it
stands in the shoes of Marathon and can represent the interests of Marathon confuses its status as
an indemnitor, which it is, with that of an assignee, which it is not. See Searles Valley Mins.
Operations Inc. v. Ralph M. Parsons Serv. Co., 120 Cal. Rptr. 3d 487, 492 (Cal. Ct. App. 2011)
(discussing the difference between and indemnitor and an assignee and noting an assignee stands
in the shoes of the assignor). Once a claim has been assigned, the assignee owns the claim and
has the right to sue on it. Id. Bay View is not an assignee and thus cannot represent Marathon’s
interests. Under these circumstances, the Court cannot accord complete relief among the
existing parties and the risk of inconsistent obligations is very real. As such, the Court finds
Marathon is a required party.
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Because Texas is the principal place of business for both Marathon and Liquid Capital,
Marathon cannot be joined as a plaintiff in this action as doing so would destroy diversity and
deprive the Court of subject matter jurisdiction. See 28 U.S.C. § 1332. Liquid Capital cannot
file any counterclaims against Marathon in this federal declaratory judgment action because
Marathon is not a party to the case and cannot be made a party. And contrary to Bay View’s
contentions, supplemental jurisdiction is not available over “persons proposed to be joined as
plaintiffs under Rule 19.” See 28 U.S.C. § 1367(b); 13D Wright, Miller, Cooper, & Freer,
Federal Practice and Procedure § 3567.2 (3d ed. 2008) (stating Section 1367(b) withdraws
supplemental jurisdiction for claims asserted by absentees brought in as plaintiffs under Rule
19). Thus, joinder is not feasible.
2) RULE 19(b)
Once joinder of an absent person has been determined to be “required” but not feasible
under Rule 19(a), Rule 19(b) sets forth four factors to be considered by the court in exercising its
discretion to dismiss a case for non-joinder: (1) “the extent to which a judgment rendered in the
person’s absence might prejudice that person or the existing parties;” (2) “the extent to which
any prejudice could be lessened or avoided” by carefully crafting the judgment; (3) “whether a
judgment rendered in the person’s absence would be adequate;” and (4) “whether the plaintiff
would have an adequate remedy if the action were dismissed for non-joinder.” Fed. R. Civ. P.
19(b). In addition, four key interests must be kept in mind: (1) the plaintiff’s interest in having a
forum; (2) the defendant’s interest in avoiding multiple litigation, inconsistent relief, or sole
obligation for a liability shared with another; (3) the interests of the absent party; and (4) the
interest of the courts and the public in complete, consistent, and efficient settlement of
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controversies. Nichols v. Rysavy, 809 F.2d 1317, 1332 (8th Cir. 1987). In making the joinder
determination under Rule 19(b), the court must undertake a practical examination of the
circumstances and avoid an inflexible formulistic approach. Whether a party is indispensable
can only be determined in the context of the particular litigation. Spirit Lake Tribe v. N.D., 262
F.3d 732, 746 (8th Cir. 2001).
The first factor requires consideration of whether a judgment rendered in the person’s
absence would prejudice the person or the other parties. In other words, the interests of the
absent party (Marathon) must be considered. If a judgment was entered in Marathon’s absence,
Marathon is likely be prejudiced since there is a related case pending in state court between
Liquid Capital, Marathon, and Bay View. In the state court case, Liquid Capital seeks money
damages against Marathon and to foreclose liens upon Marathon’s wells for the same work
performed by Westex that is at issue in this case and which was billed to Marathon by Westex.
Although Marathon is not a party to this federal declaratory judgment action, each claim for
relief seeks a finding as to Marathon’s actions and omissions which would clearly affect
Marathon’s legal rights and obligations. If the Court were to issue a declaratory judgment as
Bay View requests, such judgment may affect the existing state court case and Marathon’s
interests which are at issue in that case. The Court finds the first factor weighs in favor of
dismissal.
The second factor to be examined is the extent to which prejudice can be lessened or
avoided by carefully crafting the judgment or taking other measures. Of concern are the
interests of the defendant in avoiding multiple litigation, inconsistent relief, or sole responsibility
for liability shared with another. Provident Tradesmens Bank & Tr. Co. v. Patterson, 390 U.S.
102, 110 (1968). In this case, there appears to be no way to fashion a judgment which protects
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Liquid Capital’s interests without touching on the interests of Marathon. Both cases revolve
around Marathon’s conduct relative to the Westex invoices. The risk of inconsistent obligations
is clear. It is not possible to rule in favor of both Liquid Capital and Marathon whose interests
conflict. The Court finds the second factor weighs in favor of dismissal.
The third factor asks the Court to consider whether a judgment rendered in the absence of
the party who cannot be joined (Marathon) would be adequate. This factor requires
consideration of the interests of the public and courts in the “complete, consistent, and efficient
settlement of controversies.” Patterson, 390 U.S. at 111. If a declaratory judgment were
rendered in Marathon’s absence, such a judgment would be inadequate to the extent that the
declaratory relief requested requires the Court to make findings regarding Marathon’s liability.
The key issue is whether Marathon’s payment to Bay View was proper. The Court cannot issue
a judgment detailing Marathon’s obligations when Marathon is not a party to the case. Omitting
such a finding from the declaratory judgment would render the declaratory judgment incomplete.
The Court finds the third factor weighs in favor of dismissal.
The fourth factor identified in Rule 19(b) is whether the plaintiff would have an adequate
remedy if the action were dismissed. This factor primarily focuses on the interests of the
plaintiff. Alternate forums are clearly available for Bay View to advance its claims and allow all
the relevant parties to participate and represent their interests. For example, Bay View could file
a declaratory judgment action in state court in North Dakota. In addition, Bay View can raise
any necessary counterclaims in the state court action filed by Liquid Capital. This is not a case
where the dismissal for non-joinder results in a complete bar to recovery. The Court finds the
fourth factor weighs in favor of dismissal.
The Court has carefully considered all of Bay View’s arguments against dismissal and
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finds them unpersuasive. Dismissal is the appropriate remedy. Proceeding in state court where
all interested parties will be able to protect their interests is the best course of action and will
allow for complete, consistent, and efficient settlement of controversy.
III. CONCLUSION
The Court has carefully reviewed the entire record, the parties’ briefs, and the relevant
law. For the reasons set forth above, the Court the Defendants’ motion to dismiss (Doc. No. 9) is
GRANTED. The Defendants’ motion for hearing (Doc. No. 11) is DENIED.
IT IS SO ORDERED.
Dated this 8th day of June, 2021.
/s/ Daniel L. Hovland
Daniel L. Hovland, District Judge
United States District Court
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