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Civil Practice – Necessary & Indispensable Party – Contract Assignor – Diversity Jurisdiction

Medport, Inc. v. E.V. Williams, Inc. (Lawyers Weekly No. 003-022-16, 24 pp.) (William Osteen Jr., J.) 1:16-cv-00601; M.D.N.C.

Holding: Plaintiff is trying to enforce a subcontractor’s assignment of its right to payment from the defendant-contractor, but the contract between defendant and the subcontractor prohibited any assignment. The subcontractor is a necessary and indispensable party to this action; however, its joinder would destroy diversity.

The court grants defendant’s motion to dismiss without prejudice to plaintiff filing in an appropriate forum.

To declare the assignment valid, this court would be assessing the validity of two contracts – the contract between defendant and the subcontractor and the assignment between plaintiff and the subcontractor. The subcontractor is a party to both contracts, yet it would not be bound to this court’s declaratory judgment. The subcontractor would remain free to pursue its perceived rights and remedies as to plaintiff and defendant in this or any other appropriate forum.

A judgment in this case, in the absence of the subcontractor, would not fulfill the purpose of a declaratory judgment: to declare rights so that parties can conform their conduct to avoid future litigation.

If the present case were to move forward, Virginia law would govern the validity of the assignment since the contract was made in Virginia. Under Virginia law, the assignor (the subcontractor) must be made a party when an assignee seeks relief.

With regard to the factors to be considered under Fed. R. Civ. P. 19(b)(1), the subcontractor would clearly be affected by the decree. A declaratory judgment that the assignment is valid could result in a finding that the subcontractor had breached the non-assignment clause of its contract with the contractor, thereby exposing the subcontractor to a cause of action for damages.

Furthermore, in the subcontract, defendant contracted for a dispute resolution process, a forum selection clause, a damages provision, and an arbitration agreement. This case would deprive defendant of the benefit of its bargain.

The subcontractor is both necessary and indispensable; therefore, this action must be dismissed for lack of subject matter jurisdiction.

Dismissed without prejudice.

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