Delcon Construction Corp. v. United States Department of Housing, & Urban Development

Citations: 205 F.R.D. 145; 2002 U.S. Dist. LEXIS 772; 2002 WL 91528Docket: No. 01 CIV 3295 CM

Court: District Court, S.D. New York; January 3, 2002; Federal District Court

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Defendants, the United States Department of Housing and Urban Development (HUD) and its Secretary Mel Martinez, successfully moved to join Russand, Inc. as a necessary party in a lawsuit initiated by Deleon Construction Corporation. The motion was filed under Rules 12(b)(7) and 19 of the Federal Rules of Civil Procedure. The background includes a construction contract between Deleon and Russand for Tappan Zee Manor, a property in Nyack, New York, which HUD was not party to. Russand secured a loan from WMF/Huntoon Paige Associates Limited for the project, backed by HUD's Federal Housing Administration through a mortgage insurance program. After Russand defaulted on the mortgage in 1998, Huntoon assigned the loan to HUD.

Russand subsequently sued Deleon in New York state court for breach of contract, while Deleon filed a federal complaint against Russand and Huntoon alleging multiple claims, which was dismissed for lack of subject matter jurisdiction. Deleon's state court counterclaims against Russand continued, and in 2001, Deleon brought a new lawsuit against HUD based on quantum meruit, unjust enrichment, and conversion of trust funds. The court determined that Russand is a necessary party under Rule 19(a)(1) because complete relief cannot be granted without its involvement, and its absence may impair its ability to protect its interests, potentially exposing existing parties to inconsistent obligations.

The court must order the joinder of a necessary party if feasible, as per Fed. R. Civ. P. 19(a). A necessary party is defined by two statutory criteria, and if the court determines that Russand, a New York corporation subject to service of process in the District, qualifies as such, it must be joined. Although joining Russand will destroy diversity jurisdiction, it will not affect the court's jurisdiction since the United States is the defendant per 28 U.S.C. 1346. The application of Rule 19 requires balancing the interests of all parties involved and aims to ensure effective and expeditious litigation.

The key issue is whether the absence of Russand would hinder the ability to provide complete relief to the existing parties, Deleon and HUD. Russand is deemed a necessary party because the underlying contract it is part of is central to the litigation. Deleon is seeking recovery from HUD for amounts due under the contract and related change orders, which necessitates the court's determination of rights and obligations between Deleon and Russand. If Russand is not joined, HUD could be subject to inconsistent obligations, potentially leading to liability issues. Deleon's assertion that Russand’s participation is unnecessary is disputed, as it overlooks potential conflicts regarding the work performed and amounts owed under the contract. Therefore, Russand should be joined to allow it to assert defenses and claims relevant to the litigation.

Russand and Deleon have significant disagreements regarding the necessity of Russand's involvement in the litigation. Deleon contends that Russand is not a necessary party to its Second and Fifth Causes of Action, which involve claims of unjust enrichment and an equitable lien. However, Deleon acknowledges Russand's necessity in the other four causes of action, which pertain to breach of a contractual guarantee and payment rights as a third-party beneficiary under the Building Loan Agreement. Deleon is willing to withdraw these latter claims if it helps deny HUD’s motion. 

The Court, however, finds Deleon's arguments unconvincing. The complaint extensively references Russand's interests, alleged breaches of contractual obligations, and Deleon's payment rights under the construction contract, indicating Russand’s status as a necessary party. Citing established precedent, the Court confirms that a party to a contract central to the litigation is deemed necessary. Consequently, the Court orders that Deleon must join Russand as a necessary party defendant within thirty days, warning that failure to do so will result in dismissal. The Court also notes that in past cases where HUD has been held liable to a contractor, the owner was either a party to those actions or there was a prior judgment against the owner, emphasizing the interconnectedness of the parties involved.