## Facts

- Studio One Media, Inc. issued a stock certificate for 100,000 shares to Great Eastern Securities (GES) under an advisory agreement for investment advisory services.
- The certificate contained a restrictive legend stating the shares were unregistered under the Securities Act of 1933 and limiting transfer absent registration or an acceptable legal opinion/information showing an exemption.
- After GES ceased operations, a related entity pledged the certificate to Seaview Mezzanine Fund, L.P. as collateral for a loan, and Seaview later sought to liquidate the shares after default.
- Seaview retained Rainmaker International, Inc. to assist with liquidation; Rainmaker sought removal of the restrictive legend to facilitate resale.
- Studio One refused to remove the legend, demanded return of the certificate, and disputed the validity of the pledge/transfer based on noncompliance with the legend’s conditions.
- Rainmaker filed an interpleader action to determine entitlement to the certificate amid competing claims by Seaview and Studio One, while GES remained unjoined.

## Issues

1. Whether GES, as the original recipient of the stock certificate and a potential claimant, was a required party under Federal Rule of Civil Procedure 19.
2. Whether the court could adjudicate entitlement to the stock certificate and resolve the parties’ summary-judgment motions without joining GES.
3. Whether proceeding without GES risked impairing GES’s interests or exposing existing parties to inconsistent obligations.

## Decision

- The court dismissed the pending summary-judgment motions filed by Seaview and Studio One.
- The court held that GES was a necessary and indispensable party under Rule 19 because it had a potential ownership claim to the certificate.
- The court directed that GES be joined before the court could proceed to adjudicate the merits of the competing claims to the stock certificate.

## Legal Principles

- A person must be joined under Fed. R. Civ. P. 19(a) if the person claims an interest relating to the subject of the action and disposition in the person’s absence may impair that interest or subject existing parties to a substantial risk of multiple or inconsistent obligations.
- If a required person cannot be joined, the court applies Rule 19(b) to determine whether, in equity and good conscience, the action should proceed or be dismissed; an “indispensable” party is one without whom the case cannot fairly proceed to a merits resolution.
- In interpleader-type disputes over specific property, all entities with a plausible claim to the property should be joined to enable complete relief and avoid prejudicing absent claimants.
- A court should not grant summary judgment that effectively determines property rights when a required and indispensable claimant has not been joined.

## Conclusion

The court refused to decide the parties’ competing claims to an allegedly restricted stock certificate at summary judgment because the original stockholder, GES, had not been joined and could be entitled to the shares if the later pledge/transfer was found invalid.


Rainmaker Int'l, Inc. v. Seaview Mezzanine Fund, L.P., No. 4:08-cv-17, 2011 U.S. Dist. LEXIS 22348 (S.D. Ga. Mar. 2, 2011)