## Facts

- Z & B Enterprises, Inc., a Puerto Rico corporation formed by two couples, sought to own and operate a Tastee-Freez franchise in Aguadilla, Puerto Rico.
- The plaintiffs purchased the franchise through third-party sellers involved in the franchise sale and related contractual arrangements.
- Plaintiffs alleged deceptive and fraudulent conduct connected to the franchise sale and sued the franchisor, Tastee-Freez International, Inc. (TFI), in federal court.
- Plaintiffs also brought a separate action in Puerto Rico court against the sellers arising out of the same transaction.
- TFI moved to dismiss the federal case under Fed. R. Civ. P. 12(b)(7) and Rule 19, arguing the sellers were required parties whose joinder would defeat diversity jurisdiction.
- The district court dismissed for failure to join indispensable parties, and plaintiffs appealed.

## Issues

1. Whether the franchise sellers were required parties under Fed. R. Civ. P. 19(a) in plaintiffs’ federal action against the franchisor.
2. If joinder of the sellers was not feasible because it would destroy diversity jurisdiction, whether the action should be dismissed under Rule 19(b) “in equity and good conscience.”

## Decision

- The First Circuit affirmed dismissal.
- The court agreed that the sellers should be joined if feasible under Rule 19(a).
- Because joining the nondiverse sellers would defeat diversity, the court held the sellers were indispensable under Rule 19(b), and dismissal under Rule 12(b)(7) was proper.

## Legal Principles

- Rule 19 requires a two-step inquiry: (1) whether an absent party should be joined if feasible under Rule 19(a), and (2) if joinder is not feasible, whether the case must be dismissed under Rule 19(b) after weighing prejudice, mitigation, adequacy of judgment, and availability of an alternative forum.
- Parties central to the transaction and contract-related relief (including rescission or challenges to validity) may be required where their absence risks incomplete relief or multiple/inconsistent obligations.
- When required parties are nondiverse and cannot be joined, dismissal is favored where proceeding would risk prejudice and inconsistent adjudications and plaintiffs have an adequate alternative forum.

## Conclusion

The First Circuit held that the nondiverse sellers involved in the franchise transaction were necessary and indispensable under Rule 19, so the federal action against the franchisor could not proceed without them and was properly dismissed under Rule 12(b)(7).


Z & B Enters., Inc. v. Tastee-Freez Int'l, Inc., 162 F. App'x 16 (1st Cir. 2006)