ABCM Corporation v. West Bend Mutual Insurance Company
MEMORANDUM OPINION AND ORDER denying 10 Joint Motion to Amend Complaint or Voluntarily Dismiss. See Order for details. Signed by Chief Judge Leonard T Strand on 10/15/2020. (mmc)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF IOWA
WEST BEND MUTUAL INSURANCE
This case is before me on a motion (Doc. 10) by plaintiff ABCM Corporation
(ABCM) to voluntarily dismiss this action under Federal Rule of Civil Procedure 41(a)(2)
or, in the alternative, to amend its complaint and remand in accordance with 28 U.S.C.
§ 1447(e). Defendant West Bend Mutual Insurance Company (West Bend) has filed a
resistance (Doc. 11) and ABCM has filed a reply (Doc. 12). Oral argument is not
necessary. See N.D. Iowa L.R. 7(c).
BACKGROUND AND PROCEDURAL HISTORY
ABCM is an Iowa corporation that held a commercial automobile insurance policy
(the policy) issued by West Bend, a Wisconsin corporation. Doc. 2 at 1. On August 27,
2014, an ABCM employee was involved in a collision while driving on U.S. Highway
65 in Franklin County, Iowa, that resulted in three lawsuits against ABCM. Id. at 2–3.
Pursuant to the policy, West Bend retained Elliott R. McDonald, III, of McDonald,
Woodward & Carlson, P.C., to defend ABCM in those actions. Id. ABCM also pursued
a third-party action against another individual involved in the collision, but West Bend
did not provide representation for that lawsuit. Id.
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ABCM commenced this action on May 18, 2020, by filing a petition (Doc. No. 2)
against West Bend in the Iowa District Court for Franklin County. ABCM alleges that
West Bend has breached the policy, breached the implied duty of good faith and fair
dealing and acted in bad faith. Id. at 5–9. West Bend filed a notice of removal (Doc.
No. 1) on June 19, 2020, invoking this court’s diversity jurisdiction pursuant to 28
U.S.C. § 1332(a), and filed an answer (Doc. No. 4) on June 26, 2020. ABCM filed the
present motion on August 13, 2020. Doc. No. 10.
ABCM asserts this case should be returned to state court because McDonald and
his law firm should be joined as defendants and, if so joined, this court will no longer
have diversity jurisdiction. ABCM presents two separate procedural paths to reach this
outcome. First, it seeks to voluntarily dismiss this case under Federal Rule of Civil
Procedure 41(a)(2) so it may file a new state court action that would include the nondiverse defendants. In the alternative, ABCM seeks to amend its petition in order to join
McDonald and his law firm as defendants under Federal Rules of Civil Procedure 19 or
20, which would destroy complete diversity in this case and require remand pursuant to
28 U.S.C. § 1447(e). I will begin with the joinder issue.
Joinder of Diversity-Destroying Defendants and Remand
ABCM argues that joining McDonald and his law firm as defendants is required
because they are necessary parties under Rule 19(a)(1). Under Rule 19(a)(1)(A), a party
is necessary when, “in that person’s absence, the court cannot accord complete relief
among existing parties.” Under Rule 19(a)(1)(B), a party is necessary when it “claims
an interest relating to the subject of the action” and its absence from the action would
either “impair or impede [its] ability to protect the interest” or “leave an existing party
subject to a substantial risk of incurring double, multiple, or otherwise inconsistent
obligations because of the interest.”
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By its own terms, however, Rule 19(a)(1) applies only to a party “whose joinder
will not deprive the court of subject-matter jurisdiction.” Indeed, Rule 19 itself does not
authorize a court to join a diversity-destroying party at all. If a plaintiff seeks to join a
non-diverse defendant under Rule 19, the court must determine whether that defendant is
both necessary and indispensable to the case and, if so, must dismiss it. Fed. R. Civ. P.
19(b) (“If a person who is required to be joined if feasible cannot be joined, the court
must determine whether, in equity and good conscience, the action should proceed among
the existing parties or should be dismissed.”).
Rule 19’s rigidity with regard to joinder of a diversity-destroying party is why
Congress enacted 28 U.S.C. § 1447(e).1 Under § 1447(e), if a plaintiff seeks to join a
diversity-destroying party after a case has been removed, dismissal is not the court’s only
option. If the party is indispensable, the court may permit joinder and remand the case
to state court.
28 U.S.C. § 1447(e); see also Bailey v. Bayer CropScience L.P., 563
F.3d 302, 308 (8th Cir. 2009) (“If a potential defendant, whose joinder would destroy
jurisdiction, is determined to be indispensable, the district court must either permit
joinder and grant remand under § 1447(e), or dismiss the action pursuant to Rule
19(b).”). Thus, for this case to be remanded under § 1447(e) due to the joinder of
McDonald and his law firm, they must be necessary parties under Rule 19(a) and
indispensable parties under Rule 19(b). Id.; see also Gwartz v. Jefferson Mem’l Hosp.
Ass’n, 23 F.3d 1426, 1430 (8th Cir. 1994) (holding there is no need to “address whether
[Section 1447(e)] takes advantage of the opportunity opened by removal from a
state court to permit remand if a plaintiff seeks to join a diversity-destroying
defendant after removal. Joinder coupled with remand may be more attractive
than either dismissal under civil rule 19(b) or denial of joinder. The flexibility
built into the framework of rule 19(b) fully supports this approach. This provision
also helps to identify the consequences that may follow removal of a case with
unidentified fictitious defendants.
H.R. REP. 100-889, 72–73, 1988 U.S.C.C.A.N. 5982, 6033.
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[a party] is an indispensable party under Rule 19(b)” if it “is not a necessary party under
ABCM makes no argument as to why McDonald and his law firm are indispensable
parties under Rule 19(b). Even if it did, however, the argument would be irrelevant
because they are not necessary parties under Rule 19(a). See Gwartz, 23 F.3d at 1430.
ABCM has failed to show that McDonald and his law firm are necessary in order to
obtain complete relief for its alleged injuries. Each of ABCM’s claims against West Bend
arises from the policy between ABCM and West Bend. Although McDonald’s actions
while representing ABCM pursuant to the policy may be relevant to ABCM’s contractbased claims, ABCM has not cited, nor have I found, authority suggesting that McDonald
or his law firm could be held liable on those claims. See Iowa Mortg. Ctr., L.L.C. v.
Baccam, 841 N.W.2d 107, 110 (Iowa 2013) (“To prove a breach of contract claim, a
party must show: (1) the existence of a contract [between the parties] . . . .”); De Dios
v. Indem. Ins. Co. of N. Am., 927 N.W.2d 611, 613 (Iowa 2019), as amended (May 14,
2019) (“In Iowa, the bad-faith cause of action arises from (1) the special contractual
relationship between insurer and insured . . . .”); Restatement (Second) of Contracts §
205 (1981) (“Every contract imposes upon each party a duty of good faith and fair dealing
in its performance and its enforcement.” (emphasis added)).
ABCM contends McDonald and his firm are alternatively liable for its injuries on
grounds of legal malpractice. However, joining those defendants in this case to assert
such a claim is not necessary to ensure that ABCM can obtain complete relief. ABCM
may obtain complete relief from West Bend and/or the proposed additional defendants
regardless of whether there is a single lawsuit or separate lawsuits.
Nor has ABCM shown that the proposed additional defendants have an interest in
this case that cannot be protected in their absence or that their absence will subject a
current party to inconsistent obligations. Whatever interest McDonald and his law firm
may have in this matter does not necessitate their joinder. As noted above, the additional
defendants cannot be held liable for ABCM’s claims against West Bend. Conversely,
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ABCM has not shown that West Bend could be held liable on any claim ABCM seeks to
bring against McDonald and his law firm. No outcome in this case would affect the
additional defendants’ ability to adequately defend themselves in any concurrent, or
subsequent, suit brought against them by ABCM or West Bend. Nor is there any risk
that a current party may be subjected to double, multiple or inconsistent obligations.
Thus, ABCM has failed to show that McDonald and his law firm are necessary parties.
Joinder and remand is not required pursuant to Rule 19 and § 1447(e).
ABCM also argues the non-diverse defendants should be joined as permissive
parties under Rule 20. Under that rule, additional defendants may be joined if:
(A) any right to relief is asserted against them jointly, severally, or in the
alternative with respect to or arising out of the same transaction,
occurrence, or series of transactions or occurrences; and
(B) any question of law or fact common to all defendants will arise in the
Fed. R. Civ. P. 20(a)(2)(A)–(B). Generally, leave to amend in order to join additional
defendants should be freely given when justice requires. See Fed. R. Civ. P. 15(a)(2).
However, when a requested amendment would join diversity-destroying parties after a
case has been removed, the court must “scrutinize that amendment more closely than an
ordinary amendment.” Bailey, 563 F.3d at 309 (quoting Hensgens v. Deere & Co., 833
F.2d 1179, 1182 (5th Cir. 1987)). The court must consider (1) whether joinder of the
non-diverse defendants is sought to destroy federal diversity jurisdiction, (2) whether the
plaintiff has been dilatory in seeking to add the non-diverse defendants and (3) whether
the plaintiff will be significantly injured if joinder is not permitted. Id. at 309. The court
must “balance the defendant’s interests in maintaining the federal forum with the
[plaintiff’s] competing interests of not having parallel lawsuits.” Id. at 309 (quoting
Hensgens, 833 F.2d at 1182). In any event, “the district court ha[s] full discretionary
authority to deny joinder and retain jurisdiction over the action.” Id. at 308.
ABCM has established the first requirement for joinder under Rule 20(a).
Although, as discussed above, neither McDonald nor his law firm could be held liable
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under the claims ABCM has brought against West Bend, the separate legal malpractice
claim ABCM seeks to bring against them presents an alternative basis for liability arising
from the same circumstances and injuries at issue here. Mosley v. Gen. Motors Corp.,
497 F.2d 1330, 1333 (8th Cir. 1974) (Rule 20 permits “all reasonably related claims for
relief by or against different parties to be tried in a single proceeding”).
ABCM has also established the second requirement under Rule 20(a). Because
ABCM seeks to raise a claim against the additional defendants that is legally distinct from
the claims already raised against West Bend, there is no question of law common to all
defendants. This does not mean there is no common question of fact. ABCM alleges it
suffered injuries from litigation decisions made by McDonald, West Bend, or both.
Determining what those decisions were, who made them and how they impacted ABCM
is central to the claims ABCM has raised, or seeks to raise, against each of the defendants,
even if the legal significance of, and potential legal liability for, those actions differs for
each defendant. As such, McDonald and his law firm are parties who may properly be
joined under Rule 20(a). However, because the motion to join the additional defendants
comes after the case has been removed, I must now consider whether they should be
joined in light of the timing and circumstances of the motion.
ABCM does not specifically address the Bailey factors in arguing that permissive
joinder is appropriate. Instead, it argues that this court should permit joinder and then
dismiss or remand the case in accordance with Coke v. Loadmaster Corp., 420 F. App’x
647 (8th Cir. 2011). In Coke, the Eighth Circuit, without mentioning the Bailey factors,
summarily affirmed the district court’s decision to allow the permissive joinder of nondiverse defendants and dismiss the case. Id. at 648.
Coke is distinguishable on two grounds. First, the plaintiff’s motion to amend and
join additional non-diverse defendants did not follow a removal from state court, as the
plaintiff had brought the case in federal court. See Coke v. Loadmaster Corp., No. 093245-CV-S-RED, 2010 WL 11545749, at *1 (W.D. Mo. June 30, 2010). As noted
above, it is a motion to join non-diverse defendants following removal that the Eighth
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Circuit has deemed suspect. See Bailey, 563 F.3d at 309. Second, the plaintiff in Coke
sought to join additional non-diverse defendants whose potential liability became apparent
due to investigation after the case was commenced. Coke, 2010 WL 11545749, at *2.
Here, ABCM has not shown that it was unaware that McDonald and his law firm might
be liable for its alleged injury when it commenced this action in state court. Nor has
ABCM explained why it did not, or could not, have included those parties as defendants
from the outset. ABCM’s reliance on Coke is misplaced. I must analyze the Bailey
factors in order to determine whether justice requires that I give leave to ABCM to amend
its complaint to add McDonald and his law firm.
First, I must determine whether ABCM’s purpose in seeking to join the nondiverse defendants is to destroy diversity jurisdiction. This factor weighs against allowing
joinder. ABCM has not explained why it did not include claims against McDonald and
his law firm in its state court petition. This lack of explanation, combined with its attempt
to add those diversity-destroying defendants soon after removal, raises serious concerns
as to ABCM’s motives.
Next, I must consider whether ABCM has been dilatory in seeking to join the nondiverse defendants. This factor is neutral. ABCM filed its state court petition on May
18, 2020, and sought to add the diversity-destroying defendants less than three months
later, while this case was still at a very early stage. However, and once again, the fact
that ABCM could have included McDonald and his law firm as defendants in its initial
state court petition, but instead waited until after the case was removed to try to add them,
does not help ABCM’s cause. See, e.g., Bailey, 563 F.3d at 309.
Finally, I must consider whether ABCM will be significantly injured if joinder is
not allowed. ABCM argues that it will be injured by the costs of litigating related lawsuits
in separate forums and the risk of the defendants employing the “empty-chair defense”
in those separate actions if joinder is not permitted. While these injuries may justify
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joinder in some cases,2 they do not justify permissive joinder here. Though West Bend
and the non-diverse defendants may be jointly, or alternatively, liable for the harm
ABCM allegedly suffered due to the handling of its accident-related litigation, there is no
requirement “for all joint tortfeasors to be named as defendants in a single lawsuit.”
Bailey, 563 F.3d at 308 (quoting Temple v. Synthes Corp., Ltd., 498 U.S. 5, 7 (1990)).
As noted above, ABCM has not shown that joinder of the non-diverse defendants is
necessary for it to obtain complete relief for its alleged injuries in this case. See, e.g.,
Shelton v. Akins, No. 4:20CV198 HEA, 2020 WL 3605555, at *3 (E.D. Mo. July 2,
2020) (finding no injury or prejudice against a plaintiff when additional defendant was
not needed for the plaintiffs to obtain a full recovery for its injury).
Further, while the claims against each defendant arise from many of the same
facts, the facts that will be legally significant for each defendant will be different because
the claims against them are different.
As such, there is little risk of inconsistent
comparative-fault judgments3 or of the defendants successfully employing the “emptychair defense.” This factor weighs against allowing joinder as well.
Under the Bailey factors, it is not in the interests of justice to grant ABCM leave
to amend its complaint to join the diversity-destroying defendants.
ABCM alternatively seeks to voluntarily dismiss this action so that it may re-file
in state court. After a defendant has filed an answer, “an action may be dismissed at the
plaintiff’s request only by court order, on terms that the court considers proper.” Fed.
See, e.g., Thompson v. Joe-K Used Cars, LLC, No. 4:19 CV 2422 CDP, 2019 WL 7291229,
at *3 (E.D. Mo. Dec. 30, 2019) (granting joinder and remand because “it would be impractical,
inefficient, and unnecessarily expensive to require [the plaintiff] to maintain two separate
wrongful death actions” and because of the risk of inconsistent comparative fault judgments).
Claims arising from breach of contract, such as those ABCM asserts against West Bend in this
case, are not subject to Iowa’s comparative fault statute. See, e.g., State v. Paxton, 674 N.W.2d
106, 109 (Iowa 2004).
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R. Civ. P. 41(a)(2). Whether to grant such a request is left “to the sound discretion of
the district court.” Kern v. TXO Prod. Corp., 738 F.2d 968, 970 (8th Cir. 1984).
However, when deciding whether to exercise its discretion to allow a voluntary dismissal,
the court must consider “whether the party has presented a proper explanation for its
desire to dismiss; whether a dismissal would result in a waste of judicial time and effort;
and whether a dismissal will prejudice the defendants.” Thatcher v. Hanover Ins. Grp.,
Inc., 659 F.3d 1212, 1213 (8th Cir. 2011) (quoting Hamm v. Rhone–Poulenc Rorer
Pharm., Inc., 187 F.3d 941, 950 (8th Cir. 1999)). A plaintiff should not be “permitted
to dismiss merely to escape an adverse decision nor to seek a more favorable forum.”
Id. at 1214.
For largely the same reasons discussed above regarding permissive joinder, the
factors and considerations set forth in Thatcher weigh against voluntary dismissal.
ABCM could have included claims against McDonald and his law firm in its state court
petition and has not explained its failure to do so. Instead, ABCM waited until this action
had been removed before seeking to add diversity-destroying defendants. Under these
circumstances, ABCM has not shown that it has a proper purpose for seeking dismissal.
For the foregoing reasons, plaintiff ABCM Corporations’ motion (Doc. No. 10)
to amend its complaint or voluntarily dismiss this action is denied.
IT IS SO ORDERED.
DATED this 15th day of October, 2020.
Leonard T. Strand, Chief Judge
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