Design Basics, LLC v. Aus et al
Filing
125
ORDER granting 110 116 movants' motions to intervene. Signed by Magistrate Judge James P. O'Hara on 1/8/2014. (mb)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
DESIGN BASICS, LLC,
Plaintiff,
v.
Case No. 12-2437-JPO
ESTATE OF GARY LEE AUS, et al.
Defendants.
ORDER
This is a complex copyright infringement case with only one of fourteen
defendants remaining in the case. The plaintiff, Design Basics, LLC, contends the
insured-defendant, Aus Construction, LLC, infringed its “Lancaster” and “Rosebury”
copyrights by designing and building homes substantially similar to the homes depicted
in these copyrighted plans. Plaintiff seeks recovery of defendant’s gross profits earned
from the sale of these homes, prejudment interest, and attorneys’ fees and expenses. The
matter is currently before the undersigned U.S. Magistrate Judge, James P. O’Hara, on
motions to intervene filed by two of defendant’s liability insurers, Westport Insurance
Corporation (“Westport”) and Utica National Insurance Company (“Utica”) (ECF docs.
110 and 116). Westport and Utica seek to intervene as defendants in this case to defend
against plaintiff’s claims. Plaintiff opposes the motions to intervene (ECF doc. 121).
Defendant has not filed a timely response. For the reasons discussed below, the motions
are granted.
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Westport and Utica seek intervention under Rule 24(a) and (b) of the Federal
Rules of Civil Procedure. Specifically, Westport and Utica argue that they have a
substantial interest in the instant litigation and that the existing parties will not adequately
represent that interest. This implicitly invokes the standard for intervention under Rule
24(a)(2). Under this part of Rule 24(a), a court must permit anyone to intervene who, on
a timely motion, “claims an interest relating to the property or transaction that is the
subject of the action, and is so situated that disposing of the action may as a practical
matter impair or impede the movant’s ability to protect its interest, unless existing parties
adequately represent that interest.”1 Even if the court determines that intervention as of
right is not appropriate, the court may permit anyone on timely motion to intervene under
Rule 24(b)(1)(B), who “has a claim or defense that shares with the main action a common
question of law or fact,” and after considering whether the intervention “will unduly
delay or prejudice the adjudication of the original parties’ rights.”2
I.
Timeliness
The court evaluates timeliness “in light of all the circumstances, including the
length of time since the applicant knew of his interest in the case, prejudice to the
1
Fed. R. Civ. P. 24(a)(2); see also WildEarth Guardians v. U.S. Forest Serv., 573 F.3d
992, 995 (10th Cir. 2009); Univ. of Kansas Ctr. For Research, Inc. v. United States, No.
08-2565, 2009 WL 2877645, at *2-3 (D. Kan. Sept. 2, 2009).
2
Univ. of Kansas Ctr. For Research, Inc., 2009 WL 2877645, at *2.
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2
existing parties, prejudice to the applicant, and the existence of unusual circumstances.” 3
Westport and Utica tendered their reservation of rights letters to defendant on September
1, 2010 and March 14, 2012. The instant suit was filed on July 12, 2012 (ECF doc. 1).
Since that time, discovery has commenced and closed,4 the parties have mediated, and
plaintiff has made a settlement offer within the policy limits of defendant’s insurance
coverage. On October 1, 2013, defendant demanded that Utica and Westport either
accept the settlement offer or withdraw their reservations of rights and accept coverage.
Utica and Westport declined defendant’s demand.
On or about November 27 2013, defendant rejected its insurers’ conditional
defense, hired personal (non-insurance) counsel, and entered into a settlement agreement
that provides that defendant will not contest plaintiff’s request for judgment provided that
plaintiff limit its collection efforts to any policy of insurance; the new lawyers for
defendant formally entered their appearances in this case the same day (ECF doc. 97).
On December 2, 2013,5 the court entered an order setting a bench trial on December 19,
2013, noting that the parties had waived their right to a jury trial and had consented to a
3
Id. at *3 (citing Utah Ass’n of Counties v. Clinton, 255 F.3d 1246, 1249 (10th Cir.
2001)).
4
Discovery closed on November 15, 2013 (ECF doc. 88).
5
As of December 2, 2013, insurance counsel for defendant was still receiving ECF
notifications in this case as it did not withdraw its appearance until December 3, 2013.
Based on the foregoing, it is unclear why Utica and Westport claim they knew nothing of
the bench trial until the day before the trial and only following a “computer search” of
this court’s internet docket.
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bench trial before the undersigned (ECF doc. 104). On December 3, 2013, insurance
counsel withdrew their appearance in this action (ECF doc. 107). It was not until the eve
of trial, December 18, 2013, that Utica filed its motion to intervene (ECF doc. 110). On
December 24, 2013, Westport filed its motion to intervene (ECF doc. 116).
Utica knew it had a potential interest in this case since it issued its reservation of
rights letter to defendant on September 1, 2010. Westport knew of its potential interest in
this case as early as March 14, 2012. Utica claims it is a “newcomer” to this lawsuit and
did not discover the December 18, 2013 hearing until December 17, 2013. 6 But Utica
and Westport both knew of this suit before it was filed and knew they may be responsible
for indemnifying defendant for any judgment entered depending on their insurance
policies’ “doubtful application to the underlying claim.”7 The potential that Utica or
Westport may have a contingent interest in this action should not come as a surprise to
them.
Plaintiff argues the movants’ intervention will prejudice the existing parties by
“needlessly prolonging the resolution of this case.”8 Utica responds that the “timing
takes place as it does because the conditions necessitating Intervention of right
commenced only a few weeks ago, when the original trial counsel was forced out of the
6
ECF doc. 113 at 2.
7
ECF doc. 110 at 1.
8
ECF doc. 121 at 7.
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case, their summary judgment withdrawn and the December 19 trial on damages
scheduled with no notice to Utica.”9
Plaintiff may be inconvenienced by the movants’ intervention. But the court is not
convinced that prejudice will necessarily follow. The circumstances and current posture
of this case are unique in that intervention may not have appeared to be necessary until
defendant rejected the defense provided by its insurance counsel and stated its intention
to enter into a consent judgment. That moment is likely the first time that Utica and
Westport realized their interests may not be protected by defendant. The Tenth Circuit
has held that delay should be measured from when the movant was on notice that its
interests may not be protected by a party already in the case.10 That date appears to be on
or around November 27, 2013. In light of the foregoing, the court finds that the instant
motions are timely.
II.
An Interest That May, as a Practical Matter, Be Impaired
The Tenth Circuit has adopted a liberal view in favor of allowing intervention that
focuses on the practical effects of the case on the movant. Courts should exercise
judgment based on the specific circumstances of the case.11 The Tenth Circuit has
9
ECF doc. 113 at 7.
10
See Oklahoma ex rel. Edmondson v. Tyson Foods, Inc., 619 F.3d 1223, 1232 (10th
Cir. 2010) (holding that a potential party could not be said to have unduly delayed in
moving to intervene if its interests had been adequately represented until shortly before
the motion to intervene).
11
WildEarth Guardians, 573 F.3d at 995.
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addressed the “murky” notion of what constitutes a sufficient interest under Rule
24(a)(2), noting the widespread use—both in the Tenth Circuit and elsewhere—of the
frequently referenced requirement that an interest be “direct, substantial and legally
protectable” before intervention is permitted.12
But it also cautioned against over-
technical interpretation of the meaning of interest under the rule.13 Rather, noting its
more liberal approach to intervention, the Tenth Circuit has concluded that “[t]he central
concern in deciding whether intervention is proper is the practical effect of the litigation
on the applicant for intervention.”14
Utica and Westport argue they have a financial interest in this case because they
may bear the burden for any uncontested judgment. The movants claim that if the court
“allows for disposition of this case by means of an uncontested judgment, without any
defense on the merits of plaintiff’s claims or to allegations of fact which could bear on
Westport’s coverage obligations, if any, such a judgment ‘may as a practical matter
impair or impede movant’s ability to protect its interest.’”15
Plaintiff argues that the movants’ contingent interest in pending litigation is an
insufficient interest for purposes of intervention. In other words, because the movants’
interest is contingent on their policies actually providing coverage, plaintiff argues the
12
San Juan County, Utah v. United States, 503 F.3d 1163, 1192 (10th Cir. 2007).
13
Id. at 1193.
14
Id.
15
ECF doc. 120 at 5.
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movants do not have a sufficient stake in this action. Plaintiff cites several cases outside
of the Tenth Circuit to support its claim that Utica and Westport’s purported interest is
insufficient to warrant intervention.16
As to the contingency of an interest, the Tenth Circuit interpreted its opinion in
City of Stilwell v. Ozarks Rural Elec. Cooperative Corp., 79 F.3d 1038 (10th Cir. 1996),
affirming that not every contingent interest fails to satisfy Rule 24(a)(2).17
Rather,
“[a]lthough the intervenor cannot rely on an interest that is wholly remote and
speculative, the intervention may be based on an interest that is contingent upon the
outcome of the litigation.”18
Although Utica and Westport will only be adversely
impacted if there is coverage for plaintiff’s claims, denying intervention increases the
likelihood of that adverse impact upon them. With these principles in mind, the court
finds that Utica and Westport have stated a sufficient interest in this litigation for
intervention as a matter of right.
“To satisfy the impairment element of the intervention test, a would-be intervenor
must show only that impairment of its substantial legal interest is possible if intervention
16
See, e.g., Travelers Indem. Co. v. Dingwell, 884 F.2d 629, 638-39 (1st Cir. 1989)
(denying intervention to an insurer seeking to intervene in underlying action because their
interest in the liability phase of the proceedings was contingent on the resolution of the
coverage issue and that interest was not cognizable for purposes of Rule 24(a)(2)).
17
San Juan County, Utah, 503 F.3d at 1202.
18
Id. at 1203.
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is denied. This burden is minimal.”19 Here, if plaintiff is successful in the litigation,
Utica and Westport may be responsible for all or part of the judgment. The movants
claim they must have the opportunity to defend their interest in seeking to invalidate
plaintiff’s claims and argue that they could be bound by the determinations of this court
on various issues via issue and/or claim preclusion that could adversely impact any
subsequent adjudication of insurance coverage.
Considering the minimal burden
necessary under WildEarth Guardians, the court finds the movants have met their burden
to show the possibility that their interest may be impaired if they are not allowed to
intervene.
III.
Adequate Representation of Utica and Westport’s Interest
Even if Utica and Westport have an interest that may, as a practical matter, be
impaired or impeded by the disposition of the case, they are not entitled to intervene
unless they can demonstrate the existing defendant does not adequately represent their
interests in this matter. “An intervenor need only show the possibility of inadequate
representation.”20 The burden is minimal; “[t]he possibility of divergence of interest
need not be great in order to satisfy the burden of the applicants.”21
19
WildEarth Guardians, 573 F.3d at 995 (quoting Utah Ass’n of Counties, 255 F.3d at
1253.
20
Id. at 996.
21
Id. (citing Coalition of Ariz./N.M. Counties for Stable Econ. Growth v. Dep’t of the
Interior, 100 F.3d 837, 844-45 (10th Cir. 1996)).
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The agreement between plaintiff and defendant demonstrates that defendant has no
intention to present any further defense in this case. Defendant withdrew its summary
judgment motion (ECF doc. 103) and has agreed to enter a consent judgment with
plaintiff. The court agrees with Westport—the agreement “effectively removed any
incentive [for defendant] to contest liability, damages, or facts relevant to Westport’s
coverage.”22 The holding in Campbell v. Plank, 133 F.R.D. 175 (D. Kan. 1990) supports
this finding.
Campbell involved an automobile accident case. The insurer was defending the
driver until he entered into a settlement agreement that provided that the plaintiff would
not oppose entry of a judgment against the driver. The agreement provided that the
plaintiff would never garnish defendant or personally execute against him on any
judgment and assigned any bad faith claim he may have against the insurer to the
plaintiff. In granting the insurer’s motion to intervene, the court stated, “[i]t is obvious
that American [the insurer] has a financial interest in the outcome of this case. Likewise,
the agreement between plaintiff and defendant demonstrates that defendant has little, if
any, incentive to present a vigorous, adversarial defense.”23 The court concluded that the
plaintiff failed to show the insurer was responsible for the absence of an adequate
22
ECF doc. 122 at 5.
23
Campbell, 133 F.R.D. at 176.
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representation of its interests, granted the insurer’s motion to intervene, and allowed a
jury trial contrary to the desire of plaintiff and defendant.24
Given the “minimal” burden placed on intervenors and the Tenth Circuit’s liberal
allowance of intervention, the court concludes that Utica and Westport have adequately
demonstrated defendant may not adequately represent their interest in this matter.
Accordingly, movants’ motions to intervene as a matter of right (ECF docs. 110 and
116) are granted. In light of the foregoing, the court need not address movants’ motion
for permissive intervention under Rule 24(b).
Plaintiff asserts that if the court allows intervention, it should be premised on two
conditions: 1) a determination that the movants accept coverage or indemnity obligation
for the copyright damages claimed, and 2) defendant cannot alter the existing procedural
status of the case.25 Intervention as of right “may be subject to appropriate conditions or
restrictions responsive among other things to the requirements of efficient conduct of the
proceedings.”26 The district court has the ability to lessen any potential delay by denying
discovery.27
24
Id.
25
ECF doc. 121 at 8.
26
U.S. v. Albert Inv. Co., Inc., 585 F.3d 1386, 1396 (10th Cir. 2009) (quoting San Juan
County, Utah, 503 F.3d at 1189); see also Beauregard, Inc. v. Sword Servs., LLC, 107
F.3d 351, 352-53 (5th Cir. 1997) (“It is now a firmly established principle that reasonable
conditions may be imposed even upon one who intervenes as of right.”).
27
Id. See Arizona v. Motorola, Inc., 139 F.R.D. 141, 148 (D. Ariz. 1991) (denying
discovery in settlement matter); Dravo Corp. v. Zuber, 804 F.Supp. 1182, 1187 (D. Neb.
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Although this action has been pending for almost two years, movants essentially
concede that their potential interest in this action only became impaired or impeded in
late November 2013.28 This is because up until that time the “defendants were actively
defending liability and damages through counsel” the movants were providing to them.29
The foregoing suggests that all discovery and other pretrial matters conducted by the
parties prior to late November is adequate to protect movants’ interests. When the
movants’ interests stopped being adequately protected, discovery already had closed and
insurance-retained defense counsel had timely filed a comprehensive motion for
summary judgment (ECF doc. 90).
Only the pretrial conference and trial setting
remained. Therefore, this action shall resume with the same procedural posture as of late
November.
Although the court is allowing Utica and Westport to intervene, their
intervention is subject to the following conditions: 1) discovery is and shall remain
closed; 2) the parties shall share all existing discovery with the movants; and 3) briefing
shall proceed with a response and a reply with regard to the summary judgment motion
1992) (same); United States v. Union Electric, 132 F.3d 422, 430 (8th Cir. 1997)
(denying evidentiary hearing); United States v. BP Amoco, 277 F.3d 1012, 1017 (8th Cir.
2002) (district court denial of discovery did not abuse discretion where intervenor had a
“meaningful and sufficient opportunity to present arguments and submit evidence in
opposition”); United States v. Cannons Eng’g Corp., 899 F.2d 79, 94 (1st Cir. 1990) (no
abuse of discretion where intervenor had opportunity to argue fully the issues and did not
advise court of particular matter requiring live testimony).
28
See ECF doc. 122 at 2.
29
Id. at 6.
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by defendant, which was filed on October 24, 2013, and withdrawn on December 2, 2013
(ECF docs. 103 and 106).
As earlier indicated, while both plaintiff and defendant have consented to the
undersigned magistrate judge trying this case and entering final judgment, neither Utica
nor Westport have so consented.
In light of the foregoing, unless both Utica and
Westport file fully executed consents by January 17, 2014, this case shall be re-assigned
by the Clerk’s Office to the previously presiding U.S. District Judge, J. Thomas Marten,
to conduct all proceedings other than pretrial proceedings.30 Counsel shall confer and
submit a proposed amended scheduling order via e-mail to the undersigned judge’s
chambers by January 17, 2014.
IT IS SO ORDERED.
Dated January 8, 2014, at Kansas City, Kansas.
s/ James P. O’Hara
James P. O’Hara
U. S. Magistrate Judge
30
During the December 19, 2013 telephone status conference, the parties suggested
that they may be interested in mediating this case again. The court strongly encourages
the parties to communicate and cooperate with each other and would be open to hearing
arguments from counsel regarding a stay pending mediation. If the movants decide to
file a separate declaratory judgment action to determine insurance coverage, the court
would also be amenable to hearing arguments for a stay of this litigation pending those
proceedings.
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