Omega US Insurance, Inc. v. Pennsylvania National Mutual Casualty Insurance Company et al

Filing 25

MEMORANDUM. Signed by Judge Ellen L. Hollander on 1/13/2012. (aos, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
OMEGA US INSURANCE, INC.,
Plaintiff,
v.
Civil Action No. ELH-11-2297
PENNSYLVANIA NATIONAL
MUTUAL CASUALTY
INSURANCE COMPANY, et al.,
Defendants.
MEMORANDUM
This is a declaratory judgment action regarding insurance coverage.

Omega US

Insurance, Inc. (“Omega”), plaintiff, filed suit on August 17, 2011, against its insured, RN‟G
Construction, Inc. (“RN‟G”), as well as Pennsylvania National Mutual Casualty Insurance
Company (“Penn National”); Timothy W. Whalen and Evonne J. Whalen; Joyce M.
Lookabaugh; and Con-Way Truckload (“Con-Way”). Omega seeks a declaration pronouncing,
inter alia, that Omega is not required to defend and indemnify RN‟G against claims arising out
of an accident that occurred on or about July 14, 2010, involving a truck owned by RN‟G. See
ECF 1. On October 19, 2011, Omega filed an Amended Complaint (ECF 9), naming two
additional defendants: the Maryland State Highway Administration (“SHA” or “MSHA”) and
Long Fence Company Inc. (“Long Fence”). Omega asserted subject matter jurisdiction on the
basis of diversity of citizenship. See Amended Complaint ¶ 12; see also 28 U.S.C. § 1332.
At this juncture, five of the eight defendants (Penn National, RN‟G, Lookabaugh, and the
Whalens) have appeared and responded to the Amended Complaint.

The remaining three

defendants (Con-Way, Long Fence, and the SHA) have yet to appear. On December 22, 2011, I

issued an Order (ECF 20) directing the parties that have appeared to file a joint status report as to
three matters:
1. Whether the Court possesses subject matter jurisdiction, in light of the fact
that the SHA, which is an agency of the State of Maryland, is a defendant.
2. Whether Con-Way, Long Fence, and the SHA have been served with
summonses and, if so, when they were served.
3. If any defendant has not yet been served, whether good cause exists to extend
the time for service pursuant to Rule 4(m) and, if so, the appropriate length for
such extension.
On January 11, 2012, Omega filed a notice of voluntary dismissal as to the SHA (ECF
21), which I marginally approved (ECF 22). Later the same day, the parties filed a Status Report
(ECF 24), as requested. This Memorandum addresses the matters discussed in the Status Report.
A. Subject Matter Jurisdiction
As I explained in my Order, the addition of the SHA, which is a “governmental agency or
division of the Maryland Department of Transportation, State of Maryland,” Amended
Complaint ¶ 6, raised doubt as to the existence of diversity jurisdiction. Diversity jurisdiction is
implemented by 28 U.S.C. § 1332(a), which grants federal district courts “original jurisdiction of
all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive
of interest and costs, and is between . . . citizens of different States.”
Ordinarily, a state agency is not considered a “citizen” of a state, so as to confer diversity
jurisdiction. The Fourth Circuit explained the relevant principles in South Carolina Department
of Disabilities and Special Needs v. Hoover Universal, Inc., 535 F.3d 300, 303 (4th Cir. 2008):
It is well established that for purposes of diversity jurisdiction, a State is
not a “citizen.” See Moor v. County of Alameda, 411 U.S. 693, 717 (1973).
Moreover, a public entity created under state law, which is “the arm or alter ego
of the State,” is likewise not a citizen for purposes of diversity jurisdiction. Id.
(internal quotation marks omitted) (emphasis omitted); see also Maryland
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Stadium Auth. v. Ellerbe Becket Inc., 407 F.3d 255, 260 (4th Cir. 2005). But an
entity created by the State which functions independently of the State with
authority to sue and be sued, such as an independent authority or a political
subdivision of the State, can be a “citizen” for purposes of diversity jurisdiction.
Moor, 411 U.S. at 717-18; Maryland Stadium Auth., 407 F.3d at 260.
The line separating a State-created entity functioning independently of the
State from a State-created entity functioning as an arm of the State or its alter ego
is determined by the particular legal and factual circumstances of the entity itself.
To define that line, we have articulated a nonexclusive list of four factors to be
considered: (1) whether any judgment against the entity as defendant will be paid
by the State or whether any recovery by the entity as plaintiff will inure to the
benefit of the State; (2) the degree of autonomy exercised by the entity, including
such circumstances as who appoints the entity‟s directors or officers, who funds
the entity, and whether the State retains a veto over the entity‟s actions; (3)
whether the entity is involved with state concerns as distinct from non-state
concerns, including local concerns; and (4) how the entity is treated under state
law, such as whether the entity‟s relationship with “the State [is] sufficiently close
to make the entity an arm of the State.” See Maryland Stadium Auth., 407 F.3d at
261-62 (alteration in original) (drawing factors from Lake Country Estates, Inc. v.
Tahoe Reg’l Planning Agency, 440 U.S. 391 (1979) and Ram Ditta v. Maryland
Nat’l Capital Park & Planning Comm'n, 822 F.2d 456 (4th Cir. 1987), and
quoting Cash v. Granville County Bd. of Educ., 242 F.3d 219, 224 (4th Cir.
2001)).
As I mentioned in my Order, I am presently unaware of a case that has applied the
foregoing analysis to determine whether the SHA is an “alter ego” of the State of Maryland for
purposes of diversity. However, Omega has filed a notice of voluntary dismissal as to the SHA,
pursuant to Rule 41(a)(1)(A)(i) of the Federal Rules of Civil Procedure, which permits a plaintiff
to “dismiss an action without a court order by filing . . . a notice of dismissal before the opposing
party serves either an answer or a motion for summary judgment.”1

1

Although the notice of voluntary dismissal (ECF 21) stated only that plaintiff
“dismisses without prejudice the Maryland State Highway Administration as a party defendant,”
I presume that Omega also thereby dismissed Count III of its Amended Complaint, which seeks
a declaratory judgment stating that the “MSHA is [n]ot an Insured on the Omega US Policy,”
and that Omega “has no obligation to provide coverage to MSHA for the July 14, 2010 Incident
Claims.” Amended Complaint at 18; see also id. at 22 (third request for relief).
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In the joint status report, Omega represents that it believed SHA was implicated in the
dispute at bar because, at the time of the accident, RN‟G was a subcontractor to Long Fence,
which in turn was a contractor to the SHA, and Long Fence (via its insurer) had asserted a claim
for defense and indemnification from Omega, arising out of RN‟G‟s obligation to defend and
indemnify Long Fence under the terms of the subcontract between RN‟G and Long Fence. See
Amended Complaint ¶¶ 34-48. Therefore, Omega states that it “believed it was appropriate to
join SHA” as a party and “seek discovery,” Status Report at 4, as to the “particular legal and
factual circumstances of the entity.” S.C. Dept. of Disabilities, 535 F.3d at 303. However,
according to Omega, “given that the SHA is not an additional insured on the Omega US Policy,
nor has it . . . sought coverage under the Omega US Policy, there is no compelling need to
undertake the expense and time of that inquiry,” and, “[g]iven the early stages of this case and
the fact that SHA has not been served and no-cross claims have been asserted against it, no party
should be unduly prejudiced, burdened or inconvenienced by this dismissal.” Status Report at 4.
RN‟G, the Whalens, and Lookabaugh state that they “recognize[] [that] this Court
approved, via marginal order, the withdrawal of the claim against the SHA.” Id. However, they
indicate that they intend to file a motion raising “the propriety of that withdrawal and may ask
the Court to reconsider its order or take other appropriate relief.” Id. In addition, they “may also
challenge any assertion by the Plaintiff that SHA is not a required Party and therefore the Court
has subject matter jurisdiction to this Action.” Id. Further, they note that, even if the Court does
have subject matter jurisdiction, it may be appropriate for the Court to exercise its discretion to
decline to exercise it or to stay this case, because “there are several other entities that have an
interest in the outcome of the coverage issues that have not been named as parties, including
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RN‟G‟s umbrella carrier, Con-Way‟s insurer, Lookabaugh‟s insurer, and Long Fence‟s insurer,”
and that “RN‟G has filed in State Court a declaratory judgment action against the Plaintiff, all of
the Defendants named in this case, including the SHA, as well as the aforementioned interested
parties.” Defendants also note that the Whalens “will soon file a tort action against RN‟G, Long
Fence, SHA and other entities.” Id.
In light of the concerns expressed by the parties, I make the following two observations.
First, I have made no determination, at this juncture, as to whether SHA is, in fact, an
“alter ego” of the State, such that its status as a party would destroy diversity. See S.C. Dept. of
Disabilities, 535 F.3d at 303. Nor have I determined, assuming that SHA is non-diverse,
whether voluntary dismissal of plaintiffs‟ claims against SHA would cure the defect. Indeed, if
SHA is non-diverse, and is also a “necessary” and “indispensable” party pursuant to Rule 19 of
the Federal Rules of Civil Procedure, diversity jurisdiction would remain lacking. See, e.g.,
Nat’l Union Fire Ins. Co. v. Rite Aid of S.C., Inc., 210 F.3d 246 (4th Cir. 2010); Owens-Illinois,
Inc. v. Meade, 186 F.3d 435 (4th Cir. 1999). And, as defendants suggest, there may be other
reasons that this Court should decline to exercise jurisdiction, even if diversity is satisfied.
These matters may appropriately be addressed in the context of the motions that defendants
anticipate filing.
Second, a notice of voluntary dismissal under Rule 41(a)(1)(A)(i) is “self-executing, i.e.,
it is effective at the moment the notice is filed with the clerk and no judicial approval is
required.” Marex Titanic, Inc. v. Wrecked & Abandoned Vessel, 2 F.3d 544, 546 (4th Cir. 1993).
In the leading case of American Cyanamid Co. v. McGhee, 317 F.2d 295, 297 (5th Cir. 1963),
the Fifth Circuit explained:
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Rule 41(a)(1) is the shortest and surest route to abort a complaint when it
is applicable. So long as plaintiff has not been served with his adversary‟s answer
or motion for summary judgment he need do no more than file a notice of
dismissal with the Clerk. That document itself closes the file. There is nothing
the defendant can do to fan the ashes of that action into life and the court has no
role to play. This is a matter of right running to the plaintiff and may not be
extinguished or circumscribed by adversary or court. There is not even a
perfunctory order of court closing the file. Its alpha and omega was the doing of
the plaintiff alone.
Some confusion as to this point may be engendered by the practice, at least in this
district, of marginally approving notices of voluntary dismissal. This practice is ministerial, and
is performed purely for the administrative convenience of the Court, so as to confirm that the
Clerk may terminate a party, claim, or case. As the Fourth Circuit observed in Marex, a notice of
voluntary dismissal filed before the adversary has filed an answer or motion for summary
judgment is effective even in the absence of the marginal approval of the Court. Thus, there is
no basis for the Court to “reconsider” the voluntary dismissal. But, as indicated, in marginally
approving the notice of voluntary dismissal, I have not expressed any view as to whether
dismissal of the SHA is sufficient to cure a jurisdictional defect that may result from the SHA‟s
prior status as a party.
B. Unserved Parties
In the Status Report, the parties confirm that Con-Way and Long Fence have not yet been
served. Rule 4(m) of the Federal Rules of Civil Procedure establishes a 120-day period for
service of process. See also Local Rule 103.8(a). Rule 4(m) provides:
If a defendant is not served within 120 days after the complaint is filed, the
court—on motion or on its own after notice to the plaintiff—must dismiss the
action without prejudice against that defendant or order that service be made
within a specified time. But if the plaintiff shows good cause for the failure, the
court must extend the time for service for an appropriate period.
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Long Fence was first named as a defendant in the Amended Complaint, which was filed
on October 19, 2011. Thus, the 120-day period as to Long Fence has not yet expired; it will
expire as of February 16, 2012.
Con-Way was named as a defendant in the original Complaint, however, and more than
120 days has elapsed since the filing of the original Complaint on August 17, 2011. With respect
to Con-Way, Omega reports: “The process server has not effected Service on Con-Way due to
internal errors only recently reported by the private process server and discovered by counsel.”
Status Report at 5. It elaborates: “The Process Server only this week admitted that he had no
record of Plaintiff requesting service despite counsel‟s letter sending service instructions on all
defendants all of whom were served with the original complaint except for Con-Way.”
Omega indicates it has requested that service occur no later than January 13, 2012, and
seeks an order extending the time to effect service through January 31, 2012. Notably, Omega
provides no explanation as to why, since the inception of suit in August 2011, the process
server‟s error apparently was neither discovered nor addressed prior to the issuance of the
Court‟s Order on December 22, 2011.
As discussed, Rule 4(m) establishes a 120-day period in which to effectuate service.
Rule 4(m) was enacted in 1993 as a successor to the former Rule 4(j), which had required that a
case “shall be dismissed” if the defendant was not served within 120 days and the plaintiff
“cannot show good cause why such service was not made within that period.” Hammad v. Tate
Access Floors, Inc., 31 F. Supp. 2d 524, 526 (D. Md. 1999). After Rule 4(m) was enacted, the
Fourth Circuit decided Mendez v. Elliott, 45 F.3d 75 (4th Cir. 1995), in which it opined that the
new Rule 4(m) represented a “renumber[ing]” of former Rule 4(j), “without a change in

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substance,” and stated: “Rule 4(m) requires that if the complaint is not served within 120 days
after it is filed, the complaint must be dismissed absent a showing of good cause.” Id. at 78. In
so stating, however, the Mendez Court did not discuss the Advisory Committee Notes to Rule
4(m), which explicitly state that the rule “„authorizes the court to relieve a plaintiff of the
consequences of an application of this subdivision even if there is no good cause shown.‟”
Hammad, 31 F. Supp. 2d at 527 (quoting Advisory Committee Notes; emphasis altered).
After Mendez, the Supreme Court decided Henderson v. United States, 517 U.S. 654
(1996). In dicta, the Supreme Court stated that, under Rule 4(m), “courts have been accorded
discretion to enlarge the 120-day period „even if there is no good cause shown.‟” Id. at 662
(quoting Advisory Committee Notes to Rule 4(m)); see also id. 517 U.S. at 658 n.5 (“Rule 4(m)
. . . permits a district court to enlarge the time for service „even if there is no good cause
shown.‟”).2
Several decisions of this Court have observed that it is unclear, in this circuit, whether
Rule 4(m) vests a court with discretion to grant an extension of the 120-day deadline, in the
absence of good cause. See, e.g., Lehner v. CVS Pharmacy, Civ. No. RWT-08-1170, 2010 WL
610755, at *2 (D. Md. Feb. 17, 2010); Knott v. Atlantic Bingo Supply, Inc., Civ. No. JFM-051747, 2005 WL 3593743 (D. Md. Dec. 22, 2005); Hoffman, supra, 379 F. Supp. 2d at 786;
Melton v. Tyco Valves & Controls, Inc., 211 F.R.D. 288 (D. Md. 2002); Hammad, 31 F. Supp. 2d
at 526; United States v. Britt, 170 F.R.D. 8 (D. Md. 1996). Some regard Mendez as binding
circuit precedent, see, e.g., Britt, 170 F.R.D. at 9, while others have concluded that “Mendez is
2

To my knowledge, since Henderson, the Fourth Circuit has not revisited in a reported
opinion the issue of good cause in regard to service of process.

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no longer good law.” Hammad, 31 F. Supp. 2d at 527; see also Melton, 211 F.R.D. at 289-90.
Others have found it unnecessary to resolve definitively whether a finding of good cause is
mandatory before an extension can be granted. See, e.g., Lehner, 2010 WL 610755, at *2; Knott,
2005 WL 3593743, at *1 n.1. Nevertheless, other judges of this court have held that, even if
good cause is no longer an absolute requirement under Rule 4(m), “the Court would still need to
have some reasoned basis to exercise its discretion and excuse the untimely service: the Court
must give some import to the rule.” Hoffman, 379 F. Supp. 2d at 786; see also Lehner, 2010 WL
610755, at *3 (where plaintiff “made no effort to serve Defendant within the time allotted under
Fed. R. Civ. P. 4(m),” even assuming that the Court had discretion to excuse untimely filing, the
Court would “not make a mockery of the time requirements set forth in the Federal Rules of
Civil Procedure”).3
Significantly, in the majority of the cases I have reviewed (Lehner, Knott, Hoffman,
Melton, and Hammad), the court has resolved the question of timely compliance with Rule 4(m)
in the context of considering a motion by a defendant, served more than 120 days after the filing
of the complaint, to dismiss for insufficient service of process under Federal Rule of Civil
Procedure 12(b)(5). In those cases, the court has had the benefit of full adversarial briefing in its

3

To the extent that “good cause” applies, it requires a showing that the plaintiff “made
reasonable and diligent efforts to effect service prior to the 120-day limit, which may include a
showing that plaintiff's attempts at service were unsuccessful due to a putative defendant‟s
evasion of process.” Quann v. White-Edgewater, 112 F.R.D. 649, 659 (D. Md. 1986); accord
Knott, 2005 WL 3593743, at *1. Where a plaintiff has failed to serve a defendant, this Court has
found good cause lacking in a variety of circumstances, some quite compelling. See, e.g.,
Braithwaite v. Johns Hopkins Hosp., 160 F.R.D. 75 (D. Md. 2005) (holding that murder of pro se
plaintiff‟s daughter did not constitute good cause to excuse failure to serve defendant within 120
days); Knott, 2005 WL 3593743, at *1-2 (holding that serious illness suffered by plaintiff‟s
counsel, which confined him to “bed rest,” did not constitute good cause for failure to serve
defendant within 120 days).
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consideration of the issue.
Therefore, I will grant an extension of time to plaintiff to effect service of process on
Con-Way. See, e.g., Hai Xu v. FMS Fin. Solutions, LLC, Civ. No. ELH-10-3196, 2011 WL
2144592 (D. Md. May 31, 2011); Williams v. CompUSA, Civ. No. ELH-10-2219, 2011 WL
2118692 (D. Md. May 27, 2011). However, the extension is granted without a finding as to
whether plaintiff has shown good cause, or any other “reasoned basis” for the extension.
Hoffman, 379 F. Supp. 2d at 786. Further, the extension is granted without prejudice to ConWay‟s right, within twenty-one days after service of the summons and Amended Complaint, to
move to vacate the extension as improvidently granted, and to seek dismissal of Omega‟s claims
against Con-Way for insufficient service of process under Federal Rule of Civil Procedure
12(b)(5). In that event, I will again consider, after full briefing, the propriety of the extension.

Date: January 13, 2012

/s/
Ellen Lipton Hollander
United States District Judge

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