American Economy Insurance Company et al v. Aspen Way Enterprises, Inc. et al

Filing 49

OPINION AND ORDER granting 39 Motion to Intervene and granting 41 Motion Realignment. Signed by Judge Susan P. Watters on 12/2/2014. (EMH, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONT ANA
BILLINGS DIVISION
AMERICAN ECONOMY INSURANCE
COMP ANY, an Indiana corporation;
AMERICAN STATES INSURANCE
COMPANY, an Indiana corporation; and
GENERAL INSURANCE COMPANY
OF AMERICA, a New Hampshire
corporation,
Plaintiffs,
vs.

ASPEN WAY ENTERPRISES, INC.,
d/b/a Aaron's Sales and Leasing, a
Montana corporation; and HARTFORD
FIRE INSURANCE COMPANY, a
Connecticut corporation,
Defendants.
HARTFORD FIRE INSURANCE
COMPANY,
Counterclaimant and Crossclaim Plaintiff,
vs.

AMERICAN ECONOMY INSURANCE
COMPANY; AMERICAN STATES
INSURANCE COMP ANY; GENERAL
INSURANCE COMP ANY OF
AMERICAN; and ASPEN WAY
ENTERPRISES, INC.,
Counterclaim and Crossclaim Defendants.

1

FILED
DEC 0 2 2014
Clerk, U S D1stnct Court
District Of Montana

CV 14-09-BLG-SPW

OPINION AND ORDER

Billings

ASPEN WAY ENTERPRISES, INC., d/b/a
Aaron's Sales and Leasing,
Cross-Claimant,
vs.
HARTFORD FIRE INSURANCE
COMPANY,
Cross-Defendant.

Before the Court are two motions. The first is Hartford Casualty Insurance
Co. 's ("Hartford Casualty") Motion to Intervene (Doc. 39). The second is
Defendant Hartford Fire Insurance Co.'s ("Hartford Fire") Motion for Realignment
(Doc. 41 ). Concerned that the addition of Hartford Casualty may ruin this Court's
diversity jurisdiction, Hartford Fire wants to be realigned as a plaintiff alongside
the other insurers. Current Plaintiffs American Economy Insurance Co., American
States Insurance Co., and General Insurance Co. (collectively "Plaintiff-Insurers")
do not object to Hartford Casualty's intervention ifthe Motion for Realignment is
granted. Defendant Aspen Way Enterprises, Inc. ("Aspen Way") does not object
to the intervention, but it objects to the proposed realignment. For the following
reasons, the Court grants both motions.
I. Background

The Plaintiff-Insurers brought this action seeking a declaratory judgment
that they do not owe a duty to defend and indemnify Aspen Way in two underlying
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actions and for reimbursement of defense costs already expended. (Doc. 1 at 3133). They also seek reformation of three policies for alleged typographical errors.

(Id. at 34-38). Despite also naming Hartford Fire as a defendant, the PlaintiffInsurers seek declaratory relief only against Aspen Way.
Aspen Way answered the Plaintiff-Insurers' complaint and counterclaimed
for various violations of Montana's Unfair Trade Practices Act and breach of
contract. (Doc. 12 at 25-28). Hartford Fire counterclaimed and crossclaimed
against Aspen Way for a declaratory judgment that it does not owe a duty to
defend or indemnify Aspen Way in the underlying actions. (Doc. 18 at 26-27).
Aspen Way then made crossclaims against Hartford Fire for bad faith and breach
of contract. (Doc. 19 at 20-22). In other words: The Plaintiff-Insurers and
Hartford Fire seek declaratory judgments that their policies do not provide
coverage for Aspen Way in the underlying actions, and Aspen Way contends that
the Plaintiff-Insurers and Hartford Fire breached their insurance agreements with
Aspen Way and have acted in bad faith.
Hartford Casualty now seeks to intervene as a plaintiff because it issued an
insurance policy to Aspen Way that is implicated in the underlying actions. In its
Proposed Complaint in Intervention, Hartford Casualty seeks a declaratory

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For a more complete factual background, see this Court's recent order denying
Aspen Way's Motion to Dismiss.
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judgment that its policy does not cover Aspen Way in the underlying actions.
(Doc. 39-1 at 15-16).
Hartford Fire and Hartford Casualty are citizens of Connecticut. Hartford
Fire is concerned that Hartford Casualty's addition as a plaintiff would destroy
complete diversity among the parties and rob this Court of subject matter
jurisdiction. To avoid losing diversity, Hartford Fire filed its Motion for
Realignment wherein Hartford Fire seeks to be realigned as a plaintiff, leaving
Aspen Way as the sole defendant.
II. Motion for Realignment

"A complaint's alignment of the parties is not binding on the courts." Scotts
Co. LLC v. Seeds, Inc., 688 F.3d 1154, 1157 (9th Cir. 2012) (internal quotation
omitted). In City ofIndianapolis v. Chase Nat. Bank of City ofNew York, , the
Supreme Court set out the governing principles regarding realignment:
To sustain diversity jurisdiction there must exist an actual, substantial
controversy between citizens of different states, all of whom on one
side of the controversy are citizens of different states from all parties
on the other side. Diversity jurisdiction cannot be conferred upon the
federal courts by the parties' own determination of who are plaintiffs
and who defendants. It is our duty, as it is that of the lower federal
courts, to look beyond the pleadings, and arrange the parties according
to their sides in the dispute. Litigation is the pursuit of practical ends,
not a game of chess. Whether the necessary collision of interest exists,
is therefore not to be determined by mechanical rules. It must be
ascertained from the principal purpose of the suit and the primary and
controlling matter in dispute.

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314 U.S. 63, 69 (1941) (internal citations and quotations omitted). This paragraph
spawned a circuit split regarding the proper realignment test. Charles Alan Wright
et al., Federal Practice and Procedure, vol. 13E, § 3607, 335 (3d ed., West 2009).
The majority of the circuits, including the Ninth Circuit, use the "principal
purpose" or "primary matter" test. 2 Id.; see Angst v. Royal Maccabees Life Ins.
Co., 77 F.3d 701, 704 (3d Cir. 1996); US. Fid. and Guar. Co. v. A & S Mfg. Co.,
Inc., 48 F.3d 131, 133 (4th Cir. 1995); Griffin v. Lee, 621F.3d380, 388 (5th Cir.
2010); US. Fid. and Guar. Co. v. Thomas Solvent Co., 955 F.2d 1085, 1089 (6th
Cir. 1992); Prudential Real Est. Affiliates, Inc. v. PPR Realty, Inc., 204 F.3d 867,
873 (9th Cir. 2000); and City of Vestavia Hills v. Gen. Fid. Ins. Co., 676 F.3d
1310, 1314 (11th Cir. 2012). The competing "collision of interests" or "substantial
conflict" test is used in the Second and Seventh Circuits. Maryland Cas. Co. v.
WR. Grace and Co., 23 F.3d 617, 622 (2d Cir. 1994); and Am. Motorists Ins. Co.
v. Trane Co., 657 F.2d 146, 151 (7th Cir. 1981). See also Wolfv. Kennelly, 574
F.3d 406, 413 (7th Cir. 2009) (acknowledging that Am. Motorists
"is a minority view among the circuits.").
Under the "primary matter" test, courts align parties who have the same
interests regarding "the primary matter in dispute." Prudential Real Est. Affiliates,
204 F.3d at 873 (internal quotation omitted). "If the interests of a party named as a
2

Courts interchangeably use both terms when describing the test. This Court will
refer to it as the "primary matter" test.
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defendant coincide with those of the plaintiff in relation to the purpose of the
lawsuit, the named defendant must be realigned as a plaintiff for jurisdictional
purposes." Dolch v. United California Bank, 702 F .2d 178, 181 (9th Cir. 1983).
A court must realign the parties with regards to the primary issue, even ifthe
parties disagree on less significant issues. Id.
The parties agree that the Ninth Circuit has not considered realignment in an
insurance declaratory judgment action. However, several circuits that apply the
"primary matter" test have considered realignment in that context. For example, in
the Fourth Circuit's decision in A & S Mfg., an insured's environmental
contamination led to a lawsuit by the Environmental Protection Agency. 48 F.3d
at 132. The insured tendered the claim to its three insurers. Id. One insurer
responded by filing a declaratory judgment action in federal court and named the
insured and the other two insurers as defendants. Id. Each insurer denied liability
under their insurance agreements. Id. The insurers also disputed the amount of
reimbursement owed to each other in the event the Court found liability to the
insured. Id. As initially pied, complete diversity existed. Id. However, the
district court realigned all of the insurers as plaintiffs and the insured as the sole
defendant. Id. Because one insurer and the insured shared the same citizenship,
the realignment destroyed diversity and the district court dismissed the case. Id.

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The Fourth Circuit affirmed. The Court adopted the "primary matter" test
and found that the primary issue was whether the insurers owed a duty to defend
and indemnify the insured. Id. at 133-34. Aligning the insurers as plaintiffs and
the insured as the sole defendant was proper because it aligned the parties around
the primary dispute. Id. at 134. The dispute among the insurers was secondary to
the primary issue of liability to the insured. Id. As the insurers shared the central
goal of avoiding obligations to the insured, the parties were properly realigned. Id.
Notably, the Fourth Circuit found that other circuits that use the "primary matter"
test have reached the same result when faced with similar facts. Id. (citing United

States Fidelity & Guar. Co. v. Thomas Solvent Co., 955 F.2d 1085, 1088-91 (6th
Cir.1992) and Employers Ins. of Wausau v. Crown Cork and Seal Co., 942 F.2d
862, 864-67 (3d Cir.1991)).
Just like the insurers in A & S Mfg., the Plaintiff-Insurers filed a declaratory
judgment action against an insured and another insurer. Also as in A & S Mfg., the
Plaintiff-Insurers' principal purpose of this lawsuit is avoiding liability to Aspen
Way under their insurance contracts. Although listed as a defendant in the
complaint, Hartford Fire has the same interest in the primary matter at issue as the
Plaintiff-Insurers. The Plaintiff-Insurers and Hartford Fire also share the same
interest in defending against Aspen Way's bad faith and breach of contract claims.
Since the Plaintiff-Insurers and Hartford Fire share the same interests in the
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primary matter at issue in this case, this Court finds that Hartford Fire is properly
realigned as a plaintiff.
Aspen Way's attempt to distinguish A & S Mfg. is unpersuasive. Aspen
Way argues that a key element in A & S Mfg. is forum shopping by the insured.
This argument fails for two reasons. First, the Fourth Circuit does not mention or
imply that forum shopping affected its analysis at any point in the opinion. The
Court does not even mention that the insured forum shopped. Second, it was the
insured that requested and received the realignment. A & S Mfg., 48 F.3d at 132.
The Fourth Circuit clearly was not concerned about forum shopping by the insured
if it affirmed the district court.
Aspen Way urges this Court to follow the Seventh Circuit's decision in Am.

Motorists. Like the instant case and A & S Mfg., in Am. Motorists an insurer filed a
declaratory judgment action and named the insured and three other insurers as
defendants. 657 F.2d at 148. All of the insurers sought a declaratory judgment
that they did not owe a duty to defend the insured in an underlying action. Id. at
148-49. The Seventh Circuit held that realigning one of the insurers as a plaintiff
was improper because a substantial controversy existed among the insurers i.e.,
burdens and liabilities could shift if one insurer was found not liable. Id. at 151.

Am. Motorists is not binding or persuasive because it did not apply the
"primary matter" test used in the Ninth Circuit. Rather than determining the
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lawsuit's principal purpose, the Seventh Circuit held that realignment is only
proper "when the court finds that no actual, substantial controversy exists between
parties on one side of the dispute and their named opponents." Id. at 149. The
Court also found that potential burden shifting and competing liabilities created a
substantial controversy between the insurers. Id. at 149-50. In contrast, under the
"primary matter" test, courts align the parties in accordance with the principal
purpose of the case, regardless of whether the parties disagree on other issues.
Dolch, 702 F.2d at 181; see also Thomas Solvent, 955 F.2d at 1089 ("despite the

fact that there may be actual and substantial ancillary or secondary issues to the
primary issue, the parties should be aligned in accordance with the primary issue in
an action."). Therefore, if the "primary matter" test was applied in Am. Motorists
instead of the "substantial controversy" test, the realignment likely would have
been proper. For the same reason the Second Circuit's decision in Maryland Cas.
Co. is not persuasive.

Here, the principal purpose of the suit is to determine whether the PlaintiffInsurers and Hartford Fire must insure Aspen Way in the underlying actions. The
Plaintiff-Insurers' and Hartford Fire's interests coincide in avoiding liability to
Aspen Way. Any disagreements that may later arise between the Plaintiff-Insurers
and Hartford Fire are secondary to this primary purpose. Accordingly, the Court
holds that Hartford Fire is properly realigned as a plaintiff.
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III. Motion to Intervene

Hartford Casualty's Motion to Intervene is unopposed.

3

In addition, both

Fed. R. Civ. P. 24(a) and (b) support the intervention. The Court grants Hartford
Casualty's motion.
IV. Conclusion

For the reasons stated above, IT IS HEREBY ORDERED:
1. Hartford Fire's Motion for Realignment (Doc. 41) is GRANTED.

2. Hartford Casualty's Motion to Intervene (Doc. 39) is GRANTED.

lid

DATED this q!_ day of December 2014~/)

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'suSANP. WATTERS
United States District Judge

3

The Plaintiff-Insurers would have objected if the Court denied the Motion for
Realignment.
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