Applied Underwriters, Inc. v. Top's Personnel, Inc.

Filing 22

MEMORANDUM AND ORDER that as to Count II of the complaint, on or before March 7, 2016, either Applied Risk Services, Inc. shall demonstrate why it is the real party in interest, or the real party in interest shall ratify, join, or be substituted into this action. If the plaintiffs fail to remedy this deficiency by March 7, 2016, the Court will dismiss Count II of the complaint without further notice. Ordered by Judge John M. Gerrard. (JSF)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
APPLIED UNDERWRITERS, INC. &
APPLIED RISK SERVICES, INC.,
8:15-CV-90
Plaintiffs,
vs.

MEMORANDUM AND ORDER

TOP'S PERSONNEL, INC.,
Defendant.
This matter is before the Court on the defendant's motion to dismiss
(filing 10), and on its own motion, on the question whether Applied Risk
Services, Inc. is the real party in interest with respect to the claim asserted in
Count II of the complaint.
BACKGROUND
The plaintiffs—Applied Underwriters, Inc. and Applied Risk Services,
Inc. (Applied Risk)—are both Nebraska corporations. Filing 1-1 at 4. The
defendant Top's Personnel is a New Jersey corporation. Filing 1-1 at 4.
According to the plaintiffs, an entity called "Applied Underwriters Captive
Risk Assurance Company, Inc." (AUCRA) and Top's Personnel entered into a
Reinsurance Participation Agreement (RPA).1 Filing 17 at 3. Applied Risk
was designated as the billing agent for both parties to the agreement. Filing
17 at 3. The RPA is dated December 14, 2011. Filing 17 at 3. The plaintiffs
allege that Top's Personnel owes Applied Risk $229,934.83, plus interest,
under the RPA. See filing 17 at 3.
Next, the plaintiffs allege that on May 15, 2014, Top's Personnel
executed a promissory note in favor of Applied Underwriters, Inc., in which it
agreed to pay the amount it owed under the RPA as of that date. Filing 17 at
5. In the promissory note, Top's Personnel "acknowledge[s] its indebtedness

The RPA is submitted as an exhibit in support of the defendant's motion to dismiss. See
filing 14-1 at 51–72. The defendant notes that it was provided by the plaintiffs after the
plaintiffs' counsel omitted it as an attachment to the complaint. Filing 14-1 at 1–2. The
exhibit actually contains two versions of the RPA, which are seemingly identical except for
being signed by different representatives. Compare filing 14-1 at 56 with filing 14-1 at 67.
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(including workers' compensation premiums) to Applied Underwriters, Inc.
and its affiliates and subsidiaries" and "promises to pay . . . the principal sum
of One Hundred Nineteen Thousand Six Hundred Forty-five and 13/100
Dollars ($119,645.13) together with interest." Filing 1-1 at 7.
Count I of the plaintiffs' complaint seeks reimbursement of the money
they allege the defendant owes Applied Underwriters, Inc., under the
promissory note, plus interest. Filing 1-1 at 2. Count II of the plaintiffs'
complaint seeks reimbursement of additional amounts allegedly due Applied
Risk under the RPA which were not included in the promissory note. See,
filing 17 at 3; filing 1-1 at 2.
ANALYSIS
The defendant contends that Count II of the complaint should be
dismissed because Applied Risk is not the proper party to bring the action.
Filing 18 at 4–5. Count II alleges that the defendant owes Applied Risk
$229,934.83. Filing 1-1 at 2. The parties' briefing clarifies that the basis of
this allegation is the defendant's obligation under the RPA. See filing 17 at 3.
The parties to the RPA are the defendant and AUCRA. Filing 18 at 2.
According to the defendant, Applied Risk has "not pled any facts that would
indicate that the rights pursuant to the [RPA] have been assigned to them, or
that would otherwise indicate that they are the proper[] parties to bring this
action." Filing 18 at 5 (quoting filing 14-1 at 52). Because the defendant
raised this issue for the first time in its sur-sur-reply, the Court entered an
order to show cause asking the plaintiffs to brief the issue. Filing 19.
Under Fed. R. Civ. P. 17, "[a]n action must be prosecuted in the name
of the real party in interest." The purpose of this rule is "to protect the
defendant against a subsequent action by the party actually entitled to
recover, and to insure generally that the judgment will have its proper effect
as res judicata." Fed. R. Civ. P. 17 advisory committee note (1966). Thus, the
real party in interest is the party that "actually possess[es], under the
substantive law, the right sought to be enforced." Curtis Lumber Co. v.
Louisiana Pac. Corp., 618 F.3d 762, 771 (8th Cir. 2010) (quoting United
HealthCare Corp. v. Am. Trade Ins. Co., Ltd., 88 F.3d 563, 569 (8th Cir.
1996)).
In their brief, the plaintiffs cite to a paragraph of the RPA which
provides that "Applied Risk Services, Inc. . . . has been appointed the billing
agent for [AUCRA] and the Issuing Insurers and is authorized by [AUCRA],
Issuing Insurers and [Top's Personnel] to account for offset and true up any
and all amounts due each of the parties." Filing 20 at 2–3 (quoting). The
plaintiffs contend that this establishes an agency relationship between
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AUCRA and Applied Risk, making Applied Risk a real party in interest.
Filing 20 at 2–3.
But even assuming that Applied Risk is correct in its interpretation of
the RPA,2 this would be insufficient to establish Applied Risk as a real party
in interest. An agent may be authorized to act on behalf of its principal with
respect to a particular subject matter, but that authorization does not give
the agent any right or interest in the subject matter. Thus, for example, an
agent which negotiates a contract on behalf of a disclosed principal is neither
liable for the principal's breach of contract, nor able to enforce on its own
behalf the obligations of the parties to the contract. Restatement (Third) Of
Agency § 6.01 (2006). And Applied Risk has not pled facts establishing that it
has any right to the money Top's Personnel allegedly owes under the
contract.
The plaintiffs point out that in Deutsche Bank Nat. Trust Co. v. Siegel,
the Supreme Court of Nebraska held that an agent may sue to enforce the
rights of its principal on the principal's behalf. 777 N.W.2d 259, 263 (Neb.
2010). Filing 20 at 3. But in that case, although Deutsch Bank's agent was
entitled to enforce Deutsch Bank's rights, it did so in Deutsch Bank's name,
and not its own. Deutsche Bank, 777 N.W.2d at 263. This is in accordance
with the well-accepted principle that an entity which is an agent for the
purpose of bringing suit "is viewed as a nominal rather than a real party in
interest and will be required to litigate in the name of the principal rather
than in the agent's own name." 6A Charles Alan Wright, et al., Federal
Practice and Procedure § 1553 (3d ed.). Thus, pursuant to Fed. R. Civ. P.
17(a)(3), the real party in interest must ratify, join, or be substituted into this
action.
IT IS ORDERED:
1.

As to Count II, on or before March 7, 2016, either Applied
Risk Services, Inc. shall demonstrate why it is the real
party in interest, or the real party in interest shall ratify,
join, or be substituted into this action.

2.

If the plaintiffs fail to remedy this deficiency by March 7,
2016, the Court will dismiss Count II of the complaint
without further notice.

The Court notes that there is some question as to whether bringing suit to enforce
AUCRA's claims under the contract even falls within the scope of the authority granted to
Applied Risk by the cited provision of the RPA.
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Dated this 17th day of February, 2016.
BY THE COURT:

John M. Gerrard
United States District Judge

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