Liberty Mutual Insurance Group v. Panelized Structures, Inc.

Filing 185

ORDER Denying 165 Defendant's Motion for Judicial Esstoppel. IT IS FURTHER ORDERED that 119 Plaintiff's Motion to Substitute LM Insurance Corporation as Plaintiff Real Party in Interest is GRANTED. IT IS FURTHER ORDERED that 132 De fendant's Motion to DISMISS is DENIED as moot. IT IS FURTHER ORDERED that Plaintiff Liberty Mutual is ordered to show cause in 14 days of this order why it should not be sanctioned in the amount of any of Defendant's attorney fees shown to be significantly associated with Liberty Mutual's misrepresentation. Signed by Judge Miranda M. Du on 2/26/13. (Copies have been distributed pursuant to the NEF - EDS)

1
2
3
4

UNITED STATES DISTRICT COURT

5

DISTRICT OF NEVADA

6
7

***
LIBERTY MUTUAL INSURANCE GROUP, Case No. 2:10-cv-01951-MMD-PAL

8

Plaintiff,
ORDER

9
10

v.
PANELIZED STRUCTURES, INC., et al.,

11
Defendants.
12
13

PANELIZED STRUCTURES, INC.,

14

Counterclaimant,

15
16
17
18

v.
LIBERTY MUTUAL INSURANCE GROUP,
LM INSURANCE CORPORATION, and
LIBERTY MUTUAL INSURANCE
GROUP/BOSTON,

19
Counterdefendants.

20
21

PANELIZED STRUCTURES, INC.,
Third-Party Plaintiff,

22
23

v.

24

ARIZONA LABOR FORCE, INC., an
Arizona corporation, dba ALLIED FORCES
TEMPORARY SERVICES,

25
26

Third-Party Defendant.
27
28

(Plf.’s Motion to Substitute LM Insurance
Corporation as Plaintiff Real Party in
Interest Pursuant to Rule 17(A) – dkt. no.
119; Def.’s Motion to Dismiss – dkt. no.
132; Def.’s Motion for Judicial Estoppel –
dkt. no. 165)

1

I.

SUMMARY

2

Before the Court are Plaintiff Liberty Mutual Insurance Group’s Motion to

3

Substitute LM Insurance Corporation as Plaintiff Real Party in Interest Pursuant to Rule

4

17(a) (dkt. no. 119), Defendant Panelized Structure’s Motion to Dismiss (dkt. no. 132),

5

and Defendant Panelized Structure’s Motion for Judicial Estoppel (dkt. no. 165). Liberty

6

Mutual Insurance Group alleges that this action was inadvertently brought in its name,

7

rather than the name of its subsidiary, LM Insurance Corporation, who was the actual

8

party to the disputed contract. However, Liberty Mutual Insurance Group brought this

9

motion after two years of litigation, including litigation on the very subject of the real party

10

in interest. For this reason, Panelized Structures opposes the motion, and has brought

11

separate motions arguing that Liberty Mutual is estopped from making the argument that

12

it is not the real party in interest, and that the Court lacks subject matter jurisdiction as

13

the suit is not prosecuted by the real party in interest. For the reasons discussed below,

14

Plaintiff’s Motion to Substitute is granted, and Defendant’s Motions to Dismiss and for

15

Judicial Estoppel are denied. Liberty Mutual is also ordered to show cause why the

16

Court should not impose sanctions for its negligent misrepresentations to the Court.

17

II.

BACKGROUND

18

The facts of this case are more particularly set out in this Court’s prior Orders.

19

Pertinent to these motions is that Plaintiff Liberty Mutual Insurance Group (“Liberty

20

Mutual”) brought a subrogation action against Defendant Panelized Structures, Inc.

21

(“Defendant”) seeking to recover the amount of workman compensation benefits Liberty

22

Mutual paid to its insured, whom Defendant had allegedly injured. On November 5,

23

2010, Defendant moved to dismiss the action, (dkt. no. 5) arguing, inter alia, that LM

24

Insurance Corporation (“LMIC”) ─ a wholly owned subsidiary of Liberty Mutual ─ was its

25

contractual insurer and the real party in interest. The Court’s Order dated January 31,

26

2011, (dkt. no. 18) rejected Defendant’s argument based upon inspection of a copy of

27

the insurance policy provided by Liberty Mutual, and Liberty Mutual’s insistence that it

28

was, in fact, the insurer. Defendant’s Answer (dkt. no. 20) maintained as an affirmative
2

1

defense that Liberty Mutual was not the real party in interest and had no standing to

2

bring suit.

3

After more than a year of litigation, Liberty Mutual brought this Motion to

4

Substitute (“Substitution Motion”), seeking to substitute LMIC as the real party in interest.

5

In the Substitution Motion, Liberty Mutual admits that it was not a party to the contract,

6

but rather its subsidiary. LMIC was actually the insurer of the policy. Liberty Mutual

7

alleges that it inadvertently brought the action in its own name, rather than the name of

8

its subsidiary due to the fact that the insurance policy’s declarations page lists both

9

Liberty Mutual and LMIC. Inspection of Exhibit 1 attached to Liberty Mutual’s Reply (dkt.

10

no. 126-1) reveals that the policy includes the names of both “Liberty Mutual Insurance

11

Group/Boston” and LMIC.1 Liberty Mutual characterizes this as understandable

12

oversight, and seeks now to replace itself with LMIC as the plaintiff to this action.

13

Defendant opposed the Substitution Motion, and brought a Motion for Judicial

14

Estoppel (“Estoppel Motion”) to prevent Liberty Mutual from arguing that it is not the real

15

party in interest after it argued it was the real party in interest in its Response in

16

Opposition to Defendant’s Motion to Dismiss. Defendant has also brought a Motion to

17

Dismiss (“Motion to Dismiss”) arguing that because the case is not prosecuted by the

18

real party in interest, no case or controversy exists, and the Court lacks jurisdiction to

19

hear the matter.

20

III.

DISCUSSION

21

A.

Motion for Judicial Estoppel

22

Preliminary to the question of whether substitution is proper at this point in the

23

litigation is the question of whether Liberty Mutual is estopped from arguing it is not the

24

real party in interest and is thus estopped from bringing the Substitution Motion. Thus,

25

the Court first addresses Defendant’s Estoppel Motion.

26
27
28

1

The Court notes that the copy of the policy originally submitted in opposition to
Defendant’s Motion to Dismiss was of poor quality, rendering LMIC’s name at the top of
the page illegible. (Compare dkt. no. 126-1 with dkt. no. 8-2.)
3

1

The equitable rule of judicial estoppel “generally prevents a party from prevailing

2

in one phase of a case on an argument and then relying on a contradictory argument to

3

prevail in another phase.” Pegram v. Herdrich, 530 U.S. 211, 227, n. 8 (2000). The

4

purpose of the rule is “to protect the integrity of the judicial process by prohibiting parties

5

from deliberately changing positions according to the exigencies of the moment.” New

6

Hampshire v. Maine, 532 U.S. 742, 749-50 (2001) (internal quotations omitted). Judicial

7

estoppel “is an equitable doctrine invoked by a court at its discretion,” and “most

8

commonly applied to bar a party from making a factual assertion in a legal proceeding

9

which directly contradicts an earlier assertion made in the same proceeding or a prior

10

one.” Russell v. Rolfs, 893 F.2d 1033, 1037 (9th Cir. 1990) (internal citations omitted).

11

“[T]he circumstances under which judicial estoppel may appropriately be invoked

12

are probably not reducible to any general formulation of principle,” New Hampshire, 532

13

U.S. at 750 (quoting Allen v. Zurich Ins. Co., 667 F.2d 1162, 1166 (4th Cir. 1982)).

14

However, in deciding whether to apply the doctrine, courts examine three factors: (1)

15

whether the party’s later position was clearly inconsistent with its earlier position, (2)

16

whether the party was successful in persuading a court to accept its earlier position such

17

that acceptance of the later position would create the perception that either the first or

18

the second court was misled, and (3) whether the party would derive an unfair

19

advantage if not estopped. Id. at 750-51. In addition, “judicial estoppel seeks to prevent

20

the deliberate manipulation of the courts, and therefore should not apply when a party’s

21

prior position was based on inadvertence or mistake.” U.S. v. Ibrahim, 522 F.3d 1003,

22

1009 (9th Cir. 2008) (internal quotations omitted).

23

Although the factors technically weigh in favor of applying judicial estoppel,

24

Liberty Mutual’s actions do not appear to present the deliberate manipulation of the

25

courts that the rule seeks to prevent. Liberty Mutual’s positions in this litigation are

26
27
28
4

1

certainly inconsistent2 and it was successful in persuading the Court to deny Defendant’s

2

Motion to Dismiss. As a result, Defendant has been forced to defend against an action,

3

which, at least at this point, would be barred by the applicable statute of limitations.

4

Thus, having prevailed on the Motion to Dismiss by arguing that it was the real party in

5

interest, the factors weigh in favor of applying judicial estoppel to prevent Liberty Mutual

6

from prevailing at this stage with a contradictory argument. However, Liberty Mutual’s

7

prosecution of the action appears to be attributable to negligence and a lack of due

8

diligence in investigating the policy, rather than a knowing and deliberate tactic to

9

manipulate the Court for advantage. Thus, Liberty Mutual’s change in position is not a

10

deliberate attempt to adapt to the exigencies of the moment, but simply sloppy

11

lawyering.

12

although the caption of the case is technically incorrect, Defendant has been apprised of

13

the action against it and has been able to prepare its defense. For these reasons,

14

Liberty Mutual is not judicially estopped from making the argument that LMIC is the real

15

party in interest. Defendant’s Estoppel Motion is denied.

Consequently, any prejudice that Defendant has suffered is nominal—

16

B.

17

Having resolved that preliminary question, the Court now considers the

18

Motion for Substitution

Substitution Motion.

19

The Federal Rules of Civil Procedure require that “[a]n action must be prosecuted

20

in the name of the real party in interest.” Fed. R. Civ. P. 17(a)(1). Where the action is

21

originally brought by a party other than the real party in interest, the rule provides for

22

substitution by limiting a court’s ability to “dismiss an action for failure to prosecute in the

23
24
25
26
27
28

2

Liberty Mutual makes the spurious argument that its actions were not
inconsistent. Indeed, Liberty Mutual seems so self-assured of the accuracy of its
argument that it asserts any disagreement with its position makes the Court inherently
incorrect. (Dkt. no. 171 at 6.) (“Even if this Court (incorrectly) determines Liberty Mutual’s
current position is incompatible with its earlier position, judicial estoppel would still not
apply.”) Liberty Mutual apparently does not understand the definition of inconsistent.
Liberty Mutual’s first argument was that it was the real party in interest. Liberty Mutual’s
second argument was that it was not. In the Court’s opinion, flawed as Liberty Mutual
may perceive it to be, this is clearly inconsistent.
5

1

name of the real party in interest until, after an objection, a reasonable time has been

2

allowed for the real party in interest to ratify, join, or be substituted into the action.” Fed.

3

R. Civ. P. 17(a)(3). If the real party in interest ratifies, joins, or is substituted, the “action

4

proceeds as if it had been originally commenced by the real party in interest.” Id. Thus,

5

the action may be maintained, “even though the original plaintiff presumably has no

6

standing.” G.K. Las Vegas Ltd. P’ship v. Simon Prop. Group, Inc., No. CV-S-04-1199-

7

DAE-RJJ, 2007 WL 4380134 at *3 (D. Nev. Dec. 11, 2007) (quoting Covert v. Ligget

8

Group, Inc., 750 F.Supp. 1303, 1310 (M.D. La. 1990)).

9

However, substitution under Rule 17(a) is only applicable when the wrong party

10

initiated suit because “determination of the right party to sue [was] difficult” or because

11

“an understandable mistake [was] made.” See U.S. for Use and Benefit of Wulff v. CMA,

12

Inc., 890 F.2d 1070, 1074-75 (9th Cir. 1989) (citing Fed. R. Civ. P. 17 advisory

13

committee’s notes). Consequently, the proper application of Rule 17(a) is only to avoid

14

injustice through error correction. See Goodman v. U.S., 298 F.3d 1048, 1053 (9th Cir.

15

2002). Purposeful implementation of Rule 17(a) as part of trial strategy is improper. See

16

Wulff, 890 F.2d at 1075 (“Rule 17(a) does not apply to a situation where a party with no

17

cause of action files a lawsuit to toll the statute of limitations and later obtains a cause of

18

action through assignment”).

19

Additionally, because the rule’s main purpose is to avoid injustice, “equitable

20

principles should apply” in assessing the applicability of Rule 17(a) and the court must

21

consider the prejudice to both parties and the public policy interest in litigating suits on

22

their merits. Continental Ins. Co. v. N.A.D., Inc., 16 Fed. Appx. 659, 661 (9th Cir. 2001)

23

(citing Fed. R. Civ. P. 17 advisory committee notes). When considering prejudice to a

24

defendant, “[a]s long as defendant is fully appraised of a claim arising from specified

25

conduct and has prepared to defend the action, defendant’s ability to protect itself will

26

not be prejudicially affected if a new plaintiff is added, and defendant should not be

27

permitted to invoke a limitations defense.” 6A Charles A. Wright, Arthur R. Miller, Mary

28

Kay Kane, & Richard L. Marcus, Federal Practice and Procedure § 1501 (3d ed. 2012);
6

1

Rousseau v. Diemer, 24 F.Supp.2d 137,144 (D. Mass. 1998). When considering public

2

policy, more time and expense spent in litigation increases the weight of the policy

3

favoring decisions on the merits. See Continental, 16 Fed. Appx. at 662.

4

In its Response in Opposition, Defendant argues that Liberty Mutual should be

5

denied substitution because Liberty Mutual, as a non-party to the contract, lacks

6

standing to bring the motion. Such a construction of Rule 17(a) completely ignores the

7

rule’s substitution provisions, which specifically contemplate transfer from a non-party to

8

the real party in interest without any interruption of the proceedings. Moreover, the

9

cases that Defendant cites in support of its argument deal primarily with the proper

10

application of Rule 17(a) rather than standing. Further, those cases deal with scenarios

11

where the named plaintiff was an entity completely foreign to the real party in interest

12

and brought suit with knowledge that it was not the real party in interest. The situation

13

presented here of a parent corporation suing rather than the real-party-in-interest-

14

subsidiary is not necessarily analogous to those cases.

15

properly bring the motion.

Thus, Liberty Mutual can

16

In assessing the merits of the Substitution Motion, Liberty Mutual’s argument that

17

its prosecution of this action resulted from an understandable mistake is somewhat

18

questionable.3 Liberty Mutual should have known LMIC was the actual party to the

19

contract. The Court presumes that an insurance conglomerate should have the

20

sophistication and organizational capacity to identify which of its legal entities is a party

21

to a particular contract. Additionally, Liberty Mutual’s motion cites no new facts or events

22

that brought its error to light or cleared up the confusion under which Liberty Mutual was

23

laboring. This suggests Liberty Mutual possessed all the information needed to

24

determine the real party in interest at the outset of litigation. Thus, while Liberty Mutual’s

25
26
27
28

3

Liberty Mutual’s Substitution Motion never actually avers its actions resulted from
a mistake or difficulty in determining who actually was signatory to the policy. Only
Liberty Mutual’s Reply to the Substitution Motion characterizes Liberty Mutual’s actions
as understandable oversight due to the presence of both Liberty Mutual and LMIC listed
on the policy form.
7

1

prosecution of this action may have resulted from “mistake,” the Court questions whether

2

such a mistake was “understandable.”

3

Additionally, whether Liberty Mutual brought this Substitution Motion within a

4

reasonable time after Defendant brought its objection in the form of its Motion to Dismiss

5

is also questionable. An objection is raised by the filing of a motion. See Continental Ins.

6

Co. v. N.A.D., Inc., 16 Fed. Appx. 659 (citing Weissman v. Weener, 12 F.3d 84, 87 (7th

7

Cir. 1993)). Thus, Liberty Mutual was on notice that it was not the real party in interest

8

on November 5, 2010, when Plaintiff filed its Motion to Dismiss. Liberty Mutual did not

9

bring this Substitution Motion until May 25, 2012, nearly two years later. The Court also

10

questions whether a near twenty-month delay was a “reasonable time” under the

11

circumstances.

12

However, Liberty Mutual’s actions do not appear to be a purposeful

13

implementation of Rule 17(a) as part of trial strategy. Rather, Liberty Mutual’s

14

prosecution of the action seems more a result of a negligent or lack of due diligence.

15

Defendant’s argument that Liberty Mutual brought suit to toll the statute of limitations to

16

preserve the action for its subsidiary seems unlikely and is unsupported by evidence.

17

The Court finds that Liberty Mutual’s inadvertence, even if bordering on unreasonable, is

18

not the type of action excepted from substitution under Rule 17(a).

19

Further, application of Rule 17(a) must be viewed in light of the potential

20

prejudices to the parties and policies in favor of decisions on the merits, which, in this

21

case, weigh in favor of substitution. Denial of the Substitution Motion would result in

22

great prejudice to the LMIC, the actual real party in interest, but a grant of the

23

Substitution Motion would not result in great prejudice to Defendant.

24

Substitution Motion would amount to a dismissal of the entire case since, at this point,

25

the statute of limitations has run on the claim and any subsequent suit would be barred.

26

Consequently, LMIC would be wholly deprived of any remedy to which it may have been

27

entitled. Contrarily, although Defendant has suffered some inconvenience from denial of

28

its Motion to Dismiss and the failure to have this issue resolved at the outset of litigation,
8

Denial of the

1

Defendant has been fully apprised of the claim, has prepared to defend, and has in fact

2

defended itself against this action for some time. Moreover, had the Court granted

3

Defendant’s original motion to dismiss, the result likely would have been an amended

4

complaint or substitution motion brought at that time rather than now; litigation would

5

have nonetheless continued. Additionally, although discovery has closed, LMIC has

6

ratified each answer provided by Liberty Mutual in response to Defendant’s discovery

7

requests. Defendant has not identified any additional discovery that would have to take

8

place or inaccuracies resulting from Liberty Mutual rather than LMIC providing the

9

information.

10

Furthermore, this litigation has been ongoing for more than two years and the

11

parties have expended significant resources. The policy considerations favoring a

12

decision on the merits weigh heavily in favor of substitution in this case.

13

Liberty Mutual should have been able to determine which of the group of companies was

14

actually a party to a contract or, alternatively, should have been able to correct this error

15

sooner, the Court finds that the actions of Liberty Mutual do not make Rule 17(a)

16

inapplicable and the resulting prejudices to the parties as well as the public policy in

17

favor of decisions on the merits require that the Substitution Motion be granted.

Although

18

C.

Motion to Dismiss

19

In addition to opposing the Substitution Motion, Defendant also moves the Court

20

to dismiss the case as it is not prosecuted by the real party in interest. However, having

21

granted the Substitution Motion, this motion is moot. Rule 17(a) contemplates that a

22

proper plaintiff may be substituted for an improper one and does not deprive a court of

23

jurisdiction even though the original, improper plaintiff is shown to not have standing.

24

Rule 17(a) also allows the case to proceed “as if it had been originally commenced by

25

the real party in interest.” Thus, the Court retains jurisdiction and the action may

26

proceed; Defendant’s Motion to Dismiss is denied as moot.

27

///

28

///
9

1

D.

Order to Show Cause

2

Notwithstanding the Court’s grant of Liberty Mutual’s Substitution Motion, Liberty

3

Mutual made misrepresentations to the Court. An attorney has a duty to conduct a

4

reasonable inquiry as to the accuracy of statements made in any “pleading, written

5

motion, or other paper” submitted to the Court. Fed. R. Civ. P. 11(b). Violation of this

6

rule may, after opportunity to respond result in sanctions levied on the “attorney, law

7

firm, or party that violated the rule or is responsible for the violation.” Fed. R. Civ. P.

8

11(c)(1).

9

While Liberty Mutual’s misrepresentations may have resulted from inadvertence,

10

its mistake could have been avoided by minimal investigation. Liberty Mutual's apparent

11

negligence has required Defendant and the Court to expend significant resources to

12

resolve an issue which Liberty Mutual should have resolved before the litigation and at

13

minimal cost. Consequently, Liberty Mutual is ordered to show cause, within fourteen

14

(14) days of this order, why it should not be sanctioned in the amount of any of

15

Defendant’s attorney fees shown to be significantly associated with Liberty Mutual’s

16

misrepresentation.

17

IV.

IT IS THEREFORE ORDERED that Defendant’s Motion for Judicial Estoppel (dkt.

18
19

CONCLUSION

no. 165) is DENIED.

20

IT IS FURTHER ORDERED that Plaintiff’s Motion to Substitute LM Insurance

21

Corporation as Plaintiff Real Party in Interest Pursuant to Rule 17(A) (dkt. No. 119) is

22

GRANTED.
IT IS FURTHER ORDERED that Defendant’s Motion to Dismiss (dkt. No. 132) is

23
24

DENIED as moot.

25

///

26

///

27

///

28

///
10

1

IT IS FURTHER ORDERED that Plaintiff Liberty Mutual is ordered to show cause

2

within fourteen (14) days of this order why it should not be sanctioned in the amount of

3

any of Defendant’s attorney fees shown to be significantly associated with Liberty

4

Mutual’s misrepresentation.

5
6

DATED THIS 26th day of February 2013.

7
8

MIRANDA M. DU
UNITED STATES DISTRICT JUDGE

9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
11