Continental Western Insurance Company v. Superior Fire Protection, Inc.
///ORDER denying 32 MOTION to Substitute Party in Interest Acadia Ins Co as Plaintiff (replaces Doc 31). For the reasons outlined, the court denies the motion to substitute and dismisses the case given the newly submitted and undisputed facts showing that Continental lacks standing to invoke the court's jurisdiction. So Ordered by Judge Joseph N. Laplante.(jb)
UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
Continental Western Insurance Co.
Civil No. 18-cv-117-JL
Opinion No. 2019 DNH 213P
Superior Fire Protection, Inc.
MEMORADUM OPINION & ORDER
This is an insurance subrogation action in which the court’s jurisdiction hinges on
the plaintiff’s ability to substitute a necessary party well after the statute of limitations for
that party’s claims has run. In 2018, Continental Western Insurance Co., an Iowa
company declaring itself to be the insurance subrogee for a New Hampshire hotel, filed a
lawsuit against Superior Fire Protection Co., LLC, a New Hampshire company, for water
damage caused by the hotel’s fire sprinkler system. Through discovery, Superior Fire
learned that Continental neither insured the hotel nor paid the insurance claim, and that
Acadia Insurance Company, a non-party, was the real party in interest for the hotel’s legal
claims. As such, Superior Fire has moved, in part, to dismiss this lawsuit for lack of
standing. Continental, in turn, has asked the court to let Acadia substitute in as the
plaintiff under Fed. R. Civ. P. 17, even though the statute of limitations has run.
After considering the parties’ arguments, the court finds that Continental’s
proposed substitution exceeds the permissible bounds for substitution under Rule 17
because it would improperly allow Acadia to invoke this court’s subject matter
jurisdiction where it would not otherwise exist. At the time this litigation began, both
Acadia and Superior Fire were New Hampshire citizens, thereby precluding Acadia from
invoking diversity jurisdiction – the only basis for federal subject matter jurisdiction in
this case. See 28 U.S.C. § 1332. While Continental is correct that, in limited
circumstances, post-filing events may create subject matter jurisdiction where none
originally existed, neither the Supreme Court nor the First Circuit Court of Appeals has
recognized such an exception for post-filing changes in a single plaintiff’s citizenship
where diversity is the sole basis for federal jurisdiction. Accordingly, Continental’s
motion to substitute is denied. Because Continental has no standing to bring this lawsuit
and has not identified any other relief that cures this proceeding of jurisdictional defects,
the court must dismiss this litigation for lack of standing without reaching the merits of
Superior Fire’s arguments for summary judgment.
The following draws from the non-disputed facts provided in the parties’ briefing.
As it is obligated to do at summary judgment, the court “rehearse[s] the facts in the light
most favorable to the nonmoving party (here, the plaintiff), consistent with record
support,” and gives them “the benefit of all reasonable inferences that those facts will
bear.” Noviello v. City of Boston, 398 F.3d 76, 82 (1st Cir. 2005) (citation omitted).
On February 15, 2016, defendant Superior Fire repaired a sprinkler head that was
part of a fire sprinkler system at the Holiday Inn Express Hotel in Rochester, New
Hampshire.1 After this repair, water within the dry pipe fire protection system froze,
breaking a “T-fitting” and causing water damage throughout the hotel.2
At the time of the incident, Acadia Insurance Company, a non-party Iowa
corporation that was previously incorporated in New Hampshire up until December 2018,
Aff. of Eddy Caron (doc. no. 30-3) ¶ 3. In March 2019, this court dismissed Hampshire Fire
Protection Co., LLC, which installed the fire sprinkler system in October 2007, after finding that
New Hampshire’s 8-year construction statute of repose barred Superior Fire’s indemnification
and contribution claims. Doc. no. 29.
See Aug. 2019 Expert Report of Mike Pettini (doc. no. 33-16).
insured the hotel.3 Rochester Hospitality, LLC, the owner of the hotel, made a claim
under its policy for over $700,000 in water damage. Acadia ultimately paid Rochester
Hospitality’s claim and thereby became its subrogee.4
In February 2018, however, plaintiff Continental Western Insurance Co. declared
itself subrogee of Rochester Hospitality and filed negligence and breach of contract
claims pursuant to this court’s diversity jurisdiction. According to Continental, it and
Acadia share a common corporate parent, and counsel for Continental, who also serves as
counsel for Acadia, “inadvertently” listed the wrong corporation as plaintiff as part of an
honest mistake.5 In discovery — and well within the statute-of-limitations period —
Continental produced documents and signed interrogatory responses disclosing that
Acadia, not Continental, was the true subrogee and real party in interest.6 Neither
Continental nor Acadia moved to correct this inadvertent error until summary judgment –
nearly one year after disclosing this error, more than 18 months after the filing of the
complaint, and well after the statute of limitations time-barred Acadia’s claims.7
Acadia Policy (doc. no. 30-4); Acadia Articles of Incorporation (doc. no. 30-7).
Acadia Payment Log (doc. no. 30-6).
See Continental’s Mot. to Substitute Mem. (doc. no. 32-1) at 9.
See Sept. 17, 2018 Ltr. from Michael Wallace, counsel for Continental, to Mark Bodner,
counsel for Superior Fire (doc. no. 32-5); Continental’s Responses to Superior Fire’s First Set of
Interrogatories (doc. no. 30-5) ¶ 2.
Because the alleged water damage occurred in February 2016, and the three-year statute of
limitations period for tort and breach-of-contract claims expired in February 2019, Acadia
presumably cannot file a new lawsuit as subrogee for Rochester Hospitality’s insurance claims.
See N.H. Rev. Stat. 508:4 (statute of limitations for personal actions).
Applicable Legal Standard
Federal Rule of Civil Procedure 17 governs parties’ capacities to sue or be sued.
Rule 17(a)(1) requires that legal actions “be prosecuted in the name of the real party in
interest.” While the failure to do so would normally warrant a dismissal, under Rule
17(a)(3), courts may not dismiss an action for failing to comply with Rule 17(a)(1) “until,
after an objection, a reasonable time has been allowed for the real party in interest to
ratify, join, or be substituted into the action.” If the ratification, joinder, or substitution is
permitted, “the action proceeds as if it had been originally commenced by the real party
in interest.” Id. Thus, for statute of limitations and jurisdictional purposes, the real party
in interest’s claim dates back the filing of the original complaint, even if the Rule 17
motion was filed after the limitations period had expired. Maddalone v. Okada Shosen,
KK, 756 F.2d 886, 887 (1st Cir. 1985); Prevor-Mayorsohn Caribbean, Inc. v. Puerto Rico
Marine Mgmt., Inc., 620 F.2d 1, 3 n.2 (1st Cir. 1980); see also In re Lorazepam &
Clorazepate Antitrust Litig., 631 F.3d 537, 542 (D.C. Cir. 2011) (rejecting argument that
diversity jurisdiction attached at the time the real parties in interests joined an action).
In moving for summary judgment, Superior Fire asks that the court dismiss
Continental’s claims, arguing that because Acadia, and not Continental, is the true
subrogee and real party in interest, Continental lacks standing to assert the hotel’s
subrogated claims. Continental does not dispute that it lacks constitutional standing,8 and
instead has moved to substitute Acadia as plaintiff under Fed. R. Civ. P. 17 to cure its
Continental’s Mot. to Substitute Mem. at 9 (conceding that a “mistake was made” in naming it
the plaintiff, subrogee, and real party in interest in the complaint); see also id. at 8 (“Continental
Western acknowledges that Acadia is the proper real party in interest as Acadia issued payments
to Rochester Hospitality under claim number 20211606 and policy number BOA 0276021-17 for
the February 15, 2016 water loss.”).
standing deficiency and “avoid injustice” arising from “an honest mistake.”9 As
discussed herein, the proposed substitution cannot be granted under Rule 17 because it
would require conferring subject matter jurisdiction where such jurisdiction would
otherwise not exist. Accordingly, the court dismisses this case for lack of standing
without reaching Superior Fire’s arguments for the entry of summary judgment.
The First Circuit Court of Appeals has not yet opined on whether a plaintiff may
use substitution under Rule 17(a)(3) to remedy a standing deficiency when, like
Continental here, the plaintiff lacks standing to bring any of the claims in the complaint.
As Superior Fire notes, at least one Court of Appeals has held that a plaintiff that lacks
standing to bring an action also lacks “standing to make a motion to substitute [a] real
party in interest,” even when its attorney has mistakenly named the wrong client as the
plaintiff in a subrogation complaint. See Zurich Ins. Co. v. Logitrans, Inc., 297 F.3d 528,
530-31 (6th Cir. 2002) (holding that Rule 17 “must be read with the limitation that a
federal district court must, at a minimum arguably have subject matter jurisdiction over
the original claims”). This strict decision has “met . . . some criticism” from courts and
legal commentators. See, e.g., Cortlandt St. Recovery Corp. v. Hellas Telecomm.,
S.À.R.L., 790 F.3d 411, 423 (2d Cir. 2015); 13A Wright and Miller, Fed. Prac. & Proc.
Juris. § 3531 (3d ed. Supp. 2019). If Zurich’s holding is the law in the First Circuit, then
this court must find that Continental lacks standing even to seek substitute and must
dismiss this case. See 297 F.3d at 531 (denying the substitution of “a totally separate
entity, which was not vigilant in protecting its claims,” intervening to “benefit from [the
Continental’s Mot. to Substitute Mem. at 4. Superior Fire rejects Continental’s premise that its
mistake was honest, as opposed to a product of tactical maneuvering. Superior Fire’s Obj. to
Mot. to Substitute (doc. no. 34) at 7-12. Although the court accepts Continental’s representations
regarding the circumstances of the mistake, it need not determine whether the mistake was made
in good faith to resolve the motion to substitute.
original plaintiff’s] mistake so as to take advantage of the suspension of the limitations
The court need not resolve this question, however, because the substitution
proposed here is improper for a different jurisdictional reason: If granted, it would
destroy party diversity. See 4 Moore’s Federal Practice 3D § 17.12[c] (“If joinder or
substitution of, or ratification by, a real party in interest would destroy the court’s
jurisdiction, the action must be dismissed.”). In Cortlandt, the Second Circuit Court of
Appeals faced a similar standing question and affirmed the trial court’s denial of relief
because the requested substitution exceeded the authority provided under Rule 17(a)(3).
790 F.3d at 421-25. The plaintiff had filed suit to collect payments on defaulted notes for
which it had been assigned “full rights . . . to pursue all remedies” against the defendant.
Id. at 415 n.1. The assignments, however, had failed to transfer title of the notes to the
plaintiff, depriving the plaintiff of standing to file for legal relief. Id. at 420.
On appeal, the Second Circuit Court of Appeals rejected the plaintiff’s bid to
substitute the real party in interest because “the procedural mechanisms set forth in Rule
17(a) for ameliorating real party in interest problems may not, under the Rules Enabling
Act, 28 U.S.C. § 2072(b), be employed to expand substantive rights,” including the
expansion of the federal court’s subject matter jurisdiction. Id. at 424 (citations and
quotation marks omitted). Because substitution “would [have] create[d] a different, fatal
jurisdictional defect” by destroying party diversity — “the only potential basis for federal
subject matter jurisdiction” — the Court of Appeals held that the trial court did not abuse
its discretion by denying the substitution and dismissing the case. Id.
Here, Continental’s requested substitution under Rule 17(a)(3), if granted, would
similarly expand this court’s diversity subject matter jurisdiction to an improper case or
controversy. At the time Continental filed the complaint, both Acadia and Superior Fire
were citizens of New Hampshire. Accordingly, had Acadia “originally commenced” this
action in February 2018 in place of Continental, see Fed. R. Civ. P. 17(a)(3), it would
have lacked the diversity necessary to bring its negligence and breach-of-contract claims
in federal court. See 28 U.S.C. § 1332 (vesting jurisdiction where the controversy
exceeds $75,000 in value and is between citizens of different states).
In its Reply, Continental argues that Acadia’s citizenship poses no jurisdictional
problem because Acadia became a citizen of Iowa two months before the statute of
limitations period closed.10 This is incorrect.
It has long been held that in cases premised on diversity, post-filing changes in a
single plaintiff’s citizenship cannot save diversity jurisdiction where diversity did not
exist at the time-of-filing. See Connectu LLC v. Zuckerberg, 522 F.3d 82, 91 (1st Cir.
2008) (quoting Mollan v. Torrance, 22 U.S. (9 Wheat.) 537, 539 (1824)). In Grupo
Dataflux v. Atlas Glob. Grp., L.P., for example, a limited partnership11 urged the Court to
disregard the fact that diversity did not exist between it and the defendant, a Mexican
corporation, at the time of filing because “weeks before trial, and unrelated to the claims
in the suit, . . . all Mexican-citizen partners withdrew from the partnership,” thereby
creating diversity. 541 U.S. 567, 581, 586 (2004). On appeal, the Fifth Circuit Court of
Appeals acknowledged the time-of-filing rule, but nevertheless created an exception for
Reply to Mot. to Substitute (doc. no. 38) at 1-2.
As a partnership, the plaintiff-respondent was a citizen of each state or foreign country of
which any of its partners was a citizen, specifically Texas, Delaware, and Mexico. See Carden v.
Arkoma Associates, 494 U.S. 185, 192–195 (1990).
(1) an action is filed or removed when constitutional and/or statutory
jurisdictional requirements are not met, (2) neither the parties nor the judge
raise the error until after a jury verdict has been rendered, or a dispositive
ruling has been made by the court, and (3) before the verdict is rendered, or
ruling is issued, the jurisdictional defect is cured.See 312 F.3d 168, 174 (5th
Cir. 2002). The Supreme Court, however, rejected such an exception,
emphasizing that parties cannot create jurisdiction by becoming a citizen of
a different state, “regardless of the costs it imposes” on litigation. 541 U.S.
at 571 (quoting Conolly v. Taylor, 2 Pet. 556, 565 (1829)).
Although Continental correctly notes that some “post-filing events may create
subject matter jurisdiction where none existed at the time the action was commenced,”12
see, e.g., Grupo, 541 U.S. at 584 (Ginsburg, dissenting) (identifying cases), Continental
has not identified any cases in which a court held that a sole party’s post-filing change of
citizenship cured a previously existing jurisdictional defect. See id. at 575 n.5. Each of
the authorities Continental cites involved long-recognized exceptions to the time-of-filing
rule for events other than post-filing changes in citizenship. Digizip.com, for example,
concerned a timely post-filing ratification by an assignee where the plaintiff had assigned
away the right to bring legal claims for its injuries before filing suit. 139 F. Supp. 3d at
678-79 (finding that the ratification cured the plaintiff’s prudential standing defects).
Cortlandt, in turn, recognized that trimming non-essential parties as a “method of curing
a [diversity] jurisdictional defect ha[s] long been an exception to the time-of-filing rule.”
790 F.3d at 426 (Sack, J., concurring) (quoting Grupo, 541 U.S. at 572).13
Continental’s reliance on Maddalone similarly fails to persuade the court to
disregard the time-of-filing rule. In Maddalone, the First Circuit Court of Appeals
See Reply at 1-2 (citing Cortlandt, 790 F.3d at 426-427 (Sack, J., concurring); Digizip.com,
Inc. v. Verizon Servs. Corp., 139 F. Supp. 3d 670, 678 (S.D.N.Y. 2015)).
See also Mullaney v. Anderson, 342 U.S. 415, 416 (1952) (allowing an agent to cure its real
party in interest standing defects by adding its principal as a party); 28 U.S.C. §§ 1332, 1453
(providing that that class member citizenship may be determined even after the time-of-filing).
reversed the denial of a motion to substitute where a workmen’s compensation insurer
erroneously named its insured, a longshoreman injured while working aboard a vessel, as
the plaintiff in its complaint. 756 F.2d at 887. Unlike here, the standing issue was
prudential, as the real party in interest was already before the court but had listed the
wrong person as plaintiff on the complaint. See, e.g., Knopick v. Jayco, Inc., 895 F.3d
525, 529 (7th Cir. 2018) (explaining that real party in interest issues are prudential and
not jurisdictional); Gianfrancesco v. Town of Wrentham, 712 F.3d 634, 637 (1st Cir.
2013) (explaining that prudential standing includes the additional standing requirement
that a party “assert his own legal rights and interests”). Further, the proposed substitution
did not require the trial court to bend or break otherwise bright-line jurisdictional rules.
See 756 F.2d at 887 (noting that complaint was brought under the Longshoreman and
Harbor Workers’ Compensation Act, 33 U.S.C. § 933, thus invoking federal question
jurisdiction under 28 U.S.C. § 1331). On these facts, the Court of Appeals reversed
because “[t]he federal rule[s]” favor the “liberal” amendment of pleadings (the swapping
of names on the case caption), and not because the federal rules favor — or to a lesser
extent, permit — expansive interpretations of the jurisdictional principles. See id. at 887.
As such, this court declines the invitation to recognize a new exception for
diversity jurisdiction when there is a post-filing change in citizenship of a substituted
party, despite the significant court resources expended to date. See id. at 574-75 (quoting
Conolly, 2 Pet. at 565). Because under Rule 17(a)(3)’s “originally-commenced”
provision, Acadia could not have invoked this court’s subject matter jurisdiction at the
time this action began, the court denies Continental’s motion to substitute Acadia under
Rule 17(a)(3). Moreover, because Continental — the sole plaintiff — lacks standing, the
court must dismiss case.
For these reasons, the court denies Continental’s motion to substitute14 and
dismisses this case given the newly submitted and undisputed facts showing that
Continental lacks standing to invoke the court’s jurisdiction.
Joseph N. Laplante
United States District Court
Dated: December 26, 2019
Michael F. Wallace, Esq
Mark D. Wiseman, Esq.
Mark S. Bodner, Esq.
George D. Bogris, Esq.
Doc. no. 32.
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