BARNHARDT v. SCOTTSDALE INSURANCE COMPANY
Filing
28
MEMORANDUM OPINION AND ORDER signed by MAG/JUDGE L. PATRICK AULD on 01/09/2014 as set out herein. Defendant has failed to establish grounds for relief under Federal Rules of Civil Procedure 12(b)(7) and 19. ORDERED that Defendant's Motion to Dismiss for Failure to Join an Indispensable Party and Motion to Compel Joinder and to Stay Proceedings (Docket Entry 22 ) is DENIED.(Taylor, Abby)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
WILLIAM JEFFREY BARNHARDT,
d/b/a U.S. 1 Speedway
Food Mart,
Plaintiff,
v.
SCOTTSDALE INSURANCE CO.,
Defendant.
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1:13CV637
MEMORANDUM OPINION AND ORDER
This case comes before the Court on Defendant’s Motion to
Dismiss for Failure to Join an Indispensable Party, or in the
Alternative, Motion to Compel Joinder and to Stay Proceedings
(Docket Entry 22).
For the reasons that follow, the Court will
deny the instant Motion.1
BACKGROUND
Plaintiff’s Complaint asserts a claim for breach of contract
and seeks a declaratory judgment of Plaintiff’s rights under an
insurance policy issued by Defendant.
(Docket Entry 4 at 3.)
Plaintiff alleges that he owns the insured property U.S. 1 Speedway
Food Mart (id. at 2) and leased the same property to Omer Houssein
on January 11, 2012 (Docket Entry 11 at 2 (citing Docket Entry 12
1
The Parties have consented to the jurisdiction of a
Magistrate Judge (see Docket Entry 27 at 1); therefore, the
undersigned Magistrate Judge will enter an order in this matter.
See 28 U.S.C. § 636(c)(1); Fed. R. Civ. P. 73(a).
at 1-4)).
On February 15, 2012, Mr. Houssein signed an insurance
application
for
coverage
Speedway
Food
Mart,
“Mortgage[e]s/Additional
issued the policy.
with
Defendant
which
on
behalf
listed
Insureds/Loss
of
Plaintiff
Payees,”
and
2; see also Docket Entry 10 at 2.)
1
as
Defendant
(Id.; see also Docket Entry 10 at 2.)
occurred at the property on September 24, 2012.
U.S.
A fire
(Docket Entry 4 at
Shortly after, Mr. Houssein
allegedly left the country, gave Plaintiff written permission to
handle any claims on his behalf, and has remained unavailable for
an examination by Defendant pursuant to the policy.
(Docket Entry
11 at 5; see also Docket Entry 10 at 2.)
The Complaint alleges that “[P]laintiff owned the U.S. 1
Speedway Food Mart, and as such he was a beneficiary of []
[D]efendant’s coverage under the above-referenced policy.” (Docket
Entry 4 at 2.)
It seeks recovery under the policy for damage to
the property’s “improvements, equipment, and inventory therein.”
(Id.)
Defendant thereafter filed a Motion for More Definite
Statement (Docket Entry 9), contending that
[Defendant] is not certain if [Plaintiff] is seeking to
recover for losses on behalf of (a) himself, William
Jeffrey Barnhardt, individually, as owner of the property
located at 2210 U.S. Highway 1 North (including recovery
for damages to the building and equipment damaged during
the fire), (b) ‘U.S. 1 Speedway Food Mart,’ the
convenience store business being operated at the same
address by Mr. Om[e]r Houssein, who leased the premises
from [Plaintiff] (including recovery for merchandise
damaged during the fire), or (c) both [Plaintiff] and
‘U.S. 1 Speedway Food Mart.’
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(Docket Entry 9 at 2.)
Plaintiff responded in opposition (Docket
Entries 11, 17) and clarified that he does not seek any recovery
for Mr. Houssein’s lost inventory (Docket Entry 11 at 1), but only
“for damage to the real property, including improvements thereon,
and his equipment that was used in the business.”
Court
denied
Defendant’s
Motion
for
More
(Id. at 6).
Definite
The
Statement.
(Docket Entry 21 at 7.)
Defendant’s instant Motion asserts that U.S. 1 Speedway Food
Mart/Mr. Houssein represents a necessary party, without whose
joinder Defendant “would face the substantial risk of incurring
multiple or otherwise inconsistent obligations.”
(Docket Entry 23
at 6-7.) It further alleges that “U.S. 1 Speedway Food Mart cannot
properly be joined at this time, however, because [it] has not met
all conditions precedent to suit,” that is, Mr. Houssein has not
submitted to an examination under oath.
(See id. at 7.) Defendant
thus seeks to dismiss pursuant to Federal Rules of Civil Procedure
12(b)(7) and 19(b), or in the alternative, to compel Mr. Houssein’s
joinder under Federal Rule of Civil Procedure 19(a) and to stay the
litigation until he submits to an examination under oath as the
policy requires.
(See id.)
Plaintiff responded in opposition,
asserting his claim’s independence from any claim Mr. Houssein
might bring
and,
further, that
“[Mr.]
Houssein
has
shown no
indication that he will ever make a claim under the policy.”
(Docket Entry 24 at 5-6.)
Defendant replied.
-3-
(Docket Entry 26.)
DISCUSSION
Under Federal Rules of Civil Procedure 12(b)(7) and 19(b), a
party may move to dismiss for failure to join an indispensable
party.
Fed. R. Civ. P. 12(b)(7) (citing Fed. R. Civ. P. 19).
“Rule 19 sets out . . . . a two-step inquiry in which courts must
first ask whether a party is necessary to a proceeding because of
its relationship to the matter under consideration pursuant to Rule
19(a).
If a party is necessary, it will be ordered into the
action. When a party cannot be joined because its joinder destroys
diversity, the court must determine whether the proceeding can
continue in its absence, or whether it is indispensable pursuant to
Rule 19(b) and the action must be dismissed.” Owens-Illinois, Inc.
v. Meade, 186 F.3d 435, 440 (4th Cir. 1999) (internal citations and
quotation marks omitted).
However, “[d]ismissal for non-joinder is a remedy employed
extremely reluctantly, ‘only when the defect cannot be cured and
serious prejudice or inefficiency will result.’” Pettiford v. City
of Greensboro, 556 F. Supp. 2d 512, 517 (M.D.N.C. 2008) (Schroeder,
J.) (quoting RPR & Assocs. v. O’Brien/Atkins Assocs., P.A., 921 F.
Supp. 1457, 1463 (M.D.N.C. 1995)); see also 7 Wright & Miller,
Federal Practice & Procedure § 1604 (3d ed.) (“[T]he philosophy of
the present [R]ule [19] is to avoid dismissal whenever possible.”).
“In
ruling
on
a
motion
to
dismiss
for
failure
to
join
an
indispensable party, a court must accept as true the allegations of
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the complaint . . . . [and] the moving defendant has the burden of
showing that
a
party
must
be
joined for
just
adjudication.”
Bridgetree v. Red F. Mktg., LLC, No. 3:10CV228-W, 2012 WL 896111,
at *1 (W.D.N.C. Mar. 15, 2012) (unpublished) (internal citations
omitted).
“Although framed by the multi-factor tests of Rule 19(a)
& (b), ‘a decision whether to dismiss must be made pragmatically,
in the context of the substance of each case, rather than by
procedural formula.’”
Teamsters Local Union No. 171 v. Keal
Driveway Co., 173 F.3d 915, 18 (4th Cir. 1999) (quoting Provident
Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 119 n.16
(1968)).
As
an
initial
matter,
Defendant’s
instant
Motion
seeks
dismissal for failure to join U.S. 1 Speedway Food Mart, which it
describes as “the proprietorship operated by Om[e]r H[o]ussein.”
(Docket Entry 23 at 9.)
However, the Complaint appears to assert
that Plaintiff also has an interest in U.S. 1 Speedway Food Mart by
styling the caption as “William Jeffrey Barnhardt, d/b/a U.S. 1
Speedway Food Mart” and asserting that, “at all times at issue, []
[P]laintiff owned the U.S. 1 Speedway Food Mart.”
at 1-2.)
(Docket Entry 4
The filings made in connection with the instant Motion
further reflect disagreement between the parties as to the nature
and identity of U.S. 1 Speedway Food Mart, with Plaintiff asserting
that “[b]ecause [U.S. 1 Speedway Food Mart] is only a ‘d/b/a’ for
a business, and not a formally organized entity, the proper party
-5-
name is the individual and not the ‘d/b/a[]’ [and that] Defendant
should be aware that [Mr.] Houssein . . . is the person it seeks to
add.”
(Docket Entry 25 at 5.)
Given that the Court must accept
the Complaint’s allegations as true in deciding the instant Motion,
the Court will consider said Motion as seeking dismissal based on
non-joinder of Mr. Houssein and will not address the question of
Plaintiff’s interest in U.S. Speedway 1 Food Mart at this juncture.
In the instant case, Defendant has not demonstrated that Mr.
Houssein constitutes a necessary party requiring compelled joinder
under Federal Rule of Civil Procedure 19(a).
Defendant’s instant
Motion asserts that Federal Rule of Civil Procedure 19(a)(1)(B)
requires joinder of Mr. Houssein to protect his interests and those
of Defendant.
(Docket Entry 23 at 8-11.)2
A party must be joined
under that Rule if:
[T]hat person claims an interest relating to the subject
of the action and is so situated that disposing of the
action in the person’s absence may:
(i) as a practical matter impair or impede the
person’s ability to protect the interest; or
(ii) leave an existing party subject to a substantial
risk of incurring double, multiple, or otherwise
inconsistent obligations because of the interest.
Fed. R. Civ. P. 19(a)(1)(B).
Defendant alleges that “permitting
this case to proceed without [Mr. Houssein] would ‘impair or
2
Defendant does not argue that Mr. Houssein represents a
necessary party under Rule 19(a)(1)(A). (See Docket Entry 22 at 15; Docket Entry 23 at 1-16; Docket Entry 26 at 1-12.)
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impede’ [Mr. Houssein’s] ability, as a contracting party, to
protect a claimed interest relating to the subject of the action.”
(Docket Entry 23 at 10.)
However, as Plaintiff has argued, Mr. Houssein, for whatever
reason, does not appear to claim an interest in recovery under the
policy.
(See Docket Entry 25 at 6-7.)
Rule 19(a) does not require
joinder of an absent party with knowledge of the action who fails
to claim an interest in its subject matter.
See Fed. R. Civ. P.
19(a) (“A person . . . must be joined as a party if . . . that
person claims an interest relating to the subject of the action .
. . .” (emphasis added)); American Gen. Life & Accident Ins. Co. v.
Wood, 429 F.3d 83, 93 (4th Cir. 2005) (affirming district court’s
determination that “[absent party] had not claimed an interest in
the federal action, and therefore, joinder was not required under
Rule 19(a)(2)”); Davis Cos. v. Emerald Casino, Inc., 268 F.3d 477,
483-84 (7th Cir. 2001) (observing that “under Rule 19(a) it is the
absent party that typically must claim such an interest” and citing
with approval United States v. Bowen, 122 F.3d 682, 689 (9th Cir.
1999), for proposition that “[w]here absent party was aware of
action and claimed no interest, district court did not err in
finding joinder unnecessary”); Peregrine Myanmar Ltd. v. Segal, 89
F.3d 41, 49 (2d Cir. 1996) (“[Defendant’s] attempt to assert on
behalf of
[the
absent
party]
its
supposed
concern
about
the
dilution of its interest . . . falls outside the language of the
-7-
rule.”). Even according to Defendant’s statement of the facts, Mr.
Houssein apparently has knowledge of the fire, his rights under the
policy,
and
Defendant
his
under
potential
the
claim
policy.
for
(See
lost
Docket
inventory
Entry
23
against
at
2-3.)
Nonetheless, Mr. Houssein has not formally filed a claim with
Defendant or expressed any interest in joining this lawsuit (see
Docket
Entry
25
at
6-7;
Docket
Entry
26
at
4-5),
despite
Defendant’s “good faith effort to locate” him (see Docket Entry 26
at 5 n.4).
Defendant contends that Mr. Houssein has asserted a claim,
based on “Mr. Houssein sign[ing] a document authorizing [Plaintiff]
to handle the claim on Houssein’s behalf” on October 2, 2012 (id.
at 4 (internal quotations and brackets omitted)), as well as
Plaintiff’s statement during Defendant’s examination on January,
24, 2013,
that
“U.S.
Speedway
1
(quoting Docket Entry 16 at 129)).
is
claiming
inventory”
(id.
These events do not provide a
sufficient indication that Mr. Houssein seeks recovery under the
policy, particularly considering that Mr. Houssein has made no
effort to involve himself in the ensuing months (see Docket Entry
4 at 1).
That Mr. Houssein has proven unwilling to submit to an
examination under oath (a condition precedent to any recovery under
the policy), despite Defendant’s reported efforts to find him (see
Docket Entry 26 at 4-5 & n.4), further supports his disinterest in
bringing a claim.
-8-
Defendant additionally asserts that, in the absence of Mr.
Houssein, it “faces a substantial risk of multiple lawsuits with
regard
to
the
same
coverage
parts
and
the
potential
for
inconsistent verdicts and/or combined verdicts in excess of the
applicable limits regarding the same.”
(Docket Entry
23 at 9.)
Defendant cites several cases in support of its contention that
Federal Rule of Civil Procedure 19(a) requires joinder of either
all parties to a contract or all claimants to a common fund.
(See,
e.g., Docket Entry 23 at 10 (citing Delta Fin. Corp. v. Paul D.
Comanduras & Assocs., 973 F.2d 301, 305-06 (4th Cir. 1992) (“[I]n
suits between parties to a contract seeking rescission of that
contract,
all
parties
to
the
contract,
and
others
substantial interest in it, are necessary parties.
having
a
The same
principle applies to suits arising out of disputes between multiple
claimants to a common fund; all such claimants must be joined if
feasible.” (internal citation omitted))), 12 (citing In re Torcise,
116 F.3d 860, 865 (11th Cir. 1997) (“[A]ll claimants to a fund must
be joined to determine the disposition of that fund.
However,
findings of indispensability must be based on stated pragmatic
considerations,
especially
the
effect
on
parties
and
on
litigation.” (internal citation omitted)))).
These
potential
cases
do
not
interests under
mandate
a
joinder
contract.
of
all
persons
For instance,
in
with
the
Eleventh Circuit case cited by Defendant, the court upheld the
-9-
lower
court’s
denial
of
joinder,
“conclud[ing]
that
[the
defendant’s] claims of multiple exposure are purely speculative.”
Torcise, 116 F.3d at 866. Similarly, the cited Fourth Circuit case
recognized that only persons making claims as to a common fund
constituted necessary parties.
Defendant
further
cites
Delta Fin., 973 F.2d at 305-06.
several
Fourth
Circuit
cases
in
support its contention that the Court should require Mr. Houssein’s
joinder to prevent Defendant from incurring multiple inconsistent
obligations
(see
Docket
Entry
23
at
11);
however,
each
of
Defendant’s cited cases involved existing parallel proceedings in
separate
fora
rather
than
hypothetical
claimants,
see
Owens-
Illinois, 186 F.3d at 438, 441 (avoiding inconsistent federal- and
state-court judgments); Keal Driveway, 173 F. 3d at 918 (protecting
prior judgment before joint grievance panel); Schlumberger Indus.,
Inc. v. National Sur. Corp., 36 F. 3d 1274, 1277, 1286-87 (4th Cir.
1994) (avoiding inconsistent federal- and state-court judgments).
In this regard, Defendant’s own supporting cases indicate that it
must demonstrate both that Mr. Houssein represents an actual
claimant to the policy and that Defendant faces a significant risk
of multiple exposure.
In the instant matter, although some risk of inconsistent
obligations may exist, said risk appears more speculative than
substantial.
As Defendant has noted, the policy suggests that a
potential claim by Mr. Houssein for inventory could overlap with
-10-
Plaintiff’s
claims
under
the
policy’s
Property Coverage, capped at $100,000.
12-13.)
However,
since
filing
his
Building
and
Personal
(See Docket Entry 9-7 at
Complaint,
Plaintiff
has
repeatedly stated that he does not intend to make any claim for
inventory, whether on his own behalf or on behalf of Mr. Houssein.
(See Docket Entry 11 at 1 (“[Plaintiff] is not asserting a claim
for lost inventory in this action.”); Docket Entry 25 at 4 (“The
Complaint herein does not assert any claim for lost inventory, nor
did it allege that [P]laintiff is pursuing Houssein’s claims.”).)
Nor has Defendant shown that the sum of Plaintiff’s claim (for
property, improvements, and equipment) and Mr. Houssein’s potential
claim (for inventory) exceeds the policy’s Building and Personal
Property coverage limit.
statement
that
entitled
to
Instead, Defendant makes the conclusory
“Plaintiff
recover
has
under
generally
both
of
asserted
the
that
he
‘Improvements
is
and
Betterments’ and ‘Business Personal Property’ coverages, up to the
policy limits for each,” citing only to the policy itself for
support rather than any statements by Plaintiff or reference to
Plaintiff’s submitted receipts.
also Docket Entry 23 at 10.)
(See Docket Entry 26 at 5; see
Given that Defendant carries the
burden to show the need for Mr. Houssein’s involvement, such
conclusory assertions do not suffice.
Defendant has thus shown
neither that a hypothetical claim by Mr. Houssein would duplicate
-11-
Plaintiff’s claimed losses nor that Defendant’s payment of both
claims would exhaust the available funds under the policy.
As an additional matter, Defendant contends that Mr. Houssein
represents a necessary and/or indispensable party because he holds
evidence crucial to resolution of the dispute.
26 at 8-9.)
(See Docket Entry
Nonetheless, “Rule 19 . . . does not list the need to
obtain evidence from an entity or individual as a factor bearing
upon whether or not a party is necessary or indispensable to a just
adjudication.”
Johnson v. Smithsonian Inst., 189 F.3d 180, 188
(2d. Cir. 1999) (quoting Costello Publ’g Co. v. Rotelle, 670 F.2d
1035, 1044 (D.C. Cir. 1981)); see also Hefley v. Textron, Inc., 713
F.2d 1487, 1498 (10th Cir. 1983) (“We have found no cases which
approve of the use of [R]ule 19 simply to allow greater discovery,
and we can discern no policy which such an expansion of the [R]ule
would promote.”). Simply put, Defendant has not carried its burden
to demonstrate that Mr. Houssein represents a necessary party
requiring joinder.
Given the Court’s conclusion that Mr. Houssein does not
qualify as a necessary party, the Court need not reach the question
of the feasibility of his joinder.3
3
Furthermore, a party which
Defendant contends that Mr. Houssein cannot be joined
because he has not met all conditions precedent to the suit under
North Carolina law as a result of his failure to submit to an
examination under oath.
(See Docket Entry 23 at 7.)
Rule 19
considers joinder feasible for an absent party “who is subject to
service of process and whose joinder will not deprive the court of
(continued...)
-12-
does not constitute a necessary party does not constitute an
indispensable party under Federal Rule of Civil Procedure 19(b).
See Schlumberger Indus., 36 F. 3d at 1285-86 (“Only necessary
persons can be indispensable, but not all necessary persons are
indispensable.”).
Therefore, the Court need not address whether
Mr. Houssein would qualify as an indispensable party under Federal
Rule of Civil Procedure 19(b).
See, e.g., Viacom Int’l, Inc. v.
Kearney, 212 F.3d 721, 724 (2d Cir. 2000) (“If a party does not
qualify as necessary under Rule 19(a), then the court need not
decide whether its absence warrants dismissal under Rule 19(b).”);
Janney Montgomery Scott, Inc. v. Shepard Niles, Inc., 11 F.3d 399,
402 (3d Cir. 1993) (“If [absent party] is not a necessary party
under Rule 19(a), we need not reach the question whether it is
indispensable under Rule 19(b).”); Southern Co. Energy Mktg., L.P.
v. Virginia Elec. & Power Co., 190 F.R.D. 182, 189 (E.D. Va. 1999)
(“[T]he
analysis
under
Rule
19(b)
begins
and
ends
with
determination that [absent party] is not a necessary party.”).
3
a
In
(...continued)
subject-matter jurisdiction.” Fed. R. Civ. P. 19(a)(1); see also
EEOC v. Peabody W. Coal Co., 400 F.3d 774, 789 (9th Cir. 2005)
(“Rule 19(a) sets forth three circumstances in which joinder is not
feasible: when venue is improper, when the absentee is not subject
to personal jurisdiction, and when joinder would destroy subject
matter jurisdiction.” (citing Tick v. Cohen, 787 F.2d 1490, 1493
(11th Cir. 1987)).
Defendant’s alleged defect preventing Mr.
Houssein’s joinder - that Defendant would then move to stay or
dismiss the claim because Mr. Houssein has not submitted to an
examination under oath - does not appear to fit within the
circumstances making joinder infeasible under Federal Rule of Civil
Procedure 19.
-13-
sum, Defendant has neither shown that Mr. Houssein represents a
necessary party requiring joinder nor an indispensable party whose
non-joinder merits dismissal or stay of the litigation.
CONCLUSION
Defendant has failed to establish grounds for relief under
Federal Rules of Civil Procedure 12(b)(7) and 19.
IT IS THEREFORE ORDERED that Defendant’s Motion to Dismiss for
Failure to Join an Indispensable Party and Motion to Compel Joinder
and to Stay Proceedings (Docket Entry 22) is DENIED.
/s/ L. Patrick Auld
L. Patrick Auld
United States Magistrate Judge
January 9, 2013
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