United States Fidelity and Guaranty Company v. United States Sports Specialty Association
Filing
262
MEMORANDUM DECISION granting 258 Motion to Substitute Party. National Indemnity and Certain Underwriters at Lloyds of London who subscribed to policy numbers D064L0074 and D064Y00423 added. United States Fidelity and Guaranty Company terminated. Signed by Judge Ted Stewart on 12/19/2012. (asp)
IN THE UNITED STATES COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION
UNITED STATES FIDELITY AND
GUARANTEE CO.,
Plaintiff,
MEMORANDUM DECISION AND
ORDER GRANTING USF&G’S
MOTION TO SUBSTITUTE
vs.
UNITED STATES SPORTS SPECIALTY
ASSOCIATION and NELSON, CHIPMAN
& BURT,
Defendants.
UNITED STATES SPORTS SPECIALTY
ASSOCIATION,
Case No. 2:07-CV-996 TS
Counterclaimant,
vs.
UNITED STATES FIDELITY AND
GUARANTEE CO.,
Counterclaim Defendant.
UNITED STATES SPORTS SPECIALTY
ASSOCIATION,
Third-party Plaintiff,
1
vs.
NELSON, CHIPMAN & BURT, CLIFFORD
PAYNE, LEWIS QUIGLEY, and
AMERICAN SPECIALTY INSURANCE
SERVICE, INC.,
Third-party Defendants.
This matter is before the Court on Plaintiff United States Fidelity and Guarantee
Company’s (“USF&G”) Motion to Substitute Real Parties In Interest.1 Defendants Nelson,
Chipman, & Burt, and Clifford Payne (collectively “NCB”) have opposed USF&G’s Motion.
For the reasons discussed more fully below, the Court will grant USF&G’s Motion.
I. BACKGROUND
The facts of this case are set out in this Court’s October 25, 2012, Memorandum Decision
and Order granting NCB’s Motion for Summary Judgment (“Memorandum Decision”) and will
not be repeated here.2 In its Memorandum Decision, the Court held that USF&G was not the real
party in interest entitled to prosecute this suit. USF&G now seeks to substitute its re-insurers,
National Indemnity Company and Certain Underwriters at Lloyd’s of London who subscribed to
policy numbers D064L0074 and D064Y00423 (collectively the “Reinsurers”), as its subrogees in
this action. In addition, USF&G requests that the Court grant it leave to file an amended
complaint. USF&G attached to its reply a proposed Fifth Amended Complaint for the Court’s
review.
1
Docket No. 258.
2
Docket No. 255.
2
II. DISCUSSION
Federal Rule of Civil Procedure 17(a) provides that “every action shall be prosecuted by
the real party in interest.” “[T]he real party in interest is the one who, under applicable
substantive law, has the legal right to bring suit.”3 Pursuant to Rule 17(a)(3), “[t]he court may
not dismiss an action for failure to prosecute in the name of the real part in interest until . . . a
reasonable time has been allowed for the real party in interest to ratify, join, or be substituted in
the action.” USF&G filed the instant Motion, seeking substitution, within the time allotted by
the Court.
In determining whether substitution under Rule 17(a)(3) is proper, the Court focuses “on
whether the plaintiff engaged in deliberate tactical maneuvering (i.e. whether his mistake was
honest), and on whether the defendant was prejudiced thereby.”4
Here, USF&G only sought to substitute the Reinsurers after NCB brought a motion for
summary judgment asserting that USF&G was not the real party in interest. As USF&G notes,
that motion was hotly disputed and involved issues of first impression under Utah law. This is
not a situation where the real party waited in the shadows, intending to spring upon the
unsuspecting defendants on the eve of trial. For this reason, the Court is persuaded that
USF&G’s failure to name the Reinsurers was the result of an honest mistake and not tactical
maneuvering.
3
Fed. Deposit Ins. Corp. v. Gelderman Inc., 975 F.2d 695, 698 (10th Cir. 1992).
4
Esposito v. United States, 368 F.3d 1271, 1276 (10th Cir. 2004) (internal citations
omitted).
3
The parties dispute whether NCB will suffer any prejudice if the Reinsurers are
substituted as the plaintiffs in this case. NCB asserts that it will be prejudiced because: (1) it has
not been able to conduct discovery related to the communications between and among the real
parties in interest; (2) it has not been able to take the 30(b)(6) depositions of the real parties in
interest; and (3) it has not been allowed to conduct further discovery as to the relations between
the parties and their legal status. USF&G contends that NCB was made aware of the Reinsurers
as early as 2008 and NCB has already deposed the only two individuals from the Reinsurers who
had primary involvement in this case.
In determining whether NCB would be prejudiced, the Court directs its inquiry to whether
USF&G was made sufficiently aware of the critical issues and relevant parties prior to the
substitution.5 In the instant case, because the claims passed by virtue of subrogation, the critical
issues remain the same. Furthermore, the Court is persuaded that NCB was made sufficiently
aware of the relevant parties, including the Reinsurers, well in advance of the filing of USF&G’s
Motion to Substitute. In any event, to the extent NCB has been unable to complete discovery
with regard to the Reinsurers, the Court will allow NCB the opportunity to conduct further
discovery as to those parties. Therefore, any resulting prejudice to NCB can be cured prior to the
currently scheduled trial.
In its opposition, NCB raises a number of additional arguments it represents merit denial
of USF&G’s Motion to Substitute. Specifically, NCB argues that: (1) USF&G’s Motion
contradicts and disregards this Court’s Memorandum Decision in that it seeks to resurrect
5
See Scheufler v. Gen. Host Corp., 126 F.3d 1261, 1270 (10th Cir. 1997) (citing Garcia v.
Hall, 624 F.2d 150, 151 n.3 (10th Cir. 1980)).
4
dismissed claims that the Court held could not be transferred by assignment; (2) the Reinsurers
should not be substituted because subrogation is an equitable principal that requires the subrogee
be without fault; and (3) USF&G failed to identify and provide evidence of loss as to the
Reinsurers, thereby properly supporting its claim that the named Reinsurers are indeed the real
parties in interest. The Court will address each of NCB’s arguments in turn.
A.
ASSIGNMENT
This Court held in its Memorandum Decision that the Utah Supreme Court would likely
adopt the majority rule and hold that legal malpractice claims may not be assigned.6 This holding
precludes USF&G from receiving United States Sports Specialty Association’s (“USSSA”) legal
malpractice claims by virtue of assignment. However, the Court also explicitly found that
“USSSA and USF&G’s legal malpractice claims passed to the Re-insurers by virtue of
subrogation.”7 As USF&G notes, it may appeal this Court’s holding as to the assignment of legal
malpractice claims. Nonetheless, until such time, the Reinsurers will be allowed to pursue both
USSSA and USF&G’s legal malpractice claims based on this Court’s prior holding that such
claims passed by virtue of subrogation.
B.
SUBROGATION
NCB argues that substitution should be denied because subrogation is an equitable
principle and the Reinsurers may not approach the Court for such relief with unclean hands.
6
Docket No. 255, at 11.
7
Id. at 13.
5
NCB relies on Hocker v. New Hampshire,8 for the proposition that equitable subrogation
is improper in these circumstances because the “person asserting the right to subrogation must be
without fault” and “he who seeks equity must come into the court with clean hands.”9 In Hocker,
the Tenth Circuit affirmed a trial court’s dismissal of an excess insurer’s subrogation claim
against a primary insurer because the excess insurer did not have clean hands due to its own prior
contractual breach.10 The excess insurer’s breach, giving rise to the finding of unclean hands,
was established by the court as a matter of law.11
In the instant case, there exists, at best, a triable issue of fact as to whether the Reinsurers
were partially at fault for the harm they allege to have suffered. The evidences provided by NCB
fall well short of establishing, as a matter of law, that the Reinsurers do not have clean hands.
For this reason, the Court finds the holding in Hocker inapplicable at this juncture.
C.
IDENTIFICATION
NCB also argues that substitution is improper because USF&G has provided no evidence
that the Reinsurers are the real parties in interest. In its reply, USF&G has provided evidence
demonstrating that the Reinsurers are indeed the real parties in interest.12 Based on that evidence
and, for the same reasons provided in the prior Memorandum Decision, the Court finds that the
Reinsurers are properly named real parties in interest to this suit.
8
922 F.2d 1476 (10th Cir. 1991).
9
Id. at 1486.
10
Id.
11
Id. at 1483–84.
12
See Docket No. 261, at 10.
6
III. CONCLUSION
Based on the foregoing, it is hereby
ORDERED that USF&G’s Motion to Substitute Real Parties In Interest (Docket No. 258)
is GRANTED. It is further
ORDERED that NCB shall have fourteen (14) days from the date of this Order to submit
any response to USF&G’s request to file its proposed Fifth Amendment Complaint.
DATED December 19, 2012.
BY THE COURT:
_____________________________________
TED STEWART
United States District Judge
7
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