Tudor Insurance v. 1st National Title Insurance Agency
Filing
18
MEMORANDUM DECISION denying 10 Motion to Intervene. Signed by Magistrate Judge Brooke C. Wells on 3/9/12. (alp)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION
Tudor Insurance Company,
MEMORANDUM DECISION AND ORDER
DENYING FIDELITY NATIONAL'S
MOTION TO INTERVENE
Plaintiff,
v.
Case No. 2:11-CV-01150 BCW
1st National Title Insurance Agency, LLC,
Magistrate Judge Brooke Wells
Defendant.
Before the Court is Fidelity National Title Insurance Company’s (Fidelity) Motion to
Intervene. 1 Fidelity seeks to intervene in this action as a matter of right under Rule 24(a) of the
Federal Rules of Civil Procedure. 2 Alternatively, Fidelity seeks permissive intervention under
Rule 24(b). 3 As set forth below, the Court DENIES Fidelity’s motion. 4
BACKGROUND
Plaintiff Tudor Insurance Company (Tudor) filed this case seeking a “judicial declaration
that its errors and omissions liability policy does not provide coverage for defendant 1st National
Title Insurance Agency's (1st National) liability arising from 1st National's involvement in a
series of transactions concerning a parcel of real estate located in Draper, Utah.” 5 In short,
Tudor issued an errors and omissions liability policy to 1st National who is a title insurance
agency involved in real estate transactions. This policy contains certain exclusions and
1
Docket no. 10.
2
Fed. R. Civ. P. 24(a).
3
Fed. R. Civ. P. 24(b)
4
Pursuant to civil rule 7-1(f) of the Rules of Practice for the United States District Court for the District of Utah, the
Court has concluded that oral argument is not necessary and will determine the motion on the basis of the written
memoranda. See DUCivR 7-1(f) (2011).
5
Op. p. 1.
conditions that bar coverage. 1st National was involved in transactions concerning the Draper,
Utah property (subject property) and issued a title policy to Off-Piste Capital, who along with
several other parties, claims an ownership interest in the subject property. This policy was
underwritten by Fidelity, the party that now seeks to intervene in this action. 6
The subject property and the transactions surrounding it are involved in two lawsuits filed
in the Utah State Courts. First, in 2008, a lawsuit was filed by Shane Morris seeking to terminate
all competing interests and to quiet title in the subject property in favor of Mr. Morris. Off-Piste
Capital, among others, was named as a defendant in the Morris Action. Pursuant to the title
insurance policy issued by 1st National, Off-Piste demanded that Fidelity provide it with a
defense in the Morris Action. Next, in 2010, Fidelity filed a lawsuit against 1st National alleging
that 1st National breached an agency agreement between Fidelity and 1st National because of 1st
National’s negligence in handling the Off-Piste Capital transaction.
Finally, in December 2011, Tudor filed the instant action in this Court against 1st
National. Tudor seeks declaratory relief and rescission of the errors and omissions policy it
issued to 1st National. Fidelity filed the instant Motion to Intervene on January 18, 2012.
DISCUSSION
A. Intervention as a Matter of Right
Rule 24(a) provides:
On timely motion, the court must permit anyone to intervene who: (1) is given an
unconditional right to intervene; or (2) claims an interest relating to the property
or transaction that is the subject of the action, and is so situated that disposing of
the action may as a practical matter impair or impede the movant’s ability to
protect its interest, unless existing parties adequately represent that interest. 7
6
Fidelity was formally known by Lawyers Title Insurance Company.
7
Fed. R. Civ. P. 24(a) (2011) (all citations to the Federal Rules are to the 2011 revised edition). The Court notes
that in 2007 Rule 24 was amended as part of the general restyling of the Civil Rules to make them easier to
understand and more consistent with each other. The changes were only for stylistic purposes.
2
Accordingly, under 24(a)(2) which is applicable here, a movant may intervene as of right
if: (1) the application is “timely”; (2) the movant “claims an interest relating to the property or
transaction that is the subject of the action”; (3) the movant’s interest may be impaired or
impeded by resolution of the action; and (4) the movant’s interest is not adequately protected by
existing parties.
1. Timeliness
There is no opposition to the timeliness requirement by any of the parties. This case is in
the early stages of litigation and the Court finds that Fidelity’s Motion to Intervene is timely. 8
2. Fidelity’s Interest in the Subject of this Litigation
Whether or not Fidelity has an interest in the subject of this litigation is a much more
difficult question. Fidelity argues that it has an interest in this litigation because it will determine
“Tudor’s obligations toward 1st National, particularly whether Tudor must cover losses Fidelity
. . . incurred as a result of 1st National’s wrongdoing.” 9 Tudor responds that Fidelity’s interest in
this litigation is contingent and that a threat of economic injury which arises from a contingent
interest is “insufficient to establish the necessary ‘direct, substantial, and legally protectable’
interest.” 10
8
See Genesis Ins. Co. v. Crowley, 2005 WL 3989772 *2 (D.Colo.) (finding that the motion to intervene was timely
because it was in the early stages of litigation); see also Utah Ass’n of Counties v. Clinton, 255 F.3d 1246, 1250
(10th Cir. 2001) (“The timeliness of a motion to intervene is assessed ‘in light of all the circumstances, including the
length of time since the applicant knew of his interest in the case, prejudice to the existing parties, prejudice to the
applicant, and the existence of any unusual circumstances.’”) (quoting Sanguine, Ltd. v. United States Dep’t of
Interior, 736 F.2d 1416, 1418 (10th Cir. 1984)).
9
Mem. in supp. p. 6.
10
Op. p. 4 (quoting City of Stilwell v. Ozarks Rural Elec. Coop. Corp., 79 F.3d 1038, 1042 (10th Cir. 1996))
(emphasis omitted).
3
The courts in this Circuit have repeatedly stated that a proposed intervener’s interest in
the proceedings must meet a “’direct, substantial, and legally protectable’” 11 test. Fidelity in its
initial moving papers points to this standard arguing that it is met in this instance. In its reply,
however, Fidelity retreats from its initial position by seeking to undermine the moorings of the
direct, substantial, and legally protectable interest test as if to cast it out to sea to face certain
destruction. Fidelity argues that the direct, substantial, and legally protectable interest test, or
what has been termed the “DSL” test, is “difficult, if not impossible to define.” 12 Instead of
applying the DSL test strictly, Fidelity asserts that this Court should take a more “pragmatic
approach to Fidelity’s request to intervene” 13 In support of its position Fidelity cites to the Tenth
Circuit’s criticism of the DSL test in San Juan County, Utah v. U.S.. 14
In San Juan the Tenth Circuit undertook a comprehensive review of the DSL test from its
beginnings to its modern day application. The court stated that the “DSL test misses the point
[because] [t]he central concern in deciding whether intervention is proper is the practical effect
of the litigation on the applicant for intervention.” 15 As noted by the San Juan court, the DSL
test has a very questionable beginning because it “comes from a district-court opinion whose
reasoning was rejected on appeal.” 16 Its application in cases has been difficult, replete with
underlying pragmatic concerns and in some cases applied without identifying how the qualifying
11
Coalition of Arizona/NewMexico Counties for Stable Economic Growth v. Dep’t of the Interior, 100 F.3d 837, 840
(10th Cir. 1996) (quoting Vermejo Park Corp. v. Kaiser Coal Corp. (In re Kaiser Steel Corp.), 998 F.2d 783, 791
(10th Cir. 1993)); see also San Juan County, Utah v. United States, 503 F.3d 1163, 1192 (10th Cir. 2007); Utahns
for Better Transp. v. U.S. Dep’t of Transp., 295 F.3d 1111, 1115 (10th Cir. 2002); Ozarks, 79 F.3d at 1042.
12
Reply p. 2.
13
Id. at p. 5.
14
503 F.3d 1163.
15
Id. at 1193.
16
Id.; see Hobson v. Hansen, 44 F.R.D. 18, 24 (D.D.C.1968) (stating that “required for intervention is a direct,
substantial, legally protectable interest in the proceedings”).
4
interest was legally protectable. 17 The San Juan court noted that this Circuit has also found
application of the DSL test problematic. 18 In short, the San Juan court determined that
intervention of right is not a mechanical rule. Rather, it “requires courts to exercise judgment
based on the specific circumstances of the case” 19 and, is highly fact-specific. “The applicant
must have an interest that could be adversely affected by the litigation. But practical judgment
must be applied in determining whether the strength of the interest and the potential risk of injury
to that interest justify intervention.” 20
i.
Principles of Distinction
Also of importance to the instant case is the principle of distinction mentioned by the San
Juan court. That court stated “Our previous decisions under Rule 24(a)(2) have distinguished
between cases that implicate solely private rights and cases that raise an issue of public
interest.” 21 Indeed, the “’Tenth Circuit follows a very broad interpretation of the interest
requirement with respect to public law issues . . . .’” 22 Thus, based upon the Supreme Court’s
holding in Cascade Natural Gas Corp. v. El Paso Natural Gas Co., 23 “the requirements for
intervention may be relaxed in cases raising significant public interests.” 24
17
See e.g., Security Insurance Co. of Hartford v. Schipporeit, Inc., 69 F.3d 1377 (7th Cir. 1995); Illinois v.
Sarbaugh, 552 F.2d 768 (7th Cir. 1977); United States v. Union Elec. Co., 64 F.3d 1152 (8th Cir. 1995); Planned
Parenthood of Minnesota, Inc. v. Citizens for Community Action, 558 F.2d 861 (8th Cir. 1977); So. Cal. Edison Co.
v. Lynch, 307 F.3d 794 (9th Cir. 2002); Yniguez v. Arizona, 939 F.2d 727 (9th Cir. 1991).
18
See e.g., Natural Resources Defense Council, Inc. v. U.S. Nuclear Reg. Comm., 578 F.2d 1341, 1345 (10th Cir.
1978) (failing to identify any interest of the interveners as being “legally protectable”).
19
San Juan, 503 F.3d at 1199.
20
Id.
21
Id. at 1201
22
Id. (quoting 6 James Wm. Moore et al., Moore's Federal Practice § 24.03 [2][c], at 24-35 (3d ed. 2006)); see also
Utah Ass’n of Counties v. Clinton, 255 F.3d 1246, 1251-53 (10th Cir. 2001); Coalition, 100 F.3d at 840-44.
23
386 U.S. 129, 136 (1967).
24
San Juan, 503 F.3d at 1201.
5
ii.
Economic Injury Principle
The Tenth Circuit has also held that the threat of economic injury from the outcome of
litigation gives an applicant for intervention the requisite interest. 25 But, a purported intervener’s
contingent interest in pending litigation has been deemed insufficient to permit intervention. 26
iii.
Analysis
With the principles annunciated in these cases in mind the Court now turns to the
question at hand, whether Fidelity has a sufficient interest in the instant litigation? As noted by
my colleague from a sister court in this Circuit, “The Tenth Circuit has not addressed the specific
issue of whether an injured party with a contingent interest in insurance policy proceeds may
intervene as a matter of right in a declaratory judgment action between the insurer and the
alleged tortfeasor/insured.” 27 But, there is a split of authority from other circuits that have
addressed this question. Some courts have determined that an injured party’s contingent interest
in insurance policy proceeds does not preclude intervention as a matter of right. 28 Other courts
have concluded that a contingent interest in insurance proceeds is simply too remote and
speculative to satisfy the interest requirement. 29 The only case that appears to have dealt with
this question in this Circuit is Genesis Ins. Co. v. Crowley. 30
25
Utahns for Better Transportation, 295 F.3d at 1115.
26
Ozarks 79 F.3d at 1042.
27
Genesis, 2005 WL 3989772 *3 (D.Colo.).
28
See Teague v. Bakker, 931 F.2d 259 (4th Cir.1991); Security Ins. Co. of Hartford v. Schipporeit, Inc., 69 F.3d
1377 (7th Cir.1995) (citing Hartford Accident and Indemnity Co. v. Crider, 58 F.R.D. 15 (N.D.Ill.1973));
Continental Ins. Co. v. Law Office of Thomas J. Walker, 171 F.R.D. 183 (D.Md.1997); TIG Specialty Ins. Co. v.
Financial Web.Com, Inc., 208 F.R.D. 336 (M.D .Fla.2002); St. Paul Fire & Marine Ins. Co. v. Summit-Warren
Indus. Co., 143 F.R.D. 129, 134 (N.D.Ohio 1992); New Hampshire Ins. Co. v. Greaves, 110 F.R.D. 549
(D.R.I.1986).
29
See Liberty Mutual Ins. Co. v. Treesdale, Inc., 419 F.3d 216, 2005 WL 1939798 (3rd Cir.2005); In re HealthSouth
Corp. Ins. Litigation, 219 F.R.D., 688 (N.D.Ala.2004); General Star Indemnity Co. v. Virgin Islands Port Authority,
224 F.R.D. 372 (D.C.V.I.2004); Ace American Ins. Co. v. Paradise Divers, Inc., 216 F.R.D. 537 (S.D.Fla.2003);
Redland Ins. Co. v. Chillingsworth Venture, Ltd., 171 F.R.D. 206 (N.D.Ohio 1997); Independent Petrochemical
6
In Crowley, an insurance company filed a declaratory judgment action to determine its
obligations arising from a directors and officers’ liability policy issued to the defendants who had
been sued for tort claims by a bankruptcy trustee in another action. The trustee sought to
intervene in the declaratory judgment action arguing that he had an interest in the litigation. The
Magistrate Judge rejected the trustee’s arguments concluding that, in the absence of a judgment
against the officers, the trustee's contingent interest in the coverage litigation was "too
attenuated" to satisfy the Rule 24 requirement that the interest be "direct, substantial and legally
protectable." 31
Tudor and 1st National—who both oppose Fidelity’s intervention—argue Crowley is
directly on point. Just like in that case, “Fidelity is a stranger to Tudor’s contract of insurance
with 1st National” and it has not secured a judgment in the other action filed against 1st National
in state court. In opposition, Fidelity argues the Crowley court disregarded the Tenth Circuit’s
generally liberal view in allowing intervention without explaining why. Fidelity asserts that
Crowley’s reasoning is suspect and instead, this Court should adopt the approach found in San
Juan. The Court is not persuaded by Fidelity’s position. Contrary to Fidelity’s assertions, the
Tenth Circuit’s approach in San Juan is not incompatible with Crowley.
In San Juan the Tenth Circuit drew a distinction between when to apply a more liberal
standard in allowing intervention. This relaxed view was appropriate in cases that raise an issue
of public interest. 32 That court also directed other courts to use a pragmatic case by case
approach. Here, the dispute involves private rights between parties and does not raise issues of
Corp. v. Aetna Casualty & Surety Co., 105 F.R.D. 106 (D.D.C.1985), aff'd without opinion 784 F.2d 1131 (Table)
(D.C.Cir.1986).
30
2005 WL 3989772
31
San Juan, 503 F.3d at 1201.
32
Id. at 1201
7
public interest. Further, similar to the facts in Crowley, Fidelity has a contingent interest in the
instant litigation and lacks a judgment against 1st National. Even if Tudor were to prevail in this
action, effectively nullifying its policy with 1st National, there is nothing before the Court
indicating 1st National would not be able to satisfy a judgment obtained in the state court action.
The Court finds the contingent interest Fidelity has in this case fails to satisfy the direct,
substantial and legally protectable test. 33 Indeed, if the Court were to hold otherwise, it would
be difficult to identify how any qualifying interest Fidelity may have is legally protectable. 34
3. Whether Fidelity’s Interest may be Impaired or Impeded
To satisfy this requirement Fidelity must show that the disposition of Tudor’s case
against 1st National “may as a practical matter impair or impede [Fidelity’s] ability to protect its
interest.” 35 The “’question of impairment is not separate from the question of existence of an
interest.’” 36 The impairment or impediment need not be of a strictly legal nature 37 and the Court
may consider any “significant legal effect in the applicant’s interest.” 38
Here, just like the Court determined previously in addressing the question of the
adequacy of Fidelity’s interest in this litigation, the chance that Fidelity’s interest may be
impaired or impeded is remote. Nothing in this action will prevent Fidelity from maintaining its
action in state court against 1st National. Further, there is nothing before the Court indicating
that 1st National is facing insolvency if they do not prevail in the instant matter. And, even if as
alleged by Fidelity its losses exceed $2,000,000 from the other action, the concerns raised about
33
Ozarks 79 F.3d at 1042.
34
See e.g., Natural Resources Defense Council, 578 F.2d at 1345 (failing to identify any interest of the interveners
as being “legally protectable”).
35
Fed. R. Civ. P. 24(a)(2).
36
Utahns for Better Transp., 295 F.3d at 1116 (quoting Utah Ass’n, 255 F.3d at 1253).
37
Natural Resources, 578 F.2d at 1345.
38
Id.
8
1st National’s ability to cover such losses are conjecture at this point. Therefore, the Court finds
Fidelity’s interest will not be impaired or impeded by this action. 39
4. Adequacy of Representation by Existing Parties
The burden is on the applicant seeking intervention to show that the representation by the
existing parties may be inadequate, but such a burden is “minimal.” 40 “An applicant may fulfill
this burden by showing collusion between the representative and an opposing party, that the
representative has an interest adverse to the applicant, or that the representative failed in
fulfilling his duty to represent the applicant's interest.” 41 “[T]he possibility of divergence of
interest need not be great in order to satisfy the burden of the applicants....” 42 Yet,
“representation is adequate ‘when the objective of the applicant for intervention is identical to
that of one of the parties.’ ” 43
Fidelity argues that 1st National “may not be able to adequately represent Fidelity” and
that it “appears that 1st National’s position is adverse to [its] position.”44 In support Fidelity
asserts that 1st National is represented in this matter by its owner, Jax Pettey, an attorney whose
firm according to its website does not maintain a litigation practice. Further, Fidelity asserts that
1st National “joined in Tudor’s opposition to Fidelity’s Motion” which raises the question and
accompanying allegation of collusion between 1st National and Tudor to avoid any payment to
39
Ozarks, 79 F.3d at 1042-43.
40
National Farm Lines v. I.C.C., 564 F.2d 381, 383 (10th Cir. 1977); see also Trbovich v. United Mine Wkers., 404
U.S. 528, 538 n. 10 (1972).
41
Sanguine, Ltd. v. U.S. Dept. of Interior, 736 F.2d 1416, 1419 (10th Cir. 1984).
42
Natural Resources Defense Council, 578 F.2d at 1346.
43
Ozarks, 79 F.3d at 1042 (quoting Bottoms v. Dresser Indus., Inc., 797 F.2d 869, 872 (10th Cir. 1986)); see also
Northwest Forest Resource Council v. Glickman, 82 F.3d 825, 838 (9th Cir.1996) (“Where an applicant for
intervention and an existing party ‘have the same ultimate objective, a presumption of adequacy of representation
arises.’”) (quoting Oregon Envtl. Council v. Oregon Dep't of Envtl. Quality, 775 F.Supp. 353, 359 (D.Ore.1991)).
44
Reply p. 9.
9
Fidelity. The Court is not persuaded by these conclusory allegations that have no support in the
record.
Here, Fidelity and 1st National have identical interests—to obtain a judicial declaration
that Tudor is obligated to provide maximum coverage under the errors and omissions liability
policy it issued to 1st National. In the Tenth Circuit, representation is presumed adequate when
the purported intervener’s objective is identical to that of the one of the parties. 45 And there is
nothing offered by Fidelity to rebut this presumption.
Therefore, even if Fidelity’s interest in this litigation was found sufficient under Rule
24(a), Fidelity’s Motion to Intervene would still be denied because Fidelity has failed to meet its
burden to show that 1st National’s representation is inadequate to protect its interests. 46
Accordingly, Fidelity’s Motion to Intervene as a matter of right is denied.
B. Permissive Intervention
Rule 24(b)(1) provides: “On timely motion, the court may permit anyone to intervene
who: (A) is given a conditional right to intervene by a federal statute; or (B) has a claim or
defense that shares with the main action a common question of law or fact.” 47 The Rule goes on
to provide that “In exercising its discretion, the court must consider whether the intervention will
unduly delay or prejudice the adjudication of the original parties’ rights.” 48
Accordingly, under Rule 24(b) the Court, in its discretion, may or may not permit
intervention, even if the Rule’s requirements are otherwise satisfied. 49
45
Ozarks, 79 F.3d at 1042 ; Bottoms, 797 F.2d at 872.
46
Ozarks, 79 F.3d at 1042-43.
47
Fed. R. Civ. P. 24(b)(1).
48
Id. at 24(b)(3).
49
See Kiamichi R. Co., Inc. v. Nat’l Mediation Bd., 986 F.2d 1341, 1345 (10th Cir. 1993); Ozarks, 79 F.3d at 1043.
10
Because Fidelity’s interests are aligned with 1st National in this case, the Court finds it is
unnecessary to allow Fidelity to intervene under 24(b)(1). Further, allowing Fidelity to intervene
would likely increase the costs of this litigation for Tudor, because Fidelity would be making the
same arguments as 1st National asserting that the errors and omissions policy issued by Tudor is
valid. Such duplicative arguments and the addition of Fidelity as party would create undue delay
to the resolution of this action. Therefore, the Court denies Fidelity’s request for permissive
intervention. 50
50
See Crowley, 2005 WL 3989772 *5 (D.Colo.) (recommending that the movant not be allowed to permissively
intervene because they would make the same legal arguments as the current defendants); General Ins. Co. of
America v. Rhoades, 196 F.R.D. 620 (D.N.M. 2000) (denying request for permissive intervention because injured
party’s interest in insurance coverage was adequately represented and where injured party’s pleadings and litigation
position would merely duplicate the insured’s).
11
ORDER
For the foregoing reasons Fidelity’s Motion to Intervene as a matter of right, or in the
alternative via permission, is DENIED.
DATED this 9 March 2012.
Brooke C. Wells
United States Magistrate Judge
12
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