Travelers Casualty and Surety Company of America v. Washington Trust Bank

Filing 66

ORDER RE: SKILS'KIN'S MOTION TO DISMISS THIRD PARTY COMPLAINT granting 40 Motion to Dismiss for Failure to State a Claim Signed by Senior Judge Justin L. Quackenbush. (VR, Courtroom Deputy)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF WASHINGTON

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TRAVELERS CASUALTY AND
SURETY COMPANY,

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Plaintiff,
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vs.
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WASHINGTON TRUST BANK,
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Defendant/Third-Party
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Plaintiff,
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vs.
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SKILS’KIN, INC.,
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Third-Party Defendant.
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___________________________________ )

No. CV-13-0409-JLQ
ORDER RE: SKILS’KIN’S
MOTION TO DISMISS THIRD
PARTY COMPLAINT

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BEFORE THE COURT is Third-Party Defendant Skils’Kin’s Motion to Dismiss

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Third-Party Complaint. (ECF No. 40). Washington Trust Bank ("Bank") has filed a

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Response and Skils’Kin a Reply. (ECF No. 48 & 53). Oral argument was held on August

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28, 2014. No one appeared for Plaintiff Travelers Casualty and Surety (“Travelers”).

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Leslie Weatherhead participated on behalf of Bank. Raymond Clary appeared for Third-

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Party Defendant, Skils’Kin, Inc. This Order memorializes and supplements the court’s

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oral ruling.

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I. Introduction/Procedural History

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Plaintiff Travelers filed this suit against Bank as the “assignee and subrogee” of

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Skils’Kin. (Complaint, ECF No. 1). Travelers alleges that Bank, in disregard of

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reasonable commercial standards, cashed checks for Shannon Patterson, an employee of

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Skils’Kin, even though she was not a named payee and that this led to losses exceeding

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$500,000.00. Travelers has since filed a First and Second Amended Complaint (ECF No.

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42), in which the basic factual allegations remain the same. Travelers contends that

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Skils’Kin submitted a claim, that Travelers paid the claim, and “Skils’Kin assigned

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certain claims to Travelers.” (ECF No. 42, ¶ 17). Travelers also pleads that “because

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Travelers paid Skils’Kin’s insurance claim, Travelers is subrogated to Skils’Kin’s

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claims.” (Id.).

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In Bank’s Answer to the First Amended Complaint (ECF No. 28) it asserted a

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Counterclaim against Skils’Kin. Travelers moved to strike the Counterclaim, and in its

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Motion argued that a Counterclaim can only be asserted against an opposing party and

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Skils’Kin was not a named Plaintiff. (ECF No. 29). In ruling on the Motion to Strike, this

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court stated: “Skils’Kin is not currently a party to this action, and thus Bank’s claim

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should have been denominated a third-party claim and brought pursuant to Fed.R.Civ.P.

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14.” (ECF No. 32, p. 3). Bank then filed a Third Party Complaint against Skils’Kin (ECF

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No. 34) and Skils’Kin has now filed a Motion to Dismiss (ECF No. 48).

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II. Discussion

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Neither party directs the court to controlling authority on the precise issue of

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whether a defendant [in this case, Bank], being sued by an assignee/subrogee plaintiff

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[Travelers], may bring a third-party complaint against the subrogor [Skils’Kin].

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Skils’Kin argues that “persuasive authority demonstrates [Bank’s] failure to state a

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claim”. (ECF No. 40, p. 7). Skils’Kin cites to United States District Court opinions from

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Pennsylvania and New Jersey. Bank relies primarily on state law cases - - from New

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York and Connecticut.

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Under subrogation, “once the insurer has paid a claim to the insured, it may then

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stand in the shoes of the insured and assert the insured’s rights against the tortfeasor.”

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Wausau Underwriters Ins. v. Shisler, 1999 WL 529250 (E.D.Pa. 1999). Here, the insurer,

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Travelers, states that it has paid the insured, Skils’Kin, and may now assert Skils’Kin’s

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claims against Bank. Under subrogation, “the insurer is subject to any defenses which

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the third-party has against the insured.” Id. at *3. Under this rationale, the court in

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Wausau refused to allow a third-party complaint against a subrogor because any claim

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“would merely serve to eliminate or reduce [subrogee’s] recovery from [defendant].” Id.

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at *4. The District Court in USAA Casualty Ins. Co. v. Metropolitan Edison Co., 2013

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WL 2403309 (M.D. Pa. 2013) reached the same conclusion.

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In American Fire and Casualty Co. v. Material Handling Supply, Inc., 2007 WL

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1296200 (D.N.J. 2007), the court stated that it could not find a New Jersey case “that

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addresses the issue of whether a defendant in a subrogation action can join the plaintiff’s

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insureds/subrogors as third-party defendants.” Id. at *2. However, the court observed:

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“It is well-settled that a subrogee is subject to all legal and equitable defenses that the

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alleged tortfeasor may have against it or against its insured.” Id. Therefore, the court

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determined it would be futile to allow the joinder of the subrogor.

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In the cases relied upon by Bank, the courts have allowed the third-party claim

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against the subrogor, where the third-party claim may exceed the original Plaintiff’s

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claim. In Peerless Ins. Co. v. Beshara, 75 A.D.3d 733 (N.Y.App. 2010), the court stated

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that the subrogee succeeded to the benefits of the subrogor, but was also chargeable for

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the liabilities. Therefore, defendant could counterclaim against the subrogee without

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bringing a third-party complaint against the subrogor. However, the counterclaim could

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only set-off plaintiff’s claim, and if the defendant wanted to seek affirmative relief

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against the subrogor, then a third-party claim would be appropriate.

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Similarly, in Middlesex Mut. Assur. Co. v. Black, 40 Conn.Supp. 63 (Super. Ct.

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1984), the court found that a defendant could assert a third-party claim against a subrogor

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that exceeded the claims in the complaint if the claims arose out of the same transaction

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or occurrence. In that case, Licamele, the subrogor, owned a home in which there was

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a fire. Middlesex, the insurer and subrogee, paid the claim and became subrogated to

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Licamele’s rights against Black. The fire had allegedly begun in Black’s apartment, and

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Middlesex sued Black for negligence. Black filed a third-party complaint alleging that

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the negligence of Licamele had caused the fire. The court found no Connecticut authority

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on point, and looked to Fed.R.Civ.P. 14 and 18 for guidance. The court denied the

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motion to strike the third-party complaint, and stated that where “the third party

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defendant has been properly impleaded, and where all claims made by Black, the third

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party plaintiff, arise out of the same transaction complained of in the original complaint,

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the third party complaint may include claims for damages in excess of those sought in the

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original complaint.” Id. at 66.

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Herein, the Bank has asserted affirmative defenses against Travelers. (ECF No. 47,
Answer to Second Amended Complaint with Affirmative Defenses).

Bank has

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specifically pled that Travelers is “subject to all defenses and setoffs available against

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Skils’Kin” (ECF No. 47, p. 5), and the court agrees. Bank has raised by affirmative

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defense the alleged failure of Skils’Kin to timely inspect its statements. At oral

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argument, Bank stated that in filing the third-party claim against Skils’Kin it sought to

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preserve its claim for breach of presentment warranty. That claim, to the extent it arises

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from the same transactions and occurrences described in Traveler’s Second Amended

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Complaint, can be pursued against Travelers because Travelers, as the assignee and

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subrogee, is subject to the same defenses and liabilities as Skils’Kin.

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Bank, in answering the Amended Complaint, asserted a Counterclaim against

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Skils’Kin, who at that time was not a named party. That Counterclaim (ECF No. 28)

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asserts the same or similar issues as the affirmative defenses–that Skils’Kin did not

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promptly examine statements, that Bank is entitled to an award of attorney fees as the

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prevailing party, and that Shannon Patterson represented and warranted she was entitled

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to enforce the checks. Therefore, Travelers is clearly on notice of Bank’s claims and

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defenses. The procedural wrangling that has ensued could have been avoided had

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Travelers responded to the initial Counterclaim against Skils’Kin by stating that the

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Counterclaim should be denominated against Travelers as the assignee and subrogee.

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Instead, the technical defense that Skils’Kin was not named, and could not be subject to

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counterclaim, was raised.

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III. Conclusion

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The Third-Party Complaint (ECF No. 34) alleges that “Skils’Kin is liable to

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Washington Trust Bank for any loss that accrues to Washington Trust Bank in Travelers’

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action from Skils’Kin’s failure to examine its statements...” (¶ 8). It further states that

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Skils’Kin is “liable to Washington Trust Bank for reimbursement of any amounts

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Washington Trust Bank is required to pay in connection with the checks.” (ECF No. 34,

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¶ 11). Again at Paragraph 13, Bank asserts that Skils’Kin is liable to Bank for “any

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amounts [Bank] is held liable....”. Bank’s Third-Party Complaint seeks to hold Skils’Kin,

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the subrogor, liable for any amounts that Bank is ordered to pay to Travelers, the

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subrogee.

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Bank’s arguments against Skils’Kin have been adequately raised in the pleadings

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via affirmative defenses. These claims are properly asserted against Travelers, who

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stands in the shoes of Skils’Kin and succeeds to the benefits of Skils’Kin, and is also

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charged with the liabilities. Bank’s defenses against Skils’Kin are tied to the underlying

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transactions described in the Second Amended Complaint and are at issue. They need

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not be denominated as counter or third-party claims

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IT IS HEREBY ORDERED:

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Third-Party Defendant Skils’Kin’s Motion to Dismiss Third-Party Complaint (ECF

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No. 40) is GRANTED.
IT IS SO ORDERED. The Clerk shall enter this Order and furnish copies to
counsel.
Dated this 3rd day of September, 2014.
s/ Justin L. Quackenbush
JUSTIN L. QUACKENBUSH
SENIOR UNITED STATES DISTRICT JUDGE

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