Hemad Enterprises Inc v. Endurance American Specialty Insurance Company

Filing 22

ORDER signed by Judge J P Stadtmueller on 7/1/15 denying 13 Defendant's Motion to Dismiss this matter for failure to join a required party or, in the alternative, to remand this matter to state court. (cc: all counsel) (nm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
HEMAD ENTERPRISES, INC.,
Plaintiff,
v.

Case No. 15-CV-233-JPS

ENDURANCE AMERICAN SPECIALTY
INSURANCE COMPANY,

ORDER
Defendant.
The plaintiff filed a complaint in Milwaukee County Circuit Court on
January 30, 2015, alleging various causes of action against the defendant
arising out of an insurance contract.1 (Docket #1-1). On March 2, 2015, the
defendant removed this matter to federal court, pursuant to 28 U.S.C. §§ 1441
and 1446, on the basis of diversity jurisdiction, see 28 U.S.C. § 1332. (See
Docket #1).
Before the Court is the defendant’s motion to dismiss this matter for
failure to join a required party, pursuant to Federal Rule of Civil Procedure
12(b)(7) and 19, or, in the alternative, to remand this matter to state court,
pursuant to 28 U.S.C. § 1447. (See Docket #13). On May 22, 2015, the
defendant’s motion was fully briefed. (See Docket #18, #21). The Court will
deny the defendant’s motion, for the reasons outlined below.
1.

FACTS
In November 2012, the plaintiff, Hemad Enterprises, Inc. (“Hemad”),

entered into an installment contract for deed (the “Installment Contract”)
with AMSAH, LLC (“AMSAH”)2 for a 20-unit apartment building

1

Those causes of action are: “breach of contract, promissory estoppel, bad
faith, pre-judgment interest and declaratory relief.” (Docket #1 at 2).
2

AMSAH has two members: Samini Ali and Zahid Hassan. (Docket #13 at 2).

(hereinafter “the Property”) in Racine, Wisconsin (see Docket #13, Ex. A). (See
Docket #13 at 2); (Docket #18 at 3). A provision of the Installment Contract
required Hemad to insure the Property against loss by, inter alia, fire, and the
property was to be insured in the seller’s (AMSAH’s) name. (Docket #13, Ex.
A at ¶ 16) (“Purchasers shall keep all buildings at any time on the Property
insured in Seller’s name at Purchaser’s expense against loss by fire…in an
amount at least equal to the sum remaining unpaid hereunder.”).
In early January 2013, Hemad obtained property insurance from
the defendant, Endurance American Speciality Insurance Company
(“Endurance”), but, contrary to the terms of its Installment Contract with
AMSAH, Hemad did not insure the Property in AMSAH’s name. (Docket #13
at 2-3). Instead, Hemad is the named insured on the policy. Id. at 3; (Docket
#18 at 3).3
Before the month of January came to a close (and just twenty days
after Hemad obtained insurance on the Property), the Property was badly
damaged in a fire, which left it uninhabitable; the fire, according to the
parties, was set intentionally. (Docket #13 at 3); (Docket #1, Ex. 1 at ¶ 7).
Thereafter, Hemad notified Endurance of the loss and submitted a proof of
loss. (Docket #1, Ex. 1 at ¶¶ 8-11); (Docket #13 at 3).
During Endurance’s investigation of the claim, it learned of AMSAH’s
status as the seller under the Installment Contract. Id. (citing Docket #13, Ex.
C at ¶¶ 6-7). On October 18, 2013, Endurance sent a letter to Hemad
accepting the claim; however, in that same letter “Endurance advised Hemad
that the policy prevented payments to [the] policyholder for not more than

3

This is not precisely true, given that the insurance policy lists the insured
as “Jemarro Dantzler D/B/A Jermarro Dantzler.” (Docket #13, Ex. B at 2). However,
Dantzler is the president of Hemad according to the Installment Contract. (See
Docket #13, Ex. A at 11).

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their ‘financial interest’ and that by operation of law AMSAH had an interest
in any remaining proceeds of the [insurance] [p]olicy.” In support of this
statement, Endurance cited Wis. Stat. § 631.07(4), which governs insurance
policies and permits “a court with appropriate jurisdiction” to order the
payment of proceeds “to someone other than the person to whom the policy
is designated to be payable, who is equitably entitled thereto.” (Docket #13
at 3).
On October 21, 2013, Endurance issued a check for $128,802.18 payable
to Hemad, AMSAH, Samini Ali, Zahid Hassan, as well as Hemad’s public
adjuster and counsel of record. (See Docket #1, Ex. 1 at ¶ 16); (Docket #13,
Ex.3 at ¶ 8) (a copy of the check). Hemad asked Endurance to reissue the
check and make it payable to just Hemad and its counsel; Endurance
declined to do so without a release from AMSAH. (Docket #13 at 4); (Docket
#1, Ex. 1 at ¶ 17). Endurance and Hemad also disagreed about the amount of
proceeds that were payable to Hemad as a result of the fire. Id.
As noted above, Hemad filed suit in state court alleging various
contractual causes of action, and Endurance removed the case to this Court.
Endurance now requests that this case be sent back to state court due to
Hemad’s failure to join a required party, pursuant to Rule 12(b)(7) and Rule
19. That required party, according to Endurance, is AMSAH.
2.

DISCUSSION
2.1

Rule 19

The goal of Rule 19 is to “permit joinder of all materially interested
parties to a single lawsuit so as to protect interested parties and avoid waste
of judicial resources.” Moore v. Ashland Oil, Inc., 901 F.2d 1445, 1447 (7th Cir.
1990). A court’s application of Rule 19 “entails a pragmatic approach,
focusing on realistic analysis of the facts of each case.” Bio-Analytical Servs.,

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Inc. v. Edgewater Hosp., Inc., 565 F.2d 450, 452 (7th Cir. 1977); Provident
Tradesmen Bank & Trust Co. v. Patterson, 290 U.S. 102, 118 (1968).
“Rule 19(a) addresses ‘persons required to be joined if feasible,’ and
Rule 19(b) describes what the court must do if joinder is not feasible.” Askew
v. Sheriff of Cook Cty., Ill., 568 F.3d 632, 635 (7th Cir. 2009). Accordingly, the
Court must first determine “that a party meets the criteria of Rule 19(a)(1)(A)
and (B)”; then, if the party cannot be joined because joinder would destroy
complete diversity, the Court turns to Rule 19(b) to “decide what to do about
the problem.” Id.
Rule 19(a)(1) states that a party is necessary if:
(A) in that person’s absence, the court cannot accord complete
relief among existing parties; or
(B) that 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.
“Under the ‘necessary party’ analysis of Rule 19(a), the relative rights of the
parties are considered under state law.” Sta-Rite Indus., Inc. v. Allstate Ins. Co.,
96 F.3d 281, 284-85 (7th Cir. 1996) (citing Krueger v. Cartwright, 996 F.2d 928,
931 (7th Cir. 1993)).
Endurance argues—at least initially– that AMSAH is a necessary party
to this action because, pursuant to Rule 19(a)(1)(B), AMSAH “claims an
interest” in the instant action, and disposing this action without AMSAH
would leave Endurance “subject to a substantial risk of incurring double,
multiple, or otherwise inconsistent obligations” because of AMSAH’s

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interest. (Docket #13 at 5). AMSAH claims an interest, according to
Endurance, “given Hemad’s promise to obtain insurance in AMSAH’s name
and Endurance’s promise to pay mortgagees as their interest may appear”;
thus, Endurance argues, AMSAH—as the legal title holder of the
Property—is an “appointee” with a beneficial interest in the insurance
policy’s provisions. Id. at 6 (citing Cary Mfg. Co. v. Acme Brass & Metal Works,
254 N.W. 513, 514-15, 215 Wis. 585, 590 (Wis. 1934)).
In addition, Endurance argues that Hemad and AMSAH’s interests
are not aligned because of the dispute over who has the right to the policy
proceeds. (Docket #13 at 7); (see id. at 6) (“Hemad disputes AMSAH’s right
to the disposition of any proceeds under the Policy.”). Thus, because both
AMSAH and Hemad are “claimants to a fund,” both must be joined to the
instant action to “‘determine disposition of that fund.’” Id. (quoting In re
Torcise, 116 F.3d 860, 865 (11th Cir. 1997)).
Hemad argues, conversely, that AMSAH is not a required party. This
is so, according to Hemad, because: (1) AMSAH is not a party to the
insurance contract at issue; (2) AMSAH is adequately protected and has
stated, via an affidavit of its counsel (see Docket #19), that its “interests in all
matters at issue in this lawsuit are aligned with Hemad”; and (3) Endurance
failed to implead AMSAH or request a court to pay some or all of the
proceeds to AMSAH instead of Hemad. (Docket #18 at 3-4).
Despite AMSAH stating via affidavit that it has no interest in joining
the instant matter, Endurance continues to argue that AMSAH is a required
party in its reply brief. (See Docket #21). As Endurance sees it, “AMSAH’s
status as a required party under Rule 19(a) does not depend on whether
AMSAH wants to participate in this action.” Id. at 3. Instead, “it depends on
whether AMSAH claims an interest relating to the subject of this action
(proceeds from the Endurance policy), which AMSAH clearly does.” Id.
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The Court agrees with Hemad that AMSAH is not a required party.
Much of Endurance’s argument in favor of dismissal for failure to join
AMSAH falls by the wayside as a result of AMSAH’s affidavit stating that it
is aligned with Hemad and its interests are adequately protected. But, even
were this not the case, AMSAH is not a party to the insurance contract at
issue. Because Endurance and Hemad are the parties to the instant action,
and the only parties to the insurance policy, it is clear that the Court can
accord adequate relief to all interested parties.
The gravamen of Endurance’s argument that AMSAH has an interest
in the instant action is also faulty. Endurance argues that Cary holds that if
an insurance policy requires payment to mortgagees “as their interests may
appear,” as the instant contract does, then mortgagees such as AMSAH have
an interest in the proceeds of the insurance policy. But Cary—a case from
1934 it is worth noting—says no such thing. Cary involved an insurance
contract that named the mortgagees. See Cary, 254 N.W. at 513 (quoting a
clause from the insurance contract that names multiple payees, including the
mortgagees). Thus, it made sense that the Court would construe the contract,
which included a provision for payment “as their interests may appear,” to
require payment to the mortgagee as its interests appeared in the contract
itself.
Here, however, AMSAH is nowhere mentioned in the insurance
contract. (See Docket #13, Ex. B). Endurance seems to argue that the “as their
interests may appear” language permits investigation into and payment to
mortgagees, even if they do not appear in the insurance contract itself. This too
is not so. And, this reading begs the question: where must those interests
appear to come within the ambit of the contract? Of course, the answer is the
insurance contract itself, but Endurance’s reading would permit those
interests to be defined in separate contracts of which Endurance is not a
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party. This would violate multiple rules of contract interpretation, not the
least of which is the four corners rule, which is applicable in Wisconsin. See
In re Excalibur Auto. Corp., 859 F.2d 454, 458 & n.6 (7th Cir. 1988) (citing
Marshall & Ilsley Bank v. Milwaukee Gear Co., 62 Wis.2d 768, 776, 216 N.W.2d
1, 5 (1974)).
It makes no difference to the foregoing analysis that Hemad was
required to obtain insurance in AMSAH’s name. Makes no difference, that
is, because Hemad’s failure to do so is recoverable in a separate action
between AMSAH and Hemad. Endurance attempts to appropriate Hemad’s
promise, and other failings of Hemad during the events at issue, as evidence
that Hemad is unlikely to fulfill its contractual obligations, thus leaving
Endurance subject to multiple or inconsistent obligations. Whatever truth
there may be to these allegations, they do not, by themselves, even remotely
compel the Court to find AMSAH a required party in this action. Again, those
are matters to be resolved between AMSAH and Hemad.
In the end, what is crystalline is that the proceeds of the insurance
policy can be distributed according to the terms of the policy, without the
presence of AMSAH, a non-party to that document. And AMSAH’s affidavit
could not be clearer in its affirmation that this is the case, stating “AMSAH
will not be prejudiced in any fashion by not being added as party to this
litigation as its interests are in the proceeds and damages awarded by this
Court in this action and are already determined by the terms of the
Installment Land Contract entered into between AMSAH and Hemad.”
(Docket #19 at ¶ 11).
The Court also notes that Endurance’s assertion that “AMSAH ha[s]
an interest in any remaining proceeds of the Policy” pursuant to Wis. Stat.
§ 631.07(4) (see Docket #13 at 3) is a red herring. That statute, as noted above,
permits “proceeds to be paid to someone other than the person to whom the
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policy is designated to be payable, who is equitably entitled thereto.” Wis.
Stat. § 631.07(4). True enough, but Endurance brushes over the introductory
words to that clause—namely, that “a court with appropriate jurisdiction
may order” payment of the proceeds to someone else. Id. As Hemad’s
counsel notes in a letter to Endurance, there is no evidence that Endurance
has petitioned a court for distribution of the proceeds to anyone other than
Hemad (see Docket #20, Ex. C) and, thus, whatever interest AMSAH may
have pursuant to the statute is an inchoate one at best.
Because the Court finds that AMSAH is not a required party under
Rule 19(a), it is unnecessary for the Court to delve into analyzing the factors
under Rule 19(b). But even were the Court to do so, the result would be the
same. Under Rule 19(b) a court is required to dismiss the case “if the court
determines it cannot in ‘equity and good conscience’ proceed without the
absent person[],” thus making that party indispensable. Hansen v. Peoples
Bank of Bloomington, 594 F.2d 1149, 1151 (7th Cir. 1979). Here, the Court
would have no such qualms, even if AMSAH were a required party—which,
to be sure, it is not.
For all of the reasons noted above, the Court is obliged to deny
Endurance’s motion to dismiss this case for failure to join a required party
(Docket #13).
2.2

Because the Court has Subject Matter Jurisdiction under 28
U.S.C. § 1332, the Court Declines to Remand to State Court

Endurance requested, in the alternative, that the Court remand this
case to state court pursuant to 28 U.S.C. § 1447(c) or (e). Endurance’s request
was premised on the Court finding AMSAH a necessary and indispensable
party whose joinder would deprive this Court of subject matter jurisdiction.
Because the Court found otherwise, neither § 1447(c) or (e) are of any help to
Endurance. This is so because § 1447(c) requires the Court to remand cases
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where it lacks subject matter jurisdiction, and § 1447(e) permits remand to
state court if a plaintiff requests additional defendants be joined to the action.
As to the former, the Court has subject matter jurisdiction over this case as
Endurance noted in its Notice of Removal (see Docket #1) and, as to the latter,
it is Endurance—the defendant—who requested joinder of an additional
party and thus § 1447(e) does not apply.
3.

CONCLUSION
For all of the reasons noted above, the Court will deny Endurance’s

motion to dismiss this matter for failure to join a required party, or, in the
alternative, to remand this matter to state court. (See Docket #13).
Accordingly,
IT IS ORDERED that the defendant’s motion to dismiss this matter
for failure to join a required party, pursuant to Federal Rule of Civil
Procedure 12(b)(7) and 19, or, in the alternative, to remand this matter to
state court, pursuant to 28 U.S.C. § 1447 (Docket #13) be and the same is
hereby DENIED.
Dated at Milwaukee, Wisconsin, this 1st day of July, 2015.
BY THE COURT:

J.P. Stadtmueller
U.S. District Judge

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