Builders Mutual Insurance Company v. Dragas Management Corporation, No. 11-1722 (4th Cir. 2012)

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UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 11-1722 BUILDERS MUTUAL INSURANCE COMPANY, Plaintiff - Appellee, v. DRAGAS MANAGEMENT CORPORATION, Defendant - Appellant, and DRAGAS ASSOCIATES X, LC; HAMPSHIRES ASSOCIATES, LC, Counter-Plaintiffs - Appellants, FIREMEN S INSURANCE COMPANY OF WASHINGTON, D.C., Defendant - Appellee, v. THE HANOVER INSURANCE COMPANY; CITIZENS INSURANCE COMPANY OF AMERICA, Third Party Defendants - Appellees. Appeal from the United States District Court for the Eastern District of Virginia, at Norfolk. Rebecca Beach Smith, District Judge. (2:09-cv-00185-RBS-TEM) Argued: October 23, 2012 Decided: Before MOTZ, DUNCAN, and FLOYD, Circuit Judges. November 20, 2012 Vacated and remanded by unpublished per curiam opinion. ARGUED: R. Johan Conrod, Jr., KAUFMAN & CANOLES, PC, Norfolk, Virginia, for Appellants. Danny Mark Howell, SANDS ANDERSON, PC, McLean, Virginia, for Appellees. ON BRIEF: William E. Spivey, KAUFMAN & CANOLES, PC, Norfolk, Virginia, for Appellants. Mikhael D. Charnoff, Courtney South Schorr, SANDS ANDERSON, PC, McLean, Virginia, for Appellee Builders Mutual Insurance Company; John B. Mumford, Jr., Kathryn E. Kransdorf, HANCOCK, DANIEL, JOHNSON & NAGLE, PC, Glen Allen, Virginia, for Appellee Firemen's Insurance Company of Washington, D.C.; John Malloy, ROBINSON & COLE, LLP, Hartford, Connecticut, for Appellees Hanover Insurance Company and Citizens Insurance Company of America. Unpublished opinions are not binding precedent in this circuit. 2 PER CURIAM: This case presents a dispute over several insurers duties to indemnify a general contractor for its remediation defective drywall in homes it had constructed. court granted summary judgment to the insurers. of The district For the reasons that follow, we must vacate the judgment of the district court and remand to that court so that it can dismiss the case for lack of subject matter jurisdiction. I. Between 2005 and 2009, Dragas Management Corporation ( DMC ) served as general contractor for two developments in southeastern Virginia. DMC subcontracted the procurement and installation for both developments. drywall Due to a shortage of domestic drywall, the subcontractor purchased some of its drywall from a Chinese facility. The Chinese drywall was defective, and contained concentrations of elemental sulfur 375 times greater than that in representative domestic-manufactured drywall. The subcontractor installed the Chinese drywall in seventy-four homes within the two developments. Over this period of time, DMC held a number of different insurance policies from two insurers. DMC purchased a commercial package policy for February 6, 2006 to February 6, 2007 from Builder s Mutual Insurance 3 Company, a commercial package policy and commercial umbrella policy for February 5, 2007 to February 5, 2008 from Firemen s Insurance Company, and a commercial package policy and commercial umbrella policy March 1, 2008 to March 1, 2009, again from Builders. policy contained commercial those sums [DMC] that general becomes liability legally for Each coverage obligated to for pay as damages because of bodily injury or property damage to which [the] insurance applies. The Chinese drywall s sulfuric off-gassing damaged metal fixtures, wiring, and connections within the homes containing the drywall. DMC investigated complaints about the damage and discovered the presence of the Chinese drywall. February 2009, executing DMC remediation prepared a agreements remediation with Beginning in plan individual and began homeowners. Pursuant to the agreements, DMC agreed to remove and replace the Chinese drywall, replace all damaged metal components, pay relocation expenses, and compensate the homeowners for damages to personal property. Neither Builders nor Firemen s were party to DMC s remediation agreements with the homeowners. When DMC sought indemnification for its remediation costs, both Builders and Firemen s denied coverage. Builders filed this action against DMC, in On April 23, 2009, which it alleged federal jurisdiction on the basis of diversity of citizenship and sought a declaratory judgment 4 that it owed no duty to indemnify DMC for its Chinese drywall remediation costs. Builders also named Firemen s as a defendant on the theory that, if the court found that Builders owed DMC a duty to indemnify, the court could insurers. allocate the costs equitably between the On May 21, Firemen s answered and filed a cross-claim against DMC. On June 22, DMC answered Builders complaint and Firemen s crossclaim, and filed a counterclaim against Builders and a crossclaim against Firemen s. third-party Hanover America. complaint Insurance against Company its and On July 7, DMC filed a subcontractors Citizens Insurance insurers -- Company of Nine months later, on April 7, 2010, Dragas Associates X, LC and Hampshire Associates, LC -- the developers of the neighborhoods affected by the defective drywall -- joined the case as counterclaim plaintiffs. After more than two years of litigation, the district court granted summary judgment to the insurers. The district court held that the policies commercial general liability provisions did not cover DMC s remediation costs because DMC made the remediation voluntarily, rather than under a legal obligation to pay. DMC, Dragas Associates, and (collectively, Dragas ) noted an appeal. Hampshires Associates While the case was on appeal, Dragas moved to dismiss the case for lack of subject matter jurisdiction. We delayed ruling on that motion to allow oral argument on both the jurisdictional motion and the merits. 5 II. We consider subject matter jurisdiction de novo, regardless of whether a party has raised, or the district court addressed, the issue. See Constantine v. Rectors & Visitors of George Mason Univ., 411 F.3d 474, 480 (4th Cir. 2005). In its motion to dismiss, Dragas argues that we lack diversity jurisdiction over this case. Dragas argument proceeds in two parts. First, Dragas contends that we must realign Firemen s as a plaintiff in the case, and that such realignment destroys complete diversity because Firemen s (a realigned plaintiff) and DMC (a defendant) are both citizens of Virginia. Second, Dragas contends that Firemen s is a required and indispensable party to the case, and thus we cannot dismiss Firemen s to save diversity jurisdiction. We take up each argument in turn. A. Diversity federal courts jurisdiction by the cannot parties plaintiffs and who defendants. own be conferred determination upon of who the are City of Indianapolis v. Chase Nat l Bank, 314 U.S. 63, 69 (1941). Instead, courts must look beyond the pleadings, and arrange the parties according to their sides in the dispute. To determine when to Id. (internal quotation marks omitted). realign principal purpose test. parties, we apply the two-step U.S. Fid. & Guar. Co. v. A & S Mfg. Co. (Fidelity), 48 F.3d 131, 133 (4th Cir. 1995). 6 First, we determine the primary issue in the controversy by considering the plaintiff s principal purpose for filing its suit. Palisades Collections LLC v. Shorts, 552 F.3d 327, 337 (4th Cir. 2008) (internal quotation marks omitted). Second, we align the parties according to their positions with respect to the primary issue. Id. complaint, If the alignment differs from that in plaintiff s we look to whether diversity jurisdiction still exists. In Fidelity, an insurer filed a declaratory judgment action against that it its insured owed environmental no and duty several to liabilities, co-insurers indemnify and, the second, alleging, insured that for if indemnify, the co-insurers owed a duty of contribution. at 132. first, certain it must 48 F.3d The district court applied the principal purpose test and realigned all of the insurers as plaintiffs and the insured as the sole defendant. The realignment destroyed complete diversity, and the district court dismissed the action for lack of jurisdiction. Id. at 132. We affirmed. In so doing, we agreed with the district court that any disputes existing among the insurers regarding contribution are ancillary to the primary issue of the duty to indemnify. Id. at 134. Because all of the insurers shared the principal purpose of avoiding liability to the insured, realignment of the parties was required. 7 Id. We find the case at hand indistinguishable from Fidelity. Builders principal purpose in filing its action was to avoid a duty to indemnify DMC for its Chinese drywall remediation costs. Builders and Firemen s share this principal purpose of altogether avoiding liability to DMC; any disputes between the insurers are merely ancillary to the primary issue of the duty to indemnify and hypothetical until the insurers liabilities are determined. Fidelity, 48 F.3d at 134. Therefore, we must realign Firemen s as a plaintiff. B. Our realignment of Firemen s as a plaintiff destroys complete diversity, for both Firemen s and defendant DMC are citizens of Virginia. Firemen s -- dismissing argue Firemen s Nonetheless, the insurers -- including that from we can the save our case. jurisdiction Dragas counters by that Firemen s is a required and indispensable party under Fed. R. Civ. P. 19, and thus cannot be dismissed. We may dismiss a dispensable non-diverse party to preserve our jurisdiction. 652 (4th Cir. emphasize[d] Eriline Co. S.A. v. Johnson, 440 F.3d 648, 2006). that such However, authority the Supreme should be Court has exercised sparingly, with due consideration of whether the dismissal of [the] nondiverse party will prejudice any of the parties in the litigation. Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 8 826, 837 (1989). party from a Moreover, in order to dismiss a non-diverse case, we must be satisfied indispensable party under Rule 19. that it is not an Eriline Co., 440 F.3d at 652. Dragas relies on Schlumberger Industries, Inc. v. National Surety Corp., 36 F.3d 1274 (4th Cir. Firemen s is an indispensable party. 1994), to argue that In Schlumberger, we held that when multiple insurers issue policies covering the same conduct, but for different time periods, and those policies are potentially implicated by an insured s environmental remediation efforts, all of the insurers are required and indispensable parties to a suit regarding any individual insurer s coverage. Id. at 1286. We emphasized that allowing cases to proceed with fewer than all of the insurers subjected the insured to the practical possibility of whipsaw where the insured could wind up with less than full coverage even entitled to full coverage. Id. three presented questions might result adjudication: provide that in a -- if whipsaw though it was legally In particular, we identified of to different prejudicially courts -- inconsistent (1) the legal question of whether the policies coverage at all; (2) the legal question of what constitutes a trigger for the coverage to attach; and (3) the factual question occurred. of when -- if at all -- such a trigger The risks of both legal and factual whipsaw strongly 9 influenced our determination that all of the insurers were both required and indispensable to individual insurer s coverage. any adjudication issued policies to an Id. at 1287-88. Schlumberger controls in this case. both as with Firemen s and Builders commercial general liability provisions covering the same conduct by DMC, but for different time periods, and both insurers policies implicated by DMC s remediation efforts. separate litigation indemnify DMC as would to pose Builders threats and of are potentially As in Schlumberger, Firemen s both legal duties and to factual whipsaw. All of Hanover Schlumberger fail. court granted legal question and attempts to distinguish First, they argue that because the district summary and Firemen s judgment, negates emphasized in Schlumberger. the this case risk of presents factual a purely whipsaw so However, in doing so they ignore the fact that Schlumberger also involved an appeal from a grant of summary judgment for the insurers. The district court s dispositive legal conclusions did not palliate our concerns of potential factual whipsaw in Schlumberger, and they do not here. * * A week after oral argument in this case, the Supreme Court of Virginia decided Travco Insurance Co. v. Ward (No. 120347) (Va. Nov. 1, 2012). In a post-argument filing, Builders argues that the Travco decision disposes of the merits claim in this case. Be that as it may, the existence of a dispositive state (Continued) 10 The insurers also argue that we should consider issues of finality and judicial economy before dismissing a case filed over three years ago that has gone to final judgment. again, they ignore Schlumberger s procedural Once posture. In Schlumberger the case had also gone to final judgment, and we nonetheless dismissed it for lack of jurisdiction over six years after its original filing. Finally, and relatedly, the insurers present regarding several Firemen s such arguments realignment thinly veiled and waiver Dragas indispensability arguments are failure earlier; ineffectual. to raise however, For a party may question subject matter jurisdiction at any stage of litigation, even for the first time on appeal. Constantine, 411 F.3d at 480. Therefore, we apply Schlumberger and hold that Firemen s is a required and indispensable party to this case; accordingly, we cannot dismiss Firemen s from the case to preserve our jurisdiction. decision regarding the merits does not affect our jurisdictional analysis. Moreover, if Travco is as dispositive as Builders suggests, Builders burden in relitigating this case -- if refiled in state court at all -- will be trivial indeed. 11 III. For the reasons set forth above, we vacate the judgment of the district court and remand to that court so that it can dismiss the case for lack of subject matter jurisdiction. VACATED AND REMANDED 12

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