US Fire Ins. Co. v. Milton Co., 938 F. Supp. 56 (D.D.C. 1996)

James F. Jordan, David P. Durbin, D. Stephenson Schwinn, Jordan Coyne & Savits, Washington, DC, Margaret R. Catalano, Christopher R. Carroll, Morristown, NJ, for Plaintiffs.

Lorelie S. Masters, Mark H. Kolman, Anderson, Kill, Olick & Oshinsky, P.C., Washington, DC, Barry L. Steelman, Barry L. Steelman, P.A., Baltimore, MD, for Council of Unit Owners of Bentley Place Condominium.

ROBERTSON, District Judge.

U.S. Fire Insurance Company and North River Insurance Company filed this declaratory judgment action against The Milton Company, Tuckerman Lane Development Company and Milton Schneiderman, developers and builders of an apartment complex in Maryland, in March 1995. The insurers sought to resolve a dispute about whether certain policies they had sold to the developers provided coverage for claims made against the developers, in the state courts of Maryland, by the Council of Unit Owners of Bentley Place Condominium. The Council moved to intervene, asserting an interest in the proceeds of the insurance policies that was not adequately represented by developer/policyholders. In June 1995, because parallel state court litigation was then pending that might have resolved the discovery dispute, proceedings in this case were stayed, see Brillhart v. Excess Ins. Co., 316 U.S. 491, 62 S. Ct. 1173, 86 L. Ed. 1620 (1942), and the Council's motion to intervene was denied without prejudice to its renewal if the Maryland litigation did not resolve all the issues among the parties.

In February 1996, when it appeared that the Maryland coverage litigation initiated by the Council had been dismissed, the Brillhart stay was vacated, and plaintiff insurers were granted leave to file a second amended complaint. The second amended complaint added three insurance companies as parties (two as plaintiffs, one as defendant) and named the Council of Unit Owners as a defendant.

The Council of Unit Owners, which had once sought to intervene, now moves to dismiss for lack of personal jurisdiction. The *57 Council also moves for dismissal pursuant to F.R.Civ.P. 19(b).^[1]

It appears from the record that the Council is a legal entity formed in Maryland, that all of its business transactions occur in Maryland, and that it has no business ties to the District of Columbia. The only showing offered by the plaintiffs as to why jurisdiction of the Council is proper is their argument that, by moving to intervene at an earlier stage in the case, the Council has consented to the jurisdiction of this Court. They rely for that proposition, however, upon Schneider v. Dumbarton Developers, Inc., 767 F.2d 1007, 1017 (D.C.Cir.1985) and District of Columbia v. Merit Systems Protection Board, 762 F.2d 129, 132 (D.C.Cir.1985), both of which deal with parties that actually had intervened, rather than parties that had once unsuccessfully attempted to intervene. It is really up to the Council: (1) It does appear that the Court lacks in personam jurisdiction of the Council of Unit Owners, and the Council insists that it has not waived its jurisdictional defense. The Council will accordingly be dismissed; but (2) if the Council reconsiders and decides to seek leave to intervene again, its motion will be entertained if timely made.

There appears to be no controlling circuit precedent on the question whether an injured person is an indispensable party to a declaratory judgment action between insurer and insured about coverage of the injured person's claim. Recent district court cases that have dealt with the issue, Austin Fireworks, Inc. v. T.H.E. Insurance Co., 809 F. Supp. 829 (D.Kan.1992); Nat'l Union Fire Ins. Co. v. Mass. Municipal Wholesale Elec. Co., 117 F.R.D. 321 (D.Mass.1987); Black Diamond Girl Scout Council v. St. Paul Fire & Marine Ins., 621 F. Supp. 96 (S.D.W.Va. 1985), have reached inconsistent results.

It is clear that an injured party is a necessary party in a declaratory judgment action brought to test the coverage of an insurance policy. See Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 61 S. Ct. 510, 85 L. Ed. 826 (1941); Hawkeye-Security Ins. Co. v. Schulte, 302 F.2d 174 (7th Cir. 1962). The inquiry mandated by Rule 19(b), however, assumes that the party in question is a necessary party within the meaning of Rule 19(a) and proceeds to determine "whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person being thus regarded as indispensable." The factors to be considered by the Court are set forth within the four corners of Rule 19(b). They are

"first, to what extent a judgment rendered in the person's absence might be prejudicial to the person or those already parties; second, the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; third, whether a judgment rendered in the person's absence will be adequate; fourth, whether the plaintiff will have an adequate remedy if the action is dismissed for non-joinder."

In this case, the procedural maneuvering of the Council of Unit Owners betrays a single-minded effort on its part to place this litigation in the forum of its choosing. It is certainly the case, applying the first test mandated by Rule 19(b), that a judgment rendered in the Council's absence might be "prejudicial" to the Council, especially if such a judgment is later deemed to have bound the Council by the doctrine of collateral estoppel (the Council has had and still has a "full and fair opportunity" to litigate its claims in this forum, Parklane Hosiery Co. v. Shore, 439 U.S. 322, 99 S. Ct. 645, 58 L. Ed. 2d 552 (1979)). Applying Rule 19(b)'s second test, however, the prejudice can be avoided by the Council's re-intervention, and that is a matter that is within the Council's own control.

*58 The fact that it is within the Council's control whether or not to become a party here is dispositive of the "equity and good conscience" test. The Council is a necessary but not indispensable party.

An appropriate order accompanies this memorandum.

For the reasons stated in the accompanying memorandum it is this 25th day of September 1996

ORDERED that the motion of Council of Unit Owners of Bentley Place Condominium to dismiss [# 30] is granted in part and denied in part. It is

FURTHER ORDERED that the Council of Unit Owners is hereby dismissed as a party defendant for want of personal jurisdiction. And it is

FURTHER ORDERED that this action proceed as to the remaining parties.

[1] The Council's motion also asserts lack of jurisdiction of the persons of the nonresident defendants Tuckerman Lane Development Co. and Milton Co. Those parties, however, have appeared, answered, and opposed the Council's motion to dismiss. The defense of lack of jurisdiction over the person was theirs to make, and has been waived. F.R.Civ.P. 12(h) (1).