Lumber Insurance v. Allen CV-91-715-B 02/12/93 UNITED STATES DISTRICT COURT FOR THE

DISTRICT OF NEW HAMPSHIRE

Lumber Insurance Companies

v. Civil Action No. C-91-715-B

Gerald and Kathleen Allen and Kenneth and Jane Moore

O R D E R

Kenneth and Jane Moore, residents of Massachusetts, filed an

action for trespass in this court against Gerald and Kathleen

Allen, residents of New Hampshire. The Allens notified their

Massachusetts insurance carrier. Lumber Insurance Company

("Lumber"), of the trespass action and demanded a defense and

indemnification. Lumber then commenced this declaratory judgment

action against both the Allens and the Moores.

Lumber's complaint alleges that the court has supplemental

jurisdiction pursuant to

(a) because the trespass

action is pending in this court. The court (DiClerico, J.), sua

sponte, guestioned its subject matter jurisdiction and directed

the parties to brief the jurisdictional issue. In its

jurisdictional brief. Lumber no longer argues that the court has

supplemental jurisdiction. Instead, it reguests that the court (i) determine that the Moores are not necessary parties, (ii)

dismiss the Moores as defendants, and (iii) allow Lumber to amend

its complaint to allege diversity of citizenship jurisdiction.1

The Allens concur in Lumber's request. The Moores, however,

continue to argue that the court has supplemental jurisdiction.

For the reasons that follow, I conclude that the court lacks

subject matter jurisdiction over the declaratory judgment action

in its present form. However, because I also conclude that the

Moores are not indispensable parties, I will grant Lumber's

request to dismiss the Moores as defendants and give Lumber 10

days to amend its complaint to allege diversity of citizenship

jurisdiction.

I. Supplemental Jurisdiction.

Supplemental jurisdiction exists over claims which are so

closely related to other claims over which the court has

jurisdiction on some other basis "that they form part of the same

case or controversy under Article III of the United States

Constitution."

(a).

1Lumber also argues that the court should permit the Moores to intervene in the amended action. I decline to address this issue at the present time because the Moores have not requested intervention.

- 2 - The Moores claim that the court has supplemental

jurisdiction over the declaratory judgment action because the

court has diversity of citizenship jurisdiction over the closely

related trespass action. However, they have failed to cite any

authority to support their claim that

(a) permits

the court to assert subject matter jurisdiction over claims in

one action simply because the court has jurisdiction over related

claims in another action. The doctrine of ancillary jurisdiction

was never interpreted so broadly, see, e.g., Reddv Ford v.

California State Board of Equalization,

, 498 (9th

Cir. 1983), cert, denied,

(1984); Fidelity Casualty

Company v. Reserve Insurance Co.,

(9th Cir.

1979), and nothing in the plain language of the supplemental

jurisdiction statute suggests that Congress intended to expand

the court's jurisdiction in this manner.

The Moores' interpretation of

(a) is also

problematic because it would allow plaintiffs in diversity of

citizenship cases to circumvent the limitation on supplemental

jurisdiction contained in

(b). In Owen Eguipment

& Erection Co. v. Kruger,

, 379 (1978), the United

States Supreme Court held that it would undermine the reguirement

of complete diversity of citizenship to allow a plaintiff to rely

- 3 - on the doctrine of ancillary jurisdiction to assert claims

against non-diverse parties in a diversity of citizenship case.

This requirement was retained in

(b) which

provides:

In any civil action of which the district courts have original jurisdiction founded solely on section 1322 of this title, the district courts shall not have supplemental jurisdiction under subsection (a) over claims by plaintiffs against persons made parties under Rule 14, 19, 20, or 24 of the Federal Rules of Civil Procedure, or over claims by persons proposed to be joined as plaintiffs under Rule 24 of such rules, when exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional requirements of section 1332.

(b) would be meaningless if a plaintiff could

invoke supplemental jurisdiction to assert claims against non-

diverse parties simply by commencing a separate action against

such parties. I will not interpret one section of a statute in a

way which would deprive another section of the same statute of

any practical significance. United States v. Ven-Fuel, Inc.,

(1st Cir. 1985). Accordingly, I reject the

Moores argument that the court has supplemental jurisdiction over

the declaratory judgment action in its present form. II. Diversity of Citizenship Jurisdiction.

Having determined that the court lacks subject matter

jurisdiction over the declaratory judgment action, I may either

dismiss the entire action or perfect diversity jurisdiction by

dismissing the non-diverse parties, as long as those parties are

not indispensable under Rule 19(b) of the Federal Rules of Civil

Procedure. See, e.g., Gonzalez v. Cruz,

(1st

Cir. 1991); Ross v. International Bhd. of Elec. Workers,

, 456-57 (9th Cir. 1980); Fidelity & Casualty Co. v.Reserve

Ins. C o .,

, 918 (9th Cir. 1979).

Rule 19(b) determinations "involve a balancing of competing

interests and must be steeped in 'pragmatic considerations'."

Travelers Indemnity Co. v. Dinqwell,

, 635 (1st Cir.

1989) (guoting Provident Tradesmens Bank & Trust Co. v.

Patterson,

(1968)). There are four primary

interests which Rule 19(b) was designed to protect:

The first is the plaintiff's interest in having a forum. The second is the defendant's interest in avoiding multiple litigation, inconsistent relief, or sole responsibility for a liability he shares with another. The third interest belongs to the party that should, but cannot, be joined. That party wishes to prevent the proceedings before the court from impairing its rights. The fourth interest is that of the courts and the public in "complete, consistent, and efficient settlement of controversies."

- 5 -

(citing Provident Tradesmens Bank,

) .

In the present case, the first of the four identified

interests is paramount. If I dismiss the entire action. Lumber

will be deprived of a forum for its claim for declaratory relief.

Under Jackson v. Federal Insurance Co.,

(1985), Lumber cannot file a declaratory judgment action in state

court because the underlying trespass action is pending in

federal court. See also Scully's Automotive Upholstery v.

Peerless,

(N.H. 1992). Accordingly, if I

dismiss the declaratory judgment action. Lumber's obligation to

defend and indemnify the Allens could only be judicially

determined through a breach of contract action brought by the

Allens against Lumber in state court. Obviously, this would

place Lumber in a substantially worse position than if I retain

jurisdiction over the declaratory judgment action.

The second interest, the defendant's interest in avoiding

multiple litigation, is not applicable here because the

continuation of the declaratory judgment action in federal court

without the Moores could not possibly subject the Allens to

multiple litigation on the same issues.

The third interest is that of the parties who cannot be

joined, the Moores. Several courts have held that the injured

- 6 - party is indispensable in an insurance declaratory judgment

action because the injured party's interests will not be

adequately represented by the insured. The principal concern

expressed by these courts is the possibility that the insured

will default and thereby forfeit the injured party's interest.

See, e.g.. Globe Indemnity Co. v. Lou Bachrodt Chevrolet, Inc.,

1992 W.L. 390786 (N.D.I11. Dec. 24, 1992)(citing Fathers of M t .

Carmel v. National Ben Franklin,

(N.D. 111.

1988)). Although the possibility of a future default can never

be ruled out, the Allens have a strong interest in obtaining

insurance coverage for any liability they might owe to the Moores

in the trespass action. Moreover, the Allens have given no sign

that they are unwilling or unable to protect both their interest

and the Moores' contingent interest by vigorously asserting their

claim for insurance coverage. Finally, the Moores are unlikely

to prefer a complete dismissal of the action over the

continuation of the action without them because the Moores also

lack an adequate alternative forum from which to obtain an early

determination of Lumber's coverage obligations. See, e.g.,

Jackson, 122 N.H. at 233-34.

The final interest is the public's interest in the complete

and efficient settlement of controversies. As I have already

- 7 - observed, none of the parties have an adequate alternative forum

if I dismiss the case. Accordingly, the underlying trespass

action in all likelihood will proceed to judgment without an

authoritative determination of Lumber's duty to defend and

indemnify the Allens unless I retain jurisdiction over the

declaratory judgment action. Alternatively, if I retain

jurisdiction over the declaratory judgment action and dismiss the

Moores as parties, the liklihood that the Moores will commence a

separate action in state court is low because the Moores would

not have a right to commence such an action until and unless they

first obtain a judgment against the Allens in the trespass

action. See, e.g., Burke v. Fireman's Fund Ins. Co.,

(1980).

In summary, the interests of Lumber and the Allens in

promptly resolving their insurance coverage dispute through the

declaratory judgment action is sufficiently strong so as to

outweigh any interest the Moores or the public may have in seeing

the entire action dismissed. Accordingly, I find that the Moores

are not indispensable parties under Rule 19(b).

Lumber shall have 10 days to amend its complaint to allege

diversity of citizenship jurisdiction. SO ORDERED.

Paul Barbadoro United States District Judqe February 12, 1993

cc: Stephen Borofsky, Esq. Pamela Albee, Esq. Doreen Connor, Esq.