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Continental Western Insurance Co. v. Superior Fire Protection, Inc.

United States District Court, D. New Hampshire

December 26, 2019

Continental Western Insurance Co.
Superior Fire Protection, Inc.

          Michael F. Wallace, Esq., Mark D. Wiseman, Esq., Mark S. Bodner, Esq., George D. Bogris, Esq.


          Joseph N. Laplante, United States District Court.

         This is an insurance subrogation action in which the court's jurisdiction hinges on the plaintiff's ability to substitute a necessary party well after the statute of limitations for that party's claims has run. In 2018, Continental Western Insurance Co., an Iowa company declaring itself to be the insurance subrogee for a New Hampshire hotel, filed a lawsuit against Superior Fire Protection Co., LLC, a New Hampshire company, for water damage caused by the hotel's fire sprinkler system. Through discovery, Superior Fire learned that Continental neither insured the hotel nor paid the insurance claim, and that Acadia Insurance Company, a non-party, was the real party in interest for the hotel's legal claims. As such, Superior Fire has moved, in part, to dismiss this lawsuit for lack of standing. Continental, in turn, has asked the court to let Acadia substitute in as the plaintiff under Fed.R.Civ.P. 17, even though the statute of limitations has run.

         After considering the parties' arguments, the court finds that Continental's proposed substitution exceeds the permissible bounds for substitution under Rule 17 because it would improperly allow Acadia to invoke this court's subject matter jurisdiction where it would not otherwise exist. At the time this litigation began, both Acadia and Superior Fire were New Hampshire citizens, thereby precluding Acadia from invoking diversity jurisdiction - the only basis for federal subject matter jurisdiction in this case. See 28 U.S.C. § 1332. While Continental is correct that, in limited circumstances, post-filing events may create subject matter jurisdiction where none originally existed, neither the Supreme Court nor the First Circuit Court of Appeals has recognized such an exception for post-filing changes in a single plaintiff's citizenship where diversity is the sole basis for federal jurisdiction. Accordingly, Continental's motion to substitute is denied. Because Continental has no standing to bring this lawsuit and has not identified any other relief that cures this proceeding of jurisdictional defects, the court must dismiss this litigation for lack of standing without reaching the merits of Superior Fire's arguments for summary judgment.

         I. Background

         The following draws from the non-disputed facts provided in the parties' briefing. As it is obligated to do at summary judgment, the court “rehearse[s] the facts in the light most favorable to the nonmoving party (here, the plaintiff), consistent with record support, ” and gives them “the benefit of all reasonable inferences that those facts will bear.” Noviello v. City of Boston, 398 F.3d 76, 82 (1st Cir. 2005) (citation omitted).

         On February 15, 2016, defendant Superior Fire repaired a sprinkler head that was part of a fire sprinkler system at the Holiday Inn Express Hotel in Rochester, New Hampshire.[1] After this repair, water within the dry pipe fire protection system froze, breaking a “T-fitting” and causing water damage throughout the hotel.[2]

         At the time of the incident, Acadia Insurance Company, a non-party Iowa corporation that was previously incorporated in New Hampshire up until December 2018, insured the hotel.[3] Rochester Hospitality, LLC, the owner of the hotel, made a claim under its policy for over $700, 000 in water damage. Acadia ultimately paid Rochester Hospitality's claim and thereby became its subrogee.[4]

         In February 2018, however, plaintiff Continental Western Insurance Co. declared itself subrogee of Rochester Hospitality and filed negligence and breach of contract claims pursuant to this court's diversity jurisdiction. According to Continental, it and Acadia share a common corporate parent, and counsel for Continental, who also serves as counsel for Acadia, “inadvertently” listed the wrong corporation as plaintiff as part of an honest mistake.[5] In discovery - and well within the statute-of-limitations period - Continental produced documents and signed interrogatory responses disclosing that Acadia, not Continental, was the true subrogee and real party in interest.[6] Neither Continental nor Acadia moved to correct this inadvertent error until summary judgment - nearly one year after disclosing this error, more than 18 months after the filing of the complaint, and well after the statute of limitations time-barred Acadia's claims.[7]

         II. Applicable Legal Standard

         Federal Rule of Civil Procedure 17 governs parties' capacities to sue or be sued. Rule 17(a)(1) requires that legal actions “be prosecuted in the name of the real party in interest.” While the failure to do so would normally warrant a dismissal, under Rule 17(a)(3), courts may not dismiss an action for failing to comply with Rule 17(a)(1) “until, after an objection, a reasonable time has been allowed for the real party in interest to ratify, join, or be substituted into the action.” If the ratification, joinder, or substitution is permitted, “the action proceeds as if it had been originally commenced by the real party in interest.” Id. Thus, for statute of limitations and jurisdictional purposes, the real party in interest's claim dates back the filing of the original complaint, even if the Rule 17 motion was filed after the limitations period had expired. Maddalone v. Okada Shosen, KK, 756 F.2d 886, 887 (1st Cir. 1985); Prevor-Mayorsohn Caribbean, Inc. v. Puerto Rico Marine Mgmt., Inc., 620 F.2d 1, 3 n.2 (1st Cir. 1980); see also In re Lorazepam & Clorazepate Antitrust Litig., 631 F.3d 537, 542 (D.C. Cir. 2011) (rejecting argument that diversity jurisdiction attached at the time the real parties in interests joined an action).

         III. Analysis

         In moving for summary judgment, Superior Fire asks that the court dismiss Continental's claims, arguing that because Acadia, and not Continental, is the true subrogee and real party in interest, Continental lacks standing to assert the hotel's subrogated claims. Continental does not dispute that it lacks constitutional standing, [8] and instead has moved to substitute Acadia as plaintiff under Fed.R.Civ.P. 17 to cure its standing deficiency and “avoid injustice” arising from “an honest mistake.”[9] As discussed herein, the proposed substitution cannot be granted under Rule 17 because it would require conferring subject matter jurisdiction where such jurisdiction would otherwise not exist. Accordingly, the court dismisses this case for lack of standing without reaching Superior Fire's arguments for the entry of summary judgment.

         The First Circuit Court of Appeals has not yet opined on whether a plaintiff may use substitution under Rule 17(a)(3) to remedy a standing deficiency when, like Continental here, the plaintiff lacks standing to bring any of the claims in the complaint. As Superior Fire notes, at least one Court of Appeals has held that a plaintiff that lacks standing to bring an action also lacks “standing to make a motion to substitute [a] real party in interest, ” even when its attorney has mistakenly named the wrong client as the plaintiff in a subrogation complaint. SeeZurich Ins. Co. v. Logitrans, Inc., 297 F.3d 528, 530-31 (6th Cir. 2002) (holding that Rule 17 “must be read with the limitation that a federal district court must, at a minimum arguably have subject matter jurisdiction over the original claims”). This strict decision has “met . . . some criticism” from courts and legal commentators. See, e.g., Cortlandt St. Recovery Corp. v. Hellas Telecomm., S.À.R.L., 790 F.3d 411, 423 (2d Cir. 2015); 13A Wright and Miller, Fed. Prac. & Proc. Juris. § 3531 (3d ed. Supp. 2019). If Zurich's holding is the law in the First Circuit, then this court must find that Continental lacks standing even to seek ...

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