Markel Insurance v. Duncan Co.

209 F.R.D. 489, 2002 U.S. Dist. LEXIS 16399, 2002 WL 2002530
CourtDistrict Court, N.D. Alabama
DecidedAugust 13, 2002
DocketNo. Civ.A. 00-AR-2604-S
StatusPublished

This text of 209 F.R.D. 489 (Markel Insurance v. Duncan Co.) is published on Counsel Stack Legal Research, covering District Court, N.D. Alabama primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Markel Insurance v. Duncan Co., 209 F.R.D. 489, 2002 U.S. Dist. LEXIS 16399, 2002 WL 2002530 (N.D. Ala. 2002).

Opinion

MEMORANDUM OPINION

ACKER, District Judge.

This case began with the filing of a complaint by Markel Insurance Company (“Markel”) against The Duncan Company, Inc., John R. Duncan, and Carol 0. Duncan (“the Duncans”). The requisites of diversity jurisdiction were alleged and are conceded. It appears, however, that there is no corporation by the name of The Duncan Company, Inc. John R. Duncan simply did business as The Duncan Company. The court will join the parties in ignoring this non-entity except as the name that John R. Duncan used as sole proprietor.

IVEarkel alleged that it, as surety, joined The Duncan Company in executing performance and payments bonds with respect to construction pi'ojects being undertaken by The Duncan Company. Markel further alleged that it had been called upon by the bond beneficiaries because, according to the beneficiaries, who are owners and subcontractors, The Duncan Company failed to perform its contracts and failed to pay its bills. Markel sued the Duncans as indemnitors on the bonds. The Duncans filed an answer to Markel’s complaint, a counterclaim against Markel, and a third-party complaint against an independent bonding agent, Tom Bole, d/b/a Surety Associates (“Bole”), seeking a money judgment, including punitive damages, against Bole on state law theories of breach of fiduciary duty, breach of contract, suppression of material fact, conspiracy, and fraud. The third-party complaint avers no facts forming an independent basis for federal jurisdiction.

After considerable and contentious discovery, Markel reached a settlement with the Duncans, and this court approved it. In the settlement document, the Duncans purported to retain their claims against Bole. The order that dismissed Markel’s action against the Duncans and the Duncans’ counterclaim against Markel does not reflect the amount of money, if any, paid by the Duncans to Markel, or the amount of money, if any, paid [491]*491by Markel to the Duncans. For aught appearing, the Duncans received money, although the court guesses otherwise. Bole neither participated in, nor acquiesced in, this settlement.

The court is now presented with a motion for summary judgment by Bole seeking a dismissal of the Duncans’ third-party action. After reviewing the opposing briefs, the court set the matter for oral argument. As a result of what was said during oral argument, the court granted Bole fourteen days within which to supplement his brief, and the Duncans seven days within which to respond. Bole met his deadline; the Duncans did not — probably because they anticipated this court’s decision and reasoned that they could do nothing about it, or because a dismissal without prejudice sounded good to them.

It is understandable that Bole does not want a dismissal of the third-party action against him for want of jurisdiction. If this court had jurisdiction, Bole would, in all likelihood, prevail on the merits. But, because this court does not have jurisdiction, it must dismiss the third-party action without prejudice. Except for what the court will say in reaching its conclusion that it is without subject matter jurisdiction, this court’s remarks will be dicta. It may be hard, however, to distinguish between a holding and a dictum.

Rule 14

Rule 14, F.R.Civ.P., is the rule that provides the only procedure by which a defendant can seek to “lay off’ on a third-party whatever legal responsibility the defendant may have to the original plaintiff. In pertinent part, it provides:

[A] defending party, as a third-party plaintiff, may cause a summons and complaint to be served upon a person not a party to the action who is or may be liable to the third-party plaintiff for all or part of the plaintiffs claim against the third-party plaintiff.

Rule 14, F.R.Civ.P. (emphasis supplied). Rule 14, of course, speaks for itself, but its meaning is made even plainer by Professor Moore, who further explains:

[i]t bears repeating that impleader is available only for the assertion of derivative claims or “claims over” against the third party. It does not permit joinder of a new party for the assertion of any other claims, even transactionally related claims.

14 James Wm. Moore, et al., Moore’s Federal Practice § 14.03[1] (3d ed.2001) (emphasis supplied).

Expanding upon the meaning of Rule 14, Professor Moore further says:

The liability of the third-party defendant to the party that impleaded it must be for losses sustained by that party as a result of plaintiff s claim; unrelated liability to the defendant is not a basis for impleader.

Id. § 14.04[2] (italicized emphasis in original; second emphasis supplied).

The claims that the Duncans make against Bole are only marginally connected to the claims made by Markel against them. For instance, the Duncans are suing Bole for punitive damages in tort. The mere fact that the Duncans could utilize a recovery of exemplary damages to satisfy an obligation they may have to Markel does not bring their third-party claims within the embrace of Rule 14. As the Duncans describe then-causes of action against Bole, they do not depend upon the viability of Markel’s claims against them. The Duncans could and should have filed a totally separate and independent suit against Bole in a court of competent jurisdiction. Their claims against Bole, therefore, are not “derivative.” They do not depend upon any legitimate theory of indemnity or “liability-over”. Thus, because there is no justification for proceeding under Rule 14, the would-be third-party complaint cannot be maintained. Although the misuse by the Duncans of Rule 14 constitutes a fatal jurisdictional defect upon which a dismissal without prejudice can be based, there are at least two other, more insurmountable, jurisdictional obstacles in the path of the Dun-cans.

The Effect of the Settlement

As explained already, Rule 14 can be invoked only if a defendant has a viable theory that transforms the proposed third-[492]*492party into what is, in effect, an “insurer” against whatever liability the defendant may have to the original plaintiff. The hoped— for insurer, Bole in this case, theoretically stood in the shoes of the Duncans vis-a-vis Markel and enjoyed all of the defenses that the Duncans may have had against Markel’s claim. When the Duncans and Markel settled without Bole’s consent, the Duncans either created a serious “due process” problem, or implicitly released Bole.

The court again looks to Moore’s Federal Practice for a clear expression of the principle applicable in these circumstances:

[i]f the third-party defendant has no opportunity to contest the determinations made in the underlying action — as for example, in when the plaintiff and defendant enter a consent judgment — the third-party defendant should not be bound.

Id. § 14.25. Although Professor Moore does not discuss the “due process” implications of ignoring a party who is necessary to an adjudication, the “due process” shortcoming-in taking such a shortcut is obvious. It would simply not be fair for a defendant to “lay off’ his own liability upon an unsuspecting and non-participating third-party without affording him an opportunity to defend on the merits.

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Cite This Page — Counsel Stack

Bluebook (online)
209 F.R.D. 489, 2002 U.S. Dist. LEXIS 16399, 2002 WL 2002530, Counsel Stack Legal Research, https://law.counselstack.com/opinion/markel-insurance-v-duncan-co-alnd-2002.