National Union Fire Insurance v. Rite Aid of South Carolina, Inc. ( 2000 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH,
PENNSYLVANIA,
Plaintiff-Appellant,
v.
RITE AID OF SOUTH CAROLINA,
INCORPORATED,
Defendant-Appellee,
No. 99-1539
and
GABRIELLE HUNDLEY, Gabrielle
Hundley, a minor under the age of
14 years, by and through her
Guardian ad Litem, Peggy W.
Hundley; RONALD HUNDLEY; PEGGY
HUNDLEY,
Defendants.
Appeal from the United States District Court
for the District of South Carolina, at Rock Hill.
Dennis W. Shedd, District Judge.
(CA-97-2056-0-19)
Argued: March 2, 2000
Decided: April 20, 2000
Before WILKINSON, Chief Judge, and WILLIAMS
and MICHAEL, Circuit Judges.
_________________________________________________________________
Affirmed by published opinion. Judge Williams wrote the opinion, in
which Chief Judge Wilkinson and Judge Michael joined.
COUNSEL
ARGUED: Joel Wyman Collins, Jr., COLLINS & LACY, P.C.,
Columbia, South Carolina, for Appellant. James C. Gray, Jr., NEL-
SON, MULLINS, RILEY & SCARBOROUGH, L.L.P., Columbia,
South Carolina, for Appellee. ON BRIEF: Eric G. Fosmire, COL-
LINS & LACY, P.C., Columbia, South Carolina, for Appellant. Eliza-
beth Scott Moise, William C. Wood, Jr., NELSON, MULLINS,
RILEY & SCARBOROUGH, L.L.P., Columbia, South Carolina, for
Appellee.
_________________________________________________________________
OPINION
WILLIAMS, Circuit Judge:
National Union Fire Insurance Company of Pittsburgh (National
Union) appeals the district court's dismissal of its complaint against
Rite Aid of South Carolina (RASC). National Union sought a declara-
tion that the commercial general liability policy it issued to Rite Aid
Corporation (Rite Aid), RASC's parent company, did not obligate
National Union to provide coverage to RASC in two consolidated
product liability lawsuits. The district court concluded that dismissal
was appropriate because Rite Aid was a necessary and indispensable
party to the declaratory judgment action under Federal Rule of Civil
Procedure 19 whose joinder would destroy complete diversity of citi-
zenship, the only basis for subject matter jurisdiction. We hold that
the district court did not abuse its discretion in finding that Rite Aid
was a necessary and indispensable party. Accordingly, we affirm the
district court's dismissal of National Union's complaint for lack of
subject matter jurisdiction.
I.
Rite Aid is a Delaware corporation that has its principal place of
business in Pennsylvania. Rite Aid negotiated with National Union,
also a Pennsylvania citizen, to obtain commercial general liability
coverage for itself and its subsidiaries, including RASC.1 As a result
_________________________________________________________________
1 National Union is a Pennsylvania corporation with its principal place
of business in Pennsylvania. RASC is a South Carolina corporation with
its principal place of business in South Carolina.
2
of these negotiations, National Union issued to Rite Aid Policy No.
RMGL0174087 (the policy), with effective dates of January 1, 1995
to January 1, 1996. The policy was delivered to Rite Aid in Pennsyl-
vania and Rite Aid made all premium payments on the policy from
Pennsylvania.
The policy provides for general liability coverage for Rite Aid and
its subsidiaries with an aggregate limit of $4,750,000 and a per occur-
rence limit of the same amount.2 Under the policy, Rite Aid has a self-
insured retention obligation of $250,000 per occurrence, and National
Union's insurance applies in excess of the retention amount. In other
words, if a Rite Aid subsidiary suffers a loss covered by the policy,
Rite Aid is required to cover the first $250,000 of the loss and
National Union is responsible for the subsidiary's loss in excess of
$250,000, up to the $4,750,000 policy limits.
Rite Aid manages all aspects of the policy for itself and its sub-
sidiaries through its Department of Risk Management, which is
located at Rite Aid's corporate headquarters in Pennsylvania. To help
with the claims handling process, Rite Aid engaged a third-party
administrator, The MacDonald Companies, Inc. (MacDonald), which
was selected with the approval of National Union. At all times rele-
vant to this action, Rite Aid would report a claim to MacDonald, and
MacDonald would report certain claims as required to National
Union. Rite Aid also employed in-house counsel and a Director of
Claims; RASC had neither.
The policy sets forth certain notice requirements that Rite Aid is
required to follow in the event of an occurrence, claim, or suit. By
endorsement, the policy explicitly states that knowledge of an occur-
rence by anyone other than the Corporate Risk Manager of Rite Aid
does not constitute notice of such occurrence to any insured, includ-
ing RASC. Collateral agreements between Rite Aid and National, set
forth in memoranda between MacDonald and AIG Risk Management
(AIG),3 the authorized representative of National Union for claims
_________________________________________________________________
2 The aggregate limit applies to Rite Aid and all the subsidiary insureds
combined, regardless of the particular subsidiary involved.
3 The record also mentions an entity named AIG Vendor Services.
Because the parties make no meaningful distinction between AIG Risk
Management and AIG Vendor Services, for the sake of convenience, we
refer to both entities simply as AIG.
3
administration and analysis, further define the reporting procedures
Rite Aid is required to follow. National Union takes the position that
these agreements are supplemental in nature, while Rite Aid contends
that the reporting requirements in these agreements supersede the
reporting requirements in the policy.
In 1995, during the policy period, RASC allegedly misfilled a pre-
scription, and a customer suffered serious injuries as a result. The cus-
tomer, who was a minor, and her parents sued RASC for her injuries
in two separate actions in the Court of Common Pleas of York
County, South Carolina. These actions were referred to Rite Aid's in-
house counsel and to its Department of Risk Management, which in
turn referred the actions to local South Carolina counsel. According
to AIG, it was notified of the underlying claim by telephone on Octo-
ber 1, 1996, less than a week before the consolidated cases were
scheduled for trial. In letters addressed to Rite Aid's Director of
Claims dated October 8, 1996 and October 9, 1996, National Union
reserved its right to deny coverage. While the jury was deliberating,
National Union denied coverage by letter addressed to Rite Aid's
Director of Claims dated October 10, 1996. The jury subsequently
returned verdicts for the customer and her parents totaling $5,020,000
in actual damages and $11,000,000 in punitive damages. RASC
appealed the judgment, which was affirmed by the Court of Appeals
of South Carolina. See Hundley v. Rite Aid of South Carolina, Inc.,
No. 3126, 2000 WL 225531 (S.C. Ct. App. Feb. 28, 2000).
On July 9, 1997, National Union commenced this action in the
United States District Court for the District of South Carolina seeking
a declaration that RASC failed to comply with the notice provisions
of the policy and other established reporting procedures, that this fail-
ure substantially prejudiced National Union, and, therefore, that
National Union had no obligation to provide coverage in the underly-
ing lawsuits. The complaint alleged jurisdiction based upon diversity
of citizenship between the parties.4 On January 16, 1998, Rite Aid and
RASC filed a parallel action in the Court of Common Pleas of Cum-
berland County, Pennsylvania, against National Union for breach of
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4 The minor child and her parents who were awarded the $16,020,000
verdict against RASC were initially also named as defendants but were
subsequently dismissed from the action by stipulation.
4
contract, for a declaratory judgment that National Union was obli-
gated to defend and indemnify Rite Aid and RASC with respect to the
underlying lawsuit, and for bad faith. Four days later, RASC moved
to dismiss the instant suit pursuant to Federal Rules of Civil Proce-
dure 12 and 19 on the ground that Rite Aid was a necessary and indis-
pensable party to the action whose joinder would destroy complete
diversity of citizenship.
On RASC's motion, the district court first concluded that Rite Aid
was a necessary party under Federal Rule of Civil Procedure 19(a)
because it possessed at least two important interests that it should be
entitled to protect. Because joinder of Rite Aid would destroy com-
plete diversity, the district court then proceeded to determine whether
under Rule 19(b), Rite Aid was an indispensable party without whom
the court could not in equity and good conscience proceed. After con-
cluding that Rite Aid was such an indispensable party, the district
court granted RASC's motion to dismiss for lack of subject matter
jurisdiction. National Union filed a timely notice of appeal.
II.
On appeal, National Union argues that Rite Aid is not a necessary
party under Federal Rule of Civil Procedure 19 because its interests
are adequately represented by RASC, an additional named insured
under the policy. In particular, National Union argues that Rite Aid
has no interest in the litigation separate and distinct from that of
RASC because both parties desire a finding of coverage under the
National Union policy, and that to the extent Rite Aid's testimony and
documents are relevant to the notice issue, it may fully and adequately
contribute to the resolution of this issue as a witness rather than as a
party. National Union also contends that Rite Aid is not an indispens-
able party under Rule 19 because a judgment rendered in its absence
would be adequate and dispositive and would not prejudice Rite Aid.
Specifically, National Union contends that regardless of whether Rite
Aid is joined in the action, the lone issue for the district court to
resolve is whether there is coverage or not; Rite Aid's interest in man-
aging the aggregate limits of the policy is not impeded by its exclu-
sion from this suit because the judgment against Rite Aid exceeds
those limits.
5
Federal Rule of Civil Procedure 19 sets forth a two-step inquiry for
a district court to determine whether a party should be joined in an
action. First, the district court must determine whether the party is
"necessary" to the action under Rule 19(a). 5 If the court determines
that the party is "necessary," it must then determine whether the party
is "indispensable" to the action under Rule 19(b).6 See Teamsters
Local Union No. 171 v. Keal Driveaway Co., 173 F.3d 915, 917-18
(4th Cir. 1999). Because Rite Aid's joinder would destroy complete
diversity of citizenship, we must affirm the district court's dismissal
of this action for lack of jurisdiction if we agree with the district court
that Rite Aid is a necessary and indispensable party. See Owens-
_________________________________________________________________
5 Rule 19(a) provides in pertinent part as follows:
A person who is subject to service of process and whose joinder
will not deprive the court of jurisdiction over the subject matter
of the action shall be joined as a party in the action if (1) in the
person's absence complete relief cannot be accorded among
those already parties, or (2) the person claims an interest relating
to the subject of the action and is so situated that the disposition
of the action in the person's absence may (i) as a practical matter
impair or impede the person's ability to protect that interest or
(ii) leave any of the persons already parties subject to a substan-
tial risk of incurring double, multiple, or otherwise inconsistent
obligations by reason of the claimed interest.
Fed. R. Civ. P. 19(a).
6 Rule 19(b) provides as follows:
If a person as described in subdivision (a)(1)-(2) hereof cannot
be made a party, the court shall 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 include: 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 provi-
sions in the judgment, by the shaping of relief, or other mea-
sures, 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 nonjoinder.
Fed. R. Civ. P. 19(b).
6
Illinois, Inc. v. Meade, 186 F.3d 435, 440 (4th Cir. 1999); Schlumber-
ger Indus. v. National Sur. Corp., 36 F.3d 1274, 1288 (4th Cir. 1994).
"Dismissal of a case is a drastic remedy, however, which should be
employed only sparingly." Keal, 173 F.3d at 918. In determining
whether to dismiss a complaint, a court must proceed pragmatically,
"examin[ing] the facts of the particular controversy to determine the
potential for prejudice to all parties, including those not before it." Id.The district court's Rule 19 dismissal of National Union's action is
reviewed for abuse of discretion. See Coastal Modular Corp. v. Lami-
nators, Inc., 635 F.2d 1102, 1108 (4th Cir. 1980) ("The inquiry con-
templated by Rule 19 . . . is addressed to the sound discretion of the
trial court.").7 We review the district court's findings of fact underly-
_________________________________________________________________
7 The circuits vary greatly in the standard of review to apply to a dis-
trict court's Rule 19 determination. The Ninth and Tenth Circuits apply
an abuse of discretion standard to the district court's determination under
both 19(a) and 19(b). See Washington v. Daley , 173 F.3d 1158, 1165 (9th
Cir. 1999); Davis v. United States, 192 F.3d 951, 957 (10th Cir. 1999).
The Sixth Circuit applies an abuse of discretion standard to the district
court's analysis under 19(a) and a de novo standard to its analysis under
19(b). See Keweenaw Bay Indian Community v. Michigan, 11 F.3d 1341,
1346 (6th Cir. 1993). The First, Second, Third, Fifth, Eighth, Eleventh,
and D.C. Circuits do not appear to have decided on a standard for a dis-
trict court's determination under 19(a) and apply an abuse of discretion
standard to its determination under 19(b). See Tell v. Trustees of Dart-
mouth College, 145 F.3d 417, 418-19 (1st Cir. 1998); Jota v. Texaco,
Inc., 157 F.3d 153, 161 (2d Cir. 1998); Janney Montgomery Scott, Inc.
v. Shepard Niles, Inc., 11 F.3d 399, 403-04 (3d Cir. 1993); Pulitzer-
Polster v. Pulitzer, 784 F.2d 1305, 1309 (5th Cir. 1986); United States
ex rel. Steele v. Turn Key Gaming, Inc., 135 F.3d 1249, 1251 (8th Cir.
1998); Kickapoo Tribe of Indians v. Babbitt, 43 F.3d 1491, 1495 (D.C.
Cir. 1995). The Seventh Circuit has expressly declined to adopt a stan-
dard of review at all. See Thomas v. United States, 189 F.3d 662, 666
(7th Cir. 1999).
In Owens-Illinois, Inc. v. Meade, 186 F.3d 435 (4th Cir. 1999), this
Court stated, in the context of a district court's dismissal of a motion to
compel arbitration for failure to join a necessary and indispensable party
whose joinder would destroy diversity, that a district court's order dis-
missing a case for lack of subject matter jurisdiction is reviewed de novo.
See id. at 439. This statement correctly articulates the law in general, but
7
ing its Rule 19 determination for clear error. See Tell v. Trustees of
Dartmouth College, 145 F.3d 417, 418 (1st Cir. 1998).
A.
The initial issue we must address is whether Rite Aid is a necessary
party under Rule 19(a). We agree with the district court that Rite Aid
is a necessary party to this action for two reasons. First, permitting
this action to go forward without Rite Aid would impair or impede
Rite Aid's ability to protect a "claim[ed] . . . interest relating to the
subject of the action." Fed. R. Civ. P. 19(a)(2)(i). National Union con-
cedes that Rite Aid possesses a claimed interest relating to the subject
of the action, but argues that the interest is adequately represented by
RASC because it is limited to whether the policy provides coverage
or not. If RASC is able adequately to represent Rite Aid's interest, we
would be inclined to conclude that Rite Aid's ability to protect its
interest is not impaired or impeded by its absence from this suit. See
Washington v. Daley, 173 F.3d 1158, 1167 (9th Cir. 1999); Tell, 145
F.3d at 419. A court should hesitate to conclude, however, that a liti-
gant can serve as a proxy for an absent party unless the interests of
the two are identical. See id.Like the district court, we do not believe that Rite Aid's interest in
the subject of this action can be characterized as simply a matter of
coverage. Because the main issue in this declaratory action is whether
National Union was given timely notice of the underlying tort action,
_________________________________________________________________
does not address the standard of review to apply to a district court's dis-
missal based upon its finding that a non-party whose joinder to a suit
would destroy subject matter jurisdiction is necessary and indispensable
under Rule 19. In Coastal Modular Corp. v. Laminators, Inc., 635 F.2d
1102 (4th Cir. 1980), this Court enunciated an abuse of discretion stan-
dard of review in the context of a district court's denial of a motion for
joinder of a non-party upon finding that the non-party was not a neces-
sary party under Rule 19(a). See id. at 1108. In light of the Supreme
Court's admonition that the Rule 19(b) inquiry is fact-specific, see Provi-
dent Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 118 &
n.14 (1968), we believe that this abuse of discretion standard of review
applies to a district court's determination under 19(b) as well.
8
the district court's adjudication of this case on the merits will neces-
sarily require it to interpret the notice provisions of the policy and
other agreements between National Union and Rite Aid.8 As the con-
tracting party and the party charged with receiving and giving notice
of claims under the policy and other agreements, Rite Aid has a direct
interest in the district court's determination of its reporting obliga-
tions as well as an interest in coverage for RASC. By contrast,
RASC's interest, as a beneficiary of the policy, is limited solely to
coverage in this particular case. Resolution of the notice issue will
undoubtedly have ramifications for other cases because in deciding
whether National Union received timely notice, the district court will
necessarily have to determine what the reporting requirements are and
what conduct satisfies those requirements. Because Rite Aid pos-
sesses an interest separate and distinct from that of RASC, we agree
with the district court that RASC is not able adequately to represent
this interest in Rite Aid's absence.
Accordingly, we conclude that the district court did not err in con-
cluding that permitting this suit to proceed without Rite Aid will "im-
pair or impede" Rite Aid's ability as a contracting party to protect a
claimed interest relating to the subject of the action. See Acton Co. v.
Bachman Foods, Inc., 668 F.2d 76, 78-79 (1st Cir. 1982) (holding
that parent corporation that played a substantial role in negotiating,
and was party to, agreement was a necessary party to suit brought by
subsidiary alleging breach of that agreement); F & M Distribs., Inc.
v. American Hardware Supply Co., 129 F.R.D. 494, 497-98 (W.D. Pa.
1990) (holding that corporation that was party to contract was neces-
sary party to suit seeking damages against third party for corpora-
tion's alleged breach of that contract); cf. Keal, 173 F.3d at 918(holding that union was necessary party to suit that sought to vacate
joint grievance panel's interpretation of collective bargaining agree-
_________________________________________________________________
8 The record suggests that National Union will likely argue that the
reporting requirements in the collateral agreements between National
Union and Rite Aid, set forth in the memoranda between MacDonald and
AIG, supplement the reporting requirements of the policy and that under
both Rite Aid failed to give timely notice to National Union. Rite Aid
will likely argue that the reporting requirements in the collateral agree-
ments supersede the reporting requirements of the policy and that under
the former Rite Aid gave timely notice to National Union.
9
ment to which union was a party). Because the result of the suit turns
on Rite Aid's conduct in notifying National Union of the underlying
tort suit through its third-party administrator, we reject National
Union's contention that Rite Aid can adequately contribute to this
action as a witness and believe instead that fairness dictates that Rite
Aid be given the opportunity to protect its separate and distinct inter-
est as a party.9 See Freeman v. Northwest Acceptance Corp., 754 F.2d
553, 559 (5th Cir. 1985) (holding that subsidiary was a necessary
party to conversion suit against parent corporation rather than merely
"a key witness whose testimony would be of inestimable value"
because subsidiary's conduct was subject of suit (internal quotation
marks omitted)).
Second, permitting this suit to continue could subject National
Union to "a substantial risk of incurring" conflicting legal obligations.
Fed. R. Civ. P. 19(a)(2)(ii). At this time, a parallel action brought by
Rite Aid and RASC is pending in Pennsylvania state court. If this dis-
trict court action is allowed to proceed, one court might find that
National Union did not receive timely notice and, therefore, is not
obligated to defend and indemnify Rite Aid and RASC in the underly-
ing lawsuit. The other court might reach the opposite conclusion. This
very real possibility of inconsistent judgments weighs heavily in favor
of finding that Rite Aid is a necessary party.10 See Owens-Illinois, 186
_________________________________________________________________
9 Because the Court of Appeals of South Carolina affirmed the
$16,020,000 verdict against RASC, which is greater than the aggregate
limits of the policy, Rite Aid's interest in managing these limits among
itself and its subsidiaries is not impeded by its exclusion from the instant
suit. Nevertheless, we believe that Rite Aid's interest in the district
court's determination of its reporting obligations under the contract and
the course of dealing with National Union is sufficient to make Rite Aid
a necessary party under Rule 19(a)(2)(i).
10 National Union argues that RASC's motion to dismiss for lack of
subject matter jurisdiction is a pretext for forum shopping in light of the
fact that it was brought four days after Rite Aid and RASC filed their
parallel action in Pennsylvania state court. We disagree. National Union
fails to identify any reason why RASC would "shop" for a Pennsylvania
forum as opposed to a South Carolina forum. RASC's argument that the
Pennsylvania state court was selected because it was a forum in which
all parties, including Rite Aid, could be joined in a single action is emi-
nently reasonable.
10
F.3d at 441 (holding that possibility that one court might compel arbi-
tration while the other court might allow alternative judicial remedies
to some of the plaintiffs warranted having one court adjudicate the
entire case with all of the affected parties before it); Keal, 173 F.3d
at 918-19 (holding that continuing without unjoined party was imper-
missible because that party could file suit in another forum to protect
its interests and subject joined party to conflicting legal judgments);
Schlumberger, 36 F.3d at 1286-87 (holding that the potential for fac-
tual "whipsaw" from two pending cases warranted having one court
adjudicate the entire matter with all the parties before it); cf. Coastal
Modular, 635 F.2d at 1108 (affirming trial court's denial of joinder
of the Navy as a party under Rule 19(a) where the defendant "could
only theorize the possibility that the Navy would institute suit against
it"). In light of these considerations, we conclude that the district
court did not abuse its discretion in concluding that Rite Aid was a
necessary party to this declaratory judgment action.
B.
Because Rite Aid is a necessary party to this litigation and its join-
der would destroy complete diversity, we must next determine
whether the district court abused its discretion in concluding that Rite
Aid is an indispensable party under Rule 19(b). At the outset, we note
that "precedent supports the proposition that a contracting party is the
paradigm of an indispensable party." Travelers Indem. Co. v. House-
hold Int'l, Inc., 775 F. Supp. 518, 527 (D. Conn. 1991) (citing cases).
With this principle in mind, we address the factors outlined in Rule
19(b) seriatim. "A Rule 19(b) analysis is not mechanical; rather it is
conducted in light of the equities of the case at bar." Schlumberger,
36 F.3d at 1287.
The first Rule 19(b) factor asks to what extent a judgment rendered
in the non-party's absence will prejudice that person or those already
parties. This factor addresses many of the same concerns as Rule
19(a)(2). See Keal, 186 F.3d at 919. As we noted in our Rule 19(a)
analysis, if this suit were to proceed without Rite Aid, Rite Aid would
be impaired or impeded from protecting its separate and distinct inter-
est in the district court's determination of Rite Aid's reporting
requirements under the policy and other agreements while National
Union could be whipsawed by inconsistent judgments. The prejudice
11
to Rite Aid if this suit is not dismissed is particularly strong given that
Rite Aid negotiated and entered into the policy, and this suit concerns
Rite Aid's conduct. See H.D. Corp. v. Ford Motor Co., 791 F.2d 987,
993 (1st Cir. 1986) (noting that first Rule 19(b) factor favored finding
that parent corporation was indispensable to complaint brought
against subsidiary where complaint was largely directed against par-
ent corporation and parent corporation was signatory to agreement
underlying breach of contract claims in complaint); Envirotech Corp.
v. Bethlehem Steel Corp., 729 F.2d 70, 75-76 (2d Cir. 1984) (noting
that parent corporation was indispensable to breach of contract coun-
terclaims against subsidiary in part because parent corporation was
the sole obligor on three of the contracts at issue).
The second factor to consider under Rule 19(b) is whether a court
can tailor relief to lessen or avoid the prejudice to the absent person
or to those already parties. As to this factor, we cannot fathom how
the district court could have tailored its relief to lessen or avoid preju-
dice to Rite Aid and National Union. In order to reach a judgment on
the merits in this action, the district court could not have avoided
addressing the notice provisions of the policy and ancillary agree-
ments, which are also at issue in the Pennsylvania state court action.
See Owens-Illinois, 186 F.3d at 442 (noting that in order to reach mer-
its of the petition to compel arbitration, district court could not have
avoided addressing the validity and applicability of settlement agree-
ment's arbitration provision, which was also at issue in pending state
court action); Keal, 173 F.3d at 919 (noting that in order to reach mer-
its of the case, district court could not have avoided addressing the
validity of the joint grievance panel's interpretation of collective bar-
gaining agreement). To allow both this suit and the suit in Pennsylva-
nia state court to proceed would "complicate and enlarge what would
otherwise be a relatively straightforward contract action in a single
court." Acton Co., 668 F.2d at 81.
The third factor is whether a judgment without the absent person
will be adequate. This factor implicates "the interest of the courts and
the public in complete, consistent, and efficient settlement of contro-
versies." Provident Tradesmens Bank & Trust Co. v. Patterson, 390
U.S. 102, 111 (1968). As the district court noted, if the instant suit
proceeded without Rite Aid, it is possible that a judgment could be
rendered against RASC for failure to provide timely notice. It is also
possible that if RASC brought a subsequent action against Rite Aid,
12
RASC could again have a judgment rendered against it if Rite Aid
proves that it provided timely notice on behalf of RASC, resulting in
an inconsistent verdict. We agree with the district court that because
National Union, Rite Aid, and RASC are all proper parties in the
Pennsylvania state court action, and all claims and potential cross-
claims can be heard in one case, resolving the entire controversy in
that court will promote "[t]he public interest in avoiding piecemeal
and inefficient litigation." Acton Co., 668 F.2d at 81.
Finally, Rule 19(b) directs us to determine whether dismissal for
nonjoinder will leave the plaintiff with an adequate remedy. We see
no reason, and National Union posits none, why the Pennsylvania
state court will not provide an adequate remedy for the parties in this
case. In fact, we believe that the Pennsylvania state court will be a
more convenient place for adjudication of this matter because both
National Union and Rite Aid are Pennsylvania citizens, and the plain-
tiffs in the underlying lawsuits, who are residents of South Carolina,
are no longer involved in this dispute concerning coverage. See
Owens-Illinois, 186 F.3d at 442 (noting that West Virginia state court
"is likely the best place for adjudication of this matter since all of the
Plaintiffs work at the same location and will share many witnesses
and exhibits in the event a trial is held"). National Union's plea that
it prefers to be a plaintiff in a declaratory judgment action rather than
a defendant in a bad-faith lawsuit rings hollow, because if the Penn-
sylvania state court finds that there is no coverage under the policy,
it need not reach the bad-faith issue. Because all four factors favor a
finding that Rite Aid is an indispensable party, we conclude that the
district court did not abuse its discretion in determining that it could
not "in equity and good conscience" allow this case to proceed in the
absence of Rite Aid.
III.
In sum, we conclude that the district court did not abuse its discre-
tion in concluding that Rite Aid was a necessary and indispensable
party to National Union's declaratory judgment action. Because Rite
Aid's joinder would destroy complete diversity of citizenship,
National Union's complaint must be dismissed. We, therefore, affirm
the judgment of the district court.
AFFIRMED
13