Transamerica v. Aviation Ofc Amer

Opinions of the United
2002 Decisions States Court of Appeals
for the Third Circuit
5-24-2002
Transamerica v. Aviation Ofc Amer
Precedential or Non-Precedential: Precedential
Docket No. 00-3635
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PRECEDENTIAL
Filed May 24, 2002
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 00-3635
TRANSAMERICA OCCIDENTAL LIFE INSURANCE
COMPANY,
Appellant
v.
AVIATION OFFICE OF AMERICA, INC.;
INTERNATIONAL INSURANCE COMPANY
ON APPEAL FROM THE
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
(Dist. Court No. 00-cv-02478)
District Court Judge: John W. Bissell
Argued on December 4, 2001
Before: ALITO, RENDELL, and AMBRO, Circuit Jud ges.
(Opinion Filed: May 24, 2002)
REID A. EVERS (Argued)
Transamerica Occidental Life
Insurance Company
Law Department
1150 South Olive
Los Angeles, CA 90015
DONALD HOROWITZ
24 Bergen Street
Hackensack, NJ 07601
Counsel for Appellant
ANTHONY I. PYE (Argued)
Suite 309
76 South Orange Avenue
South Orange, NJ 07079
Counsel for Appellee
OPINION OF THE COURT
ALITO, Circuit Judge:
This case arises from an intricate network of corporate
relationships and a complex arrangement of insurance
agreements. Pursuant to corporate restructuring,
International Insurance Company ("IIC") assumed the rights
and obligations concerning certain agreements of two
companies, United States Fire Insurance Company ("U.S.
Fire") and North River Insurance Company ("North River").
U.S. Fire and North River brought claims against
Transamerica Occidental Life Insurance Company
("Transamerica") in Texas. Transamerica then brought suit
against IIC in New Jersey, raising the same issues
presented in the Texas action. IIC argued to the New Jersey
District Court that the New Jersey action should have been
barred as a compulsory counterclaim that Transamerica
should have raised in the Texas action. Transamerica
claimed that Federal Rule of Civil Procedure 13(a) is
inapplicable because IIC was not a named "opposing party"
in the Texas action. The District Court agreed with IIC and
found that Transamerica was an opposing party because,
for the purposes of the litigation, it was equivalent in
identity to U.S. Fire and North River, the named parties in
the original action. We agree and affirm the District Court’s
dismissal of Transamerica’s claims.
2
I.
A.
In 1985, the Aviation Office of America, Inc. ("AOA") was
a Texas insurance agency that acted as a managing general
agent for the aviation insurance business of Crum &
Forster, Inc. ("C&F "). AOA issued insurance policies on
behalf of C&F ’s insurance companies, including U.S. Fire
and North River, and arranged reinsurance protection for
those policies.
On December 15, 1985, AOA entered into two
reinsurance agreements ("treaties") protecting workers’
compensation insurance policies that had been issued by
AOA on behalf of C&F ’s insurance companies and that
covered employees in the aviation industry. The first treaty,
the "Primary Treaty," provided reinsurance of C&F policies
for losses up to $250,000. The second treaty, the"Excess
Treaty," provided reinsurance for losses up to $750,000
beyond the first $250,000. Both treaties were "quota share"
treaties, under which the reinsurers agreed to accept a
fixed percentage of all risks declared under the treaties by
AOA. Each of the treaties contained an arbitration provision
under which any dispute arising from the treaties would be
arbitrated in Texas pursuant to the Texas State Arbitration
Law. Both treaties were renewed as of January 1, 1987,
until December 31, 1987.
The Zimmerman Line Slip, Inc. ("Line Slip") was one of
the reinsurers that subscribed to both treaties, accepting a
25 percent share of the premium and losses for each year
for both treaties. The Line Slip was a reinsurance pool that
consisted of member companies that contracted with a pool
manager to act as the agent of the member companies. The
Line Slip manager in 1985 was Zimmerman, Green, Inc.
("ZGI"), which by 1987 had changed its name to
Zimmerman Line Slip, Inc. ("ZLSI"). The relationship
between the pool members and the pool manager was
governed by a Management Agreement, under the terms of
which the pool members agreed to accept a set portion of
the total risks borne by the pool manager. Transamerica
subscribed to a 23.53 percent share of the Line Slip in
3
1985 and a 6.81 percent share in 1987. As a Line Slip
member, Transamerica received its share of the premium
and paid its share of the losses during this time.
In November 1992, North River commenced an
arbitration against all of the reinsurers under the 1985
treaties, including the Line Slip, seeking reimbursement for
disputed losses. After commencement of the arbitration,
C&F underwent corporate restructuring, by which IIC
assumed the obligations of North River and U.S. Fire under
all policies issued on their behalf by AOA. Effective January
1, 1993, IIC was assigned the right to collect any
reinsurance related to those policies. To the extent that the
reinsurance contracts contained "anti-assignment" clauses,
North River and U.S. Fire agreed to collect the reinsurance
proceeds for the benefit of IIC. Furthermore, IIC was given
power of attorney to pursue collections in the names of
North River and U.S. Fire. IIC thereafter continued to
pursue collection of the amounts owed under the treaties.
After the Line Slip manager became insolvent in June 1995,
IIC continued to seek collection from the reinsurers
directly.
In January 1998, IIC’s agent for reinsurance collections,
Resolution Reinsurance Services Corporation ("RRSC"),
wrote to Transamerica stating its representation of IIC.
RRSC notified Transamerica of the C&F restructuring and
of IIC’s succession to all of the rights and liabilities under
the policies originally issued by AOA on behalf of North
River and U.S. Fire. In December 1998, Transamerica
denied any liability under the treaties and refused to
proceed with arbitration.
On March 2, 1999, North River and U.S. Fire filed a
complaint against Transamerica in the District Court of the
State of Texas, Dallas County. On March 29, 1999,
Transamerica removed this action to the United States
District Court for the Northern District of Texas, and this
case is pending as North River Insurance Co. v.
Transamerica Occidental Life Insurance Co., No. 3-
99CV0682-L ("Texas action"). In the Texas action, North
River and U.S. Fire, represented by IIC, seek to compel
Transamerica to arbitrate the dispute under the treaties.
North River and U.S. Fire moved for and were granted leave
4
to file an amended complaint. The amended complaint
added a cause of action for breach of contract and sought
recovery of monetary damages. In addition, the amended
complaint sought a judgment declaring that the treaties
were binding and enforceable and that Transamerica was
obligated to North River and U.S. Fire under the treaties. In
February 2000, the plaintiffs agreed to permit Transamerica
to file a late answer and agreed not to oppose a motion for
leave to file a late counterclaim to seek recovery of the
amounts Transamerica had paid under the treaties.
Instead of filing an answer or counterclaim in the Texas
action, however, in May 2000, Transamerica brought suit
against IIC and AOA in the United States District Court for
the District of New Jersey ("New Jersey action"), seeking a
declaration that it was not liable under the treaties and
seeking repayment of the amounts it had already paid.
Transamerica failed to note the Texas action as a related
case in the New Jersey action although it was a party to
and had made the same allegations in that action.
In September 2000, IIC filed a motion in New Jersey
District Court to dismiss Transamerica’s complaint against
both IIC and AOA. In October 2000, the District Court
issued an order from the bench granting IIC’s motion to
dismiss this action.
B.
In dismissing the New Jersey action, the District Court
held that the claims asserted in that action should have
been brought as compulsory counterclaims against IIC
pursuant to Fed. R. Civ. P. 13(a) in the Texas action. The
District Court further held that although AOA might not be
an opposing party, it could be joined as an additional party
under Rule 13(h). Finally, the District Court rejected
Transamerica’s argument that the Texas district court lacks
subject matter jurisdiction because North River and U.S.
Fire do not have standing in the Texas action.
Transamerica then took this appeal.
Appellant Transamerica asks us to reverse the District
Court’s grant of IIC’s motion to dismiss. Transamerica
argues that because IIC is not a named opposing party in
5
the Texas action, the New Jersey claims cannot be deemed
compulsory counterclaims in the Texas action under Rule
13(a). Transamerica also contends that the District Court
for the Northern District of Texas does not have jurisdiction
over the Texas action because North River and U.S. Fire
assigned their interest in the reinsurance treaties to IIC and
thus lack standing to bring the Texas action against
Transamerica.
Appellees AOA and IIC urge this Court to affirm the
District Court on the ground that IIC was the equivalent of
an opposing party in the Texas action. Appellees emphasize
that IIC acted in the names of the original parties reinsured
under the treaties, North River and U.S. Fire; that IIC
conducted the litigation in the Texas action as attorney-in-
fact for North River and U.S. Fire; that the claims to compel
arbitration and for breach of contract under the
reinsurance treaties were the same as those in the Texas
action; that North River and U.S. Fire assigned the rights to
any recovery under the treaties to IIC; and that IIC formally
ratified the commencement of the Texas action and agreed
to be bound by its outcome. Appellees also accuse
Transamerica of forum-shopping and failing to disclose the
existence of the Texas action to the District Court in the
New Jersey action. As for Transamerica’s argument that
North River and U.S. Fire lack standing in the Texas action,
Appellees note that North River and U.S. Fire remain the
parties to the contract with respect to Transamerica. We
agree with Appellees’ position and thus affirm the District
Court’s grant of IIC’s motion to dismiss the New Jersey
action.
II.
A.
We exercise plenary review over the grant of a motion to
dismiss. See Lorenz v. CFX Corp., 1 F.3d 1406, 1411 (3d
Cir. 1993). Accordingly, we review de novo the District
Court’s determination that Transamerica’s suit should have
been pursued as a compulsory counterclaim in the Texas
action. See Xerox Corp. v. SCM Corp., 576 F.2d 1057, 1058
& n.1 (3d Cir. 1978).
6
B.
Rule 13(a) of the Federal Rules of Civil Procedure
provides: "A pleading shall state as a counterclaim any
claim which at the time of serving the pleading the pleader
has against any opposing party, if it arises out of the
transaction or occurrence that is the subject matter of the
opposing party’s claim and does not require for its
adjudication the presence of third parties of whom the
court cannot acquire jurisdiction." The policy underlying
this rule is judicial economy. See Fed. R. Civ. P. 1 ("[The
Federal Rules of Civil Procedure] shall be construed and
administered to secure the just, speedy, and inexpensive
determination of every action."); Southern Construction Co.
v. Pickard, 371 U.S. 57, 60 (1962) (stating that the purpose
of Rule 13(a) is "to prevent multiplicity of actions and to
achieve resolution in a single lawsuit of all disputes arising
out of common matters"); Alden v. Packel, 524 F.2d 38, 51
(3d Cir. 1975) (describing "the fundamental policy
underlying Rule 13" as "the expeditious resolution of all
controversies growing out of the same transaction or
occurrence or between the same parties in a single suit").
For a claim to qualify as a compulsory counterclaim,
there need not be precise identity of issues and facts
between the claim and the counterclaim; rather, the
relevant inquiry is whether the counterclaim "bears a
logical relationship to an opposing party’s claim." Xerox
Corp. v. SCM Corp., 576 F.2d 1057, 1059 (3d Cir. 1978).1
The concept of a "logical relationship" has been viewed
liberally to promote judicial economy. Thus, a logical
relationship between claims exists where separate trials on
each of the claims would "involve a substantial duplication
of effort and time by the parties and the courts." Id. Such
a duplication is likely to occur when claims involve the
same factual issues, the same factual and legal issues, or
_________________________________________________________________
1. Other circuits also look to the "logical relationship" between the claim
and counterclaim to determine whether they arise from the "same
transaction or occurrence." See, e.g., Gildorn Sav. Ass’n v. Commerce
Sav. Ass’n, 804 F.2d 390 396 (7th Cir. 1986); United States v. Aquavella,
615 F.2d 12, 22 (2d Cir. 1979); Columbia Plaza Corp. v. Security Nat’l
Bank, 525 F.2d 620, 625 (D.C. Cir. 1975); Diamond v. Terminal Ry. Ala.
State Docks, 421 F.2d 228, 236 (5th Cir. 1970).
7
are offshoots of the same basic controversy between the
parties. See id.; Great Lakes Corp. v. Herbert Cooper Co.,
286 F.2d 631, 634 (3d Cir. 1961). In short, the objective of
Rule 13(a) is to promote judicial economy, so the term
"transaction or occurrence" is construed generously to
further this purpose.
This case, however, presents the question whether the
rationales supporting a liberal reading of "transaction or
occurrence" in Rule 13(a) also apply to the term"opposing
party." A narrow interpretation of "opposing party" would
lead us to read it strictly as a named party who"asserts a
claim against the prospective counter-claimant in the first
instance."2 First National Bank v. Johnson County National
Bank & Trust Co., 331 F.2d 325, 328 (10th Cir. 1964); see
also Cincinnati Milacron Industries, Inc. v. Aqua Dyne, Inc.,
592 F. Supp. 1113 (S.D. Ohio 1984) (finding that Rule 13(a)
did not permit the filing of a compulsory counterclaim
against Cincinnati Milacron Industries, Inc. because it was
not a party to the litigation against Milacron Marketing
Company, a separate corporate entity from Cincinnati
Milacron Industries, Inc.).
This Court has not yet ruled on the issue, and there are
very few cases interpreting "opposing party" in other
circuits. A few courts have found in similar cases, however,
that an unnamed party may be so closely identified with a
named party as to qualify as an "opposing party" under
Rule 13(a). In Avemco Insurance Co. v. Cessna Aircraft Co.,
11 F.3d 998 (10th Cir. 1993), the Tenth Circuit recognized
an insurer-subrogee, though not named as a party to the
original litigation, to be an opposing party for Rule 13(a)
purposes because of its close relationship with the named
opposing party. Id. at 1001. Avemco was the insurer of a
plane owner and pilot (the "insured") who was subject to
two personal injury claims brought by passengers who were
injured in a plane crash. Avemco settled the first claim
against the insured. The second personal injury suit was
brought against both the insured and the manufacturer of
the plane. The manufacturer filed a third-party complaint
_________________________________________________________________
2. Cf. Fed. R. Civ. P. 17(a) (stating that "every action shall be prosecuted
in the name of the real party in interest").
8
against the insured for negligent operation, but the insured
filed no counterclaim against the manufacturer for
contribution or indemnification for the settlement amount
in the first, settled action. Avemco then filed a new action
against the manufacturer for indemnification and
contribution in the first action, but the court determined
that Rule 13(a) barred this action because it should have
been brought as a compulsory counterclaim in the second
personal injury action. The Tenth Circuit stated that "[i]n a
situation such as this, where the insurer has controlled the
defense in both actions, there is little to commend allowing
the insurer to sit idly by during the subsequent litigation,
only to bring a separate action against the very same
defendant at a later date." Id.The Second Circuit also found that a party not named in
litigation may still be an opposing party for Rule 13
purposes in certain cases in which the party is functionally
identical to the actual opposing party named in the
litigation. In Banco Nacional de Cuba v. First National City
Bank of New York, 478 F.2d 191 (2d Cir. 1973), the Second
Circuit treated a party not named in the litigation as an
opposing party after concluding that the parties were "one
and the same for the purposes of th[e] litigation." Id. at 193
n.1. The Court held that because the parties "acted as a
single entity" and because one was the alter ego of the
other, both were "opposing parties" within the meaning of
Rule 13.
In Rohm and Haas Co. v. Brotech Corp., 770 F. Supp. 928(D. Del. 1991), Judge Roth observed that "Rule 13(a) is not
limited in its application to original parties." Id. at 934.
Although Rohm and Haas Co. involved a counterclaim
brought against one original party in addition to others,
Judge Roth reasoned that the counterclaim was
compulsory because it was brought against parties related
to the original party, which made their joinder appropriate.
See id.In each of these cases, courts interpreted "opposing
party" broadly for essentially the same reasons that courts
have interpreted "transaction or occurrence" liberally--to
give effect to the policy rationale of judicial economy
underlying Rule 13. Where parties are functionally
9
equivalent as in Avemco, where an unnamed party
controlled the litigation, or where, as in Banco Nacional, an
unnamed party was the alter ego of the named party, they
should be treated as opposing parties within the meaning of
Rule 13.
The doctrine of res judicata provides further support for
this approach. Courts have recognized the close connection
between Rule 13(a) and the doctrine of claim preclusion.
See, e.g., Publicis Communication v. True North
Communications Inc., 132 F.3d 363, 365 (7th Cir. 1997)
("The definition of a compulsory counterclaim . .. mirrors
the condition that triggers a defense of claim preclusion (res
judicata) if a claim was left out of a prior suit."). While the
Publicis court acknowledged that it is debatable whether
Rule 13(a) is "strictly an application of claim preclusion," it
noted that "both the scope of the doctrine and its rationale
are the same as those of claim preclusion, and most of the
time the label is inconsequential." Id. at 366. It is therefore
noteworthy that in the claim preclusion context, where an
earlier lawsuit establishes the rights or liabilities of a party,
both the named party and those in privity with it are bound
by the holding. See, e.g., Corestates Bank, N.A. v. Huls
America, Inc., 176 F.3d 187, 194 (3d Cir. 1999) (stating that
claim preclusion applies to "the same parties and their
privities"); Martino v. McDonald’s System, Inc., 598 F.2d
1079, 1083 (7th Cir. 1979) ("The principle of res judicata at
issue here treats a judgment on the merits as an absolute
bar to relitigation between the parties and those in privity
with them. . . .").
III.
The District Court determined that IIC was the equivalent
of an opposing party because IIC was assigned the rights of
the Texas plaintiffs, North River and U.S. Fire, and IIC
ratified the assignment. We agree.
The focal point of our analysis is the nature of the
relationship between IIC and the Texas plaintiffs. In the
Texas action, the plaintiffs are North River and U.S. Fire; in
the New Jersey action, the defendants are AOA and IIC. As
part of a corporate restructuring, IIC assumed from North
10
River and U.S. Fire all of the obligations under insurance
policies issued on their behalf by AOA. North River and
U.S. Fire assigned their rights under the Treaties at issue
to IIC, which ratified the assignment. IIC then conducted
the Texas litigation on behalf of and in the name of North
River and U.S. Fire. Pursuant to the assignment and
ratification, IIC will be assigned any recovery by the Texas
plaintiffs. Moreover, because IIC is a successor in interest
to North River and U.S. Fire, a determination that
Transamerica was not a reinsurer of North River and U.S.
Fire will necessarily preclude any claim IIC might bring as
assignee of their rights. In short, IIC is the successor in
interest and assignee of all rights implicated by these
actions and has conducted the litigation on behalf of North
River and U.S. Fire. Thus, by virtue of the assignment, the
rights that are at stake in the Texas litigation are actually
IIC’s rights, not North River or U.S. Fire’s, and this is the
reason why IIC is conducting the litigation in the Texas
action.
Avemco Insurance Co. v. Cessna Aircraft Co. is the case
most instructive for our analysis here. In Avemco, the
insurer, as subrogee of its insured, conducted the litigation
in both actions and was thus considered to be an opposing
party within the meaning of Rule 13(a) although it was not
a named party in either action. The Tenth Circuit held that
Rule 13(a) applied to the named party "and, by subrogation,
to Avemco" because "an insurer as subrogee has no greater
rights than those possessed by its insured." Id. at 1000.
Similarly, in Banco Nacional de Cuba v. First National City
Bank of New York, the Second Circuit determined that an
unnamed party was an opposing party under Rule 13 due
to its relationship to the named party. In particular, the
Court stated that the unnamed party and its alter ego, the
named party, were "one and the same for the purposes of
this litigation." Id. at 193 n.1. Here, IIC, though not a
formal subrogee or corporate alter ego, is the successor in
interest and assignee of the rights of the named parties,
and is conducting the litigation in Texas as attorney-in-fact
on behalf of the named parties. As in Avemco and, to a
lesser extent, Banco Nacional, the rights and interests of
IIC, the unnamed party in the Texas action, are so closely
identified with North River and U.S. Fire, the named
11
parties, that IIC must be considered an opposing party for
Rule 13(a) purposes.
It is significant that the insurer, IIC, was actually the
party controlling the litigation in both actions, as was the
case in Avemco. This is an essential component of our
analysis because it establishes that Transamerica was
aware of the identity of interests between IIC and the Texas
plaintiffs. Thus, Transamerica may fairly be charged with
the responsibility of filing a compulsory counterclaim
against IIC in the Texas litigation. This may seem to be a
harsh rule, but because Transamerica was on notice of
IIC’s interest in the Texas action and identity with the
Texas plaintiffs, it is no harsher than Rule 13(a) claim
preclusion in any other context. See, e.g., Martino v.
McDonald’s System, Inc., 598 F.2d 1079, 1082 (7th Cir.
1979) ("Rule 13(a) is in some ways a harsh rule. It forces
parties to raise certain claims at the time and place chosen
by their opponents, or to lose them.").
Furthermore, insofar as Rule 13(a) embodies the scope
and rationale of the doctrine of claim preclusion, it stands
to reason that the term "opposing party" in Rule 13(a)
should mirror the understanding of the parallel actors in
the res judicata context. Res judicata acts as a bar to
relitigation of an adjudicated claim between parties and
those in privity with them. See, e.g., Corestates Bank, N.A.
v. Huls America, Inc., 176 F.3d 187, 194 (3d Cir. 1999);
Martino, 598 F.2d at 1083. The rationale is that if the
adjudication of an action is binding on parties in privity
with the parties formally named in the litigation, then any
claims against parties in privity should be brought in the
same action lest the door be kept open for subsequent
relitigation of the same claims. This is the same reasoning
that underlies Rule 13(a). Therefore, "opposing party" in
Rule 13(a) should include parties in privity with the
formally named opposing parties. Here, there is privity
between IIC and the Texas plaintiffs because the Texas
plaintiffs assigned IIC their rights with respect to this
litigation. See Mandeville & Jameson v. Joseph Riddle &
Co., 5 U.S. 290, 298 (1803) ("[T]here is a privity between
the assignor and his immediate assignee"); In re 815 Walnut
Associates, 183 B.R. 423, 432 (Bankr. E.D. Pa. 1995) ("An
12
assignee is normally understood to stand in privity to his
assignor."). As a result, IIC should be considered an
opposing party for Rule 13(a) purposes because it is in
privity with North River and U.S. Fire.
Additionally, we note that there is no question that the
two actions arise out of the same contracts. In the New
Jersey action, Transamerica seeks a declaration that it is
not liable under certain treaties entered into by its agents--
ZGI in 1985 and ZLSI in 1987. Transamerica also seeks to
recover any sums that it mistakenly paid under these
treaties to AOA and IIC. In the Texas action, North River
and U.S. Fire seek payment by Transamerica of all the
losses of the 1985 and 1987 treaties that Transamerica has
not paid. The same reinsurance agreements are at issue in
both actions.
Finally, adjudicating these issues at once is consistent
with the approach to judicial economy underlying the
Federal Rules of Civil Procedure. Here, it is clear that
holding separate trials on each of the claims would"involve
a substantial duplication of effort and time by the parties
and the courts." Xerox Corp. v. SCM Corp., 576 F.2d 1057,
1059 (3d Cir. 1978). The two cases involve the same factual
and legal issues because they involve the same controversy
between the parties. Consequently, by finding the action at
issue in this case to be barred as a compulsory
counterclaim that Transamerica should have filed in the
Texas action, we effectuate the purpose of Rule 13(a) "to
prevent multiplicity of actions and to achieve resolution in
a single lawsuit of all disputes arising out of common
matters." Southern Construction Co. v. Pickard, 371 U.S. 57,
60 (1962).
Therefore, we agree with the District Court’s
determination and hold here that the term "opposing party"
in Rule 13(a) includes IIC even though it was not a named
party in the Texas litigation.
IV.
Having determined that Transamerica should have
brought its claims in the New Jersey action against IIC as
a compulsory counterclaim in the Texas action, we further
13
note that Transamerica’s claims against AOA should also
have been raised in the Texas action under Rule 13(h).
Even though AOA cannot be considered an opposing party
in the sense that IIC can, Rule 13(h) would permit the
joinder of AOA as an additional party to the counterclaim
that Transamerica should have brought in the Texas action.
Finally, Transamerica asserts that because U.S. Fire and
North River assigned their interests in the treaties to IIC,
they lack standing to sue under the treaties, and the
District Court in the Texas action thus lacks subject matter
jurisdiction. This argument fails because the assignment of
rights between U.S. Fire and North River and IIC did not
affect U.S. Fire and North River’s standing to pursue
reinsurance claims against Transamerica. Transamerica
never consented to the assignment as was explicitly
required by the reinsurance contracts for the assignment to
be effective against Transamerica. Moreover, this
jurisdictional claim should have been raised to the District
Court in the Texas action.
In conclusion, we agree with the District Court that
Transamerica’s claims in the New Jersey action should
have been brought as a compulsory counterclaim in the
Texas action. Given the relationship of IIC to U.S. Fire and
North River, it should be considered an opposing party
under Rule13(a). Accordingly, we affirm the District Court’s
dismissal of Transamerica’s complaint against IIC and AOA.
14
RENDELL, Circuit Judge, dissenting:
I respectfully dissent because neither the record nor the
case law supports the expansive reading of Rule 13
espoused by the majority. I am, therefore, unwilling to
make the leap from the rule’s plain language --"opposing
party" -- to find that Transamerica should have leveled its
claims against IIC in the litigation brought by North River
and U.S. Fire, to which IIC was never a party. If this ruling
is left to stand, defendants will act at their peril in not
joining, so as to be able to counterclaim against, any person
or entity that has a stake in, or will be bound by, the
outcome. This greatly expands the term "opposing party"
beyond its clear meaning. I would adhere to the statutory
language, especially in the murky fact pattern presented
here, and given that "privity" was not argued by the parties,
and would reverse the District Court.
Of the few cases that interpret "opposing party," the
majority relies most heavily on Avemco Insurance Co. v.
Cessna Aircraft Co., 11 F.3d 998 (10th Cir. 1993), the only
case that comes remotely close to providing the basis for
enlarging 13(a)’s scope. But the subrogation at issue there
is clearly distinguishable from our facts. As subrogee, the
insurer "stood in the shoes" of the insured once the claim
was paid, a much closer case than the fact pattern here, in
which we have no showing that North River and U.S. Fire
were in the same position as IIC, or had identical rights
and obligations.1
Further, I submit that Judge Holloway’s dissent in
Avemco is most persuasive. "Party," as he pointed out,
means "a person whose name is designated on record as
plaintiff or defendant," and "[t]he very concept of a
_________________________________________________________________
1. Banco Nacional de Cuba v. First National City Bank of New York, 478
F.2d 191 (2d Cir. 1973), is similarly distinguishable. As the majority
notes, the court there held that Cuba’s national bank and Cuba "acted
as a single entity" and one was the "alter ego" of the other. Id. at 193-94.
The court based this conclusion on the facts that a Cuban law declared
that the banking function would be exercised only by the state, that the
suing bank was occupied by militia commanded by the Banco Nacional,
and that the Minister of State was the President of Banco Nacional.
There is nothing approaching those circumstances in this case.
15
counterclaim presupposes the existence or assertion of a
claim against the party filing it." Id. at 1003 (Holloway, J.,
dissenting) (internal citations omitted). Moreover, he
reasoned, a reading of "opposing party" that includes those
not already named parties would impose mandatory
intervention, which is not supported by case law or the
Federal Rules of Civil Procedure. See id. (citing Martin v.
Wilks, 490 U.S. 755 (1989) (holding that there is no
obligation to intervene and pointing to Rule 24’s permissive
language), and Montgomery Ward Dev. Corp. v. Juster, 932
F.2d 1378, 1383 (11th Cir. 1991) (defendant who did not
join and was not obligated to join a prior lawsuit could not
"be barred now by a failure to have done so")).
Curiously, the District Court based its ruling on two
opinions of other courts that found that counterclaims were
compulsory where they were against an entity that was in
fact party to the original litigation. There, additional
defendants or plaintiffs were named in the second suit, but
13(a) still applied to the entity that was a named defendant
in the first and a named plaintiff in the second. See AMP
Inc. v. Zacharias, No. 87 C 3244, 1987 WL 12676 (N.D. Ill.
June 15, 1987); Rohm & Haas Co. v. Brotech Corp. , 770 F.
Supp. 928 (D. De. 1991). This is not the situation here,
where IIC was never a party to the Texas litigation.
The majority further states that a broad reading of
"opposing party" is justified by the policy of judicial
economy that underlies Rule 13. But I suggest that
principles of claim preclusion generally provide sufficient
protection against re-litigation of an adjudicated claim, and
we need not turn this federal rule into a rule of claim
preclusion for the sake of judicial economy. While some
claim preclusion results from a proper application of
Rule 13(a), this principle should not be employed to expand
its boundaries. The fact that the effect of failing to plead a
counterclaim can be explained in terms of claim preclusion
does not mean that the rule’s language should be
interpreted to equate the two.
Moreover, this is not a proper case in which to expand,
or expound on, the concept of "opposing party" because the
record is unclear as to the relationship among IIC, North
River, and U.S. Fire. There is a vague reference to an
16
assignment of rights, but it is not documented. What are its
limits? Is it an assignment for collection? Notwithstanding
the majority’s assessment of the facts, namely that North
River and U.S. Fire assigned their rights and obligations to
IIC, and that IIC conducted the Texas litigation as attorney-
in-fact for North River and U.S. Fire, the record fails to
reflect the precise relationship among these entities, nor
(contrary to the majority’s assertion) does it contain any
evidence of "control of litigation" by IIC. 2
In fact, IIC had the opportunity to clarify its role in the
Texas litigation when Transamerica questioned whether IIC
should have brought the action, but IIC, in response, did
not join as plaintiff or intervene or indicate that it was an
assignee or state that it was in control. Rather, it issued a
"Ratification" that stated, "International hereby ratifies the
commencement of the above-referenced action by Plaintiffs;
authorizes its continuation; and agrees to be bound by the
final, non-appealable judgment or award." Though it
distanced itself then, IIC now argues that Transamerica
should have counterclaimed against IIC -- presumably after
having joined it in those proceedings.
In sum, when a federal rule that regulates the way
litigation is conducted uses the words "opposing party," it
means just that. In my view, none of the reasons put forth
by the majority justifies departure from the plain language
of the rule. Accordingly, I respectfully dissent.
_________________________________________________________________
2. Notably absent from the record is documentation of an actual
assignment. Instead, the only evidence is an affidavit from IIC’s lawyer,
a court order from a case involving IIC and different parties, and
correspondence among counsel. Even where these refer to some transfer
of rights, they are unclear as to its precise contours. One letter from
IIC’s attorney states that IIC took financial responsibility for U.S. Fire
and North River policies, but that the policies were not novated to IIC by
the policyholders, while other correspondence indicates that certain
North River and U.S. Fire policies were "novated or reinsured into IIC."
The evidence of IIC’s control of the Texas litigation is similarly vague,
consisting only of the affidavit of IIC’s attorney and a passing reference
in the Joint Status Report in the Texas litigation.
17
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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