                                                                                                                           Opinions of the United
2004 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


6-29-2004

Guthrie Clinic LTD v. Travelers Indemnity
Precedential or Non-Precedential: Non-Precedential

Docket No. 02-3502




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                                                               NOT PRECEDENTIAL

                      UNITED STATES COURT OF APPEALS
                           FOR THE THIRD CIRCUIT


                                    No. 02-3502


                             GUTHRIE CLINIC, LTD,
                                        Appellant

                                          v.

               TRAVELERS INDEMNITY COM PANY OF ILLINOIS;
                ELLEN THURSTON; AON CORP; AON RISK SER,
                Now known as AON Risk Services Inc., of Maryland


                     Appeal from the United States District Court
                       for the Middle District of Pennsylvania
                             (D.C. Civil No. 00-cv-01173)
                     District Judge: Honorable James M. Munley


                              Argued January 15, 2004

           Before: SLOVITER, RENDELL and ALDISERT, Circuit Judges.

                               (Filed: June 29, 2004)


Stephen J. Mathes [ARGUED]
Jan F. Call
Hoyle, Fickler, Herschel & Mathes
One South Broad, Suite 1500
Philadelphia, PA 19107
  Counsel for Appellant
Todd B. Narvol [ARGUED]
Thomas, Thomas & Hafer
305 North Front Street
P.O. Box 999
Harrisburg, PA 17108
  Counsel for Appellee,
  Travelers Indemnity
  Company of Illinois

J. David Smith [ARGUED]
McCormick, Reeder, Nichols, Bahl, Knecht & Person
835 West Fourth Street
Williamsport, PA 17701
   Counsel for Appellees,
   AON Corp and AON Risk Ser,
   Now known as AON Risk Services Inc., of Maryland




                               OPINION OF THE COURT


       This appeal comes to us from an order of the United States District Court for the

Middle District of Pennsylvania dismissing an action brought by Guthrie Clinic, Ltd.

(“Guthrie”), a Pennsylvania entity, against several entities purportedly responsible for

providing Guthrie with excess liability insurance coverage for certain years. In

particular, Guthrie alleges that renewal insurance policies it retained for 1998 and 1999

were, contrary to its expectations, materially different from its previous insurance

policies. Because of the resulting gaps in coverage, Guthrie alleges that it suffered losses

which it urges it had reasonably assumed were covered. Guthrie filed a diversity suit in

federal court against the insurance carrier for the 1998 and 1999 policies, Travelers


                                             2
Indemnity Company of Illinois (“Travelers”), and certain entities that brokered the

relevant insurance policies. Upon a motion filed by Travelers, the District Court

concluded that Guthrie had failed to join the particular insurance broker, a Pennsylvania

entity that it alleged had been instrumental in securing Guthrie’s 1999 renewal policy.

Having determined that broker to be a necessary and indispensable party pursuant to Fed.

R. Civ. P. 19, the District Court dismissed the action because the joinder of a non-diverse

party would destroy its subject matter jurisdiction. We have jurisdiction over the District

Court’s final order under 28 U.S.C. § 1291. We will affirm.

                                             I.

       Guthrie purchased a $5 million excess insurance policy from Travelers covering

the period between September 1, 1996 and September 1, 1997 (the “1996 policy”). An

excess insurance policy provides secondary insurance after the primary insurers’

coverage, here $1.2 million, has been exhausted. Travelers issued a renewal policy

identical to the 1996 policy in 1997. The 1998 renewal policy was, by contrast,

materially different. The changes allegedly included a new definition of covered claims

and modified notification procedures. Guthrie alleges that because these changes to the

insurance policy were made unilaterally and without any notice, it was under the belief

that the coverage was identical to the 1996 and 1997 policies. In August of 1999,

Guthrie signed a 1999 renewal policy that was identical to the 1998 renewal policy in all

material respects, again assuming the provisions mirrored those of the 1996 and 1997


                                             3
policies.

       In June of 1998, Ellen Thurston filed a medical malpractice claim against various

defendants including Guthrie. Aware that the suit was likely to reach the limits of its

primary coverage and implicate its excess liability coverage, Guthrie notified Travelers

of the Thurston claim. Citing the changed portions of the 1998 policy, Travelers rejected

coverage of the claim on September 17, 1999. The Thurston suit eventually settled for

$6.1 million, $2.5 million of which was in excess of Guthrie’s primary coverage, and

which Guthrie contends Travelers should have paid. In addition to Thurston’s lawsuit,

twenty-seven other medical malpractice claims have been since brought against Guthrie,

but these claims have yet to implicate any excess insurance coverage policy.

       Each of these Travelers policies, from 1996 to 1999, was brokered by various

entities related to Aon Corporation, a Delaware corporation. Guthrie learned through

discovery that Aon Corporation was merely a parent holding company for specific

entities that brokered the relevant insurance policies to Guthrie. One such entity was

Aon Risk Services, Inc. of Pennsylvania (hereinafter “ARS PA I”),1 a Pennsylvania

corporation, which sold Guthrie the 1996 and 1997 policies. In March of 1998, ARS PA

I merged with Alexander & Alexander, Inc. to form an entity called Aon Risk Services,




  1
  For the sake of convenience, we will retain the abbreviations used by the District
Court.

                                             4
Inc. U.S., a Maryland corporation.2 In June 1999, Aon Risk Services, Inc. U.S. changed

its name to Aon Risk Services, Inc. of Maryland (hereinafter “ARS US/MD”). ARS

US/MD brokered the 1998 policy, which was implicated in the settlement following the

Thurston lawsuit. In February of 1999, a new Pennsylvania corporation was formed,

Aon Risk Services, Inc. of Pennsylvania (hereinafter “ARS PA III”).3 ARS PA III sold

Guthrie the 1999 policy.

       After Travelers rejected secondary insurance coverage of the Thurston claim,

Guthrie sued under various theories seeking inter alia compensatory damages with

respect to the Thurston claim and declaratory relief ensuring that the twenty-seven other

malpractice claims would be covered by Travelers. Guthrie filed the action in federal

court, invoking diversity jurisdiction under 28 U.S.C. § 1332. The complaint named

Travelers (a Connecticut company), Aon Corporation (a Delaware company and the

parent company of the various brokerage entities), and ARS US/MD (a Maryland

company). Travelers moved the District Court to dismiss the complaint pursuant to Fed.

R. Civ. P. 12(b)(7) and 19, contending that a non-diverse (Pennsylvania) entity, ARS PA

III, was an indispensable party to the action. The District Court agreed that Guthrie’s

  2
    The District Court expressly declined to consider Travelers’ challenges to the
propriety of this merger in support of its Rule 19 motion. Likewise, we need not entertain
this issue on appeal as it was not considered by the District Court and is unnecessary to
our disposition.
  3
   In June of 1998, Aon Risk Services, Inc. U.S. sought to register itself in Pennsylvania
under the fictitious name of Aon Risk Services, Inc. of Pennsylvania (hereinafter “ARS
PA II”), but then canceled this name not long thereafter.

                                            5
complaint could not go forward without the joinder of ARS PA III, which divested the

Court of diversity jurisdiction and required dismissal for lack of jurisdiction. Guthrie

timely appealed.

                                              II.

       A Rule 19 inquiry is bifurcated.4 First, under Rule 19(a), a district court considers

whether a party is necessary to an action. If a party is deemed necessary, then joinder


  4
    Rule 19 provides in part that:
(a) Persons to be Joined if Feasible. 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 imped the person's ability to protect that interest or
(ii) leave any of the persons already parties subject to a substantial risk of incurring
double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.
If the person has not been so joined, the court shall order that the person be made a party.
If the person should join as a plaintiff but refuses to do so, the person may be made a
defendant, or, in a proper case, an involuntary plaintiff. If the joined party objects to
venue and joinder of that party would render the venue of the action improper, that party
shall be dismissed from the action.
(b) Determination by the Court Whenever Joinder Not Feasible. 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 provisions in the judgment, by the shaping of relief, or
other measures, 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.

                                               6
must occur if feasible. If, as here, the addition of a necessary party would divest a court

of subject matter jurisdiction, then a court must determine whether in “equity and good

conscience” the action should proceed without that party, or whether the action should be

dismissed, “the absent person being thus regarded as indispensable.” Accordingly, a

finding of indispensability under Rule 19(b) necessitates dismissal for lack of subject

matter jurisdiction.

       We review a district court’s determination as to Rule 19(a) de novo, while

reviewing subsidiary findings of fact under a clear error standard. Gardiner v. V.I. Water

& Power Auth., 145 F.3d 635, 640 (3d Cir. 1998). We review a court’s ruling under

Rule 19(b) for abuse of discretion. Id.

                                             A.

       The District Court concluded that ARS PA III was a necessary party under Rule

19(a), holding that absent ARS PA III “complete relief [could not] be accorded among

those already parties.” Fed. R. Civ. P. 19(a)(1). We agree.

       The District Court held that while Guthrie sought relief with respect to the 1999

policy, it did not name the necessary party responsible for brokering that policy, ARS PA

III. Initially, along with Travelers, Guthrie sued Aon Corporation, the parent entity

based in Delaware, but upon discovering that it was but a holding company, Guthrie

amended its complaint to “add[] the Aon corporate entity responsible for procuring the

1998 Renewal Policy,” which was ARS US/MD. App. Br. at 10. But the allegations and


                                             7
relief requested in Guthrie’s complaint were not limited to the 1998 policy, but indeed

referenced the 1999 policy as well.

       Guthrie argues that any mention of the 1999 policy in the complaint was just a

“factual statement” and not an allegation as such. But even a cursory reading of the

complaint reveals specific allegations concerning the 1999 policy. Guthrie does not just

set out facts but seeks to attach liability with respect to the brokerage of the 1999 policy.

See Pl. Compl.¶ 128 (“[A]t no time during the 1999 renewal process did AON inform

Guthrie that the terms and conditions of the proposed 1999 Renewal Policy differed

materially from the terms and conditions of the 1997 Renewal Policy or that the 1999

Renewal Policy would create a significant gap in Guthrie’s Insurance Coverage.”)5 For

the gaps in coverage in both the 1998 and 1999 policies, Guthrie “demand[ed] that

judgment be entered against AON for compensatory damages in excess of $75,000 plus

exemplary damages, interest and attorneys’ fees, together with such relief as the Court

deems just and appropriate.” Pl. Compl.¶ 209. As noted above, the specific corporate

entity that brokered the 1999 policy was not ARS US/MD but ARS PA III. We agree

with the District Court that, as the complaint predicated liability and relief on the 1999

policy, complete relief cannot be accorded without the joinder of ARS PA III as per Rule



  5
   Guthrie further averred that “[b]ut for AON’s conduct, Guthrie would have procured
excess layer insurance policies for the 1998 and 1999 policy period which provided
coverage for the claims at issue in this litigation and which would not have created the
gap in coverage created by the 1998 and 1999 Travelers policies.” Id. ¶ 204.

                                              8
19(a)(1).

        Having determined that Rule 19(a)(1) applies, we need not labor over the

remaining factors. See Angst v. Royal Maccabees Life Insur. Co, 77 F.3d 701, 706 (3d

Cir. 1996) (“Under Rule 19(a), we need only find that the party’s absence results in any

of the problems identified in the rule.” (citing Estrella v. V & G Mgmt. Corp, 158 F.R.D.

575, 579 (D.N.J. 1994))). Our conclusion that ARS PA III is a necessary party under

Rule 19(a) brings us to the indispensability inquiry under Rule 19(b), to which we turn

next.

                                             B.

        While not exhaustive, the four factors listed under Rule 19(b) are “the most

important considerations” in deciding whether a party is indispensable. See Gardiner,

145 F.3d at 640–41. The District Court focused its Rule 19(b) inquiry on the fourth

factor listed under the Rule, namely, the availability of an adequate remedy for the

plaintiff if the matter were dismissed. The District Court observed that Guthrie has an

alternative forum in state court, a conclusion which Guthrie has not seriously contested.6

Rather, Guthrie takes issue with the District Court’s statement that the fourth factor was

dispositive of the Rule 19(b) inquiry.

        To support its reasoning that one Rule 19(b) factor was sufficient, the District



  6
  Guthrie acknowledges that it has filed a Writ of Summons in state court against ARS
PA III and ARS US/MD.

                                              9
Court cited to our opinion in Angst, where we indeed reasoned that the fourth factor was

dispositive of the inquiry. But we limited the holding in Angst to the facts of that case.

77 F.3d at 706 (“In this case, the fourth factor listed in Rule 19(b), whether the plaintiff

will have an adequate remedy if the action is dismissed, is dispositive.” (emphasis

supplied)). Ordinarily, however, the availability of a state forum cannot alone support a

finding of indispensability. See Bank of Am. Nat’l Trust & Sav. Assoc v. Nilsi, 844 F.2d

1050, 1055 (3d Cir. 1988) (“surely the availability of an alternative forum cannot be the

sole basis for dismissing a suit commenced in the federal courts.” (quoting J. Moore,

Moore’s Federal Practice ¶ 19.07-2[4], at 19-161 (2d ed. 1979))). Regardless of the

fourth factor, the District Court nevertheless went on to briefly consider the three

remaining factors.

       Rule 19(b)’s first factor involves the extent to which “a judgment rendered in the

person’s absence might be prejudicial to the person or those already parties.” Fed. R.

Civ. P. 19(b). We have observed that this factor is closely related to the “inability to

accord complete relief” test under 19(a)(1). Gardiner, 145 F.3d at 641 n.4 (“The first

factor under Rule 19(b) overlaps considerably with the Rule 19(a) analysis.”). We

conclude that it would be impossible to accord complete relief with respect to Guthrie’s

claim against the 1999 policy without prejudicing ARS PA III.

       We agree with the District Court that the interest of ARS PA III was also “great”

because of the specific allegations against it in the complaint, against which ARS PA III


                                             10
if not present could not defend. Any adverse judgment or finding as to liability could, as

Travelers suggests, be held to bind ARS PA III in another forum, if it were considered to

be in privity with the related AON entity, ARS US/MD, the named party that sold

Guthrie its 1998 policy. See, e.g., Delaware Port Auth. v. Fraternal Order of Police, 290

F.3d 567, 572 (3d Cir. 2002). If, based on such privity, Guthrie were to seek to preclude

ARS PA III from relitigating a judgment or related issues found in this case, it is likely

that the law of Pennsylvania would govern. While we express no opinion here as to the

Pennsylvania courts’ understanding of privity, or predict the outcome of any privity

analysis, we note that there are some indications in the record that could arguably support

a finding of privity. For instance, the various Aon entities share the same counsel, a

factor which, while not necessarily dispositive, is considered by some courts to be

indicative of privity. Vasquez v. Bridgestone/Firestone, Inc., 325 F.3d 665, 677 (5th Cir.

2003). Further, despite the various corporate forms, the record indicates that the same

insurance agent, using the same office in Pennsylvania, brokered each of the relevant

policies. These and other relevant factors might compel a court to later find an identity

of interest between ARS MD and the absent ARS PA III. See Ammon v. McCloskey,

655 A.2d 549, 554 (Pa. Sup. Ct. 1995). Accordingly, the attendant possibility of claim or

issue preclusion further supports the conclusion that ARS PA III is likely to be

prejudiced absent its joinder.

       The second and third factors listed under Rule 19(b) are closely linked and, in this


                                             11
case, also weigh in favor of finding indispensability. The second factor involves the

extent to which a court can shape the relief awarded in such a manner as to mitigate

prejudice, and the third factor ensures that any such relief will be adequate. As noted

above, Guthrie’s complaint sought to attach liability with respect to the brokerage of the

1999 policy; specifically Guthrie averred, and sought a ruling, that intentional or

negligent misrepresentation of the contents of the 1999 policy led to a gap in its

coverage. For this harm, Guthrie “demand[ed] that judgment be entered against AON

for compensatory damages in excess of $75,000 plus exemplary damages, interest and

attorneys’ fees, together with such relief as the Court deems just and appropriate.” Pl.

Compl.¶ 209. However, in the absence of ARS PA III in this litigation, it would have

been difficult to fashion any adequate remedy with respect to the 1999 policy.

       On appeal, Guthrie lamely argues that because it does not yet face any lawsuits

that have implicated the excess liability coverage in the 1999 policy, no damages have

yet accrued under that policy, and it only seeks declaratory relief regarding the broker’s

liability. But even if the District Court is not assessing monetary damages, Guthrie has

sought other “just and appropriate” relief. And it is plain that without the joinder of ARS

PA III, any remedy related to the brokerage of the 1999 policy, be it injunctive or

declaratory relief, would be unfair and prejudicial to ARS PA III.

                                            III.

       Accordingly, we conclude that the District Court did not abuse its discretion in


                                            12
finding that ARS PA III was an indispensable party. The order of the District Court will

be AFFIRMED.




                                           13
