                                                                                                                           Opinions of the United
1996 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


2-20-1996

Angst v. Royal MacCabees Life Ins. Co.
Precedential or Non-Precedential:

Docket 95-1555




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                  UNITED STATES COURT OF APPEALS
                      FOR THE THIRD CIRCUIT


                             No. 95-1555


                          ROBERT ANGST,
                                    Appellant

                                 v.

             ROYAL MACCABEES LIFE INSURANCE COMPANY;
             FEDERAL KEMPER LIFE ASSURANCE COMPANY;
         DAVID J. SCHILLER, ESQUIRE, Intervenor in D.C.


          APPEAL FROM THE UNITED STATES DISTRICT COURT
            FOR THE EASTERN DISTRICT OF PENNSYLVANIA
                    (D.C. Civ. No. 95-06858)


           Submitted under Third Circuit LAR 34.1(a)
                      on January 30, 1996

       Before:   GREENBERG and NYGAARD, Circuit Judges and
                    LAY, Senior Circuit Judge*

                   (Filed:    February 20, l996)


                       OPINION OF THE COURT




* Honorable Donald P. Lay, United States Senior Circuit Judge for
the Eighth Circuit Court of Appeals, sitting by designation.




                                 1
NYGAARD, Circuit Judge.


       Robert Angst appeals from an order dismissing his case for

lack of subject matter jurisdiction under Fed. R. Civ. P.

12(b)(1).    For the reasons below, we will affirm the decision of

the district court.

                                 I.

       Angst, a Pennsylvania citizen, sued Royal Maccabees Life

Insurance Company and Federal Kemper Life Assurance Company.      For

diversity purposes, Royal is a citizen of the state of Michigan

and Kemper is a citizen of the state of Illinois.    Royal and

Kemper each issued an insurance policy in which Angst is the

contingent beneficiary.    Angst alleged that he is entitled to

proceeds from both policies, but that, in violation of their

respective insurance agreements, the defendants have refused to

pay.

       The policies at issue were purchased by Appellant Robert

Angst's brother, Thomas Angst.    The Royal policy was issued on

Thomas Angst's life, and the Kemper policy was issued on the life

of Cynthia Papanikos-Angst, Thomas Angst's wife.    Each spouse had

named the other as the primary beneficiary and Robert Angst as

the alternate beneficiary.    Thomas Angst killed his wife and his

son, then took his own life.    Robert Angst believes that he is

entitled to the proceeds of both policies.

                                 II.

       On October 14, 1994, Appellee David J. Schiller was

appointed as the receiver for Thomas E. Angst & Associates, P.C.,



                                 2
the deceased's law practice, by the Court of Common Pleas of

Montgomery County.   By orders dated November 7 and 14, 1994, the

Court of Common Pleas ordered Royal to pay the proceeds of Thomas

Angst's policy into escrow.   Robert Angst sought a dissolution of

these orders, which the state court denied.

     On November 15, 1994 (the day after Robert Angst filed his

complaint in federal court), Schiller filed a complaint in the

Court of Common Pleas against Royal, Kemper and Robert Angst

seeking to have a constructive trust imposed on the proceeds of

the two insurance policies.   He alleged that the life insurance

policies were purchased with funds misappropriated from the

escrow accounts of Thomas Angst's clients.    He further alleged

that Robert Angst would be unjustly enriched if he were permitted

to receive the proceeds of the two policies, and that the

proceeds belonged to certain of the law firm's creditors.

     Schiller filed a motion to intervene in the federal action.

The district court held a hearing on February 13, 1995, after

which it orally granted the motion.1   As a result of the

receiver's intervention, the court realigned the parties

according to their interests in the litigation.   It rejected

Robert Angst's argument that the action constituted a Rule 22

interpleader in which the insurance companies would be the




1
   Cynthia Papanikos-Angst's father, Konstantinos Papanikos filed
motions to intervene and to dismiss the action. Robert Angst
filed a motion for injunctive relief in the district court. He
essentially asked that Schiller be enjoined from pursuing his
action in the state courts.

                                3
stakeholders and Angst and Schiller the claimants.2    Instead, the

court determined that Angst and Schiller were "the true opposing

parties" in the action.    Because they are both citizens of

Pennsylvania, diversity of citizenship was destroyed and the

court dismissed the case for lack of subject matter jurisdiction.

                                 III.

     Angst does not dispute the propriety of Schiller's

intervention.   Rather, he asserts that the district court should

have realigned the parties to reflect a Rule 22 interpleader

action.   We exercise plenary review over a district court's

alignment of the parties with respect to diversity jurisdiction.

Employers Ins. of Wausau v. Crown Cork & Seal Co., 942 F.2d 862,

864 (3d Cir. 1991).

                      A. Alignment of the Parties

     Angst relies primarily upon Kerrigan's Estate v. Joseph E.

Seagram & Sons, Inc., 199 F.2d 694 (3d Cir. 1952), to demonstrate

that his situation would properly be construed as an

interpleader.   He also cites several other cases to support the

position that the federal courts have uniformly held that where a

stakeholder is diverse from its claimants, diversity is satisfied

under 28 U.S.C. § 1332, regardless of the citizenship of the

claimants.




2
  Rule 22 provides that "[p]ersons having claims against the
plaintiff may be joined as defendants and required to interplead
when their claims are such that the plaintiff is or may be
exposed to double or multiple liability. . . ." Fed. R. Civ. P.
22(1).

                                  4
     Nonetheless, whether a Rule 22 interpleader requires minimal

or complete diversity is not the issue here.    It appears to be

well-settled that diversity between the stakeholder and claimants

is sufficient to confer federal jurisdiction if the amount in

controversy is met.    See Kerrigan's Estate, 199 F.2d at 696; 7

Charles A. Wright et al., Federal Practice and Procedure § 1710

(1986).   The dispute here concerns the proper alignment of the

parties according to their interests.

     In City of Indianapolis v. Chase Nat'l Bank, 314 U.S. 63, 62

S. Ct. 15 (1941), the U.S. Supreme Court stated that the

positioning of the parties for purposes of diversity "must be

ascertained from the 'principal purpose of the suit,' . . . and

the 'primary and controlling matter in dispute.'" 314 U.S. at 68

(citations omitted).    We have reaffirmed that the correct inquiry

turns not on some artificial position, but the "principal

purpose" of the action: "[A] court must first identify the

primary issue in controversy and then determine whether there is

a real dispute by opposing parties over that issue." Wausau, 942

F.2d at 864.

     To identify the primary issue, we must first look to the

pleadings submitted by the parties. Id. at 866.    We also have a

duty to look beyond the pleadings to determine the actual

interests of the parties.   Development Finance Corp. v. Alpha

Housing & Health Care, Inc., 54 F.3d 156 (3d Cir. 1995).    In this

case, Angst's complaint indicates that he seeks to compel the

insurance companies to pay him benefits to which he believes he

is entitled.   If Angst's complaint were the only pleading guiding


                                 5
the "principal purpose" analysis, then an interpleader alignment

might be proper.   As the cases cited by Angst indicate, an

interpleader structure is often used in cases involving

disinterested insurance companies and claimants asserting

entitlement to insurance proceeds.   See, e.g., Aetna Life and

Casualty Co. v. Spain, 556 F.2d 747 (5th Cir. 1977); John Hancock

Mutual Life Insurance Co. v. Kraft, 200 F.2d 952 (2d Cir. 1953).

Nonetheless, we must also take into consideration the receiver's

motion to intervene, together with the circumstances surrounding

the case.

     Unlike the cases cited by Angst, in which the primary issue

concerned which claimant was the intended beneficiary of the

policy, in this case Schiller does not dispute that Angst is the

correct beneficiary.   Rather, Schiller seeks to have a

constructive trust placed on the proceeds once they are received

by Angst.   Schiller's motion to intervene and state court

complaint indicate that the only issue he raises is whether

appellant should be allowed to keep the proceeds despite the fact

that he might be the named alternate beneficiary under the

contract.   As such, the "principal purpose" of the litigation is

not simply to determine who is entitled to the benefits under the

contract, but whether appellant's potential entitlement to them

can be upheld in equity.   It is for this reason that Schiller

intervened in the action, to which appellant did not and does not

object.

     Therefore, Kerrigan's Estate does not support appellant's

argument.   In that case, this Court let stand the district


                                6
court's exercise of federal diversity jurisdiction in a suit

between an executor of an estate and a relative of the deceased,

both Pennsylvania residents, who claimed an entitlement to

proceeds from a contract.    However, the two parties had agreed

that they would be disinterested stakeholders in an interpleader

action and would later resolve the ownership of the res between

themselves. 199 F.2d at 696.    Like the insurance companies in

John Hancock and Aetna, in Kerrigan's Estate the plaintiff was

the stakeholder who sought a determination of the claimant's

rights.    Under these circumstances, the district court correctly

determined that an interpleader would not have been proper

because Schiller and Angst are adverse to each other.

     However, the parties' adversity does not dispose of the

jurisdictional question.    If an intervenor's entry in the case

can be supported by ancillary jurisdiction, diversity of

citizenship between the intervenor and the other parties to the

litigation is unnecessary.     See generally 7C Charles A. Wright et

al., Federal Practice and Procedure § 1917 (1986); 3A James W.

Moore, Moore's Federal Practice ¶ 19.34 (2d ed. 1995).    If,

however, the non-diverse intervenor was an indispensable party

under Rule 19 when the complaint was filed, the action must be

dismissed.   See Freeport-McMoRan, Inc. v. KN Energy, Inc., 498

U.S. 426, 111 S. Ct. 858 (1991) (per curiam); Constain Coal

Holdings, Inc. v. Resource Inv. Corp., 15 F.3d 733 (7th Cir.

1994).    As the district court failed to make an explicit Rule 19

determination, we shall make an independent analysis.    See Sindia




                                  7
Expedition, Inc. v. Wrecked & Abandoned Vessel, 895 F.2d 116, 121

(3d Cir. 1990).

                        B. Rule 19 Analysis

     Our analysis involves two steps:     first, we must determine

whether a party is necessary under 19(a); second, we must

determine whether it is indispensable under 19(b).    Schulman v.

J.P. Morgan Inv. Management, Inc., 35 F.3d 799 (3d Cir. 1994).

     Rule 19(a) requires the joinder of a party who is subject to

service of process and within the court's subject matter

jurisdiction when:
     (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
           that 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.

Fed. R. Civ. P. 19(a)(1) & (2).

     Accordingly, we first consider whether complete relief can

be accorded among those who are already parties in the receiver's

absence.   See Sindia, 895 F.2d at 121.    Completeness is

determined on the basis of those persons who are already parties,

and not as between a party and the absent person whose joinder is

sought. Id. (quoting 3A Moore's Federal Practice ¶ 19.07-1[1] at

93-98 (2d ed. 1989)).   Angst and the insurance companies would



                                  8
not receive "hollow" relief without the receiver.   As discussed

above, the only issue between Angst, Royal and Kemper is whether

Angst is entitled to proceeds as a named beneficiary under the

contract.   Schiller's interest in the litigation would

theoretically not come into play until after Angst had received

the proceeds, as he seeks to impose a constructive trust on them.

The possibility that the successful party to the original

litigation might have to defend its rights in a subsequent suit

by the receiver does not make it a necessary party to the action.

Sindia, 895 F.2d at 122.   Therefore, Angst, Royal and Kemper

would not necessarily be deprived of complete relief in the

receiver's absence.

     Notwithstanding a determination of complete relief, a party

may still be necessary under subsection (a)(2) of the rule.     We

first analyze the case under section (i), to determine whether

disposition of the action without the receiver will "as a

practical matter impair or impede" its ability to protect his

interest in the litigation.   In order to do so, the effect of the

federal judgment must have a "direct and immediate" effect on the

state court proceedings.   See Janney Montgomery Scott, Inc. v.

Shepard Niles, Inc., 11 F.3d 399, 407 (3d Cir. 1993).     "[I]t must

be shown that some outcome of the federal case that is reasonably

likely can preclude the absent party with respect to an issue

material to the absent party's rights or duties under standard

principles governing the effect of prior judgments."      Id.

     As the Janney Court noted, under Pennsylvania law a party

may be precluded from relitigating an issue if the issues are


                                9
identical, the parties are in privity and the party against whom

preclusion is asserted had a full and fair opportunity to

litigate the issue in a prior action.    Id. at 399 n. 12

(citations omitted).    Because Schiller would not have a full and

fair opportunity to litigate the issue if he were not joined,

state law would accord no preclusive effect to the federal court

judgment.   As such, his absence would not, as a practical matter,

impair his interest.   See also Schulman, 35 F.3d at 806

(discussing Pennsylvania law and issue preclusion for purposes of

19(b)).

     However, the receiver's absence might subject the already

existing parties to multiple obligations, as envisioned by

subdivision (ii).    In this case, Angst and the insurance

companies are already parties to a state action being prosecuted

by the receiver.    If both actions proceed, the insurance

companies will be asked to deposit the proceeds for the same

insurance policies into two different escrow accounts.

Subdivision(ii) addresses not only multiple or inconsistent

obligations; "[t]his subdivision also helps to protect defendants

from 'needless' multiple litigation."    Sindia, 895 F.2d at 122

(citations omitted).    Together with the fact that a federal

action would not have a preclusive effect on the state action,

the existence of a prior state action in this case would subject

the already existing parties to "needless" multiple litigation.

Under Rule 19(a), we need only find that the party's absence

results in any of the problems identified in the rule.      Estrella

v. V & G Management Corp., 158 F.R.D. 575, 579 (D.N.J. 1994).


                                 10
Accordingly, Schiller is a "party which must be joined" in the

action pursuant to Rule 19(a).3

     Because we determine that the receiver would have been a

"necessary party" at the time the complaint was filed, but his

citizenship would destroy diversity jurisdiction, we also must

determine whether he would have been an "indispensable party."

Under section 19(b), "the court shall determine whether in equity

and good conscience the action should proceed among the parties

before it . . . ."     The Rule lists four factors to be

considered, but does not accord a particular weight to any of

them.    "This must be determined by the court in terms of the

facts of a given case and in light of the governing equity-and-

good-conscience test."    7 Wright et al. § 1608.

        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.     As discussed above, Angst will

have an adequate remedy by way of the existing state court
3
  Angst makes much of the fact that this federal action was filed
one day before the state action which named him as a defendant.
However, as the district court pointed out during the hearing,
the November 15, 1994 complaint is a related proceeding to the
receivership proceedings. Appellant's arguments to the contrary
belie common sense. The nature of a receivership is such that
the appointed individual represents the entity in all actions
regarding its past obligations. David Schiller did not bring the
November 15, 1994 state action because he personally has an
interest in the insurance proceeds, but because the assets of the
corporation he was appointed to manage are allegedly at stake.
See Black's Law Dictionary 1268 (6th ed. 1990) ("[receiver is a]
person appointed by a court for the purpose of preserving
property of a debtor pending an action against him, or applying
the property in satisfaction of a creditor's claim. . .").
Schiller was appointed a receiver to the professional corporation
by order entered October 14, 1994.



                                  11
action, which involves all of the parties he desires to have

included in his federal action.

     Angst has not presented any persuasive arguments as to why

his case should not be heard in state court.    In his brief, he

implies that because the state court actions were assigned to the

same state judge that handled the receivership proceedings, some

sort of bias is operating against him.    He also alleges that the

receivership orders came about by way of wrongful ex parte

actions.   Again, these allegations simply do not comport with

common sense.    A more reasonable explanation of the state court's

judicial assignment process is that all related cases are

assigned to the same judge.    With respect to appellant's

allegations of ex parte conduct, appellant appears to

misunderstand the nature of a receivership.    A receiver is a

court-appointed individual who is to act under the supervision of

the court.    Furthermore, no decisions made by the state court

judge have affected appellant's substantive rights; the orders

which he complains of require only that the insurance proceeds be

deposited in escrow pending a substantive determination regarding

their ownership.    In the event that the state court were to make

some sort of legal error with respect to the case, appellant

could simply appeal.    Under these circumstances, "equity and good

conscience" urge us to affirm the district court's dismissal of

the action.

                                IV.

     We hold that the district court correctly declined to

recognize an interpleader structure among the parties involved in


                                  12
this case.   We also hold that because Schiller, the receiver, a

non-diverse intervenor of right, was a necessary and

indispensable party under Rule 19 when the complaint was filed,

the action must be dismissed.   For the foregoing reasons, we will

affirm the district court's June 27, 1995 order.




                                13
