Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_08-cv-00691/USCOURTS-casd-3_08-cv-00691-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

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- 1 - 08cv691 WQH (POR)

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

CENTURY SURETY COMPANY, an

Ohio corporation,

Plaintiff,

CASE NO. 08cv691 WQH (POR)

ORDER

vs.

NEW BEGINNINGS FOR WOMEN,

INC., a California corporation,

Defendant.

HAYES, Judge:

The matter before the Court is the Motion to Dismiss for Failure to Join a Party under

Rule 19 (Doc. #3) filed by Defendant New Beginnings for Women, Inc.

Background

On April 16, 2008, Plaintiff Century Surety Company, an Ohio corporation, initiated

this action by filing the Complaint (Doc. #1) against Defendant New Beginnings for Women,

Inc., a California corporation. The Complaint alleges that Plaintiff issued commercial general

liability insurance policies to Defendant for the period from November 8, 2004 until the policy

was cancelled effective February 26, 2007. Id., ¶¶ 3-5, 8. The Complaint alleges that when

Defendant applied for insurance coverage it affirmatively represented in the application that

it was a “bed and breakfast” inn, was not a medical facility, did not employ medical

professionals and did not provide medical services. Id., ¶ 9. The Complaint alleges that these

representations made on Defendant’s insurance application were false. The Complaint alleges

Case 3:08-cv-00691-WQH-CAB Document 8 Filed 10/23/08 Page 1 of 5
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- 2 - 08cv691 WQH (POR)

that Defendant in fact operated a recovery facility for people who had recently undergone

surgery and employed Paula Turk, a registered nurse who provided care to the guests. Id., ¶¶

10-11. The Complaint alleges that Plaintiff relied on the information within the insurance

application, and that had Plaintiff known the information in the application was false it would

not have issued the polices to Defendant or would have issued the policies on materially

different terms. Id., ¶¶ 12-13. The Complaint alleges that upon discovery of the

misrepresentations on the insurance application, Plaintiff mailed a notice of cancellation to

Defendant on January 22, 2007, effective February 26, 2007. Id., ¶ 14. 

The Complaint alleges that from February 21, 2007 through February 25, 2007, a

woman by the name of Anita Weinberg stayed at Defendant’s facility after undergoing surgery.

Id., ¶¶ 15-16. The Complaint alleges that in February 2008, Weinberg and her husband filed

a lawsuit against Defendant alleging that she received negligent and careless observation,

medical treatment and care following surgery while a resident at Defendant’s facility

(“Underlying Action”). Id., ¶ 17. The Complaint alleges that in March 2008, Defendant

tendered the Underlying Action to Plaintiff, requesting a defense and indemnity. Id., ¶ 18. In

response, Plaintiff initiated the action presently before this Court for rescission and declaratory

relief. Plaintiff seeks rescission of Defendant’s insurance policy and a judicial declaration

confirming that the policy is extinguished; and a judicial declaration that Defendant’s

misrepresentations on the insurance application “provide a proper basis for [Plaintiff] to

decline [Defendant’s] request for a defense and indemnity against the claims asserted in the

Underlying Action.” Id., p. 5. 

On May 16, 2008, Defendant filed the Motion to Dismiss the Complaint for Failure to

Join a Party under Rule 19 of the Federal Rules of Civil Procedure. The Motion to Dismiss

asserts that Ken Scheiler and/or Scheiler Insurance Group (“Scheiler”) is a necessary party for

just adjudication of the case. Mot. to Dismiss, p. 2. The Motion to Dismiss asserts that

Scheiler was acting as Plaintiff’s agent, and “sold and/or purported to sell to [Defendant] a

comprehensive general liability policy.” Id.; see Scheiler Decl., ¶ 2. The Motion to Dismiss

asserts that 

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- 3 - 08cv691 WQH (POR)

the purported ‘application’ documents provided by [Plaintiff] (as Exhibit B to

Plaintiff’s Complaint) cannot be given credence. Said documents include

forgeries and/or documents that have otherwise been improperly withheld and/or

misrepresented to [Defendant]. It is unknown whether Ken Scheiler and/or

others from (and/or otherwise acting on behalf of) [Plaintiff] forged or attempted

to forge the signature of John Turk [President of Defendant corporation]. 

Id., at 3. The Motion to Dismiss asserts that “[i]f, in this action, [Defendant] is somehow

found to have committed some type of wrong against [Plaintiff], such a result and finding

could, and likely would, be contrary to other yet-to-be-determined findings on liability . . .

and/or issues pertaining to and/or otherwise arising from the precise same set of

circumstances.” Id., at 4. The Motion to Dismiss asserts that, in light of the foregoing,

effective relief cannot be granted without Scheiler participating as a party to this action

because Scheiler “is needed for just adjudication,” and allowing the action to proceed without

joining Scheiler will subject Defendant “to a substantial risk of incurring double, multiple or

otherwise inconsistent obligations.” Id., at 4. The Motion to Dismiss asserts that Scheiler may

be a California resident, such that joining Scheiler would destroy diversity. The Motion to

Dismiss asserts that the case must be dismissed because Scheiler is a necessary party, and

joinder of Scheiler is not feasible because doing so would destroy diversity. 

On June 25, 2006 Plaintiff filed the Response in Opposition to the Motion to Dismiss

(Doc. #5). The Response states that Defendant incorrectly asserts that Scheiler is Plaintiff’s

agent. Plaintiff states that as demonstrated in the Exhibit attached to the Complaint, Scheiler

is an agent of Defendant. Response, p. 2; Amick Decl., ¶ 5. The Response asserts that

“although [Defendant] may have indemnity or other claims against [Scheiler] (if the facts

[Plaintiff] alleges are true), the absence of a potential indemnitor is not a reason for

compulsory joinder.” Response, p. 2-3. 

On June 27, 2008 Defendant filed the Reply to the Response to the Motion to Dismiss.

(Doc. #6). Defendant states that “[t]he only sound way to establish how, when and by whom

documents were made . . . is for discovery to be taken.” Reply, p. 6. 

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Applicable Law

Rule 19 describes the circumstances when a person must be joined as a necessary party.

Rule 19(a) provides that, if feasible, a person must be joined as a necessary party if in the

person’s absence, the court cannot accord complete relief among existing parties; or if the

person claims an interest in the subject matter of the action and the interest may be

compromised by the person’s absence, or the person’s absence will expose the existing parties

to the risk of inconsistent results. Fed. R. Civ. P. 19(a)(1). Rule 19(b) provides that when a

party is necessary, but joinder is not feasible (for example when joinder would destroy

diversity), “the court must determine whether, in equity and good conscience, the action should

proceed among the existing parties or should be dismissed.” Fed. R. Civ. P. 19(b). 

The moving party has the burden of establishing that a person must be joined as a

necessary party. Makah Indian Tribe v. Verity, 910 F.2d 555, 558 (9th Cir. 1990). “The

inquiry is a practical one and fact specific, and is designed to avoid the harsh results of rigid

application.” Id. (citations omitted). 

Ruling of the Court

The parties dispute whether Scheiler was an agent of Plaintiff or Defendant. In addition

to asserting that Scheiler was an agent of Plaintiff, Defendant asserts that Scheiler may have

forged signatures on the application documents at issue in this action. However, aside from

Defendant’s conclusory assertion that joinder of Scheiler is necessary for just adjudication,

Defendant has failed to establish how the relief requested by Plaintiff - rescission of the

insurance policy and declaratory relief - cannot be afforded without joining Scheiler.

Defendant does not assert that Scheiler claims any interest in the present litigation. To the

extent Plaintiff asserts that Scheiler is a necessary party because either Plaintiff or Defendant

may have an indemnity claim against Scheiler, Scheiler may be added to this lawsuit as an

agent by way of third-party complaint. Aside from the conclusory assertion that without the

joinder of Scheiler, Defendant “will be subject to a substantial risk of incurring double,

multiple or otherwise inconsistent obligations,” Defendant has failed to establish why, without

the joinder of Scheiler, the parties to this action will be exposed to inconsistent results. The

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Court concludes that Defendant has failed to satisfy its burden of establishing that Scheiler is

a necessary party under Rule 19 of the Federal Rules of Civil Procedure. The Court denies the

Motion to Dismiss. 

IT IS HEREBY ORDERED that the Motion to Dismiss for Failure to Join a Party

under Rule 19 (Doc. #3) is DENIED. 

DATED: October 23, 2008

WILLIAM Q. HAYES

United States District Judge

Case 3:08-cv-00691-WQH-CAB Document 8 Filed 10/23/08 Page 5 of 5