United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 11-1429

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Cascades Development of Minnesota, *

LLC, doing business as Anytime *

Fitness, Inc.; Associated Insurance *

Agents, Inc.; Nicholas Newton; *

Westport Insurance Corporation, *

*

Plaintiffs - Appellants, *

* Appeal from the United States

v. * District Court for the

* District of Minnesota.

National Specialty Insurance, also *

known as NSI; Jade Janina Benson, *

and her legal guardians Jeffrey Arthur *

Benson and Janina Faye Benson; West *

Bend Insurance Company, *

*

Defendants - Appellees. *

___________

Submitted: November 15, 2011

Filed: April 4, 2012

___________

Before WOLLMAN, MURPHY, and BENTON, Circuit Judges.

___________

BENTON, Circuit Judge.

Nicholas Newton, Cascades Development of Minnesota, LLC, Associated

Insurance Agents, Inc., and Westport Insurance Corp. sued West Bend Insurance Co.

and National Specialty Insurance, seeking indemnification and reformation of a
workers’ compensation insurance policy. The district court granted summary

judgment to the defendants. Because the district court lacked subject matter

jurisdiction, this court vacates and remands. 

The jurisdictional facts are not in dispute. Cascades Development operated a

fitness facility in Inver Grove Heights, Minnesota. In September 2006, it obtained

workers’ compensation insurance from National Specialty Insurance (a division of

West Bend Insurance), through a local agency, Associated Insurance Agents. 

Nicholas Newton was an insurance agent with Associated, but also the brother of one

of Cascades’ principals. Newton promised his brother to begin the insurance on

September 1, but the policy did not go into effect until September 20. 

An employee of Cascades was permanently disabled in a car accident on

September 18 – before the policy’s effective date. West Bend refused to pay the

workers’ compensation claim. Payment was made by Associated Insurance Agents’

errors-and-omissions carrier, Westport Insurance, which agreed to be a de facto

workers’ compensation insurer. 

At the same time, Cascades assigned its right to indemnification against West

Bend to Newton, Associated Insurance Agents, and Westport Insurance. The

assignment states:

Cascades Development possesses a rights of indemnity for

workers’ compensation claims and defense costs against West Bend

(“Claim”) for the potential liability to which Cascades Development is

exposed because of [the employee]’s workers’ compensation claim. 

Cascades Development assigns its Claim to AIA, Nick Newton and

Westport.

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It does not list any specific consideration provided by Newton for the assignment.1

In March 2009, Cascades and Westport Insurance settled the employee’s claim

against Cascades, including an ongoing compensation plan. According to Newton,

he has not incurred any out-of-pocket loss from the employee’s injury.

In September 2009, Newton, Cascades, Associated Insurance Agents, and

Westport Insurance sued West Bend in state court. They sought reformation of the

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workers’ compensation policy to reflect an effective date of September 1, 2007, and

indemnification under the re-formed contract. They contend that Newton’s promise

to his brother bound West Bend to insure Cascades effective September 1. West

Bend removed this case to federal court under 28 U.S.C. § 1441, asserting diversity

jurisdiction under 28 U.S.C. § 1332.

The plaintiffs did not challenge subject matter jurisdiction at the time of

removal. On its own, the district court ordered West Bend to show cause for diversity

jurisdiction, noting that the pleadings did not reveal the citizenship of the members

of Cascades. Both plaintiff Newton and defendant West Bend are citizens of

Wisconsin. However, the district court retained jurisdiction, finding that Westport

– a Missouri corporation – is the real party in interest and that Newton’s presence did

not destroy diversity because he is a nominal party. The district court granted West

Bend’s motion for summary judgment, dismissing all claims on the merits. 

The agreement recites the consideration for the assignment as “the assumption

1

of the obligation to defend and indemnify Cascades Development for the

[employee’s] workers’ compensation claim undertaken by AIA and Westport.”

The complaint also lists as defendants the employee and her legal guardians,

2

who have not participated in this case, and National Specialty Insurance, which is a

division of West Bend.

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The threshold issue is whether the district court had subject matter jurisdiction. 

This court reviews subject matter jurisdiction de novo. Slater v. Republic-Vanguard

Ins. Co., 650 F.3d 1132, 1134 (8th Cir. 2011). “If the district court did not have

original jurisdiction when the case was removed, remand to state court is required,

even after final judgment . . . .” Id.

Diversity jurisdiction requires “complete diversity, that is‘where no defendant

holds citizenship in the same state where any plaintiff holds citizenship.’” Junk v.

Terminix Int’l Co., 628 F.3d 439, 445 (8th Cir. 2010), cert. denied, 132 S. Ct. 94

(2011), quoting In re Prempro Prods. Liab. Litig., 591 F.3d 613, 620 (8th Cir.), cert.

denied, 131 S. Ct. 474 (2010). “However, if the ‘nondiverse’ plaintiff is not a real

party in interest, and is purely a formal or nominal party, his or its presence in the

case may be ignored in determining jurisdiction.” Iowa Pub. Serv. Co. v. Medicine

Bow Coal Co., 556 F.2d 400, 404 (8th Cir. 1977), citing Salem Trust Co. v.

Manufacturers’ Fin. Co., 264 U.S. 182 (1924). 

A “‘real party in interest’ is the person who, under governing substantive law,

is entitled to enforce the right asserted.” Id. In this diversity case, the governing

substantive law is the law of Minnesota. See Erie R.R. Co. v. Tompkins, 304 U.S.

64, 78 (1938). Cascades argues that it assigned its claims under the policy to Newton,

and he istherefore entitled to enforce its rights to indemnification against West Bend

and to reformation of the insurance policy.

Cascades’ gratuitous assignment to Newton is valid under Minnesota law. See

Minnesota Mut. Life Ins. Co. v. Anderson, 504 N.W.2d 284, 287 (Minn. Ct. App.

1993), citing Bowen v. Willard, 281 N.W. 256, 259 (Minn. 1938). “Under Minnesota

law, no particular form of words is required for an assignment, but the assignor must

manifest an intent to transfer and must not retain any control or any power of

revocation.” Id. at 286, citing Guaranty State Bank of St. Paul v. Lindquist, 304

N.W.2d 278, 280-81 (Minn. 1980). “[A] gratuitous assignment is irrevocable if ‘the

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assignment is in a writing either signed or under seal that is delivered by the

assignor.’” Lansing v. Concrete Design Specialties, Inc., No. A05-1543, 2006 WL

1229638, at *6 (Minn. Ct. App. May 9, 2006) (unpublished), quoting Restatement

(Second) of Contracts § 332 (1981). The assignment in this case is valid, as it is in

writing, signed by Cascades, and delivered to Newton.

West Bend argues that Newton – despite the valid assignment – is still not

entitled to enforce any right to indemnification against West Bend, because he has not

incurred “any loss arising from [the employee]’s accident.” True, “[t]he doctrine of

indemnity is based upon the idea that when one is compelled to pay money which in

justice another ought to pay, the former may recover of the latter the amount actually

paid unless barred by the former’s wrongful conduct.” Geldert v. American Nat’l

Bank, 506 N.W.2d 22, 29 (Minn. Ct. App. 1993), citing Lunderberg v. Bierman, 63

N.W.2d 355, 359 (Minn. 1954). However, “[a]n assignment operates to place the

assignee in the shoes of the assignor, and provides the assignee with the same legal

rights as the assignor had before assignment.” Illinois Farmers Ins. Co. v. Glass

Serv. Co., 683 N.W.2d 792, 803 (Minn. 2004) (emphasis added). 

When A assigns its right to indemnification to B, B receives the right to

reimbursement from C for A’s loss as assignor, not B’s loss as assignee. See Geldert,

506 N.W.2d at 28-29. In Geldert, the payee of several stolen checks settled with the

payor bank in exchange for $5,000 and an assignment of the payor bank’s right to

indemnification against the depositary and collection banks. Id. at 24. The payee

sued the depositary and collection banks. The Minnesota Court of Appeals held that

the payee’s recovery under the assigned right to indemnification was determined by

the payor bank/assignor’s loss. Id. at 29. The payee/assignee’s loss was irrelevant. 

Id. 

The key in this case is to identify the reimbursable loss from the perspective

of Cascades (the assignor), not from the perspective of Newton (the assignee). 

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Through its settlement with the injured employee, Cascades’ liability was set and its

right to indemnification arose. See Altermatt v. Arlan’s Dep’t Stores, 169 N.W.2d

231, 232 (Minn. 1969) (per curiam) (“[A] right of indemnity arises where the one

seeking indemnity has incurred liability because of a breach of duty owed to him by

the one sought to be charged [and] the right to recover indemnity is not lost by reason

of any settlement with the claimant.” (internal quotation marks omitted)). Cascades

validly assigned its right to indemnification against West Bend to Newton. Newton

is therefore entitled to enforce the assigned right to indemnity.

Newton is also entitled to enforce the asserted right to reformation of the

insurance policy. “An insurance policy . . . may be reformed by the courts if it can

be proved that: ‘(1) there was a valid agreement between the parties expressing their

real intentions; (2) the written instrument failed to express the real intentions of the

parties; and (3) this failure was due to a mutual mistake of the parties, or a unilateral

mistake accompanied by fraud or inequitable conduct by the other party.’” 

Leamington Co. v. Nonprofits’ Ins. Ass’n, 615 N.W.2d 349, 354 (Minn. 2000),

quoting Nichols v. Shelard Nat’l Bank, 294 N.W.2d 730, 734 (Minn. 1980).

West Bend maintains that Newton is not a party to the insurance policy and

therefore may not seek its reformation. However, parties in privity with the original

parties to a contract are entitled to reformation. See 66 Am. Jur. 2d Reformation of

Instruments § 60 (2011) (“Reformation may be had not only by the original parties

to the instrument but also by the following: a real party in interest claiming privity to

the instrument such as . . . an assignee . . . .”); Restatement (Second) of Contracts

§ 155 cmt. e (1981) (“Reformation may be granted at the request of any party to the

contract . . . or of a party’s successor in interest.”); cf. Manderfeld v. Krovitz, 539

N.W.2d 802, 805 (Minn. Ct. App. 1995) (“Reformation is generally allowed against

the original parties to an instrument and those in privity with the immediate parties.”

(emphasis added)). As an assignee of Cascades’ rights as an original party to the

contract, Newton is in privity with the original parties and may seek reformation of

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the policy. See La Mourea v. Rhude, 295 N.W. 304, 307 (Minn. 1940) (“A, by 3

contract, secures a promise from B. A may transfer his right of enforcement to C. C

thereby succeeds to A’s right of action, and, in consequence, comes into the

relationship with A and B which we call privity of contract.”); 76 C.J.S.Reformation

of Instruments § 65 (2011) (“Assignees in privity with the original parties succeed

to the remedy of reformation.”).

Newton – as Cascades’ assignee – is entitled to enforce both the right to

indemnification and the right to reformation. He is a real party in interest, destroying

diversity jurisdiction. The district court lacked subject matter jurisdiction and should

have remanded back to the state court.

* * * * * * *

The judgment is vacated, and the case remanded to the district court for remand

to state court.

______________________________

In its brief, West Bend assumes that Westport may assert the right to 3

reformation. Westport – like Newton – was not an original party to the policy, and

– like Newton – its ability to enforce the right to reformation arises from its status as

Cascades’ assignee.

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