Court Opinion

ID: 9953113
Source: CourtListenerOpinion
Date Created: 2024-03-21 16:02:02.860018+00
Date Added: 2024-06-11T14:45:41.217114
License: Public Domain

UNITED STATES DISTRICT COURT
                              FOR THE DISTRICT OF COLUMBIA

GRANT SCHERLING,

                Plaintiff,

        v.                                               Civil Action No. 23-1303 (TJK)

CHUBB LTD. et al.,

                Defendants.

                                     MEMORANDUM ORDER

        Plaintiff Grant Scherling, a Virginia resident, was involved in a car accident with Defend-

ant Erik Dahms, another Virginia resident. Scherling’s alleged injuries exceeded the limit of

Dahms’s liability policy. So Scherling submitted a claim for underinsured motorist coverage with

his own insurance providers. After unsuccessful settlement negotiations, Scherling sued Dahms

and the insurers in D.C. Superior Court.

        The insurers removed the case to this Court and moved to dismiss. Scherling now moves

to remand back to Superior Court, arguing that this Court lacks diversity jurisdiction because both

he and Dahms are residents of the same state. He also maintains that removal was improper be-

cause Dahms did not consent to it. The insurers argue that the Court can ignore these apparent

deficiencies because Dahms is only a “nominal” defendant. The Court disagrees. Dahms is a real

and substantial party because he has hired his own attorney, filed an answer, and, most importantly,

is contesting his liability in this case. For that reason, it lacks subject-matter jurisdiction, and so it

will grant Scherling’s motion and remand back to Superior Court.
I.     Background

       In April 2019, Scherling (a Virginia resident) was involved in a car accident with Dahms

(also a Virginia resident) on the 14th Street Bridge over the Potomac River, apparently within the

District of Columbia. See Compl. ¶¶ 6, 7, 29–31, ECF No. 1-1. At that time, Dahms had an

insurance policy with GEICO. Id. ¶ 36. GEICO offered to settle Scherling’s claim against Dahms

for the $30,000 limit of Dahms’s liability policy. Id. ¶ 37. GEICO issued payment for that amount

in April 2021. Id. ¶ 41. So later that same month, Scherling executed a Settlement Release,

thereby immunizing Dahms from further liability. Id. ¶¶ 42–43; ECF No. 1-2 at 147–48.

       For his part, Scherling was covered under insurance policies issued by Bankers Standard

Insurance Company and Federal Insurance Company. Compl. ¶¶ 14–15. The Bankers Standard

policy provided that it would pay bodily injury and property damages that an insured “is legally

entitled to recover from the owner or operator of an ‘uninsured [or underinsured] motor vehicle.’”

ECF No. 1-2 at 80. The coverage limit under this policy was $500,000. See id. at 28. The Federal

policy similarly provided that it would pay bodily injury and property damages that “a covered

person is legally entitled to receive from the owner or operator of an uninsured or underinsured

motorized land vehicle.” Id. at 129. This policy’s coverage limit was $1,000,000. Id.

       After settling with Dahms and GEICO, Scherling submitted an underinsured motorist claim

with his own insurance providers, Bankers Standard and Federal. See Compl. ¶ 47. He docu-

mented $132,967.99 in medical bills and $47,741.61 in lost wages. Id. The insurers offered to

settle for $245,000. Id. ¶ 48. Scherling contends this offer was made without medical expert

review of his complex spinal injuries. Id. ¶ 49. So after engaging in further settlement discussions,

the insurers upped their offer to $350,000, and requested additional information from Scherling.

Id. ¶¶ 50–51. In response, Scherling agreed to submit to a medical examination and then demanded

arbitration. Id. ¶¶ 52–53. But Scherling alleges that the insurers never responded to him. Id. ¶ 54.

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       As a result, in April 2023, Scherling sued in D.C. Superior Court. His complaint advanced

three counts: (1) breach of contract, (2) unfair claims practice in violation of Va. Code Ann. § 38.2-

510, and (3) a direct action under Va. Code Ann. § 38.2-2206. Id. ¶¶ 57–74. He sued Dahms,

Bankers Standard, Federal, and Chubb Ltd. Id. ¶¶ 7–10. Chubb is a Swiss corporation that owns

subsidiaries, including Bankers Standard and Federal, that issue casualty insurance. Id. ¶ 8–10.

       The Virginia statute under which Scherling brought the third count above requires him to

sue Dahms (even though they have already settled) and seek a judgment against him, which Scher-

ling’s insurers would then pay. See Va. Code Ann. § 38.2-2206(M). Specifically, under the stat-

ute, after an injured party like Scherling sues the released underinsured motorist, the injured party

serves the complaint upon his own insurer. That insurer may then “file pleadings and take other

action allowable by law in the name of the owner or operator of the uninsured or underinsured

motor vehicle or in its own name.” Id. § 38.2-2206(F). The injured party seeks a judgment “in

the name of” the released defendant motorist to establish the amount for which he is liable. Id.

§ 38.2-2206(M). And such a judgment is “enforceable against the . . . insurer.” Id.

       The insurers here, Bankers Standard and Federal, removed the case from Superior Court to

this Court based on diversity jurisdiction. See ECF No. 1. The Notice of Removal explained that

“Dahms is a nominal party to this action whose citizenship must be disregarded for” purposes of

determining diversity jurisdiction. Id. ¶ 9. Dahms did not join the Notice of Removal. 1 See id. at

1, 7. Bankers Standard and Federal then moved to dismiss. See ECF No. 10. Scherling challenged

the propriety of the removal and moved to remand back to Superior Court. See ECF No. 12.

II.    Legal Standards

       “A civil action filed in state court may only be removed to a United States district court if

       1
           Neither did Chubb, but Chubb was not served until some months later. See ECF No. 23.

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the case could originally have been brought in federal court.” Nat’l Consumers League v. Flowers

Bakeries, LLC, 36 F. Supp. 3d 26, 30 (D.D.C. 2014) (citing 28 U.S.C. § 1441(a)). “A federal court

has diversity jurisdiction when (1) there is complete diversity of citizenship among the parties (that

is, no plaintiff is a citizen of the same state as any defendant) and (2) the ‘amount in controversy’

is greater than $75,000.” Witte v. Gen. Nutrition Corp., 104 F. Supp. 3d 1, 4 (D.D.C. 2015) (citing

28 U.S.C. § 1332(a)). “Where the district court’s jurisdiction is dependent solely on the basis of

diversity of citizenship between the parties, there must be ‘complete diversity,’ meaning that no

plaintiff may have the same citizenship as any defendant.” Busby v. Capital One, N.A., 932 F.

Supp. 2d 114, 130 (D.D.C. 2013) (citing Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365,

373–74 (1978)). However, courts “must disregard” defendants deemed to be merely “nominal or

formal.” Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 461 (1980). Rather, in determining whether

diversity jurisdiction exists, courts must only consider “real and substantial parties to the contro-

versy.” Id. at 460. And “[p]arties are not ‘real’ when they . . . have no ‘control of, impact on, or

stake in the controversy.’” Busby, 932 F. Supp. 2d at 130 (quoting Lincoln Prop. Co. v. Roche,

546 U.S. 81, 92 (2005)).

       A “case shall be remanded” if the district court lacks subject-matter jurisdiction. 28 U.S.C.

§ 1447(c). On a motion to remand, “the burden is on the removing defendants to show that federal

jurisdiction exists and that the motion for remand should be denied.” In re Tobacco/Gov’tal Health

Care Costs Litig., 100 F. Supp. 2d 31, 35 (D.D.C. 2000). “Because of the significant federalism

concerns involved, this Court strictly construes the scope of its removal jurisdiction.” Downey v.

Ambassador Dev., LLC, 568 F. Supp. 2d 28, 30 (D.D.C. 2008). “Accordingly, ‘if federal jurisdic-

tion is doubtful, a remand to state court is necessary.’” Id. (quoting Dixon v. Coburg Dairy, Inc.,

369 F.3d 811, 815–16 (4th Cir. 2004) (en banc)). In other words, “the court must resolve any

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ambiguities concerning the propriety of removal in favor of remand.” Johnson-Brown v. 2200 M

Street LLC, 257 F. Supp. 2d 175, 177 (D.D.C. 2003).

III.   Analysis

       Scherling and Dahms are both citizens of Virginia, which would ordinarily preclude the

Court’s exercise of federal diversity jurisdiction and require it to remand the case back to Superior

Court. Bankers Standard and Federal argue that Dahms is a nominal party only and should be

disregarded for diversity purposes. Thus, the Court’s jurisdiction, and the propriety of remand,

turn on whether Dahms is a real party in interest or merely a nominal one. For the below reasons,

the Court agrees with Scherling that Dahms is a real party, and so remand is warranted.

       To determine whether a party is “real” or merely “nominal,” courts have considered several

factors. Those factors have included:

               (1) the level of control that the party retains over the litigation,
               (2) the weightiness of the party’s interest in the litigation,
               (3) whether the party has retained counsel, and
               (4) whether the party has given a statement or a deposition.

Owens v. Overstreet, No. 10-cv-784 (DAF), 2010 WL 4721709, at *3 (S.D. W. Va. Nov. 15, 2010).

The first factor “can be evidenced by the party’s appearance in the proceedings.” Id. And the

second, “[p]erhaps most important[]” factor, “often consider[s] the likelihood that the party will

incur financial liability as a result of later proceedings.” Id. Although case law on this issue is

sparse in this Circuit, these factors track how the Court of Appeals has approached such questions.

For example, in a suit brought “in the name of” the District of Columbia, it found the District of

Columbia a nominal party because it had “no pecuniary interest” in the matter, was not involved

in the suit’s prosecution, and was “protected from liability of [the suit’s] costs or results.” D.C. ex

rel. Am. Combustion, Inc. v. Transamerica Ins. Co., 797 F.2d 1041, 1047 (D.C. Cir. 1986).

       These factors, on balance, weigh against treating Dahms as merely a nominal party. The

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first and third factors support finding him a real party in interest. Dahms has appeared through

retained counsel and filed an answer in the Superior Court action. See ECF No. 1-3 at 15–19. His

counsel has also appeared in this federal proceeding. See ECF No. 8, ECF No. 14. The fourth

factor also supports finding him a real party. See Spencer v. Harris, 394 F. Supp. 2d 840, 845

(S.D. W. Va. 2005) (finding defendant not nominal where defendant testified that he was not at

fault). Although Dahms has not yet been deposed, he denied liability in his answer. See, e.g., ECF

No. 1-3 at 16 (“[Dahms] specifically denies all liability and damages.”); id. at 15 (alleging that

Scherling “was contributorily negligent”). Finally, the second factor—the weightiness of Dahms’s

interest in the litigation—cuts the other way, although not entirely. Scherling has immunized

Dahms from further liability, so he will not need to pay any judgment that results from this litiga-

tion. See Compl. ¶ 43; ECF No. 1-2 at 147–48. On the other hand, downstream consequences,

such as higher insurance premiums, may follow from an adverse judgment against him. See, e.g.,

Owens, 2010 WL 4721709, at *4 (“[Defendant] might be found to be a reckless driver as a result

of a trial, in which case [he] may have a much harder time obtaining a driver’s license in the future

and might have to pay more for insurance coverage.”). On balance, largely because he has entered

an appearance, retained counsel, and filed an answer denying liability, the Court finds that Dahms

is a “real and substantial part[y] to the controversy.” Navarro, 446 U.S. at 461.

       Bankers Standard and Federal resist this conclusion by emphasizing that Scherling has im-

munized Dahms. No doubt, that is the most favorable fact in their corner. But the way the Virginia

statue at issue works, it makes sense that Scherling would do so. Actions under that statute are

only brought “in the name of” the released motorist to seek a judgment that is not enforceable

against him. See Va. Code Ann. § 38.2-2206(M). Thus, in such actions, underinsured motorists

are generally “named only as a means to a more substantial end,” namely, “to trigger [the insurer’s]

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inchoate obligation to pay on its uninsured motorist coverage.” Kidd v. Gilfilen, 170 F. Supp. 2d

649, 652 (S.D. W. Va. 2001) (deeming motorist defendant “merely a nominal party”). Yet none

of that is “to say . . . that [Dahms] has no interest whatsoever.” Owens, 2010 WL 4721709, at *4.

As Scherling correctly notes, “[a]ny competent adult who has filled out an application for automo-

bile insurance understands that prior claims where the insured was deemed to be the at fault mo-

torist results in higher insurance premiums.” ECF No. 18 at 7. Even so, the Court agrees that,

without more, Dahms’ limited financial stake in this case would not likely support finding him a

real party in interest. Cf. Transamerica, 797 F.2d at 1047 (holding that, although the District of

Columbia indirectly benefitted from “the lower construction costs made possible by Little Miller

Act guarantees of payment,” it still had “no pecuniary interest” in the lawsuit). Several courts

have found that an indirect and speculative financial stake is not enough, on its own, to make a

defendant a real party. 2

        The problem for Bankers Standard and Federal is that the Court must weigh other factors

as well, as described above. Indeed, “[d]etermining nominal party status is a practical inquiry,

focused on the particular facts and circumstances of a case.” Hartford Fire Ins. Co. v. Harleysville

Mut. Ins. Co., 736 F.3d 255, 260 (4th Cir. 2013). In this case, Scherling must prove liability before

he can recover damages, no matter who pays them. Cf. Stewart v. Jennings, No. 10-cv-158 (CLC),

2010 WL 3009536, at *3 (E.D. Tenn. July 28, 2010) (“Jennings, although not personally liable for

        2
          See e.g., Owens, 2010 WL 4721709, at *4 (noting that the possibility of “pay[ing] more
for insurance coverage” is “too speculative to make Defendant a real party”); Cesil v. Liberty Mut.
Fire Ins. Co., No. 20-cv-8-M (REM), 2020 WL 2128636, at *3 (E.D.N.C. May 5, 2020) (“Plain-
tiff’s speculation that the outcome of her lawsuit could lead to a change in or impact [the defend-
ant’s] insurance premiums is insufficient to render [the defendant] a real party to the controversy.”
(cleaned up)); Hartford Fire Ins. Co. v. Harleysville Mut. Ins. Co., 736 F.3d 255, 261 (4th Cir.
2013) (holding that the defendant did “not possess a sufficient stake . . . to rise above the status of
a nominal party” even though its “future coverage limits” could be affected).

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the debt, is more than a nominal or formal party in this action. His alleged faulty construction

work is the central issue of the litigation and establishing his liability is necessary for Plaintiff to

recover from Owners.”). And here, Dahms has appeared, hired a lawyer, and filed an answer

denying liability—whether to avoid higher insurance premiums or simply because he wants to

clear his name of wrongdoing. Under these circumstances, the Court can hardly say that his pres-

ence is merely nominal. Indeed, the relevant statute explicitly contemplates that a defendant-mo-

torist may wish to vindicate his own interests in a case like this one. See Va. Code Ann. § 38.2-

2206(F) (“Nothing in this subsection shall prevent the owner or operator of the uninsured motor

vehicle from employing counsel of his own choice and taking any action in his own interest in

connection with the proceeding.”).

        Whether a purportedly nominal defendant has contested liability has mattered to other

courts as well. In Spencer, for example, the defendant-motorist (unlike Dahms) had not entered

an appearance or hired an attorney. 394 F. Supp. 2d at 845. But the simple fact that he denied

fault in his deposition contributed to the court’s determination that he was a real party in interest.

See id. Moreover, liability has even mattered where, as here, the defendant had no direct financial

stake in the case. In Monroe v. Continental Tire the Americas LLC, the plaintiff sued a “discharged

debtor under a state statute in order to collect against the discharged debtor’s insurer.” 807 F.

Supp. 2d 1129, 1132 (M.D. Fla. 2011). The debtor, in other words, would not pay on any judg-

ment. But because the plaintiffs were required “to establish [the debtor’s] liability and obtain a

judgment against [the debtor] prior to collecting a judgment against [the insurer],” the court con-

sidered the debtor indispensable, and not nominal. Id. at 1133–34 (emphasis added). So too here.

        For these reasons, while Dahms’s financial stake in this case is minimal—although not

nothing—the combination of other factors is enough to make him a real party in interest. Thus,

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the Court cannot ignore him to determine whether it has diversity jurisdiction. And without com-

plete diversity, the Court lacks jurisdiction, and must remand the case to Superior Court. See 28

U.S.C. § 1447(c). 3

IV.    Conclusion and Order

       For all the above reasons, it is hereby ORDERED that Plaintiff’s Motion to Remand, ECF

No. 12, is GRANTED. It is further ORDERED that this case is REMANDED to the Superior

Court of the District of Columbia. The Clerk of Court is directed to close the case.

       SO ORDERED.

                                                            /s/ Timothy J. Kelly
                                                            TIMOTHY J. KELLY
                                                            United States District Judge
Date: March 21, 2024

       3
          Removal was also improper for another reason. Specifically, “[w]here there are multiple
defendants, removal requires the unanimous and unambiguous consent of all served defendants.”
Ballard v. District of Columbia, 813 F. Supp. 2d 34, 37 (D.D.C. 2011) (cleaned up). “Unless all
defendants express such consent to removal in a timely manner [within 30 days], the removal
procedure is defective.” Williams v. Howard Univ., 984 F. Supp. 27, 29 (D.D.C. 1997). That
requirement was not satisfied here because Dahms did not consent to removal. There is an excep-
tion to this requirement “where a defendant is merely a nominal or formal party–defendant.” Kopff
v. World Research Group, LLC, 298 F. Supp. 2d 50, 54 (D.D.C. 2003). But because Dahms is not
a nominal party, that exception does not apply.

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