Court Opinion

ID: 2642370
Source: CourtListenerOpinion
Date Created: 2013-11-15 19:53:16.959134+00
Date Added: 2024-06-11T09:01:17.295211
License: Public Domain

PUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                               No. 12-1761

HARTFORD FIRE INSURANCE COMPANY,

                Plaintiff - Appellant,

           v.

HARLEYSVILLE MUTUAL INSURANCE COMPANY; ASSURANCE COMPANY OF
AMERICA; FIRST FINANCIAL INSURANCE COMPANY; FIRST MERCURY
INSURANCE COMPANY; G. R. HAMMONDS INC.,

                Defendants - Appellees.

Appeal from the United States District Court for the District of
South Carolina, at Charleston.     Richard M. Gergel, District
Judge. (2:11-cv-03081-RMG)

Argued:   September 17, 2013                 Decided:   November 15, 2013

Before WILKINSON, DUNCAN, and AGEE, Circuit Judges.

Affirmed by published opinion.       Judge Wilkinson          wrote   the
opinion, in which Judge Duncan and Judge Agee joined.

ARGUED: Steven M. Klepper, KRAMON & GRAHAM, P.A., Baltimore,
Maryland, for Appellant. David Leonard Brown, NELSON LEVINE DE
LUCA & HAMILTON, LLC, Greensboro, North Carolina, for Appellees.
ON BRIEF: Lee H. Ogburn, KRAMON & GRAHAM, P.A., Baltimore,
Maryland, for Appellant. David G. Harris, II, NELSON LEVINE DE
LUCA & HAMILTON, LLC, Greensboro, North Carolina; Robert C.
Calamari, NELSON MULLINS RILEY & SCARBOROUGH LLP, Myrtle Beach,
South Carolina, for Appellee Harleysville Mutual Insurance
Company. Phillip E. Reeves, Elizabeth J. Smith, GALLIVAN WHITE
& BOYD, P.A., Greenville, South Carolina, for Appellee Assurance
Company of America.      M. Dawes Cooke, Jr., BARNWELL WHALEY
PATTERSON HELMS, LLC, Charleston, South Carolina; Gary S. Kull,
CARROLL MCNULTY KULL, LLC, Basking Ridge, New Jersey, for
Appellee First Mercury Insurance Company.      Mark S. Barrow,
SWEENY WINGATE & BARROW, P.A., Columbia, South Carolina, for
Appellee First Financial Insurance Company.

                               2
WILKINSON, Circuit Judge:

        Nominal parties are excepted from the requirement that all

defendants join in or consent to removal to federal court. This

case    concerns    whether    insured    contractor     G.R.     Hammonds,    Inc.

(“Hammonds”) is a nominal party in a contribution suit between

its     insurers.   We   affirm    the    district      court’s    holding     that

Hammonds is a nominal party for purposes of the nominal party

exception to the rule of unanimity governing removal.

                                         I.

       This action arises out of allegedly defective roofing work

performed by defendant Hammonds, a North Carolina corporation,

on a project in Charleston, South Carolina (the “Concord West

Project”). The work was completed between early 1998 and March

2001. A series of different companies issued Hammonds liability

insurance     between    1995     and    2009.      Plaintiff     Hartford     Fire

Insurance    Company     (“Hartford”),        the    appellant    here,     insured

Hammonds from 1995 to 2002. The remaining defendants, appellees

here,    insured    Hammonds    for     overlapping     or     subsequent    years:

Assurance Company of America (“Zurich”) from 2001 to 2002; First

Financial    Insurance    Company       (“First     Financial”)    from     2002   to

2003;    Harleysville    Mutual       Insurance      Company    (“Harleysville”)

from 2003 to 2006; and First Mercury Insurance Company (“First

Mercury”) from 2006 to 2009.

                                         3
       Hammonds          was     sued     in     2008          by     homeowners           and     their

association         in     South       Carolina         state       court     for     the        alleged

defects in its work on the Concord West Project. That lawsuit

(the “Concord West Action”) was settled on September 1, 2011,

with all claims against Hammonds related to that construction

project being dismissed with prejudice. Hartford, Harleysville,

and Zurich each agreed to pay one third of a one-million-dollar

settlement,         subject       to    each     insurer’s            right      to   subsequently

resolve       the        proper       allocation          of        the   settlement             through

arbitration or litigation.

       Five days later, Harleysville filed a declaratory judgment

action in the district court for the Eastern District of North

Carolina (“North Carolina Action”), joining Hammonds and all of

the aforementioned insurers as defendants. That suit sought a

declaration of the rights and obligations of the insurers with

respect to damages arising out of Hammonds’s work on the Concord

West Project, as well as its allegedly defective work on two

other    projects.          On     September        21,        2011,      Hartford         filed    the

present   action          for     a    declaratory         judgment         in    South      Carolina

state court. Hartford named Hammonds and the four other insurers

that    had    covered           Hammonds      as       defendants.         Hartford         seeks    a

declaration         of    each        insurer’s         respective        share       of    the    one-

million-dollar            settlement        in      the        Concord        West     Action       and

                                                    4
equitable contribution from the other insurers to the extent

that Hartford is found to have overpaid its share.

      Harleysville      timely      removed      this   action      to   the   district

court for the District of South Carolina pursuant to 28 U.S.C.

§ 1332. The other defendant insurers consented to the removal on

the same day. Hammonds, however, neither consented nor objected

to   removal,   nor    claimed      an   interest       in    the   outcome     of   the

proceeding    at     that   time.    Upon       removal,     Harleysville      filed   a

motion to dismiss on the grounds that the present action was

duplicative     of    the   parallel,       previously-filed         North     Carolina

Action. 1   Hartford moved to remand the present case on the basis

of Hammonds’s failure to join in or consent to the notice of

removal. Months later, on February 24, 2012, Hammonds filed an

untimely answer to Hartford’s complaint in which it asserted an

interest in the outcome of the proceeding. 2

      1
       Although only Harleysville moved to dismiss, the district
court dismissed the case and entered judgment as to all the
defendants. Because “the claim raised by [Harleysville] in its
motion to dismiss would be equally effective in barring the
claim[s] against the [other insurers],” that dismissal was
proper.   Robinson v. Sappington, 351 F.3d 317, 333 n.11 (7th
Cir. 2003) (internal marks omitted). Furthermore, we note that
the court was free to raise the issue of the first-to-file rule
sua sponte.
      2
       After oral argument, Hartford also filed a motion to
reconsider the clerk’s order of January 16, 2013 denying
Hammonds’s motion for leave to file a separate brief on appeal.
The motion was irregular in numerous respects, including the
fact that plaintiff-appellant Hartford was trying to coax a
(Continued)
                                            5
      The district court found that Hammonds was a nominal party

for   purposes       of   the   nominal   party    exception          to   the   rule    of

unanimity governing removal. The district court determined that

the action did not seek any relief from Hammonds but merely

sought     to      determine    the   percentage        that     each      insurer      was

required      to    pay   of    a   settlement    already       agreed      to   by     the

insurers on behalf of Hammonds. Applying two different tests for

nominal party status articulated by other circuits, the district

court held that it was not possible for Hartford to establish a

cause    of     action     against    Hammonds,        and     that     there    was     no

reasonable      basis     for   predicting      that    Hammonds       could     be    held

liable in any way. It then dismissed the South Carolina suit

under the first-to-file rule. This appeal followed.

                                          II.

      We review a district court’s ruling on matters relating to

the propriety of removal de novo. Dixon v. Coburg Dairy, Inc.,

369 F.3d 811, 815 (4th Cir. 2004). The burden of demonstrating

jurisdiction and therefore the propriety of removal rests with

the removing party. Id.

second brief from a party styled as a defendant. Hammonds’s
original motion was thus rightfully denied, and we deny as well
the motion to reconsider.

                                           6
A.
28 U.S.C. § 1441(a) provides that a “civil action brought

in a State court of which the district courts of the United

States       have    original      jurisdiction,            may   be     removed     by     the

defendant or the defendants.” To remove to federal court, the

defendant or defendants must file “a notice of removal . . .

containing a short and plain statement of grounds for removal.”

Id. § 1446(a). The Supreme Court has construed these statutes to

require      all    defendants      in    a    case    to    join      in    or   consent    to

removal, creating the so-called “rule of unanimity.” See Mayo v.

Bd. of Educ. of Prince George's Cnty., 713 F.3d 735, 741 (4th

Cir. 2013) (citing Lapides v. Bd. of Regents of Univ. Sys. of

Ga.,   535 U.S. 613,    620    (2002)).      The    rule      of    unanimity      is

consistent with our obligation “to construe removal jurisdiction

strictly        because      of     the       significant         federalism        concerns

implicated.” Maryland Stadium Auth. v. Ellerbe Becket Inc., 407
F.3d 255,       260    (4th    Cir.       2005)    (internal         quotation        marks

omitted); see also Shamrock Oil & Gas Corp. v. Sheets, 313 U.S.
100,   109      (1941).     The    rule    of       unanimity     helps      to   effectuate

Congress’s intent in limiting removal to prevent it from being

used too broadly or casually.

       The     federal      courts       have,      however,      long       recognized      an

exception to the rule of unanimity, which states that a nominal

party need not consent to removal. See Charles Alan Wright et

                                                7
al.,    14C     Fed.     Prac.    &    Proc.     Juris.          §    3730     (4th      ed.    2009)

(collecting cases). This “nominal party exception” ensures that

only those parties with a palpable interest in the outcome of a

case, and not those without any real stake, determine whether a

federal court can hear a case. See Tri-Cities Newspapers, Inc.

v. Tri-Cities Printing Pressmen & Assistants' Local 349, Int'l

Printing Pressmen & Assistants' Union of N. Am., 427 F.2d 325,

327 (5th Cir. 1970) (“[N]ominal or formal parties, being neither

necessary nor indispensable, are not required to join in the

petition for removal”). This exception helps to prevent a party

from    overriding        congressionally           prescribed              bases    for    removal

through strategic pleading.

       This court has never defined a nominal party for purposes

of     the     nominal    party        exception       to        the      rule      of   unanimity

necessary       for    removal.        Courts       outside          of     this    circuit      have

devised      various      tests       to   define      a    nominal          party.      Some    have

required that a defendant be indispensable in order to avoid the

nominal party exception. See Ryan v. State Bd. of Elections of

Ill., 661 F.2d 1130, 1134 (7th Cir. 1981). Others have required

only that a defendant be indispensable or necessary. See Farias

v.     Bexar     Cnty.    Bd.     of       Trustees        for       Mental        Health      Mental

Retardation       Servs.,    925 F.2d 866,       871       (5th    Cir.    1991);      Tri-

Cities Newspapers, 427 F.2d at 327. Both formulations appear to

ask ”whether in the absence of the [defendant], the Court can

                                                8
enter     a     final      judgment       consistent       with     equity    and     good

conscience which would not be in any way unfair or inequitable

to     plaintiff.”      Tri-Cities          Newspapers,     427 F.2d 325   at    327

(internal quotation marks omitted). Meanwhile, another line of

case law provides that “[a] defendant is nominal if there is no

reasonable basis for predicting that it will be held liable.”

Shaw v. Dow Brands, Inc., 994 F.2d 364, 369 (7th Cir. 1993),

holding modified by Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d
536    (7th    Cir.     2006);      see     also   Thorn   v.     Amalgamated    Transit

Union, 305 F.3d 826, 833 (8th Cir. 2002) (describing nominal

defendants as “those against whom no real relief is sought”)

(internal quotation marks omitted); Farias v. Bexar Cnty, 925
F.2d at 871 (“[T]he removing party must show . . . that there is

no possibility that the plaintiff would be able to establish a

cause of action against the non-removing defendants in state

court”) (internal quotation marks omitted).

       All     these    tests    --    in    discussing     indispensable        parties,

necessary parties, or what removing parties must show about non-

consenting parties -- may provide useful insights but they have

strayed       from   the    fundamental       inquiry.     They     over-massage       what

ought to be a straightforward examination of the meaning of the

word    “nominal”       and   the     reasons      for   having    the    nominal     party

exception. Nominal means simply a party having no immediately

apparent stake in the litigation either prior or subsequent to

                                               9
the act of removal. In other words, the key inquiry is whether

the suit can be resolved without affecting the non-consenting

nominal defendant in any                reasonably foreseeable way.

       There are dangers to incorrectly calibrating the scope of

the    nominal       party    exception            in    either    direction.      If     courts

broaden the exception so as to disregard too many non-consenting

defendants, there is a possibility not only that the interests

of non-consenting parties may be overlooked but that the federal

courts will confer a basis for removal that the Supreme Court

has declared should not exist. See Lapides v. Bd. of Regents,
535 U.S.    at    620   (noting         that     generally,        all    defendants        must

consent to removal to federal court). If on the other hand, the

nominal party exception is read too narrowly to require consent

from    defendants         with       no     real       or    tangible      interest    in     the

litigation’s         outcome,         then    as    noted,      the   statutory        right     of

removal would be impermissibly restricted.

       All these different tests aside, the word nominal should be

taken    to    mean    what       a    good      dictionary       says      it   should      mean:

“trifling” or “[e]xisting in name only.” Black’s Law Dictionary

1148(9th ed. 2009); see also id. at 1232 (defining a “nominal

party”    as    “a    party     who        has   some        immaterial     interest      in    the

subject matter of a lawsuit and who will not be affected by any

judgment”). Established precedent outside of the removal context

has defined a nominal party in similar terms. See, e.g., Alfred

                                                   10
L. Snapp & Son, Inc. v. Puerto Rico, ex rel., Barez, 458 U.S.
592, 600 (1982) (describing a nominal party as one “without a

real    interest     of     its    own”     for     purposes     of    parens       patriae

standing); Commodity Futures Trading Comm'n v. Kimberlynn Creek

Ranch, Inc., 276 F.3d 187, 191 (4th Cir. 2002) (finding that in

the context of the Securities Exchange Act of 1934, a nominal

defendant is a party that “has no ownership interest in the

property    which      is     the     subject        of    litigation”)         (internal

quotation marks omitted).

       We see no reason why this understanding should not apply in

the    present     context.       Determining       nominal     party    status       is   a

practical    inquiry,         focused        on     the    particular         facts     and

circumstances of a case, which district courts can be relied

upon to apply with the same sound judgment demonstrated in this

action. See      Shaughnessy        v.    Pedreiro,       349 U.S. 48,   54     (1955)

(noting     that     party         status     is     determined        by     “practical

considerations”).         Any      venture        into    hypotheticals        in     which

nominal party status may or may not obtain would only complicate

and frustrate a trial court’s straightforward inquiry: whether

the non-removing party has an interest in the outcome of the

case.

                                            B.

       Hartford,     one      of     Hammonds’s          insurers,      contends      that

Hammonds is not a nominal defendant. It argues that Hammonds has

                                            11
an interest in the contribution action because the allocation

between insurers could affect Hammonds’s future coverage limits.

Furthermore,       Hartford       claims        that    Hammonds          asserted       that

interest,     foreclosing     the       possibility         that    it    is    a   nominal

party. Finally, Hartford states that it has an interest of its

own   in    binding    Hammonds         in     this    judgment      to     prevent       any

“whipsaw” effect down the road. 3

      We find no reason to overturn the district court on this

issue.     Hammonds   does    not       possess    a   sufficient         stake     in   this

proceeding to rise above the status of a nominal party. As a

result,     its   consent    is   not        needed    to   remove       this   action     to

federal court.

      Hammonds’s interest would of course be more than nominal if

Hartford     could    provide       a    reasonable         basis    to    believe       that

Hammonds would be affected by the outcome of the case. See Shaw,
994 F.2d at 369. But Hartford cannot make any such showing. It

seeks no monetary judgment against Hammonds, nor does it seek

      3
       Hartford also argues that Hammonds is a necessary party
for purposes of the South Carolina Uniform Declaratory Judgments
Act.   Federal  courts  sitting   in  diversity   apply  federal
procedural law and state substantive law. See Gasperini v. Ctr.
for Humanities, Inc., 518 U.S. 415, 427 (1996). We treat a state
court declaratory action that is removed as invoking the Federal
Declaratory Judgment Act, 28 U.S.C. § 2201. See Jones v. Sears
Roebuck & Co., 301 F. App'x 276, 281 n.12 (4th Cir. 2008).
Consequently, South Carolina law does not govern the nominal
party determination.

                                              12
any non-declaratory injunctive relief. All of the claims against

Hammonds     that     underlie     this        action   have       been     settled.

Furthermore,    no    party     seeks    any    monetary     or    non-declaratory

injunctive relief from Hammonds in the North Carolina Action. As

a result, there is absolutely no reason to believe that Hammonds

will be affected by the eventual judgment here.

      If Hammonds’s stake were more than nominal, its absence

from the proceeding would render a final judgment unfair to one

or more of the parties. See Tri-Cities Newspapers, 427 F.2d at

327. Here, that is clearly not the case. The underlying Concord

West Action has been settled and all other claims regarding the

Concord West Project have been dismissed. The present suit is a

pure contribution action; Hartford asks only for a declaration

of   the   respective    shares    of    the    other   insurers     of   the   one-

million-dollar        Concord     West        Action    settlement        and   for

reimbursement    of     any   potential       overpayment.    It    seeks   nothing

from Hammonds. Were Hammonds not included in this action, it

would have no effect on Hartford’s ability to be made whole by

the other insurers. Hammonds’s absence would not prevent the

court from “be[ing] able to enter a final judgment in favor of

the plaintiff . . . without otherwise materially circumscribing

the relief due.” Blue Mako, Inc. v. Minidis, 472 F. Supp. 2d
690, 696 (M.D.N.C. 2007). Hammonds essentially has no dog in

this fight.

                                         13
      Hartford      argues      that    were     Hammonds       not   included      as    a

defendant,       Hartford      might    indeed      be   deprived     of    due     relief

because     of    what    it    calls    a     “whipsaw”       effect.      Under     this

scenario, Hartford would first need to be found liable for the

entire one million dollars at issue in this suit. Then Hammonds,

were it not included as a defendant and therefore not bound by

the judgment, would have to allege in some other suit that some

of   the   one-million-dollar           settlement       was    allocable     to    other

insurers in other policy periods. Consequently, Hammonds could

contend that it would not have reached the limits of its policy

with Hartford. If Hammonds succeeded in this argument (doubtless

years down the road), it could then attempt to claim additional

money from Hartford within its policy limit, and -- if and only

if the one-million-dollar settlement had exhausted the limits of

the policy -- force Hartford to pay beyond the limits of the

policy.

      To   lay    out    this    scenario      is   to   make    apparent     just       how

speculative it is. Hartford has provided no information in the

record, such as relevant policy limits or settlement amounts in

other cases, to suggest that this parade of events has any real

possibility       of     transpiring.        District       courts,        tasked    with

resolving    quickly      and    cost-effectively         the     concrete     disputes

                                          14
before them, should not be forced to push the far edges of

conjecture as they deal with the threshold question of removal. 4

                                      C.

       The nominal party exception helps to preserve the adversity

that is central to our system of justice. See Flast v. Cohen,

392 U.S. 83, 96-97 (1968); Shenandoah Valley Network v. Capka,

669 F.3d 194, 201-02 (4th Cir. 2012). Normally, one party seeks

relief from another in a suit. Here, however, plaintiff Hartford

is   asserting   no   interest   adverse      to   defendant   Hammonds,     let

alone requesting relief from it. This case is particularly odd

because the plaintiff, Hartford, attempts to assert what is, by

any measure, defendant Hammonds’s highly speculative interest.

Although it is not at all unusual for insurers to represent the

interests of their insureds, it is unusual for them to assert

this   speculative    an   interest   after    the   duties    to   defend   and

indemnify have already been satisfied.

       If we found Hammonds’s consent a condition for removal, we

would encourage the inclusion of party defendants for purely

       4
        Hartford points to Schlumberger Industries, Inc. v.
National Surety Corp., 36 F.3d 1274, 1286-87 (4th Cir. 1994), to
support its whipsaw argument. Schlumberger did not deal with the
nominal party exception to the rule of unanimity required for
removal to federal court. Instead, it addressed the joinder of
insurers as necessary and indispensable parties under Federal
Rule of Civil Procedure 19. That is a different question from
what we have here, meaning that Schlumberger does not control.

                                      15
instrumental purposes. The resulting cases might contain none of

the   adversity     that       typically     extends         across    the    v.     Such   a

decision would allow plaintiffs to forum shop between state and

federal   court     in    a    manner      that   §   1441     was    not    intended       to

permit. A defendant with no palpable interest in the case could

defeat the rights of those with a real stake. It would exalt

form over substance instead of protecting congressional intent

regarding the removal process. See Kolibash v. Comm. on Legal

Ethics    of   W.   Va.       Bar,   872 F.2d 571,    576     (4th    Cir.     1989)

(cautioning against elevating form over substance in the removal

context). 5

      We emphasize that we make no categorical rules regarding

insureds in this case. There may well be instances in which the

interest of an insured would prevent removal by an insurer. What

we adopt is a simple, straightforward inquiry for determining

nominal    party    status       that      cuts    across      subject       matter.    The

outcome of that inquiry depends upon the facts. Here, absent a

      5
        Hartford relies heavily on Hammonds’s belated and
conclusory assertion of interest in a filing below to claim that
Hammonds is an interested party. First, it is worth noting that
Hammonds had numerous opportunities at every stage of this
proceeding to assert its interest more affirmatively and
directly, whether by moving to remand, joining in the briefing
below, or by appealing to this court. It did none of these.
Furthermore, if we allowed a conclusory statement of interest to
determine the nominal party question, we would open the door to
precisely the type of gamesmanship at the pleading stage that
the nominal party tests endeavor to prevent.

                                            16
demonstration of any palpable interest Hammonds possesses in the

outcome of the case, we find that Hammonds is a nominal party

and need not consent to the removal of this action to federal

court.

                              III.

    The judgment of the district court is affirmed.

                                                        AFFIRMED

                               17