Sheppard v. Atlantic States Gas Co.

Citation167 F.2d 841
Decision Date19 April 1948
Docket NumberNo. 9515.,9515.
PartiesSHEPPARD v. ATLANTIC STATES GAS CO. OF PENNSYLVANIA, Inc. (PENNSYLVANIA R. CO., et al., Third-Party Defendants).
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

J. B. Martin, of Philadelphia, Pa., for appellant.

J. Peter Williams and Philip Price, both of Philadelphia, Pa. (Barnes, Dechert, Price, Smith & Clark, of Philadelphia, Pa., on the brief), for appellee Pennsylvania R. Co.

Richter, Lord & Farage, of Philadelphia, Pa., for amici curiae.

Norman H. Abrahamson and Albert M. Hankin, both of Philadelphia, Pa. (Meyer, Lasch, Hankin & Poul, of Philadelphia, Pa., on the brief), for appellee James A. Taylor.

Before GOODRICH, McLAUGHLIN, and KALODNER, Circuit Judges.

McLAUGHLIN, Circuit Judge.

John W. Sheppard the original plaintiff in this litigation, as a resident and citizen of Pennsylvania, sued Atlantic States Gas Company of Pennsylvania, a Delaware corporation, in the court below on a personal injury claim arising out of the collision of the automobile in which he was riding as a passenger and the automobile truck of the defendant in Pennsylvania on January 24, 1945.

Defendant answered denying liability. Its third separate defense stated that plaintiff's alleged injuries were caused by the negligent operation of the motor vehicle in which he was riding, which was being operated by the Pennsylvania Railroad Company through its employee, James A. Taylor. The fourth defense was that following said accident and in connection therewith, plaintiff, in consideration of $7500 gave the Pennsylvania Railroad a covenant not to sue. Atlantic States, as a third party plaintiff, then filed a complaint in the cause bringing in the railroad and Taylor as additional defendants. In that complaint it was reiterated that at the time of the accident the Taylor automobile was being operated by Taylor as an employee of the railroad and on the business of the latter. The third party defendants were charged with being solely to blame for the accident, or, in the alternative, jointly responsible with Atlantic and judgment for contribution was demanded.

Thereafter Taylor sought to dismiss the third party complaint as to him on the grounds of, (1) no diversity of citizenship between him and the plaintiff; and (2) improper service of process upon him. The railroad moved to vacate the order bringing it in as a third party defendant and to dismiss the third party complaint as against it on the ground that plaintiff in consideration of $7500 paid him by the railroad executed a covenant not to sue in its favor covering any damages to him arising out of the January 24, 1945 accident. The covenant, verified by an affidavit, was attached as an exhibit and said to be "a complete bar to any recovery by the plaintiff, or by the defendant in this action, from the Pennsylvania Railroad Company." Taylor later filed another motion to dismiss the third party complaint as to him. This time he set up no diversity as before and two new grounds, first, that the venue was improperly laid, and second, that the covenant not to sue enures to his benefit "because he was and still is, an employee of the Pennsylvania Railroad Company." A copy of the covenant was also attached to this motion of Taylor's and by its terms Sheppard included the railroad's "officers, servants, or employees" in his agreement not to sue. (Emphasis ours.) The railroad on May 20, 1946 presented additional reasons for granting its motion to dismiss. These were substantially that there was no diversity of citizenship between it and Sheppard, the original plaintiff.

The District Judge held correctly that the alternative allegation in the third party complaint that the third party defendants are solely liable to the plaintiff is surplusage.1 He further concluded that if, as Atlantic alleges, it and the railroad are joint tort feasors, plaintiff's covenant not to sue the railroad "would also bar recovery by him from Atlantic States Gas Company, and therefore the latter would have no basis for a demand for contribution from the Pennsylvania Railroad Company." He therefore dismissed the third party complaint as to the railroad. Holding that Taylor was entitled to the benefits of the covenant as an employee of the railroad he also dismissed the third party complaint against him. The original defendant, Atlantic States Gas Company, appeals from the order of dismissal and counsel for the original plaintiff, Sheppard, appear in this appeal as amici curiae.

Sheppard was not a party to the motions below to dismiss the third party complaint though he did file a brief in his role of amicus. At no time to date has he conceded the validity of the covenant not to sue. His complaint was the not unusual one in a tort action of a passenger in one automobile suing the owner and operator of the other involved in the particular collision. The fourth separate defense of the answer made the first reference in the litigation to the covenant2 and it was the motion of the railroad, followed by Taylor's second motion, that urged the covenant as dispositive of plaintiff's rights arising out of the accident. Plaintiff asserts that those motions disregard the intent of the covenant as evidenced by its plain language. Plaintiff further contends that under the facts of the accident the covenant is to be construed in the light of federal law and not under the law of Pennsylvania as it was by the district judge. He says that if he is wrong in this and if it should develop that the law of Pennsylvania governs then he will contend that the covenant was obtained by fraud and misrepresentation.

In any event at this stage of the proceedings while he has not as yet been required to admit or deny the covenant3 he does deny its validity as a release. And he is entitled to take that position. He had no control over the inception of the third party action and was not joined in the motion to dismiss it. If during the trial there should be evidence, as is pleaded, that at the time and place of the accident Sheppard and Taylor were employees of and on the business of the railroad, the question of whether the Federal Employer's Liability Act governs the construction of the covenant not to sue may become important. If under the then existing situation it should be held that federal law does not control, the problem of whether there was fraud and misrepresentation in obtaining the executed document could be a vital issue. As the matter now stands, depending to some extent on what the trial proofs show, Sheppard may well be foreclosed from recovering in his suit against Atlantic by the order of the district court. Thus his claim will have been affected adversely by a decision on what was in relation to him an ex parte motion, without opportunity afforded him of contraverting the contentions of the third party defendants.

Strictly speaking at this time even the assumption of the existence of the paper called the covenant not to sue is incorrect, for, though it is attached to the railroad's motion together with an affidavit from the railroad district claim agent saying that he witnessed Sheppard's signature to it, those papers are in a collateral matter to which plaintiff is not a party and in which there is no admission by him of the authenticity of the covenant. For us now to attempt to pass upon questions which may hereafter arise in the litigation, especially at the trial, would be a futile thing as it is impossible to foretell with any accuracy just what those questions will be. Generally it can be said that in all probability disputed issues of fact and of law will develop, particularly from the covenant feature of the suit. It follows that since the covenant has not been admitted by the plaintiff and since in addition it is an affirmative defense which must be proved, McFadden v. May, 325 Pa. 145, 153, 189 A. 483, the dismissal of the third party complaint because of the covenant is premature.

The railroad and Taylor also moved to dismiss the third party complaint on the ground that no diversity of citizenship existed between them and the plaintiff, Sheppard. The latter makes no claim against either the railroad or Taylor. They are brought into the litigation as third party defendants by the original defendant in its capacity as third party plaintiff, under Rule 14(a) of the Federal Rules of Civil Procedure.4 The basis of the third party claim is the assertion by the defendant of its alleged right of contribution against the third party defendants in accordance with the law of Pennsylvania5 which is controlling in this respect. Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487.

Rule 82 of the Federal Rules does provide that "These rules shall not be construed to extend * * * the jurisdiction of the district courts of the United States." However, in connection with this fundamental doctrine it is to be remembered that the type of third party suit under consideration is ancillary to the main action and presupposes that the latter has met the jurisdictional diversity requirements. Williams v. Keyes, 5 Cir., 125 F.2d 208, certiorari denied 316 U.S. 699, 62 S.Ct. 1297, 86 L.Ed. 1768, and see cases collected 1 Moore's Federal Practice 1947 Supplement 378. Therefore, at least within the present facts where the plaintiff seeks no recovery against the third party defendants, we think the inclusion of the third party claim is justified though it does not of itself meet the diversity test. We base this not on any theory of extension of jurisdiction but in order to effectively dispose of the entire related litigation in the suit which is already properly before the court and thus carry out the purpose of Rule 14. 1 Moore's Federal Practice 782. "Obviously a mere broadening of the content of a single federal action must not be confused with the extension of federal power". Lesnik v. Public Industrials Corporation, 2 Cir....

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