Zurich Ins. Co. v. Logitrans, Inc.

• Decision Date: 29 July 2002
• Docket Number: No. 01-1018.,01-1018.
• Citation: 297 F.3d 528
• Parties: ZURICH INSURANCE COMPANY, a Swiss Corporation, a subrogee of Lear Corporation, a Delaware Corporation, Plaintiff-Appellant, American Guarantee & Liability Insurance Company, Movant-Appellant, v. LOGITRANS, INCORPORATED, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

297 F.3d 528

ZURICH INSURANCE COMPANY, a Swiss Corporation, a subrogee of Lear Corporation, a Delaware Corporation, Plaintiff-Appellant, American Guarantee & Liability Insurance Company, Movant-Appellant, v. LOGITRANS, INCORPORATED, et al., Defendants-Appellees.

No. 01-1018.

United States Court of Appeals, Sixth Circuit.

Argued April 30, 2002.

Decided and Filed July 29, 2002.

Paul D. Galea (briefed), Foster, Meadows & Ballard, Detroit, MI, Stephen J. Schlegel, Edward M. Kay (briefed), Ann C. Chalstrom (argued), Clausen, Miller, Gorman, Caffrey & Witous, Chicago, IL, for Plaintiffs-Appellants.

Michael J. Black (argued and briefed), Neil K. Disney (briefed), Buesser, Black, Graham & Buettner, Bloomfield Hills, MI, Donald R. Dillon, Jr. (argued and briefed), Moffett & Dillon, Birmingham, MI, for Defendants-Appellees.

Before SUHRHEINRICH and GILMAN, Circuit Judges; HOOD, District Judge.^*

HOOD, D.J., delivered the opinion of the court, in which SUHRHEINRICH, J., joined. GILMAN, J. (pp. 533-35), delivered a separate concurring opinion.

OPINION

HOOD, District Judge.

In this negligence action, Plaintiff Zurich Insurance Company ("Zurich Switzerland") and Movant American Guaranty & Liability Insurance Company ("American Guaranty") appeal the district court's orders denying Zurich Switzerland's motion to substitute American Guarantee as the real party in interest, and denying Zurich Switzerland's and American Guarantee's emergency motion for rehearing and reconsideration, and subsequent dismissal of the case. Whereas the district court did not abuse its discretion in denying these motions, we AFFIRM the district court's decision.

FACTS

This lawsuit stems from a warehouse fire that occurred on August 27, 1997. Defendant American Commodities, Inc. ("ACI") leased the warehouse located at 2945 Davidson Road, Flint, Michigan and subleased a portion of the warehouse to Defendant Logitrans, Inc. ("Logitrans"). Logitrans subsequently provided services for Lear Corporation ("Lear") in connection with Lear's manufacture of automobile seats. The fire destroyed significant property owned by Lear and Lear Seating (Thailand) Corporation, Ltd. ("Lear Thailand"). The allegations against the defendants are based on negligence and failure to exercise due care in keeping the property safe.

Lear and Lear Thailand were insured by American Guarantee who paid Lear's claims for damages.¹ Consequently, American Guarantee became Lear's subrogee regarding any claims Lear had against the defendants arising from the fire. In spite of its legal entitlement, American Guarantee was not named a party to the initial complaint filed on November 6, 1998. Instead, Zurich Switzerland brought the action as Lear's purported subrogee, notwithstanding that Zurich Switzerland never issued an insurance policy nor paid out any money to Lear. Twenty days before trial, Defendant Logitrans filed a motion in limine, in which it first asserted that Zurich Switzerland was not Lear's true subrogee, and argued that Zurich Switzerland should be barred from offering evidence at trial and barred from addressing the jury.

Zurich Switzerland did not dispute that it was not the proper plaintiff, and responded by filing a motion to substitute American Guarantee as the real party in interest pursuant to Fed.R.Civ.P. 17(a). Subsequently, Defendant ACI moved to dismiss the action pursuant to Fed. R.Civ.P. 12(b)(6), and Defendant Logitrans joined in that motion. The district court denied the motion to substitute on the grounds that Zurich Switzerland failed to show that the prosecution of the case in Zurich Switzerland's name as opposed to American Guarantee's name was an understandable mistake. Since Zurich Switzerland was not a proper plaintiff, the district court dismissed its claims pursuant to Rule 12(b)(6). Inasmuch as the statute of limitations had run on American Guarantee's claims, the denial of the motion to substitute prevented American Guarantee from pursuing its claims against the defendants.

In response, Zurich Switzerland filed an emergency motion for rehearing and reconsideration based on newly found factual information. The district court denied the motion on the grounds that the "new information" did not reveal a palpable defect in the court's ruling. Zurich Switzerland and American Guarantee ("Appellants") now appeal these decisions.

DISCUSSION

Appellants argue that the district court abused its discretion in denying Zurich Switzerland's motion to substitute the real party in interest under Fed.R.Civ.P. 17(a). Furthermore, they contend that the defendants waived their right to bring a real party in interest objection inasmuch as the objection was filed in the form of a motion in limine just twenty days before trial. Although this case has been litigated under Rule 17(a), it is not a "true" real party in interest question, but instead is an Article III standing issue.

"In order for a federal court to exercise jurisdiction over a matter, the party seeking relief must have standing to sue. Standing has both constitutional and prudential dimensions. The constitutional requirements for standing emanate from Art. III, § 2, of the U.S. Constitution, which grants federal courts jurisdiction over `cases' and `controversies.'" Kardules v. City of Columbus, 95 F.3d 1335, 1346 (6th Cir.1996). To establish Article III standing, a plaintiff must, at a minimum, establish the following elements:

First, the plaintiff must have suffered an "injury in fact" — an invasion of a legally protected interest which is (a) concrete and particularized, and (b) "actual or imminent, not `conjectural' or `hypothetical.'" Second, there must be a causal connection between the injury and the conduct complained or — the injury has to be "fairly ... trace[able] to the challenged action of the defendant, and not... th[e] result [of] the independent action of some third party not before the court." Third, it must be "likely," as opposed to merely "speculative," that the injury will be redressed by a "favorable decision."

Id. (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-1, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992)). Article III standing is a jurisdictional requirement that cannot be waived, and such may be brought up at any time in the proceeding. Fed.R.Civ.P. 12(h)(3). Whereas Zurich American admittedly has not suffered injury in fact by the defendants, it had no standing to bring this action and no standing to make a motion to substitute the real party in interest. Accordingly, the district court's denial of Appellants' Rule 17(a) motion to substitute and the subsequent dismissal of the action must be affirmed.

The Federal Rules of Civil Procedure cannot expand the subject matter jurisdiction of federal courts beyond the limits of U.S. Constitution. 28 U.S.C. § 2072(b). Appellants rely upon the provision of Rule 17(a) which states that:

No action shall be dismissed on the grounds that it is not prosecuted in the name of the real party in interest until a reasonable time has been allowed after objection for ratification of commencement of the action by, or joinder or substitution of, the real party in interest; and such ratification, joinder, or substitution shall have the same effect as if the action had been commenced in the name of the real party in interest.

Fed.R.Civ.P. 17(a). However, this provision must be read with the limitation that a federal district court must, at a minimum arguably have subject matter jurisdiction over the original claims. Such an interpretation is supported by the advisory committee notes to Rule 17(a):

The provision that no action shall be dismissed on the ground that it is not prosecuted in the name of the real party in interest until a reasonable time has been allowed, after the objection has been raised, for ratification, substitution, etc., is added simply in the interests of justice. In its origin the rule concerning the real party in interest was permissive in purpose: it was designed to allow an assignee to sue in his own name. That having been accomplished, the modern function of the rule in its negative aspect is simply to protect the defendant against the a subsequent action by the party actually entitled to recover, and to insure generally that the judgment will have its proper effect as re judicata.

This provision keeps pace with the law as it is actually developing. Modern decisions are inclined to be lenient when an honest mistake has been made in choosing the party in whose name the action is to be filed — both in maritime and nonmaritime cases. See Levinson v. Deupree, 345 U.S. 648, 73 S.Ct. 914, 97 L.Ed.2d 1319 (1953); Link Aviation, Inc. v. Downs, 325 F.2d 613 (D.C.Cir. 1963). This provision should not be misunderstood or distorted. It is intended to prevent forfeiture when determination of the proper party to sue is difficult or when an understandable mistake has been made. It does not mean, for example, that following an airplane crash in which all aboard were killed, an action may be filed in the name of John Doe (a fictitious person), as personal representative of Richard Roe (another fictitious person), in the hope that at a later time the attorney filing the action may substitute the real name of the real personal representative of a real victim, and have the benefit of suspension of the limitation period. It does not even mean, when an action is filed by the personal representative of John Smith, of Buffalo, in the good faith belief that he was aboard the fight, that upon discovery that Smith is alive and well, having missed the fatal flight, the representative of James Brown, of San Francisco, an actual victim, can be substituted to take advantage of the suspension of the limitations period.

Fed.R.Civ.P. 17 advisory committee's notes (emphasis added).

The facts of this case are analogous to the last example illustrated by the advisory committee. An attorney made a mistake and filed the action in the name...