485 F.2d 78 (4th Cir. 1973), 73-1212, Virginia Elec. & Power Co. v. Westinghouse Elec. Corp.

Docket Nº:73-1212.
Citation:485 F.2d 78
Party Name:VIRGINIA ELECTRIC AND POWER COMPANY, who sues for the Use and Benefit of Insurance Company of North America, Appellee, v. WESTINGHOUSE ELECTRIC CORPORATION and Stone & Webster Engineering Corporation, Appellants.
Case Date:October 03, 1973
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit
 
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485 F.2d 78 (4th Cir. 1973)

VIRGINIA ELECTRIC AND POWER COMPANY, who sues for the Use and Benefit of Insurance Company of North America, Appellee,

v.

WESTINGHOUSE ELECTRIC CORPORATION and Stone & Webster Engineering Corporation, Appellants.

No. 73-1212.

United States Court of Appeals, Fourth Circuit.

October 3, 1973

Argued June 4, 1973

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James L. Sanderlin, Richmond, Va. (Robert E. Payne, McGuire, Woods & Battle, Richmond, Va., on brief) for appellant Westinghouse Electric Corp.

Charles W. Laughlin, Richmond, Va. (J. Edward Betts, Christian, Barton, Parker, Epps & Brent, Richmond, Va., on brief) for appellant Stone and Webster Engineering Corp.

Edward A. Marks, Jr., Richmond, Va. (Frank B. Miller, III, Albert M. Orgain, IV, and Sands, Anderson, Marks & Clarke, Richmond, Va., on brief) for appellee.

Before HAYNSWORTH, Chief Judge, and CRAVEN and WIDENER, Circuit Judges.

CRAVEN, Circuit Judge:

Virginia Electric and Power Company (VEPCO) brought this action on April 16, 1969, on its own behalf and on behalf of its insurer and partial subrogee, Insurance Company of North America (INA), to recover damages resulting from the failure of one of VEPCO's power generating stations. The defendants are Westinghouse Electric Corporation, builder of the station, and Stone and Webster Engineering Corporation, the engineers. Jurisdiction was founded on diversity of citizenship under 28 U.S.C. § 1332.

The defendants moved to dismiss the action urging that INA, by virtue of the subrogation, was the real party in interest under Fed.R.Civ.P. 17 and must prosecute the action as plaintiff. Since INA is a Pennsylvania corporation, its joinder as party plaintiff would destroy diversity jurisdiction and require dismissal because defendant Westinghouse is also a Pennsylvania corporation. Alternatively, the defendants urged that INA was an indispensable person who could not be made a party (because to do so would destroy diversity jurisdiction) and that under Fed.R.Civ.P. 19(b) the action should be dismissed. The district court denied the motion to dismiss and certified, under 28 U.S.C. § 1292(b), that a controlling question of law was involved as to which there existed a substantial ground for difference of opinion and that an immediate appeal would materially advance the litigation. We granted an interlocutory appeal to determine whether the district court properly concluded VEPCO could pursue this action for the entire loss and that the action could continue without joinder of INA. We think so, and affirm.

I.

On January 22, 1967, a failure occurred at VEPCO's Mount Storm Generating Station, resulting in alleged losses of approximately $2,200,000. There was in effect an insurance policy issued by INA securing VEPCO against the risk of additional operating costs due to physical damage or loss to facilities. The policy contained a $100,000 deductible clause. Pursuant to the policy, INA originally paid VEPCO $1,900,000.

VEPCO then brought this action on its own behalf for $200,000 (the $100,000 loss uninsured under the deductible provision of the insurance policy plus $100,000 alleged expediting expenses) and for $1,900,000 for its insurer, INA.

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VEPCO also instituted a separate action against INA for an alleged balance owing under the insurance policy of approximately $200,000. VEPCO and INA settled that action, and VEPCO received an additional $50,000 from INA, leaving VEPCO with an unreimbursed loss of $150,000. In consideration of the settlement, VEPCO and INA agreed that INA would furnish counsel and have exclusive control over the present action and that INA would prosecute VEPCO's claims for the remaining uninsured loss. 1 Additionally, VEPCO executed a subrogation agreement whereby INA was subrogated to the rights of VEPCO against Westinghouse and Stone and Webster. 2

The district court, construing the agreement of cooperation and the instrument of subrogation, found "that VEPCO has retained a pecuniary interest and that standing is retained by virtue of its intent to recover the uninsured loss." This finding is not contested on appeal. The district court then held that VEPCO as a real party in interest could proceed in the action to attempt to recover the full loss. The court concluded that INA was also a real party in interest and that the question of INA's joinder was to be determined under Rule 19. The district court found: (1) that nonjoinder would not prejudice the parties, (2) any danger of double claims against the defendants could be protected against by appropriate decrees; 3 (3) no other adequate forum existed for the resolution of the dispute in view of the interstate character of the dispute and the problems involved in obtaining personal jurisdiction in a state court. The court determined that in equity and good conscience the action should proceed among the parties before it without joinder of INA.

II.

About the best that can be said for Fed.R.Civ.P. 17 4 is that it conveys a certain amount of correct information about naming plaintiffs. C. Wright,

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Law of Federal Courts § 70 , at 293-94 (2d ed. 1970). Originally intended to incorporate the more permissive practice of equity to permit persons having an equitable or beneficial interest to sue in their own names, it is now thought by some commentators to serve only to confuse the already complex problems of determining whether diversity of citizenship exists. 6 C. Wright & A. Miller, Federal Practice & Procedure: Civil § 1541. Intended to expand the class of those who may sue to include persons having an equitable or beneficial interest, the rule is unfortunately susceptible to efforts to prevent prosecution of claims as illustrated by this appeal. Ingenious counsel are enabled to present yet another "decision point" resulting in extravagant expenditures of time and effort before ever reaching the merits. See J. Frank, American Law, The Case for Radical Reform 65 (1969).

"Rule 17(a) is a barnacle on the federal practice ship. It ought to be scraped away. . . . Rules 19, 17(b) and substantive rules as to stating a claim for relief are adequate without interjecting the meaningless, logically inconsistent commands of the real party in interest rule . . . ." Kennedy, Federal Rule 17(a); Will the Real Party in Interest Please Stand?, 51 Minn.L.Rev. 675, 724 (1967).

The meaning and object of the real party in interest principle embodied in Rule 17 is that the action must be brought by a person who possesses the right to enforce the claim and who has a significant interest in the litigation. 5 Whether a plaintiff is entitled to enforce the asserted right is determined according to the substantive law. In a diversity action such as this one, the governing substantive law is the law of the state. 6 While the question of in whose name...

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