Picciotto v. Continental Cas. Co.

• Decision Date: 07 January 2008
• Docket Number: No. 06-2685.,06-2685.
• Citation: 512 F.3d 9
• Parties: Stefano PICCIOTTO, Judith Picciotto, Melita Picciotto, Athena Picciotto, and Foreign Car Center, Inc., Plaintiffs, Appellants, v. CONTINENTAL CASUALTY COMPANY, Great Northern Insurance Company, Hartford Insurance Company and Twin City Fire Insurance Company, Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

512 F.3d 9

Stefano PICCIOTTO, Judith Picciotto, Melita Picciotto, Athena Picciotto, and Foreign Car Center, Inc., Plaintiffs, Appellants, v. CONTINENTAL CASUALTY COMPANY, Great Northern Insurance Company, Hartford Insurance Company and Twin City Fire Insurance Company, Defendants, Appellees.

No. 06-2685.

United States Court of Appeals, First Circuit.

Heard September 11, 2007.

Decided January 7, 2008.

George Richardson, with whom Stefano Picciotto, Judith Picciotto, Melita Picciotto, and Athena Picciotto, pro se, and James M. Shannon, were on brief, for appellants.

Scott D. Burke and Harvey Weiner, with whom Timothy O. Egan, Peabody & Arnold LLP, Morrison Mahoney LLP, Michael R. Byrne, and Melick, Porter & Shea LLP, were on brief, for appellees.

Before LIPEZ, Circuit Judge, SELYA, Senior Circuit Judge, and HOWARD, Circuit Judge.

LIPEZ, Circuit Judge.

This case requires us to consider the interrelationship of joinder and supplemental jurisdiction in a diversity case. The Picciotto family and their company, Foreign Car Center, Inc., ("the Picciottos"), appeal the dismissal of their complaint for failure to join an indispensable party. The district court found that Dana Casher, a citizen of Massachusetts, is a necessary and indispensable party in the Picciottos' suit against Casher's malpractice insurers and others for civil conspiracy. Because the Picciottos are also Massachusetts citizens, the district court dismissed the complaint, concluding that joinder of Casher would destroy its diversity jurisdiction.

On appeal, the Picciottos challenge the district court's determination that Casher is both necessary and indispensable. Alternatively, they argue that 28 U.S.C. § 1367 grants supplemental jurisdiction to the district court, allowing Casher to be joined as a defendant under Federal Rule of Civil Procedure 19 without destroying diversity, provided that the plaintiffs do not assert any claims against her. Finding no abuse of discretion in the district court's determination that Casher is a necessary and indispensable party, and rejecting the Picciottos' assertion that the supplemental jurisdiction statute permits joinder of nondiverse indispensable parties, we affirm the dismissal.

I.

This appeal is the latest episode in a long series of cases involving the Picciotto family, stemming from a toxic tort action brought by the Picciottos against Salem Suede, Inc. in 1983.¹ Although the Picciottos prevailed in a jury trial against Salem Suede in 1993, winning a $1.8 million judgment, Salem Suede subsequently filed for bankruptcy. In the bankruptcy proceedings and settlement negotiations with Salem Suede's insurer, Travelers, the Picciottos hired Dana Casher to represent them.

The Picciottos allege that, without their consent, Casher also agreed to represent Juan Nunez, a former Foreign Car Center employee with claims against Salem Suede, in the negotiations with Travelers. The Picciottos also criticize Casher's representation in the settlement talks with Travelers. They allege that, after allowing the negotiations to run late into the night, Casher refused to allow them to leave the conference to consider the settlement agreement overnight before signing. They further contend that she violated the Massachusetts Rules of Professional Conduct by failing to specify in the settlement agreement itself the allocation among the Picciottos, Nunez, and Casher of the $9 million settlement Travelers had offered. They claim that Casher had agreed to be paid $1 million from the settlement money, with the understanding that she would use part of this money to pay the other attorneys who had previously represented the Picciottos in their toxic tort case against Salem Suede.² However, when the Picciottos' former attorneys refused to sign releases discharging Travelers from additional liability for attorneys' fees, Travelers refused to turn over the settlement funds.

The Picciottos claim that when Casher realized her error in failing to obtain releases from the other attorneys, she and her firm notified Continental and Great Northern, her firm's malpractice insurers,³ of potential malpractice claims. The Picciottos allege that "Continental and Great Northern took charge of the claim and, from that point on, directed the conduct of Casher." They allege that Continental and Great Northern had also reinsured the Travelers policy issued to Salem Suede. They contend that these insurance companies joined forces with Twin City and Hartford,⁴ two other reinsurers of the Travelers policy, and the Picciottos' former attorneys⁵ to form "The Picciotto Defense Group." They further allege that Continental and Great Northern, working in concert with Twin City and Hartford, directed Casher to coerce the Picciottos into agreeing to amend the settlement agreement with Travelers. They assert that this amendment allowed Travelers to escape its contractual obligation to pay out the settlement funds and instead to file an interpleader action, depositing the funds in a court-controlled escrow account. The Picciottos further claim that Casher, acting under the direction of Continental and Great Northern, prevented the Picciottos from sending a timely demand letter to Travelers, as required by Massachusetts General Laws Chapter 93A,⁶ and failed to file the appropriate crossclaims and counterclaims for the benefit of the Picciottos in the interpleader action.

In the interpleader action, the Picciottos' former attorneys filed claims for unpaid fees and the Picciottos counterclaimed for malpractice. The Picciottos lost. The litigation continued as the Picciottos next sued Casher for malpractice in state court. In another suit, they also asserted a variety of claims against Nunez, Casher, and another of their former attorneys, including breach of obligation under an attorney-client fee agreement, negligence, civil conspiracy, interference with contract, fraud, and breach of fiduciary duty. Casher, in turn, has sued the Picciottos for unpaid fees. All of the state court cases involving the Picciottos have been consolidated into a single case with a state court judge specially assigned to preside over them.

In the case at bar, the Picciottos brought suit against Continental, Great Northern, Hartford, and Twin City, predicated on diversity jurisdiction under 28 U.S.C. § 1332. They claim that the defendant insurance companies engaged in a civil conspiracy to interfere tortiously with the contractual relations between the Picciottos, Casher, and Casher's law firm. They also assert claims for negligence, fraud, and violation of Chapter 93A against each of the defendants.

The defendants contend that the Picciottos have brought this suit largely to obtain discovery that they had been denied in the state court actions and to "pressure their state court opponents" and their opponents' insurers.⁷ The defendants note that the claims asserted against the defendant insurers in this federal case are nearly identical to the claims asserted against Casher in the state case, and that Casher's conduct is central to this action. The defendants moved for dismissal on the ground that Casher is both a necessary and an indispensable party under Federal Rule of Civil Procedure 19 ("Rule 19") and that her joinder is not feasible because it would destroy the district court's diversity jurisdiction. The court granted the motion to dismiss and this appeal ensued.

II.

A. Standard of Review

In this circuit, we review a district court's determination that a party is "indispensable" under Rule 19(b) for abuse of discretion. B. Fernandez & Hnos., Inc. v. Kellogg USA, Inc., 440 F.3d 541, 547-548 (1st Cir.2006); Travelers Indem. Co. v. Dingwell, 884 F.2d 629, 635 (1st Cir.1989). This deference is warranted because "Rule 19(b) determinations . . . are anything but pure legal conclusions." Travelers, 884 F.2d at 635. "Instead, they involve the balancing of competing interests and must be steeped in `pragmatic considerations.'" Id.

We have not previously determined the correct standard to apply in reviewing a district court's determination that a party is "necessary" under Rule 19(a). United States v. San Juan Bay Marina, 239 F.3d 400, 403 (1st Cir.2001) (citing Tell v. Trustees of Dartmouth Coll., 145 F.3d 417, 418-419 (1st Cir.1998) (noting "some difference among the circuits" regarding the appropriate standard of review)). Like Rule 19(b), Rule 19(a) requires the trial court to make pragmatic judgments⁸ and to "decide whether considerations of efficiency and fairness, growing out of the particular circumstances of the case, require that a particular person be joined as a party." Pujol v. Shearson/American Express, Inc., 877 F.2d 132, 134 (1st Cir.1989). Such pragmatic judgments generally warrant deference to the trial court because they "turn[ ] on specific facts, will not recur in identical form and the district judge is closer to the facts . . . and has a comparative advantage over a reviewing court." Tell, 145 F.3d at 418 n. 1. The Tell panel indicated that "[i]f it mattered" in that case, it "would be inclined to apply an abuse of discretion standard to such application-of-law decisions under Rule 19(a)." Id. at 418-19. We share that inclination and now explicitly hold that the abuse of discretion standard applies in both the Rule 19(a) and Rule 19(b) contexts.

Indeed, all of the circuits that have examined the question have applied an abuse of discretion standard to Rule 19(a) determinations. Nat'l Union Fire Ins. Co. v. Rite Aid, Inc., 210 F.3d 246, 250 n. 7 (4th Cir.2000) (collecting cases and holding that abuse of discretion standard applies to both Rule 19(a) and 19(b) determinations); see Keweenaw Bay Indian Cmty. v. Michigan, 11 F.3d 1341, 1346 (6th Cir.1993) (holding that Rule 19(a) determinations are subject to an abuse of discretion review, while Rule 19(b) determinations are to be reviewed de novo); see also Am. Greyhound Racing, Inc. v. Hull, 305 F.3d 1015,...